10-Q 1 ogs-20220331.htm 10-Q ogs-20220331
0001587732--12-312022Q1false19910.01250,000,000250,000,00054,089,81753,633,21054,089,81753,633,21012,22912,4180.620.58The indenture governing our Senior Notes includes an event of default upon the acceleration of other indebtedness of $100 million or more. Such events of default would entitle the trustee or the holders of 25 percent in aggregate principal amount of the outstanding Senior Notes to declare those senior notes immediately due and payable in full.The indenture governing our Senior Notes includes an event of default upon the acceleration of other indebtedness of $100 million or more. Such events of default would entitle the trustee or the holders of 25 percent in aggregate principal amount of the outstanding Senior Notes to declare those senior notes immediately due and payable in full.The indenture governing our Senior Notes includes an event of default upon the acceleration of other indebtedness of $100 million or more. Such events of default would entitle the trustee or the holders of 25 percent in aggregate principal amount of the outstanding Senior Notes to declare those senior notes immediately due and payable in full.The indenture governing our Senior Notes includes an event of default upon the acceleration of other indebtedness of $100 million or more. Such events of default would entitle the trustee or the holders of 25 percent in aggregate principal amount of the outstanding Senior Notes to declare those senior notes immediately due and payable in full.00015877322022-01-012022-03-3100015877322022-04-25xbrli:sharesiso4217:USD00015877322021-01-012021-03-31iso4217:USDxbrli:shares00015877322022-03-3100015877322021-12-3100015877322020-12-3100015877322021-03-310001587732us-gaap:CommonStockMember2021-12-310001587732us-gaap:AdditionalPaidInCapitalMember2021-12-310001587732us-gaap:CommonStockMember2022-01-012022-03-310001587732us-gaap:AdditionalPaidInCapitalMember2022-01-012022-03-310001587732us-gaap:CommonStockMember2022-03-310001587732us-gaap:AdditionalPaidInCapitalMember2022-03-310001587732us-gaap:CommonStockMember2020-12-310001587732us-gaap:AdditionalPaidInCapitalMember2020-12-310001587732us-gaap:CommonStockMember2021-01-012021-03-310001587732us-gaap:AdditionalPaidInCapitalMember2021-01-012021-03-310001587732us-gaap:CommonStockMember2021-03-310001587732us-gaap:AdditionalPaidInCapitalMember2021-03-310001587732us-gaap:RetainedEarningsMember2021-12-310001587732us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-12-310001587732us-gaap:RetainedEarningsMember2022-01-012022-03-310001587732us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-01-012022-03-310001587732us-gaap:RetainedEarningsMember2022-03-310001587732us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-03-310001587732us-gaap:RetainedEarningsMember2020-12-310001587732us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-12-310001587732us-gaap:RetainedEarningsMember2021-01-012021-03-310001587732us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-012021-03-310001587732us-gaap:RetainedEarningsMember2021-03-310001587732us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-03-31xbrli:pure0001587732ogs:NaturalgassalestocustomersMember2022-01-012022-03-310001587732ogs:NaturalgassalestocustomersMember2021-01-012021-03-310001587732ogs:TransportationrevenuesMember2022-01-012022-03-310001587732ogs:TransportationrevenuesMember2021-01-012021-03-310001587732ogs:MiscellaneousrevenuesMember2022-01-012022-03-310001587732ogs:MiscellaneousrevenuesMember2021-01-012021-03-310001587732ogs:OtherrevenuesnaturalgassalesrelatedMember2022-01-012022-03-310001587732ogs:OtherrevenuesnaturalgassalesrelatedMember2021-01-012021-03-310001587732ogs:OtherrevenuesMember2022-01-012022-03-310001587732ogs:OtherrevenuesMember2021-01-012021-03-310001587732ogs:WinterWeatherEventCostsMember2022-03-310001587732ogs:UnderrecoveredpurchasedgascostsMember2022-03-310001587732us-gaap:PensionCostsMember2022-03-310001587732us-gaap:LossOnReacquiredDebtMember2022-03-310001587732ogs:MGPCostsMemberMember2022-03-310001587732ogs:AdvaloremtaxMember2022-03-310001587732ogs:WeathernormalizationMember2022-03-310001587732ogs:CustomerCreditDeferralsMember2022-03-310001587732ogs:OtherregulatoryassetsMember2022-03-310001587732ogs:IncometaxratechangesMemberDomain2022-03-310001587732ogs:OverrecoveredpurchasedgascostsMember2022-03-310001587732ogs:WinterWeatherEventCostsMember2021-12-310001587732ogs:UnderrecoveredpurchasedgascostsMember2021-12-310001587732us-gaap:PensionCostsMember2021-12-310001587732us-gaap:LossOnReacquiredDebtMember2021-12-310001587732ogs:MGPCostsMemberMember2021-12-310001587732ogs:AdvaloremtaxMember2021-12-310001587732ogs:WeathernormalizationMember2021-12-310001587732ogs:CustomerCreditDeferralsMember2021-12-310001587732ogs:OtherregulatoryassetsMember2021-12-310001587732ogs:IncometaxratechangesMemberDomain2021-12-310001587732ogs:OverrecoveredpurchasedgascostsMember2021-12-3100015877322021-02-2800015877322022-01-012022-04-290001587732ogs:NorthTexasServiceAreaMember2022-03-310001587732ogs:NotesPayableAt085Due2023Member2022-03-310001587732ogs:OGSNotePayableAt110Due2024Member2022-03-310001587732ogs:OGSNotePayableWithFloatingRateDue2023Member2022-03-310001587732ogs:OGSNotePayableWithFloatingRateDue2023Member2022-01-012022-03-310001587732ogs:OGSNotePayableWithFloatingRateDue2023Member2021-09-212021-09-210001587732ogs:NotePayableDue2030Member2022-01-012022-03-310001587732ogs:NotesPayableAt085Due2023Member2022-01-012022-03-310001587732ogs:OGSNotePayableAt110Due2024Member2022-01-012022-03-310001587732us-gaap:SubsequentEventMember2022-04-012022-06-300001587732us-gaap:PensionPlansDefinedBenefitMember2022-01-012022-03-310001587732us-gaap:PensionPlansDefinedBenefitMember2021-01-012021-03-310001587732us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember2022-01-012022-03-310001587732us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember2021-01-012021-03-31utr:Bcf0001587732us-gaap:FairValueInputsLevel1Member2021-12-310001587732us-gaap:FairValueInputsLevel2Member2022-03-310001587732us-gaap:FairValueInputsLevel2Member2021-12-31

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2022.
OR
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from __________ to __________.

Commission file number  001-36108

ONE Gas, Inc.
(Exact name of registrant as specified in its charter)
Oklahoma46-3561936
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
  
15 East Fifth Street
Tulsa,OK74103
(Address of principal
executive offices)
(Zip Code)

Registrant’s telephone number, including area code   (918) 947-7000

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of exchange on which registered
Common Stock, par value $0.01 per shareOGSNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes        No  

On April 25, 2022, the Company had 54,089,905 shares of common stock outstanding.





























This page intentionally left blank.




































ONE Gas, Inc.
TABLE OF CONTENTS
Part I.
Financial InformationPage No.
Item 1.
Consolidated Financial Statements (Unaudited)
 
Consolidated Statements of Income - Three Months Ended March 31, 2022 and 2021
 
Consolidated Statements of Comprehensive Income - Three Months Ended March 31, 2022 and 2021
 
Consolidated Balance Sheets - March 31, 2022 and December 31, 2021
 
Consolidated Statements of Cash Flows - Three Months Ended March 31, 2022 and 2021
 
Consolidated Statements of Equity - Three Months Ended March 31, 2022 and 2021
 Notes to Consolidated Financial Statements
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Item 4.
Controls and Procedures
Part II.
Other Information
Item 1.
Legal Proceedings
Item 1A.
Risk Factors
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.
Defaults Upon Senior Securities
Item 4.
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
Signature
 

As used in this Quarterly Report, references to “we,” “our,” “us” or the “Company” refer to ONE Gas, Inc., an Oklahoma corporation, and its predecessors and subsidiaries, unless the context indicates otherwise.

The statements in this Quarterly Report that are not historical information, including statements concerning plans and objectives of management for future operations, economic performance or related assumptions, are forward-looking statements. Forward-looking statements may include words such as “will,” “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “should,” “goal,” “forecast,” “guidance,” “could,” “may,” “continue,” “might,” “potential,” “scheduled,” “likely” and other words and terms of similar meaning. Although we believe that our expectations regarding future events are based on reasonable assumptions, we can give no assurance that such expectations and assumptions will be achieved. Important factors that could cause actual results to differ materially from those in the forward-looking statements are described under Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, “Forward-Looking Statements,” and Part II, Item 1A, “Risk Factors” in this Quarterly Report and under Part I, Item IA, “Risk Factors,” in our Annual Report.

3


AVAILABLE INFORMATION

We make available, free of charge, on our website (www.onegas.com) our Annual Reports, Quarterly Reports, Current Reports on Form 8-K, amendments to those reports filed or furnished to the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act and reports of holdings of our securities filed by our officers and directors under Section 16 of the Exchange Act as soon as reasonably practicable after filing such material electronically or otherwise furnishing it to the SEC, which also makes these materials available on its website (www.sec.gov). Our Code of Business Conduct and Ethics, Corporate Governance Guidelines, Certificate of Incorporation, bylaws, the written charters of our Audit Committee, Executive Compensation Committee, Corporate Governance Committee and Executive Committee and our ESG Report are also available on our website, and copies of these documents are available upon request.

In addition to filings with the SEC and materials posted on our website, we also use social media platforms as channels of information distribution to reach public investors. Information contained on our website and posted on or disseminated through our social media accounts is not incorporated by reference into this report.

