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 and six months ended June 30, 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 nine months ended September 30, 2025, are not necessarily indicative of the results that may be expected for a 12-month period.

Previous wording

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.

Current wording

Texas House Bill 4384 - 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 began applying the new provisions to property, plant and equipment placed in service but not yet reflected in rates in the third quarter of 2025.

Previous wording

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.

Current wording

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. In August 2025, the RRC approved an increase of $2.9 million, and new rates became effective in September 2025.

Previous 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.

Current wording

Selected Financial Results -For the three months ended September 30, 2025, net income was $26.5 million, or $0.44 per diluted share, compared with $19.3 million, or $0.34 per diluted share, in the same period last year. For the nine months ended September 30, 2025, net income was $177.9 million, or $2.94 per diluted share, compared with $145.8 million, or $2.56 per diluted share, in the same period last year.

Previous wording

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.

Current wording

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. Natural gas sales also include recovery of the cost of natural gas.

Previous 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:

Current wording

Operating income increased $5.9 million for the three months ended September 30, 2025, compared with the same period last year, due primarily to the following:

Previous wording

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

Current wording

•an increase of $19.2 million from new rates; and

Previous wording

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

Current wording

•an increase of $1.4 million in residential sales due primarily to net customer growth in Oklahoma and Texas.

Previous wording

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

Current wording

•an increase of $4.8 million in depreciation and amortization expense primarily from additional capital investment;

Previous wording

•an increase of $5.0 million due to ad valorem taxes;

Current wording

•an increase of $4.1 million due to ad valorem taxes;

Previous wording

•an increase of $9.0 million in employee-related costs;

Current wording

•an increase of $3.8 million in employee-related costs; and

Previous wording

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:

Current wording

Operating income increased $43.1 million for the nine months ended September 30, 2025, compared with the same period last year, due primarily to the following:

Previous wording

•an increase of $21.1 million from new rates;

Current wording

•an increase of $92.2 million from new rates; and

Previous wording

•an increase of $3.9 million in residential sales due primarily to net customer growth in Oklahoma and Texas.

Current wording

•an increase of $5.3 million in residential sales due primarily to net customer growth in Oklahoma and Texas.

Previous wording

•an increase of $11.9 million in depreciation and amortization expense from additional capital investment;

Current wording

•an increase of $16.8 million in depreciation and amortization expense primarily from additional capital investment;

Previous wording

•an increase of $9.7 million due to ad valorem taxes;

Current wording

•an increase of $13.8 million due to ad valorem taxes;

Previous wording

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

Current wording

•an increase of $12.8 million in employee-related costs;

Previous wording

•an increase of $1.7 million in insurance expense; and

Current wording

•an increase of $2.5 million in insurance expense;

Previous wording

•an increase of $2.3 million in bad debt expense;

Current wording

•an increase of $2.1 million in bad debt expense;

Previous 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.

Current wording

Other Factors Affecting Net Income - Other factors that affected net income for the three months ended September 30, 2025, compared to the same period last year, include a decrease of $0.6 million in other income (expense), net due primarily to a $0.5 million decrease in net periodic benefit credit other than service costs and a $0.2 million decrease in the market value of investments associated with our nonqualified deferred compensation plans.

Previous wording

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.

Current wording

Other factors that affected net income for the nine months ended September 30, 2025, compared with the same period last year, include a decrease of $2.0 million in other income (expense), net due primarily to a $1.4 million decrease in net periodic benefit credit other than service costs and a $0.7 million decrease in the market value of investments associated with our nonqualified deferred compensation plans.

Previous 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.

Current wording

Additionally, net income for the three months ended September 30, 2025, compared with the same period last year, includes a decrease in interest expense, net of $3.8 million due primarily to a lower weighted average interest rate on commercial paper borrowings. Excluding KGSS-I, interest expense, net for the nine months ended September 30, 2025 is in line with the same period last year.

Previous 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.

Current wording

EDIT - Income tax expense reflects credits for the amortization of the regulatory liability associated with EDIT that were returned to customers of $1.7 million and $1.5 million for the three months ended September 30, 2025 and 2024, respectively, and credits of $11.9 million and $13.4 million for the nine months ended September 30, 2025 and 2024, respectively.

Previous 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.

Current wording

Capital expenditures and asset removal costs were $9.9 million and $3.7 million higher for the three and nine months ended September 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 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.

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, 2025, our average customer count includes approximately 5,400 new customer connections during the period. For the nine months ended September 30, 2025, our average customer count includes approximately 16,800 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

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.

Current wording

General - We have relied primarily on operating cash flow, commercial paper, and equity forward agreements 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, commercial paper and settlements of equity forward agreements.

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 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.

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, excluding the debt of KGSS-I, of no more than 70 percent at the end of any calendar quarter. At September 30, 2025, our total debt-to-capital ratio, excluding KGSS-I, was 49.7 percent and we were in compliance with all covenants under the ONE Gas Credit Agreement. 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

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.

Current wording

In October 2025, we amended and restated the ONE Gas Credit Agreement. During this process we increased the capacity to $1.5 billion from $1.35 billion with the addition of one new lender and reduction of three lenders. The term of the agreement was extended to October 30, 2030, from March 16, 2028. The expansion option in the revolver was set at an additional $750 million, and all other terms and conditions of the ONE Gas Credit Agreement are materially unchanged. At September 30, 2025, we had $1.35 million in letters of credit issued and no borrowings under the ONE Gas Credit Agreement as then in effect, with approximately $1.349 billion of remaining credit, which is available to repay our commercial paper borrowings.

Previous wording

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.

Current wording

The ONE Gas Credit Agreement provides for a $1.5 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 $750 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

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.

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 September 30, 2025 and December 31, 2024, we had $764.4 million and $914.6 million of commercial paper outstanding with a weighted-average interest rate of 4.34 percent and 4.77 percent, respectively.

Previous wording

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.

Current wording

Senior Notes - At September 30, 2025, our long-term debt-to-capital ratio was 45.3 percent. Excluding the debt of KGSS-I, which is non-recourse to us, our long-term debt-to-capital ratio was 42.8 percent. See Note 14 of the Notes to Consolidated Financial Statements in this Quarterly Report for information with respect to KGSS-I.

Previous wording

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.

Current wording

Securitized Utility Tariff Bonds - At September 30, 2025, we had outstanding $257.9 million of 5.486 percent KGSS-I Securitized Utility Tariff Bonds with $30.6 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 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.

Current wording

Pension and Other Postemployment Benefit Plans - In 2025, our contributions are expected to be approximately $6.8 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.

Previous 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.

Current wording

Operating cash flows were higher for the nine months ended September 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 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.

Current wording

Investing Cash Flows - Cash used in investing activities increased for the nine months ended September 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 six months ended June 30, 2025, compared with the prior period, due primarily to the repayment of notes payable.

Current wording

Financing Cash Flows - Cash used in financing activities increased for the nine months ended September 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 and six months ended June 30, 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 nine months ended September 30, 2025 and 2024.

Previous wording

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.

Current wording

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 September 30, 2025 and December 31, 2024, we have deferred $30.3 million and $31.1 million, respectively, for accrued investigation and remediation costs, net of insurance proceeds, pursuant to our AAO.

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 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.

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 nine months ended September 30, 2025 and 2024. The reserve for remediation of our MGP sites was $13.8 million and $14.3 million at September 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 and six months ended June 30, 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 nine months ended September 30, 2025 and 2024.