000158773212/31Q3false75532241590.010.01250,000,000250,000,00053,096,89352,771,74953,096,89352,771,74913,34110,93632The 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.In April 2020, we entered into the ONE Gas 364-day Credit Agreement. The ONE Gas 364-day Credit Agreement is a $250 million revolving unsecured credit facility containing various customary conditions to borrowing and affirmative, negative and financial ratio maintenance covenants, all of which are substantially the same as those of the ONE Gas Credit Agreement. The ONE Gas 364-day Credit Agreement also contains provisions for an applicable margin rate and a quarterly facility fee, both of which adjust with changes in our credit rating.  Based on our current credit ratings, borrowings, if any, will accrue interest at LIBOR plus 115 basis points, and the quarterly facility fee is 10 basis points. In the event LIBOR is not available, and such circumstances are unlikely to be temporary, our lenders may establish an alternative interest rate for the impacted loans by replacing LIBOR with one or more secured overnight financing-based rates or another alternate benchmark rate. We have not borrowed on the ONE Gas 364-day Credit Agreement.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.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.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.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 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2020.
OR
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from __________ to __________.

Commission file number  001-36108

ONE Gas, Inc.
(Exact name of registrant as specified in its charter)
Oklahoma46-3561936
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
  
15 East Fifth Street
Tulsa,OK74103
(Address of principal
executive offices)
(Zip Code)

Registrant’s telephone number, including area code   (918) 947-7000

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of exchange on which registered
Common Stock, par value $0.01 per shareOGSNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes        No  

On October 26, 2020, the Company had 53,096,893 shares of common stock outstanding.





























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ONE Gas, Inc.
TABLE OF CONTENTS
Part I.
Financial InformationPage No.
Item 1.
Consolidated Financial Statements (Unaudited)
 Consolidated Statements of Income - Three and Nine Months Ended September 30, 2020 and 2019
 Consolidated Statements of Comprehensive Income - Three and Nine Months Ended September 30, 2020 and 2019
 Consolidated Balance Sheets - September 30, 2020 and December 31, 2019
 Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2020 and 2019
 Consolidated Statements of Equity - Three and Nine Months Ended September 30, 2020 and 2019
 Notes to Consolidated Financial Statements
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Item 4.
Controls and Procedures
Part II.
Other Information
Item 1.
Legal Proceedings
Item 1A.
Risk Factors
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.
Defaults Upon Senior Securities
Item 4.
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
Signature
 

As used in this Quarterly Report, references to “we,” “our,” “us” or the “Company” refer to ONE Gas, Inc., an Oklahoma corporation, and its predecessors and subsidiaries, unless the context indicates otherwise.

The statements in this Quarterly Report that are not historical information, including statements concerning plans and objectives of management for future operations, economic performance or related assumptions, are forward-looking statements.  Forward-looking statements may include 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.  Although we believe that our expectations regarding future events are based on reasonable assumptions, we can give no assurance that such expectations or assumptions will be achieved. Important factors that could cause actual results to differ materially from those in the forward-looking statements are described under Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, “Forward-Looking Statements,” and Part II, Item 1A, “Risk Factors” in this Quarterly Report and under Part I, Item IA, “Risk Factors,” in our Annual Report.

3


AVAILABLE INFORMATION

We make available, free of charge, on our website (www.onegas.com) copies of our Annual Report, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, amendments to those reports filed or furnished to the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act and reports of holdings of our securities filed by our officers and directors under Section 16 of the Exchange Act as soon as reasonably practicable after filing such material electronically or otherwise furnishing it to the SEC, which also makes these materials available on its website (www.sec.gov).  Copies of our Code of Business Conduct and Ethics, Corporate Governance Guidelines, Certificate of Incorporation, bylaws, the written charters of our Audit Committee, Executive Compensation Committee, Corporate Governance Committee and Executive Committee and our Sustainability Report are also available on our website, and copies of these documents are available upon request.  

In addition to filings with the SEC and materials posted on our website, we also use social media platforms as channels of information distribution to reach public investors. Information contained on our website or posted on or disseminated through our social media accounts is not incorporated by reference into this report.