4


GLOSSARY - The abbreviations, acronyms and industry terminology used in this Quarterly Report are defined as follows:
AAOAccounting Authority Order
ADITAccumulated deferred income taxes
Annual ReportAnnual Report on Form 10-K for the year ended December 31, 2021
ASCAccounting Standards Codification
ASUAccounting Standards Update
BcfBillion cubic feet
CAAFederal Clean Air Act, as amended
CERCLAFederal Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended
CISACybersecurity, & Infrastructure Security Agency
Clean Water ActFederal Water Pollution Control Amendments of 1972, as amended
COSACost-of-Service Adjustment
COVID-19Coronavirus Disease 2019
EDITExcess accumulated deferred income taxes resulting from a change in enacted tax rates
EPAUnited States Environmental Protection Agency
EPSEarnings per share
ESGEnvironmental, social and governance
Exchange ActSecurities Exchange Act of 1934, as amended
FASBFinancial Accounting Standards Board
GAAPAccounting principles generally accepted in the United States of America
GRIPGas Reliability Infrastructure Program
GSRSGas System Reliability Surcharge
Heating Degree Day or HDD
A measure designed to reflect the demand for energy needed for heating based on the extent to which the daily average temperature falls below a reference temperature for which no heating is required, usually 65 degrees Fahrenheit
HCA(s)High consequence area(s)
KCCKansas Corporation Commission
KDHEKansas Department of Health and Environment
LDCLocal distribution company
LIBORLondon Interbank Offered Rate
MAOP(s)Maximum allowable operating pressure(s)
MGPManufactured gas plant
MMcfMillion cubic feet
Moody’sMoody’s Investors Service, Inc.
NPRMNotice of Proposed Rulemaking
NYSENew York Stock Exchange
OCCOklahoma Corporation Commission
ODFAOklahoma Development Finance Authority
ONE GasONE Gas, Inc.
ONE Gas 2021 Term Loan FacilityONE Gas’ $2.5 billion two-year unsecured term loan facility, dated February 22, 2021, which terminated on March 11, 2021
ONE Gas 364-day Credit AgreementONE Gas’ $250 million 364-day revolving credit agreement, dated April 7, 2020, which terminated on March 16, 2021
ONE Gas Credit AgreementONE Gas’ $1.0 billion second amended and restated revolving credit agreement dated March 16, 2021, which expires on March 16, 2026
PBRCPerformance-Based Rate Change
PHMSAUnited States Department of Transportation Pipeline and Hazardous Materials Safety Administration
Quarterly Report(s)Quarterly Report(s) on Form 10-Q
RNGRenewable natural gas
RRC
Railroad Commission of Texas
S&PStandard & Poor’s Ratings Services
SECSecurities and Exchange Commission
Securities ActSecurities Act of 1933, as amended
Senior Notes
ONE Gas’ registered notes consisting of $1.0 billion of 0.85 percent senior notes due March 2023, $400 million of floating-rate senior notes due March 2023, $700 million of 1.10 percent senior notes due March 2024, $300 million of 3.61 percent senior notes due February 2024, $300 million of 2.00 percent senior notes due May 2030, $600 million of 4.658 percent senior notes due February 2044 and $400 million of 4.50 percent notes due November 2048
SOFRSecured Overnight Financing Rate
TCEQTexas Commission on Environmental Quality
TPFATexas Public Finance Authority
TSATransportation Security Administration
WNAWeather normalization adjustment(s)
XBRLeXtensible Business Reporting Language
5


PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
ONE Gas, Inc.  
CONSOLIDATED STATEMENTS OF INCOME  
Three Months Ended
 March 31,
(Unaudited)
20222021
(Thousands of dollars, except per share amounts)
Total revenues$971,459 $625,293 
Cost of natural gas639,946 314,069 
Operating expenses
Operations and maintenance115,095 110,886 
Depreciation and amortization57,137 52,266 
General taxes18,524 17,727 
Total operating expenses190,756 180,879 
Operating income140,757 130,345 
Other expense, net(4,145)(405)
Interest expense, net(15,595)(15,440)
Income before income taxes121,017 114,500 
Income taxes(22,083)(18,925)
Net income$98,934 $95,575 
Earnings per share
Basic$1.83 $1.79 
Diluted$1.83 $1.79 
Average shares (thousands)
Basic53,922 53,372 
Diluted54,030 53,515 
Dividends declared per share of stock$0.62 $0.58 
See accompanying Notes to Consolidated Financial Statements.
6


ONE Gas, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 
 Three Months Ended
 March 31,
(Unaudited)
20222021
 
(Thousands of dollars)
Net income$98,934 $95,575 
Other comprehensive income, net of tax  
Change in pension and other postemployment benefit plan liability, net of tax of $(19) and $(91), respectively
69 300 
Total other comprehensive income, net of tax69 300 
Comprehensive income$99,003 $95,875 
See accompanying Notes to Consolidated Financial Statements.

7


ONE Gas, Inc.  
CONSOLIDATED BALANCE SHEETS  
 March 31,December 31,
(Unaudited)
20222021
Assets
(Thousands of dollars)
Property, plant and equipment  
Property, plant and equipment$7,365,981 $7,274,268 
Accumulated depreciation and amortization2,102,368 2,083,433 
Net property, plant and equipment5,263,613 5,190,835 
Current assets  
Cash and cash equivalents12,447 8,852 
Accounts receivable, net494,696 341,756 
Materials and supplies54,187 54,892 
Natural gas in storage78,945 179,646 
Regulatory assets1,600,034 1,611,676 
Other current assets34,161 27,742 
Total current assets2,274,470 2,224,564 
Goodwill and other assets  
Regulatory assets651,931 724,862 
Goodwill157,953 157,953 
Other assets119,667 103,906 
Total goodwill and other assets929,551 986,721 
Total assets$8,467,634 $8,402,120 
See accompanying Notes to Consolidated Financial Statements.
8


ONE Gas, Inc.  
CONSOLIDATED BALANCE SHEETS  
(Continued)
 March 31,December 31,
(Unaudited)
20222021
Equity and Liabilities
(Thousands of dollars)
Equity and long-term debt
Common stock, $0.01 par value:
authorized 250,000,000 shares; issued and outstanding 54,089,817 shares at March 31, 2022; issued and outstanding 53,633,210 shares at December 31, 2021
$541 $536 
Paid-in capital1,824,771 1,790,362 
Retained earnings630,536 565,161 
Accumulated other comprehensive loss(6,458)(6,527)
   Total equity2,449,390 2,349,532 
Long-term debt, excluding current maturities and net of issuance costs of $12,229 and $12,418, respectively
2,283,620 3,683,378 
Total equity and long-term debt4,733,010 6,032,910 
Current liabilities  
Current maturities of long-term debt1,400,011 11 
Short-term debt505,165 494,000 
Accounts payable209,756 258,554 
Accrued taxes other than income75,153 67,035 
Regulatory liabilities32,822 8,090 
Customer deposits61,105 62,454 
Other current liabilities84,754 90,349 
Total current liabilities2,368,766 980,493 
Deferred credits and other liabilities  
Deferred income taxes698,765 695,284 
Regulatory liabilities542,622 552,928 
Employee benefit obligations28,468 35,226 
Other deferred credits96,003 105,279 
Total deferred credits and other liabilities1,365,858 1,388,717 
Commitments and contingencies
Total liabilities and equity$8,467,634 $8,402,120 
See accompanying Notes to Consolidated Financial Statements.




















9



























This page intentionally left blank.
































10


ONE Gas, Inc.  
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
(Unaudited)
20222021
 
(Thousands of dollars)
Operating activities  
Net income$98,934 $95,575 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization57,137 52,266 
Deferred income taxes(6,849)18,567 
Share-based compensation expense2,695 2,587 
Provision for doubtful accounts1,338 3,754 
Changes in assets and liabilities:
Accounts receivable(154,278)9,640 
Materials and supplies705 1,619 
Natural gas in storage100,701 49,625 
Asset removal costs(9,554)(9,885)
Accounts payable(56,863)87,202 
Accrued taxes other than income8,118 2,059 
Customer deposits(1,349)(10,787)
Regulatory assets and liabilities - current36,374 20,466 
Regulatory assets and liabilities - noncurrent66,002 (1,946,526)
Other assets and liabilities - current(12,438)(20,698)
Other assets and liabilities - noncurrent(23,037)(14,729)
Cash provided by (used in) operating activities107,636 (1,659,265)
Investing activities  
Capital expenditures(113,307)(99,093)
Other investing expenditures(608)(2,351)
Other investing receipts549 241 
Cash used in investing activities(113,366)(101,203)
Financing activities  
Borrowings (repayments) on short-term debt, net11,165 28,775 
Issuance of debt, net of discounts 2,498,895 
Long-term debt financing costs (35,110)
Issuance of common stock34,468  
Dividends paid(33,285)(30,882)
Tax withholdings related to net share settlements of stock compensation(3,023)(4,292)
Cash provided by (used in) financing activities9,325 2,457,386 
Change in cash and cash equivalents3,595 696,918 
Cash and cash equivalents at beginning of period8,852 7,993 
Cash and cash equivalents at end of period$12,447 $704,911 
See accompanying Notes to Consolidated Financial Statements.

11


ONE Gas, Inc. 
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
Common Stock IssuedCommon StockPaid-in Capital
 (Shares)
(Thousands of dollars)
January 1, 202253,633,210 $536 $1,790,362 
Net income   
Other comprehensive income   
Common stock issued and other456,607 5 34,135 
Common stock dividends - $0.62 per share
  274 
March 31, 202254,089,817 $541 $1,824,771 
January 1, 202153,166,733 $532 $1,756,921 
Net income   
Other comprehensive income   
Common stock issued and other78,278  (1,705)
Common stock dividends - $0.58 per share
  260 
March 31, 202153,245,011 $532 $1,755,476 
See accompanying Notes to Consolidated Financial Statements.


12


ONE Gas, Inc. 
CONSOLIDATED STATEMENTS OF EQUITY
(Continued)
(Unaudited)
Retained EarningsAccumulated Other Comprehensive LossTotal Equity
 
(Thousands of dollars)
January 1, 2022$565,161 $(6,527)$2,349,532 
Net income98,934  98,934 
Other comprehensive income 69 69 
Common stock issued and other  34,140 
Common stock dividends - $0.62 per share
(33,559) (33,285)
March 31, 2022$630,536 $(6,458)$2,449,390 
January 1, 2021$483,635 $(7,777)$2,233,311 
Net income95,575  95,575 
Other comprehensive income 300 300 
Common stock issued and other  (1,705)
Common stock dividends - $0.58 per share
(31,142) (30,882)
March 31, 2021$548,068 $(7,477)$2,296,599 
See accompanying Notes to Consolidated Financial Statements.

13


ONE Gas, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Our accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC. These statements also have been prepared in accordance with GAAP and reflect all adjustments that, in our opinion, are necessary for a fair statement of the results for the interim periods presented. All such adjustments are of a normal recurring nature. The 2021 year-end consolidated balance sheet data was derived from audited consolidated financial statements but does not include all disclosures required by GAAP. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes in our Annual Report. Our significant accounting policies are described in Note 1 of our Notes to Consolidated Financial Statements in our Annual Report. Due to the seasonal nature of our business, the results of operations for the three months ended March 31, 2022, are not necessarily indicative of the results that may be expected for a 12-month period.

We provide natural gas distribution services to our approximately 2.3 million customers through our divisions in Oklahoma, Kansas and Texas through Oklahoma Natural Gas, Kansas Gas Service and Texas Gas Service, respectively. We primarily serve residential, commercial and transportation customers in all three states.

Use of Estimates - The preparation of our consolidated financial statements and related disclosures in accordance with GAAP requires us to make estimates and assumptions with respect to values or conditions that cannot be known with certainty that affect the reported amount of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements. These estimates and assumptions also affect the reported amounts of revenue and expense during the reporting period. Items that may be estimated include, but are not limited to, the economic useful life of assets, fair value of assets and liabilities, provisions for doubtful accounts receivable, unbilled revenues for natural gas delivered but for which meters have not been read, natural gas purchased but for which no invoice has been received, provision for income taxes, including any deferred income tax valuation allowances, the results of litigation and various other recorded or disclosed amounts.

