ONE Gas Inc.

08/06/2025 | Press release | Distributed by Public on 08/06/2025 14:41

Quarterly Report for Quarter Ending June 30, 2025 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and the Notes to Consolidated Financial Statements in in this Quarterly Report, as well as our Annual Report. Due to the seasonal nature of our business, the results of operations for the three and six months ended June 30, 2025, are not necessarily indicative of the results that may be expected for a 12-month period.
RECENT DEVELOPMENTS
Dividend- In August 2025, we declared a dividend of $0.67 per share ($2.68 per share on an annualized basis) for shareholders of record as of August 18, 2025, payable on September 3, 2025.
In June 2025, Texas House Bill 4384 was signed into law, allowing gas utilities in Texas to defer, and later recover, specific costs related to property, plant and equipment placed in service, but not yet reflected in base rates, including depreciation, ad valorem taxes, and a carrying cost. The RRC is required to adopt rules to implement the new law within 270 days of the effective date. Texas Gas Service intends to apply the new provisions to property, plant and equipment placed in service but not yet reflected in rates in the third quarter of 2025.
In May 2025, we entered into an underwriting agreement and a forward sale agreement for 2.5 million shares of our common stock and granted the underwriter an option to purchase up to 375,000 additional shares of our common stock, which was not exercised. The forward sale agreement provides for settlement on a date, or dates, to be specified at our discretion, but which will occur no later than December 31, 2026.
REGULATORY ACTIVITIES
Oklahoma- On February 27, 2025, Oklahoma Natural Gas filed its required PBRC application for the year ended December 2024. The filed request included a $41.5 million base rate revenue increase, $2.4 million energy efficiency incentive, and $13.2 million of estimated EDIT to be credited to customers in 2026. The parties reached a settlement which included a $41.1 million base rate revenue increase, a $2.4 million energy efficiency incentive, and $17.9 million of estimated EDIT to be credited to customers in February 2026. On June 12, 2025, the administrative law judge recommended approval of the settlement at the hearing on the merits. Interim rates, subject to refund until an order from the OCC, were implemented on June 27, 2025. The OCC issued an order approving the settlement on July 23, 2025.
Kansas- In April 2025, Kansas Gas Service submitted an application to the KCC requesting an increase of approximately $7.2 million related to its GSRS. In July 2025, the KCC approved a $7.2 million increase effective August 2025.
Texas- In June 2025, Texas Gas Service filed a rate case for all customers in the Central-Gulf, West-North and Rio Grande Valley service areas requesting a $41.1 million revenue increase. The filing includes a request to consolidate all service areas into a single division. Texas Gas Service filed this rate case directly with the cities in each service area, which includes the city of Austin, the City of El Paso and the RRC for the unincorporated areas. This filing is based on a 10.4 percent return on equity and a 59.9 percent common equity ratio. New rates are expected to take effect in the first quarter of 2026.
West-North Service Area- In February 2025, Texas Gas Service made a GRIP filing for all customers in the West-North service area, requesting a $8.2 million increase to be effective in June 2025. In May 2025, the RRC approved an increase of $8.2 million, and new rates became effective in June 2025.
Central-Gulf Service Area - In February 2025, Texas Gas Service made a GRIP filing for all customers in the Central-Gulf service area, requesting a $15.4 million increase to be effective in June 2025. In May 2025, the RRC approved an increase of $15.4 million, and new rates became effective in June 2025.
Rio Grande Valley Service Area- In April 2025, Texas Gas Service made a GRIP filing for all customers in the Rio Grande Valley service area, requesting a $3.2 million increase to be effective in September 2025.
FINANCIAL RESULTS AND OPERATING INFORMATION
We operate in one reportable business segment: regulated public utilities that deliver natural gas to residential, commercial and transportation customers. Our accounting policies are the same as described in Note 1 of the Notes to Consolidated Financial Statements in our Annual Report. We evaluate our financial performance principally on net income.
Selected Financial Results - For the three months ended June 30, 2025, net income was $32.0 million, or $0.53 per diluted share, compared with $27.2 million, or $0.48 per diluted share, in the same period last year. For the six months ended June 30, 2025, net income was $151.5 million, or $2.51 per diluted share, compared with $126.6 million, or $2.23 per diluted share, in the same period last year.