4


GLOSSARY - The abbreviations, acronyms and industry terminology used in this Quarterly Report are defined as follows:
AAOAccounting Authority Order
ADITAccumulated deferred income tax
Annual ReportAnnual Report on Form 10-K for the year ended December 31, 2019
ASCAccounting Standards Codification
ASUAccounting Standards Update
BcfBillion cubic feet
CDCCenters for Disease Control and Prevention
CERCLAFederal Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended
Clean Air ActFederal Clean Air Act, as amended
Clean Water ActFederal Water Pollution Control Amendments of 1972, as amended
CNGCompressed natural gas
CodeInternal Revenue Code of 1986, as amended
COSACost-of-service Adjustment
COVID-19Coronavirus Disease 2019
DOTUnited States Department of Transportation
EDITExcess accumulated deferred income taxes resulting from a change in enacted tax rates
EPAUnited States Environmental Protection Agency
EPSEarnings per share
Exchange ActSecurities Exchange Act of 1934, as amended
FASBFinancial Accounting Standards Board
GAAPAccounting principles generally accepted in the United States of America
GPACGas Pipeline Advisory Committee
GRIPGas Reliability Infrastructure Program
GSRSGas System Reliability Surcharge
Heating Degree Day or HDD
A measure designed to reflect the demand for energy needed for heating based on the extent to which
the daily average temperature falls below a reference temperature for which no heating is required,
usually 65 degrees Fahrenheit
HCA(s)High consequence area(s)
KCCKansas Corporation Commission
KDHEKansas Department of Health and Environment
LDCLocal distribution company
MAOP(s)Maximum allowable operating pressure(s)
MGPManufactured gas plant
MMcfMillion cubic feet
Moody’sMoody’s Investors Service, Inc.
Net marginNon-GAAP measure defined as total revenues less cost of natural gas
NPRMNotice of Proposed Rulemaking
NYMEXNew York Mercantile Exchange
NYSENew York Stock Exchange
OCCOklahoma Corporation Commission
ONE GasONE Gas, Inc.
ONE Gas 364-day Credit AgreementONE Gas’ $250 million 364-day revolving credit agreement, which expires on April 6, 2021
ONE Gas Credit AgreementONE Gas’ $700 million amended and restated revolving credit agreement, which expires on October 4, 2024
OSHAOccupational Safety and Health Administration
PBRCPerformance-Based Rate Change
PHMSAUnited States Department of Transportation Pipeline and Hazardous Materials Safety Administration
Pipeline Safety, Regulatory Certainty
and Job Creation Act
Pipeline Safety, Regulatory Certainty and Job Creation Act of 2011, as amended
Quarterly Report(s)Quarterly Report(s) on Form 10-Q
ROEReturn on equity, calculated consistent with utility ratemaking principles in each jurisdiction in which we operate
RRC
Railroad Commission of Texas
S&PStandard & Poor’s Ratings Services
SECSecurities and Exchange Commission
Securities ActSecurities Act of 1933, as amended
Senior Notes
ONE Gas’ registered notes consisting of $300 million of 3.61 percent senior notes due 2024, $300 million of 2.00 percent senior notes due 2030, $600 million of 4.658 percent senior notes due 2044 and $400 million of 4.50 percent notes due 2048
XBRLeXtensible Business Reporting Language
5


PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
ONE Gas, Inc.  
CONSOLIDATED STATEMENTS OF INCOME  
Three Months EndedNine Months Ended
 September 30,September 30,
(Unaudited)
2020201920202019
(Thousands of dollars, except per share amounts)
Total revenues$244,640 $248,563 $1,046,095 $1,200,123 
Cost of natural gas40,485 49,607 329,134 497,271 
Operating expenses
Operations and maintenance100,285 100,486 308,641 310,243 
Depreciation and amortization47,998 45,471 142,898 134,260 
General taxes15,193 14,222 46,931 45,062 
Total operating expenses163,476 160,179 498,470 489,565 
Operating income40,679 38,777 218,491 213,287 
Other income (expense), net198 (1,397)(3,196)(1,833)
Interest expense, net(15,542)(15,783)(47,078)(46,968)
Income before income taxes25,335 21,597 168,217 164,486 
Income taxes(4,256)(4,140)(30,136)(28,899)
Net income$21,079 $17,457 $138,081 $135,587 
Earnings per share
Basic$0.40 $0.33 $2.60 $2.56 
Diluted$0.39 $0.33 $2.59 $2.55 
Average shares (thousands)
Basic53,190 52,933 53,084 52,883 
Diluted53,408 53,267 53,313 53,229 
Dividends declared per share of stock$0.54 $0.50 $1.62 $1.50 
See accompanying Notes to Consolidated Financial Statements.
6


ONE Gas, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 
 Three Months EndedNine Months Ended
 September 30,September 30,
(Unaudited)
2020201920202019
 
(Thousands of dollars)
Net income$21,079 $17,457 $138,081 $135,587 
Other comprehensive income, net of tax    
Change in pension and other postemployment benefit plan liability, net of tax of $(75), $(53), $(224) and $(159), respectively
223 160 670 480 
Total other comprehensive income, net of tax223 160 670 480 
Comprehensive income$21,302 $17,617 $138,751 $136,067 
See accompanying Notes to Consolidated Financial Statements.

