INVESTOR UPDATE I April 27, 2020 Forward-Looking Statements l Statements contained in this presentation that include company expectations or predictions should be considered forward-looking statements that are covered by the safe harbor provisions of the Securities Act of 1933 and the Securities and Exchange Act of 1934. It is important to note that the actual results could differ materially from those projected in such forward-looking statements. For additional information that could cause actual results t ...

INVESTOR UPDATE NYC & Boston | March 2020 Forward-Looking Statements Statements contained in this presentation that include company expectations or predictions should be considered forward-looking statements that are covered by the safe harbor provisions of the Securities Act of 1933 and the Securities and Exchange Act of 1934. It is important to note that the actual results could differ materially from those projected in such forward-looking statements. For additional information that could cause actual re ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2019. OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________. Commission file number 001-36108 ONE Gas, Inc. (Exact name of registrant as specified in its charter) Oklahoma 46-3561936 (Address of principal exe ...

Financial Data and Key Metrics Changes - Net income for Q4 2019 was $51.2 million or $0.96 per diluted share, compared to $44.7 million or $0.84 per diluted share for the same period last year, reflecting a year-over-year increase [7] - For the full year 2019, net income was $186.7 million or $3.51 per diluted share, up from $172.2 million or $3.25 per diluted share in 2018 [9] - Operating costs for Q4 2019 were $133.9 million, an increase from $123.8 million in the same period last year, primarily due to employee-related expenses and bad debt expenses [8] Business Line Data and Key Metrics Changes - Net margin increased by $16.3 million in Q4 2019, driven by new rates in service areas and residential customer growth in Oklahoma and Texas [8] - For the full year, net margin increased by $45.7 million due to new rates, residential customer growth, and higher sales volumes in Texas [9] Market Data and Key Metrics Changes - The average rate base at year-end was $3.62 billion, with 42% in Oklahoma, 49% in Kansas, and 29% in Texas [13] - ONE Gas was a cash taxpayer for the first time in 2019, with payments of approximately $30 million [13] Company Strategy and Development Direction - The company plans to focus on maintaining safety and reliability, extending service to new areas, and investing in technology to improve efficiency and customer experience [15][16] - The forecasted average annual dividend increase is expected to be 6% to 8% between 2019 and 2024, with a targeted payout ratio of 55% to 65% of net income [14] Management Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to execute its business strategy, emphasizing a focus on safety, reliability, and reducing emissions [26][28] - The company anticipates net financing needs of $850 million to $900 million over the next five years, with a forecasted EPS growth rate of 5% to 7% [17][18] Other Important Information - Capital expenditures for 2019 totaled $465.1 million, with a focus on system improvements and safety [13] - The company completed its five-year accelerated cast iron replacement program, which is part of its strategy to reduce methane emissions [24] Q&A Session Summary Question: What was the last rate case in Texas? - The last rate case in Central Texas was approximately in 2015 [31] Question: What percentage increase does the $15 million revenue increase request represent? - The detailed percentage data was not available during the call, but it was noted to be about a 9% increase as filed [45] Question: Can you characterize your relationship with the Railroad Commission? - The company has a constructive relationship with both City Councils and the Railroad Commission [34] Question: What are the customer growth profiles among the three states? - Texas has the highest growth rates, particularly in Austin and El Paso, while Oklahoma is slightly above average and Kansas is relatively flat [36] Question: What initiatives are in place to improve earned ROE? - The expected ROE for 2020 is 8.4%, with initiatives focused on operational efficiency and regulatory processes [37][38] Question: When will the next GSRS filing be in Kansas? - The next GSRS filing is expected in August of the current year [42] Question: Will asset removal costs change significantly? - No significant change in asset removal costs is expected, though they may decrease slightly [48]

Financial Performance Guidance - The company projects a net income range of $186 million to $198 million for 2020[6] - The company anticipates an EPS range of $344 to $368 per diluted share for 2020[6] - The company expects average annual EPS growth of 5% to 7% between 2019 and 2024[8] Rate Base and Growth - The company estimates an average rate base of $391 billion for 2020[6] - The company forecasts an average rate base growth of 7% between 2019 and 2024[6] - Oklahoma's rate base is estimated at $165 billion, Kansas at $112 billion, and Texas at $114 billion for 2020[39] Dividends and Payout Ratio - The company plans a quarterly dividend of 54 cents per share in 2020, subject to board approval[9] - The company targets a dividend payout ratio of 55% to 65% of net income[9] - The company anticipates average annual dividend growth of 6% to 8% between 2019 and 2024[13] Capital Expenditures and Cash Flow - The company expects capital expenditures and asset removal costs of $475 million in 2020[17] - The company anticipates cash flow from operations of $417 million in 2020, before changes in working capital[17] - The company estimates net financing needs of approximately $850 million to $900 million through 2024, with about 25% expected to be equity[17]

INVESTOR UPDATE New York City | December 2019 Forward-Looking Statements Statements contained in this presentation that include company expectations or predictions should be considered forward-looking statements that are covered by the safe harbor provisions of the Securities Act of 1933 and the Securities and Exchange Act of 1934. It is important to note that the actual results could differ materially from those projected in such forward-looking statements. For additional information that could cause actua ...