The following table sets forth certain selected financial results for our operations for the periods indicated:
Three Months Ended Six Months Ended Three Months Six Months
June 30, June 30, 2025 vs. 2024
2025 vs. 2024
Financial Results 2025 2024 2025 2024 Increase (Decrease) Increase (Decrease)
(Millions of dollars, except percentages)
Natural gas sales $ 369.5 $ 306.8 $ 1,239.9 $ 1,000.9 $ 62.7 20 % $ 239.0 24 %
Transportation revenues 31.0 30.3 74.8 70.7 0.7 2 % 4.1 6 %
Securitization customer charges 13.2 11.5 24.8 23.2 1.7 15 % 1.6 7 %
Other revenues 10.0 5.6 19.5 17.7 4.4 79 % 1.8 10 %
Total revenues $ 423.7 $ 354.2 $ 1,359.0 $ 1,112.5 $ 69.5 20 % $ 246.5 22 %
Cost of natural gas 117.9 72.0 630.4 455.0 45.9 64 % 175.4 39 %
Operating costs 154.6 140.4 315.2 293.3 14.2 10 % 21.9 7 %
Depreciation and amortization 79.3 72.5 161.0 149.1 6.8 9 % 11.9 8 %
Operating income $ 71.9 $ 69.3 $ 252.4 $ 215.1 $ 2.6 4 % $ 37.3 17 %
Capital expenditures and asset removal costs $ 190.1 $ 194.6 $ 367.8 $ 374.0 $ (4.5) (2) % $ (6.2) (2) %
Natural gas sales to customers represent revenue from contracts with customers through implied contracts established by our tariffs and rates approved by regulatory authorities, as well as revenues from regulatory mechanisms related to natural gas sales. Additionally, natural gas sales include recovery of the cost of natural gas.
Our natural gas sales include fixed and variable charges related to the delivery of natural gas and gas costs that are passed through to our customers in accordance with our cost of natural gas regulatory mechanisms. Fixed charges reflect the portion of our natural gas sales attributable to the monthly fixed customer charge component of our rates, which does not fluctuate based on customer usage in each period. Variable charges reflect the portion of our natural gas sales that fluctuate with the volumes delivered and billed and the effects of weather normalization.
Transportation revenues represent revenue from contracts with customers through implied contracts established by our tariffs and rates approved by regulatory authorities, as well as tariff-based negotiated contracts.
Securitization customer charges represent revenue from contracts with customers through implied contracts established by the financing order approved by the KCC, related to the securitization of extraordinary costs incurred during Winter Storm Uri in the state of Kansas. See Note 14 of the Notes to Consolidated Financial Statements in this Quarterly Report for additional discussion of the securitization transaction in Kansas.
Other revenues include primarily miscellaneous service charges, which represent implied contracts with customers established by our tariffs and rates approved by regulatory authorities and other revenues from regulatory mechanisms.
Cost of natural gas includes commodity purchases, fuel, storage, transportation, hedging costs and settlement proceeds for natural gas price volatility mitigation programs approved by our regulators and other gas purchase costs recovered through our cost of natural gas regulatory mechanisms but does not include an allocation of general operating costs or depreciation and amortization. These regulatory mechanisms provide a method of recovering natural gas costs on an ongoing basis without a profit. Therefore, although our revenues will fluctuate with the cost of natural gas that we pass through to our customers, operating income is not affected by fluctuations in the cost of natural gas.
Operating income increased $2.6 million for the three months ended June 30, 2025, compared with the same period last year, due primarily to the following:
•an increase of $21.1 million from new rates;
•an increase of $2.1 million due to higher sales volumes, net of the impact of WNA mechanisms; and
•an increase of $1.5 million in residential sales due primarily to net customer growth in Oklahoma and Texas.
These increases were partially offset by:
•an increase of $6.8 million in depreciation and amortization expense from additional capital investment;
•an increase of $5.7 million in employee-related costs;
•an increase of $5.0 million due to ad valorem taxes;
•an increase of $1.6 million in bad debt expense; and
•a carrying charge of $2.9 million refunded to Oklahoma customers from the settlement of a disputed gas purchase invoice.
Operating income increased $37.3 million for the six months ended June 30, 2025, compared with the same period last year, due primarily to the following:
•an increase of $73.0 million from new rates; and
•an increase of $3.9 million in residential sales due primarily to net customer growth in Oklahoma and Texas.
These increases were partially offset by:
•an increase of $11.9 million in depreciation and amortization expense from additional capital investment;
•an increase of $9.7 million due to ad valorem taxes;
•an increase of $9.0 million in employee-related costs;
•an increase of $2.3 million in bad debt expense;
•an increase of $1.7 million in insurance expense; and
•a carrying charge of $2.9 million refunded to Oklahoma customers from the settlement of a disputed gas purchase invoice.
Other Factors Affecting Net Income- Other factors that affected net income for the three months ended June 30, 2025, compared to the same period last year, include an increase of $1.6 million in other income (expense), net due primarily to a $1.5 million increase in the gain on investments associated with our nonqualified employee benefit plans.
Other factors that affected net income for the six months ended June 30, 2025, compared with the same period last year, include a decrease of $1.4 million in other income (expense), net due primarily to a $0.9 million decrease in net periodic benefit credit other than service costs and a $0.5 million decrease in the market value of investments associated with our nonqualified employee benefit plans.
