Company Quick10K Filing
Quick10K
One Gas
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$89.72 53 $4,727
10-Q 2019-09-30 Quarter: 2019-09-30
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-10-28
8-K 2019-10-09
8-K 2019-10-04
8-K 2019-09-18
8-K 2019-07-29
8-K 2019-07-23
8-K 2019-07-10
8-K 2019-05-23 Shareholder Vote
8-K 2019-05-08
8-K 2019-04-29
8-K 2019-04-03
8-K 2019-03-01
8-K 2019-02-28
8-K 2019-02-26 Officers, Regulation FD, Exhibits
8-K 2019-02-25
8-K 2019-02-20
8-K 2019-01-15
8-K 2019-01-10
8-K 2018-12-04
8-K 2018-11-30
8-K 2018-11-15 Other Events
8-K 2018-11-01 Off-BS Arrangement, Exhibits
8-K 2018-10-29
8-K 2018-10-10
8-K 2018-10-05 Enter Agreement, Exhibits
8-K 2018-09-20
8-K 2018-07-30
8-K 2018-07-24
8-K 2018-07-23 Officers, Amend Bylaw, Regulation FD, Exhibits
8-K 2018-07-11
8-K 2018-06-29
8-K 2018-05-30 Officers, Amend Bylaw, Shareholder Vote
8-K 2018-05-11
8-K 2018-04-30
8-K 2018-04-05
8-K 2018-02-26
8-K 2018-02-23
8-K 2018-02-21
8-K 2018-02-20
8-K 2018-01-17
8-K 2018-01-12
8-K 2018-01-09
LNG Cheniere Energy 15,440
ATO Atmos Energy 13,009
SR Spire 4,228
NJR New Jersey Resources 4,054
NFG National Fuel Gas 4,005
SJI South Jersey Industries 2,942
UGP Ultrapar Holdings 2,071
NWN Northwest Natural Gas 2,044
NWN Northwest Natural Holding Company 2,044
CQP Cheniere Energy Partners 0
OGS 2019-09-30
Part I - Financial Information
Item 1. 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
EX-31.1 ogsexhibit3113q10-q2019.htm
EX-31.2 ogsexhibit3123q10-q2019.htm
EX-32.1 ogsexhibit3213q10-q2019.htm
EX-32.2 ogsexhibit3223q10-q2019.htm

One Gas Earnings 2019-09-30

OGS 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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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 ONE Gas Credit Agreement contains certain financial, operational and legal covenants. 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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 September 30, 2019.
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)
Oklahoma
46-3561936
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
15 East Fifth Street

Tulsa,
OK
74103
(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 class
 
Trading Symbol
 
Name of exchange on which registered
Common Stock, par value $0.01 per share
 
OGS
 
New 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 filer
Accelerated filer
 
 
 
 
Non-accelerated filer
Smaller 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 October 21, 2019, the Company had 52,737,473 shares of common stock outstanding.





























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ONE Gas, Inc.
TABLE OF CONTENTS
Financial Information
Page No.
 
Consolidated Statements of Income - Three and Nine Months Ended September 30, 2019 and 2018
 
Consolidated Statements of Comprehensive Income - Three and Nine Months Ended September 30, 2019 and 2018
 
Consolidated Balance Sheets - September 30, 2019 and December 31, 2018
 
Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2019 and 2018
 
Consolidated Statements of Equity - Three and Nine Months Ended September 30, 2019 and 2018
 
Notes to Consolidated Financial Statements
 

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 “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 or 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,” 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) copies of our Annual Report, 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).  Copies of 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 Corporate Responsibility 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, posted on or disseminated through our social media accounts are not incorporated by reference into this report.