[Part I. Financial Information](index=6&type=section&id=Part%20I.%20Financial%20Information) [Consolidated Financial Statements (Unaudited)](index=6&type=section&id=Item%201.%20Consolidated%20Financial%20Statements%20(Unaudited)) Presents ONE Gas, Inc.'s unaudited consolidated financial statements for Q3 2019, detailing income, balance sheets, cash flows, and accounting policies Consolidated Statements of Income (Unaudited) | (Thousands of dollars, except per share amounts) | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | **Total revenues** | $248,563 | $238,280 | $1,200,123 | $1,169,265 | | **Operating income** | $38,777 | $36,241 | $213,287 | $207,574 | | **Net income** | $17,457 | $16,276 | $135,587 | $127,530 | | **Diluted EPS** | $0.33 | $0.31 | $2.55 | $2.41 | Consolidated Balance Sheets (Unaudited) | (Thousands of dollars) | September 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | **Total current assets** | $389,683 | $543,287 | | **Net property, plant and equipment** | $4,488,468 | $4,283,712 | | **Total assets** | $5,533,180 | $5,468,642 | | **Total current liabilities** | $677,755 | $698,891 | | **Long-term debt** | $1,285,937 | $1,285,483 | | **Total equity** | $2,101,881 | $2,042,656 | | **Total liabilities and equity** | $5,533,180 | $5,468,642 | Consolidated Statements of Cash Flows (Unaudited) | (Thousands of dollars) | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | | **Cash provided by operating activities** | $288,543 | $436,768 | | **Cash used in investing activities** | ($308,817) | ($279,346) | | **Cash provided by (used in) financing activities** | $11,513 | ($159,405) | | **Change in cash and cash equivalents** | ($8,761) | ($1,983) | [Notes to Consolidated Financial Statements](index=14&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Details key accounting policies, including lease standard adoption, revenue, debt, regulatory matters, and environmental contingencies - Adopted new lease standard (Topic 842) on January 1, 2019, recognizing approximately **$32 million** in lease liabilities and corresponding right-of-use assets[41](index=41&type=chunk) - The 2017 Tax Cuts and Jobs Act required a remeasurement of Accumulated Deferred Income Tax (ADIT), which was recorded as a regulatory liability to be refunded to customers. During the nine months ended Sep 30, 2019, the company credited income tax expense by **$10.3 million** for the amortization of this liability[81](index=81&type=chunk)[84](index=84&type=chunk) - The company has a **$700 million** revolving credit facility, extended to October 2024, and a commercial paper program of up to **$700 million**. As of Sep 30, 2019, **$395.0 million** of commercial paper was outstanding[54](index=54&type=chunk)[58](index=58&type=chunk) - The company is responsible for environmental remediation at **12** former Manufactured Gas Plant (MGP) sites in Kansas and **one** in Texas. Costs in Kansas are partially recoverable up to a **$15.0 million** cap under an Accounting Authority Order (AAO)[88](index=88&type=chunk)[92](index=92&type=chunk)[93](index=93&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=31&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Details the company's financial performance, regulatory activities, and liquidity, including net income growth, capital expenditures, and tax act impacts [Recent Developments](index=31&type=section&id=Recent%20Developments) Highlights the ongoing process of refunding excess deferred income taxes and the declaration of a quarterly dividend - The company is working with regulators to refund excess Accumulated Deferred Income Tax (ADIT) to customers as a result of the 2017 Tax Cuts and Jobs Act[112](index=112&type=chunk) - A dividend of **$0.50 per share** (**$2.00 annualized**) was declared in October 2019[113](index=113&type=chunk) [Regulatory Activities](index=31&type=section&id=Regulatory%20Activities) Details recent regulatory filings and outcomes across service areas, including customer credits and rate increases in Oklahoma, Kansas, and Texas - Oklahoma: An August 2019 settlement includes a **$15.6 million** PBRC credit to customers beginning in Q3 2019 and a **$12.7 million** credit for excess ADIT to be issued in 2020[115](index=115&type=chunk) - Kansas: A February 2019 order resulted in a net base rate increase of **$18.6 million** and a **$16.6 million** refund to customers for 2018 tax savings, which was issued in Q2 2019[118](index=118&type=chunk) - Texas: GRIP filings in 2019 resulted in approved rate increases of **$4.1 million** in the West Texas area and **$5.5 million** in the Central Texas area[119](index=119&type=chunk)[121](index=121&type=chunk) [Financial Results and Operating Information](index=33&type=section&id=Financial%20Results%20and%20Operating%20Information) Analyzes financial results for the nine months ended Sep 30, 2019, highlighting net income