Additionally, net income for the three and six months ended June 30, 2025 and 2024, includes a decrease in interest expense, net of $1.7 million and an increase of $2.6 million, respectively. The decrease in interest expense, net for three months ended June 30, 2025 is due primarily to a lower weighted-average interest rate on outstanding commercial paper compared to the same period last year. The increase in interest expense, net for the six months ended June 30, 2025 is due primarily to the reopening of the outstanding 5.10 percent senior notes in August 2024 to issue an additional $250 million.
EDIT- Income tax expense reflects credits for the amortization of the regulatory liability associated with EDIT that were returned to customers of $2.1 millionand $1.8 million for the three months ended June 30, 2025 and 2024, respectively, and credits of $10.2 million and $11.9 million for the six months ended June 30, 2025 and 2024, respectively.
Capital Expenditures and Asset Removal Costs- Our capital expenditures program includes expenditures for pipeline integrity, extending service to new areas, reinforcing and increasing system capabilities, pipeline replacements, automated meter reading, government-mandated pipeline relocations, fleet, facilities, IT assets, and cybersecurity. It is our practice to maintain and upgrade our infrastructure, facilities and systems to ensure safe, reliable, and efficient operations. Asset removal costs include expenditures associated with the replacement or retirement of long-lived assets that result from the construction, development and/or normal use of our assets, primarily our pipeline assets.
Capital expenditures and asset removal costs were $4.5 million and $6.2 million lower for the three and six months ended June 30, 2025, respectively, compared with the same periods last year. Our full-year capital expenditures and asset removal costs are expected to be approximately $750 million for 2025.
Selected Operating Information - The following tables set forth certain selected operating information for the periods indicated:
Three Months Ended Variances
June 30,
2025 vs. 2024
(in thousands) 2025 2024 Increase (Decrease)
Average Number of Customers OK KS TX Total OK KS TX Total OK KS TX Total
Residential 850 600 674 2,124 844 595 667 2,106 6 5 7 18
Commercial and industrial 78 51 35 164 77 51 35 163 1 - - 1
Other - - 3 3 - - 3 3 - - - -
Transportation 5 5 1 11 5 6 1 12 - (1) - (1)
Total customers 933 656 713 2,302 926 652 706 2,284 7 4 7 18
Six Months Ended Variances
June 30,
2025 vs. 2024
(in thousands) 2025 2024 Increase (Decrease)
Average Number of Customers OK KS TX Total OK KS TX Total OK KS TX Total
Residential 851 601 673 2,125 844 597 667 2,108 7 4 6 17
Commercial and industrial 78 51 35 164 78 51 35 164 - - - -
Other - - 3 3 - - 3 3 - - - -
Transportation 5 5 1 11 5 6 1 12 - (1) - (1)
Total customers 934 657 712 2,303 927 654 706 2,287 7 3 6 16
The increase in the average number of customers for the periods presented is due primarily to the connection of new customers resulting from the extension and expansion of our system in our service areas. For the three months ended June 30, 2025, our average customer count includes approximately 5,800 new customer connections during the period. For the six months ended June 30, 2025, our average customer count includes approximately 11,400 new customer connections during the period. For the year ended December 31, 2024, our average customer count included approximately 23,000 new customer connections.
The following table reflects total volumes delivered, excluding the effects of WNA mechanisms on sales volumes:
Three Months Ended Six Months Ended
June 30, June 30,
Volumes (MMcf)
2025 2024 2025 2024
Natural gas sales
Residential 12,589 10,564 71,510 62,917
Commercial and industrial 5,761 5,146 24,987 22,191
Other 518 248 1,655 1,304
Total sales volumes delivered 18,868 15,958 98,152 86,412
Transportation 48,731 52,267 114,073 115,666
Total volumes delivered 67,599 68,225 212,225 202,078
The impact of weather on residential and commercial natural gas sales is tempered by WNA mechanisms in all jurisdictions.
The following table sets forth the HDDs by state for the periods indicated:
Three Months Ended
June 30,
2025 2024
2025 vs. 2024
2025 2024
HDDs Actual Normal Actual Normal Actual Variance Actual as a percent of Normal
Oklahoma 164 230 117 230 40 % 71 % 51 %
Kansas 319 397 221 394 44 % 80 % 56 %
Texas 64 46 40 45 60 % 139 % 89 %
Six Months Ended
June 30,
2025 2024
2025 vs. 2024
2025 2024
HDDs Actual Normal Actual Normal Actual Variance Actual as a percent of Normal
Oklahoma 2,080 2,027 1,798 2,030 16 % 103 % 89 %
Kansas 2,929 2,883 2,422 2,854 21 % 102 % 85 %
Texas 1,051 994 899 1,004 17 % 106 % 90 %
Normal HDDs are established through rate proceedings in each of our jurisdictions for use primarily in weather normalization billing calculations. See further discussion on weather normalization in our Regulatory Overview section in Part 1, Item 1, "Business," of our Annual Report. Normal HDDs disclosed above are based on:
•Oklahoma- A 10-year weighted average as of June 30, 2021, as calculated using 11 weather stations across Oklahoma and weighted on average customer count.