We evaluate these estimates on an ongoing basis using historical experience and other methods we consider reasonable based on the particular circumstances. Nevertheless, actual results may differ significantly from the estimates. Any effects on our financial position or results of operations from revisions to these estimates are recorded in the period when the facts that give rise to the revision become known.

Segments - We operate in one reportable business segment: regulated public utilities that deliver natural gas primarily to residential, commercial and transportation customers. The accounting policies for our segment are the same as those described in Note 1 of our Notes to Consolidated Financial Statements in our Annual Report. We evaluate our financial performance principally on net income. For the three months ended March 31, 2022 and 2021, we had no single external customer from which we received 10 percent or more of our gross revenues.

Property, Plant and Equipment and Asset Removal Costs - Accounts payable for construction work in process and asset removal costs decreased by approximately $8.1 million and $11.6 million for the three months ended March 31, 2022 and 2021, respectively. Such amounts are not included in capital expenditures or asset removal costs in our consolidated statements of cash flows.

Accounts Receivable - Accounts receivable represent valid claims against nonaffiliated customers for natural gas sold or services rendered, net of allowances for doubtful accounts. We assess the creditworthiness of our customers. Those customers who do not meet minimum standards may be required to provide security, including deposits and other forms of collateral, when appropriate and allowed by our tariffs. With approximately 2.3 million customers across three states, we are not exposed materially to a concentration of credit risk. We maintain an allowance for doubtful accounts based upon factors surrounding the credit risk of customers, historical trends, consideration of the current environment and other information. We recover natural gas costs related to accounts written off when they are deemed uncollectible through the purchased-gas cost adjustment mechanisms in each of our jurisdictions. At March 31, 2022 and December 31, 2021, our allowance for doubtful accounts was $19.7 million and $18.7 million, respectively.

Recently Issued Accounting Standards Update - In November 2021, the FASB issued ASU 2021-10, “Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance,” which will require disclosure about government assistance in the notes to the financial statements. The amendment requires annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy, including
14


information about the nature of the transactions and the related accounting policy used to account for the transactions, the line items on the balance sheet and income statement that are affected by the transactions and the significant terms and conditions of the transactions, including commitments and contingencies. This guidance will apply to the anticipated securitizations in Oklahoma and Texas associated with Winter Storm Uri. The amendment became effective for us beginning January 1, 2022. As the guidance is related only to disclosures in the notes to the financial statements, we do not anticipate any impact on our financial position, results of operations or cash flows.

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” which provides relief from the accounting analysis and impacts that may otherwise be required for modifications to agreements (e.g., loans, debt securities, derivatives, borrowings) necessitated by reference rate reform. It also provides optional expedients to enable companies to continue to apply hedge accounting to certain hedging relationships impacted by reference rate reform. In the first quarter 2020, we adopted this new guidance effective for contracts modified between March 12, 2020 and December 31, 2022. Our remaining $400 million of floating-rate senior notes due 2023 utilize LIBOR as the reference rate. If modified, we may elect the optional practical expedients to account for the modifications prospectively. Our adoption did not result in a material impact to our consolidated financial statements.

2.REVENUE

The following table sets forth our revenues disaggregated by source for the periods indicated:
Three Months Ended
March 31,
20222021
(Thousands of dollars)
Natural gas sales to customers$925,157 $583,794 
Transportation revenues36,316 36,202 
Miscellaneous revenues4,496 3,655 
Total revenues from contracts with customers965,969 623,651 
Other revenues - natural gas sales related2,346 (1,021)
Other revenues 3,144 2,663 
Total other revenues5,490 1,642 
Total revenues$971,459 $625,293 

Accrued unbilled natural gas sales revenues at March 31, 2022 and December 31, 2021, were $148.0 million and $183.2 million, respectively, and are included in accounts receivable on our consolidated balance sheets.

15


3.    REGULATORY ASSETS AND LIABILITIES

The tables below present a summary of regulatory assets and liabilities, net of amortization, for the periods indicated:
March 31, 2022
CurrentNoncurrentTotal
(Thousands of dollars)
Winter weather event costs$1,539,868 $366,424 $1,906,292 
Under-recovered purchased-gas costs9,751  9,751 
Pension and postemployment benefit costs11,508 249,074 260,582 
Reacquired debt costs812 3,889 4,701 
MGP remediation costs98 29,816 29,914 
Ad-valorem tax8,192  8,192 
WNA11,440  11,440 
Customer credit deferrals17,177  17,177 
Other1,188 2,728 3,916 
Total regulatory assets, net of amortization1,600,034 651,931 2,251,965 
Income tax rate changes (542,622)(542,622)
Over-recovered purchased-gas costs(32,822) (32,822)
Total regulatory liabilities(32,822)(542,622)(575,444)
Net regulatory assets and liabilities$1,567,212 $109,309 $1,676,521 

December 31, 2021
CurrentNoncurrentTotal
(Thousands of dollars)
Winter weather event costs$1,536,054 $428,023 $1,964,077 
Under-recovered purchased-gas costs31,863  31,863 
Pension and postemployment benefit costs11,507 260,559 272,066 
Reacquired debt costs812 4,070 4,882 
MGP remediation costs98 29,841 29,939 
Ad-valorem tax8,561  8,561 
WNA10,044  10,044 
Customer credit deferrals10,685  10,685 
Other2,052 2,369 4,421 
Total regulatory assets, net of amortization1,611,676 724,862 2,336,538 
Income tax rate changes (552,928)(552,928)
Over-recovered purchased-gas costs(8,090) (8,090)
Total regulatory liabilities(8,090)(552,928)(561,018)
Net regulatory assets and liabilities$1,603,586 $171,934 $1,775,520 

Regulatory assets in our consolidated balance sheets, as authorized by various regulatory authorities, are probable of recovery. Base rates and certain riders are designed to provide a recovery of costs during the period such rates are in effect, but do not generally provide for a return on investment for amounts we have deferred as regulatory assets. All of our regulatory assets are subject to review by the respective regulatory authorities during future regulatory proceedings. We are not aware of any evidence that these costs will not be recoverable through either rider, base rates, or securitization, and we believe that we will be able to recover such costs consistent with our historical recoveries.

Winter weather event costs - In February 2021, the U.S. experienced Winter Storm Uri, a historic winter weather event impacting supply, market pricing and demand for natural gas in a number of states, including our service territories of Kansas, Oklahoma, and Texas. During this time, the governors of Kansas, Oklahoma, and Texas each declared a state of emergency, and certain regulatory agencies issued emergency orders that impacted the utility and natural gas industries, including statewide utility curtailment programs and orders requiring jurisdictional natural gas and electric utilities to do all things possible and necessary to ensure that natural gas and electricity utility services continued to be provided to their customers. Due to the historic nature of this winter weather event, we experienced unforeseeable and unprecedented market pricing for natural gas in
16


our Kansas, Oklahoma, and Texas jurisdictions, which resulted in aggregated natural gas purchases for the month of February 2021 of approximately $2.1 billion.

Beginning in the first quarter 2021, Oklahoma Natural Gas began deferring to a regulatory asset the extraordinary costs associated with this unprecedented winter weather event, including commodity costs, operational costs and carrying costs in accordance with an order issued by the OCC in March 2021.

In April 2021, Oklahoma Natural Gas submitted an initial application requesting a financing order pursuant to newly enacted securitization legislation in Oklahoma. On January 25, 2022, the OCC approved the financing order that reflected the terms of a settlement agreement reached in November 2021, which includes an agreement that all extreme gas purchase and extraordinary costs incurred as a result of Winter Storm Uri were reasonable and prudent and a financing order should be issued to recover these costs through securitization over a 25-year period. Following the issuance of the financing order, no parties to our application appealed the financing order to the Oklahoma Supreme Court during the 30-day appeal period. The securitization legislation allows the ODFA 24 months to complete the process to issue the securitized bonds; however, the financing order requests the ODFA to issue bonds and provide the net proceeds to Oklahoma Natural Gas as soon as feasible, but no later than December 31, 2022. Pursuant to the securitization statute in Oklahoma, the Oklahoma Supreme Court must validate that the bond issuance proposed by the ODFA complies with the securitization statute and the laws of Oklahoma. The ODFA received a hearing before the Oklahoma Supreme Court on April 13, 2022, seeking validation of the bond issuance. If the Oklahoma Supreme Court issues a ruling that validates the bond issuance by the ODFA complies with the Oklahoma securitization statute and the laws of Oklahoma, the ODFA will continue the process to issue the securitized bonds associated with the Oklahoma Natural Gas financing order. At March 31, 2022, Oklahoma Natural Gas has deferred approximately $1.3 billion in extraordinary costs attributable to Winter Storm Uri.

In March 2021, the KCC issued an order adopting the KCC staff’s recommendation to open company-specific dockets to accept each utility’s filing of financial impact compliance reports and permit the KCC staff to conduct a review of the utility’s compliance report and its actions during Winter Storm Uri.

In May 2021, Kansas Gas Service filed a motion in its company-specific docket opened by the KCC, requesting a limited waiver of the penalty provisions of its tariff to eliminate the multipliers in the penalty calculation when calculating the penalties to assess on marketers and individually-balanced transportation customers for their unauthorized natural gas usage during Winter Storm Uri. In October 2021, a nonunanimous settlement agreement was filed with the KCC to reach a resolution on these penalties. Prior to a hearing on the amended settlement in January 2022, all parties reached a unanimous settlement, which was filed with a motion requesting approval of the unanimous settlement. Under the terms of the unanimous settlement, the carrying charge on assessed penalties was reduced to two percent, consistent with the nonunanimous agreement in the financial docket. On March 3, 2022, the KCC issued an order approving the settlement which modified the penalty provisions of Kansas Gas Service’s tariffs and included a carrying charge of two percent on amounts due to Kansas Gas Service. Any amounts collected from these penalties will reduce the regulatory asset for the winter weather event up to $52.6 million. Through April 29, 2022, we have collected $47.5 million of these penalties.

In July 2021, Kansas Gas Service submitted its financial plan to the KCC as required by the company-specific docket opened by the KCC in March 2021. The plan includes a proposal for the Company to issue securitized bonds to recover the extraordinary costs resulting from Winter Storm Uri from its customers over a period of either 5, 7, or 10 years. The KCC issued an order approving a unanimous settlement agreement on February 8, 2022, that allows Kansas Gas Service to recover extraordinary costs as of October 31, 2021, net of any penalties recovered from marketers and individually-balanced transportation customers, plus carrying costs calculated at two percent, by seeking a financing order from the KCC for the issuance of securitized utility tariff bonds. The extraordinary costs, other than purchased gas costs, will be trued-up and validated.