growth, net margin drivers, and changes in operating costs Net Margin on Natural Gas Sales (9 Months Ended Sep 30) | (Millions of dollars) | 2019 | 2018 | Increase (Decrease) | % Change | | :--- | :--- | :--- | :--- | :--- | | **Net margin on natural gas sales** | $596.6 | $569.7 | $26.9 | 5% | | **Transportation revenues** | $82.9 | $79.5 | $3.4 | 4% | | **Total Net Margin** | $702.8 | $673.4 | $29.4 | 4% | - The **$29.4 million** increase in net margin for the nine months ended Sep 30, 2019, was primarily driven by: - **$21.6 million** from new rates - **$4.8 million** from residential customer growth in Oklahoma and Texas - **$1.6 million** from higher transport volumes in Kansas[132](index=132&type=chunk) - Capital expenditures and asset removal costs are expected to be approximately **$450.0 million** for 2019, an increase from prior periods due to system integrity activities and service expansion[136](index=136&type=chunk) [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) Discusses the company's liquidity and capital resources, including operating cash flow, credit facilities, commercial paper, and debt-to-capital ratio - The company relies on operating cash flow, a **$700 million** commercial paper program, and a **$700 million** revolving credit facility (expiring Oct 2024) for liquidity[143](index=143&type=chunk)[149](index=149&type=chunk)[153](index=153&type=chunk) - As of Sep 30, 2019, the total debt-to-capital ratio was **44%**, in compliance with the credit agreement's covenant of no more than **70%**[150](index=150&type=chunk) - The company holds investment-grade credit ratings of **A2** from Moody's and **A** from S&P[156](index=156&type=chunk) [Environmental, Safety and Regulatory Matters](index=40&type=section&id=Environmental%2C%20Safety%20and%20Regulatory%20Matters) Addresses environmental liabilities at MGP sites, compliance with PHMSA pipeline safety regulations, and participation in EPA methane reduction programs - The company is responsible for environmental conditions at **12** former MGP sites in Kansas and **one** in Texas[164](index=164&type=chunk)[168](index=168&type=chunk) - On Oct 1, 2019, PHMSA published a final rule expanding pipeline integrity management requirements; compliance costs are not expected to be material. Two additional rulemakings are pending[173](index=173&type=chunk)[175](index=175&type=chunk) - The company participates in the EPA's Natural Gas STAR Methane Challenge Program, committing to replace at least **2%** of its cast iron and unprotected steel pipe inventory annually, a goal it exceeded in 2018[181](index=181&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=41&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Details the company's primary market risks, including commodity price, interest rate, and counterparty credit risks, and their respective mitigation strategies - Commodity price risk is mitigated by purchased-gas cost adjustment mechanisms and the use of derivative instruments to hedge the cost of anticipated natural gas purchases[192](index=192&type=chunk) - Interest-rate risk on future borrowings is managed through a mix of fixed-rate debt, floating-rate debt, and potentially interest-rate swaps[193](index=193&type=chunk) - Counterparty credit risk is considered low due to a large, diversified customer base of approximately **2.2 million** across three states[194](index=194&type=chunk) [Controls and Procedures](index=42&type=section&id=Item%204.%20Controls%20and%20Procedures) The CEO and CFO affirmed the effectiveness of disclosure controls and procedures, with no material changes to internal control over financial reporting in Q3 2019 - Disclosure controls and procedures were deemed effective by the Principal Executive Officer and Principal Financial Officer as of the end of the reporting period[195](index=195&type=chunk) - No material changes in internal control over financial reporting occurred during the third quarter ended September 30, 2019[196](index=196&type=chunk) [Part II. Other Information](index=43&type=section&id=Part%20II.%20Other%20Information) [Legal Proceedings](index=43&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings, with management expecting no material adverse effect on its financial position or operations - The company states that ongoing legal proceedings arising from normal operations are not expected to have a material adverse impact on its financial results[197](index=197&type=chunk) [Risk Factors](index=43&type=section&id=Item%201A.%20Risk%20Factors) Refers investors to the comprehensive risk factors detailed in the company's Annual Report on Form 10-K, which could materially affect financial performance - Investors are directed to the Risk Factors section of the company's Annual Report for a comprehensive discussion of risks affecting the business[198](index=198&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=43&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This item is reported as not applicable for the current reporting period - The company reports this item as 'Not applicable'[199](index=199&type=chunk) [Exhibits](index=43&type=section&id=Item%206.%20Exhibits) Lists exhibits filed with the report, including credit facility amendments and officer certifications required by the Sarbanes-Oxley Act - Filed exhibits include a First Amendment and Extension Agreement to the company's credit facility, and officer certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[204](index=204&type=chunk)

