Valuation is based on a normalized EV/EBITDA multiple of ~11x applied to 2026E EBITDA, reflecting the company's regulated, low-risk profile, visible earnings, and recent legislative/regulatory tailwinds. Share count (56.7M) per latest disclosures. Scores reflect strong recurring growth, margin dura…
One Gas (OGS) Q2 2026: Adjusted EPS Surges 52% as Texas Legislation and Large Load Projects Expand Growth Runway
One Gas delivered a standout quarter, propelled by regulatory tailwinds and accelerating demand from large load customers. Texas House Bill 4384 and rate increases drove earnings above expectations, while disciplined O&M and project execution set up a strong back half. Management now expects to achieve the upper half of its 2026 guidance range, citing expanding project pipelines and robust customer growth.
Summary
- Regulatory Tailwinds Strengthen: Texas and Kansas legislative changes are materially expanding earnings capacity.
- Large Load Demand Accelerates: Data centers, manufacturing, and generation projects are driving capital deployment and revenue visibility.
- Guidance Moves Up: Management signals confidence in upper-half earnings delivery, citing durable growth levers.
Business Overview
One Gas is a fully regulated natural gas utility serving residential, commercial, and industrial customers across Kansas, Oklahoma, and Texas. The company generates revenue primarily through regulated delivery rates, with major segments including Oklahoma Natural Gas, Texas Gas Service, and Kansas Gas Service. Its business model centers on system integrity investments and growth capital for new customer connections and large load projects, all within constructive regulatory frameworks.
Performance Analysis
One Gas delivered a significant earnings inflection, with adjusted net income and EPS up sharply year-over-year. The quarter benefited from approximately $16 million in new revenue from rate increases and outsized contributions from Texas House Bill 4384, which allows deferral of certain expenses and carrying costs on capital until included in rates. This legislative tailwind, expected to contribute $0.42 to full-year EPS, was amplified by disciplined O&M control and successful project execution.
Operationally, the company installed 11,000 new meters through July, with growth led by Oklahoma City and El Paso, and advanced three large load projects under contract, representing $15 million of incremental annual revenue. O&M expenses rose 6.6% year-over-year, but management expects sequential moderation in the second half as insourcing and efficiency initiatives take hold. Capacity release revenues from high storage balances added further upside, while interest expense declined due to favorable commercial paper rates.
- Texas Legislation Impact: House Bill 4384 provided a material earnings boost and will remain a lever for future capital returns.
- Project Pipeline Conversion: Conversion of late-stage opportunities to contracted status is accelerating revenue visibility.
- O&M Moderation in Focus: Insourcing and operational discipline are expected to drive O&M growth meaningfully lower in the back half.
With constructive rate outcomes in all three states and a growing funnel of large load projects, One Gas is positioned for durable, above-guidance growth.
Executive Commentary
"Our strong second quarter performance reflects solid execution across the business and the continued strength of our growth strategy, supported by constructive jurisdictions... We expect the factors driving our strong performance in the first half of this year to continue, and we now expect to achieve adjusted earnings within the upper half of our 2026 guidance range."
Sid McAnally, Chief Executive Officer
"These results were supported by approximately $16 million of new revenue from new rates and greater than anticipated benefits from Texas House Bill 4384... This expectation, along with new rates and ongoing cost discipline, gives us confidence in raising our financial expectations for the full year."
Chris Signolfi, Senior Vice President and Chief Financial Officer
Strategic Positioning
1. Regulatory Leverage and Legislative Tailwinds
Recent legislative changes in Texas (House Bill 4384) and Kansas (House Bill 2435) are expanding capital recovery and earnings potential. These frameworks allow One Gas to defer expenses, accelerate project returns, and broaden eligible investments, directly supporting higher earnings and capital deployment flexibility.
2. Large Load Customer Acceleration
The company is capitalizing on rising demand from gas-fired generation, data centers, and advanced manufacturing. Three high-volume projects are now contracted, with $15 million in annual revenue and $175 million in capital slated for service between late 2026 and 2028. An additional five late-stage projects and 17 early-stage opportunities provide a robust funnel for future growth.
3. Operational Excellence via Insourcing
Insourcing key functions such as line locating and watch-and-protect is driving cost discipline and safety improvements. This approach is expected to moderate O&M growth to the long-term 3% to 4% target, supporting margin stability and operational reliability.
4. Disciplined Capital Allocation and Dividend Policy
One Gas is prioritizing self-funding of capital investments, with a moderated dividend growth strategy (1% to 2% annually) to reduce payout ratio and enhance financial flexibility. The company’s ATM equity program provides opportunistic access to capital as needed, with payout ratio expected to continue declining.
Key Considerations
This quarter’s results underscore the company’s ability to translate regulatory and operational levers into sustainable earnings growth, while maintaining a balanced approach to customer affordability and shareholder returns.
Key Considerations:
- Regulatory Certainty: Constructive outcomes in all three states support ongoing capital investment and rate base growth.
- Project Execution Risk: Timely conversion and execution of large load projects remain critical for sustaining above-trend growth.
- O&M Management: Continued success in insourcing and cost control will be needed to offset inflation and external cost pressures.
- Dividend Flexibility: Lower payout ratio enhances ability to self-fund growth, but may limit near-term dividend upside versus peers.
Risks
Key risks include project execution delays, regulatory changes, and macroeconomic headwinds impacting customer demand or cost inflation. While legislative tailwinds are material, they are subject to future policy shifts. Large load project conversion timing and O&M discipline will be essential to maintain earnings momentum, especially as fuel and labor costs remain elevated.
Forward Outlook
For Q3 and Q4 2026, One Gas guided to:
- Adjusted net income in the upper half of $306 million to $314 million range
- Adjusted EPS in the upper half of $4.83 to $4.95 range
For full-year 2026, management expects:
- Adjusted net income of $310 million to $314 million
- Adjusted EPS of $4.89 to $4.95
Management highlighted:
- Continued benefit from new rates and Texas legislative changes
- Ongoing project pipeline conversion and disciplined cost management
Takeaways
One Gas is executing on multiple fronts, leveraging regulatory tailwinds and customer growth to outperform guidance.
- Regulatory and Legislative Leverage: Legislative changes in Texas and Kansas are providing outsized earnings and capital recovery benefits, setting a new baseline for growth.
- Project Pipeline Visibility: The conversion of large load opportunities to contracted projects is accelerating, with a robust funnel supporting multi-year growth.
- O&M and Dividend Discipline: Operational insourcing and a prudent dividend policy are supporting self-funded growth and margin stability.
Conclusion
One Gas enters the second half of 2026 with strong momentum, driven by regulatory wins, expanding project pipelines, and disciplined execution. With a clear growth runway and enhanced earnings visibility, the company is well positioned for durable value creation in a constructive regulatory environment.
Industry Read-Through
One Gas’s quarter illustrates the power of legislative and regulatory tailwinds for regulated utilities, especially in growth regions like Texas and Kansas. The ability to accelerate capital recovery and serve large load customers is becoming a key differentiator, particularly as data centers and advanced manufacturing drive new demand. Peers with exposure to these trends and constructive jurisdictions may see similar upside, while those in less favorable regions face tougher sledding. The insourcing trend for cost control and operational reliability is likely to gain traction across the sector as utilities seek to offset inflation and maintain margin discipline. Investors should focus on capital allocation flexibility, project conversion visibility, and regulatory agility as the primary levers for outperformance in the regulated utility space.