7


ONE Gas, Inc.  
CONSOLIDATED BALANCE SHEETS  
 September 30,December 31,
(Unaudited)
20202019
Assets
(Thousands of dollars)
Property, plant and equipment  
Property, plant and equipment$6,735,032 $6,433,119 
Accumulated depreciation and amortization1,955,200 1,867,893 
Net property, plant and equipment4,779,832 4,565,226 
Current assets  
Cash and cash equivalents6,184 17,853 
Accounts receivable, net106,777 260,012 
Materials and supplies55,492 55,732 
Natural gas in storage105,377 104,259 
Regulatory assets71,748 47,440 
Other current assets24,126 20,906 
Total current assets369,704 506,202 
Goodwill and other assets  
Regulatory assets364,117 391,036 
Goodwill157,953 157,953 
Other assets92,158 87,883 
Total goodwill and other assets614,228 636,872 
Total assets$5,763,764 $5,708,300 
See accompanying Notes to Consolidated Financial Statements.
8


ONE Gas, Inc.  
CONSOLIDATED BALANCE SHEETS  
(Continued)
 September 30,December 31,
(Unaudited)
20202019
Equity and Liabilities
(Thousands of dollars)
Equity and long-term debt
Common stock, $0.01 par value:
authorized 250,000,000 shares; issued and outstanding 53,096,893 shares at September 30, 2020; issued and outstanding 52,771,749 shares at December 31, 2019
$531 $528 
Paid-in capital1,751,350 1,733,092 
Retained earnings454,205 402,509 
Accumulated other comprehensive loss(6,069)(6,739)
   Total equity2,200,017 2,129,390 
Long-term debt, excluding current maturities and net of issuance costs of $13,341 and $10,936, respectively
1,582,193 1,286,064 
Total equity and long-term debt3,782,210 3,415,454 
Current liabilities  
Notes payable308,000 516,500 
Accounts payable65,311 120,490 
Accrued taxes other than income57,732 47,956 
Regulatory liabilities20,454 45,201 
Customer deposits55,319 57,987 
Other current liabilities68,898 84,603 
Total current liabilities575,714 872,737 
Deferred credits and other liabilities  
Deferred income taxes642,309 682,632 
Regulatory liabilities555,258 503,518 
Employee benefit obligations98,257 115,657 
Other deferred credits110,016 118,302 
Total deferred credits and other liabilities1,405,840 1,420,109 
Commitments and contingencies
Total liabilities and equity$5,763,764 $5,708,300 
See accompanying Notes to Consolidated Financial Statements.





















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10


ONE Gas, Inc.  
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
(Unaudited)
20202019
 
(Thousands of dollars)
Operating activities  
Net income$138,081 $135,587 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization142,898 134,260 
Deferred income taxes11,175 9,099 
Share-based compensation expense7,439 7,153 
Provision for doubtful accounts8,836 4,600 
Changes in assets and liabilities:
Accounts receivable144,399 160,053 
Materials and supplies240 (12,455)
Natural gas in storage(1,118)(11,155)
Asset removal costs(29,019)(38,101)
Accounts payable(50,848)(113,665)
Accrued taxes other than income9,776 (435)
Customer deposits(2,668)(3,652)
Regulatory assets and liabilities(24,478)20,196 
Other assets and liabilities(29,384)(2,942)
Cash provided by operating activities325,329 288,543 
Investing activities  
Capital expenditures(348,915)(305,797)
Other investing expenditures(1,379)(4,056)
Other investing receipts2,482 1,036 
Cash used in investing activities(347,812)(308,817)
Financing activities  
Borrowings (repayments) on notes payable, net(208,500)95,500 
Issuance of debt, net of discounts297,750  
Long-term debt financing costs(2,885) 
Issuance of common stock16,325 2,536 
Dividends paid(85,698)(79,055)
Tax withholdings related to net share settlements of stock compensation(6,178)(7,468)
Cash used in financing activities10,814 11,513 
Change in cash and cash equivalents(11,669)(8,761)
Cash and cash equivalents at beginning of period17,853 21,323 
Cash and cash equivalents at end of period$6,184 $12,562 
See accompanying Notes to Consolidated Financial Statements.