•Kansas- A 30-year rolling average for years 1994-2023 calculated using three weather stations across Kansas and weighted on HDDs by weather station and customers.
•Texas- An average of HDDs authorized in our most recent rate proceeding in each jurisdiction and weighted using a rolling 10-year average of actual natural gas distribution sales volumes by service area.
Actual HDDs are based on the quarter-to-date weighted average of:
•11 weather stations and customers by month for Oklahoma;
•3 weather stations and customers by month for Kansas; and
•9 weather stations and natural gas distribution sales volumes by service area for Texas.
CONTINGENCIES
We are a party to various litigation matters and claims that have arisen in the normal course of our operations. While the results of litigation and claims cannot be predicted with certainty, we believe the reasonably possible losses from such matters, individually and in the aggregate, are not material. Additionally, we believe the probable outcome of such matters will not have a material adverse effect on our results of operations, financial position or cash flows.
LIQUIDITY AND CAPITAL RESOURCES
General- We have relied primarily on operating cash flow and commercial paper for our liquidity and capital resource requirements. We fund operating expenses, working capital requirements, including purchases of natural gas, and capital expenditures primarily with cash from operations and commercial paper.
Our stable cash flow and earnings profile is due to the significant residential component of our customer base, the fixed-charge component of our natural gas sales revenues and the rate mechanisms that we have in place. Additionally, we have rate mechanisms in place in our jurisdictions that reduce the lag in earning a return on our capital expenditures and provide for recovery of certain changes in our cost of service by allowing for adjustments to rates between rate cases. We anticipate that our cash flow generated from operations and our expected short- and long-term financing arrangements will enable us to maintain our current and planned level of operations and provide us flexibility to finance our infrastructure investments. Our ability to access capital markets for debt and equity financing under reasonable terms depends on market conditions, our financial condition and credit ratings.
Short-term Debt - The ONE Gas Credit Agreement contains certain financial, operational and legal covenants. Among other things, these covenants include maintaining ONE Gas' total debt-to-capital ratio of no more than 70 percent at the end of any calendar quarter. At June 30, 2025, our total debt-to-capital ratio was 50.7 percent and we were in compliance with all covenants under the ONE Gas Credit Agreement. Excluding the debt of KGSS-I, which is non-recourse to us, our total debt-to-capital ratio was 48.5 percent. We may reduce the unutilized portion of the ONE Gas Credit Agreement in whole or in part without premium or penalty. The ONE Gas Credit Agreement contains customary events of default. Upon the occurrence of certain events of default, the obligations under the ONE Gas Credit Agreement may be accelerated and the commitments may be terminated.
At June 30, 2025, we had $1.35 million in letters of credit issued and no borrowings under the ONE Gas Credit Agreement, with approximately $1.349 billion of remaining credit, which is available to repay our commercial paper borrowings.
The ONE Gas Credit Agreement provides for a $1.35 billion revolving unsecured credit facility and includes a $20 million letter of credit subfacility and a $60 million swingline subfacility. We can request an increase in commitments of up to an additional $150 million upon satisfaction of customary conditions, including receipt of commitments from either new lenders or increased commitments from existing lenders. The ONE Gas Credit Agreement is available to provide liquidity for working capital, capital expenditures, acquisitions and mergers, the issuance of letters of credit, and for other general corporate purposes.
Under our commercial paper program, we may issue unsecured commercial paper up to the maximum amount of $1.35 billion to fund short-term borrowing needs. The maturities of the commercial paper vary but may not exceed 270 days from the date of issue. Commercial paper is generally sold at par less a discount representing an interest factor. At June 30, 2025 and December 31, 2024, we had $872.4 million and $914.6 million of commercial paper outstanding with a weighted-average interest rate of 4.68 percent and 4.77 percent, respectively.
Senior Notes- At June 30, 2025, our long-term debt-to-capital ratio was 43.0 percent. Excluding the debt of KGSS-I, which is non-recourse to us, our long-term debt-to-capital ratio was 40.1 percent. See Note 14 of the Notes to Consolidated Financial Statements in this Quarterly Report for information with respect to KGSS-I.