Financial Data and Key Metrics Changes - Net income for Q3 2019 was $17.5 million, or $0.33 per diluted share, compared to $16.3 million, or $0.31 per diluted share for the same period last year [5] - Operating costs increased to $114.6 million from $110.5 million year-over-year, primarily due to higher employee-related costs [6] - Interest expense rose due to the refinancing of $400 million of senior notes at a higher interest rate [7] - The company affirmed its 2019 net income guidance of $180 million to $190 million, or approximately $3.39 to $3.57 per diluted share [14] Business Line Data and Key Metrics Changes - The increase in net margin was attributed to new rates and residential customer growth, particularly in Oklahoma and Texas [6] - The authorized rate base as of September 30 was approximately $3.5 billion, with an estimated average rate base for 2019 projected at $3.64 billion [8][10] Market Data and Key Metrics Changes - The company is returning approximately $16 million to customers in Kansas and Oklahoma for excess accumulated deferred income taxes [11] - The company ended the quarter with approximately $304 million of capacity under its commercial paper program [12] Company Strategy and Development Direction - The long-term strategy remains focused on being a 100% regulated natural gas distribution company, emphasizing safety, expense management, and sustainability [24] - The company has successfully removed all sections of cast iron from its system, marking a significant milestone [22] Management's Comments on Operating Environment and Future Outlook - Management noted that the bad debt expense increase was routine and not indicative of local economic weakness [28] - There is no observed pushback on new gas hook-ups, with strong activity in capturing new developments [29] - The next PBRC filing in Oklahoma is expected to result in a rate increase, the first since 2016 [17] Other Important Information - The company plans to finance its needs with approximately one-third being equity, but specific financing methods have not been finalized [12][34] Q&A Session Summary Question: Was the increase in bad debt expense material and indicative of economic weakness? - Management clarified that the increase was routine and related to collection activity fluctuations, not economic weakness [28] Question: What level of customer growth was seen in the quarter, and is there pushback on new gas hook-ups? - Management reported strong customer growth and no pushback on new gas connections, emphasizing strong market activity [29] Question: How much capex is planned to be recovered with the GSRS filing in Kansas? - Management indicated that the GSRS filing is expected to yield about $4.2 million in new revenues, with 90% of capital subject to annual filings [33] Question: Will most of the equity financing be through ADM in 2020 and beyond? - Management stated that while it makes sense to consider ADM, no final decisions on financing methods have been made yet [34]

Part I. Financial Information This section presents the company's unaudited consolidated financial statements and management's discussion and analysis for the reporting period [Consolidated Financial Statements](index=6&type=section&id=Item%201.%20Consolidated%20Financial%20Statements) This section presents ONE Gas, Inc.'s unaudited consolidated financial statements, including income, comprehensive income, balance sheets, cash flows, and equity, with detailed notes for the periods ended June 30, 2019 and 2018 [Consolidated Statements of Income](index=6&type=section&id=Consolidated%20Statements%20of%20Income) This section provides the unaudited consolidated statements of income for the three and six months ended June 30, 2019 and 2018 Consolidated Statements of Income Highlights | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | **Total Revenues** | $290.56 million | $292.52 million | $951.56 million | $930.99 million | | **Operating Income** | $46.89 million | $41.04 million | $174.51 million | $171.33 million | | **Net Income** | $24.47 million | $20.42 million | $118.13 million | $111.25 million | | **Diluted EPS** | $0.46 | $0.39 | $2.22 | $2.10 | [Consolidated Balance Sheets](index=8&type=section&id=Consolidated%20Balance%20Sheets) This section presents the unaudited