ONE Gas(OGS) - 2023 Q4 - Annual Report

Part I Business 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] - 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] - The business strategy focuses on Safe and Reliable Energy, a High-performing Workforce, Capital Demand Growth, Clean Energy Solutions, and Serving Customers[24] 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] - 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][44] - The company employed approximately 3,900 people at February 1, 2024, with about 18% represented by collective bargaining units[54][65] 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 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] - Reliance on attracting and retaining skilled employees means a tight labor market or workforce disruptions could adversely impact operations, earnings, and cash flows[65] - 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][69] - Regulatory and legislative risks, including environmental and rate-setting regulations, could increase operating costs, require significant expenditures, or limit return on invested capital[72][73][75] - 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][79][82] Unresolved Staff Comments There are no unresolved staff comments to report Cybersecurity 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] - A governance committee, chaired by the Chief Information Officer, provides oversight for security and IT activities[89] - The cybersecurity function employs a defense-in-depth methodology, including advanced monitoring and partnerships for incident response[91] - The company assesses cybersecurity maturity against NIST standards and CISA best practices, conducting annual incident response exercises[92][95] - ONE Gas requires recurring cybersecurity awareness training for all employees and has not experienced any material cybersecurity breaches[96][97] Properties 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] Legal Proceedings 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] - 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][421] Mine Safety Disclosures 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 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][103] - As of February 16, 2024, there were 8,969 registered shareholders of common stock[103] - In January 2024, a dividend of $0.66 per share ($2.64 annualized) was declared, payable March 8, 2024[103][123][351] 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 This item is reserved and contains no information Management's Discussion and Analysis of Financial Condition and Results of Operations 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] 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] - 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] 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] 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] - Cash used in investing activities increased in 2023 due to higher capital expenditures for system integrity and new service extensions[179] - 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] Quantitative and Qualitative Disclosures about Market Risk 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] - 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] - 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][215] - With approximately 2.3 million customers across three states, ONE Gas is not materially exposed to a concentration of counterparty credit risk[216] Financial Statements and Supplementary Data 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][220] 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 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] - Revenue is recognized upon natural gas delivery or services rendered, with unbilled revenues accrued at period-end using the invoice method practical expedient[252] - Cost of natural gas includes commodity purchases, fuel, storage, transportation, and hedging costs, recovered through regulatory mechanisms without profit[258] - Property, plant, and equipment are stated at cost and depreciated using the straight-line method, with capitalized interest during construction[260][262] - 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][283] - Goodwill is assessed for impairment annually, and long-lived assets are assessed when circumstances indicate carrying amounts may not be recoverable[275][279] - A securitized intangible asset from Kansas Gas Service is amortized over 10 years, reflecting the collection period for Securitized Utility Tariff Bonds[280] REVENUE 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][303] REGULATORY ASSETS AND LIABILITIES 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][129][314] - Oklahoma Natural Gas recovered approximately $1.3 billion of Winter Storm Uri costs through ODFA securitization bonds issued in August 2022[112][310] - Kansas Gas Service's securitization in November 2022 involved KGSS-I issuing $336 million in bonds to purchase Securitized Utility Tariff Property[111][311] - 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] CREDIT FACILITY AND SHORT-TERM DEBT 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][155][325] - 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][326] - At December 31, 2023, the total debt-to-capital ratio was 52%, in compliance with the 70% covenant[157][327] - The commercial paper program capacity was increased to $1.2 billion in November 2023[122][158][329] - 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][330] LONG-TERM DEBT 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][160][332] - At December 31, 2023, $2.7 billion of Senior Notes were outstanding, with $773.0 million due within the next year[161] - 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][338] Credit Ratings at December 31, 2023 | Rating Agency | Rating | Outlook | | :------------ | :----- | :------ | | Moody's | A3 | Stable | | S&P | A- | Stable | LEASES 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] - 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] 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 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][344] - In December 2023, the company settled forward contracts for 1,032,403 shares of common stock, generating net proceeds of $79.0 million[116][167][345] - 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][118][119][168][169][170][172][346][347][348][350] - 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][171][349] - Dividends declared were $2.60 per share in 2023, an increase from $2.48 per share in 2022[233][351] ACCUMULATED OTHER COMPREHENSIVE LOSS 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][352] EARNINGS PER SHARE 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][355] SHARE-BASED PAYMENTS 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] - 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] - 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] - 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][368] EMPLOYEE BENEFIT PLANS 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][370][374] 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][378] - The 401(k) plan received company contributions of $16.7 million in 2023, and profit-sharing contributions were $12.6 million[398][399] INCOME TAXES 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] - 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][402] - 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] OTHER INCOME AND OTHER EXPENSE 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][405] PROPERTY, PLANT AND EQUIPMENT 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] - Capitalized interest was $5.7 million in 2023, up from $4.5 million in 2022[407] COMMITMENTS AND CONTINGENCIES 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][411][414] - 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] - The reserve for MGP site remediation was $14.3 million at December 31, 2023, up from $12.7 million in 2022[415] - The company is regulated by PHMSA for pipeline safety, with ongoing regulatory actions that may require material expenditures[418][420] DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS 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] - 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] - Derivative instruments are recorded at fair value and included in purchased-gas cost adjustment mechanisms; none are designated as accounting hedges[270][271][425] - 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] VARIABLE INTEREST ENTITY 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] - KGSS-I's assets cannot be used to settle ONE Gas's obligations, and bondholders have no recourse against ONE Gas[431] 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 There have been no changes in or disagreements with accountants on accounting and financial disclosure Controls and Procedures 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] - Management concluded that internal control over financial reporting was effective as of December 31, 2023, based on the COSO framework[435] - PricewaterhouseCoopers LLP audited and attested to the effectiveness of the internal control over financial reporting[436] - No material changes in internal control over financial reporting occurred during the quarter ended December 31, 2023[437] Other Information This item is not applicable and contains no additional information Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable and contains no additional information Part III Directors, Executive Officers and Corporate Governance 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][442][443][444][445][446][447][448][449][450] Executive Compensation 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] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 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][455] - Information on equity compensation plans is incorporated by reference from the 2024 definitive Proxy Statement[456] Certain Relationships and Related Transactions, and Director Independence 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] Principal Accountant Fees and Services 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] Part IV Exhibits, Financial Statement Schedules 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] - All financial statement schedules have been omitted because the conditions requiring them are absent[461] - A comprehensive list of exhibits, including organizational documents, debt agreements, equity compensation plans, and certifications, is provided[461][462][463][464][465][466][467][468][469][470][471] Form 10-K Summary This item indicates that no Form 10-K Summary is provided 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] - Additional signatures include the Chairman of the Board, President, Chief Executive Officer, Vice President and Chief Accounting Officer, and other Directors[478]