10-Q 1 ogs-20240331.htm 10-Q ogs-20240331
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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 March 31, 2024.
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 29, 2024, the Company had 56,569,396 shares of common stock outstanding.

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ONE Gas, Inc.
TABLE OF CONTENTS
Part I.
Page No.
Item 1.
 
Consolidated Statements of Income - Three Months Ended March 31, 2024 and 2023
 
Consolidated Statements of Comprehensive Income - Three Months Ended March 31, 2024 and 2023
 
Consolidated Balance Sheets - March 31, 2024 and December 31, 2023
 
Consolidated Statements of Cash Flows - Three Months Ended March 31, 2024 and 2023
 
Consolidated Statements of Equity - Three Months Ended March 31, 2024 and 2023
 
Item 2.
Item 3.
Item 4.
Part II.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
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. Such materials are available 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 investors and other stakeholders. 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, 2023
ASCAccounting Standards Codification
ASUAccounting Standards Update
BcfBillion cubic feet
CAAFederal Clean Air Act, as amended
DthDekatherm
EDITExcess deferred income taxes resulting from a change in enacted tax rates
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
HDDHeating degree day is 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
KCCKansas Corporation Commission
KDHEKansas Department of Health and Environment
KGSS-IKansas Gas Service Securitization I, L.L.C.
LDCLocal distribution company
MGPManufactured gas plant
McfThousand cubic feet
MMcfMillion cubic feet
Moody’sMoody’s Investors Service, Inc.
NYSENew York Stock Exchange
OCCOklahoma Corporation Commission
ONE GasONE Gas, Inc.
ONE Gas Credit AgreementONE Gas’ $1.2 billion revolving credit agreement, as amended
PBRCPerformance-Based Rate Change
PHMSAUnited States Department of Transportation Pipeline and Hazardous Materials Safety Administration
PIPES ActProtecting Our Infrastructure of Pipelines and Enhancing Safety (PIPES) Act of 2020
Quarterly Report(s)Quarterly Report(s) on Form 10-Q
RNGRenewable natural gas
ROE
Return on equity calculated consistent with utility ratemaking principles in each jurisdiction in which we operate
RRCRailroad Commission of Texas
S&PStandard & Poor’s Ratings Services
SECSecurities and Exchange Commission
Securities ActSecurities Act of 1933, as amended
Securitized Utility Tariff BondsSeries 2022-A Senior Secured Securitized Utility Tariff Bonds, Tranche A
Senior NotesONE Gas’ registered unsecured notes consisting of $300 million of 5.10 percent senior notes due April 2029, $300 million of 2.00 percent senior notes due May 2030, $300 million of 4.25 percent senior notes due September 2032, $600 million of 4.66 percent senior notes due February 2044 and $400 million of 4.50 percent senior notes due November 2048
TCEQTexas Commission on Environmental Quality
TNG CorporationTexas Natural Gas Securitization Finance Corporation
TPFATexas Public Finance Authority
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)20242023
(Thousands of dollars, except per share amounts)
Total revenues$758,320 $1,032,143 
Cost of natural gas383,003 665,799 
Operating expenses
Operations and maintenance132,783 126,683 
Depreciation and amortization76,572 71,264 
General taxes20,102 19,166 
Total operating expenses229,457 217,113 
Operating income145,860 149,231 
Other income (expense), net
3,508 2,581 
Interest expense, net(31,357)(30,115)
Income before income taxes118,011 121,697 
Income taxes(18,694)(19,076)
Net income
$99,317 $102,621 
Earnings per share
Basic$1.75 $1.85 
Diluted$1.75 $1.84 
Average shares (thousands)
Basic56,729 55,538 
Diluted56,800 55,800 
Dividends declared per share of stock$0.66 $0.65 
See accompanying Notes to Consolidated Financial Statements.
6

ONE Gas, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 
 Three Months Ended
 March 31,
(Unaudited)20242023
 
(Thousands of dollars)
Net income
$99,317 $102,621 
Other comprehensive income, net of tax  
Net unrealized holding gains (losses) on available-for-sale securities, net of tax of $3 and $, respectively
(10) 
Total other comprehensive income (loss), net of tax(10) 
Comprehensive income$99,307 $102,621 
See accompanying Notes to Consolidated Financial Statements.

7

ONE Gas, Inc.  
CONSOLIDATED BALANCE SHEETS  
 March 31,December 31,
(Unaudited)20242023
Assets
(Thousands of dollars)
Property, plant and equipment  
Property, plant and equipment$8,606,475 $8,468,967 
Accumulated depreciation and amortization2,368,521 2,333,755 
Net property, plant and equipment6,237,954 6,135,212 
Current assets  
Cash and cash equivalents11,509 18,835 
Restricted cash and cash equivalents9,963 20,552 
Total cash, cash equivalents and restricted cash and cash equivalents21,472 39,387 
Accounts receivable, net324,505 347,864 
Materials and supplies80,349 77,649 
Natural gas in storage110,451 187,097 
Regulatory assets94,692 75,308 
Other current assets32,226 37,899 
Total current assets663,695 765,204 
Goodwill and other assets  
Regulatory assets283,851 287,906 
Securitized intangible asset, net286,234 293,619 
Goodwill157,953 157,953 
Other assets134,350 131,100 
Total goodwill and other assets862,388 870,578 
Total assets$7,764,037 $7,770,994 
See accompanying Notes to Consolidated Financial Statements.
8