11


ONE Gas, Inc. 
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
Common Stock IssuedCommon StockPaid-in Capital
 (Shares)
(Thousands of dollars)
January 1, 202052,771,749 $528 $1,733,092 
Net income   
Other comprehensive income   
Common stock issued and other89,059 1 (3,737)
Common stock dividends - $0.54 per share  232 
March 31, 202052,860,808 $529 $1,729,587 
Net income   
Other comprehensive income   
Common stock issued and other59,722  5,974 
Common stock dividends - $0.54 per share  227 
June 30, 202052,920,530 $529 $1,735,788 
Net income   
Other comprehensive income   
Common stock issued and other176,363 2 15,334 
Common stock dividends - $0.54 per share  228 
September 30, 202053,096,893 $531 $1,751,350 
January 1, 201952,598,005 $526 $1,727,492 
Net income   
Other comprehensive income   
Reclassification of stranded tax effects   
Common stock issued and other88,629 1 (7,499)
Common stock dividends - $0.50 per share  227 
March 31, 201952,686,634 $527 $1,720,220 
Net income—   
Other comprehensive income—   
Common stock issued and other47,588  5,397 
Common stock dividends - $0.50 per share—  226 
June 30, 201952,734,222 $527 $1,725,843 
Net income—   
Other comprehensive income—   
Common stock issued and other2,401  2,169 
Common stock dividends - $0.50 per share—  225 
September 30, 201952,736,623 $527 $1,728,237 
See accompanying Notes to Consolidated Financial Statements.


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ONE Gas, Inc. 
CONSOLIDATED STATEMENTS OF EQUITY
(Continued)
(Unaudited)
Retained EarningsTreasury StockAccumulated Other Comprehensive LossTotal Equity
 
(Thousands of dollars)
January 1, 2020$402,509 $ $(6,739)$2,129,390 
Net income91,677   91,677 
Other comprehensive income  224 224 
Common stock issued and other   (3,736)
Common stock dividends - $0.54 per share(28,775)  (28,543)
March 31, 2020$465,411 $ $(6,515)$2,189,012 
Net income25,325   25,325 
Other comprehensive income  223 223 
Common stock issued and other   5,974 
Common stock dividends - $0.54 per share(28,774)  (28,547)
June 30, 2020$461,962 $ $(6,292)$2,191,987 
Net income21,079   21,079 
Other comprehensive income  223 223 
Common stock issued and other   15,336 
Common stock dividends - $0.54 per share(28,836)  (28,608)
September 30, 2020$454,205 $ $(6,069)$2,200,017 
January 1, 2019$320,869 $(2,145)$(4,086)$2,042,656 
Net income93,660 — — 93,660 
Other comprehensive income— — 160 160 
Reclassification of stranded tax effects1,218 — (1,218)— 
Common stock issued and other— 2,145 — (5,353)
Common stock dividends - $0.50 per share(26,570)— — (26,343)
March 31, 2019$389,177 $ $(5,144)$2,104,780 
Net income24,470   24,470 
Other comprehensive income  160 160 
Common stock issued and other   5,397 
Common stock dividends - $0.50 per share(26,570)  (26,344)
June 30, 2019$387,077 $ $(4,984)$2,108,463 
Net income17,457   17,457 
Other comprehensive income  160 160 
Common stock issued and other   2,169 
Common stock dividends - $0.50 per share(26,593)  (26,368)
September 30, 2019$377,941 $ $(4,824)$2,101,881 
See accompanying Notes to Consolidated Financial Statements.

13


ONE Gas, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Our accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC. These statements also have been prepared in accordance with GAAP and reflect all adjustments that, in our opinion, are necessary for a fair statement of the results for the interim periods presented. All such adjustments are of a normal recurring nature. The 2019 year-end consolidated balance sheet data was derived from audited consolidated financial statements but does not include all disclosures required by GAAP. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes in our Annual Report. Our significant accounting policies are described in Note 1 of our Notes to Consolidated Financial Statements in our Annual Report. Due to the seasonal nature of our business, the results of operations for the three and nine months ended September 30, 2020, are not necessarily indicative of the results that may be expected for a 12-month period.

We provide natural gas distribution services to our approximately 2.2 million customers through our divisions in Oklahoma, Kansas and Texas through Oklahoma Natural Gas, Kansas Gas Service and Texas Gas Service, respectively. We primarily serve residential, commercial and transportation customers in all three states.

Use of 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 amount 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. Items that may be estimated include, but are not limited to, the economic useful life of assets, fair value of assets and liabilities, provision for doubtful accounts, unbilled revenues for natural gas delivered but for which meters have not been read, natural gas purchased but for which no invoice has been received, provision for income taxes, including any deferred tax valuation allowances, the results of litigation and various other recorded or disclosed amounts.