consolidated balance sheets as of June 30, 2019, and December 31, 2018 Consolidated Balance Sheet Highlights | Metric | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | **Total Assets** | $5,446.61 million | $5,468.64 million | | Net Property, Plant and Equipment | $4,400.65 million | $4,283.71 million | | Total Current Assets | $376.81 million | $543.29 million | | **Total Liabilities and Equity** | $5,446.61 million | $5,468.64 million | | Long-Term Debt | $1,285.81 million | $1,285.48 million | | Total Equity | $2,108.46 million | $2,042.66 million | [Consolidated Statements of Cash Flows](index=12&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section details the unaudited consolidated statements of cash flows for the six months ended June 30, 2019 and 2018 Consolidated Statements of Cash Flows Highlights | Metric | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | | **Cash provided by operating activities** | $241.17 million | $399.96 million | | **Cash used in investing activities** | ($187.33 million) | ($175.83 million) | | **Cash used in financing activities** | ($64.05 million) | ($225.96 million) | | **Change in cash and cash equivalents** | ($10.21 million) | ($1.83 million) | [Notes to Consolidated Financial Statements](index=15&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed notes explaining significant accounting policies, operations, and financial impacts on the consolidated statements - The company operates as a **single reportable segment**: regulated public utilities delivering natural gas to **2.2 million customers** in Oklahoma, Kansas, and Texas[32](index=32&type=chunk)[35](index=35&type=chunk) - Effective January 1, 2019, the company adopted the new lease accounting standard (Topic 842), recognizing lease liabilities of approximately **$32 million** with corresponding right-of-use assets of the same amount[40](index=40&type=chunk) - The company is addressing environmental conditions at **12 former Manufactured Gas Plant (MGP) sites** in Kansas and one in Texas, with costs subject to recovery through regulatory mechanisms[89](index=89&type=chunk)[92](index=92&type=chunk)[93](index=93&type=chunk) - As a result of the Tax Cuts and Jobs Act of 2017, the company recorded a **regulatory liability for the remeasurement of Accumulated Deferred Income Tax (ADIT)**, which is being refunded to customers as determined by regulators[82](index=82&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management analyzes financial performance, focusing on net income growth and net margin, and discusses regulatory impacts, liquidity, capital expenditures, and environmental and safety matters [Financial Results and Operating Information](index=32&type=section&id=Financial%20Results%20and%20Operating%20Information) This section details the company's financial results, including net income, EPS, operating income, and net margin, along with key operating information and capital expenditure projections Selected Financial Results | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | **Net Income** | $24.5 million | $20.4 million | $118.1 million | $111.3 million | | **Diluted EPS** | $0.46 | $0.39 | $2.22 | $2.10 | | **Operating Income** | $46.9 million | $41.0 million | $174.5 million | $171.3 million | - Net margin, a non-GAAP measure defined as total revenues less the cost of natural gas, is used by management to analyze financial performance. It increased by **$9.6 million (5%)** for Q2 2019 and **$17.5 million (4%)** for the first six months of 2019 compared to the prior year periods[128](index=128&type=chunk)[129](index=129&type=chunk) - The increase in net margin was primarily driven by new rates (**+$10.4M in Q2**, **+$14.3M in H1**) and residential customer growth in Oklahoma and Texas[129](index=129&type=chunk) - Capital expenditures and asset removal costs are projected to be approximately **$450.0 million** for 2019, driven by system integrity activities and extending service to new areas[133](index=133&type=chunk) [Regulatory Activities](index=30&type=section&id=Regulatory%20Activities) This section outlines the company's regulatory engagements, particularly regarding the 2017 Tax Cuts and Jobs Act and rate adjustments across its operating states - The company is actively working with regulators in Oklahoma, Kansas, and Texas to address the impacts of the 2017 Tax Cuts and Jobs Act, primarily concerning the refund of excess accumulated deferred income taxes (ADIT) to customers[111](index=111&type=chunk)[113](index=113&type=chunk)[116](index=116&type=chunk) - In Oklahoma, an OCC order in January 2019 required Oklahoma Natural Gas to lower base rates by **$11.3 million** and established a process for refunding excess ADIT[113](index=113&type=chunk) - In Kansas, a KCC order in February 2019 resulted in a net base rate increase of **$18.6 million** and required a refund of **$16.6 million** to