ONE Gas, Inc.  
CONSOLIDATED BALANCE SHEETS  
(Continued)
 March 31,December 31,
(Unaudited)20242023
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 56,569,396 shares at March 31, 2024; issued and outstanding 56,545,924 shares at December 31, 2023
$566 $565 
Paid-in capital2,031,168 2,028,755 
Retained earnings799,443 737,739 
Accumulated other comprehensive loss(1,192)(1,182)
Total equity2,829,985 2,765,877 
Other long-term debt, excluding current maturities, net of issuance costs1,878,260 1,877,895 
Securitized utility tariff bonds, excluding current maturities, net of issuance costs268,102 282,506 
Total long-term debt, excluding current maturities, net of issuance costs2,146,362 2,160,401 
Total equity and long-term debt4,976,347 4,926,278 
Current liabilities  
Current maturities of other long-term debt13 772,984 
Current maturities of securitized utility tariff bonds28,183 27,430 
Notes payable953,400 88,500 
Accounts payable196,583 278,056 
Accrued taxes other than income64,405 68,793 
Regulatory liabilities34,844 66,901 
Customer deposits58,064 62,187 
Other current liabilities68,032 112,370 
Total current liabilities1,403,524 1,477,221 
Deferred credits and other liabilities  
Deferred income taxes781,316 752,068 
Regulatory liabilities487,475 500,478 
Employee benefit obligations20,220 20,265 
Other deferred credits95,155 94,684 
Total deferred credits and other liabilities1,384,166 1,367,495 
Commitments and contingencies
Total liabilities and equity$7,764,037 $7,770,994 
See accompanying Notes to Consolidated Financial Statements.


9

ONE Gas, Inc.  
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
(Unaudited)20242023
 
(Thousands of dollars)
Operating activities  
Net income$99,317 $102,621 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization76,572 71,264 
Deferred income taxes16,247 9,364 
Share-based compensation expense3,117 2,821 
Provision for doubtful accounts1,675 3,925 
Proceeds from government securitization of winter weather event costs 197,366 
Changes in assets and liabilities:
Accounts receivable21,684 56,336 
Materials and supplies(2,700)(2,160)
Natural gas in storage76,646 170,239 
Asset removal costs(12,621)(13,567)
Accounts payable(68,117)(157,533)
Accrued taxes other than income(4,388)(2,204)
Customer deposits(4,123)(1,387)
Regulatory assets and liabilities - current(58,520)5,585 
Regulatory assets and liabilities - noncurrent2,520 21,871 
Other assets and liabilities - current(39,312)3,573 
Other assets and liabilities - noncurrent265 952 
Cash provided by operating activities
108,262 469,066 
Investing activities  
Capital expenditures(166,751)(151,030)
Other investing expenditures(1,259)(292)
Other investing receipts2,029 1,443 
Cash used in investing activities
(165,981)(149,879)
Financing activities  
Borrowings (repayments) of notes payable, net
864,900 (272,000)
Repayment of other long-term debt(773,000) 
Repayment of securitized utility tariff bonds(13,780) 
Dividends paid(37,336)(36,002)
Tax withholdings related to net share settlements of stock compensation(980)(2,386)
Cash provided by (used in) financing activities
39,804 (310,388)
Change in cash, cash equivalents, restricted cash and restricted cash equivalents(17,915)8,799 
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period39,387 18,127 
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period$21,472 $26,926 
Supplemental cash flow information:
Cash paid for interest, net of amounts capitalized
$41,497 $33,729 
Cash paid (received) for income taxes, net
$(2,797)$(1,870)
See accompanying Notes to Consolidated Financial Statements.

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ONE Gas, Inc. 
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)Common Stock IssuedCommon StockPaid-in CapitalRetained EarningsAccumulated Other Comprehensive Income/(Loss)Total Equity
 (Shares)
(Thousands of dollars)
January 1, 202456,545,924 $565 $2,028,755 $737,739 $(1,182)$2,765,877 
Net income   99,317  99,317 
Other comprehensive income    (10)(10)
Common stock issued and other23,472 1 2,136   2,137 
Common stock dividends - $0.66 per share
  277 (37,613) (37,336)
March 31, 202456,569,396 $566 $2,031,168 $799,443 $(1,192)$2,829,985 
January 1, 202355,349,954 $553 $1,932,714 $651,863 $(704)$2,584,426 
Net income   102,621  102,621 
Common stock issued and other39,096  435   435 
Common stock dividends - $0.65 per share
  319 (36,321) (36,002)
March 31, 202355,389,050 $553 $1,933,468 $718,163 $(704)$2,651,480 
See accompanying Notes to Consolidated Financial Statements.

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ONE Gas, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation - 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 2023 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. The preparation of these financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts and disclosures in the financial statements. Although management believes these estimates are reasonable, actual results could differ materially from these estimates. Due to the seasonal nature of our business, the results of operations for the three months ended March 31, 2024, are not necessarily indicative of the results that may be expected for a 12-month period.

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

Segments - We operate in one reportable business segment: regulated public utilities that deliver natural gas primarily to residential, commercial and transportation customers. Our accounting policies are the same as those described in Note 1 of the 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, 2024 and 2023, 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 progress and asset removal costs decreased by approximately $13.4 million and $5.3 million for the three months ended March 31, 2024 and 2023, respectively. Such amounts are not included in capital expenditures or asset removal costs in our consolidated statements of cash flows.

Accounts Receivable, Net - Accounts receivable represent valid claims against nonaffiliated customers for natural gas sold or services rendered. 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, 2024 and December 31, 2023, our allowance for doubtful accounts was $17.2 million and $16.1 million, respectively.

Recently Issued Accounting Standards Update - In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which is intended to enhance annual income tax disclosures to address investor requests for more information about the tax risks and opportunities present in an entity’s operations. The amendments in this standard require disclosure of additional information in specified categories with respect to the reconciliation of the effective tax rate to the statutory rate (the rate reconciliation) for federal, state, and foreign income taxes. They also require greater detail about individual reconciling items in the rate reconciliation to the extent the impact of those items exceeds a specified threshold. In addition to new disclosures associated with the rate reconciliation, the amendments in this update require information pertaining to taxes paid (net of refunds received) to be disaggregated for federal, state, and foreign taxes and further disaggregated for specific jurisdictions to the extent the related amounts exceed a quantitative threshold. The amendments in this update are effective for annual periods beginning after December 15, 2024, and early adoption is permitted. We are currently assessing the timing and impacts of adopting this standard.