On March 31, 2022, Kansas Gas Service submitted its application for a financing order to the KCC as contemplated by the unanimous settlement agreement, requesting approval to issue securitized bonds to recover extraordinary costs resulting from Winter Storm Uri and flexibility to recover the costs over 5, 7, 10 or 12 years. The KCC has until September 27, 2022, to review the application and issue a financing order if it deems the issuance of securitized bonds to be appropriate. If the KCC approves the financing order, we can begin the process to issue the securitized bonds. At March 31, 2022, Kansas Gas Service has deferred approximately $335.6 million in extraordinary costs, net of penalties billed, attributable to Winter Storm Uri.

Pursuant to securitization legislation enacted in Texas as a result of Winter Storm Uri and a June 2021 RRC Notice to Gas Utilities, Texas Gas Service submitted an application to the RRC on July 30, 2021, for an order authorizing the amount of extraordinary costs for recovery and other such specifications necessary for the issuance of securitized bonds.

17


In November 2021, the RRC approved a unanimous settlement agreement between Texas Gas Service, the other natural gas utilities in Texas participating in the securitization process, the staff of the RRC and all intervenors. The settlement agreement provides that all costs incurred by Texas Gas Service to purchase natural gas during Winter Storm Uri were reasonable, necessary and prudently incurred. Texas Gas Service agreed to reduce its regulatory asset amount to be securitized by the amount of extraordinary costs attributable to the West Texas service area, which will be recovered through a separate surcharge over a three-year period.

On February 8, 2022, the RRC issued a single financing order for Texas Gas Service and other natural gas utilities in Texas participating in the securitization process, which included a determination that the approved costs will be collected from customers over a period of not more than 30 years. The TPFA formed the Texas Natural Gas Securitization Finance Corporation, a new independent public authority, for purposes of issuing the securitized bonds and has begun the process to issue the securitized bonds, which by statute must be issued no later than August 7, 2022. At March 31, 2022, Texas Gas Service has deferred approximately $248.3 million in extraordinary costs associated with Winter Storm Uri, which includes $50.7 million attributable to the West Texas service area. Pursuant to the approved settlement order, in January 2022, Texas Gas Service began collecting the extraordinary costs, including carrying costs, associated with Winter Storm Uri attributable to the West Texas service area from those customers.

In accordance with these regulatory orders associated with the winter weather event, we have deferred approximately $1.9 billion in extraordinary costs for natural gas purchases, related financing and carrying costs and other operational costs. The amounts deferred at March 31, 2022, include invoiced costs for natural gas purchases that have not been paid as we work with our suppliers to resolve discrepancies in invoiced amounts. The amounts deferred may be adjusted as the differences are resolved. In addition, as a result of Winter Storm Uri, we were assessed penalties as a result of over- or under-deliveries of natural gas during periods that operational flow orders were imposed on us. Additionally, Kansas Gas Service assessed penalties under the modified penalty provisions of its tariff on marketers and individually-balanced transportation customers, or their agents, as approved by the KCC in March 2022. Amounts recorded reflect management’s best estimate of the amounts we may pay or receive and may be adjusted in future periods as the disposition of disputed invoices and the collectability of such penalties is determined. As these amounts are related to the extraordinary gas purchase costs associated with Winter Storm Uri, which are deferred, future adjustments to the amounts we have deferred are not expected to have a material impact on earnings.

Other regulatory assets and liabilities - Purchased-gas costs represent the natural gas costs that have been over- or under- recovered from customers through the purchased-gas cost adjustment mechanisms, and includes natural gas utilized in our operations and premiums paid and any cash settlements received from our purchased natural gas call options.

The OCC, KCC and regulatory authorities in Texas have approved the recovery of pension costs and other postemployment benefits costs through rates for Oklahoma Natural Gas, Kansas Gas Service and Texas Gas Service, respectively. The costs recovered through rates are based on the net periodic benefit cost for defined benefit pension and other postemployment costs. Differences, if any, between the net periodic benefit cost, net of deferrals, and the amount recovered through rates are reflected in earnings. We historically have recovered defined benefit pension and other postemployment benefit costs through rates. We believe it is probable that regulators will continue to include the net periodic pension and other postemployment benefit costs in our cost of service.

We amortize reacquired debt costs in accordance with the accounting guidelines prescribed by the OCC and KCC.

Weather normalization represents revenue over- or under- recovered through the WNA rider in Kansas. This amount is deferred as a regulatory asset or liability for a 12-month period. Kansas Gas Service then applies an adjustment to the customers’ bills for 12 months to refund the over-collected revenue or bill the under-collected revenue.

Ad-valorem tax represents the difference in Kansas Gas Service’s taxes incurred each year above or below the amount approved in base rates. This difference is deferred as a regulatory asset or liability for a 12-month period. Kansas Gas Service then applies an adjustment to the customers’ bills to refund the over-collected revenue or bill the under-collected revenue over the subsequent 12 months.

The customer credit deferrals and the noncurrent regulatory liability for income tax rate changes represents deferral of the effects of enacted federal and state income tax rate changes on our ADIT and the effects of these changes on our rates. See Note 10 for additional information regarding the impact of income tax rate changes.

See Note 12 for additional information regarding our regulatory assets for MGP remediation costs.

18


We have received accounting orders in each of our jurisdictions authorizing us to accumulate and defer for regulatory purposes certain incremental costs incurred, including bad debt expenses, and certain lost revenues, net of offsetting expense reductions associated with COVID-19. Pursuant to these orders, the recovery of any net incremental costs and lost revenues will be determined in future rate cases or alternative rate recovery filings in each jurisdiction. For financial reporting purposes, any amounts deferred as a regulatory asset for future recovery under these accounting orders must be probable of recovery. At March 31, 2022, no regulatory assets have been recorded. In Oklahoma, the test period for our recently completed rate case included the impacts of COVID-19 on our cost of service in determining new rates that became effective in November 2021. In addition, annual PBRC filings, including the PBRC filing made in March 2022, allow us to include any impacts from COVID-19 in our test period cost of service to determine the impact on our rates. In Kansas and Texas, we continue to evaluate the impacts of COVID-19 on our business and will record regulatory assets for financial reporting purposes at such time as recovery is deemed probable.

Recovery through rates resulted in amortization of regulatory assets of approximately $4.4 million and $2.9 million for the three months ended March 31, 2022 and 2021, respectively.

4.CREDIT FACILITY AND SHORT-TERM DEBT

On March 16, 2022, we entered into the first amendment to the second amended and restated ONE Gas Credit Agreement, which was previously amended and restated on March 16, 2021. The amendment extends the maturity date of the ONE Gas Credit Agreement to March 16, 2027, from March 16, 2026, and amends the ONE Gas Credit Agreement to provide that we may extend the maturity date, subject to the lenders’ consent, by one year two additional times. The amendment also changes the benchmark rate defined in the ONE Gas Credit Agreement to SOFR as administered by the Federal Reserve Bank of New York. All other material terms and conditions of the ONE Gas Credit Agreement remain in full force and effect.

The ONE Gas Credit Agreement provides for a $1.0 billion revolving unsecured credit facility and includes a $20 million letter of credit subfacility and a $60 million swingline subfacility. We can request an increase in commitments of up to an additional
$500 million upon satisfaction of customary conditions, including receipt of commitments from either new lenders or increased commitments from existing lenders. The ONE Gas Credit Agreement is available to provide liquidity for working capital, capital expenditures, acquisitions and mergers, the issuance of letters of credit and for other general corporate purposes.

The ONE Gas Credit Agreement contains certain financial, operational and legal covenants. Among other things, these covenants include maintaining ONE Gas’ total debt-to-capital ratio of no more than 70 percent at the end of any calendar quarter. At March 31, 2022, our total debt-to-capital ratio was 63 percent and we were in compliance with all covenants under the ONE Gas Credit Agreement. We may reduce the unutilized portion of the ONE Gas Credit Agreement in whole or in part without premium or penalty. The ONE Gas Credit Agreement contains customary events of default. Upon the occurrence of certain events of default, the obligations under the ONE Gas Credit Agreement may be accelerated and the commitments may be terminated.

At March 31, 2022, we had $1.2 million in letters of credit issued and no borrowings under the ONE Gas Credit Agreement, with $998.8 million of remaining credit, which is available to repay any of our commercial paper borrowings.

In June 2021, we increased the size of our commercial paper program to permit the issuance of commercial paper to fund short-term borrowing needs in an aggregate principal amount not to exceed $1.0 billion outstanding at any time. Prior to this increase, our commercial paper program permitted us to issue commercial paper in an aggregate principal amount not to exceed $700 million outstanding at any time. The maturities of the commercial paper vary but may not exceed 270 days from the date of issue. Commercial paper is generally sold at par less a discount representing an interest factor. At March 31, 2022, we had $505.2 million of commercial paper outstanding.

In connection with the second amendment and restatement of the ONE Gas Credit Agreement on March 16, 2021, all commitments under our ONE Gas 364-day Credit Agreement, dated as of April 7, 2020, were terminated and all obligations under the ONE Gas 364-day Credit Agreement were paid in full and discharged.

5.LONG-TERM DEBT

Senior Notes - In March 2021, we issued $1.0 billion of 0.85 percent senior notes due March 2023, $700 million of 1.10 percent senior notes due March 2024, and $800 million of floating-rate senior notes due March 2023. The floating-rate senior notes bear interest at a rate equal to three-month LIBOR plus 61 basis points per year, reset quarterly for the applicable interest period (1.41 percent at March 31, 2022). The net proceeds from the issuance were used for payment of gas purchases and related costs resulting from Winter Storm Uri and general corporate purposes.
19



In the event LIBOR is not available, and such circumstances are unlikely to be temporary, we or our designee may establish an alternative interest rate for our floating-rate senior notes due March 2023 by replacing LIBOR with one or more secured financing-based rates or another alternate benchmark rate.

In September 2021, we called $400 million of the floating-rate senior notes due March 2023 at par, using a combination of cash on hand and commercial paper. We did not have the right to call these senior notes prior to September 11, 2021. As discussed in Note 3, the OCC and RRC have authorized financing orders and the KCC has authorized a financial plan for the recovery of the extraordinary costs incurred, including any future carrying costs, by Oklahoma Natural Gas, Texas Gas Service (excluding the West Texas service area) and Kansas Gas Service, respectively, through the issuance of securitized bonds. We anticipate securitized bonds will be issued in Oklahoma and Texas in 2022 and in Kansas in 2023. We expect to use these proceeds to call the outstanding senior notes due in March 2023 and March 2024, and use our commercial paper program to call any remaining notes.

The indenture governing our Senior Notes includes an event of default upon the acceleration of other indebtedness of $100 million or more. Such events of default would entitle the trustee or the holders of 25 percent in aggregate principal amount of the outstanding Senior Notes to declare those Senior Notes immediately due and payable in full.