We evaluate these estimates on an ongoing basis using historical experience and other methods we consider reasonable based on the circumstances. Nevertheless, actual results may differ significantly from the estimates. Any effects on our financial position or results of operations from revisions to these estimates are recorded in the period when the facts that give rise to the revision become known to us.

Segments - We operate in one reportable business segment: regulated public utilities that deliver natural gas primarily to residential, commercial and transportation customers. The accounting policies for our segment are the same as those described in Note 1 of our Notes to Consolidated Financial Statements in our Annual Report. We evaluate our financial performance principally on net income. For the three and nine months ended September 30, 2020, and 2019, we had no single external customer from which we received 10 percent or more of our gross revenues.

Property, Plant and Equipment and Asset Removal Costs - Accounts payable for construction work in process and asset removal costs decreased by approximately $4.3 million and increased $1.7 million for the nine months ended September 30, 2020 and 2019, respectively. Such amounts are not included in capital expenditures or asset removal costs in our consolidated statements of cash flows.

Goodwill Impairment Test – We assess our goodwill for impairment at least annually on July 1, unless events or changes in circumstances indicate an impairment may have occurred before that time. As part of our goodwill impairment test, we may first assess qualitative factors (including macroeconomic conditions, industry and market considerations, cost factors and overall financial performance) to determine whether it is more likely than not that the fair value of our reporting unit is less than its carrying amount. If further testing is necessary or a quantitative test is elected to refresh our recurring qualitative assessments, we perform a quantitative impairment test for goodwill. We did not identify any impairment indicators for our goodwill and determined that no further testing was necessary.

Accounts Receivable - Accounts receivable represent valid claims against nonaffiliated customers for natural gas sold or services rendered, net of allowances for doubtful accounts. We assess the creditworthiness of our customers. Those customers who do not meet minimum standards may be required to provide security, including deposits and other forms of collateral, when appropriate and allowed by our tariffs. With approximately 2.2 million customers across three states, we are not exposed materially to a concentration of credit risk. We maintain an allowance for doubtful accounts based upon factors surrounding the credit risk of customers, historical trends, consideration of the current environment and other information. We recover natural gas costs related to accounts written off when they are deemed uncollectible through the purchased-gas cost adjustment
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mechanisms in each of our jurisdictions. At September 30, 2020 and December 31, 2019, our allowance for doubtful accounts was $11.0 million and $6.6 million, respectively.

Recently Issued Accounting Standards Update - In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” which provides relief from the accounting analysis and impacts that may otherwise be required for modifications to agreements (e.g., loans, debt securities, derivatives, borrowings) necessitated by reference rate reform. It also provides optional expedients to enable companies to continue to apply hedge accounting to certain hedging relationships impacted by reference rate reform. In the first quarter 2020, we adopted this new guidance effective for contracts modified between March 12, 2020 and December 31, 2022. Our revolving lines of credit under the ONE Gas Credit Agreement and the ONE Gas 364-day Credit Agreement utilize LIBOR as the reference rate. If modified, we may elect the optional practical expedients to account for the modifications prospectively. Our adoption did not result in a material impact to our consolidated financial statements. 

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which removes certain exceptions for recognizing deferred taxes for investments, performing intra-period allocation and calculating income taxes in interim periods. ASU 2019-12 also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. This standard is effective for interim and annual periods in fiscal years beginning after December 15, 2020, and early adoption is permitted. We will adopt this new guidance on January 1, 2021. We do not expect a material impact to our financial position or results of operations or to our consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force).” Under this guidance, a company should defer implementation costs that it incurs if a company would capitalize those same costs under the internal-use software guidance for an arrangement that is a software license. The deferred implementation costs should be amortized over the term of the hosting arrangement, including any probable renewals. We are party to hosting arrangements identified as service contracts for various information systems used in our operations.  We adopted this new guidance using the prospective transition approach for implementation costs incurred in hosting arrangement service contracts beginning January 1, 2020. In certain jurisdictions, we have orders from our regulators allowing us to amortize deferred implementation costs for hosting arrangements entered into after January 1, 2020, over the life approved by our regulators for our internal-use software systems rather than the term of the hosting arrangement. The difference in amortization calculated between the term of the hosting arrangement and internal-use software life approved by our regulators is deferred as a regulatory asset and amortized over the remaining internal-use software life that exceeds the term of the hosting arrangement. Our adoption did not result in a material impact to our consolidated financial statements. 

