ONE Gas Inc

Previous wording

The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and the Notes to Consolidated Financial Statements 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, 2024, are not necessarily indicative of the results that may be expected for a 12-month period.

Current wording

The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and the Notes to Consolidated Financial Statements 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 nine months ended September 30, 2024, are not necessarily indicative of the results that may be expected for a 12-month period.

Previous wording

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

Current wording

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

Previous wording

Oklahoma - As required by our tariff, PBRC filings are made annually on or before March 15 until the next general rate case, which is required to be filed on or before June 30, 2027. On February 29, 2024, Oklahoma Natural Gas filed its required PBRC application for the year ended December 2023. The filed request included a $31.8 million base rate revenue increase, $2.4 million energy efficiency incentive, and $12.8 million of estimated EDIT to be credited to customers in 2025. On May 31, 2024, a settlement in the case was filed with a proposed revenue increase of $31.4 million. On June 4, 2024, a hearing was held at the conclusion of which the administrative law judge took the case under advisement. On July 15, 2024, the administrative law judge issued a report to the OCC recommending approval of the settlement agreement. Pursuant to its tariff, Oklahoma Natural Gas placed new rates into effect on June 28, 2024. These rates are interim subject to refund until a commission order is issued in the case. An order is expected in the third quarter of 2024.

Current wording

Oklahoma - As required by our tariff, PBRC filings are made annually on or before March 15 until the next general rate case, which is required to be filed on or before June 30, 2027. On February 29, 2024, Oklahoma Natural Gas filed its required PBRC application for the year ended December 2023. The filed request included a $31.8 million base rate revenue increase, $2.4 million energy efficiency incentive, and $12.8 million of estimated EDIT to be credited to customers in 2025. On May 31, 2024, a settlement in the case was filed with a proposed revenue increase of $31.4 million. On June 4, 2024, a hearing was held at the conclusion of which the administrative law judge took the case under advisement. On July 15, 2024, the administrative law judge issued a report to the OCC recommending approval of the settlement agreement. Pursuant to its tariff, Oklahoma Natural Gas placed new rates into effect on June 28, 2024. The OCC issued an order approving the settlement on August 27, 2024.

Previous wording

Kansas - On March 1, 2024, Kansas Gas Service submitted an application to the KCC requesting an increase to its base rates reflecting investments in its natural gas distribution system, implementation of a performance-based ratemaking mechanism and residential rate design options that align with customer usage. On August 2, 2024, a unanimous settlement agreement was signed by all parties to the rate case and filed with the KCC. A hearing on the unanimous settlement agreement is scheduled for the week of August 12, 2024.

Current wording

Kansas - On March 1, 2024, Kansas Gas Service submitted an application to the KCC requesting an increase to its base rates reflecting investments in its natural gas distribution system, implementation of a performance-based ratemaking mechanism and residential rate design options that align with customer usage. On August 2, 2024, a unanimous settlement agreement was signed by all parties to the rate case and filed with the KCC. A hearing on the unanimous settlement agreement was held on August 13, 2024. On October 3, 2024, the KCC issued an order approving the settlement agreement and new rates became effective on November 1, 2024. Kansas Gas Service’s net base rates will increase by $35 million. Kansas Gas Service was already recovering $35 million from customers through the GSRS; therefore, this settlement represents a total base rate increase of $70 million. The unanimous settlement agreement stipulates a GSRS pre-tax carrying charge of 8.97 percent for subsequent GSRS filings.

Previous wording

Texas -West-North Service Area - In March 2024, Texas Gas Service made a GRIP filing for all customers in the West-North service area, requesting an $8.6 million increase to be effective in July 2024. In June of 2024, El Paso and Socorro denied the requested increase. Texas Gas Service filed an appeal of these denials to the RRC on July 8, 2024. All other municipalities, and the RRC, approved an increase of $8.5 million or allowed it to take effect with no action. Texas Gas Service implemented new rates in July 2024, subject to adjustment depending upon the outcome of the appeal.

Current wording

Texas -West-North Service Area - In March 2024, Texas Gas Service made a GRIP filing for all customers in the West-North service area, requesting an $8.6 million increase to be effective in July 2024. In June of 2024, El Paso and Socorro denied the requested increase. Texas Gas Service filed an appeal of these denials to the RRC on July 8, 2024, which was upheld by the RRC. All other municipalities, and the RRC, approved an increase of $8.5 million or allowed it to take effect with no action. Texas Gas Service implemented new rates in July 2024.