ONE Gas 2021 Term Loan Facility - In February 2021, we entered into the ONE Gas 2021 Term Loan Facility as part of the financing of our natural gas purchases in order to provide sufficient liquidity to satisfy our obligations as a result of Winter Storm Uri. The net proceeds of the March 2021 debt issuance reduced the commitments under the ONE Gas 2021 Term Loan Facility on a dollar-for-dollar basis, and as a result no commitments remained outstanding and the facility was terminated concurrently with the closing of the debt issuance.

6.EQUITY

At-the-Market Equity Program - In February 2020, we initiated an at-the-market equity program by entering into an equity distribution agreement under which we may issue and sell shares of our common stock with an aggregate offering price up to $250 million (including any shares of common stock that may be sold pursuant to the master forward sale confirmation entered into in connection with the equity distribution agreement and the related supplemental confirmations). Sales of common stock are made by means of ordinary brokers’ transactions on the NYSE, in block transactions or as otherwise agreed to between us and the sales agent. We are under no obligation to offer and sell common stock under the program. For the three months ended March 31, 2022, we issued and sold 403,792 shares of our common stock for $35.0 million, generating proceeds, net of issuance costs, of $34.7 million. At March 31, 2022, we had $180.0 million of equity available for issuance under the program.

Dividends Declared - In May 2022, we declared a dividend of $0.62 per share ($2.48 per share on an annualized basis) for shareholders of record as of May 16, 2022, payable on June 1, 2022.

20


7.ACCUMULATED OTHER COMPREHENSIVE LOSS

The following table sets forth the effect of reclassifications from accumulated other comprehensive loss in our consolidated statements of income for the periods indicated:
Three Months EndedAffected Line Item in the
Details About Accumulated OtherMarch 31,Consolidated Statements
Comprehensive Loss Components20222021of Income
(Thousands of dollars)
Pension and other postemployment benefit plan obligations (a)
Amortization of net loss$8,201 $11,474 
Amortization of unrecognized prior service cost (credit)10 (70)
8,211 11,404 
Regulatory adjustments (b)(8,123)(11,013)
88 391 Income before income taxes
(19)(91)Income tax expense
Total reclassifications for the period$69 $300 Net income
(a) These components of accumulated other comprehensive loss are included in the computation of net periodic benefit cost. See Note 9 for additional detail of our net periodic benefit cost.
(b) Regulatory adjustments represent pension and other postemployment benefit costs expected to be recovered through rates and are deferred as part of our regulatory assets. See Note 3 for additional disclosures of regulatory assets and liabilities.

8.EARNINGS PER SHARE

Basic EPS is calculated by dividing net income by the daily weighted-average number of common shares outstanding during the periods presented, which includes fully vested stock awards that have not yet been issued as common stock. Diluted EPS is based on shares outstanding for the calculation of basic EPS, plus unvested stock awards granted under our compensation plans, but only to the extent these instruments dilute earnings per share.

The following tables set forth the computation of basic and diluted EPS from continuing operations for the periods indicated:
 Three Months Ended March 31, 2022
 IncomeSharesPer Share
Amount
 
(Thousands, except per share amounts)
Basic EPS Calculation   
Net income available for common stock
$98,934 53,922 $1.83 
Diluted EPS Calculation   
Effect of dilutive securities— 108  
Net income available for common stock and common stock equivalents$98,934 54,030 $1.83 

 Three Months Ended March 31, 2021
 IncomeSharesPer Share
Amount
 
(Thousands, except per share amounts)
Basic EPS Calculation   
Net income available for common stock
$95,575 53,372 $1.79 
Diluted EPS Calculation  
Effect of dilutive securities— 143  
Net income available for common stock and common stock equivalents$95,575 53,515 $1.79 


21


9.EMPLOYEE BENEFIT PLANS

The following tables set forth the components of net periodic benefit cost for our pension and other postemployment benefit plans for the periods indicated:
Pension Benefits
Three Months Ended
March 31,
20222021
(Thousands of dollars)
Components of net periodic benefit cost (credit) 
Service cost$3,094 $3,453 
Interest cost 7,804 7,365 
Expected return on assets (14,613)(15,596)
Amortization of net loss 8,147 11,381 
Net periodic benefit cost$4,432 $6,603 

Other Postemployment Benefits
Three Months Ended
March 31,
20222021
(Thousands of dollars)
Components of net periodic benefit cost (credit) 
Service cost$318 $397 
Interest cost 1,612 1,563 
Expected return on assets (3,295)(4,202)
Amortization of unrecognized prior service cost (credit)10 (70)
Amortization of net loss 54 93 
Net periodic benefit cost (credit)$(1,301)$(2,219)

We recover qualified pension benefit plan and other postemployment benefit plan costs through rates charged to our customers. Certain regulatory authorities require that the recovery of these costs be based on specific guidelines. The difference between these regulatory-based amounts and the periodic benefit cost calculated pursuant to GAAP is deferred as a regulatory asset or liability and amortized to expense over periods in which this difference will be recovered in rates, as authorized by the applicable regulatory authorities. Regulatory deferrals related to net periodic benefit cost were not material for the three months ended March 31, 2022 and 2021, respectively.

We continue to capitalize all eligible service cost and non-service cost components under the accounting requirements of ASC Topic 980 (Regulated Operations) for rate-regulated entities. Our consolidated balance sheets reflect the capitalized non-service cost components as a regulatory asset in the amount of $5.8 million and $6.1 million as of March 31, 2022 and December 31, 2021, respectively. See Note 3 of the Notes to Consolidated Financial Statements in this Quarterly Report for additional information.

10.INCOME TAXES

We use an estimated annual effective tax rate for purposes of determining the income tax provision during interim reporting periods. In calculating our estimated annual effective tax rate, we consider forecasted annual pre-tax income and estimated permanent book versus tax differences, as well as tax credits. Adjustments to the effective tax rate and estimates will occur as information and assumptions change.

As of March 31, 2022, we have no uncertain tax positions. Changes in tax laws or tax rates are recognized in the financial reporting period that includes the enactment date. We are no longer subject to income tax examination for years prior to 2018.

In May 2021, a bill amending the Oklahoma state income tax code was signed into law that reduced the state income tax rate to four percent from six percent beginning January 1, 2022. As a result of the enactment of this legislation, we remeasured our ADIT. As a regulated entity, the reduction in ADIT of $29.3 million was recorded as a regulatory liability. The impact of the change in the state income tax rate on Oklahoma Natural Gas’ rates, as wells the timing and amount of the impact on the annual
22


crediting mechanism for the EDIT regulatory liability, will be addressed during the processing of the March 15, 2022 PBRC filing.

Income tax expense reflects credits for the amortization of the regulatory liability associated with EDIT that was returned to customers of $7.9 million and $8.1 million for the three months ended March 31, 2022 and 2021, respectively.

11. OTHER INCOME AND OTHER EXPENSE

The following table sets forth the components of other income and other expense for the periods indicated:
Three Months Ended
March 31,
20222021
(Thousands of dollars)
Net periodic benefit cost other than service cost$(588)$(770)
Earnings (losses) on investments associated with nonqualified employee benefit plans(2,833)616 
Other, net(724)(251)
Total other expense, net$(4,145)$(405)

12.COMMITMENTS AND CONTINGENCIES

COVID-19 - Throughout the COVID-19 pandemic, we have continued to provide essential services to our customers. We have implemented a comprehensive set of policies, procedures and guidelines to protect the safety of our employees, customers and communities. See Note 3 for more information regarding the effects of COVID-19 on us.

Environmental Matters - We are subject to multiple laws and regulations regarding protection of the environment and natural and cultural resources, which affect many aspects of our present and future operations. Regulated activities include, but are not limited to, those involving air emissions, storm water and wastewater discharges, handling and disposal of solid and hazardous wastes, wetland preservation, plant and wildlife protection, hazardous materials use, storage and transportation, and pipeline and facility construction. These laws and regulations require us to obtain and/or comply with a wide variety of environmental clearances, registrations, licenses, permits and other approvals. Failure to comply with these laws, regulations, licenses and permits or the discovery of presently unknown environmental conditions may expose us to fines, penalties and/or interruptions in our operations that could be material to our results of operations. In addition, emission controls and/or other regulatory or permitting mandates under the CAA and other similar federal and state laws could require unexpected capital expenditures. We cannot assure that existing environmental statutes and regulations will not be revised or that new regulations will not be adopted or become applicable to us. Revised or additional statutes or regulations that result in increased compliance costs or additional operating restrictions could have a material adverse effect on our business, financial condition and results of operations. Our expenditures for environmental investigation and remediation compliance to-date have not been significant in relation to our financial position, results of operations or cash flows, and our expenditures related to environmental matters had no material effects on earnings or cash flows during the three months ended March 31, 2022 and 2021.

We own or retain legal responsibility for certain environmental conditions at 12 former MGP sites in Kansas. These sites contain contaminants generally associated with MGP sites and are subject to control or remediation under various environmental laws and regulations. A consent agreement with the KDHE governs all environmental investigation and remediation work at these sites. The terms of the consent agreement require us to investigate these sites and set remediation activities based upon the results of the investigations and risk analysis. Remediation typically involves the management of contaminated soils and may involve removal of structures and monitoring and/or remediation of groundwater. Regulatory closure has been achieved at five of the 12 sites, but these sites remain subject to potential future requirements that may result in additional costs.

We have an AAO that allows Kansas Gas Service to defer and seek recovery of costs necessary for investigation and remediation at, and nearby, these 12 former MGP sites that are incurred after January 1, 2017, up to a cap of $15.0 million, net of any related insurance recoveries. Costs approved for recovery in a future rate proceeding would then be amortized over a 15-year period. The unamortized amounts will not be included in rate base or accumulate carrying charges. Following a determination that future investigation and remediation work approved by the KDHE is expected to exceed $15.0 million, net of any related insurance recoveries, Kansas Gas Service will be required to file an application with the KCC for approval to increase the $15.0 million cap. At March 31, 2022, we have deferred $30.0 million for accrued investigation and remediation
23


costs pursuant to our AAO. Kansas Gas Service expects to file an application as soon as practicable after the KDHE approves the plans we have submitted and anticipates that filing will occur in 2023.

We have completed or are addressing removal of the source of soil contamination at all 12 sites and continue to monitor groundwater at seven of the 12 sites according to plans approved by the KDHE. In 2019, we completed a project to remove a source of contamination and associated contaminated materials at the twelfth site where no active soil remediation had previously occurred. A remediation plan concerning this site was submitted to the KDHE in 2020 and the KDHE has provided comments that we are addressing. We are also working on a remediation plan for an additional site that we expect to submit to the KDHE in 2022.