At June 30, 2025, we had outstanding $2.2 billion of Senior Notes with none due within the next year. The indenture governing our Senior Notes includes an event of default upon the acceleration of other indebtedness of $100 million or more. Such events of default would entitle the trustee or the holders of 25 percent in aggregate principal amount of the outstanding Senior Notes to declare those Senior Notes immediately due and payable in full.
Depending on the series, we may redeem our Senior Notes at par, plus accrued and unpaid interest to the redemption date, starting one month, three months or six months before their maturity dates. Prior to these dates, we may redeem these Senior Notes, in whole or in part, at a redemption price equal to the principal amount, plus accrued and unpaid interest and a make-whole premium. The redemption price will never be less than 100 percent of the principal amount of the respective Senior Note plus accrued and unpaid interest to the redemption date. Our Senior Notes are senior unsecured obligations, ranking equally in right of payment with all of our existing and future unsecured senior indebtedness.
Credit Ratings -Our credit ratings at June 30, 2025, were:
Rating Agency Long-term Rating Short-term Rating Outlook
Moody's A3 Prime-2 Stable
S&P A- A-2 Stable
We intend to maintain credit metrics at a level that supports our balanced approach to capital investment and a return of capital to shareholders via a dividend that we believe will be competitive with our peer group.
Securitized Utility Tariff Bonds- At June 30, 2025, we had outstanding $272.8 million of 5.486 percent KGSS-I Securitized Utility Tariff Bonds with $29.8 million due within the next year. The bonds are governed by an indenture between KGSS-I and the indenture trustee. The indenture contains certain covenants that restrict KGSS-I's ability to sell, transfer, convey, exchange, or otherwise dispose of its assets.
Equity Issuances- In May 2025, we entered into an underwriting agreement and a forward sale agreement for 2.5 million shares of our common stock and granted the underwriter an option to purchase up to 375,000 additional shares of our common stock, which was not exercised. The forward sale agreement provides for settlement on a date, or dates, to be specified at our discretion, but which will occur no later than December 31, 2026.
In February 2023, we entered into an at-the-market equity distribution agreement under which we may issue and sell shares of our common stock with an aggregate offering price up to $300 million. Sales of common stock are made by means of ordinary brokers' transactions on the NYSE, in block transactions or as otherwise agreed to between us and the sales agent. We are under no obligation to offer and sell common stock under the program. At June 30, 2025, we had $225.5 million of equity available for issuance under the program.
Pension and Other Postemployment Benefit Plans -In 2025, our contributions are expected to be approximately $9.8 million to our defined benefit pension plans, and no contributions are expected to be made to our other postemployment benefit plans. We use a December 31 measurement date for our plans.
Information about our pension and other postemployment benefit plans, including anticipated contributions, is included under Note 11 of the Notes to Consolidated Financial Statements in our Annual Report. See Note 9 of the Notes to Consolidated Financial Statements in this Quarterly Report for additional information.
CASH FLOW ANALYSIS
We use the indirect method to prepare our consolidated statements of cash flows. Under this method, we reconcile net income to cash flows provided by operating activities by adjusting net income for those items that impact net income but may not result in actual cash receipts or payments and changes in our assets and liabilities not classified as investing or financing activities during the period. Items that impact net income but may not result in actual cash receipts or payments include, but are not limited to, depreciation and amortization, deferred income taxes, share-based compensation expense and provision for doubtful accounts.
The following table sets forth the changes in cash flows by operating, investing and financing activities for the periods indicated:
Six Months Ended
June 30, Variance
2025 2024
2025 vs. 2024
(Millions of dollars)
Total cash provided by (used in):
Operating activities $ 448.8 $ 250.9 $ 197.9
Investing activities (348.5) (341.8) (6.7)
Financing activities (136.1) 83.9 (220.0)
Change in cash, cash equivalents, restricted cash and restricted cash equivalents (35.8) (7.0) (28.8)
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period 78.5 39.4 39.1
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period $ 42.7 $ 32.4 $ 10.3
Operating Cash Flows - Changes in cash flows from operating activities are due primarily to changes in sales revenues, natural gas costs and operating expenses discussed in "Financial Results and Operating Information," and changes in working capital. Changes in natural gas prices and demand for our services or natural gas, whether because of general economic conditions, variations in weather not mitigated by WNA mechanisms, changes in supply or increased competition from other service providers, could affect our earnings and operating cash flows. Typically, our cash flows from operations are greater in the first half of the year compared with the second half of the year.
Operating cash flows were higher for the six months ended June 30, 2025, compared with the prior period, due primarily to working capital changes related to the recovery of regulatory assets.
Investing Cash Flows - Cash used in investing activities increased for the six months ended June 30, 2025, compared with the prior period, due primarily to an increase in capital expenditures for system integrity and extension of service to new areas.
Financing Cash Flows - Cash used in financing activities increased for the six months ended June 30, 2025, compared with the prior period, due primarily to the repayment of notes payable.