Previous wording

Central-Gulf Service Area- In February 2024, Texas Gas Service made a GRIP filing for all customers in the Central-Gulf service area, requestinga $12.3 million increaseto be effective in June 2024. In May 2024, the RRC and municipalities approved an increase of $12.2 million, and new rates became effective in June 2024.

Current wording

Central-Gulf Service Area- In February 2024, Texas Gas Service made a GRIP filing for all customers in the Central-Gulf service area, requesting a $12.3 million increase to be effective in June 2024. In May 2024, the RRC and municipalities approved an increase of $12.2 million, and new rates became effective in June 2024.

Previous wording

In June 2024, Texas Gas Service filed a rate case for all customers in the Central-Gulf service area, requesting a $25.8 million increase. Texas Gas Service has invested approximately $355 million in its Central-Gulf service area natural gas distribution system since its last Central-Gulf service area rate case was finalized in August 2020. A portion of this investment, approximately $342 million, is currently recovered through GRIP. This filing is based on a 10.25 percent return on equity and a 59.6 percent common equity ratio. New rates are expected to take effect in late 2024.

Current wording

In June 2024, Texas Gas Service filed a rate case for all customers in the Central-Gulf service area, requesting a $25.8 million increase. Texas Gas Service has invested approximately $355 million in its Central-Gulf service area natural gas distribution system since its last Central-Gulf service area rate case was finalized in August 2020. A portion of this investment, approximately $342 million, is currently recovered through GRIP. On September 27, 2024, the parties filed an uncontested settlement agreement for an increase of $19.3 million based on a 9.7 percent return on equity and 59.6 percent common equity ratio. In October 2024, the administrative law judge issued a proposal for decision recommending the settlement be approved. If the settlement is approved by the RRC, new rates will take effect in December 2024.

Previous wording

Rio Grande Valley Service Area- In May 2024, Texas Gas Service made a GRIP filing for all customers in the Rio Grande Valley service area, requesting a $3.7 million increase to be effective in August 2024.

Current wording

Rio Grande Valley Service Area - In May 2024, Texas Gas Service made a GRIP filing for all customers in the Rio Grande Valley service area, requesting a $3.7 million increase to be effective in August 2024. In August 2024, the RRC and municipalities approved an increase of $3.6 million, and new rates became effective in September 2024.

Previous wording

Selected Financial Results -For the three months ended June 30, 2024, net income was $27.3 million, or $0.48 per diluted share, compared with $32.7 million, or $0.58 per diluted share, in the same period last year. For the six months ended June 30, 2024, net income was $126.6 million, or $2.23 per diluted share, compared with $135.3 million, or $2.42 per diluted share, in the same period last year.

Current wording

Selected Financial Results -For the three months ended September 30, 2024, net income was $19.2 million, or $0.34 per diluted share, compared with $25.2 million, or $0.45 per diluted share, in the same period last year. For the nine months ended September 30, 2024, net income was $145.8 million, or $2.56 per diluted share, compared with $160.5 million, or $2.87 per diluted share, in the same period last year.

Previous wording

•an increase of $5.0 million in depreciation and amortization expense from additional capital investment;

Current wording

•an increase of $3.7 million in depreciation and amortization expense from additional capital investment;

Previous wording

•an increase of $1.8 million in employee-related costs;

Current wording

•an increase of $6.1 million in employee-related costs; and

Previous wording

•an increase of $1.8 million in outside services; and

Current wording

•an increase of $2.0 million in outside services.

Previous wording

Operating income increased $5.4 million for the three months ended June 30, 2024, compared with the same period last year, due primarily to the following:

Current wording

Operating income increased $4.3 million for the nine months ended September 30, 2024, compared with the same period last year, due primarily to the following:

Previous wording

•an increase of $14.7 million from new rates; and

Current wording

•an increase of $43.3 million from new rates; and

Previous wording

•an increase of $1.6 million in residential sales due primarily to net customer growth in Oklahoma and Texas.

Current wording

•an increase of $5.1 million in residential sales due primarily to net customer growth in Oklahoma and Texas.