In February 2018, the FASB issued ASU 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” which allows a reclassification from accumulated other comprehensive income (loss) to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. We adopted this new guidance in the first quarter 2019 and our adoption did not result in a material impact to our consolidated financial statements. This change is reflected in our consolidated statements of equity.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments,’’ which introduces new guidance to the accounting for credit losses on instruments within its scope, including trade receivables. We adopted this new guidance in the first quarter 2020 using the modified retrospective method. Our financial assets within scope of this guidance primarily include our trade receivables from customers. Our policy for measuring our allowance for doubtful accounts is disclosed in the aforementioned policy for accounts receivable. We did not create any new accounting policies, nor did we modify any of our existing policies as a result of adopting this guidance. Our adoption did not result in a cumulative adjustment to our opening retained earnings or have a material impact to our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” as amended, (“Topic 842”) which prescribes recognizing lease assets and liabilities on the balance sheet and includes disclosure of key information about leasing arrangements. We adopted this new guidance effective January 1, 2019 and applied the modified retrospective approach to all existing leases. Upon adoption we recognized lease liabilities of approximately $32 million, with corresponding right-of-use assets of the same amount based on the present value of the remaining minimum rental payments for existing operating leases. Our adoption did not result in a material impact to our results of operations or cash flows. We utilized the practical expedients that allow us to: (1) not reassess expired or existing contracts to determine whether they are subject to lease accounting guidance; (2) not reconsider lease classification at transition; and (3) not evaluate previously capitalized initial direct costs under the revised requirements. We also utilized the practical expedients that allowed us to: (1) not evaluate under Topic 842
15


existing or expired land easements that were not previously accounted for as leases under the current lease guidance in ASC Topic 840 (“Topic 840”); and (2) use an additional transition method in which an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We adopted an accounting policy that exempts leases with terms of less than one year from the recognition requirements of Topic 842 and disclose such leases in our interim and annual disclosures upon adoption. Our adoption did not result in a cumulative adjustment to our opening retained earnings or have a material impact to our consolidated financial statements.
2.REVENUE

The following table sets forth our revenues disaggregated by source for the periods indicated:
Three Months EndedNine Months Ended
September 30,September 30,
2020201920202019
(Thousands of dollars)
Natural gas sales to customers$212,723 $215,996 $936,749 $1,096,048 
Transportation revenues24,305 23,707 82,543 82,726 
Miscellaneous revenues3,800 4,677 11,390 15,533 
Total revenues from contracts with customers240,828 244,380 1,030,682 1,194,307 
Other revenues - natural gas sales related(66)735 6,478 (2,002)
Other revenues 3,878 3,448 8,935 7,818 
Total other revenues3,812 4,183 15,413 5,816 
Total revenues$244,640 $248,563 $1,046,095 $1,200,123 

Accrued unbilled natural gas sales revenues at September 30, 2020 and December 31, 2019, were $52.0 million and $109.7 million, respectively, and are included in accounts receivable on our consolidated balance sheets.

3. REGULATORY ASSETS AND LIABILITIES

The tables below present a summary of regulatory assets and liabilities, net of amortization, for the periods indicated:
September 30, 2020
CurrentNoncurrentTotal
(Thousands of dollars)
Under-recovered purchased-gas costs$22,485 $ $22,485 
Pension and postemployment benefit costs21,132 345,006 366,138 
Reacquired debt costs812 5,068 5,880 
MGP remediation costs98 11,636 11,734 
Ad-valorem tax5,260  5,260 
Weather normalization4,289  4,289 
Customer credit deferrals14,899  14,899 
Other2,773 2,407 5,180 
Total regulatory assets, net of amortization71,748 364,117 435,865 
Income tax rate changes (a) (555,258)(555,258)
Over-recovered purchased-gas costs(20,454) (20,454)
Total regulatory liabilities, net of amortization(20,454)(555,258)(575,712)
Net regulatory assets and liabilities$51,294 $(191,141)$(139,847)
(a) Includes the reclassification of $81.5 million of deferred taxes related to the elimination of state income tax for utilities in Kansas.
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December 31, 2019
CurrentNoncurrentTotal
(Thousands of dollars)
Under-recovered purchased-gas costs$17,172 $ $17,172 
Pension and postemployment benefit costs21,213 373,266 394,479 
Reacquired debt costs812 5,677 6,489 
MGP remediation costs98 9,709 9,807 
Ad-valorem tax2,921  2,921 
Other 5,224 2,384 7,608 
Total regulatory assets, net of amortization47,440 391,036 438,476 
Income tax rate changes (10,297)(503,518)(513,815)
Over-recovered purchased-gas costs(27,623) (27,623)
Weather normalization(7,281) (7,281)
Total regulatory liabilities(45,201)(503,518)(548,719)
Net regulatory assets and liabilities$2,239 $(112,482)$(110,243)

Regulatory assets in our consolidated balance sheets, as authorized by various regulatory authorities, are probable of recovery. Base rates and certain riders are designed to provide a recovery of costs during the period such rates are in effect, but do not generally provide for a return on investment for amounts we have deferred as regulatory assets. All of our regulatory assets are subject to review by the respective regulatory authorities during future regulatory proceedings. We are not aware of any evidence that these costs will not be recoverable through either riders or base rates, and we believe that we will be able to recover such costs consistent with our historical recoveries.