In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which is intended to improve annual and interim reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments in this standard enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new
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segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements. The amendments in this update are effective for annual periods beginning after December 15, 2023, and interim periods within annual periods beginning after December 15, 2024. Early adoption is permitted. We are currently assessing the timing and impacts of adopting this standard.

2.    REVENUE

The following table sets forth our revenues disaggregated by source for the periods indicated:
Three Months Ended
March 31,
20242023
(Thousands of dollars)
Natural gas sales to customers$689,505 $966,359 
Transportation revenues39,967 38,527 
Securitization customer charges (Note 14)
11,671 11,933 
Miscellaneous revenues6,308 5,898 
Total revenues from contracts with customers747,451 1,022,717 
Other revenues - natural gas sales related7,995 5,790 
Other revenues 2,874 3,636 
Total other revenues10,869 9,426 
Total revenues$758,320 $1,032,143 

Accrued unbilled natural gas sales revenues at March 31, 2024 and December 31, 2023, were $121.7 million and $191.4 million, respectively, and are included in accounts receivable on our consolidated balance sheets.

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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, 2024
Remaining Recovery PeriodCurrentNoncurrentTotal
(Thousands of dollars)
Winter weather event costs(a)$17,390 $17,433 $34,823 
Under-recovered purchased-gas costs1 year29,465  29,465 
Pension and postemployment benefit costs
See Note 9
1,601 229,014 230,615 
Reacquired debt costs6 years723 2,531 3,254 
MGP remediation costs15 years98 30,387 30,485 
Ad-valorem tax1 year12,085  12,085 
WNA1 year16,207  16,207 
Customer credit deferrals1 year12,833 1,177 14,010 
Other1 to 18 years4,290 3,309 7,599 
Total regulatory assets, net of amortization94,692 283,851 378,543 
Income tax rate changes(a) (487,475)(487,475)
Over-recovered purchased-gas costs1 year(34,844) (34,844)
Total regulatory liabilities(34,844)(487,475)(522,319)
Net regulatory assets and liabilities$59,848 $(203,624)$(143,776)
(a) Recovery period varies by jurisdiction. See discussion below for additional information regarding our regulatory assets related to winter weather event costs and regulatory liabilities related to federal income tax rate changes.

December 31, 2023
Remaining Recovery PeriodCurrentNoncurrentTotal
(Thousands of dollars)
Winter weather event costs(a)$22,633 $21,495 $44,128 
Under-recovered purchased-gas costs1 year10,391  10,391 
Pension and postemployment benefit costs
See Note 9
6,379 228,092 234,471 
Reacquired debt costs6 years723 2,712 3,435 
MGP remediation costs15 years98 31,893 31,991 
Ad-valorem tax1 year14,533  14,533 
WNA1 year11,404  11,404 
Customer credit deferrals1 year6,184  6,184 
Other1 to 18 years2,963 3,714 6,677 
Total regulatory assets, net of amortization75,308 287,906 363,214 
Income tax rate changes(a) (500,478)(500,478)
Over-recovered purchased-gas costs1 year(66,901) (66,901)
Total regulatory liabilities(66,901)(500,478)(567,379)
Net regulatory assets and liabilities$8,407 $(212,572)$(204,165)
(a) Recovery period varies by jurisdiction. See discussion below for additional information regarding our regulatory assets related to winter weather event costs and regulatory liabilities related to federal income tax rate changes.

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.

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 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,
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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 our Oklahoma, Kansas, and Texas jurisdictions, which resulted in aggregated natural gas purchases for the month of February 2021 of approximately $2.1 billion, which have been recovered primarily through securitization transactions in each respective state. See Note 14 for additional information on the securitization transaction for Kansas.

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 in July 2021, for an order authorizing the amount of extraordinary costs for recovery and other such specifications necessary for the issuance of securitized bonds.

In February 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 TNG Corporation, a new independent public authority, to issue the securitized bonds.

In March 2023, the TNG Corporation completed the issuance of the Customer Rate Relief (Winter Storm Uri), Taxable Series 2023 Bonds and we received our portion of the net proceeds, which was approximately $197 million. The proceeds were used to repay certain indebtedness and for general corporate purposes. Interest costs that exceeded the amount securitized have been deferred and will be addressed in the next general rate proceeding in each applicable jurisdiction in Texas.

At March 31, 2024, Texas Gas Service had deferred approximately $17.4 million in extraordinary costs associated with Winter Storm Uri attributable to its former West Texas service area. Pursuant to the approved settlement order, Texas Gas Service began collecting the extraordinary costs, including carrying costs, from those customers in January 2022.

GAAP does not provide comprehensive recognition and measurement guidance for many forms of government assistance received by business entities. Accordingly, we have accounted for the proceeds received from the TNG Corporation by analogy to International Accounting Standards No. 20, “Accounting for Government Grants and Disclosure of Government Assistance” consistent with a grant related to income. The proceeds received and the corresponding recognition of the deferred regulatory asset have been reflected in the cost of natural gas in our consolidated statements of income. As the proceeds reflect the recovery of our winter weather event regulatory asset, there was no material impact to earnings.

The deferred winter weather event costs also include invoiced costs for natural gas purchases during Winter Storm Uri that have not been paid as we work with our suppliers for Kansas and Texas to resolve discrepancies in invoiced amounts. These amounts may be adjusted as the differences with suppliers are resolved. Settlements of these amounts are recoverable through the purchased gas cost mechanisms in the respective state. Future adjustments to the amounts 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 the KCC.

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

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 customers’ bills to refund the over-collected revenue or bill the under-collected revenue over the subsequent 12 months.

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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 customers’ bills for 12 months to refund the over-collected revenue or bill the under-collected revenue.

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.

Recovery through rates resulted in amortization of regulatory assets of approximately $7.1 million and $7.0 million for the three months ended March 31, 2024 and 2023, respectively.