Previous wording

•an increase of $10.3 million of employee-related costs;

Current wording

•an increase of $16.5 million of employee-related costs;

Previous wording

•an increase of $10.3 million in depreciation and amortization expense from additional capital investment; and

Current wording

•an increase of $14.0 million in depreciation and amortization expense from additional capital investment;

Previous wording

•a decrease of $1.3 million due to lower sales volumes, net of the impact of weather normalization mechanisms.

Current wording

•a decrease of $5.9 million due to lower sales volumes, largely offset by the impact of weather normalization mechanisms.

Previous wording

Other Factors Affecting Net Income - Other factors that affected net income for the three months ended June 30, 2024, compared to the same period last year, include a decrease of $1.3 million in other income (expense), net due primarily to a $0.4 million decrease in net periodic benefit costs other than service costs and a $0.7 million decrease in the market value of investments associated with our nonqualified employee benefit plans.

Current wording

Other Factors Affecting Net Income - Other factors that affected net income for the three months ended September 30, 2024, compared to the same period last year, include an increase of $2.9 million in other income/(expense), net due primarily to a $3.4 million increase in the market value of investments associated with our nonqualified employee benefit plans.

Previous wording

Other factors that affected net income for the six months ended June 30, 2024, compared with the same period last year, include a decrease of $0.4 million in other income (expense), net, due primarily to a $0.3 million decrease in net periodic benefit costs other than service costs and a $0.2 million decrease in the market value of investments associated with our nonqualified employee benefit plans.

Current wording

Other factors that affected net income for the nine months ended September 30, 2024, compared with the same period last year, include an increase of $2.5 million in other income/(expense), net, due primarily to a $3.2 million increase in the market value of investments associated with our nonqualified employee benefit plans.

Previous wording

Additionally, net income for the three and six months ended June 30, 2024, includes an increase in interest expense of $9.5 million and $10.7 million, respectively. The increase in interest expense is due primarily to the issuance of $300 million of 5.10 percent senior notes in December 2023 and the repayment of $300 million of 3.61 percent senior notes due February 2024 and $473 million of 1.10 percent senior notes due March 2024 upon maturity with commercial paper.

Current wording

Additionally, net income for the three and nine months ended September 30, 2024, includes an increase in interest expense of $11.2 million and $21.9 million, respectively. The increase in interest expense is due primarily to the issuance of $300 million of 5.10 percent senior notes in December 2023 and the repayment of $300 million of 3.61 percent senior notes due February 2024 and $473 million of 1.10 percent senior notes due March 2024 upon maturity with commercial paper.

Previous wording

EDIT - Income tax expense reflects credits for the amortization of the regulatory liability associated with EDIT that was returned to customers of $1.8 million and $3.1 million for the three months ended June 30, 2024 and 2023, respectively, and $11.9 million and $13.0 million for the six months ended June 30, 2024 and 2023, respectively.

Current wording

EDIT - Income tax expense reflects credits for the amortization of the regulatory liability associated with EDIT that was returned to customers of $1.5 million and $2.5 million for the three months ended September 30, 2024 and 2023, respectively, and $13.4 million and $15.5 million for the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

Capital Expenditures and Asset Removal Costs - Our capital expenditures program includes expenditures for pipeline integrity, extending service to new areas, increasing system capabilities, pipeline replacements, automated meter reading, government-mandated pipeline relocations, fleet, facilities, IT assets, and cybersecurity. It is our practice to maintain and upgrade our infrastructure, facilities and systems to ensure safe, reliable, and efficient operations. Asset removal costs include expenditures associated with the replacement or retirement of long-lived assets that result from the construction, development and/or normal use of our assets, primarily our pipeline assets.

Current wording

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.

Previous wording

Capital expenditures and asset removal costs were $4.4 million and $19.2 million higher for the three and six months ended June 30, 2024, respectively, compared with the same period last year, due primarily to expenditures for system integrity and extension of service to new areas. Our full-year capital expenditures and asset removal costs are expected to be approximately $750 million for 2024.

Current wording

Capital expenditures and asset removal costs were $13.4 million and $32.6 million higher for the three and nine months ended September 30, 2024, respectively, compared with the same period last year, due primarily to expenditures for system integrity and extension of service to new areas. Our full-year capital expenditures and asset removal costs are expected to be approximately $750 million for 2024.

