One Gas (OGS) Q4 2025: Texas House Bill 4384 Drives 18-Cent EPS Delta, Reshaping Regulatory Earnings Profile
Texas regulatory reform is now a defining feature of One Gas’s earnings story, with House Bill 4384 expanding the gap between GAAP and regulatory results and prompting a shift to adjusted metrics. Operationally, disciplined capital deployment and system reliability were tested and proven during winter storm Fern, while customer growth and cost control remain central. Investors now face a structurally altered earnings baseline, with new disclosure and guidance practices reflecting persistent regulatory-accounting divergence.
Summary
- Regulatory Accounting Shift: Expansion of Texas capital deferrals creates a persistent, material gap between GAAP and regulatory earnings.
- Operational Execution: System reliability and customer growth are sustained through targeted capital investments and disciplined operations.
- Long-Term Baseline Reset: Adjusted EPS now forms the foundation for growth guidance and valuation, reframing investor focus.
Performance Analysis
One Gas delivered on its revised 2025 guidance, with full-year adjusted net income and EPS squarely matching the raised midyear targets. The company’s financial reporting now bifurcates between GAAP and adjusted results, driven by the impact of Texas House Bill 4384, which expanded the scope of capital expenditures eligible for deferred cost recovery and carrying charges. This regulatory change widened the annual delta between regulatory and GAAP accounting from a modest $2 million in 2024 to nearly $7 million in 2025, and is projected to reach approximately $12 million in 2026, translating to an 18-cent EPS impact or 4% of consolidated earnings.
Operationally, OGS continued disciplined capital execution, with $760 million in capex—$170 million of which directly supported customer growth. The company added 23,000 new residential customers, sustaining a growth flywheel that helps distribute costs and preserve affordability. O&M expense rose 5%, slightly above guidance, as management accelerated certain projects, demonstrating flexibility but also highlighting the challenge of managing cost inflation and timing.
- Regulatory Delta Expansion: The accounting gap driven by Texas legislation is now a recurring, material feature, not a one-off adjustment.
- Customer Bill Control: Residential bill CAGR remains under 2%, below inflation, reflecting success in cost containment and efficiency.
- Balance Sheet Strength: S&P and Moody’s affirmed investment grade ratings, with cash flow metrics well above downgrade thresholds.
System reliability was tested by winter storm Fern, with no supply disruptions and over 80% of gas shielded from price spikes—demonstrating the value of post-Uri investments in storage, supply diversification, and infrastructure reinforcement.
Executive Commentary
"On the peak day of the storm, we delivered over 3 billion cubic feet of gas to our customers with no supply disruptions. This performance is a testament to the work completed after Uri, including the Austin system reinforcement which boosted our available winter peak capacity by approximately 25%."
Sid McAnally, Chief Executive Officer
"Texas House Bill 4384 has amplified the impact of these adjustments and with them meaningfully increased the persistent delta between regulatory accounting and GAAP accounting. For these reasons, we will report non-GAAP adjusted net income and EPS figures as key indicators of business performance going forward."
Chris Dignolfi, Chief Financial Officer
Strategic Positioning
1. Regulatory Model Evolution
The Texas legislative environment is now central to OGS’s earnings construct. House Bill 4384 expands the scope of capital that can accrue carrying costs and deferred recovery, creating a recurring, structural difference between regulatory and GAAP results. The company’s move to highlight adjusted metrics signals a new era in earnings communication and valuation for investors.
2. Capital Allocation and Project Execution
Disciplined capital investment remains a competitive lever, with $760 million deployed in 2025 and new projects like the $120 million pipeline for Western Farmers Electric Cooperative and an advanced manufacturing supply project outside El Paso. These investments support both system reliability and regional economic growth, while keeping customer costs in check.
3. Operational Reliability and Growth
Post-Uri infrastructure upgrades and storage expansion have materially improved system resilience, allowing OGS to withstand severe weather events and shield customers from price volatility. The company’s insourcing initiative for line locates has improved efficiency and reduced excavation damages by 14%, even with increased ticket volumes.