4


GLOSSARY - The abbreviations, acronyms and industry terminology used in this Quarterly Report are defined as follows:
AAO
Accounting Authority Order
ADIT
Accumulated deferred income tax
Annual Report
Annual Report on Form 10-K for the year ended December 31, 2018
ASC
Accounting Standards Codification
ASU
Accounting Standards Update
Bcf
Billion cubic feet
CERCLA
Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended
Clean Air Act
Federal Clean Air Act, as amended
Clean Water Act
Federal Water Pollution Control Amendments of 1972, as amended
Code
Internal Revenue Code of 1986, as amended
COSA
Cost-of-service Adjustment
DOT
United States Department of Transportation
EPA
United States Environmental Protection Agency
EPS
Earnings per share
Exchange Act
Securities Exchange Act of 1934, as amended
FASB
Financial Accounting Standards Board
GAAP
Accounting principles generally accepted in the United States of America
GPAC
Gas Pipeline Advisory Committee
GRIP
Gas Reliability Infrastructure Program
GSRS
Gas 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)
IRS
U.S. Internal Revenue Service
KCC
Kansas Corporation Commission
KDHE
Kansas Department of Health and Environment
LDC
Local distribution company
MAOP(s)
Maximum allowable operating pressure(s)
MGP
Manufactured gas plant
MMcf
Million cubic feet
Moody’s
Moody’s Investors Service, Inc.
Net margin
Non-GAAP measure defined as total revenues less cost of natural gas
NOL
Net operating loss
NPRM
Notice of Proposed Rulemaking
NYMEX
New York Mercantile Exchange
OCC
Oklahoma Corporation Commission
ONE Gas
ONE Gas, Inc.
ONE Gas Credit Agreement
ONE Gas’ $700 million amended and restated revolving credit agreement which expires on October 4, 2024
ONEOK
ONEOK, Inc. and its subsidiaries
PBRC
Performance-Based Rate Change
PHMSA
United States Department of Transportation Pipeline and Hazardous Materials Safety Administration
Pipeline Safety, Regulatory Certainty
and Job Creation Act
Pipeline Safety, Regulatory Certainty and Job Creation Act of 2011, as amended
Quarterly Report(s)
Quarterly Report(s) on Form 10-Q
ROE
Return on equity, calculated consistent with utility ratemaking principles in each jurisdiction in which we operate
RRC
Railroad Commission of Texas
S&P
Standard & Poor’s Ratings Services
SEC
Securities and Exchange Commission
Securities Act
Securities Act of 1933, as amended
Senior Notes
ONE Gas’ registered notes consisting of $300 million of 3.61 percent senior notes due 2024, $600 million of
  4.658 percent senior notes due 2044 and $400 million of 4.50 percent notes due 2048
Separation and Distribution Agreement
Separation and Distribution Agreement dated January 14, 2014, between ONEOK and ONE Gas
XBRL
eXtensible Business Reporting Language

5


PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

ONE Gas, Inc.

 

 
 
 
 
 
CONSOLIDATED STATEMENTS OF INCOME

 

 
 
 
 
 


Three Months Ended
 
Nine Months Ended
 

September 30,
 
September 30,
(Unaudited)

2019

2018
 
2019
 
2018


(Thousands of dollars, except per share amounts)

 
 
 
 
 
 
 
 
Total revenues
 
$
248,563

 
$
238,280

 
$
1,200,123

 
$
1,169,265

 
 
 
 
 
 
 
 
 
Cost of natural gas

49,607


51,256

 
497,271

 
495,834

 
 
 
 
 
 
 
 
 
Operating expenses
 
 
 
 
 
 
 
 
Operations and maintenance

100,486


96,443

 
310,243

 
302,103

Depreciation and amortization

45,471


40,344

 
134,260

 
118,991

General taxes

14,222


13,996

 
45,062

 
44,763

Total operating expenses

160,179


150,783

 
489,565

 
465,857

Operating income

38,777


36,241

 
213,287

 
207,574

Other expense, net

(1,397
)

(1,929
)
 
(1,833
)
 
(6,287
)
Interest expense, net

(15,783
)

(12,365
)
 
(46,968
)
 
(36,720
)
Income before income taxes

21,597


21,947

 
164,486

 
164,567

Income taxes

(4,140
)

(5,671
)
 
(28,899
)
 
(37,037
)
Net income

$
17,457


$
16,276

 
$
135,587

 
$
127,530








 
 
 
 
Earnings per share






 
 
 
 
Basic

$
0.33


$
0.31

 
$
2.56

 
$
2.42

Diluted

$
0.33


$
0.31

 
$
2.55

 
$
2.41








 
 
 
 
Average shares (thousands)






 
 
 
 
Basic

52,933


52,736

 
52,883

 
52,678

Diluted

53,267


53,112

 
53,229

 
52,969

Dividends declared per share of stock

$
0.50


$
0.46

 
$
1.50

 
$
1.38

See accompanying Notes to Consolidated Financial Statements.

6


ONE Gas, Inc.
 
