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) Oklahoma 46-3561936 (State or other juri ...

ONE Gas, Inc. (OGS) reported first-quarter 2024 operating earnings per share (EPS) of $1.75, which lagged the Zacks Consensus Estimate of $1.78 by 1.7%. The bottom line was also 4.9% lower than the year-ago quarter’s figure of $1.84.The year-over-year decline in EPS was due to an increase in employee related expenses and lower sales volume owing to warmer-than-normal weather. These were marginally offset by higher revenues on the back of implementation of new rates.Total RevenuesONE Gas recorded revenues of ...

ONE Gas (OGS) came out with quarterly earnings of $1.75 per share, missing the Zacks Consensus Estimate of $1.78 per share. This compares to earnings of $1.84 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an earnings surprise of -1.69%. A quarter ago, it was expected that this natural gas distribution would post earnings of $1.27 per share when it actually produced earnings of $1.27, delivering no surprise.Over the last four quarters, the company h ...

[First Quarter 2024 Overview](index=1&type=section&id=1%20First%20Quarter%202024%20Overview) This section provides a comprehensive review of ONE Gas's financial performance and key operational highlights for the first quarter of 2024 [Executive Summary and Key Highlights](index=1&type=section&id=1.1%20Executive%20Summary%20and%20Key%20Highlights) ONE Gas announced its first quarter 2024 financial results, affirming its 2024 financial guidance and declaring a quarterly dividend. Despite a slight decrease in net income year-over-year and warmer weather, the company remains on track to achieve its annual financial guidance, supported by efficient capital execution and a focus on safe operations First Quarter Net Income and EPS Comparison | Metric | Q1 2024 | Q1 2023 | | :---------------- | :------ | :------ | | Net Income | $99.3 million | $102.6 million | | Diluted EPS | $1.75 | $1.84 | - Weather across service areas was **9 percent warmer than normal**, but the impact on operating income was mitigated by weather normalization mechanisms[4](index=4&type=chunk) - ONE Gas was awarded the American Gas Association Safety Achievement Award for the **seventh consecutive year**[4](index=4&type=chunk) - The board of directors declared a quarterly dividend of **$0.66 per share** ($2.64 annualized), payable on June 4, 2024[4](index=4&type=chunk) - President and CEO Robert S. McAnnally stated the company remains on track to achieve the midpoint of its 2024 financial guidance based on first quarter results[2](index=2&type=chunk) [Detailed Financial Performance](index=2&type=section&id=1.2%20Detailed%20Financial%20Performance) Operating income for Q1 2024 decreased slightly to $145.9 million from $149.2 million in Q1 2023, primarily due to increased employee-related costs and lower sales volumes, partially offset by revenue from new rates. Net interest expense increased due to new debt issuances and repayments, while capital expenditures rose, focusing on system integrity and service expansion Operating Income Comparison | Metric | Q1 2024 (Millions) | Q1 2023 (Millions) | | :--------------- | :----------------- | :----------------- | | Operating Income | $145.9 | $149.2 | - Operating income was positively impacted by an **$11.2 million increase in revenue from new rates**[5](index=5&type=chunk) - Operating income was negatively impacted by an **$8.5 million increase in employee-related costs** and a **$3.7 million decrease in revenue due to lower sales volumes** (net of weather normalization)[10](index=10&type=chunk) - Actual heating degree days were **4,741 for Q1 2024**, **9 percent warmer than normal** and **3 percent warmer than the same period last year**, with impacts mitigated by weather normalization mechanisms[5](index=5&type=chunk) [Operating Income and Revenue Drivers](index=2&type=section&id=1.2.1%20Operating%20Income%20and%20Revenue%20Drivers) Operating income was influenced by new rate revenues, increased employee costs, and lower sales volumes, with weather normalization mitigating impacts Operating Income Drivers (Q1 2024 vs Q1 2023) | Driver | Impact on Operating Income (Millions) | | :------------------------------------ | :------------------------- | | Revenue from new rates | +$11.2 | | Employee-related costs | -$8.5 | | Lower sales volumes (net of weather normalization) | -$3.7 | - Weather across the Company's service areas was **9 percent warmer than normal**, and **3 percent warmer than the same period last year**, with the impact on operating income mitigated by weather normalization mechanisms[5](index=5&type=chunk) [Net Interest Expense and Income Tax](index=2&type=section&id=1.2.2%20Net%20Interest%20Expense%20and%20Income%20Tax) Net interest expense rose due to new debt issuances and repayments, while income tax credit for EDIT amortization saw a slight increase - Net interest expense increased **$1.7 million** for the three months ending March 31, 2024, primarily due 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** and **$473 million of 1.10 percent senior notes** in February and March 2024[6](index=6&type=chunk) Income Tax Expense Credit for EDIT Amortization | Period | Credit Amount (Millions) | | :---------------- | :----------------------- | | Q1 2024 | $10.1 | | Q1 2023 | $9.9 | [Capital Expenditures](index=2&type=section&id=1.2.3%20Capital%20Expenditures) Capital expenditures increased, primarily directed towards system integrity and expanding service to new areas Capital Expenditures and Asset Removal Costs | Period | Amount (Millions) | | :---------------- | :---------------- | | Q1 2024 | $179.4 | | Q1 2023 | $164.6 | - Expenditures primarily represent investments in system integrity and extension of service to new areas[7](index=7&type=chunk) [Regulatory Activities Update](index=2&type=section&id=2%20Regulatory%20Activities%20Update) This section details recent regulatory filings and rate case updates across Oklahoma, Kansas, and Texas service areas [Oklahoma Natural Gas](index=2&type=section&id=2.1%20Oklahoma%20Natural%20Gas) Oklahoma Natural Gas filed its annual Performance-Based Rate Change application in February 2024, seeking a base rate revenue increase, an energy efficiency incentive, and a credit for excess deferred income taxes to customers - Filed annual Performance-Based Rate Change application in February 2024 for the test year ended December 2023[8](index=8&type=chunk) Requested Increases/Credits | Item | Amount (Millions) | | :-------------------------------- | :------------- | | Base rate revenue increase | $31.8 | | Energy efficiency incentive | $2.4 | | EDIT credit to customers (2025) | $12.8 | - A hearing for the application is scheduled for June 4, 2024[8](index=8&type=chunk) [Kansas Gas Service](index=2&type=section&id=2.2%20Kansas%20Gas%20Service) Kansas Gas Service submitted a general rate case in March 2024, requesting a significant increase in net base rates and proposing a performance-based ratemaking mechanism and a new residential customer rate class - Submitted a general rate case in March 2024[9](index=9&type=chunk) Requested Rate Increases | Item | Amount (Millions) | | :------------------------------------------------ | :------------- | | Increase in net base rates | $58.1 | | Total requested increase (including approved surcharges) | $93.1 | | Revenue increase already approved via Gas System Reliability Surcharge | $35.0 | - Proposed a performance-based ratemaking mechanism and a rate class designation for residential customers based on annual usage[9](index=9&type=chunk) [Texas Gas Service](index=3&type=section&id=2.3%20Texas%20Gas%20Service) Texas Gas Service made two Gas Reliability Infrastructure Program (GRIP) filings in February and March 2024, seeking rate increases for its West-North and Central-Gulf service areas - Made a GRIP filing in March 2024 for the West-North service area, requesting an **$8.6 million increase** to be effective in July 2024[11](index=11&type=chunk) - Made a GRIP filing in February 2024 for the Central-Gulf service area, requesting a **$12.3 million increase** to be effective in June 2024[12](index=12&type=chunk) [2024 Financial Guidance](index=3&type=section&id=3%202024%20Financial%20Guidance) ONE Gas reaffirmed its 2024 financial guidance, projecting net income, diluted earnings per share, and capital expenditures for the year - ONE Gas affirmed its financial guidance issued on November 29, 2023[13](index=13&type=chunk) 2024 Financial Guidance | Metric | Guidance Range | | :------------------------------------------ | :------------------- | | Net income | $214 million to $231 million | | Diluted earnings per share | $3.70 to $4.00 | | Capital expenditures (incl. asset removal costs) | Approximately $750 million | [Company Information and Forward-Looking Statements](index=3&type=section&id=4%20Company%20Information%20and%20Forward-Looking%20Statements) This section provides details on the upcoming earnings call, company profile, and important disclaimers regarding forward-looking statements and associated risks [Earnings Conference Call and Company Profile](index=3&type=section&id=4.1%20Earnings%20Conference%20Call%20and%20Company%20Profile) ONE Gas will host an earnings conference call on May 7, 2024. The company is a 100% regulated natural gas utility, serving over 2.3 million customers across Kansas, Oklahoma, and Texas, and is included in the S&P MidCap 400 Index - An earnings conference call will be hosted on Tuesday, May 7, 2024, at 11 a.m. Eastern Standard Time[14](index=14&type=chunk) - ONE Gas, Inc. (NYSE: OGS) is a **100% regulated natural gas utility**, included in the S&P MidCap 400 Index, and is one of the largest natural gas utilities in the United States[15](index=15&type=chunk) - The company provides natural gas to more than **2.3 million customers** in Kansas, Oklahoma, and Texas through its divisions: Kansas Gas Service, Oklahoma Natural Gas, and Texas Gas Service[16](index=16&type=chunk) [Forward-Looking Statements and Risk Factors](index=3&type=section&id=4.2%20Forward-Looking%20Statements%20and%20Risk%20Factors) This section highlights that the news release contains forward-looking statements regarding future financial performance, operations, and market conditions, which are subject to various known and unknown risks and uncertainties. These factors could cause actual results to differ materially from projections, and readers are cautioned not to place undue reliance on them - The news release contains forward-looking statements related to anticipated financial performance, liquidity, management's plans, business prospects, regulatory and legal proceedings, and market conditions[17](index=17&type=chunk) - These statements are made in reliance on the safe harbor protections provided under the Private Securities Litigation Reform Act of 1995[17](index=17&type=chunk) - Known and unknown risks, uncertainties, and other factors may cause actual results to be materially different from forward-looking statements, including factors such as the ability to recover costs, cyber-attacks, changes in regulation, economic climate, adverse weather, and access to capital[19](index=19&type=chunk)[20](index=20&type=chunk)[23](index=23&type=chunk) [Appendix - Financial Data](index=6&type=section&id=5%20Appendix%20-%20Financial%20Data) This appendix provides detailed consolidated financial statements, including income, balance sheets, and cash flows, along with specific securitization details and key operational metrics [Consolidated Statements of Income](index=6&type=section&id=5.1%20Consolidated%20Statements%20of%20Income) The consolidated statements of income show a decrease in total revenues and net income for the first quarter of 2024 compared to the same period in 2023, primarily driven by a significant reduction in the cost of natural gas Consolidated Statements of Income (Three Months Ended March 31) | Metric | Q1 2024 (Thousands) | Q1 2023 (Thousands) | | :------------------------ | :------------------ | :------------------ | | Total revenues | $758,320 | $1,032,143 | | Cost of natural gas | $383,003 | $665,799 | | Operating expenses | $229,457 | $217,113 | | Operating income | $145,860 | $149,231 | | Net income | $99,317 | $102,621 | | Diluted EPS | $1.75 | $1.84 | | Dividends declared per share | $0.66 | $0.65 | [Consolidated Balance Sheets](index=7&type=section&id=5.2%20Consolidated%20Balance%20Sheets) The consolidated balance sheets indicate a slight decrease in total assets from December 31, 2023, to March 31, 2024. Key changes include an increase in net property, plant and equipment, a decrease in total current assets, and a significant increase in notes payable within current liabilities Consolidated Balance Sheets (Selected Items) | Metric | March 31, 2024 (Thousands) | December 31, 2023 (Thousands) | | :------------------------------------------ | :------------------------- | :-------------------------- | | Total assets | $7,764,037 | $7,770,994 | | Net property, plant and equipment | $6,237,954 | $6,135,212 | | Total current assets | $663,695 | $765,204 | | Total equity | $2,829,985 | $2,765,877 | | Total long-term debt (excl. current maturities) | $2,146,362 | $2,160,401 | | Total current liabilities | $1,403,524 | $1,477,221 | | Notes payable | $953,400 | $88,500 | [Consolidated Statements of Cash Flows](index=10&type=section&id=5.3%20Consolidated%20Statements%20of%20Cash%20Flows) Cash provided by operating activities significantly decreased in Q1 2024 compared to Q1 2023, largely due to the absence of proceeds from government securitization of winter weather event costs. Investing activities showed an increase in cash used, while financing activities shifted from cash used to cash provided, primarily driven by net borrowings of notes payable Consolidated Statements of Cash Flows (Three Months Ended March 31) | Metric | Q1 2024 (Thousands) | Q1 2023 (Thousands) | | :------------------------------------------ | :------------------ | :------------------ | | Net income | $99,317 | $102,621 | | Cash provided by operating activities | $108,262 | $469,066 | | Cash used in investing activities | $(165,981) | $(149,879) | | Cash provided by (used in) financing activities | $39,804 | $(310,388) | | Proceeds from government securitization of winter weather event costs | $0 | $197,366 | | Borrowings (repayments) of notes payable, net | $864,900 | $(272,000) | [KGSS-I Securitization Details](index=11&type=section&id=5.4%20KGSS-I%20Securitization%20Details) This section provides specific financial details regarding the Kansas Gas Service Securitization I (KGSS-I), which issued $336 million in securitized utility tariff bonds in November 2022, outlining its impact on the consolidated balance sheets and statements of income - Kansas Gas Service Securitization I (KGSS-I) issued **$336 million of securitized utility tariff bonds** in November 2022[34](index=34&type=chunk) Impact of KGSS-I on Consolidated Statements of Income (Q1) | Metric | Q1 2024 (Thousands) | Q1 2023 (Thousands) | | :------------------------ | :------------------ | :------------------ | | Operating revenues | $11,671 | $11,933 | | Operating expense | $(111) | $(110) | | Amortization expense | $(7,385) | $(7,089) | | Interest income | $188 | $75 | | Interest expense | $(4,327) | $(4,809) | | Income before income taxes | $36 | $0 | Impact of KGSS-I on Consolidated Balance Sheets (Selected Items) | Metric | March 31, 2024 (Thousands) | December 31, 2023 (Thousands) | | :------------------------------------------ | :------------------------- | :-------------------------- | | Restricted cash and cash equivalents | $9,963 | $20,552 | | Securitized intangible asset, net | $286,234 | $293,619 | | Securitized utility tariff bonds, excluding current maturities | $268,102 | $282,506 | [Information at a Glance](index=12&type=section&id=5.5%20Information%20at%20a%20Glance) This comprehensive table provides a snapshot of key financial and operational metrics for Q1 2024 and Q1 2023, including detailed breakdowns of revenues, costs, income, capital expenditures, sales volumes, customer counts, and heating degree days across the company's service areas Key Financial Metrics (Q1 2024 vs. Q1 2023) | Metric | Q1 2024 (Millions) | Q1 2023 (Millions) | | :-------------------------------- | :----------------- | :----------------- | | Total revenues | $758.3 | $1,032.1 | | Cost of natural gas | $383.0 | $665.8 | | Operating costs | $152.8 | $145.8 | | Operating income | $145.9 | $149.2 | | Net income | $99.3 | $102.6 | | Capital expenditures and asset removal costs | $179.4 | $164.6 | Volumes Delivered (Bcf) (Q1 2024 vs. Q1 2023) | Metric | Q1 2024 (Bcf) | Q1 2023 (Bcf) | | :------------------------ | :------------ | :------------ | | Natural gas sales | 70.5 | 73.8 | | Transportation | 63.4 | 64.9 | | Total volumes delivered | 133.9 | 138.7 | Average Number of Customers (Thousands) (Q1 2024 vs. Q1 2023) | Metric | Q1 2024 (Thousands) | Q1 2023 (Thousands) | | :---------------- | :------------------ | :------------------ | | Residential | 2,110 | 2,100 | | Commercial and industrial | 165 | 165 | | Total customers | 2,290 | 2,280 | Heating Degree Days (Company-wide) (Q1 2024 vs. Q1 2023) | Metric | Q1 2024 | Q1 2023 | | :-------------------------------- | :------ | :------ | | Actual degree days | 4,741 | 4,872 | | Normal degree days | 5,219 | 5,237 | | Percent colder (warmer) than normal weather | (9.2)% | (7.0)% |

Declares Second Quarter Dividend TULSA, Okla., May 6, 2024 /PRNewswire/ -- ONE Gas, Inc. (NYSE: OGS) today announced its first quarter financial results, affirmed its 2024 financial guidance and declared its quarterly dividend. "Efficient capital execution and our focus on safe operations position us well to serve a growing customer base," said Robert S. McAnnally, president and chief executive officer. "Based on our first quarter results, we remain on track to achieve the midpoint of our 2024 financial gui ...

Wall Street expects a year-over-year decline in earnings on lower revenues when ONE Gas (OGS) reports results for the quarter ended March 2024. While this widely-known consensus outlook is important in gauging the company's earnings picture, a powerful factor that could impact its near-term stock price is how the actual results compare to these estimates.The stock might move higher if these key numbers top expectations in the upcoming earnings report, which is expected to be released on May 6. On the other ...

Part I [Business](index=9&type=section&id=Item%201.%20Business) ONE Gas, Inc. is a 100-percent regulated natural gas distribution utility serving approximately 2.3 million customers across Oklahoma, Kansas, and Texas - ONE Gas, Inc. is a **100-percent regulated natural gas distribution utility**, headquartered in Tulsa, Oklahoma, and one of the largest publicly traded natural gas utilities in the United States[21](index=21&type=chunk) - The company provides natural gas distribution services to approximately **2.3 million customers**, being the largest distributor in Oklahoma and Kansas and the third largest in Texas[22](index=22&type=chunk) - The business strategy focuses on **Safe and Reliable Energy, a High-performing Workforce, Capital Demand Growth, Clean Energy Solutions, and Serving Customers**[24](index=24&type=chunk) Key Regulatory Rate Structures and Mechanisms by Division (as of December 31, 2023) | Division | Jurisdiction | Effective Date of Last Action | Rate Base (Millions of dollars) | Pre-Tax Rate of Return (%) | Equity Ratio (%) | ROE (%) | | :------------------- | :----------- | :---------------------------- | :-------------------- | :--------------------- | :----------- | :---- | | Oklahoma Natural Gas | Oklahoma | June 2023 | $2,066 | 8.95% | 59% | 9.40% | | Kansas Gas Service | Kansas | November 2023 | $1,330 | 8.60% | N/A | 9.30% | | Texas Gas Service | Central-Gulf | June 2023 | $617 | 8.95% | 59% | 9.50% | | Texas Gas Service | West-North | June 2023 | $589 | 8.91% | 60% | 9.60% | | Texas Gas Service | Rio Grande Valley | January 2024 | $160 | 8.95% | 59% | 9.70% | | Division | Jurisdiction | Interim Rate Adjustment Mechanism | Interim Capital Recovery | WNA | WNA Effective Dates | Energy Efficiency / Conservation Program | | :------------------- | :----------- | :-------------------------------- | :----------------------- | :---- | :------------------ | :--------------------------------------- | | Oklahoma Natural Gas | Oklahoma | PBRC | Yes | Yes | November - April | Yes | | Kansas Gas Service | Kansas | GSRS | Yes | Yes | January - December | No | | Texas Gas Service | Central-Gulf | GRIP | Yes | Yes | September - May | Yes | | Texas Gas Service | West-North | GRIP | Yes | Yes | September - May | No | | Texas Gas Service | Rio Grande Valley | GRIP | Yes | Yes | September - May | Yes | | Division | Jurisdiction | Purchased Gas Adjustment | Bad Debt Recovery | Expense Trackers | | :------------------- | :----------- | :----------------------- | :---------------- | :--------------- | | Oklahoma Natural Gas | Oklahoma | Yes | Yes | N/A | | Kansas Gas Service | Kansas | Yes | Yes | Yes | | Texas Gas Service | Central-Gulf | Yes | Yes | Yes | | Texas Gas Service | West-North | Yes | Yes | Yes | | Texas Gas Service | Rio Grande Valley | Yes | Yes | Yes | - For the year ended December 31, 2023, **89% of Oklahoma Natural Gas's revenues, 56% of Kansas Gas Service's revenues, and 70% of Texas Gas Service's revenues** from sales customers (excluding natural gas costs) were recovered from fixed charges[38](index=38&type=chunk) - The company purchased **160 Bcf of natural gas supply in 2023**, down from 165 Bcf in 2022, and has **58.1 Bcf of natural gas storage capacity** under contract[39](index=39&type=chunk)[44](index=44&type=chunk) - The company employed approximately **3,900 people** at February 1, 2024, with about **18% represented by collective bargaining units**[54](index=54&type=chunk)[65](index=65&type=chunk) Operational Safety Measures Performance (Years Ended December 31) | Operational measure | 2023 | 2022 | 2021 | | :------------------ | :--- | :--- | :--- | | ER | 3,076 | — | — | | TRIR | — | 1.37 | 0.96 | | DART | 0.16 | 0.22 | 0.22 | | PVIR | 1.82 | 1.84 | 2.10 | | ERT | 64.8% | 62.7% | 62.7% | [Risk Factors](index=15&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant operational, regulatory, legislative, financial, economic, and market risks, including hazards, talent retention, cyber threats, compliance costs, and access to capital - Operational risks such as leaks, accidents, and equipment failure could lead to **legal liability, increased costs, regulatory fines, and loss of customer confidence**[63](index=63&type=chunk) - Reliance on attracting and retaining skilled employees means a tight labor market or workforce disruptions could **adversely impact operations, earnings, and cash flows**[65](index=65&type=chunk) - Increasing reliance on technology creates vulnerability to cyber or physical security attacks, potentially disrupting operations, exposing sensitive information, and leading to **financial liability or increased regulation**[68](index=68&type=chunk)[69](index=69&type=chunk) - Regulatory and legislative risks, including environmental and rate-setting regulations, could **increase operating costs, require significant expenditures, or limit return on invested capital**[72](index=72&type=chunk)[73](index=73&type=chunk)[75](index=75&type=chunk) - Financial, economic, and market risks, such as unfavorable economic conditions or increased natural gas prices, could **adversely affect financial condition and growth** by impacting customer consumption or capital access[78](index=78&type=chunk)[79](index=79&type=chunk)[82](index=82&type=chunk) [Unresolved Staff Comments](index=19&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) There are no unresolved staff comments to report [Cybersecurity](index=19&type=section&id=Item%201C.%20Cybersecurity) ONE Gas maintains a robust cybersecurity program with Board oversight, defense-in-depth methodology, employee training, and no material breaches - The Board of Directors oversees cybersecurity risk, receiving **quarterly reports from management**[88](index=88&type=chunk) - A governance committee, chaired by the Chief Information Officer, provides **oversight for security and IT activities**[89](index=89&type=chunk) - The cybersecurity function employs a **defense-in-depth methodology**, including advanced monitoring and partnerships for incident response[91](index=91&type=chunk) - The company assesses cybersecurity maturity against **NIST standards and CISA best practices**, conducting annual incident response exercises[92](index=92&type=chunk)[95](index=95&type=chunk) - ONE Gas requires recurring cybersecurity awareness training for all employees and has **not experienced any material cybersecurity breaches**[96](index=96&type=chunk)[97](index=97&type=chunk) [Properties](index=21&type=section&id=Item%202.