4. Customer Affordability and Growth Strategy
Adding 23,000 new residential customers annually enables OGS to spread fixed costs and support affordability, with cumulative bill growth under 2% CAGR. Strategic sourcing at the Waha Hub and expanded storage further mitigate gas cost volatility for end users.
5. Legislative and Regulatory Pipeline
Pending Kansas legislation could further align capital recovery with investment timing, potentially expanding the capital base eligible for accelerated recovery and raising the GSRS customer bill cap from $0.80 to $1.35 monthly. This remains in early legislative stages but signals ongoing regulatory tailwinds for capital recovery.
Key Considerations
OGS’s 2025 results and guidance reset the baseline for investors, with regulatory-driven adjusted earnings now the principal metric. The company’s operational and capital discipline is clear, but new risks and opportunities are emerging from its evolving regulatory context and project pipeline.
Key Considerations:
- Adjusted Metrics as Valuation Anchor: Persistent regulatory-GAAP delta means adjusted EPS will drive future guidance, payout ratios, and investor expectations.
- Regulatory Transparency as Competitive Advantage: OGS’s ability to offer clear, tariff-based pricing is a differentiator in winning new PowerGen and industrial projects.
- Cash Flow Timing Nuances: Regulatory accruals boost earnings before cash is realized, requiring careful analysis of payout sustainability and capital needs.
- O&M Trajectory: While accelerated project execution drove 2025 O&M above target, management reiterates a 3-4% CAGR, signaling discipline but requiring ongoing vigilance as inflation persists.
Risks
The expanding regulatory-GAAP gap introduces complexity in earnings analysis and could obscure underlying cash flow trends, especially as capital recovery timing varies across jurisdictions. Pending Kansas legislation, while potentially accretive, remains uncertain and subject to legislative process. Rising O&M and the need for ongoing infrastructure investment pose margin and rate pressure risks, while competition from midstream providers could challenge project win rates in growth markets.
Forward Outlook
For Q1 2026, OGS guided to:
- Adjusted net income of $306 million to $314 million
- Adjusted EPS of $4.83 to $4.95
For full-year 2026, management maintained guidance:
- Long-term adjusted net income growth of 7% to 9%
- Adjusted EPS growth of 5% to 7%, baseline reset to 2025 adjusted results
Management cited the Texas rate case outcome, timing of project execution, and conservative rate cut assumptions as key factors underpinning guidance. No further Fed rate cuts are assumed for 2026, and no full rate cases are planned until 2027 in Oklahoma.
- Regulatory clarity and project pipeline drive confidence in multi-year outlook
- Cash realization of regulatory accruals will lag earnings, requiring careful payout management
Takeaways
OGS enters 2026 with a structurally higher adjusted earnings baseline and a regulatory model that increasingly shapes its financial profile.
- Regulatory Accounting Now Central: House Bill 4384’s impact is persistent and material, requiring investors to focus on adjusted metrics for true earnings power.
- Operational and Capital Discipline Remain Intact: Project execution and customer growth support long-term rate base expansion and affordability.
- Monitor Cash Flow and Legislative Progress: Future periods will hinge on cash realization of regulatory earnings and the outcome of Kansas legislation.
Conclusion
One Gas has redefined its earnings narrative, with regulatory reforms in Texas driving a permanent wedge between GAAP and regulatory results. Operational performance remains strong, but the company’s valuation and payout profile now rest on adjusted metrics and the pace of cash recovery. Investors must recalibrate their models and focus on regulatory disclosures as the principal lens for earnings power and risk.
Industry Read-Through
OGS’s experience signals a broader trend for regulated utilities: legislative and regulatory reforms can fundamentally alter earnings profiles, disclosure practices, and investor focus. The shift to adjusted metrics and persistent regulatory-GAAP divergence may become more common as states seek to accelerate infrastructure investment and align capital recovery with utility needs. For peers, transparency in regulatory accounting and clear communication of cash flow dynamics will be increasingly critical. Investors across the utility sector should scrutinize the interplay of regulatory models, capital allocation, and cash realization in assessing sustainable earnings and dividend capacity.