 
 
 
 
 
 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(Unaudited)
2019
 
2018
 
2019
 
2018
 
(Thousands of dollars)
Net income
$
17,457

 
$
16,276

 
$
135,587

 
$
127,530

Other comprehensive income, net of tax
 

 
 

 
 

 
 

Change in pension and other postemployment benefit plan liability, net of tax of $(53), $(68), $(159) and $(487), respectively
160

 
203

 
480

 
326

Total other comprehensive income, net of tax
160

 
203

 
480

 
326

Comprehensive income
$
17,617

 
$
16,479

 
$
136,067

 
$
127,856

See accompanying Notes to Consolidated Financial Statements.


7



ONE Gas, Inc.
 
 
 
 
CONSOLIDATED BALANCE SHEETS
 
 
 
 
 
 
 
 
 
 
 
September 30,
 
December 31,
(Unaudited)
 
2019
 
2018
Assets
 
(Thousands of dollars)
Property, plant and equipment
 
 

 
 

Property, plant and equipment
 
$
6,336,041

 
$
6,073,143

Accumulated depreciation and amortization
 
1,847,573

 
1,789,431

Net property, plant and equipment
 
4,488,468

 
4,283,712

Current assets
 
 
 
 
Cash and cash equivalents
 
12,562

 
21,323

Accounts receivable, net
 
130,768

 
295,421

Materials and supplies
 
56,788

 
44,333

Natural gas in storage
 
118,450

 
107,295

Regulatory assets
 
54,123

 
54,420

Other current assets
 
16,992

 
20,495

Total current assets
 
389,683

 
543,287

Goodwill and other assets
 
 

 
 

Regulatory assets
 
416,140

 
437,479

Goodwill
 
157,953

 
157,953

Other assets
 
80,936

 
46,211

Total goodwill and other assets
 
655,029

 
641,643

Total assets
 
$
5,533,180

 
$
5,468,642

See accompanying Notes to Consolidated Financial Statements.


8


ONE Gas, Inc.
 
 
 
 
CONSOLIDATED BALANCE SHEETS
 
 
 
 
(Continued)
 
 
 
 
 
 
September 30,
 
December 31,
(Unaudited)
 
2019
 
2018
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 52,736,623 shares at September 30, 2019; issued 52,598,005 and outstanding 52,564,902 shares at December 31, 2018
 
$
527

 
$
526

Paid-in capital
 
1,728,237

 
1,727,492

Retained earnings
 
377,941

 
320,869

Accumulated other comprehensive loss
 
(4,824
)
 
(4,086
)
Treasury stock, at cost: 33,103 shares at December 31, 2018
 

 
(2,145
)
   Total equity
 
2,101,881

 
2,042,656

Long-term debt, excluding current maturities, and net of issuance costs of $11,048 and $11,457, respectively
 
1,285,937

 
1,285,483

Total equity and long-term debt

3,387,818


3,328,139

Current liabilities
 
 
 
 
Notes payable
 
395,000

 
299,500

Accounts payable
 
62,575

 
174,510

Accrued taxes other than income
 
47,205

 
47,640

Regulatory liabilities
 
48,784

 
48,394

Customer deposits
 
57,531

 
61,183

Other current liabilities
 
66,660

 
67,664

Total current liabilities
 
677,755

 
698,891

Deferred credits and other liabilities
 
 

 
 

Deferred income taxes
 
675,613

 
652,426

Regulatory liabilities
 
506,961

 
520,866

Employee benefit obligations
 
164,206

 
178,720

Other deferred credits
 
120,827

 
89,600

Total deferred credits and other liabilities
 
1,467,607

 
1,441,612

Commitments and contingencies
 


 


Total liabilities and equity
 
$
5,533,180

 
$
5,468,642

See accompanying Notes to Consolidated Financial Statements.





















9



























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10


ONE Gas, Inc.
 
 
 
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
 
 
Nine Months Ended
 
 
September 30,
(Unaudited)
 
2019
 
2018
 
 
(Thousands of dollars)
Operating activities
 
 
 
 
Net income
 
$
135,587

 
$
127,530

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
134,260

 
118,991

Deferred income taxes
 
9,099

 
36,637

Share-based compensation expense
 
7,153

 
6,195

Provision for doubtful accounts
 
4,600

 
6,758

Changes in assets and liabilities:
 
 
 
 
Accounts receivable
 
160,053

 
159,574

Materials and supplies
 
(12,455
)
 
(691
)
Natural gas in storage
 
(11,155
)
 
3,673

Asset removal costs
 
(38,101
)
 
(39,195
)
Accounts payable
 
(113,665
)
 