%20Properties) ONE Gas owns and operates an extensive natural gas distribution and transmission pipeline system totaling 44,800 miles across three states Properties (miles) as of December 31, 2023 | Properties (miles) | OK | KS | TX | Total | | :----------------- | :--- | :--- | :--- | :---- | | Distribution | 19,600 | 11,800 | 11,100 | 42,500 | | Transmission | 500 | 1,500 | 300 | 2,300 | | Total properties | 20,100 | 13,300 | 11,400 | 44,800 | - The company has **58.1 Bcf of natural gas storage capacity** under contract, with a maximum daily withdrawal capacity of approximately **1.7 Bcf**[98](index=98&type=chunk) [Legal Proceedings](index=21&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in various litigation matters and claims, but reasonably possible losses are not expected to be material to its financial position - The company is a party to various litigation matters and claims arising in the normal course of operations[99](index=99&type=chunk) - Reasonably possible losses from these matters are **not material**, and the probable outcome will not have a material adverse effect on financial results or cash flows[152](index=152&type=chunk)[421](index=421&type=chunk) [Mine Safety Disclosures](index=21&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to ONE Gas, Inc.'s operations Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=22&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) ONE Gas common stock is listed on the NYSE under 'OGS', with 8,969 shareholders and a declared quarterly dividend of $0.66 per share - ONE Gas, Inc. common stock is listed on the NYSE under the trading symbol **'OGS'**[21](index=21&type=chunk)[103](index=103&type=chunk) - As of February 16, 2024, there were **8,969 registered shareholders** of common stock[103](index=103&type=chunk) - In January 2024, a dividend of **$0.66 per share ($2.64 annualized)** was declared, payable March 8, 2024[103](index=103&type=chunk)[123](index=123&type=chunk)[351](index=351&type=chunk) Cumulative Total Return as of December 31 (assuming $100 investment) | | 2019 | 2020 | 2021 | 2022 | 2023 | | :-------------------------- | :----- | :----- | :----- | :----- | :----- | | ONE Gas, Inc. | $120.28 | $101.36 | $105.78 | $106.40 | $92.79 | | S&P MidCap 400 Utilities Index | $114.33 | $98.47 | $117.92 | $117.74 | $102.19 | | S&P MidCap 400 Index | $126.17 | $143.39 | $178.85 | $155.42 | $180.90 | | Dow Jones Industrial Average | $125.34 | $137.53 | $166.34 | $154.92 | $180.00 | | ONE Gas Peer Group | $118.15 | $104.83 | $123.73 | $127.65 | $123.31 | [Reserved](index=21&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved and contains no information [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section reviews ONE Gas's financial performance, regulatory environment, financing, operating results, liquidity, and capital resources, highlighting impacts of regulation, weather, and capital expenditures - Net income increased to **$231.2 million ($4.14 per diluted share) in 2023**, up from $221.7 million ($4.08 per diluted share) in 2022[136](index=136&type=chunk) Selected Financial Results (Millions of dollars, except percentages) | Financial Results | 2023 | 2022 | 2021 | Variances 2023 vs. 2022 Increase (Decrease) (%) | Variances 2022 vs. 2021 Increase (Decrease) (%) | | :------------------ | :----- | :----- | :----- | :---------------------------------------- | :---------------------------------------- | | Natural gas sales | $2,154.0 | $2,412.9 | $1,661.7 | $(258.9) (11)% | $751.2 45 % | | Transportation revenues | 133.6 | 126.5 | 119.0 | 7.1 6 % | 7.5 6 % | | Securitization customer charges | 48.7 | 5.8 | — | 42.9 740 % | 5.8 100 % | | Other revenues | 35.7 | 32.8 | 27.9 | 2.9 9 % | 4.9 18 % | | Total revenues | 2,372.0 | 2,578.0 | 1,808.6 | (206.0) (8)% | 769.4 43 % | | Cost of natural gas | 1,134.5 | 1,459.1 | 775.0 | (324.6) (22)% | 684.1 88 % | | Operating costs | 580.1 | 540.4 | 516.1 | 39.7 7 % | 24.3 5 % | | Depreciation and amortization | 279.8 | 228.5 | 207.2 | 51.3 22 % | 21.3 10 % | | Operating income | $377.6 | $350.0 | $310.3 | $27.6 8 % | $39.7 13 % | | Net Income | $231.2 | $221.7 | $206.4 | $9.5 4 % | $15.3 7 % | | Capital expenditures and asset removal costs | $728.7 | $656.5 | $544.3 | $72.2 11 % | $112.2 21 % | - Operating income increased by **$27.6 million in 2023**, driven by new rates and residential sales growth, partially offset by increased employee-related and depreciation expenses[144](index=144&type=chunk) - Capital expenditures and asset removal costs increased by **$72.2 million in 2023**, primarily for system integrity and service extension, with **$750 million expected for 2024**[148](index=148&type=chunk) Average Number of Customers (Thousands) | Average Number of Customers (Thousands) | OK | KS | TX | Total | | :-------------------------- | :--- | :--- | :--- | :---- | | Residential | 836 | 592 | 660 | 2,088 | | Commercial and industrial | 77 | 50 | 35 | 162 | | Other | — | — | 3 | 3 | | Transportation | 5 | 6 | 1 | 12 | | Total customers | 918 | 648 | 699 | 2,265 | - The average number of customers increased by **9,000 in 2023**, primarily due to **23,400 new customer connections**[149](index=149&type=chunk) Total Volumes Delivered (MMcf) | Volumes (MMcf) | 2023 | 2022 | 2021 | | :------------------------ | :----- | :----- | :----- | | Natural gas sales | | | | | Residential | 114,239 | 125,286 | 117,758 | | Commercial and industrial | 40,630 | 43,184 | 37,615 | | Other | 1,737 | 2,725 | 2,521 | | Total sales volumes delivered | 156,606 | 171,195 | 157,894 | | Transportation | 227,875 | 230,080 | 229,935 | | Total volumes delivered | 384,481 | 401,275 | 387,829 | Heating Degree Days (HDDs) by State | HDDs | 2023 Actual | 2023 Normal | 2022 Actual | 2022 Normal | 2023 vs. 2022 Variance (%) | 2023 Actual as a percent of Normal (%) | 2022 Actual as a percent of Normal (%) | | :------- | :---------- | :---------- | :---------- | :---------- | :--------------------- | :--------------------------------- | :--------------------------------- | | Oklahoma | 3,125 | 3,346 | 3,621 | 3,346 | (14)% | 93 % | 108 % | | Kansas | 4,117 | 4,721 | 4,779 | 4,722 | (14)% | 87 % | 101 % | | Texas | 1,558 | 1,705 | 1,950 | 1,764 | (20)% | 91 % | 111 % | - Operating cash flows were lower in 2023, primarily due to the timing of winter weather event cost recovery and working capital changes related to accounts receivable[178](index=178&type=chunk) - Cash used in investing activities increased in 2023 due to **higher capital expenditures** for system integrity and new service extensions[179](index=179&type=chunk) - Cash used in financing activities decreased in 2023, mainly due to the **repayment of long-term debt** related to Winter Storm Uri in August 2022[179](index=179&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=37&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) ONE Gas manages market risks related to commodity prices and interest rates through adjustment mechanisms, hedging, and a mix of debt types - Commodity price risk from natural gas fluctuations is mitigated by **purchased-gas cost adjustment mechanisms** that pass costs to customers without profit[213](index=213&type=chunk) - The company uses **fixed-price natural gas contracts and derivative instruments** to hedge anticipated winter purchases and injects natural gas into storage during warmer months[213](index=213&type=chunk) - Interest-rate risk from commercial paper, credit agreement borrowings, and new debt financing is managed through **fixed-rate and floating-rate debt**, and potentially interest-rate swaps[214](index=214&type=chunk)[215](index=215&type=chunk) - With approximately **2.3 million customers** across three states, ONE Gas is not materially exposed to a concentration of counterparty credit risk[216](index=216&type=chunk) [Financial Statements and Supplementary Data](index=39&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents audited consolidated financial statements, including balance sheets, income statements, cash flows, and detailed notes on accounting policies, revenue, and debt - PricewaterhouseCoopers LLP issued an **unqualified opinion** on the consolidated financial statements and internal control over financial reporting for the period ended December 31, 2023[219](index=219&type=chunk)[220](index=220&type=chunk) Consolidated Statements of Income (Thousands of dollars, except per share amounts) | | 2023 | 2022 | 2021 | | :-------------------------- | :--------- | :--------- | :--------- | | Total revenues | $2,371,990 | $2,578,005 | $1,808,597 | | Cost of natural gas | 1,134,510 | 1,459,087 | 775,006 | | Operating expenses | | | | | Operations and maintenance | 508,399 | 472,265 | 449,676 | | Depreciation and amortization | 279,830 | 228,479 | 207,233 | | General taxes | 71,661 | 68,217 | 66,424 | | Total operating expenses | 859,890 | 768,961 | 723,333 | | Operating income | 377,590 | 349,957 | 310,258 | | Other income (expense), net | 9,476 | (4,183) | (3,207) | | Interest expense, net | (115,339) | (77,506) | (60,301) | | Income before income taxes | 271,727 | 268,268 | 246,750 | | Income taxes | (40,495) | (46,526) | (40,316) | | Net income | $231,232 | $221,742 | $206,434 | | Earnings per share | | | | | Basic ($) | $4.16 | $4.09 | $3.85 | | Diluted ($) | $4.14 | $4.08 | $3.85 | | Average shares (Thousands) | | | | | Basic | 55,600 | 54,207 | 53,575 | | Diluted | 55,860 | 54,338 | 53,674 | | Dividends declared per share of stock ($) | $2.60 | $2.48 | $2.32 | Consolidated Balance Sheets (Thousands of dollars) | Assets | December 31, 2023 | December 31, 2022 | | :------------------------------------------ | :---------------- | :---------------- | | Net property, plant and equipment | $6,135,212 | $5,628,840 | | Total current assets | 765,204 | 1,217,608 | | Total goodwill and other assets | 870,578 | 929,948 | | **Total assets** | **$7,770,994** | **$7,776,396** | | | | | | Equity and Liabilities | December 31, 2023 | December 31, 2022 | | Total equity | $2,765,877 | $2,584,426 | | Total long-term debt, excluding current maturities, net of issuance costs | 2,160,401 | 2,661,743 | | Total current liabilities | 1,477,221 | 1,189,419 | | Total deferred credits and other liabilities | 1,367,495 | 1,340,808 | | **Total liabilities and equity** | **$7,770,994** | **$7,776,396** | Consolidated Statements of Cash Flows (Thousands of dollars) | Total cash provided by (used in): | 2023 | 2022 | 2021 | | :-------------------------------- | :--------- | :--------- | :----------- | | Operating activities | $939,532 | $1,570,842 | $(1,535,657) | | Investing activities | (669,643) | (614,110) | (501,083) | | Financing activities | (248,629) | (947,457) | 2,037,599 | | Change in cash, cash equivalents, restricted cash and restricted cash equivalents | 21,260 | 9,275 | 859 | | Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period | $39,387 | $18,127 | $8,852 | [SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=56&type=section&id=1.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This section outlines ONE Gas's accounting policies for revenue recognition, natural gas costs, property, regulatory assets/liabilities, impairment, and securitized intangible assets - ONE Gas operates in **one reportable business segment**: regulated public utilities delivering natural gas to various customer types[248](index=248&type=chunk) - Revenue is recognized upon natural gas delivery or services rendered, with **unbilled revenues accrued at period-end** using the invoice method practical expedient[252](index=252&type=chunk) - Cost of natural gas includes commodity purchases, fuel, storage, transportation, and hedging costs, **recovered through regulatory mechanisms without profit**[258](index=258&type=chunk) - Property, plant, and equipment are stated at cost and depreciated using the **straight-line method**, with capitalized interest during construction[260](index=260&type=chunk)[262](index=262&type=chunk) - The company accounts for **regulatory assets for probable future cost recovery** and **regulatory liabilities for probable future revenue reductions**, impacting expense and revenue recognition timing[193](index=193&type=chunk)[283](index=283&type=chunk) - Goodwill is assessed for impairment annually, and long-lived assets are assessed when circumstances indicate carrying amounts may not be recoverable[275](index=275&type=chunk)[279](index=279&type=chunk) - A securitized intangible asset from Kansas Gas Service is **amortized over 10 years**, reflecting the collection period for Securitized Utility Tariff Bonds[280](index=280&type=chunk) [REVENUE](index=62&type=section&id=2.