The regulatory liability for income tax rate changes represents deferral of the effects of enacted federal and state income tax rate changes on our ADIT and other regulatory liabilities resulting from the effect of the changes in income taxes on our rates. In May 2020, a bill amending the Kansas state income tax code was signed into law that exempts public utilities regulated by the KCC from paying Kansas state income taxes beginning January 1, 2021. As a result of the enactment of this legislation, we remeasured our ADIT. As a regulated entity, the reduction in ADIT of $81.5 million was recorded as an EDIT regulatory liability and will be refunded to our customers. The bill stipulates, if requested by the utility, this EDIT will be returned to Kansas customers over a period of no less than 30 years, with the exact timing to be determined in our next general rate proceeding.

In response to the Tax Cuts and Jobs Act of 2017, we received accounting orders requiring us to establish a regulatory liability for the difference in taxes included in our rates that have been calculated based on a 35 percent federal corporate income tax rate and the new 21 percent federal corporate income tax rate effective in January 2018 and to refund the reduction in ADIT due to the remeasurement resulting from the change in the effective tax rate. The regulatory liability for income tax rate changes reflects the credit resulting from the 2018 Oklahoma Natural Gas PBRC that was accrued in 2018 and credited to Oklahoma Natural Gas customers over a 12-month period that began in August 2019.

In addition, the income tax rate changes regulatory liability reflects EDIT associated with the remeasurement of our ADIT as a result of the Tax Cuts and Jobs Act of 2017. Our customers began receiving credit for this liability as determined by our regulators in 2019. Our customers receive credit annually based upon amortization periods in compliance with the tax normalization rules for the portions of EDIT stipulated by the Code and varying periods of five to ten years for all other components of EDIT. During the three months ended September 30, 2020 and 2019, income tax expense reflects credits of $2.2 million and $1.4 million, respectively, for the amortization of the regulatory liability associated with EDIT that was returned to customers. During the nine months ended September 30, 2020 and 2019, income tax expense reflects credits of $11.6 million and $10.3 million, respectively.

We have received accounting orders in each of our jurisdictions authorizing us to accumulate and defer for regulatory purposes certain incremental costs incurred, including bad debt expenses, and certain lost revenues, net of offsetting expense reductions associated with COVID-19. Pursuant to these orders, the recovery of any net incremental costs and lost revenues will be determined in future rate cases or alternative rate recovery filings in each jurisdiction. For financial reporting purposes, any amounts deferred as a regulatory asset for future recovery under these accounting orders must be probable of recovery. At September 30, 2020, no regulatory assets have been recorded. We continue to evaluate the impacts of COVID-19 on our business and will record regulatory assets for financial reporting purposes at such time as recovery is deemed probable.

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4.CREDIT FACILITY AND SHORT-TERM NOTES PAYABLE

We have a commercial paper program under which we may issue unsecured commercial paper up to a maximum amount of $700 million to fund short-term borrowing needs. The maturities of the commercial paper notes vary but may not exceed 270 days from the date of issue. The commercial paper notes are generally sold at par less a discount representing an interest factor. At September 30, 2020, we had $308.0 million of commercial paper outstanding.

The ONE Gas Credit Agreement is a $700 million 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 $500 million upon satisfaction of customary conditions, including receipt of commitments from either new lenders or increased commitments from existing lenders. In October 2019, we exercised a one-year extension of the ONE Gas Credit Agreement and amended the agreement to provide that we may extend the maturity date by one year, subject to the lenders’ consent, two additional times. The ONE Gas Credit Agreement expires in October 2024, and 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.

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, 2020, our total debt-to-capital ratio was 46 percent and we were in compliance with all covenants under the ONE Gas Credit Agreement.

At September 30, 2020, we had $1.2 million in letters of credit issued and no borrowings under the ONE Gas Credit Agreement, with $698.8 million of remaining credit, which is available to repay any of our commercial paper borrowings.