(63,857
)
Accrued taxes other than income
 
(435
)
 
7,436

Customer deposits
 
(3,652
)
 
758

Regulatory assets and liabilities
 
20,196

 
100,268

Other assets and liabilities
 
(2,942
)
 
(27,309
)
Cash provided by operating activities
 
288,543

 
436,768

Investing activities
 
 

 
 

Capital expenditures
 
(305,797
)
 
(279,346
)
Other investing expenditures
 
(4,056
)
 

Other investing receipts
 
1,036

 

Cash used in investing activities
 
(308,817
)
 
(279,346
)
Financing activities
 
 

 
 

Borrowings (repayments) on notes payable, net
 
95,500

 
(81,215
)
Issuance of common stock
 
2,536

 
2,390

Dividends paid
 
(79,055
)
 
(72,432
)
Tax withholdings related to net share settlements of stock compensation
 
(7,468
)
 
(8,148
)
Cash provided by (used in) financing activities
 
11,513

 
(159,405
)
Change in cash and cash equivalents
 
(8,761
)
 
(1,983
)
Cash and cash equivalents at beginning of period
 
21,323

 
14,413

Cash and cash equivalents at end of period
 
$
12,562

 
$
12,430

See accompanying Notes to Consolidated Financial Statements.


11


ONE Gas, Inc.
 
 
 
 
CONSOLIDATED STATEMENTS OF EQUITY
 
 
 
 
 
 
 
 
 
(Unaudited)
 
Common Stock Issued
Common Stock
Paid-in Capital
 
 
(Shares)
(Thousands of dollars)
 
 
 
 
 
January 1, 2019
 
52,598,005

$
526

$
1,727,492

Net income
 



Other comprehensive income
 



Reclassification of stranded tax effects
 



Common stock issued and other
 
88,629

1

(7,499
)
Common stock dividends - $0.50 per share
 


227

March 31, 2019
 
52,686,634

$
527

$
1,720,220

Net income
 



Other comprehensive income
 



Common stock issued and other
 
47,588


5,397

Common stock dividends - $0.50 per share
 


226

June 30, 2019
 
52,734,222

$
527

$
1,725,843

Net income
 



Other comprehensive income
 



Common stock issued and other
 
2,401


2,169

Common stock dividends - $0.50 per share
 


225

September 30, 2019
 
52,736,623

$
527

$
1,728,237

 
 
 
 
 
January 1, 2018
 
52,598,005

$
526

$
1,737,551

Net income
 



Other comprehensive income
 



Common stock issued and other
 


(16,074
)
Common stock dividends - $0.46 per share
 


224

March 31, 2018
 
52,598,005

$
526

$
1,721,701

Net income
 



Other comprehensive income
 



Common stock issued and other
 


1,867

Common stock dividends - $0.46 per share
 


227

June 30, 2018
 
52,598,005

$
526

$
1,723,795

Net income
 



Other comprehensive income
 



Common stock issued and other
 


1,345

Common stock dividends - $0.46 per share
 


221

September 30, 2018
 
52,598,005

$
526

$
1,725,361

See accompanying Notes to Consolidated Financial Statements.



12


ONE Gas, Inc.
 
 
 
 
 
CONSOLIDATED STATEMENTS OF EQUITY
 
 
 
(Continued)
 
 
 
 
 
(Unaudited)
 
Retained Earnings
Treasury Stock
Accumulated Other Comprehensive Loss
Total Equity
 
 
(Thousands of dollars)
 
 
 
 
 
 
January 1, 2019
 
$
320,869

$
(2,145
)
$
(4,086
)
$
2,042,656

Net income
 
93,660



93,660

Other comprehensive income
 


160

160

Reclassification of stranded tax effects
 
1,218


(1,218
)

Common stock issued and other
 

2,145


(5,353
)
Common stock dividends - $0.50 per share
 
(26,570
)


(26,343
)
March 31, 2019
 
$
389,177

$

$
(5,144
)
$
2,104,780

Net income
 
24,470



24,470

Other comprehensive income
 


160

160

Common stock issued and other
 



5,397

Common stock dividends - $0.50 per share
 
(26,570
)


(26,344
)
June 30, 2019
 
$
387,077

$

$
(4,984
)
$
2,108,463

Net income
 
17,457



17,457

Other comprehensive income
 


160

160

Common stock issued and other
 



2,169

Common stock dividends - $0.50 per share
 
(26,593
)