Previous wording

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, 2024, our average customer count includes approximately 5,300 new customer connections during the period. For the six months ended June 30, 2024, our average customer count includes approximately 10,500 new customer connections during the period. For the year ended December 31, 2023, our average customer count included approximately 23,400 new customer connections.

Current wording

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 September 30, 2024, our average customer count includes approximately 5,500 new customer connections during the period. For the nine months ended September 30, 2024, our average customer count includes approximately 16,000 new customer connections during the period. For the year ended December 31, 2023, our average customer count included approximately 23,400 new customer connections.

Previous wording

In June 2024, we entered into an agreement that increased the capacity of the ONE Gas Credit Agreement to $1.275 billion from $1.2 billion with commitments from existing lenders and the addition of a new lender. The ONE Gas Credit Agreement provides for a $1.275 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 $225 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.

Current wording

Short-term Debt -In October 2024, we entered into an agreement that increased the capacity of the ONE Gas Credit Agreement to $1.35 billion from $1.275 billion with commitments from existing lenders and the addition of a new lender. 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.

Previous wording

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, 2024, our total debt-to-capital ratio was 53 percent and we were in compliance with all covenants under the ONE Gas Credit Agreement. Excluding the debt of KGSS-I, which is non-recourse to us, our total debt-to-capital ratio was 51 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.

Current wording

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 September 30, 2024, our total debt-to-capital ratio was 54.5 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 52.3 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.

Previous wording

Short-term Debt -In July 2024, we increased the capacity of the commercial paper program to $1.275 billion from $1.2 billion. We may issue unsecured commercial paper up to a maximum amount of $1.275 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, 2024 and December 31, 2023, we had $1.0 billion and $88.5 million of commercial paper outstanding with a weighted-average interest rate of 5.59 percent and 5.60 percent, respectively.

Current wording

In October 2024, we increased the capacity of our commercial paper program to $1.35 billion from $1.275 billion. Under our commercial paper program, we may issue unsecured commercial paper 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 September 30, 2024 and December 31, 2023, we had $951.4 million and $88.5 million of commercial paper outstanding with a weighted-average interest rate of 5.24 percent and 5.60 percent, respectively.

Previous wording

At June 30, 2024, we had $1.4 million in letters of credit issued and no borrowings under the ONE Gas Credit Agreement, with approximately $1.27 billion of remaining credit, which is available to repay our commercial paper borrowings.

Current wording

At September 30, 2024, we had $1.4 million in letters of credit issued and no borrowings under the ONE Gas Credit Agreement, with approximately $1.275 billion of remaining credit, which is available to repay our commercial paper borrowings.

Previous wording

At June 30, 2024, we had outstanding $1.9 billion of Senior Notes with none due within the next year. The indenture governing our Senior Notes includes an event of default upon the acceleration of other indebtedness of $100 million or more. Such events of default would entitle the trustee or the holders of 25 percent in aggregate principal amount of the outstanding Senior Notes to declare those Senior Notes immediately due and payable in full.

Current wording

At September 30, 2024, 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.

Previous wording

At June 30, 2024, our long-term debt-to-capital ratio was 44 percent. Excluding the debt of KGSS-I, which is non-recourse to us, our long-term debt-to-capital ratio was 40 percent. See Note 14 of the Notes to Consolidated Financial Statements in this Quarterly Report for information with respect to KGSS-I.

Current wording

At September 30, 2024, our long-term debt-to-capital ratio was 46 percent. Excluding the debt of KGSS-I, which is non-recourse to us, our long-term debt-to-capital ratio was 43 percent. See Note 14 of the Notes to Consolidated Financial Statements in this Quarterly Report for information with respect to KGSS-I.

Previous wording

At June 30, 2024, our commercial paper was rated Prime-2 by Moody’s and A-2 by S&P. We intend to maintain credit metrics at a level that supports our balanced approach to capital investment and a return of capital to shareholders via a dividend that we believe will be competitive with our peer group.

Current wording

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.

