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 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 months ended March 31, 2025, 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 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.

Previous wording

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. A hearing is scheduled for June 12, 2025.

Current wording

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.

Previous wording

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. The KCC has until August 2025 to issue an order.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

Selected Financial Results -For the three months ended March 31, 2025, net income was $119.4 million, or $1.98 per diluted share, compared with $99.3 million, or $1.75 per diluted share, in the same period last year.

Current wording

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.

Previous wording

Operating income increased $34.6 million for the three months ended March 31, 2025, compared with the same period last year, due primarily to the following:

Current wording

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:

Previous wording

•an increase of $2.3 million in residential sales due primarily to net customer growth in Oklahoma and Texas.

Current wording

•an increase of $1.5 million in residential sales due primarily to net customer growth in Oklahoma and Texas.

Previous wording

•an increase of $5.1 million in depreciation and amortization expense from additional capital investment;

Current wording

•an increase of $6.8 million in depreciation and amortization expense from additional capital investment;

Previous wording

•an increase of $3.2 million in employee-related costs due, in part, to planned investments in the Company’s workforce; and

Current wording

•an increase of $5.7 million in employee-related costs;

Previous wording

•an increase of $51.9 million in revenue from new rates; and

Current wording

•an increase of $73.0 million from new rates; and

Previous wording

Other Factors Affecting Net Income - Other factors that affected net income for the three months ended March 31, 2025, compared to the same period last year, include a decrease of $3.0 million in other income/(expense), net due primarily to a $2.0 million decrease in the gain on 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 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.

Previous wording

Additionally, net income for the three months ended March 31, 2025, includes an increase in interest expense of $4.3 million, compared to the same period last year. The increase in interest expense is due primarily to the reopening of the outstanding 5.10 percent senior notes in August 2024 to issue an additional $250 million and higher average commercial paper balances.

Current wording

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.

Previous wording

EDIT - Income tax expense reflects credits for the amortization of the regulatory liability associated with EDIT that were returned to customers of $8.1 million and $10.1 million for the three months ended March 31, 2025 and 2024, respectively.

Current wording

EDIT - Income tax expense reflects credits for the amortization of the regulatory liability associated with EDIT that were returned to customers of $2.1 million and$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.

Previous wording

Capital expenditures and asset removal costs were $1.7 million lower for the three months ended March 31, 2025, compared with the same period last year. Our full-year capital expenditures and asset removal costs are expected to be approximately $750 million for 2025.

Current wording

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.

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 March 31, 2025, our average customer count includes approximately 5,600 new customer connections during the period. For the year ended December 31, 2024, our average customer count included approximately 23,000 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 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.

Previous wording

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 March 31, 2025, our total debt-to-capital ratio was 50.2 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 48.0 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

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.

Previous wording

Under our commercial paper program, we may issue unsecured commercial paper up to 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 March 31, 2025 and December 31, 2024, we had $811.9 million and $914.6 million of commercial paper outstanding with a weighted-average interest rate of 4.69 percent and 4.77 percent, respectively.

Current wording

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.

Previous wording

Equity Issuances -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 March 31, 2025, we had $225.5 million of equity available for issuance under the program.

Current wording

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.

Previous wording

Operating cash flows were higher for the three months ended March 31, 2025, compared with the prior period, due primarily to working capital changes related to the recovery of regulatory assets.

Current wording

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.

Previous wording

Investing Cash Flows - Cash used in investing activities increased for the three months ended March 31, 2025, 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 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.

Previous wording

Financing Cash Flows - Cash used in financing activities increased for the three months ended March 31, 2025, compared with the prior period, due primarily to the repayment of commercial paper.

Current wording

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.

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 months ended March 31, 2025 and 2024.

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 six months ended June 30, 2025 and 2024.

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 is required to file an application with the KCC for approval to increase the $15.0 million cap. During 2024, we received $1.7 million in insurance proceeds for remediation costs related to these sites. At March 31, 2025 and December 31, 2024, we have deferred $30.8 million and $31.1 million, respectively, for accrued investigation and remediation costs pursuant to our AAO. On January 3, 2025, Kansas Gas Service requested to increase the cap on the AAO from $15.0 million to $32 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. Kansas Gas Service's request to increase the cap leaves all of the other provisions of the 2017 settlement agreement in place.

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. 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.

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 three months ended March 31, 2025 and 2024. The reserve for remediation of our MGP sites was $14.2 million and $14.3 million at March 31, 2025 and December 31, 2024, 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 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.

Previous wording

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 months ended March 31, 2025 and 2024.

Current wording

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.

Previous wording

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,”

Current wording

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.