(26,368
)
September 30, 2019
 
$
377,941

$

$
(4,824
)
$
2,101,881

 
 
 
 
 
 
January 1, 2018
 
$
246,121

$
(18,496
)
$
(5,493
)
$
1,960,209

Net income
 
90,835



90,835

Other comprehensive income
 


(80
)
(80
)
Common stock issued and other
 

10,195


(5,879
)
Common stock dividends - $0.46 per share
 
(24,361
)


(24,137
)
March 31, 2018
 
$
312,595

$
(8,301
)
$
(5,573
)
$
2,020,948

Net income
 
20,419



20,419

Other comprehensive income
 


203

203

Common stock issued and other
 

3,042


4,909

Common stock dividends - $0.46 per share
 
(24,362
)


(24,135
)
June 30, 2018
 
$
308,652

$
(5,259
)
$
(5,370
)
$
2,022,344

Net income
 
16,276



16,276

Other comprehensive income
 


203

203

Common stock issued and other
 

616


1,961

Common stock dividends - $0.46 per share
 
(24,381
)


(24,160
)
September 30, 2018
 
$
300,547

$
(4,643
)
$
(5,167
)
$
2,016,624

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 2018 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 and nine months ended September 30, 2019, 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 2.2 million customers through our divisions in Oklahoma, Kansas and Texas through Oklahoma Natural Gas, Kansas Gas Service and Texas Gas Service, respectively. We serve residential, commercial, industrial 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 revenues and expenses 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, provision for doubtful accounts, 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 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 to us.

Segments - We operate in one reportable and operating business segment: regulated public utilities that deliver natural gas to residential, commercial, industrial 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 operating income. For the three and nine months ended September 30, 2019, and 2018, we had no single external customer from which we received 10 percent or more of our gross revenues.

Property, Plant and Equipment - Accounts payable for construction work in process and asset removal costs increased by approximately $1.7 million and decreased by approximately $11.5 million for the nine months ended September 30, 2019 and 2018, respectively. Such amounts are not included in capital expenditures in our consolidated statements of cash flows.

Goodwill Impairment Test - We assess our goodwill for impairment at least annually on July 1, unless events or changes in circumstances indicate an impairment may have occurred before that time. As part of our goodwill impairment test, we may first assess qualitative factors (including macroeconomic conditions, industry and market considerations, cost factors and overall financial performance) to determine whether it is more likely than not that the fair value of our reporting unit is less than its carrying amount. If further testing is necessary or a quantitative test is elected to refresh our recurring qualitative assessment, we perform a quantitative impairment test for goodwill.

Our quantitative goodwill impairment analysis performed as of July 1, 2019 did not result in an impairment charge nor did our analysis reflect our reporting unit at risk, and subsequent to that date, no event has occurred indicating that the implied fair value of our reporting unit is less than the carrying value of its net assets.

Reclassification of Prior Year Presentation - Certain prior year amounts have been reclassified for consistency with the current year presentation. Adjustments have been made to the consolidated balance sheets and consolidated statements of cash flows for the year ended December 31, 2018, to include accrued interest and accrued liabilities in other current liabilities. These reclassifications had no effect on the reported results of operations in the consolidated statements of income or previously reported cash flows from operating activities in the consolidated statements of cash flows.

14



Recently Issued Accounting Standards Update - In August 2018, the FASB issued ASU 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force).” Under this guidance, a company should defer implementation costs that it incurs if the company would capitalize those same costs under the internal-use software guidance for an arrangement that is a software license. This standard is effective for interim and annual periods in fiscal years beginning after December 15, 2019, and early adoption is permitted. We will adopt this standard January 1, 2020, using the prospective transition approach. We are currently assessing the potential impacts of adopting this standard, but do not expect a material impact on our consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” which allows a reclassification from accumulated other comprehensive income (loss) to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. We adopted this new guidance in the first quarter 2019 and our adoption did not result in a material impact to our consolidated financial statements. This change is reflected in our consolidated statements of equity.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments,’’ which introduces new guidance to the accounting for credit losses on instruments within its scope, including trade receivables. It is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and early adoption is permitted for fiscal years beginning after December 15, 2018. We will adopt this new guidance on January 1, 2020, and apply a cumulative-effect adjustment to retained earnings, if necessary. We do not expect a material impact to our financial position or results of operations.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” as amended, (“Topic 842”) which prescribes recognizing lease assets and liabilities on the balance sheet and includes disclosure of key information about leasing arrangements. We adopted this new guidance effective January 1, 2019, and applied the modified retrospective approach to all existing leases. Upon adoption we recognized lease liabilities of approximately $32 million, with corresponding right-of-use assets of the same amount based on the present value of the remaining minimum rental payments for existing operating leases. Our adoption did not result in a material impact to our results of operations or cash flows. We utilized the practical expedients that allow us to: (1) not reassess expired or existing contracts to determine whether they are subject to lease accounting guidance, (2) not reconsider lease classification at transition, and (3) not evaluate previously capitalized initial direct costs under the revised requirements. We also utilized the practical expedients that allowed us to: (1) not evaluate under Topic 842 existing or expired land easements that were not previously accounted for as leases under the current lease guidance in ASC Topic 840 (“Topic 840”) and (2) use an additional transition method in which an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We adopted an accounting policy that exempts leases with terms of less than one year from the recognition requirements of Topic 842, and disclose such leases in our interim and annual disclosures upon adoption. Our adoption did not result in a cumulative adjustment to our opening retained earnings. See Note 6 for additional information regarding our leases.