4.    CREDIT FACILITY AND SHORT-TERM DEBT

In October 2023, we entered into an agreement that increased the capacity of the ONE Gas Credit Agreement to $1.2 billion from $1.0 billion.

In March 2023, we entered into an extension agreement related to the ONE Gas Credit Agreement that extended the maturity date to March 16, 2028, from March 16, 2027.

Other than the increased commitments and term extension, all other terms and conditions of the ONE Gas Credit Agreement remain in full force and effect.

The ONE Gas Credit Agreement provides for a $1.2 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 $300 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, 2024, our total debt-to-capital ratio was 53 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, 2024, we had $1.4 million in letters of credit issued and no borrowings under the ONE Gas Credit Agreement, with approximately $1.2 billion of remaining credit, which is available to repay our commercial paper borrowings.

In November 2023, we increased the capacity of our commercial paper program to $1.2 billion from $1.0 billion. Other than the increased capacity, all other terms and conditions of the commercial paper program remain in full force and effect.

Under our commercial paper program, we may issue unsecured commercial paper up to a maximum amount of $1.2 billion to fund short-term borrowing needs. 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, 2024 and December 31, 2023, we had $953.4 million and $88.5 million of commercial paper outstanding with a weighted-average interest rate of 5.61 percent and 5.60 percent, respectively.

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5.    LONG-TERM DEBT

The table below presents a summary of our long-term debt outstanding for the periods indicated:
Interest Rate
March 31, 2024December 31, 2023
(Thousands of dollars)
Senior Notes due:
February 20243.610%$ $300,000 
March 20241.100% 473,000 
April 20295.100%300,000 300,000 
May 20302.000%300,000 300,000 
September 20324.250%300,000 300,000 
February 20444.658%600,000 600,000 
November 20484.500%400,000 400,000 
Total Senior Notes1,900,000 2,673,000 
KGSS-I Securitized Utility Tariff Bonds5.486%301,503 315,284 
Other8.000%1,235 1,238 
Unamortized discounts on long-term debt(7,487)(7,615)
Debt issuance costs (a)(20,693)(21,092)
Total long-term debt, net2,174,558 2,960,815 
Less: current maturities of securitized utility tariff bonds, net28,183 27,430 
Less: current maturities of other long-term debt, net13 772,984 
Noncurrent portion of long-term debt, net$2,146,362 $2,160,401 
(a) Includes issuance costs for the KGSS-I Securitized Utility Tariff Bonds of $5.2 million and $5.3 million, at March 31, 2024 and December 31, 2023 respectively.

Senior 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.

Depending on the series, we may redeem our Senior Notes at par, plus accrued and unpaid interest to the redemption date, starting three months or six months before their maturity dates. Prior to these dates, we may redeem these Senior Notes, in whole or in part, at a redemption price equal to the principal amount, plus accrued and unpaid interest and a make-whole premium. The redemption price will never be less than 100 percent of the principal amount of the respective Senior Note plus accrued and unpaid interest to the redemption date. Senior Notes are senior unsecured obligations, ranking equally in right of payment with all of our existing and future unsecured senior indebtedness.

We repaid our $300 million of 3.61 percent senior notes due February 2024 and our $473 million of 1.10 percent senior notes due March 2024 upon maturity with commercial paper.

Securitized Utility Tariff Bonds - The KGSS-I Securitized Utility Tariff Bonds are governed by an indenture between KGSS-I and the indenture trustee. The indenture contains certain covenants that restrict KGSS-I’s ability to sell, transfer, convey, exchange, or otherwise dispose of its assets. KGSS-I’s assets cannot be used to settle ONE Gas’ obligations and the holders of the Securitized Utility Tariff Bonds have no recourse against ONE Gas. See Note 14 for additional discussion of the Kansas securitization transaction.
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6.    EQUITY

Equity Issuances - On December 28, 2023, we settled under forward contracts 1,032,403 shares (289,403 from forwards related to our at-the-market equity distribution agreement and 743,000 from forwards related to underwriting agreements) of our common stock for net proceeds of $79.0 million.

In December 2023, we amended the forward sale agreement we entered into in March 2023 described below to extend the maturity date of 657,000 shares to December 31, 2024 from December 29, 2023. The amended forward sale agreement provides for settlement on a date, or dates, to be specified at our discretion, but which will occur no later than December 31, 2024, for 1,257,000 shares of common stock.

In September 2023, we entered into an underwriting agreement and two forward sale agreements for 1.2 million and 180,000 shares of our common stock, respectively. The forward sale agreements provide for settlement on a date, or dates, to be specified at our discretion, but which will occur no later than December 31, 2024.

In June 2023, we executed forward sale agreements under our current at-the-market equity program for 926,465 shares of our common stock.

In March 2023, we entered into an underwriting agreement and a forward sale agreement for 2.0 million shares of our common stock. The forward sale agreement provided for settlement on a date, or dates, to be specified at our discretion, but which will occur no later than December 29, 2023, for 1.4 million shares of common stock and by December 31, 2024, for the remaining balance.

In February 2023, we entered into an at-the-market equity distribution agreement under which we may issue and sell shares of our common stock with an aggregate offering price up to $300 million. This at-the-market equity program replaced our previous at-the-market equity program, which began in February 2020, and expired in February 2023. 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. At March 31, 2024, we had $225.5 million of equity available for issuance under the program.

The following table summarizes all of our outstanding forward sale agreements at March 31, 2024:
MaturityOriginal SharesRemaining SharesNet Proceeds Available
(in thousands)
Forward Price
December 31, 2024926,465 926,465 $74,634 $80.56 
December 31, 20242,000,000 1,257,000 96,982 77.15 
December 31, 20241,200,000 1,200,000 89,056 74.21 
December 31, 2024180,000 180,000 13,348 74.16 
Total forward sale agreements4,306,465 3,563,465 $274,020 $76.90 

Dividends Declared - In May 2024, we declared a dividend of $0.66 per share ($2.64 per share on an annualized basis) for shareholders of record as of May 20, 2024, payable on June 4, 2024.