ENVIRONMENTAL, SAFETY AND REGULATORY MATTERS
Environmental Matters- We are subject to multiple laws and regulations regarding protection of the environment and natural and cultural resources, which affect many aspects of our present and future operations. Regulated activities include, but are not limited to, those involving air emissions, storm water and wastewater discharges, handling and disposal of solid and hazardous wastes, wetland preservation, plant and wildlife protection, hazardous materials use, storage and transportation, and pipeline and facility construction. These laws and regulations require us to obtain and/or comply with a wide variety of environmental clearances, registrations, licenses, permits and other approvals. Failure to comply with these laws, regulations, licenses and permits or the discovery of presently unknown environmental conditions may expose us to fines, penalties and/or interruptions in our operations that could be material to our results of operations. In addition, emission controls and/or other regulatory or permitting mandates under the CAA and other similar federal and state laws could require unexpected capital expenditures. We cannot assure that existing environmental statutes and regulations will not be revised or that new regulations will not be adopted or become applicable to us. Revised or additional statutes or regulations that result in increased compliance costs or additional operating restrictions could have a material adverse effect on our business, financial condition and results of operations. Our expenditures for environmental investigation and remediation compliance to date have not been significant in relation to our financial position, results of operations or cash flows, and our expenditures related to environmental matters had no material effects on earnings or cash flows during the three and six months ended June 30, 2025 and 2024.
We own or retain legal responsibility for certain environmental conditions at 12 former MGP sites in Kansas. These sites contain contaminants generally associated with MGP sites and are subject to control or remediation under various environmental laws and regulations. A consent agreement with the KDHE governs all environmental investigation and remediation work at these sites. The terms of the consent agreement require us to investigate these sites and set remediation activities based upon the results of the investigations and risk analysis. Remediation typically involves the management of contaminated soils and may involve removal of structures and monitoring and/or remediation of groundwater. We have completed or are addressing removal of the source of soil contamination at all 12 sites and continue to monitor groundwater at seven of the 12 sites according to plans approved by the KDHE. Regulatory closure has been achieved at five of the 12 sites, but these sites remain subject to potential future requirements that may result in additional costs.
We have an AAO that allows Kansas Gas Service to defer and seek recovery of costs necessary for investigation and remediation at, and nearby, these 12 former MGP sites that are incurred after January 1, 2017. In January 2025, Kansas Gas Service requested to increase the cap on the AAO to $32.0 million from $15.0 million. The original $15.0 million cap approved in 2017 was the result of a unanimous settlement agreement and contained additional reporting requirements and obligations. In May 2025, Kansas Gas Service, the KCC staff and the Citizens' Utility Ratepayer Board filed a unanimous settlement agreement with the KCC agreeing to increase the cap to $32.0 million and to leave all of the other provisions of the 2017 settlement agreement in place. The KCC issued an order approving the settlement agreement in July 2025.
Pursuant to the AAO, costs approved for recovery in a future rate proceeding are to be amortized over a 15-year period. The unamortized amounts are not included in rate base or accumulate carrying charges. Following a determination that future investigation and remediation work approved by the KDHE exceeds $32.0 million, net of any related insurance recoveries, Kansas Gas Service is required to file an application with the KCC for approval to increase the $32.0 million cap. At June 30, 2025 and December 31, 2024, we have deferred $30.6 million and $31.1 million, respectively, for accrued investigation and remediation costs, net of insurance proceeds, pursuant to our AAO.
We also own or retain legal responsibility for certain environmental conditions at a former MGP site in Texas. At the request of the TCEQ, we began investigating the level and extent of contamination associated with the site under their Texas Risk Reduction Program. A preliminary site investigation revealed that this site contains contaminants generally associated with MGP sites and is subject to control or remediation under various environmental laws and regulations. At June 30, 2025, estimated costs associated with expected remediation activities for this site are not material.
Our expenditures for environmental evaluation, mitigation, remediation and compliance to date have not been significant in relation to our financial position, results of operations or cash flows, and our expenditures related to environmental matters had no material effects on earnings or cash flows during the three and six months ended June 30, 2025 and 2024. The reserve for remediation of our MGP sites was $14.0 million and $14.3 million at June 30, 2025 and December 31, 2024, respectively.
Environmental Footprint -We cannot assure that existing environmental statutes and regulations will not be revised or that new regulations will not be adopted or become applicable to us. Revised or additional regulations that result in increased compliance costs or additional operating restrictions could have a material adverse effect on our business, financial condition and results of operations. Our expenditures for environmental investigation, and remediation compliance to-date have not been
significant in relation to our financial position, results of operations or cash flows, and our expenditures related to environmental matters had no material effects on earnings or cash flows for the three and six months ended June 30, 2025 and 2024.