%20REVENUE) This section details ONE Gas's revenues disaggregated by source, including natural gas sales, transportation, and securitization customer charges, along with unbilled revenues Revenues Disaggregated by Source (Thousands of dollars) | | 2023 | 2022 | 2021 | | :------------------------------------ | :--------- | :--------- | :--------- | | Natural gas sales to customers | $2,141,908 | $2,410,048 | $1,652,566 | | Transportation revenues | 132,945 | 125,951 | 118,492 | | Securitization customer charges (Note 17) | 48,677 | 5,769 | — | | Miscellaneous revenues | 22,791 | 19,850 | 16,757 | | Total revenues from contracts with customers | 2,346,321 | 2,561,618 | 1,787,815 | | Other revenues - natural gas sales related | 12,764 | 3,403 | 9,650 | | Other revenues | 12,905 | 12,984 | 11,132 | | Total other revenues | 25,669 | 16,387 | 20,782 | | Total revenues | $2,371,990 | $2,578,005 | $1,808,597 | - Accrued unbilled natural gas sales revenues were **$191.4 million at December 31, 2023**, a decrease from $269.5 million at December 31, 2022[195](index=195&type=chunk)[303](index=303&type=chunk) [REGULATORY ASSETS AND LIABILITIES](index=63&type=section&id=3.%20REGULATORY%20ASSETS%20AND%20LIABILITIES) This section summarizes ONE Gas's regulatory assets and liabilities, including securitization bonds for Winter Storm Uri cost recovery and deferred MGP remediation costs Summary of Regulatory Assets and Liabilities (Thousands of dollars) | | December 31, 2023 | December 31, 2022 | | :------------------------------------ | :------------------ | :------------------ | | Total regulatory assets, net of amortization | $363,214 | $606,403 | | Total regulatory liabilities | $(567,379) | $(577,308) | | Net regulatory assets and liabilities | $(204,165) | $29,095 | - In March 2023, ONE Gas received approximately **$197 million** from TNG Corporation's Customer Rate Relief bonds to repay debt and for general corporate purposes[110](index=110&type=chunk)[129](index=129&type=chunk)[314](index=314&type=chunk) - Oklahoma Natural Gas recovered approximately **$1.3 billion of Winter Storm Uri costs** through ODFA securitization bonds issued in August 2022[112](index=112&type=chunk)[310](index=310&type=chunk) - Kansas Gas Service's securitization in November 2022 involved KGSS-I issuing **$336 million in bonds** to purchase Securitized Utility Tariff Property[111](index=111&type=chunk)[311](index=311&type=chunk) - The company defers MGP remediation costs in Kansas, with **$32.0 million deferred at December 31, 2023**, exceeding the $15.0 million cap and requiring a KCC application[413](index=413&type=chunk) [CREDIT FACILITY AND SHORT-TERM DEBT](index=65&type=section&id=4.%20CREDIT%20FACILITY%20AND%20SHORT-TERM%20DEBT) This section details ONE Gas's credit facility and short-term debt, including increased capacity, extended maturity, debt covenant compliance, and commercial paper program status - In October 2023, the ONE Gas Credit Agreement capacity increased to **$1.2 billion from $1.0 billion**, with its maturity extended to March 16, 2028[121](index=121&type=chunk)[155](index=155&type=chunk)[325](index=325&type=chunk) - The credit agreement includes a **$20 million letter of credit subfacility** and a **$60 million swingline subfacility** for working capital, capital expenditures, and general corporate purposes[156](index=156&type=chunk)[326](index=326&type=chunk) - At December 31, 2023, the total debt-to-capital ratio was **52%**, in compliance with the **70% covenant**[157](index=157&type=chunk)[327](index=327&type=chunk) - The commercial paper program capacity was increased to **$1.2 billion** in November 2023[122](index=122&type=chunk)[158](index=158&type=chunk)[329](index=329&type=chunk) - Commercial paper outstanding was **$88.5 million at December 31, 2023**, down from $552.0 million in 2022, with weighted-average interest rates of **5.60% and 4.75%** respectively[159](index=159&type=chunk)[330](index=330&type=chunk) [LONG-TERM DEBT](index=66&type=section&id=5.%20LONG-TERM%20DEBT) This section summarizes ONE Gas's long-term debt, including outstanding senior notes, securitized utility tariff bonds, and credit ratings Summary of Long-Term Debt Outstanding (Thousands of dollars) | | December 31, 2023 | December 31, 2022 | | :------------------------------------------ | :------------------ | :------------------ | | Total Senior Notes | $2,673,000 | $2,373,000 | | KGSS-I Securitized Utility Tariff Bonds | 315,284 | 336,000 | | Other | 1,238 | 1,250 | | Unamortized discounts on long-term debt | (7,615) | (7,636) | | Debt issuance costs | (21,092) | (20,143) | | Total long-term debt, net | 2,960,815 | 2,682,471 | | Less: current maturities of securitized utility tariff bonds, net | 27,430 | 20,716 | | Less: current maturities of other long-term debt, net | 772,984 | 12 | | Noncurrent portion of long-term debt, net | $2,160,401 | $2,661,743 | - In December 2023, ONE Gas issued **$300 million of 5.10% senior notes** due April 2029, using proceeds to repay commercial paper and for general corporate purposes[113](index=113&type=chunk)[160](index=160&type=chunk)[332](index=332&type=chunk) - At December 31, 2023, **$2.7 billion of Senior Notes** were outstanding, with **$773.0 million due within the next year**[161](index=161&type=chunk) - The KGSS-I Securitized Utility Tariff Bonds, totaling **$315.3 million outstanding** at December 31, 2023, have a 10-year term with semi-annual principal repayments[163](index=163&type=chunk)[338](index=338&type=chunk) Credit Ratings at December 31, 2023 | Rating Agency | Rating | Outlook | | :------------ | :----- | :------ | | Moody's | A3 | Stable | | S&P | A- | Stable | [LEASES](index=68&type=section&id=6.%20LEASES) This section outlines ONE Gas's operating leases for facilities, storage, and equipment, detailing right-of-use assets, costs, and future minimum payments - ONE Gas holds operating leases for office facilities, gas storage, IT equipment, and right-of-way contracts, with **remaining terms of 1 to 6 years**[340](index=340&type=chunk) - Operating lease right-of-use assets were **$21.0 million at December 31, 2023**, and total operating lease cost was **$7.7 million for 2023**[341](index=341&type=chunk) Future Minimum Lease Payments (Millions of dollars) | For the year ending: | Amount (Millions of dollars) | | :------------------- | :----- | | 2024 | $6.7 | | 2025 | $4.9 | | 2026 | $3.3 | | 2027 | $3.1 | | 2028 | $2.8 | | Thereafter | $1.4 | | Total future minimum lease payments | $22.2 | | Imputed interest | $(1.9) | | Total operating lease liability | $20.3 | [EQUITY](index=69&type=section&id=7.%20EQUITY) This section details ONE Gas's common stock, including shares outstanding, forward contracts, equity distribution agreements, and declared dividends - At December 31, 2023, ONE Gas had **56,545,924 shares of common stock issued and outstanding**, and approximately **193.5 million authorized shares** available for issuance[239](index=239&type=chunk)[344](index=344&type=chunk) - In December 2023, the company settled forward contracts for **1,032,403 shares of common stock**, generating net proceeds of **$79.0 million**[116](index=116&type=chunk)[167](index=167&type=chunk)[345](index=345&type=chunk) - Multiple forward sale agreements were entered into or amended in 2023, with settlement dates no later than December 31, 2024, for **3,563,465 remaining shares** and **$273.2 million in net proceeds available**[117](index=117&type=chunk)[118](index=118&type=chunk)[119](index=119&type=chunk)[168](index=168&type=chunk)[169](index=169&type=chunk)[170](index=170&type=chunk)[172](index=172&type=chunk)[346](index=346&type=chunk)[347](index=347&type=chunk)[348](index=348&type=chunk)[350](index=350&type=chunk) - A new at-the-market equity distribution agreement was established in February 2023, allowing for the issuance and sale of up to **$300 million in common stock**, with **$225.5 million available** at year-end 2023[120](index=120&type=chunk)[171](index=171&type=chunk)[349](index=349&type=chunk) - Dividends declared were **$2.60 per share in 2023**, an increase from $2.48 per share in 2022[233](index=233&type=chunk)[351](index=351&type=chunk) [ACCUMULATED OTHER COMPREHENSIVE LOSS](index=71&type=section&id=8.%20ACCUMULATED%20OTHER%20COMPREHENSIVE%20LOSS) This section details changes in accumulated other comprehensive income (loss), primarily due to net losses from pension and postemployment benefit plans Accumulated Other Comprehensive Income (Loss) (Thousands of dollars) | | December 31, 2023 | December 31, 2022 | | :------------------------------------------ | :------------------ | :------------------ | | January 1, 2022 | $(6,527) | | | Other comprehensive income (loss) | (478) | 5,823 | | December 31, 2023 | $(1,182) | $(704) | - The accumulated other comprehensive loss increased from **$(704) thousand at December 31, 2022, to $(1,182) thousand at December 31, 2023**, primarily due to a net loss from pension and other postemployment benefit plan obligations[239](index=239&type=chunk)[352](index=352&type=chunk) [EARNINGS PER SHARE](index=72&type=section&id=9.%20EARNINGS%20PER%20SHARE) This section presents ONE Gas's earnings per share data, including net income available for common stock, basic and diluted EPS, and average shares Earnings Per Share (Thousands, except per share amounts) | | 2023 | 2022 | 2021 | | :------------------------------------------ | :--------- | :--------- | :--------- | | Net income available for common stock | $231,232 | $221,742 | $206,434 | | Basic EPS ($) | $4.16 | $4.09 | $3.85 | | Diluted EPS ($) | $4.14 | $4.08 | $3.85 | | Average shares (Thousands) - Basic | 55,600 | 54,207 | 53,575 | | Average shares (Thousands) - Diluted | 55,860 | 54,338 | 53,674 | - Diluted EPS increased to **$4.14 in 2023** from $4.08 in 2022, reflecting higher net income and a slight increase in diluted shares outstanding[233](index=233&type=chunk)[355](index=355&type=chunk) [SHARE-BASED PAYMENTS](index=72&type=section&id=10.%20SHARE-BASED%20PAYMENTS) This section details ONE Gas's share-based payment plans, including compensation expense for restricted stock units, performance stock units, and the ESPP - Compensation expense for share-based payment plans was **$7.8 million (net of tax benefits) in 2023**, up from $6.8 million in 2022[357](index=357&type=chunk) - Total unrecognized compensation expense for nonvested restricted stock unit awards was **$4.0 million at December 31, 2023**, expected to be recognized over 1.8 years[362](index=362&type=chunk) - Total unrecognized compensation expense for nonvested performance stock unit awards was **$9.7 million at December 31, 2023**, also expected over 1.8 years[363](index=363&type=chunk) - Under the ESPP, employees purchased **108,875 shares in 2023** at an average price of $58.98, with compensation expense of **$1.2 million**[367](index=367&type=chunk)[368](index=368&type=chunk) [EMPLOYEE BENEFIT PLANS](index=76&type=section&id=11.