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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 Components
20242023of Income
(Thousands of dollars)
Pension and other postemployment benefit plan obligations (a)
Amortization of net (gain) loss
$1,442 $490 
Amortization of unrecognized prior service cost (credit)
93 131 
1,535 621 
Regulatory adjustments (b)(1,535)(621)
Total pension and other postemployment benefit obligations  
Available-for-sale securities
Unrealized holding gains (losses) on available-for-sale securities(12) 
Amounts reclassified from accumulated other comprehensive income(1) 
Total available-for-sale securities(13) 
(13) Income before income taxes
3  Income tax expense
Total reclassifications for the period$(10)$ 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 and equity forward sale agreements, 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, 2024
IncomeSharesPer Share
Amount
(Thousands, except per share amounts)
Basic EPS Calculation
Net income available for common stock
$99,317 56,729 $1.75 
Diluted EPS Calculation
Effect of dilutive securities 71 
Net income available for common stock and common stock equivalents$99,317 56,800 $1.75 
Three Months Ended March 31, 2023
IncomeSharesPer Share
Amount
(Thousands, except per share amounts)
Basic EPS Calculation
Net income available for common stock
$102,621 55,538 $1.85 
Diluted EPS Calculation
Effect of dilutive securities— 262 
Net income available for common stock and common stock equivalents$102,621 55,800 $1.84 
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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,
20242023
(Thousands of dollars)
Components of net periodic benefit cost (credit)
 
Service cost$1,551 $1,811 
Interest cost (a)
10,281 10,607 
Expected return on assets (a)
(14,757)(14,879)
Amortization of unrecognized prior service cost (a)
93 93 
Amortization of net loss (a)
1,446 502 
Net periodic benefit cost (credit)
$(1,386)$(1,866)
(a) These amounts, net of any amounts capitalized as a regulatory asset, have been recognized as other income (expense), net in the consolidated statement of income. See Note 11 for additional detail for our other income (expense), net.
Other Postemployment Benefits
Three Months Ended
March 31,
20242023
(Thousands of dollars)
Components of net periodic benefit cost (credit)
Service cost$152 $183 
Interest cost (a)
2,045 2,288 
Expected return on assets (a)
(2,284)(2,432)
Amortization of unrecognized prior service cost (credit) (a)
 38 
Amortization of net (gain) loss (a)
(4)(12)
Net periodic benefit cost (credit)
$(91)$65 
(a) These amounts, net of any amounts capitalized as a regulatory asset, have been recognized as other income (expense), net in the consolidated statement of income. See Note 11 for additional detail for our other income (expense), net.

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. For the three months ended March 31, 2024 and 2023, regulatory deferrals related to net periodic benefit cost were $1.0 million and $1.4 million, respectively.

We capitalize all eligible service cost and non-service cost components under the accounting requirements of ASC Topic 980 (Regulated Operations) for rate-regulated entities. Capitalized non-service costs reflected as a regulatory asset in our consolidated balance sheets were $3.3 million at March 31, 2024, and were $2.2 million at December 31, 2023. 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.

At March 31, 2024, 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 2019.

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Income tax expense reflects credits for the amortization of the regulatory liability associated with EDIT that was returned to customers of $10.1 million and $9.9 million for the three months ended March 31, 2024 and 2023, 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,
20242023
(Thousands of dollars)
Net periodic benefit other than service cost
$1,009 $908 
Earnings on investments associated with nonqualified employee benefit plans
2,176 1,613 
Other income (expense), net323 60 
Total other income, net
$3,508 $2,581 

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12.    COMMITMENTS AND CONTINGENCIES

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, 2024 and 2023.

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. In January 2024, we received $1.5 million in insurance proceeds for remediation costs related to these sites. At March 31, 2024 and December 31, 2023, we have deferred $30.5 million and $32.0 million, respectively, for accrued investigation and remediation costs pursuant to our AAO. Kansas Gas Service expects to file an application for amounts deferred in excess of the cap as soon as practicable after the KDHE approves the remediation plans we have submitted.

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.

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. At March 31, 2024, 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, 2024 and 2023. The reserve for remediation of our MGP sites was $13.9 million and $14.3 million at March 31, 2024 and December 31, 2023, respectively.

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.

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As part of the Consolidated Appropriations Act, 2021, the PIPES Act 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 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.

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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.

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 - Our derivatives are comprised of over-the-counter natural gas fixed price swaps and call options.

Swaps - At March 31, 2024, we did not hold any swaps. At December 31, 2023, we held over-the counter natural gas fixed-prices swaps for the heating season ending March 2024 with a total notional amount of 5.1 Bcf.

Options - At March 31, 2024, we did not hold any natural gas call options. At December 31, 2023, we held purchased natural gas call options for the heating season ended March 2024, with total notional amounts of 0.5 Bcf, for which the premiums paid and the fair value were not material.

We have not designated any of our derivative instruments as accounting hedges. 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. There were no transfers between levels for the periods presented.
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Other Financial Instruments - The approximate fair value of cash and cash equivalents, restricted cash and cash equivalents, accounts receivable and accounts payable is equal to book value, due to the short-term nature of these items. Commercial paper is due upon demand and, therefore, the carrying amounts approximate fair value.

The following tables summarize, by level within the fair value hierarchy, our derivative and other assets and liabilities that were accounted for at fair value on a recurring basis at March 31, 2024 and December 31, 2023:
March 31, 2024
Level 1Level 2Total
(Thousands of dollars)
Assets:
United States treasury notes (b)$6,476 $ $6,476 
Corporate bonds (b) 10,266 10,266 
Total assets$6,476 $10,266 $16,742 
(a) The fair value is included in other current assets and other current liabilities in our consolidated balance sheets.
(b) The fair value is included in other current and noncurrent assets and other current and noncurrent liabilities in our consolidated balance sheets.