customers for the 2018 impact of the lower federal corporate income tax rate[116](index=116&type=chunk) - In Texas, Texas Gas Service secured rate increases through GRIP filings totaling **$9.6 million** in the first half of 2019 for its West Texas and Central Texas service areas[117](index=117&type=chunk)[119](index=119&type=chunk) [Liquidity and Capital Resources](index=36&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's liquidity, capital resources, funding sources, credit facilities, debt structure, credit ratings, and cash flow performance - The company relies primarily on operating cash flow and its commercial paper program for liquidity. It maintains a **$700 million revolving credit facility**, which expires in October 2023[141](index=141&type=chunk)[147](index=147&type=chunk) Credit Facility and Debt Status (as of June 30, 2019) | Item | Amount | | :--- | :--- | | Revolving Credit Facility Size | $700 million | | Available Credit | $698.8 million | | Commercial Paper Outstanding | $293.0 million | | Total Debt-to-Capital Ratio | 43% (Covenant limit: 70%) | Credit Ratings (as of June 30, 2019) | Rating Agency | Rating | Outlook | | :--- | :--- | :--- | | Moody's | A2 | Stable | | S&P | A | Stable | - Operating cash flow decreased to **$241.2 million** for the first six months of 2019 from **$400.0 million** in the same period of 2018, primarily due to working capital changes related to the timing of customer collections and gas cost recoveries[159](index=159&type=chunk)[160](index=160&type=chunk) [Environmental, Safety and Regulatory Matters](index=39&type=section&id=Environmental,%20Safety%20and%20Regulatory%20Matters) This section addresses environmental liabilities at former MGP sites, potential impacts of new pipeline safety regulations, and the company's methane emission reduction initiatives - The company is managing environmental liabilities at **12 former Manufactured Gas Plant (MGP) sites** in Kansas under a consent agreement with the KDHE. An Accounting Authority Order (AAO) allows for the deferral and recovery of **up to $15.0 million** in remediation costs[163](index=163&type=chunk)[166](index=166&type=chunk) - The Pipeline and Hazardous Materials Safety Administration (PHMSA) is expected to publish three separate final rulemakings in 2019 regarding the safety of gas transmission and gathering lines, which could result in significant capital and operating expenditures[170](index=170&type=chunk)[171](index=171&type=chunk)[173](index=173&type=chunk) - As a founding partner of the EPA's Natural Gas STAR Methane Challenge Program, the company is committed to reducing methane emissions by replacing or rehabilitating **at least 2%** of its cast iron and non-protected steel pipe inventory annually, a goal it **exceeded in 2016 and 2017**[179](index=179&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=43&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks include commodity price fluctuations, interest rate changes, and counterparty credit risk, largely mitigated through regulatory mechanisms and a diverse customer base - Commodity price risk from natural gas price fluctuations is mitigated by purchased-gas cost adjustment mechanisms, which allow for the recovery of gas costs from customers[190](index=190&type=chunk) - Interest-rate risk is managed through a mix of fixed-rate debt, floating-rate debt, and potentially interest-rate swaps to manage costs on future borrowings[192](index=192&type=chunk) - Counterparty credit risk is not material due to a large customer base of **2.2 million** across three states, and uncollectible accounts related to natural gas costs are recoverable through regulatory mechanisms[193](index=193&type=chunk) [Controls and Procedures](index=44&type=section&id=Item%204.%20Controls%20and%20Procedures) The CEO and CFO concluded that the company's disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the second quarter of 2019 - The Principal Executive Officer and Principal Financial Officer concluded that disclosure controls and procedures were **effective** as of the end of the period covered by the report[194](index=194&type=chunk) - **No changes** in internal control over financial reporting occurred during the second quarter of 2019 that have materially affected, or are reasonably likely to materially affect, internal controls[195](index=195&type=chunk) Part II. Other Information This section covers legal proceedings, risk factors, other non-financial items, and a list of exhibits filed with the report [Legal Proceedings](index=45&type=section&id=Item%201.%20Legal%20Proceedings) The company is party to various litigation matters and claims, which management believes will not materially adversely affect its financial position or results - The company states that while the results of litigation cannot be predicted with certainty, it believes that reasonably possible losses from such matters are **not material**, individually or in aggregate[196](index=196&type=chunk) [Risk Factors](index=45&type=section&id=Item%201A.