%20EMPLOYEE%20BENEFIT%20PLANS) This section describes ONE Gas's defined benefit pension and postemployment benefit plans, including obligations, assets, expected contributions, and 401(k) contributions - The company has defined benefit pension and other postemployment benefit plans, both **closed to new participants**, with costs recovered through rates[369](index=369&type=chunk)[370](index=370&type=chunk)[374](index=374&type=chunk) Benefit Obligations and Fair Value of Plan Assets (Thousands of dollars) | | Pension Benefits (2023) (Thousands of dollars) | Pension Benefits (2022) (Thousands of dollars) | Other Postemployment Benefits (2023) (Thousands of dollars) | Other Postemployment Benefits (2022) (Thousands of dollars) | | :-------------------------------- | :---------------------- | :---------------------- | :----------------------------------- | :----------------------------------- | | Benefit obligation, end of period | $803,605 | $784,633 | $158,535 | $168,342 | | Fair value of assets, end of period | $795,381 | $768,961 | $181,608 | $181,877 | | Benefit Asset (Obligation), net at December 31 | $(8,224) | $(15,672) | $23,073 | $13,535 | - Expected contributions for 2024 are **$1.4 million to defined benefit pension plans** and no contributions to other postemployment benefit plans[199](index=199&type=chunk)[378](index=378&type=chunk) - The 401(k) plan received company contributions of **$16.7 million in 2023**, and profit-sharing contributions were **$12.6 million**[398](index=398&type=chunk)[399](index=399&type=chunk) [INCOME TAXES](index=83&type=section&id=12.%20INCOME%20TAXES) This section presents ONE Gas's income tax provision, detailing current and deferred tax components, EDIT amortization, and net operating loss carryforwards Provision for Income Taxes (Thousands of dollars) | | 2023 | 2022 | 2021 | | :------------------------------------ | :--------- | :--------- | :--------- | | Total current income tax provision (benefit) | $15,722 | $68,560 | $(3,133) | | Total deferred income tax provision (benefit) | 24,773 | (22,034) | 43,449 | | Total provision for income taxes | $40,495 | $46,526 | $40,316 | - The total provision for income taxes was **$40.5 million in 2023**, down from $46.5 million in 2022[401](index=401&type=chunk) - Income tax expense includes credits for the amortization of regulatory liability associated with EDIT of **$22.4 million in 2023** and $18.0 million in 2022[146](index=146&type=chunk)[402](index=402&type=chunk) - At December 31, 2023, the company had **$87.6 million (tax effected) in federal net operating loss carryforwards** and **$5.7 million (tax effected) in state net operating loss carryforwards**[403](index=403&type=chunk) [OTHER INCOME AND OTHER EXPENSE](index=85&type=section&id=13.%20OTHER%20INCOME%20AND%20OTHER%20EXPENSE) This section details components of other income and expense, including net periodic benefit cost and earnings/losses on nonqualified employee benefit plan investments Components of Other Income and Other Expense (Thousands of dollars) | | 2023 | 2022 | 2021 | | :------------------------------------------ | :------- | :------- | :------- | | Net periodic benefit (cost) other than service cost | $4,017 | $3,766 | $(3,930) | | Earnings (losses) on investments associated with nonqualified employee benefit plans | 4,826 | (7,197) | 3,699 | | Other income (expense), net | 633 | (752) | (2,976) | | Total other income (expense), net | $9,476 | $(4,183) | $(3,207) | - Total other income, net, increased significantly to **$9.5 million in 2023** from a net expense of $4.2 million in 2022, primarily due to a **$12.0 million increase** in nonqualified employee benefit plan investments[145](index=145&type=chunk)[405](index=405&type=chunk) [PROPERTY, PLANT AND EQUIPMENT](index=86&type=section&id=14.%20PROPERTY%2C%20PLANT%20AND%20EQUIPMENT) This section breaks down ONE Gas's property, plant, and equipment by type, including pipelines, general plant, construction work in process, and depreciation Property, Plant and Equipment by Type (Thousands of dollars) | Property Type | December 31, 2023 | December 31, 2022 | | :------------------------------------------ | :---------------- | :---------------- | | Natural gas distribution pipelines and related equipment | $6,716,074 | $6,240,236 | | Natural gas transmission pipelines and related equipment | 713,505 | 661,379 | | General plant and other | 907,946 | 782,870 | | Construction work in process | 131,442 | 150,072 | | Property, plant and equipment | 8,468,967 | 7,834,557 | | Accumulated depreciation and amortization | (2,333,755) | (2,205,717) | | Net property, plant and equipment | $6,135,212 | $5,628,840 | - Net property, plant and equipment increased to **$6.1 billion at December 31, 2023**, from $5.6 billion in 2022[406](index=406&type=chunk) - Capitalized interest was **$5.7 million in 2023**, up from $4.5 million in 2022[407](index=407&type=chunk) [COMMITMENTS AND CONTINGENCIES](index=87&type=section&id=15.%20COMMITMENTS%20AND%20CONTINGENCIES) This section addresses ONE Gas's environmental commitments and contingencies, including MGP remediation costs and pipeline safety regulatory actions - The company is subject to environmental regulations, including those for **12 former MGP sites in Kansas and one in Texas**, requiring investigation and remediation[410](index=410&type=chunk)[411](index=411&type=chunk)[414](index=414&type=chunk) - At December 31, 2023, **$32.0 million was deferred for MGP remediation costs in Kansas**, exceeding the $15.0 million cap and requiring a KCC application[413](index=413&type=chunk) - The reserve for MGP site remediation was **$14.3 million at December 31, 2023**, up from $12.7 million in 2022[415](index=415&type=chunk) - The company is regulated by PHMSA for pipeline safety, with ongoing regulatory actions that may require **material expenditures**[418](index=418&type=chunk)[420](index=420&type=chunk) [DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS](index=89&type=section&id=16.%20DERIVATIVE%20FINANCIAL%20INSTRUMENTS%20AND%20FAIR%20VALUE%20MEASUREMENTS) This section describes ONE Gas's derivative financial instruments, including natural gas swaps and call options, their fair value, and long-term debt valuation - At December 31, 2023, the company held over-the-counter natural gas fixed-price swaps with a notional amount of **5.1 Bcf** for the heating season ending March 2024[423](index=423&type=chunk) - Natural gas call options for the heating season ending March 2024 had total notional amounts of **0.5 Bcf**, with premiums paid of **$0.5 million**[424](index=424&type=chunk) - Derivative instruments are recorded at fair value and included in purchased-gas cost adjustment mechanisms; **none are designated as accounting hedges**[270](index=270&type=chunk)[271](index=271&type=chunk)[425](index=425&type=chunk) - The estimated fair value of long-term debt, including current maturities, was **$2.8 billion at December 31, 2023**, determined using quoted market prices (Level 2)[430](index=430&type=chunk) [VARIABLE INTEREST ENTITY](index=90&type=section&id=17.%20VARIABLE%20INTEREST%20ENTITY) This section describes KGSS-I, a variable interest entity formed to issue securitized bonds for Winter Storm Uri cost recovery in Kansas, and its financial impact - KGSS-I, a wholly-owned subsidiary, is a **variable interest entity** formed to issue securitized bonds for Winter Storm Uri cost recovery in Kansas[431](index=431&type=chunk) - KGSS-I's assets cannot be used to settle ONE Gas's obligations, and **bondholders have no recourse against ONE Gas**[431](index=431&type=chunk) Impact of KGSS-I on Consolidated Balance Sheets (Thousands of dollars) | | December 31, 2023 | December 31, 2022 | | :------------------------------------------ | :---------------- | :---------------- | | Restricted cash and cash equivalents | $20,552 | $8,446 | | Securitized intangible asset, net | 293,619 | 323,838 | | Securitized utility tariff bonds, excluding current maturities, net of discounts and issuance costs | 282,506 | 309,343 | Impact of KGSS-I on Consolidated Statements of Income (Thousands of dollars) | | 2023 | 2022 | | :-------------------------- | :------- | :------- | | Operating revenues | $48,677 | $5,769 | | Amortization expense | (30,219) | (3,521) | | Interest expense | (18,552) | (2,202) | | Income before income taxes | $162 | $— | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=91&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) There have been no changes in or disagreements with accountants on accounting and financial disclosure [Controls and Procedures](index=91&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023 - The Principal Executive Officer and Principal Financial Officer concluded that **disclosure controls and procedures were effective** as of December 31, 2023[434](index=434&type=chunk) - Management concluded that **internal control over financial reporting was effective** as of December 31, 2023, based on the COSO framework[435](index=435&type=chunk) - PricewaterhouseCoopers LLP audited and attested to the **effectiveness of the internal control over financial reporting**[436](index=436&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended December 31, 2023[437](index=437&type=chunk) [Other Information](index=91&type=section&id=Item%209B.%20Other%20Information) This item is not applicable and contains no additional information [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=91&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This item is not applicable and contains no additional information Part III [Directors, Executive Officers and Corporate Governance](index=91&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the 2024 definitive Proxy Statement - Information concerning directors, executive officers, and corporate governance is **incorporated by reference** from the 2024 definitive Proxy Statement[441](index=441&type=chunk)[442](index=442&type=chunk)[443](index=443&type=chunk)[444](index=444&type=chunk)[445](index=445&type=chunk)[446](index=446&type=chunk)[447](index=447&type=chunk)[448](index=448&type=chunk)[449](index=449&type=chunk)[450](index=450&type=chunk) [Executive Compensation](index=93&type=section&id=Item%2011.%20Executive%20Compensation) Information on executive compensation is incorporated by reference from the 2024 definitive Proxy Statement - Information on executive compensation is **incorporated by reference** from the 2024 definitive Proxy Statement[452](index=452&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=93&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information on security ownership of beneficial owners and management, and equity compensation plans, is incorporated by reference from the 2024 definitive Proxy Statement - Information concerning the ownership of certain beneficial owners and management is **incorporated by reference** from the 2024 definitive Proxy Statement[453](index=453&type=chunk)[455](index=455&type=chunk) - Information on equity compensation plans is **incorporated by reference** from the 2024 definitive Proxy Statement[456](index=456&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=95&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2024 definitive Proxy Statement - Information on certain relationships and related transactions and director independence is **incorporated by reference** from the 2024 definitive Proxy Statement[457](index=457&type=chunk) [Principal Accountant Fees and Services](index=95&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information on principal accountant fees and services is incorporated by reference from the 2024 definitive Proxy Statement - Information on the principal accountant's fees and services is **incorporated by reference** from the 2024 definitive Proxy Statement[458](index=458&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=96&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists all exhibits and financial statement schedules filed as part of the 10-K report, including consolidated financial statements and various agreements - This section includes the Report of Independent Registered Public Accounting Firm and the **consolidated financial statements** for the years ended December 31, 2023, 2022, and 2021[461](index=461&type=chunk) - All financial statement schedules have been **omitted** because the conditions requiring them are absent[461](index=461&type=chunk) - A comprehensive list of exhibits, including organizational documents, debt agreements, equity compensation plans, and certifications, is provided[461](index=461&type=chunk)[462](index=462&type=chunk)[463](index=463&type=chunk)[464](index=464&type=chunk)[465](index=465&type=chunk)[466](index=466&type=chunk)[467](index=467&type=chunk)[468](index=468&type=chunk)[469](index=469&type=chunk)[470](index=470&type=chunk)[471](index=471&type=chunk) [Form 10-K Summary](index=101&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item indicates that no Form 10-K Summary is provided [Signatures](index=102&type=section&id=Signatures) The report is duly signed on behalf of ONE Gas, Inc. by Christopher P. Sighinolfi and other authorized persons on February 22, 2024 - The report was signed on **February 22, 2024**, by Christopher P. Sighinolfi, Senior Vice President and Chief Financial Officer[477](index=477&type=chunk) - Additional signatures include the Chairman of the Board, President, Chief Executive Officer, Vice President and Chief Accounting Officer, and other Directors[478](index=478&type=chunk)