December 31, 2023
Level 1Level 2Total
(Thousands of dollars)
Assets:
United States treasury notes (b)$6,496 $ $6,496 
Corporate bonds (b) 11,080 11,080 
Total assets$6,496 $11,080 $17,576 
Liabilities:
Derivative instruments - swaps (a)$ $13,920 $13,920 
(a) The fair value is included in other current assets and other current liabilities in our consolidated balance sheets.
(b) The fair value is included in other current and noncurrent assets and other current and noncurrent liabilities in our consolidated balance sheets.

The estimated fair value of our long-term debt, including current maturities, was $2.0 billion and $2.8 billion at March 31, 2024 and December 31, 2023, respectively. The estimated fair value of our long-term debt was determined using quoted market prices, and is classified as Level 2.

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14.    VARIABLE INTEREST ENTITY

KGSS-I is a special-purpose, wholly owned subsidiary of ONE Gas that was formed for the purpose of issuing securitized bonds to recover extraordinary costs incurred by Kansas Gas Service resulting from Winter Storm Uri. On November 18, 2022, the securitized financing was complete. KGSS-I’s assets cannot be used to settle ONE Gas’ obligations and the holders of the Securitized Utility Tariff Bonds have no recourse against ONE Gas. See Note 5 for additional information about the securitization financing.

KGSS-I is considered to be a variable interest entity. As a result, KGSS-I is included in the consolidated financial statements of ONE Gas. No gain or loss was recognized upon initial consolidation.

The following table summarizes the impact of KGSS-I on our consolidated balance sheets, for the periods indicated:
March 31,December 31,
20242023
(Thousands of dollars)
Restricted cash and cash equivalents$9,963 $20,552 
Accounts receivable4,694 5,133 
Securitized intangible asset, net286,234 293,619 
Current maturities of securitized utility tariff bonds28,183 27,430 
Accounts payable118 394 
Accrued interest2,757 7,207 
Securitized utility tariff bonds, excluding current maturities, net of discounts and issuance costs of $5.2 million and $5.3 million, respectively
268,102 282,506 
Equity1,731 1,768 

The following table summarizes the impact of KGSS-I on our consolidated statements of income, for the periods indicated:
Three Months Ended
March 31,
20242023
(Thousands of dollars)
Operating revenues$11,671 $11,933 
Operating expense(111)(110)
Amortization expense(7,385)(7,089)
Interest income188 75 
Interest expense(4,327)(4,809)
Income before income taxes$36 $ 

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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 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, 2024, are not necessarily indicative of the results that may be expected for a 12-month period.

RECENT DEVELOPMENTS

Senior Notes - We repaid our $300 million of 3.61 percent senior notes due February 2024 and our $473 million of 1.10 percent senior notes due March 2024 upon maturity with commercial paper.

Dividend - In May 2024, we declared a dividend of $0.66 per share ($2.64 per share on an annualized basis) for shareholders of record as of May 20, 2024, payable on June 4, 2024.

REGULATORY ACTIVITIES

Oklahoma - As required by our tariff, 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 February 29, 2024, Oklahoma Natural Gas filed its required PBRC application for the year ended December 2023. The filed request included a $31.8 million base rate revenue increase, $2.4 million energy efficiency incentive, and $12.8 million of estimated EDIT to be credited to customers in 2025. A hearing is scheduled for June 4, 2024.

Kansas - On March 1, 2024, Kansas Gas Service submitted an application to the KCC requesting an increase of $58.1 million to its net base rates. Kansas Gas Service is already recovering $35 million from customers through the GSRS. The filing represents a rate base of $1.4 billion, compared with $1.3 billion included in existing rates plus previously approved GSRS eligible investments. Kansas Gas Service has invested approximately $600 million in its natural gas distribution system since its last case was finalized in February 2019. A portion of this investment, approximately $325 million, is currently recovered through GSRS. The filing is based on a 10.25 percent return on equity and a 59.6 percent common equity ratio. Kansas Gas Service also proposed implementation of a performance-based ratemaking mechanism and a residential rate design that divides the class between residential customers with annual usage higher and lower than 73 Mcf. In accordance with Kansas law, the KCC has 240 days to consider Kansas Gas Service’s filing.

Texas - West-North Service Area - In March 2024, Texas Gas Service made a GRIP filing for all customers in the West-North service area, requesting an $8.6 million increase to be effective in July 2024.
Central-Gulf Service Area - In February 2024, Texas Gas Service made a GRIP filing for all customers in the Central-Gulf service area, requesting a $12.3 million increase to be effective in June 2024.
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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. Our accounting policies are the same as described in Note 1 of the 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, 2024, net income was $99.3 million, or $1.75 per diluted share, compared with $102.6 million, or $1.84 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,
2024 vs. 2023
Financial Results20242023Increase (Decrease)
 (Millions of dollars, except percentages)
Natural gas sales$694.1 $971.8 $(277.7)(29)%
Transportation revenues40.4 38.9 1.5 4 %
Securitization customer charges11.7 11.9 (0.2)(2)%
Other revenues12.1 9.5 2.6 27 %
Total revenues$758.3 $1,032.1 $(273.8)(27)%
Cost of natural gas383.0 665.8 (282.8)(42)%
Operating costs152.8145.8 7.0 5 %
Depreciation and amortization76.6 71.3 5.3 7 %
Operating income$145.9 $149.2 $(3.3)(2)%
Capital expenditures and asset removal costs$179.4 $164.6 $14.8 9 %

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

Securitization customer charges represent revenue from contracts with customers through implied contracts established by the financing order approved by the KCC, related to the securitization of extraordinary costs incurred during Winter Storm Uri in the state of Kansas. See Note 14 of the Notes to Consolidated Financial Statements in this Quarterly Report for additional discussion of the securitization transaction in Kansas.

Other revenues include primarily miscellaneous service charges, which represent implied contracts with customers established by our tariffs and rates approved by 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.