2.REVENUE

We recognize revenue from contracts with customers to depict the transfers of goods and services to customers at an amount that we expect to be entitled to receive in exchange for these goods and services. Our sources of revenue are disaggregated by natural gas sales, transportation revenues, and miscellaneous revenues, which are primarily one-time service fees, that meet the requirements of FASB’s ASU 2014-09, “Revenue from Contracts with Customers” (“ASC 606”). Certain revenues that do not meet the requirements of ASC 606 are classified as other revenues in our Notes to Consolidated Financial Statements in this Quarterly Report.

Our natural gas sales to customers represent revenue from contracts with customers through implied contracts established by our tariff rates approved by the regulatory authorities. For natural gas sales, the customer receives the benefits of our performance when the commodity is received and simultaneously consumed by the customer. The performance obligation is satisfied over time as the customer consumes the natural gas.

Our transportation revenues represent revenue from contracts with customers through implied contracts established by our tariff rates approved by the regulatory authorities and tariff-based negotiated contracts. The customer receives the benefits of our performance when the commodity is delivered to the customer and the performance obligation is satisfied over time as the customer receives the natural gas.

For regulated deliveries of natural gas, we read meters and bill customers on a monthly cycle. We recognize revenues upon the

15


delivery of natural gas commodity or services rendered to customers. The billing cycles for customers do not necessarily coincide with the accounting periods used for financial reporting purposes. We accrue unbilled revenues for natural gas that has been delivered but not yet billed at the end of an accounting period. We use the invoice method practical expedient, where we recognize revenue for volumes delivered for which we have a right to invoice. Our estimate of accrued unbilled revenue is based on a percentage estimate of amounts unbilled each month, which is dependent upon a number of factors, some of which require management’s judgment. These factors include customer consumption patterns and the impact of weather on usage. The accrued unbilled natural gas sales revenues at September 30, 2019 and December 31, 2018, were $53.0 million and $127.6 million, respectively, and are included in accounts receivable in our consolidated balance sheets.

Our miscellaneous revenues from contracts with customers represent implied contracts established by our tariff rates approved
by the regulatory authorities and include miscellaneous utility services with the performance obligation satisfied at a point in time when services are rendered to the customer.

Total other revenues consist of revenues associated with regulatory mechanisms that do not meet the requirements of ASC 606 as revenue from contracts with customers, but authorize us to accrue revenues earned based on tariffs approved by the regulatory authorities. Other revenues - natural gas sales related primarily reflect our weather normalization mechanism in Kansas. This mechanism adjusts our revenues earned for the variance between actual and normal HDDs. This mechanism can have either positive (warmer than normal) or negative (colder than normal) effects on revenues.

We collect and remit other taxes on behalf of governmental authorities, and we record these amounts in accrued taxes other than income in our consolidated balance sheets.