Financial Data and Key Metrics Changes - The company reported net income for Q3 2023 of $25.2 million, or $0.45 per diluted share, compared to $23.7 million, or $0.44 per diluted share in Q3 2022, indicating a year-over-year increase in earnings [31] - Earnings per diluted share guidance has been narrowed to a range of $4.06 to $4.22 for the year [30] - Interest expense through the first three quarters of 2023 is up approximately 40% from the same period last year, primarily due to rising rates on commercial paper and the issuance of $300 million of 4.25% senior notes in August 2022 [8] Business Line Data and Key Metrics Changes - The company expects to invest approximately $725 million in capital for 2023, an increase from the original guidance of $675 million, mainly due to system maintenance and reinforcement projects [7] - Employee expenses increased by $7.5 million due to planned workforce investments, although there was a decrease of $2.3 million in outside services costs as work was insourced [9] Market Data and Key Metrics Changes - The company is experiencing strong economic growth in Texas, Oklahoma, and Kansas, with new manufacturing and technology-based jobs driving demand for natural gas [4][5] - Despite elevated mortgage rates impacting homebuilding, the company remains optimistic about long-term growth in its service territories [29] Company Strategy and Development Direction - The company is focused on prudent expense management and enhancing system reliability while meeting growing customer demand [27] - A significant investment in capital projects is aimed at supporting future customer needs and ensuring safety remains a top priority [29] - The company is actively pursuing regulatory approvals for new tariffs and rate adjustments to recover infrastructure investments [12][13] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges posed by inflation and rising interest rates but emphasized the company's ability to navigate these issues effectively [30] - The company remains confident in the durability of its growth, supported by ongoing economic development in its service areas [20][61] Other Important Information - The company expanded its credit facility to $1.2 billion from $1 billion to ensure adequate liquidity amid geopolitical uncertainties [11] - The company welcomed a new Senior Vice President and Chief Human Resources Officer to enhance workforce development [42] Q&A Session Summary Question: EPS growth outlook amidst recent shifts - Management noted that while there are many moving parts affecting the five-year outlook, they remain confident in the 4% to 6% EPS growth outlook despite recent challenges [18] Question: Timing for 2024 annual guidance slides - Management indicated that they plan to continue the cadence established last year for releasing guidance, aiming for transparency regarding future opportunities [49][64] Question: Customer bill trajectory for winter 2023-2024 - Management projected an 8% to 10% decrease in average customer bills compared to the previous year, which averaged around $81 per month [55] Question: Weather impact on EPS guidance - Management stated that they anticipate normal weather and are largely protected from significant swings due to their weather normalization mechanism, thus not seeing much volatility in EPS [56]

Part I. Financial Information [Item 1. Consolidated Financial Statements (Unaudited)](index=6&type=section&id=Item%201.%20Consolidated%20Financial%20Statements%20(Unaudited)) This section presents the unaudited consolidated financial statements for the three and nine months ended September 30, 2023 and 2022 [Consolidated Statements of Income](index=6&type=section&id=Consolidated%20Statements%20of%20Income) Consolidated Statements of Income (Three Months Ended September 30) | Metric | 2023 (Thousands of $) | 2022 (Thousands of $) | | :--- | :--- | :--- | | Total revenues | 335,816 | 359,363 | | Cost of natural gas | 70,910 | 126,197 | | Operating income | 57,203 | 47,052 | | Net income | 25,189 | 23,701 | | Basic EPS | 0.45 | 0.44 | | Diluted EPS | 0.45 | 0.44 | | Dividends declared per share | 0.65 | 0.62 | Consolidated Statements of Income (Nine Months Ended September 30) | Metric | 2023 (Thousands of $) | 2022 (Thousands of $) | | :--- | :--- | :--- | | Total revenues | 1,766,073 | 1,759,797 | | Cost of natural gas | 866,950 | 954,394 | | Operating income | 270,455 | 246,378 | | Net income | 160,499 | 154,710 | | Basic EPS | 2.89 | 2.86 | | Diluted EPS | 2.87 | 2.85 | | Dividends declared per share | 1.95 | 1.86 | [Consolidated Statements of Comprehensive Income](index=7&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Consolidated Statements of Comprehensive Income (Three Months Ended September 30) | Metric | 2023 (Thousands of $) | 2022 (Thousands of $) | | :--- | :--- | :--- | | Net income | 25,189 | 23,701 | | Other comprehensive income (loss), net of tax | (1) | 12 | | Comprehensive income | 25,188 | 23,713 | Consolidated Statements of Comprehensive Income (Nine Months Ended September 30) | Metric | 2023 (Thousands of $) | 2022 (Thousands of $) | | :--- | :--- | :--- | | Net income | 160,499 | 154,710 | | Other comprehensive income (loss), net of tax | (1) | 111 | | Comprehensive income | 160,498 | 154,821 | [Consolidated Balance Sheets](index=8&type=section&id=Consolidated%20Balance%20Sheets) Consolidated Balance Sheets (As of September 30, 2023 vs. December 31, 2022) | Metric | Sep 30, 2023 (Thousands of $) | Dec 31, 2022 (Thousands of $) | | :--- | :--- | :--- | | Total assets | 7,432,447 | 7,776,396 | | Net property, plant and equipment | 5,985,678 | 5,628,840 | | Total current assets | 564,365 | 1,217,608 | | Total equity | 2,646,747 | 2,584,426 | | Total long-term debt, net | 1,862,601 | 2,661,743 | | Total current liabilities | 1,571,698 | 1,189,419 | | Total liabilities and equity | 7,432,447 | 7,776,396 | [Consolidated Statements of Cash Flows](index=10&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Consolidated Statements of Cash Flows (Nine Months Ended September 30) | Activity | 2023 (Thousands of $) | 2022 (Thousands of $) | | :--- | :--- | :--- | | Cash provided by operating activities | 842,524 | 1,555,826 | | Cash used in investing activities | (489,411) | (412,243) | | Cash used in financing activities | (353,202) | (1,142,069) | | Change in cash, cash equivalents, restricted cash and equivalents | (89) | 1,514 | | Cash, cash equivalents, restricted cash and equivalents at end of period | 18,038 | 10,366 | [Consolidated Statements of Equity](index=11&type=section&id=Consolidated%20Statements%20of%20Equity) Consolidated Statements of Equity (Nine Months Ended September 30, 2023) | Metric | Common Stock Issued (Shares) | Common Stock ($) | Paid-in Capital ($) | Retained Earnings ($) | Accumulated Other Comprehensive Income/(Loss) ($) | Total Equity ($) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | January 1, 2023 | 55,349,954 | 553 | 1,932,714 | 651,863 | (704) | 2,584,426 | | Net income | — | — | — | 102,621 | — | 102,621 | | Common stock issued and other | 96,887 | 1 | 9,870 | — | — | 9,871 | | Common stock dividends | — | — | 952 | (108,601) | — | (107,649) | | September 30, 2023 | 55,450,481 | 555 | 1,943,536 | 703,361 | (705) | 2,646,747 | [Notes to Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) [1. Summary of Significant Accounting Policies](index=14&type=section&id=1.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) The company operates as a regulated natural gas distribution utility serving approximately 2.3 million customers across three states - The company provides natural gas distribution services to approximately **2.3 million customers** in Oklahoma, Kansas, and Texas through its three divisions: Oklahoma Natural Gas, Kansas Gas Service, and Texas Gas Service[28](index=28&type=chunk) - The company operates in **one reportable business segment**: regulated public utilities that deliver natural gas primarily to residential, commercial, and transportation customers[29](index=29&type=chunk) Allowance for Doubtful Accounts | Date | Amount (Millions of $) | | :--- | :--- | | Sep 30, 2023 | 14.5 | | Dec 31, 2022 | 16.7 | [2. Revenue](index=15&type=section&id=2.%20REVENUE) Total revenues for the nine months ended September 30, 2023, increased slightly year-over-year due to new securitization charges Total Revenues by Source (Three Months Ended September 30) | Revenue Source | 2023 (Thousands of $) | 2022 (Thousands of $) | | :--- | :--- | :--- | | Natural gas sales to customers | 285,373 | 322,444 | | Transportation revenues | 29,535 | 28,035 | | Securitization customer charges | 12,014 | — | | Miscellaneous revenues | 4,812 | 4,991 | | Total revenues | 335,816 | 359,363 | Total Revenues by Source (Nine Months Ended September 30) | Revenue Source | 2023 (Thousands of $) | 2022 (Thousands of $) | | :--- | :--- | :--- | | Natural gas sales to customers | 1,598,466 | 1,640,893 | | Transportation revenues | 97,084 | 92,350 | | Securitization customer charges | 35,754 | — | | Miscellaneous revenues | 17,023 | 14,615 | | Total revenues | 1,766,073 | 1,759,797 | [3. Regulatory Assets and Liabilities](index=15&type=section&id=3.%20REGULATORY%20ASSETS%20AND%20LIABILITIES) The net regulatory balance shifted to a liability due to the securitization of winter weather event costs in Texas Net Regulatory Assets and Liabilities (Thousands of $) | Date | Current | Noncurrent | Total | | :--- | :--- | :--- | :--- | | Sep 30, 2023 | 1,354 | (207,271) | (205,917) | | Dec 31, 2022 | 227,705 | (198,610) | 29,095 | - In March 2023, the TNG Corporation completed the issuance of securitized bonds for Texas Gas Service, and ONE Gas received approximately **$197 million in net proceeds** to repay indebtedness and for general corporate purposes, related to Winter Storm Uri costs[40](index=40&type=chunk) - Regulatory assets are considered probable of recovery, and their amortization resulted in approximately **$11.1 million** and **$6.9 million** for the nine months ended September 30, 2023 and 2022, respectively[36](index=36&type=chunk)[49](index=49&type=chunk) [4. Credit Facility and Short-Term Debt](index=17&type=section&id=4.%20CREDIT%20FACILITY%20AND%20SHORT-TERM%20DEBT) The company's liquidity is supported by a revolving credit facility that was increased to $1.2 billion and extended to March 2028 - In October 2023, the ONE Gas Credit Agreement capacity increased to **$1.2 billion** from $1.0 billion, and its maturity date was extended to March 16, 2028, in March 2023[50](index=50&type=chunk)[113](index=113&type=chunk) - At September 30, 2023, the company had **$998.8 million of remaining credit available** under the ONE Gas Credit Agreement[54](index=54&type=chunk) Commercial Paper Outstanding | Date | Amount (Millions of $) | Weighted-Average Interest Rate | | :--- | :--- | :--- | | Sep 30, 2023 | 327.0 | 5.55% | | Dec 31, 2022 | 552.0 | 4.75% | [5. Long-Term Debt](index=18&type=section&id=5.%20LONG-TERM%20DEBT) Total long-term debt was $2.66 billion as of September 30, 2023, with a debt-to-capital ratio of 53% Long-Term Debt Outstanding (Thousands of $) | Debt Type | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Senior Notes | 2,373,000 | 2,373,000 | | KGSS-I Securitized Utility Tariff Bonds | 315,284 | 336,000 | | Total long-term debt, net | 2,663,026 | 2,682,471 | | Current maturities of other long-term debt, net | 772,911 | 12 | | Current maturities of securitized utility tariff bonds, net | 27,514 | 20,716 | - At September 30, 2023, the company's total **debt-to-capital ratio was 53%**, and 50% excluding the non-recourse debt of KGSS-I[53](index=53&type=chunk)[151](index=151&type=chunk) [6. Equity](index=19&type=section&id=6.