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Operating income decreased $3.3 million for the three months ended March 31, 2024, compared with the same period last year, due primarily to the following:

an increase of $8.5 million in employee-related costs due in part to planned investments in the Company’s workforce and ongoing in-sourcing efforts; and
a decrease of $3.7 million in revenue due to lower sales volumes, net of the impact of weather normalization mechanisms.

These decreases were offset partially by:

an increase of $11.2 million in revenue from new rates.

Weather across our service territories for the first quarter of 2024 was 2.7 percent warmer than the prior year. The impact on operating income was mitigated by our weather normalization mechanisms.

Other Factors Affecting Net Income - Other factors that affected net income for the three months ended March 31, 2024, compared with the same period last year, include an increase of $0.9 million in other income (expense), net due primarily to a $0.6 million higher return on investments associated with our nonqualified employee benefit plans.

Additionally, net income for the three months ended March 31, 2024, includes an increase in interest expense of $1.2 million. The increase in interest expense is due primarily to the issuance of $300 million of 5.10 percent senior notes in December 2023 and the repayment of $300 million of 3.61 percent senior notes due February 2024 and $473 million of 1.10 percent senior notes due March 2024 upon maturity with commercial paper.

EDIT - Income tax expense reflects credits for the amortization of the regulatory liability associated with EDIT that was returned to customers of $10.1 million and $9.9 million for the three months ended March 31, 2024 and 2023, respectively.

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 $14.8 million higher for the three months ended March 31, 2024, respectively, 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 $750 million for 2024.

Selected Operating Information - The following tables set forth certain selected operating information for the periods indicated:

Three Months EndedVariances
March 31,
2024 vs. 2023
(in thousands)20242023Increase (Decrease)
Average Number of CustomersOKKSTXTotalOKKSTXTotalOKKSTXTotal
Residential845 599 666 2,110 841 599 660 2,100 4  6 10 
Commercial and industrial78 51 36 165 78 51 36 165     
Other  3 3 — —     
Transportation5 6 1 12 12     
Total customers928 656 706 2,290 924 656 700 2,280 4  6 10 

The increase in the average number of customers for the periods presented is due primarily to the connection of new customers resulting from the extension and expansion of our system in our service areas. For the three months ended March 31, 2024, our average customer count includes approximately 5,200 new customer connections during the period. For the year ended December 31, 2023, our average customer count included approximately 23,400 new customer connections.

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The following table reflects total volumes delivered, excluding the effects of WNA mechanisms on sales volumes:

Three Months Ended
 March 31,
Volumes (MMcf)
20242023
Natural gas sales  
Residential52,353 54,603 
Commercial and industrial17,045 18,143 
Other1,056 1,088 
Total sales volumes delivered70,454 73,834 
Transportation63,399 64,934 
Total volumes delivered133,853 138,768 

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

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

Three Months Ended
March 31,
20242023
2024 vs. 2023
20242023
HDDsActualNormalActualNormalActual VarianceActual as a percent of Normal
Oklahoma1,681 1,800 1,719 1,792 (2)%93 %96 %
Kansas2,201 2,460 2,251 2,460 (2)%89 %92 %
Texas859 959 902 985 (5)%90 %92 %

Normal HDDs are established through rate proceedings in each of our jurisdictions for use primarily in weather normalization billing calculations. See further discussion on weather normalization in our Regulatory Overview section in Part 1, Item 1, “Business,” of our Annual Report. Normal HDDs disclosed above are based on:

Oklahoma - A 10-year weighted average as of June 30, 2021, as calculated using 11 weather stations across Oklahoma and weighted on average customer count.
Kansas - A 30-year rolling average for years 1988-2017 calculated using three weather stations across Kansas and weighted on HDDs by weather station and customers.
Texas - An average of HDDs authorized in our most recent rate proceeding in each jurisdiction and weighted using a rolling 10-year average of actual natural gas distribution sales volumes by service area.

Actual HDDs are based on the quarter-to-date weighted average of:

11 weather stations and customers by month for Oklahoma;
3 weather stations and customers by month for Kansas; and
9 weather stations and natural gas distribution sales volumes by service area for Texas.

CONTINGENCIES

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.

LIQUIDITY AND CAPITAL RESOURCES

General - We have relied primarily on operating cash flow and commercial paper for our liquidity and capital resource requirements. We fund operating expenses, working capital requirements, including purchases of natural gas, and capital expenditures primarily with cash from operations and commercial paper.
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We believe that the combination of the significant residential component of our customer base, the fixed-charge component of our natural gas sales revenues and our rate mechanisms that we have in place result in a stable cash flow profile and historically has generated stable earnings. Additionally, we have rate mechanisms in place in our jurisdictions that reduce the lag in earning a return on our capital expenditures and provide for recovery of certain changes in our cost of service by allowing for adjustments to rates between rate cases. We anticipate that our cash flow generated from operations and our expected short- and long-term financing arrangements will enable us to maintain our current and planned level of operations and provide us flexibility to finance our infrastructure investments. Our ability to access capital markets for debt and equity financing under reasonable terms depends on market conditions, our financial condition and credit ratings.

Short-term Debt - The ONE Gas Credit Agreement provides for a $1.2 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 $300 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, 2024, our total debt-to-capital ratio was 53 percent and we were in compliance with all covenants under the ONE Gas Credit Agreement. Excluding the debt of KGSS-I, which is non-recourse to us, our total debt-to-capital ratio was 50 percent. 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.

Under our commercial paper program, we may issue unsecured commercial paper up to a maximum amount of $1.2 billion to fund short-term borrowing needs. 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, 2024 and December 31, 2023, we had $953.4 million and $88.5 million of commercial paper outstanding with a weighted-average interest rate of 5.61 percent and 5.60 percent, respectively.

At March 31, 2024, we had $1.4 million in letters of credit issued and no borrowings under the ONE Gas Credit Agreement, with approximately $1.2 billion of remaining credit, which is available to repay our commercial paper borrowings.