%20Risk%20Factors) This section refers investors to the detailed discussion of risk factors in the company's Annual Report on Form 10-K, noting no material changes - The company directs investors to consider the risks outlined in Part I, Item 1A of its Annual Report, stating there have been **no material changes** to those risk factors[197](index=197&type=chunk) [Other Items (2, 3, 4, 5)](index=45&type=section&id=Item%202,%203,%204,%205) Items 2, 3, 4, and 5, covering unregistered sales, defaults, mine safety, and other information, are all reported as not applicable for this period - The company reports **'Not applicable'** for Unregistered Sales of Equity Securities, Defaults Upon Senior Securities, Mine Safety Disclosures, and Other Information[198](index=198&type=chunk)[199](index=199&type=chunk)[200](index=200&type=chunk) [Exhibits](index=45&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Quarterly Report, including CEO and CFO certifications and XBRL interactive data documents - Exhibits filed with this report include officer certifications under **Sections 302 and 906 of the Sarbanes-Oxley Act**, as well as **XBRL interactive data files**[203](index=203&type=chunk)

Financial Data and Key Metrics Changes - Net income for Q2 2019 was $24.5 million or $0.46 per diluted share, compared to $20.4 million or $0.39 per diluted share for the same period last year, reflecting an increase in profitability [6] - Operating costs decreased to $116.1 million from $117.6 million in the same period last year, primarily due to a decrease in employee-related costs [7] - Cash provided by operating activities was approximately $240 million through June 2019, impacted by tax reform [8] - Updated 2019 earnings per share guidance is now in the range of $3.39 to $3.57, up from the previous range of $3.27 to $3.57 [11] Business Line Data and Key Metrics Changes - The company experienced lower sales volumes net of weather normalization in Kansas, but residential customer growth was noted in Oklahoma and Texas [6] - In Oklahoma, base rates were lowered by $11.3 million, and in Kansas, $16.6 million was refinanced for over-collection of taxes [9] Market Data and Key Metrics Changes - Authorized rate base as of June 30 was approximately $3.38 billion, with an estimated average rate base projected at $3.61 billion, distributed as 42% in Oklahoma, 29% in Kansas, and 29% in Texas [12][13] Company Strategy and Development Direction - The company aims to maintain a competitive advantage by focusing on safe operations and managing expenses, with a targeted annual dividend increase of 7% to 9% between 2018 and 2023 [10][21] - The company is also looking for opportunities to improve processes and efficiencies, particularly through technology advancements [34] Management's Comments on Operating Environment and Future Outlook - Management acknowledged that the overall performance to date has been positive, leading to an increase in the midpoint of earnings per share guidance [18] - The company expects to return excess accumulated deferred income taxes to customers, which will help stabilize cash flows moving forward [9][25] Other Important Information - The Board of Directors declared a dividend of $0.50 per share, consistent with the previous quarter [10] - The company ended the quarter with approximately $406 million of capacity under its commercial paper program and does not anticipate any equity or capital market needs in 2019 [14] Q&A Session Summary Question: Should we look at the clean operating cash performance of the business net of all Tax Cuts and Jobs Act impacts commencing in the second half of next year? - Curtis Dinan confirmed that this is the right way to look at it, as the impacts will be fully recognized after the upcoming approvals [25] Question: How should we calibrate our model for the environment regarding uses of cash going into year-end? - Curtis Dinan acknowledged the fluctuations in cash flow and indicated that the company is in a consistent cadence for addressing accumulated deferred income taxes [27] Question: Can you provide more color on the movement in other income related to employee benefit plans? - Caron Lawhorn explained that the guidance reflects a flat market, and fluctuations in plan assets are offsetting operating expenses [30] Question: What is the expectation for O&M growth beyond 2019? - Curtis Dinan indicated a general guidance of a 2% to 3% annual increase in O&M expenses, which aligns with the recent increase [33] Question: Was ONE Gas impacted by flooding in Oklahoma? - Sid McAnnally stated that while there was significant flooding, it did not have a material impact on the company's system or O&M, although some additional overtime costs were incurred [35]