We also own or retain legal responsibility for certain environmental conditions at a former MGP site in Texas. At the request of the TCEQ, we began investigating the level and extent of contamination associated with the site under their Texas Risk Reduction Program. A preliminary site investigation revealed that this site contains contaminants generally associated with MGP sites and is subject to control or remediation under various environmental laws and regulations. Impacts have been identified in the soil and groundwater at the site with limited impacts observed in surrounding areas. On April 14, 2022, we submitted a remediation work plan to address the areas impacted to the TCEQ. At March 31, 2022, estimated costs associated with expected remediation activities for this site are not material.

Our expenditures for environmental evaluation, mitigation, remediation and compliance to date have not been significant in relation to our financial position, results of operations or cash flows, and our expenditures related to environmental matters had no material effects on earnings or cash flows during the three months ended March 31, 2022 and 2021. The reserve for remediation of our MGP sites was $20.3 million and $23.0 million at March 31, 2022 and December 31, 2021, respectively. Environmental issues may exist with respect to MGP sites that are unknown to us. Accordingly, future costs are dependent on the final determination and regulatory approval of any remedial actions, the complexity of the site, level of remediation required, changing technology and governmental regulations, and to the extent not recovered by insurance or recoverable in rates from our customers, could be material to our financial condition, results of operations or cash flows.

We are subject to environmental regulation by federal, state and local authorities. Due to the inherent uncertainties surrounding the development of federal and state environmental laws and regulations, we cannot determine with specificity the impact such laws and regulations may have on our existing and future facilities. With the trend toward stricter standards, greater regulation and more extensive permit requirements for the types of assets operated by us, our environmental expenditures could increase in the future, and such expenditures may not be fully recovered by insurance or recoverable in rates from our customers, and those costs may adversely affect our financial condition, results of operations and cash flows.

Pipeline Safety - We are subject to regulation under federal pipeline safety statutes and any analogous state regulations. These include safety requirements for the design, construction, operation, and maintenance of pipelines, including transmission and distribution pipelines. At the federal level, we are regulated by PHMSA. PHMSA regulations require the following for certain pipelines: inspection and maintenance plans; integrity management programs, including the determination of pipeline integrity risks and periodic assessments on certain pipeline segments; an operator qualification program, which includes certain trainings; a public awareness program that provides certain information; and a control room management plan.

As part of regulating pipeline safety, PHMSA promulgates various regulations. For example, in April 2016, PHMSA published a NPRM, the Safety of Gas Transmission & Gathering Lines Rule, in the Federal Register to revise pipeline safety regulations applicable to the safety of onshore natural gas transmission and gathering pipelines. Proposals included changes to pipeline integrity management requirements and other safety-related requirements. Subsequently, PHMSA announced they would split this NPRM into three separate final rulemakings:

the first final rule addresses the legislative mandates from the Pipeline Safety, Regulatory Certainty and Job Creation Act and is called the Safety of Gas Transmission Pipelines: MAOP Reconfirmation, Expansion of Assessment Requirements, and Other Related Amendments;
the second final rule will be called the Safety of Gas Transmission Pipelines: Repair Criteria, Integrity Management Improvements, Cathodic Protection, Management of Change, and Other Related Amendments and will cover all remaining elements of the NPRM (except for gas gathering pipelines); and
the third final rule will be called the Safety of Gas Gathering Pipelines and will address gas gathering pipelines.

On October 1, 2019, PHMSA published the first of the three final rules referenced above, which addressed the 2011 congressional mandates. This final rule expands integrity management principles beyond HCAs and requires operators to collect traceable, verifiable and complete records moving forward, retain existing and new records for the life of the pipeline, and reconfirm pipeline MAOP in populated areas. The final rule also outlines methods for reconfirming a pipeline’s MAOP
24


within 15 years. The first final rule became effective July 1, 2020. Our estimated capital and operating expenditures associated with compliance with the first final rulemaking were not material.

PHMSA has not yet issued the second final rule. The potential capital and operating expenditures associated with compliance with this rule are currently being evaluated and could be significant depending on the final regulation. We do not expect to be impacted by the third final rule, as we do not own gas gathering pipelines.

Separately, as part of the Consolidated Appropriations Act, 2021, the PIPES Act of 2020 reauthorized PHMSA through 2023 and directed the agency to move forward with several regulatory actions, including the “Pipeline Safety: Class Location Change Requirements” and the “Pipeline Safety: Safety of Gas Transmission and Gathering Pipelines” proposed rulemakings. Congress has also instructed PHMSA to issue final regulations that will require operators of non-rural gas gathering lines and new and existing transmission and distribution pipeline facilities to conduct certain leak detection and repair programs and to require facility inspection and maintenance plans to align with those regulations. To the extent such rulemakings impose more stringent requirements on our facilities, we may be required to incur expenditures that may be material.

Legal Proceedings - We are a party to various litigation matters and claims that have arisen in the normal course of our operations. While the results of litigation and claims cannot be predicted with certainty, we believe the reasonably possible losses from such matters, individually and in the aggregate, are not material. Additionally, we believe the probable outcome of such matters will not have a material adverse effect on our results of operations, financial position or cash flows.

13.DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

Accounting Treatment - We record all derivative instruments at fair value, with the exception of normal purchases and normal sales that are expected to result in physical delivery. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, if so, the reason for holding it, or if regulatory requirements impose a different accounting treatment.

If certain conditions are met, we may elect to designate a derivative instrument as a hedge of exposure to changes in fair values or cash flows. We have not elected to designate any of our derivative instruments as hedges.

The table below summarizes the various ways in which we account for our derivative instruments and the impact on our consolidated financial statements:
  Recognition and Measurement
Accounting Treatment Balance Sheet Income Statement
Normal purchases and
normal sales
-Fair value not recorded-Change in fair value not recognized in earnings
Mark-to-market-Recorded at fair value-Change in fair value recognized in, and recoverable through, the purchased-gas cost adjustment mechanisms

Fair Value Measurements - We define fair value as the price that would be received from the sale of an asset or the transfer of a liability in an orderly transaction between market participants at the measurement date. We use the market and income approaches to determine the fair value of our assets and liabilities and consider the markets in which the transactions are executed. We measure the fair value of a group of financial assets and liabilities consistent with how a market participant would price the net risk exposure at the measurement date.

Fair Value Hierarchy - At each balance sheet date, we utilize a fair value hierarchy to classify fair value amounts recognized or disclosed in our consolidated financial statements based on the observability of inputs used to estimate such fair value. The levels of the hierarchy are described below:

Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 - Significant observable pricing inputs other than quoted prices included within Level 1 that are, either directly or indirectly, observable as of the reporting date. Essentially, this represents inputs that are derived principally from or corroborated by observable market data; and
Level 3 - May include one or more unobservable inputs that are significant in establishing a fair value estimate. These unobservable inputs are developed based on the best information available and may include our own internal data.

25


We recognize transfers into and out of the levels as of the end of each reporting period.

Determining the appropriate classification of our fair value measurements within the fair value hierarchy requires management’s judgment regarding the degree to which market data is observable or corroborated by observable market data. We categorize derivatives for which fair value is determined using multiple inputs within a single level, based on the lowest level input that is significant to the fair value measurement in its entirety.

Derivative Instruments - At March 31, 2022, we had no purchased natural gas call options. At December 31, 2021, we held purchased natural gas call options for the heating season ended March 2022, with total notional amounts of 13.2 Bcf, for which we paid premiums of $9.5 million, and which had a fair value of $2.3 million. These contracts are included in, and recoverable through, our purchased-gas cost adjustment mechanisms. Additionally, premiums paid, changes in fair value and any settlements received associated with these contracts are deferred as part of our unrecovered purchased-gas costs in our consolidated balance sheets. Our natural gas call options are classified as Level 1, as fair value amounts are based on unadjusted quoted prices in active markets including settled prices on the New York Mercantile Exchange. There were no transfers between levels for the periods presented.

Other Financial Instruments - The approximate fair value of cash and cash equivalents, accounts receivable and accounts payable is equal to book value, due to the short-term nature of these items. Our cash and cash equivalents are comprised of bank and money market accounts and are classified as Level 1. At March 31, 2022 and December 31, 2021, our other current and noncurrent assets include $7.0 million and $6.9 million of corporate bonds, respectively, and $3.2 million and $3.5 million of United States treasury notes, respectively. The fair value of corporate bonds and United States treasury notes approximate carrying value, and are classified as Level 2 and Level 1, respectively.

Commercial paper is due upon demand and, therefore, the carrying amounts approximate fair value and are classified as Level 1. The book value of our long-term debt, including current maturities, was $3.7 billion at March 31, 2022 and December 31, 2021. The estimated fair value of our long-term debt, including current maturities, was $3.7 billion and $3.9 billion at March 31, 2022 and December 31, 2021, respectively. The estimated fair value of our long-term debt was determined using quoted market prices, and is classified as Level 2.

26


ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and the Notes to Consolidated Financial Statements in this Quarterly Report, as well as our Annual Report. Due to the seasonal nature of our business, the results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for a 12-month period.

RECENT DEVELOPMENTS

Winter Storm Uri - In February 2021, the U.S. experienced Winter Storm Uri, a historic winter weather event impacting supply, market pricing and demand for natural gas in a number of states, including our service territories of Oklahoma, Kansas, and Texas. During this time, the governors of Oklahoma, Kansas, and Texas each declared a state of emergency, and certain regulatory agencies issued emergency orders that impacted the utility and natural gas industries, including statewide utility curtailment programs and orders requiring jurisdictional natural gas and electric utilities to do all things possible and necessary to ensure that natural gas and electricity utility services continued to be provided to their customers. Due to the historic nature of this winter weather event, we experienced unforeseeable and unprecedented market pricing for gas costs in our Oklahoma, Kansas, and Texas jurisdictions, which resulted in aggregated natural gas purchases for the month of February 2021 of approximately $2.1 billion.

On February 22, 2021, we entered into the ONE Gas 2021 Term Loan Facility as part of the financing of our natural gas purchases in order to provide sufficient liquidity to satisfy our obligations as a result of Winter Storm Uri.

In March 2021, we issued $1.0 billion of 0.85 percent senior notes due March 2023, $700 million of 1.10 percent senior notes due March 2024, and $800 million of floating-rate senior notes due March 2023. The floating-rate senior notes bear interest at a rate equal to three-month LIBOR plus 61 basis points per year, reset quarterly for the applicable interest period (1.41 percent at March 31, 2022). The net proceeds from the issuance were used for payment of gas purchases and related costs resulting from Winter Storm Uri and general corporate purposes. The net proceeds of the March 2021 debt issuance reduced the commitments under the ONE Gas 2021 Term Loan Facility on a dollar-for-dollar basis, and as a result no commitments remained outstanding and the facility was terminated concurrently with the closing of the debt issuance.

On September 21, 2021, we called $400 million of the floating-rate senior notes due March 2023 at par, using a combination of cash on hand and commercial paper. We did not have the right to call these senior notes prior to September 11, 2021.