Senior Notes - We repaid our $300 million of 3.61 percent senior notes due February 2024 and our $473 million of 1.10 percent senior notes due March 2024 upon maturity with commercial paper.

At March 31, 2024, we had outstanding $1.9 billion of Senior Notes with none due within the next year. 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.

Depending on the series, we may redeem our Senior Notes at par, plus accrued and unpaid interest to the redemption date, starting three months or six months before their maturity dates. Prior to these dates, we may redeem these Senior Notes, in whole or in part, at a redemption price equal to the principal amount, plus accrued and unpaid interest and a make-whole premium. The redemption price will never be less than 100 percent of the principal amount of the respective Senior Note plus accrued and unpaid interest to the redemption date. Our Senior Notes are senior unsecured obligations, ranking equally in right of payment with all of our existing and future unsecured senior indebtedness.

Securitized Utility Tariff Bonds - At March 31, 2024, we had outstanding $301.5 million of 5.486 percent KGSS-I Securitized Utility Tariff Bonds with $28.2 million due within the next year. The bonds are governed by an indenture between KGSS-I and the indenture trustee. The indenture contains certain covenants that restrict KGSS-I’s ability to sell, transfer, convey, exchange, or otherwise dispose of its assets.

At March 31, 2024, our long-term debt-to-capital ratio was 44 percent. Excluding the debt of KGSS-I, which is non-recourse to us, our long-term debt-to-capital ratio was 40 percent. See Note 14 of the Notes to Consolidated Financial Statements in this Quarterly Report for information with respect to KGSS-I.
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Credit Ratings - Our credit ratings at March 31, 2024, were:
Rating AgencyRatingOutlook
Moody’sA3Stable
S&PA-Stable

At March 31, 2024, our commercial paper was rated Prime-2 by Moody’s and A-2 by S&P. We intend to maintain credit metrics at a level that supports our balanced approach to capital investment and a return of capital to shareholders via a dividend that we believe will be competitive with our peer group.

Equity Issuances - The following table summarizes all of our outstanding forward sale agreements at March 31, 2024:

MaturityOriginal SharesRemaining SharesNet Proceeds Available
(in thousands)
Forward Price
December 31, 2024926,465 926,465 $74,634 $80.56 
December 31, 20242,000,000 1,257,000 96,982 77.15 
December 31, 20241,200,000 1,200,000 89,056 74.21 
December 31, 2024180,000 180,000 13,348 74.16 
Total forward sale agreements4,306,465 3,563,465 $274,020 $76.90 

Pension and Other Postemployment Benefit Plans - In 2024, our contributions are expected to be approximately $1.4 million to our defined benefit pension plans, and no contributions are expected to be made to our other post employment benefit plans. We use a December 31 measurement date for our plans.

Information about our pension and other postemployment benefit plans, including anticipated contributions, is included under Note 11 of the Notes to Consolidated Financial Statements in our Annual Report. See Note 9 of the Notes to Consolidated Financial Statements in this Quarterly Report for additional information.

CASH FLOW ANALYSIS

We use the indirect method to prepare our consolidated statements of cash flows. Under this method, we reconcile net income to cash flows provided by operating activities by adjusting net income for those items that impact net income but may not result in actual cash receipts or payments and changes in our assets and liabilities not classified as investing or financing activities during the period. Items that impact net income but may not result in actual cash receipts or payments include, but are not limited to, depreciation and amortization, deferred income taxes, share-based compensation expense and provision for doubtful accounts.

The following table sets forth the changes in cash flows by operating, investing and financing activities for the periods indicated:
 Three Months Ended
March 31,Variance
 20242023
2024 vs. 2023
 
(Millions of dollars)
Total cash provided by (used in):  
Operating activities$108.3 $469.1 $(360.8)
Investing activities(166.0)(149.9)(16.1)
Financing activities39.8 (310.4)350.2 
Change in cash, cash equivalents, restricted cash and restricted cash equivalents(17.9)8.8 (26.7)
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period39.4 18.1 21.3 
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period$21.5 $26.9 $(5.4)

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Operating Cash Flows - Changes in cash flows from operating activities are due primarily to changes in sales revenues, natural gas costs and operating expenses discussed in “Financial Results and Operating Information,” the effects of Winter Storm Uri discussed in “Regulatory Activities” and changes in working capital. Changes in natural gas prices and demand for our services or natural gas, whether because of general economic conditions, variations in weather not mitigated by WNAs, changes in supply or increased competition from other service providers, could affect our earnings and operating cash flows. Typically, our cash flows from operations are greater in the first half of the year compared with the second half of the year.

Operating cash flows were lower for the three months ended March 31, 2024, compared with the prior period, due primarily to proceeds from government securitization of winter weather costs for Texas Gas Service in March 2023.

Investing Cash Flows - Cash used in investing activities decreased for the three months ended March 31, 2024, compared with the prior period, due primarily to an increase in capital expenditures for system integrity and extension of service to new areas.

Financing Cash Flows - Cash used in financing activities decreased for the three months ended March 31, 2024, compared with the prior period, due primarily to commercial paper borrowing in excess of repayments of long-term debt.

ENVIRONMENTAL, SAFETY AND REGULATORY MATTERS

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, 2024 and 2023.

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. In January 2024, we received $1.5 million in insurance proceeds for remediation costs related to these sites. At March 31, 2024 and December 31, 2023, we have deferred $30.5 million and $32.0 million, respectively, for accrued investigation and remediation costs pursuant to our AAO. Kansas Gas Service expects to file an application for amounts deferred in excess of the cap as soon as practicable after the KDHE approves the remediation plans we have submitted.

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.

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
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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. At March 31, 2024, 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, 2024 and 2023. The reserve for remediation of our MGP sites was $13.9 million and $14.3 million at March 31, 2024 and December 31, 2023, respectively.

Environmental Footprint - 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 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 for the three months ended March 31, 2024 and 2023.