Pipeline Safety- We are subject to regulation under federal pipeline safety statutes and any analogous state regulations. These include safety requirements for the design, construction, operation, and maintenance of pipelines, including transmission and distribution pipelines. At the federal level, we are regulated by PHMSA. PHMSA regulations require the following for certain pipelines: inspection and maintenance plans; integrity management programs, including the determination of pipeline integrity risks and periodic assessments on certain pipeline segments; an operator qualification program, which includes certain trainings; a public awareness program that provides certain information; and a control room management plan.
PHMSA promulgates various regulations related to pipeline safety. As part of the Consolidated Appropriations Act, 2021, the PIPES Act reauthorized PHMSA through 2023 and directed the agency to move forward with several regulatory actions, including the "Pipeline Safety: Class Location Change Requirements" and the "Pipeline Safety: Safety of Gas Transmission and Gathering Pipelines" proposed rulemakings. Congress has also instructed PHMSA to issue final regulations that will require operators of non-rural gas gathering lines and new and existing transmission and distribution pipeline facilities to conduct certain leak detection and repair programs and to require facility inspection and maintenance plans to align with those regulations. On January 20, 2025, an executive order began a regulatory freeze to all rulemakings that were not yet effective pending further review. To the extent such rulemakings impose more stringent requirements on our facilities, we may be required to incur expenditures that may be material.
Regulatory -Several regulatory initiatives impacted the earnings and future earnings potential of our business. See additional information regarding our regulatory initiatives in the "Regulatory Activities" section of Management's Discussion and Analysis of Financial Condition and Results of Operations.
IMPACT OF NEW ACCOUNTING STANDARDS
Information about the impact of new accounting standards, if any, is included in Note 1 of the Notes to Consolidated Financial Statements in this Quarterly Report.
CRITICAL ACCOUNTING ESTIMATES
The preparation of our consolidated financial statements and related disclosures in accordance with GAAP requires us to make estimates and assumptions with respect to values or conditions that cannot be known with certainty that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements. These estimates and assumptions also affect the reported amounts of revenues and expenses during the reporting period. Although we believe these estimates and assumptions are reasonable, actual results could differ from our estimates.
Information about our estimates and critical accounting policies is included under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, "Critical Estimates and Accounting Policies," in our Annual Report.
FORWARD-LOOKING STATEMENTS
Some of the statements contained and incorporated in this Quarterly Report are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. The forward-looking statements relate to our anticipated financial performance, liquidity, management's plans and objectives for our future operations, our business prospects, the outcome of regulatory and legal proceedings, market conditions and other matters. We make these forward-looking statements in reliance on the safe harbor protections provided under the Private Securities Litigation Reform Act of 1995. The following discussion is intended to identify important factors that could cause future outcomes to differ materially from those set forth in the forward-looking statements.
Forward-looking and other statements in this Quarterly Report regarding our environmental, social and other sustainability plans and goals are not an indication that these statements are necessarily material to investors or required to be disclosed in our filings with the SEC. In addition, historical, current, and forward-looking environmental, social and sustainability-related statements may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future.
Forward-looking statements include the items identified in the preceding paragraph, the information concerning possible or assumed future results of our operations and other statements contained or incorporated in this Quarterly Report identified by
words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," "should," "goal," "forecast," "guidance," "could," "may," "continue," "might," "potential," "scheduled," "likely," and other words and terms of similar meaning.