%20EQUITY) The company utilized equity forward agreements and an at-the-market program to raise capital, expecting total net proceeds of $351.2 million - In September 2023, the company entered into forward sale agreements for **1.38 million shares** of common stock, and in March 2023, for **2.0 million shares**, with settlement dates up to December 31, 2024[60](index=60&type=chunk)[61](index=61&type=chunk) - In February 2023, the company established an at-the-market equity distribution agreement for up to **$300 million** in common stock, with **$225.5 million available** for issuance at September 30, 2023[62](index=62&type=chunk) - In October 2023, a dividend of **$0.65 per share** was declared, representing an annualized rate of $2.60 per share[65](index=65&type=chunk) Outstanding Forward Sale Agreements (as of September 30, 2023) | Maturity | Shares Sold | Net Proceeds Available (Thousands of $) | Forward Price ($) | | :--- | :--- | :--- | :--- | | At-the-Market Equity Program | 1,215,868 | 95,982 | 78.94 | | Equity Forward Agreements | 3,380,000 | 255,263 | 75.52 | | Total | 4,595,868 | 351,245 | 76.43 | [7. Accumulated Other Comprehensive Loss](index=20&type=section&id=7.%20ACCUMULATED%20OTHER%20COMPREHENSIVE%20LOSS) Reclassifications from accumulated other comprehensive loss to net income were minimal for the nine months ended September 30, 2023 Total Reclassifications from Accumulated Other Comprehensive Loss to Net Income (Nine Months Ended September 30) | Metric | 2023 (Thousands of $) | 2022 (Thousands of $) | | :--- | :--- | :--- | | Amortization of net loss | 1,470 | 14,731 | | Amortization of unrecognized prior service cost | 393 | 185 | | Regulatory adjustments | (1,862) | (14,772) | | Total reclassifications for the period | 1 | 111 | [8. Earnings Per Share](index=21&type=section&id=8.%20EARNINGS%20PER%20SHARE) Basic and diluted EPS increased slightly for the three and nine-month periods ended September 30, 2023, compared to the prior year Earnings Per Share (Three Months Ended September 30) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Basic EPS | $0.45 | $0.44 | | Diluted EPS | $0.45 | $0.44 | | Basic Average Shares (Thousands) | 55,624 | 54,310 | | Diluted Average Shares (Thousands) | 55,975 | 54,482 | Earnings Per Share (Nine Months Ended September 30) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Basic EPS | $2.89 | $2.86 | | Diluted EPS | $2.87 | $2.85 | | Basic Average Shares (Thousands) | 55,576 | 54,164 | | Diluted Average Shares (Thousands) | 55,897 | 54,282 | [9. Employee Benefit Plans](index=22&type=section&id=9.%20EMPLOYEE%20BENEFIT%20PLANS) Net periodic benefit cost for pension plans was a credit of $5.6 million for the nine months ended September 30, 2023 Net Periodic Benefit Cost (Credit) for Pension Benefits (Nine Months Ended September 30) | Component | 2023 (Thousands of $) | 2022 (Thousands of $) | | :--- | :--- | :--- | | Service cost | 5,433 | 8,027 | | Interest cost | 31,821 | 26,495 | | Expected return on assets | (44,637) | (43,887) | | Amortization of unrecognized prior service cost | 279 | 155 | | Amortization of net loss | 1,506 | 14,569 | | Net periodic benefit cost (credit) | (5,598) | 5,359 | Net Periodic Benefit Cost (Credit) for Other Postemployment Benefits (Nine Months Ended September 30) | Component | 2023 (Thousands of $) | 2022 (Thousands of $) | | :--- | :--- | :--- | | Service cost | 549 | 954 | | Interest cost | 6,864 | 4,836 | | Expected return on assets | (7,296) | (9,885) | | Amortization of unrecognized prior service cost | 114 | 30 | | Amortization of net (gain) loss | (36) | 162 | | Net periodic benefit cost (credit) | 195 | (3,903) | - Regulatory deferrals related to net periodic benefit cost were **$4.2 million** and **$3.4 million** for the nine months ended September 30, 2023 and 2022, respectively[71](index=71&type=chunk) [10. Income Taxes](index=22&type=section&id=10.%20INCOME%20TAXES) Income tax expense included credits from the amortization of regulatory liability associated with Excess Deferred Income Taxes Income Tax Credits from EDIT Amortization (Thousands of $) | Period | 2023 | 2022 | | :--- | :--- | :--- | | Three Months Ended September 30 | 2,500 | 1,600 | | Nine Months Ended September 30 | 15,500 | 12,500 | [11. Other Income and Other Expense](index=23&type=section&id=11.%20OTHER%20INCOME%20AND%20OTHER%20EXPENSE) Other income improved significantly year-over-year, driven by higher returns on investments for nonqualified employee benefit plans Other Income (Expense), Net (Thousands of $) | Component | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net periodic benefit credit other than service cost | 1,154 | 1,430 | 3,025 | 2,209 | | Earnings (losses) on investments associated with nonqualified employee benefit plans | (1,278) | (1,789) | 1,609 | (9,241) | | Other, net | 179 | 1,152 | 176 | (303) | | Total other income (expense), net | 55 | 793 | 4,810 | (7,335) | [12. Commitments and Contingencies](index=23&type=section&id=12.%20COMMITMENTS%20AND%20CONTINGENCIES) The company is managing environmental remediation at former Manufactured Gas Plant sites, with deferred costs in Kansas exceeding the current cap - The company has legal responsibility for environmental conditions at **12 former MGP sites in Kansas** and one in Texas, subject to remediation under environmental laws[78](index=78&type=chunk)[81](index=81&type=chunk) - Deferred investigation and remediation costs for Kansas MGP sites were **$32.0 million** at September 30, 2023, exceeding the **$15.0 million cap**, necessitating a future application to the KCC[79](index=79&type=chunk) Reserve for MGP Site Remediation (Millions of $) | Date | Amount | | :--- | :--- | | Sep 30, 2023 | 14.6 | | Dec 31, 2022 | 12.7 | [13. Derivative Financial Instruments and Fair Value Measurements](index=24&type=section&id=13.%20DERIVATIVE%20FINANCIAL%20INSTRUMENTS%20AND%20FAIR%20VALUE%20MEASUREMENTS) The company uses natural gas swaps and call options to mitigate commodity price risk, with costs recoverable through regulatory mechanisms - The company uses over-the-counter **natural gas fixed price swaps and call options** as derivative instruments to manage commodity price risk[91](index=91&type=chunk)[92](index=92&type=chunk) - As of September 30, 2023, the company held natural gas fixed-price swaps for **7.7 Bcf** and call options for **0.7 Bcf**, with premiums paid of $0.8 million[91](index=91&type=chunk)[92](index=92&type=chunk) - Derivative instruments are **not designated as accounting hedges**; their fair value changes and premiums are recoverable through purchased-gas cost adjustment mechanisms[93](index=93&type=chunk) [14. Variable Interest Entity](index=26&type=section&id=14.%20VARIABLE%20INTEREST%20ENTITY) A wholly-owned subsidiary, KGSS-I, was formed as a variable interest entity to issue securitized bonds for Winter Storm Uri cost recovery - KGSS-I is a special-purpose, wholly-owned subsidiary formed to issue securitized bonds for recovering extraordinary costs from **Winter Storm Uri in Kansas**[101](index=101&type=chunk) - KGSS-I's assets cannot be used to settle ONE Gas' obligations, and **bondholders have no recourse** against ONE Gas[101](index=101&type=chunk) Impact of KGSS-I on Consolidated Statements of Income (Three Months Ended September 30, 2023) | Metric | Amount (Thousands of $) | | :--- | :--- | | Operating revenues | 12,014 | | Operating expense | (113) | | Amortization expense | (7,489) | | Interest income | 259 | | Interest expense | (4,548) | | Income before income taxes | 123 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes the company's financial condition and operating results, including recent developments, regulatory activities, and liquidity [RECENT DEVELOPMENTS](index=28&type=section&id=RECENT%20DEVELOPMENTS) Recent activities include a Texas securitization transaction, new equity forward agreements, and an expanded credit facility - In March 2023, the company received approximately **$197 million** from the Texas securitization transaction for Winter Storm Uri costs, used to repay indebtedness and for general corporate purposes[106](index=106&type=chunk) - Equity forward agreements entered in September and March 2023 are expected to generate approximately **$255.3 million in net proceeds** upon full settlement[108](index=108&type=chunk)[109](index=109&type=chunk)[110](index=110&type=chunk) - The at-the-market equity program, renewed in February 2023, allows for the issuance of up to **$300 million** in common stock, with **$225.5 million available** at September 30, 2023[111](index=111&type=chunk) - The ONE Gas Credit Agreement was increased to **$1.2 billion** and its maturity extended to March 16, 2028[113](index=113&type=chunk) - A dividend of **$0.65 per share** was declared in October 2023, payable on December 1, 2023[114](index=114&type=chunk) [REGULATORY ACTIVITIES](index=29&type=section&id=REGULATORY%20ACTIVITIES) The company engaged in various regulatory activities, including rate adjustments and program approvals across its service territories - Oklahoma Natural Gas received OCC approval for a **$26.3 million base rate revenue increase** and a **$12.6 million EDIT credit**, with new rates effective June 29, 2023[115](index=115&type=chunk) - Kansas Gas Service submitted an application to the KCC requesting an **$8.0 million increase** related to its Gas System Reliability Surcharge (GSRS)[117](index=117&type=chunk) - Texas Gas Service completed the securitization of Winter Storm Uri costs, receiving approximately **$197 million** in March 2023, and will act as a collection agent for securitization charges starting October 2023[120](index=120&type=chunk) - Texas Gas Service implemented GRIP filings resulting in an **$11.5 million increase** in the Central-Gulf service area and a **$7.3 million increase** in the West-North service area[121](index=121&type=chunk)[122](index=122&type=chunk) [FINANCIAL RESULTS AND OPERATING INFORMATION](index=30&type=section&id=FINANCIAL%20RESULTS%20AND%20OPERATING%20INFORMATION) Net income and operating income increased due to new rates and customer growth, offsetting the impact of warmer weather Selected Financial Results (Three Months Ended September 30) | Metric | 2023 (Millions of $) | 2022 (Millions of $) | Increase (Decrease) (Millions of $) | Increase (Decrease) (%) | | :--- | :--- | :--- | :--- | :--- | | Total revenues | 335.8 | 359.4 | (23.6) | (7)% | | Cost of natural gas | 70.9 | 126.2 | (55.3) | (44)% | | Operating income | 57.2 | 47.1 | 10.1 | 21% | | Capital expenditures and asset removal costs | 184.3 | 174.9 | 9.4 | 5% | Selected Financial Results (Nine Months Ended September 30) | Metric | 2023 (Millions of $) | 2022 (Millions of $) | Increase (Decrease) (Millions of $) | Increase (Decrease) (%) | | :--- | :--- | :--- | :--- | :--- | | Total revenues | 1,766.1 | 1,759.8 | 6.3 | —% | | Cost of natural gas | 867.0 | 954.4 | (87.4) | (9)% | | Operating income | 270.5 | 246.4 | 24.1 | 10% | | Capital expenditures and asset removal costs | 539.1 | 446.9 | 92.2 | 21% | - Operating income increased by **$10.1 million** for the three months and **$24.1 million** for the nine months ended September 30, 2023, primarily due to new rates and residential sales growth[134](index=134&type=chunk) - Weather across service territories was **13.9% warmer** than the prior year for the nine months ended September 30, 2023, with the impact on operating income mitigated by weather normalization mechanisms[134](index=134&type=chunk) Average Number of Customers (Thousands) (Three Months Ended September 30) | Customer Type | 2023 | 2022 | Increase (Decrease) | | :--- | :--- | :--- | :--- | | Residential | 2,076 | 2,068 | 8 | | Commercial and industrial | 160 | 161 | (1) | | Total customers | 2,251 | 2,244 | 7 | Average Number of Customers (Thousands) (Nine Months Ended September 30) | Customer Type | 2023 | 2022 | Increase (Decrease) | | :--- | :--- | :--- | :--- | | Residential | 2,088 | 2,079 | 9 | | Commercial and industrial | 163 | 163 | — | | Total customers | 2,266 | 2,257 | 9 | [CONTINGENCIES](index=34&type=section&id=CONTINGENCIES) Management believes that potential losses from various litigation matters and claims arising from normal operations are not material - The company is a party to various litigation matters and claims that have arisen in the normal course of operations[145](index=145&type=chunk) - Management believes that the reasonably possible losses from such matters, individually and in the aggregate, **are not material** and will not have a material adverse