The following table sets forth our revenues disaggregated by source for the periods indicated:
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(Thousands of dollars)
Natural gas sales to customers
 
$
215,996

 
$
208,945

 
$
1,096,048

 
$
1,065,218

Transportation revenues
 
23,707

 
21,919

 
82,726

 
79,524

Miscellaneous revenues
 
4,677

 
4,893

 
15,533

 
17,420

Total revenues from contracts with customers
 
244,380

 
235,757

 
1,194,307

 
1,162,162

Other revenues - natural gas sales related
 
735

 
375

 
(2,002
)
 
297

Other revenues
 
3,448

 
2,148

 
7,818

 
6,806

Total other revenues
 
4,183

 
2,523

 
5,816

 
7,103

Total revenues
 
$
248,563

 
$
238,280

 
$
1,200,123

 
$
1,169,265




16


3.
REGULATORY ASSETS AND LIABILITIES

The tables below present a summary of regulatory assets and liabilities, net of amortization, for the periods indicated:
 
 
 
 
September 30, 2019
 
 
 
 
Current
 
Noncurrent
 
Total
 
 
 
 
(Thousands of dollars)
Under-recovered purchased-gas costs
 
 
 
$
18,058

 
$

 
$
18,058

Pension and postemployment benefit costs
 

 
22,966

 
398,683

 
421,649

Reacquired debt costs
 

 
812

 
5,879

 
6,691

MGP remediation costs
 
 
 
98

 
9,734

 
9,832

Ad valorem tax
 

 
2,572

 

 
2,572

Other
 

 
9,617

 
1,844

 
11,461

Total regulatory assets, net of amortization
 
 
 
54,123

 
416,140

 
470,263

Federal corporate income tax rate changes (a)
 
 
 
(14,263
)
 
(506,961
)
 
(521,224
)
Over-recovered purchased-gas costs
 
 
 
(27,543
)
 

 
(27,543
)
Weather normalization
 
 
 
(6,978
)
 

 
(6,978
)
Total regulatory liabilities, net of amortization
 
 
 
(48,784
)
 
(506,961
)
 
(555,745
)
Net regulatory assets (liabilities), net of amortization
 
 
 
$
5,339

 
$
(90,821
)
 
$
(85,482
)
(a) See Note 11 for additional information regarding our federal corporate income tax rate changes to regulatory liabilities.
 
 
 
 
December 31, 2018
 
 
 
 
Current
 
Noncurrent
 
Total
 
 
 
 
(Thousands of dollars)
Under-recovered purchased-gas costs
 

 
$
25,083

 
$

 
$
25,083

Pension and postemployment benefit costs
 

 
23,384

 
421,726

 
445,110

Reacquired debt costs
 

 
812

 
6,487

 
7,299

MGP remediation costs
 
 
 

 
7,724

 
7,724

Ad valorem tax
 
 
 
1,070

 

 
1,070

Other
 

 
4,071

 
1,542

 
5,613

Total regulatory assets, net of amortization
 
 
 
54,420

 
437,479

 
491,899

Federal corporate income tax rate changes (a)
 
 
 
(30,934
)
 
(520,866
)
 
(551,800
)
Over-recovered purchased-gas costs
 

 
(13,668
)
 

 
(13,668
)
Weather normalization
 
 
 
(3,792
)
 

 
(3,792
)
Total regulatory liabilities
 
 
 
(48,394
)
 
(520,866
)
 
(569,260
)
Net regulatory assets (liabilities), net of amortization
 
 
 
$
6,026

 
$
(83,387
)
 
$
(77,361
)

(a) See Note 11 for additional information regarding our federal corporate income tax rate changes to regulatory liabilities.

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 riders or base rates, and we believe that we will be able to recover such costs, consistent with our historical recoveries.

4.
CREDIT FACILITY AND SHORT-TERM NOTES PAYABLE

In October 2019, we exercised a one-year extension of the ONE Gas Credit Agreement and amended the agreement to provide that we may extend the maturity date by one year, subject to the lenders’ consent, two additional times. The ONE Gas Credit Agreement remains a $700 million revolving unsecured credit facility and includes a $20 million letter of credit subfacility and a $60 million swingline subfacility. We are able to 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 expires in October 2024, and 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.


17


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 September 30, 2019, our total debt-to-capital ratio was 44 percent and we were in compliance with all covenants under the ONE Gas Credit Agreement.

At September 30, 2019, we had $1.2 million in letters of credit issued and no borrowings under the ONE Gas Credit Agreement, resulting in $698.8 million of remaining credit available under the ONE Gas Credit Agreement.

We have a commercial paper program under which we may issue unsecured commercial paper up to a maximum amount of $700 million to fund short-term borrowing needs. The maturities of the commercial paper notes may vary but may not exceed 270 days from the date of issue. The commercial paper notes are generally sold at par less a discount representing an interest factor. At September 30, 2019, we had $395.0 million of commercial paper outstanding. The ONE Gas Credit Agreement is available to repay the commercial paper notes, if necessary.