Our purchased gas costs are recoverable through the tariffs in each state where we operate. Due to the higher level of gas purchase costs during Winter Storm Uri, related financing costs and other operational response costs, we are working with regulators to extend the recovery periods of such costs in order to lessen the immediate customer impact. In that regard, the OCC, KCC and the RRC each authorized certain utilities, including LDCs, to record regulatory assets to account for the extraordinary costs associated with this winter weather event, including but not limited to gas purchase costs and other costs related to the procurement and transportation of gas supply, carrying costs and other operational costs. As of March 31, 2022, we have deferred approximately $1.9 billion in costs associated with Winter Storm Uri.

In the second quarter of 2021, legislation in Oklahoma, Kansas and Texas was approved that permits utilities to pursue securitization to finance extraordinary expenses, such as fuel costs, incurred during extreme weather events. We have received or are currently seeking approval from our regulators to utilize the securitization legislation in each state to repay or refinance the debt we incurred to finance the extraordinary costs associated with Winter Storm Uri.

See “Regulatory Activities,” “Liquidity and Capital Resources,” and Note 3 of the Notes to Consolidated Financial Statements in this Quarterly Report for additional discussion of the effects of Winter Storm Uri on us.

ONE Gas Credit Agreement - On March 16, 2022, we entered into the first amendment to the second amended and restated ONE Gas Credit Agreement, which was previously amended and restated on March 16, 2021. The amendment extends the maturity date of the ONE Gas Credit Agreement to March 16, 2027, from March 16, 2026, and amends the ONE Gas Credit Agreement to provide that we may extend the maturity date, subject to the lenders’ consent, by one year two additional times. The amendment also changes the benchmark rate defined in the ONE Gas Credit Agreement to SOFR as administered by the Federal Reserve Bank of New York. All other material terms and conditions of the ONE Gas Credit Agreement remain in full force and effect.

27


In connection with the second amendment and restatement of the ONE Gas Credit Agreement on March 16, 2021, all commitments under our ONE Gas 364-day Credit Agreement, dated as of April 7, 2020, were terminated and all obligations under the ONE Gas 364-day Credit Agreement were paid in full and discharged.

ONE Gas Commercial Paper Program - On June 22, 2021, we increased the size of our commercial paper program to permit the issuance of commercial paper to fund short-term borrowing needs in an aggregate principal amount not to exceed $1.0 billion outstanding at any time. Prior to this increase, our commercial paper program permitted us to issue commercial paper in an aggregate principal amount not to exceed $700 million outstanding at any time.

COVID-19 - Throughout the COVID-19 pandemic, we have continued to provide essential services to our customers. We have implemented a comprehensive set of policies, procedures and guidelines to protect the safety of our employees, customers and communities.

We have received accounting orders in each of our jurisdictions authorizing us to accumulate and defer for regulatory purposes certain incremental costs incurred, including bad debt expenses, and certain lost revenues, net of offsetting expense reductions associated with COVID-19. Pursuant to these orders, the recovery of any net incremental costs and lost revenues will be determined in future rate cases or alternative rate recovery filings in each jurisdiction. For financial reporting purposes, any amounts deferred as a regulatory asset for future recovery under these accounting orders must be probable of recovery. At March 31, 2022, no regulatory assets have been recorded. In Oklahoma, the test period for our recently completed rate case included the impacts of COVID-19 on our cost of service in determining new rates that became effective in November 2021. In addition, annual PBRC filings, including the PBRC filing made in March 2022, allow us to include any impacts from COVID-19 in our test period cost of service to determine the impact on our rates. In Kansas and Texas, we continue to evaluate the impacts of COVID-19 on our business and will record regulatory assets for financial reporting purposes at such time as recovery is deemed probable.

See Notes 3 and 12 of the Notes to Consolidated Financial Statements in this Quarterly Report for additional discussion regarding the effects of COVID-19 on us.

Dividend - In May 2022, we declared a dividend of $0.62 per share ($2.48 per share on an annualized basis) for shareholders of record as of May 16, 2022, payable on June 1, 2022.

REGULATORY ACTIVITIES

Oklahoma - In April 2021, Oklahoma Natural Gas submitted an initial application requesting a financing order pursuant to newly enacted securitization legislation in Oklahoma. On January 25, 2022, the OCC approved the financing order that reflected the terms of a settlement agreement reached in November 2021, which includes an agreement that all extreme gas purchase and extraordinary costs incurred as a result of Winter Storm Uri were reasonable and prudent and a financing order should be issued to recover these costs through securitization over a 25-year period. Following the issuance of the financing order, no parties to our application appealed the financing order to the Oklahoma Supreme Court during the 30-day appeal period. The securitization legislation allows the ODFA 24 months to complete the process to issue the securitized bonds; however, the financing order requests the ODFA to issue bonds and provide the net proceeds to Oklahoma Natural Gas as soon as feasible, but no later than December 31, 2022. Pursuant to the securitization statute in Oklahoma, the Oklahoma Supreme Court must validate that the bond issuance proposed by the ODFA complies with the securitization statute and the laws of Oklahoma. The ODFA received a hearing before the Oklahoma Supreme Court on April 13, 2022, seeking validation of the bond issuance. If the Oklahoma Supreme Court issues a ruling that validates the bond issuance by the ODFA complies with the Oklahoma securitization statute and the laws of Oklahoma, the ODFA will continue the process to issue the securitized bonds associated with the Oklahoma Natural Gas financing order. At March 31, 2022, Oklahoma Natural Gas has deferred approximately $1.3 billion in extraordinary costs attributable to Winter Storm Uri.

As required, PBRC filings are made annually on or before March 15, until the next general rate case which is required to be filed on or before June 30, 2027. On March 15, 2022, Oklahoma Natural Gas filed its required PBRC application for a calendar year 2021 test year. The filed request includes a $19.7 million base rate revenue increase, $2.3 million energy efficiency incentive, and $9.1 million of estimated EDIT to be credited to customers in 2023. A hearing is scheduled for August 4, 2022.

In May 2021, Oklahoma Natural Gas filed a general rate case. In October 2021, a joint stipulation and settlement agreement was signed by all parties to the rate case. In November 2021, the OCC issued an order approving the joint stipulation and settlement agreement. Upon approval of the order, Oklahoma Natural Gas’ base rates increased by $15.3 million. Premised on a return on equity of 9.4 percent and a common equity ratio of 58.55 percent, the order also includes the continuation of the PBRC tariff that was established in 2009. The approved order also states that Oklahoma Natural Gas may recover commodity
28


costs of no more than $5.0 million annually for the purchase of RNG and that Oklahoma Natural Gas shall file an application on or before December 31, 2022, requesting approval of an RNG pilot program including an “opt-in” tariff allowing Oklahoma Natural Gas to allocate costs and benefits of RNG to those customers who choose RNG for their fuel source.

In May 2021, a bill amending the Oklahoma state income tax code was signed into law that reduced the state income tax rate to four percent from six percent beginning January 1, 2022. As a result of the enactment of this legislation, we remeasured our ADIT. As a regulated entity, the reduction in ADIT of $29.3 million was recorded as a regulatory liability. The impact of the change in the state income tax rate on Oklahoma Natural Gas’ rates was included in the general rate case previously discussed. The impact on the annual crediting mechanism for the EDIT regulatory liability, will be addressed during the processing of the March 15, 2022 PBRC filing.

Kansas - In March 2021, the KCC issued an order adopting the KCC staff’s recommendation to open company-specific dockets to accept each utility’s filing of financial impact compliance reports and permit the KCC staff to conduct a review of the utility’s compliance report and its actions during Winter Storm Uri.

In May 2021, Kansas Gas Service filed a motion in its company-specific docket opened by the KCC, requesting a limited waiver of the penalty provisions of its tariff to eliminate the multipliers in the penalty calculation when calculating the penalties to assess on marketers and individually-balanced transportation customers for their unauthorized natural gas usage during Winter Storm Uri. In October 2021, a nonunanimous settlement agreement was filed with the KCC to reach a resolution on these penalties. Prior to a hearing on the amended settlement in January 2022, all parties reached a unanimous settlement, which was filed with a motion requesting approval of the unanimous settlement. Under the terms of the unanimous settlement, the carrying charge on assessed penalties was reduced to two percent, consistent with the nonunanimous agreement in the financial docket. On March 3, 2022, the KCC issued an order approving the settlement which modified the penalty provisions of Kansas Gas Service’s tariffs and included a carrying charge of two percent on amounts due to Kansas Gas Service. Any amounts collected from these penalties will reduce the regulatory asset for the winter weather event up to $52.6 million. Through April 29, 2022, we collected $47.5 million of these penalties.

In July 2021, Kansas Gas Service submitted its financial plan to the KCC as required by the company-specific docket opened by the KCC in March 2021. The plan includes a proposal for the Company to issue securitized bonds to recover the extraordinary costs resulting from Winter Storm Uri from its customers over a period of either 5, 7, or 10 years. The KCC issued an order approving a unanimous settlement agreement on February 8, 2022, that allows Kansas Gas Service to recover extraordinary costs as of October 31, 2021, net of any penalties recovered from marketers and individually-balanced transportation customers, plus carrying costs calculated at two percent, by seeking a financing order from the KCC for the issuance of securitized utility tariff bonds. The extraordinary costs, other than purchased gas costs, will be trued-up and validated.

On March 31, 2022, Kansas Gas Service submitted its application for a financing order to the KCC as contemplated by the unanimous settlement agreement, requesting approval to issue securitized bonds to recover extraordinary costs resulting from Winter Storm Uri and flexibility to recover the costs over 5, 7, 10 or 12 years. The KCC has until September 27, 2022, to review the application and issue a financing order if it deems the issuance of securitized bonds to be appropriate. If the KCC approves the financing order, we can begin the process to issue the securitized bonds. At March 31, 2022, Kansas Gas Service has deferred approximately $335.6 million in extraordinary costs, net of penalties billed, attributable to Winter Storm Uri.

In August 2021, Kansas Gas Service submitted an application to the KCC requesting an increase of approximately $7.6 million related to its GSRS. The KCC issued an order in November 2021, and the new surcharge became effective on December 1, 2021.

In May 2020, a bill amending the Kansas state income tax code was signed into law that exempts public utilities regulated by the KCC from paying Kansas state income taxes beginning January 1, 2021, and authorizes the KCC to adjust utility rates for the elimination of Kansas state income tax beginning January 1, 2021. As a result of the enactment of this legislation, we remeasured our ADIT. As a regulated entity, the reduction in ADIT of $84.2 million was recorded as a regulatory liability and will be refunded to our customers. This adjustment had no material impact on our income tax expense and no impact on our cash flows for the three months ended March 31, 2022. The bill stipulates that, if requested by the utility, this EDIT will be returned to Kansas customers over a period of no less than 30 years, with the exact timing to be determined in our next general rate proceeding. In August 2020, Kansas Gas Service submitted an application to the KCC to reduce its base rates to reflect the elimination of Kansas state income taxes by approximately $4.9 million. In December 2020, the KCC approved the reduction, effective January 1, 2021. See Note 3 of the Notes to Consolidated Financial Statements in this Quarterly Report for additional information.