effect on results of operations, financial position, or cash flows[145](index=145&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=34&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) The company maintains liquidity through operating cash flow and commercial paper, supported by a $1.2 billion credit facility and stable credit ratings - The company relies primarily on **operating cash flow and commercial paper** for liquidity and capital resource requirements[146](index=146&type=chunk) - The ONE Gas Credit Agreement provides a **$1.2 billion revolving unsecured credit facility**, extended to March 16, 2028[150](index=150&type=chunk)[149](index=149&type=chunk) - The company expects to contribute approximately **$1.4 million** to its defined benefit pension plans in 2023[164](index=164&type=chunk) Credit Ratings (as of September 30, 2023) | Rating Agency | Rating | Outlook | | :--- | :--- | :--- | | Moody's | A3 | Stable | | S&P | A- | Stable | [CASH FLOW ANALYSIS](index=37&type=section&id=CASH%20FLOW%20ANALYSIS) Operating cash flows decreased due to the timing of securitization, while investing cash flows increased from higher capital expenditures Cash Flow Summary (Nine Months Ended September 30) | Activity | 2023 (Millions of $) | 2022 (Millions of $) | Variance (Millions of $) | | :--- | :--- | :--- | :--- | | Operating activities | 842.5 | 1,555.8 | (713.3) | | Investing activities | (489.4) | (412.2) | (77.2) | | Financing activities | (353.2) | (1,142.1) | 788.9 | | Change in cash, cash equivalents, restricted cash and equivalents | (0.1) | 1.5 | (1.6) | - **Operating cash flows were lower** for the nine months ended September 30, 2023, primarily due to the timing of winter weather event regulatory asset recovery through securitization[168](index=168&type=chunk) - **Cash used in investing activities increased** due to higher capital expenditures for system integrity and extension of service to new areas[169](index=169&type=chunk) - **Cash used in financing activities decreased** due to the repayment of long-term debt related to Winter Storm Uri in August 2022[169](index=169&type=chunk) [ENVIRONMENTAL, SAFETY AND REGULATORY MATTERS](index=37&type=section&id=ENVIRONMENTAL%2C%20SAFETY%20AND%20REGULATORY%20MATTERS) The company is subject to extensive environmental and pipeline safety regulations, with ongoing remediation efforts at former MGP sites - The company is subject to multiple environmental laws and regulations, including those related to air emissions, waste disposal, and hazardous materials, and pipeline safety statutes regulated by PHMSA[170](index=170&type=chunk)[178](index=178&type=chunk) - Deferred investigation and remediation costs for 12 former MGP sites in Kansas were **$32.0 million** at September 30, 2023, exceeding the **$15.0 million cap**[173](index=173&type=chunk) - The PIPES Act reauthorized PHMSA through 2023 and directs the agency to issue new regulations that may impose more stringent requirements, potentially leading to **material expenditures**[179](index=179&type=chunk) [IMPACT OF NEW ACCOUNTING STANDARDS](index=39&type=section&id=IMPACT%20OF%20NEW%20ACCOUNTING%20STANDARDS) Information regarding the impact of new accounting standards is included in the Notes to Consolidated Financial Statements - Information about the impact of new accounting standards, if any, is included in **Note 1** of the Notes to Consolidated Financial Statements[181](index=181&type=chunk) [CRITICAL ESTIMATES AND ACCOUNTING POLICIES](index=39&type=section&id=CRITICAL%20ESTIMATES%20AND%20ACCOUNTING%20POLICIES) The preparation of financial statements requires management to make estimates and assumptions that affect reported amounts - The preparation of consolidated financial statements requires management to make estimates and assumptions that affect reported amounts, which could **differ materially from actual results**[182](index=182&type=chunk) - Information about critical estimates and accounting policies is included in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, 'Estimates and Critical Accounting Policies,' in the **Annual Report**[183](index=183&type=chunk) [FORWARD-LOOKING STATEMENTS](index=39&type=section&id=FORWARD-LOOKING%20STATEMENTS) This report contains forward-looking statements regarding future performance, and actual results may differ materially due to various risks - Forward-looking statements relate to anticipated financial performance, liquidity, future operations, business prospects, regulatory and legal outcomes, and market conditions[184](index=184&type=chunk) - Actual results may differ materially from forward-looking statements due to factors such as **cost recovery, cyber-attacks, regulatory changes, economic climate, competition, adverse weather, indebtedness, and capital market access**[187](index=187&type=chunk)[188](index=188&type=chunk) - The company **undertakes no obligation to update** publicly any forward-looking statement unless required by securities laws[189](index=189&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=41&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks include commodity prices, interest rates, and counterparty credit, which are actively managed - **Commodity price risk**, primarily from natural gas price fluctuations, is mitigated by purchased-gas cost adjustment mechanisms and derivative instruments (swaps and call options)[191](index=191&type=chunk) - **Interest-rate risk** is associated with commercial paper, credit agreement borrowings, and new debt, managed through fixed-rate debt, floating-rate debt, and interest-rate swaps[192](index=192&type=chunk)[193](index=193&type=chunk) - **Counterparty credit risk is not materially concentrated** due to approximately 2.3 million customers across three states, with provisions for doubtful accounts and recovery of fuel-related bad debts through regulatory mechanisms[194](index=194&type=chunk) [Item 4. Controls and Procedures](index=42&type=section&id=Item%204.%20Controls%20and%20Procedures) The company's disclosure controls and procedures were deemed effective, with no material changes in internal control over financial reporting - The CEO and CFO concluded that disclosure controls and procedures were **effective** as of September 30, 2023[195](index=195&type=chunk) - **No material changes** in internal control over financial reporting occurred during the third quarter ended September 30, 2023[196](index=196&type=chunk) Part II. Other Information [Item 1. Legal Proceedings](index=40&type=section&id=Item%201.%20Legal%20Proceedings) Management believes that potential losses from litigation and claims arising in the normal course of business are not material - The company is a party to various litigation matters and claims that have arisen in the normal course of its operations[198](index=198&type=chunk) - Management believes the reasonably possible losses from such matters **are not material** and will not have a material adverse effect on financial results, position, or cash flows[198](index=198&type=chunk) [Item 1A. Risk Factors](index=40&type=section&id=Item%201A.%20Risk%20Factors) Investors should consider the risks detailed in the company's Annual Report and this Quarterly Report, as new risks may emerge - Investors should consider risks outlined in the **Annual Report** and the 'Forward-Looking Statements' section of this Quarterly Report[199](index=199&type=chunk) - **New risks may emerge**, and their extent or impact on financial performance cannot be fully predicted[199](index=199&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=40&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This item is not applicable to the current report - This section is **not applicable**[200](index=200&type=chunk) [Item 3. Defaults Upon Senior Securities](index=40&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is not applicable to the current report - This section is **not applicable**[201](index=201&type=chunk) [Item 4. Mine Safety Disclosures](index=40&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the current report - This section is **not applicable**[202](index=202&type=chunk) [Item 5. Other Information](index=40&type=section&id=Item%205.%20Other%20Information) This item is not applicable to the current report - This section is **not applicable**[203](index=203&type=chunk) [Item 6. Exhibits](index=40&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the report, including governance documents, agreements, and Sarbanes-Oxley certifications - Exhibits include corporate governance documents (Amended Certificate of Incorporation, Amended and Restated By-Laws), underwriting and forward sale agreements, and a commitment increase agreement for the ONE Gas Credit Agreement[206](index=206&type=chunk) - Certifications by the CEO and CFO pursuant to **Sections 302 and 906 of the Sarbanes-Oxley Act of 2002** are included as exhibits[206](index=206&type=chunk) - **XBRL-related documents** for the consolidated financial statements are attached as Exhibit 101[206](index=206&type=chunk)[207](index=207&type=chunk) Signature

Financial Data and Key Metrics Changes - Net income for Q2 2023 was $32.7 million or $0.58 per diluted share, compared to $32.1 million or $0.59 per diluted share in Q2 2022, indicating a slight increase in net income year-over-year [13] - Operating income increased by $5.4 million year-over-year, driven by a $14.1 million increase from new rates and growth in the customer base [13] - Operations and maintenance expenses rose by $8 million compared to Q2 2022, primarily due to a $6.7 million increase in employee-related costs [15] Business Line Data and Key Metrics Changes - The company set approximately 25,800 new customer connections in the 12 months ended June 30, 2023, which is a 2% increase year-over-year [23] - Capital expenditures for Q2 were approximately $190 million, up from $149 million in 2022, with full-year capital investments on track for a forecast of $675 million [25] Market Data and Key Metrics Changes - Weather conditions were 7% warmer than the prior year and 11% warmer than normal, but the impact on earnings was mitigated by a weather normalization mechanism [14] - The average commercial paper balance was down 60% compared to last year, but the weighted average interest rate was approximately 5.5%, significantly higher than the 1.3% rate in Q2 2022 [24] Company Strategy and Development Direction - The company is focused on safely operating a growing system while cultivating long-term value, with an emphasis on efficiency and workforce development [7][9] - The company is actively managing macroeconomic conditions and has modified its approach to damage prevention and line locating to reduce costs and improve outcomes [9] Management's Comments on Operating Environment and Future Outlook - Management noted that inflation pressures are cooling at a national level, but the timeline for normalization may be elongated [45] - The company remains optimistic about managing the impact of inflation on operating and maintenance expenses going into 2024 and 2025 [45] Other Important Information - The Board of Directors declared a dividend of $0.65 per share, unchanged from the previous quarter [27] - The company has appointed Deborah Hersman to the Board, bringing significant safety-related experience [37] Q&A Session Summary Question: How does inflation in service territories compare to national levels? - Management indicated that inflation in their territories is in line with national averages, as many contracts are priced based on national CPI [44] Question: Is there an ability to pull forward operating and maintenance expenses? - Management stated that there is limited opportunity to manipulate O&M expenses due to the need for a steady workflow [46] Question: What is the outlook for EPS growth if inflation normalizes? - Management expressed confidence in their positioning and ability to manage short-term challenges while focusing on long-term value creation [49] Question: Update on the energy efficiency program in Texas? - Management is working with the commission to clarify the rollout of the energy efficiency program tailored to specific service areas [58] Question: Timing for full general rate cases? - Management highlighted the recent rate case filed in the Rio Grande Valley service area as the main update [60]