5.
LONG-TERM DEBT

In November 2018, ONE Gas issued $400 million of 4.50 percent senior notes due 2048. The proceeds from the issuance were used to retire the $300 million of 2.07 percent senior notes due 2019, to reduce the amount of outstanding commercial paper and for general corporate purposes.

Our long-term debt includes $300 million of 3.61 percent senior notes due in 2024, $600 million of 4.658 percent senior notes due 2044, and $400 million of 4.50 percent senior notes due 2048. 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.

6.
LEASES

A lease is a contract that conveys the right to control the use and obtain substantially all the economic benefits from the use of an identified asset for a period of time in exchange for consideration. We determine if an arrangement is a lease at inception and, if so, whether the arrangement is an operating lease or a finance lease. We identify a lease as a finance lease if the agreement includes any of the following criteria: transfer of ownership by the end of the lease term; an option to purchase the underlying asset that the lessee is reasonably certain to exercise; a lease term that represents 75 percent or more of the remaining economic life of the underlying asset; a present value of lease payments and any residual value guaranteed by the lessee that equals or exceeds 90 percent of the fair value of the underlying asset; or an underlying asset that is so specialized in nature that there is no expected alternative use to the lessor at the end of the lease term. A lease that does not meet any of these criteria is considered an operating lease.
Lease right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Right-of-use assets and liabilities are recognized at the commencement date of a lease based on the present value of lease payments over the lease term. Our lease terms may include options to extend or terminate the lease. We include these extension or termination options in the determination of the lease term when it is reasonably certain that we will exercise that option. We have lease agreements with lease and non-lease components, which are accounted for separately. Additionally, for certain office equipment leases, we apply a portfolio approach to effectively account for the operating lease right-of-use assets and liabilities. We do not recognize leases having a term of less than one year in our consolidated balance sheets.
For purposes of determining the present value of the lease payments, we use a lease’s implicit interest rate when readily determinable. As most of our leases do not provide an implicit interest rate, we use a discount rate commensurate with borrowing rates for defined terms that are reviewed annually on December 31st. Lease cost for operating leases is recognized on a straight-line basis over the lease term.
We have operating leases for office facilities, gas storage facilities, information technology equipment and right-of-way contracts. Our leases have remaining lease terms of 1 year to 15 years, some of which include options to extend the leases for up to 10 years, and some of which include options to terminate the leases within specified time frames. We have not entered into any finance leases.
Our right-of-use asset is $35.8 million as of September 30, 2019, and is reported within other assets in our consolidated balance sheets. Current operating lease liabilities are reported within our other current liabilities and other liabilities in our consolidated

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balance sheets. Total operating lease cost including immaterial amounts attributable to short-term operating leases was $2.1 million and $6.3 million for the three and nine months ended September 30, 2019, respectively.
 
Nine Months Ended
 
September 30,
Other information related to operating leases
2019
 
(Millions of dollars)
 
 
Weighted-average remaining lease term
7 years
 
 
Weighted-average discount rate
3.65%
 
 
Supplemental cash flows information
 
Lease payments
$
(6.6
)
Right-of-use assets obtained in exchange for lease obligations
$
9.3



 
 
 
 
 
September 30,
Future minimum lease payments under non-cancellable operating leases
 
2019
 
 
(Millions of dollars)
2019 (excluding the nine months ended September 30, 2019)
 
$
1.7

2020
 
7.5

2021
 
7.1

2022
 
6.9

2023
 
5.8

Thereafter
 
11.6

Total future minimum lease payments
 
$
40.6

Imputed interest
 
(4.9
)
Total operating lease liability
 
$
35.7

 
 
 
Consolidated balance sheets as of September 30, 2019
 
 
Current operating lease liability
 
$
6.2

Long-term operating lease liability
 
29.5

Total operating lease liability
 
$
35.7



The following table sets forth the required disclosures under the new lease accounting standard described in Note 1, as reported in Note 15 of our Notes to Consolidated Financial Statements in our Annual Report:
 
 
December 31,
Future minimum lease payments under non-cancellable operating leases
 
2018
 
 
(Millions of dollars)
2019
 
$
6.3

2020
 
5.1

2021
 
4.5

2022
 
4.3

2023
 
4.2

Thereafter
 
3.8

Total future minimum lease payments
 
$
28.2




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7.
EQUITY

Dividends Declared - In October 2019, we declared a dividend of $0.50 per share ($2.00 per share on an annualized basis) for shareholders of record as of