29


Texas -Pursuant to securitization legislation enacted in Texas as a result of Winter Storm Uri and a June 2021 RRC Notice to Gas Utilities, Texas Gas Service submitted an application to the RRC on July 30, 2021, for an order authorizing the amount of extraordinary costs for recovery and other such specifications necessary for the issuance of securitized bonds.

In November 2021, the RRC approved a unanimous settlement agreement between Texas Gas Service, the other natural gas utilities in Texas participating in the securitization process, the staff of the RRC and all intervenors. The settlement agreement provides that all costs incurred by Texas Gas Service to purchase natural gas during Winter Storm Uri were reasonable, necessary and prudently incurred. Texas Gas Service agreed to reduce its regulatory asset amount to be securitized by the amount of extraordinary costs attributable to the West Texas service area, which will be recovered through a separate surcharge over a three-year period.

On February 8, 2022, the RRC issued a single financing order for Texas Gas Service and other natural gas utilities in Texas participating in the securitization process, which included a determination that the approved costs will be collected from customers over a period of not more than 30 years. The TPFA formed the Texas Natural Gas Securitization Finance Corporation, a new independent public authority, for purposes of issuing the securitized bonds and has begun the process to issue the securitized bonds, which by statute must be issued no later than August 7, 2022. At March 31, 2022, Texas Gas Service has deferred approximately $248.3 million in extraordinary costs associated with Winter Storm Uri, which includes $50.7 million attributable to the West Texas service area. Pursuant to the approved settlement order, in January 2022, Texas Gas Service began collecting the extraordinary costs, including carrying costs, associated with Winter Storm Uri attributable to the West Texas service area from those customers.

West Texas Service Area - In March 2022, Texas Gas Service made GRIP filings for all customers in the West Texas service area, requesting a $5.0 million increase to be effective in July 2022.

In March 2021, Texas Gas Service made GRIP filings for all customers in the West Texas service area, requesting an increase of $9.7 million to be effective in July 2021. On June 21, 2021, the city of El Paso approved a motion which found the GRIP filing to be in compliance with the GRIP statute. The city subsequently denied the requested increase and assessed fees associated with its review of the filing. On July 2, 2021, Texas Gas Service appealed the city’s action to the RRC. The RRC granted and approved the appeal, and new rates were effective on August 3, 2021. All other municipalities, and the RRC, approved the new rates or allowed them to take effect with no action.

Central-Gulf Service Area - In February 2022, Texas Gas Service made GRIP filings for all customers in the Central-Gulf service area, requesting a $9.1 million increase to be effective in June 2022.

In February 2021, Texas Gas Service made GRIP filings for all customers in the Central-Gulf service area, requesting an increase of $10.7 million to be effective in June 2021. All municipalities, and the RRC, approved the new rates or allowed them to take effect with no action.

Other Texas Service Areas - In April 2022, Texas Gas Service filed its annual COSA filings for the incorporated area of the Rio Grande Valley service area, requesting an increase of $2.9 million. If approved, new rates will become effective in August 2022.

In April 2021, Texas Gas Service made its annual COSA filings for the incorporated areas of the Rio Grande Valley service area and the North Texas service area. In July 2021, the cities in the Rio Grande Valley and North Texas service areas agreed to increases of $3.5 million and $1.4 million, respectively. New rates became effective in August 2021.

In the normal course of business, Texas Gas Service has filed rate cases and sought GRIP and COSA increases in various other Texas jurisdictions to address investments in rate base and changes in expenses. For the three months ended March 31, 2022, no annual rate increases associated with these filings have been approved and $0.4 million were approved for the year ended December 31, 2021.

Winter Storm Uri Deferred Costs - In accordance with regulatory orders associated with this winter weather event, we have deferred approximately $1.9 billion in extraordinary costs for natural gas purchases, related financing and carrying costs and other operational costs. The amounts deferred at March 31, 2022, include invoiced costs for natural gas purchases that have not been paid as we work with our suppliers to resolve discrepancies in invoiced amounts. The amounts deferred may be adjusted as the differences are resolved. In addition, as a result of Winter Storm Uri, we were assessed penalties as a result of over- or under-deliveries of natural gas during periods that operational flow orders were imposed on us. Additionally, Kansas Gas Service assessed penalties under the modified penalty provisions of its tariff on marketers and individually-balanced transportation customers, or their agents, as approved by the KCC in March 2022. Amounts recorded reflect management’s best
30


estimate of the amounts we may pay or receive and may be adjusted in future periods as the disposition of disputed invoices and the collectability of such penalties is determined. As these amounts are related to the extraordinary gas purchase costs associated with Winter Storm Uri, which are deferred, future adjustments to the amounts we have deferred are not expected to have a material impact on earnings.
31


FINANCIAL RESULTS AND OPERATING INFORMATION

We operate in one reportable business segment: regulated public utilities that deliver natural gas to residential, commercial and transportation customers. The accounting policies for our segment are the same as described in Note 1 of our Notes to Consolidated Financial Statements in our Annual Report. We evaluate our financial performance principally on net income.

Selected Financial Results - For the three months ended March 31, 2022, net income was $98.9 million, or $1.83 per diluted share, compared with $95.6 million, or $1.79 per diluted share, in the same period last year.

The following table sets forth certain selected financial results for our operations for the periods indicated:
 Three Months EndedThree Months
 March 31,2022 vs. 2021
Financial Results20222021Increase (Decrease)
 
(Millions of dollars, except percentages)
Natural gas sales $927.0 $582.8 $344.2 59 %
Transportation revenues36.8 36.2 0.6 2 %
Other revenues7.6 6.3 1.3 21 %
Total revenues971.4 625.3 346.1 55 %
Cost of natural gas639.9 314.1 325.8 104 %
Operating costs 133.6 128.6 5.0 4 %
Depreciation and amortization57.1 52.3 4.8 9 %
Operating income $140.8 $130.3 $10.5 8 %
Capital expenditures and asset removal costs$122.9 $109.0 $13.9 13 %

Natural gas sales to customers represent revenue from contracts with customers through implied contracts established by our tariffs and rates approved by the regulatory authorities, as well as revenues from regulatory mechanisms related to natural gas sales. Additionally, natural gas sales includes the recovery of our cost of natural gas.

Our natural gas sales include fixed and variable charges related to the delivery of natural gas and gas costs that are passed through to our customers in accordance with our cost of natural gas regulatory mechanisms. Fixed charges reflect the portion of our natural gas sales attributable to the monthly fixed customer charge component of our rates, which does not fluctuate based on customer usage in each period. Variable charges reflect the portion of our natural gas sales that fluctuate with the volumes delivered and billed and the effects of weather normalization.

Transportation revenues represent revenue from contracts with customers through implied contracts established by our tariffs and rates approved by the regulatory authorities, as well as tariff-based negotiated contracts.

Other revenues include primarily miscellaneous service charges which represent implied contracts with customers established by our tariffs and rates approved by the regulatory authorities and other revenues from regulatory mechanisms.

Cost of natural gas includes commodity purchases, fuel, storage, transportation, hedging costs and settlement proceeds for natural gas price volatility mitigation programs approved by our regulators and other gas purchase costs recovered through our cost of natural gas regulatory mechanisms and does not include an allocation of general operating costs or depreciation and amortization. These regulatory mechanisms provide a method of recovering natural gas costs on an ongoing basis without a profit. Therefore, although our revenues will fluctuate with the cost of natural gas that we pass-through to our customers, operating income is not affected by fluctuations in the cost of natural gas.

Operating income increased $10.5 million for the three months ended March 31, 2022, compared with the same period last year, due primarily to the following:
an increase of $15.1 million from new rates;
a decrease of $2.4 million in bad debt expense; and
an increase of $2.6 million in residential sales due to net customer growth.

These increases were offset partially by:
an increase of $3.7 million in outside service costs; and
an increase of $2.2 million in employee-related costs.
32



Other Factors Affecting Net Income - Other factors that affected net income for the three months ended March 31, 2022, compared with the same period last year, include an increase of $3.7 million in other expense, net, due primarily to a decrease in the value of investments associated with nonqualified employee benefit plans.

EDIT - For the three months ended March 31, 2022 and 2021, we credited income tax expense $7.9 million and $8.1 million, respectively, for the amortization of the regulatory liability associated with EDIT that was returned to customers.

Capital Expenditures and Asset Removal Costs - Our capital expenditures program includes expenditures for pipeline integrity, extending service to new areas, increasing system capabilities, pipeline replacements, automated meter reading, government-mandated pipeline relocations, fleet, facilities, IT assets and cybersecurity. It is our practice to maintain and upgrade our infrastructure, facilities and systems to ensure safe, reliable and efficient operations. Asset removal costs include expenditures associated with the replacement or retirement of long-lived assets that result from the construction, development and/or normal use of our assets, primarily our pipeline assets.

Capital expenditures and asset removal costs were $13.9 million higher for the three months ended March 31, 2022, compared with the same period last year, due primarily to expenditures for system integrity and extension of service to new areas. Our full-year capital expenditures and asset removal costs are expected to be approximately $650 million for 2022.

Selected Operating Information - The following tables set forth certain selected operating information for the periods indicated:
Three Months EndedVariances
 March 31,2022 vs. 2021
(in thousands)20222021Increase (Decrease)
Average Number of CustomersOKKSTXTotalOKKSTXTotalOKKSTXTotal
Residential834 598 654 2,086 826 595 647 2,068 8 3 7 18 
Commercial and industrial77 51 36 164 77 50 35 162  1 1 2 
Other  3 3 — —     
Transportation5 6 1 12 12     
Total customers916 655 694 2,265 908 651 686 2,245 8 4 8 20 

The increase in the average number of customers for the three months ended March 31, 2022, compared with the same periods last year, is due primarily to the connection of new customers resulting from the extension and expansion of our system. For the three months ended March 31, 2022, our average customer count includes approximately 6,700 new customer connections during the period compared to approximately 6,200 for the same period last year. For the year ended December 31, 2021, our average customer count included approximately 24,900 new customer connections.

The following table reflects the total volumes delivered, excluding the effects of WNA mechanisms on sales volumes.
Three Months Ended
 March 31,
Volumes (MMcf)
20222021
Natural gas sales  
Residential60,650 62,979 
Commercial and industrial19,369 18,489 
Other1,111 1,081 
Total sales volumes delivered81,130 82,549 
Transportation67,071 64,319 
Total volumes delivered148,201 146,868 

The impact of weather on residential and commercial natural gas sales is mitigated by WNA mechanisms in all jurisdictions.

33


The following table sets forth the HDDs by state for the periods indicated:
</