One should not place undue reliance on forward-looking statements, which are applicable only as of the date of this Quarterly Report. Known and unknown risks, uncertainties and other factors may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by forward-looking statements. Those factors may affect our operations, costs, liquidity, markets, products, services and prices. In addition to any assumptions and other factors referred to specifically in connection with the forward-looking statements, factors that could cause our actual results to differ materially from those contemplated in any forward-looking statement include, among others, the following:
•our ability to recover costs, income taxes and amounts equivalent to the cost of property, plant and equipment, regulatory assets and our allowed rate of return in our regulated rates or other recovery mechanisms;
•cyber-attacks, which, continue to increase in volume and sophistication, or breaches of technology systems that could disrupt our operations or result in the loss or exposure of confidential or sensitive customer, employee, vendor, counterparty or Company information; further, increased remote working arrangements have required enhancements and modifications to our IT infrastructure (e.g. Internet, Virtual Private Network, remote collaboration systems, etc.), and any failures of the technologies, including third-party service providers, that facilitate working remotely could limit our ability to conduct ordinary operations or expose us to increased risk or effect of an attack;
•our ability to manage our operations and maintenance costs;
•changes in regulation of natural gas distribution services, particularly those in Oklahoma, Kansas and Texas;
•the economic climate and, particularly, its effect on the natural gas requirements of our residential and commercial customers;
•the length and severity of a pandemic or other health crisis which could significantly disrupt or prevent us from operating our business in the ordinary course for an extended period;
•competition from alternative forms of energy, including, but not limited to, electricity, solar power, wind power, geothermal energy and biofuels;
•adverse weather conditions and variations in weather, including seasonal effects on demand and/or supply, the occurrence of severe storms in the territories in which we operate, and climate change, and the related effects on supply, demand, and costs;
•indebtedness, which could make us more vulnerable to general adverse economic and industry conditions, limit our ability to borrow additional funds and/or place us at competitive disadvantage compared with competitors;
•our ability to secure reliable, competitively priced and flexible natural gas transportation and supply, including decisions by natural gas producers to reduce production or shut-in producing natural gas wells and expiration of existing supply and transportation and storage arrangements that are not replaced with contracts with similar terms and pricing;
•our ability to complete necessary or desirable expansion or infrastructure development projects, which may delay or prevent us from serving our customers or expanding our business;
•operational and mechanical hazards or interruptions;
•adverse labor relations;
•the effectiveness of our strategies to reduce earnings lag, revenue protection strategies and risk mitigation strategies, which may be affected by risks beyond our control such as commodity price volatility, counterparty performance or creditworthiness and interest rate risk;
•the capital-intensive nature of our business, and the availability of and access to, in general, funds to meet our debt obligations prior to or when they become due and to fund our operations and capital expenditures, either through (i) cash on hand, (ii) operating cash flow, or (iii) access to the capital markets and other sources of liquidity;
•our ability to obtain capital on commercially reasonable terms, or on terms acceptable to us, or at all;
•limitations on our operating flexibility, earnings and cash flows due to restrictions in our financing arrangements;
•cross-default provisions in our borrowing arrangements, which may lead to our inability to satisfy all of our outstanding obligations in the event of a default on our part;
•changes in the financial markets during the periods covered by the forward-looking statements, particularly those affecting the availability of capital and our ability to refinance existing debt and fund investments and acquisitions to execute our business strategy;
•actions of rating agencies, including the ratings of debt, general corporate ratings and changes in the rating agencies' ratings criteria;
•changes in inflation and interest rates;
•our ability to recover the costs of natural gas purchased for our customers and any related financing required to support our purchase of natural gas supply;
•impact of potential impairment charges;
•volatility and changes in markets for natural gas and our ability to secure additional and sufficient liquidity on reasonable commercial terms to cover costs associated with such volatility;
•possible loss of local distribution company franchises or other adverse effects caused by the actions of municipalities;
•payment and performance by counterparties and customers as contracted and when due, including our counterparties maintaining ordinary course terms of supply and payments;
•changes in existing or the addition of new environmental, safety, tax, cybersecurity and other laws or regulations to which we and our subsidiaries are subject, including those that may require significant expenditures, significant increases in operating costs or, in the case of noncompliance, substantial fines or penalties;
•the effectiveness of our risk-management policies and procedures, and employees violating our risk-management policies;
•the uncertainty of estimates, including accruals and costs of environmental remediation;
•advances in technology, including technologies that increase efficiency or that improve electricity's competitive position relative to natural gas;
•population growth rates and changes in the demographic patterns of the markets we serve in Oklahoma, Kansas and Texas, and economic conditions in these areas;
•acts of nature and naturally occurring disasters;
•political unrest and the potential effects of threatened or actual terrorism and war;
•the sufficiency of insurance coverage to cover losses;
•the effects of our strategies to reduce tax payments;
•changes in accounting standards;
•changes in corporate governance standards;
•existence of material weaknesses in our internal controls;
•our ability to comply with all covenants in our indentures and the ONE Gas Credit Agreement, a violation of which, if not cured in a timely manner, could trigger a default of our obligations;
•our ability to attract and retain talented employees, management and directors, and any shortage of skilled-labor;
•unexpected increases in the costs of providing health care benefits, along with pension and postemployment health care benefits, as well as declines in the discount rates on, declines in the market value of the debt and equity securities of, and increases in funding requirements for, our defined benefit plans; and
•our ability to successfully complete merger, acquisition or divestiture plans, regulatory or other limitations imposed as a result of a merger, acquisition or divestiture, and the success of the business following a merger, acquisition or divestiture.
These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other factors could also have material adverse effects on our future results. These and other risks are described in greater detail in Part 1, Item 1A, Risk Factors, in our Annual Report. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these factors. Other than as required under securities laws, we undertake no obligation to update publicly any forward-looking statement whether as a result of new information, subsequent events or change in circumstances, expectations or otherwise.
ONE Gas Inc. published this content on August 06, 2025, and is solely responsible for the information contained herein. Distributed via SEC EDGAR on August 06, 2025 at 20:41 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]