Previous wording

Securitized Utility Tariff Bonds - At June 30, 2024, we had outstanding $301.5 million of 5.486 percent KGSS-I Securitized Utility Tariff Bonds with $28.2 million due within the next year. The bonds are governed by an indenture between KGSS-I and the indenture trustee. The indenture contains certain covenants that restrict KGSS-I’s ability to sell, transfer, convey, exchange, or otherwise dispose of its assets.

Current wording

Securitized Utility Tariff Bonds - At September 30, 2024, we had outstanding $287.3 million of 5.486 percent KGSS-I Securitized Utility Tariff Bonds with $29.0 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.

Previous wording

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

Current wording

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

Previous wording

Operating cash flows were lower for the six months ended June 30, 2024, compared with the prior period, due primarily to proceeds from government securitization of winter weather costs for Texas Gas Service in March 2023 and working capital changes related to accounts receivable and lower gas in storage.

Current wording

Operating cash flows were lower for the nine months ended September 30, 2024, compared with the prior period, due primarily to proceeds from government securitization of winter weather costs for Texas Gas Service in March 2023 and working capital changes related to lower cost of gas rates embedded in accounts receivable and natural gas in storage.

Previous wording

Investing Cash Flows - Cash used in investing activities increased for the six months ended June 30, 2024, compared with the prior period, due primarily to an increase in capital expenditures for system integrity and extension of service to new areas.

Current wording

Investing Cash Flows - Cash used in investing activities increased for the nine months ended September 30, 2024, compared with the prior period, due primarily to an increase in capital expenditures for system integrity and extension of service to new areas.

Previous wording

Financing Cash Flows - Cash used in financing activities decreased for the six months ended June 30, 2024, compared with the prior period, due primarily to commercial paper borrowing in excess of repayments of long-term debt.

Current wording

Financing Cash Flows - Cash used in financing activities decreased for the nine months ended September 30, 2024, compared with the prior period, due primarily to commercial paper borrowing in excess of repayments of long-term debt and the additional issuance of long-term debt.

Previous wording

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, 2024 and 2023.

Current wording

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 nine months ended September 30, 2024 and 2023.

Previous wording

We have an AAO that allows Kansas Gas Service to defer and seek recovery of costs necessary for investigation and remediation at, and nearby, these 12 former MGP sites that are incurred after January 1, 2017, up to a cap of $15.0 million, net of any related insurance recoveries. Costs approved for recovery in a future rate proceeding would then be amortized over a 15-year period. The unamortized amounts will not be included in rate base or accumulate carrying charges. Following a determination that future investigation and remediation work approved by the KDHE exceeds $15.0 million, net of any related insurance recoveries, Kansas Gas Service will be required to file an application with the KCC for approval to increase the $15.0 million cap. In January 2024, we received $1.5 million in insurance proceeds for remediation costs related to these sites. At June 30, 2024 and December 31, 2023, we have deferred $30.5 million and $32.0 million, respectively, for accrued investigation and remediation costs pursuant to our AAO. Kansas Gas Service expects to file an application for amounts deferred in excess of the cap as soon as practicable.

Current wording

We have an AAO that allows Kansas Gas Service to defer and seek recovery of costs necessary for investigation and remediation at, and nearby, these 12 former MGP sites that are incurred after January 1, 2017, up to a cap of $15.0 million, net of any related insurance recoveries. Costs approved for recovery in a future rate proceeding would then be amortized over a 15-year period. The unamortized amounts will not be included in rate base or accumulate carrying charges. Following a determination that future investigation and remediation work approved by the KDHE exceeds $15.0 million, net of any related insurance recoveries, Kansas Gas Service will be required to file an application with the KCC for approval to increase the $15.0 million cap. In January 2024, we received $1.5 million in insurance proceeds for remediation costs related to these sites. At September 30, 2024 and December 31, 2023, we have deferred $30.4 million and $32.0 million, respectively, for accrued investigation and remediation costs pursuant to our AAO. Kansas Gas Service expects to file an application in the first quarter of 2025 for amounts deferred in excess of the cap.

Previous wording

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 six months ended June 30, 2024 and 2023. The reserve for remediation of our MGP sites was $13.8 million and $14.3 million at June 30, 2024 and December 31, 2023, respectively.

Current wording

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 nine months ended September 30, 2024 and 2023. The reserve for remediation of our MGP sites was $13.6 million and $14.3 million at September 30, 2024 and December 31, 2023, respectively.