In April 2020, we entered into the ONE Gas 364-day Credit Agreement. The ONE Gas 364-day Credit Agreement is a $250 million revolving unsecured credit facility containing various customary conditions to borrowing and affirmative, negative and financial ratio maintenance covenants, all of which are substantially the same as those of the ONE Gas Credit Agreement. The ONE Gas 364-day Credit Agreement also contains provisions for an applicable margin rate and a quarterly facility fee, both of which adjust with changes in our credit rating.  Based on our current credit ratings, borrowings, if any, will accrue interest at LIBOR plus 115 basis points, and the quarterly facility fee is 10 basis points. In the event LIBOR is not available, and such circumstances are unlikely to be temporary, our lenders may establish an alternative interest rate for the impacted loans by replacing LIBOR with one or more secured overnight financing-based rates or another alternate benchmark rate. At September 30, 2020, we had no borrowings under the ONE Gas 364-day Credit Agreement.

5.LONG-TERM DEBT

In April 2020, ONE Gas issued $300 million of 2.00 percent senior notes due 2030. The proceeds from the issuance were used to reduce the amount of outstanding commercial paper and for general corporate purposes.

Our long-term debt includes $300 million of 3.61 percent senior notes due 2024, $300 million of 2.00 percent senior notes due 2030, $600 million of 4.658 percent senior notes due 2044, and $400 million of 4.50 percent senior notes due 2048. 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.

6.LEASES

In March 2020, we reassessed certain operating leases for office facilities which were extended or modified. At March 31, 2020, we recorded increases of $9.0 million and $9.4 million to our right-of-use assets and operating lease liabilities, respectively. Our right-of-use assets and operating lease liabilities are reported within our other assets and our other current liabilities and other liabilities, respectively, in our consolidated balance sheets.

7.EQUITY

At-the-Market Equity Program - In February 2020, we initiated an at-the-market equity program by entering into an equity distribution agreement under which we may issue and sell shares of our common stock with an aggregate offering price up to $250 million (including any shares of common stock that may be sold pursuant to the master forward sale confirmation entered into in connection with the equity distribution agreement and the related supplemental confirmations). 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 September 30, 2020, we
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had issued and sold 179,514 shares of our common stock and had $236.4 million of equity available for issuance under the program.

Dividends Declared - In November 2020, we declared a dividend of $0.54 per share ($2.16 per share on an annualized basis) for shareholders of record as of November 16, 2020, payable on December 1, 2020.

8. ACCUMULATED OTHER COMPREHENSIVE LOSS

The following table sets forth the effect of reclassifications from accumulated other comprehensive loss in our consolidated statements of income for the periods indicated:
Three Months EndedNine Months EndedAffected Line Item in the
Details About Accumulated OtherSeptember 30,September 30,Consolidated Statements
Comprehensive Loss Components2020201920202019of Income
(Thousands of dollars)
Pension and other postemployment benefit plan obligations (a)
Amortization of net loss$10,623 $8,821 $31,869 $26,463 
Amortization of unrecognized prior service credit(29)(168)(87)(504)
10,594 8,653 31,782 25,959 
Reclassification of stranded tax effects (b)   (1,218)
Regulatory adjustments (c)(10,296)(8,440)(30,888)(24,102)
298 213 894 639 Income before income taxes
(75)(53)(224)(159)Income tax expense
Total reclassifications for the period$223 $160 $670 $480 Net income
(a) These components of accumulated other comprehensive loss are included in the computation of net periodic benefit cost. See Note 10 for additional detail of our net periodic benefit cost.
(b) Reflects the impact of the adoption of ASU 2018-02 in fiscal year 2019 related to stranded tax effects in accumulated other comprehensive income as a result of the Tax Cuts and Jobs Act of 2017. See Note 1 for additional information regarding our adoption of this standard.
(c) Regulatory adjustments represent pension and other postemployment benefit costs expected to be recovered through rates and are deferred as part of our regulatory assets. See Note 3 for additional disclosures of regulatory assets and liabilities.

9.EARNINGS PER SHARE

Basic EPS is based on net income and is calculated based upon the daily weighted-average number of common shares outstanding during the periods presented. Also, this calculation includes fully vested stock awards that have not yet been issued as common stock. Diluted EPS includes basic EPS, plus unvested stock awards granted under our compensation plans, but only to the extent these instruments dilute earnings per share.

The following tables set forth the computation of basic and diluted EPS from continuing operations for the periods indicated:
 Three Months Ended September 30, 2020
 IncomeSharesPer Share
Amount
 
(Thousands, except per share amounts)
Basic EPS Calculation   
Net income available for common stock
$21,079 53,190 $0.40 
Diluted EPS Calculation   
Effect of dilutive securities 218  
Net income available for common stock and common stock equivalents$21,079 53,408 $0.39 
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 Three Months Ended September 30, 2019
 IncomeSharesPer Share
Amount
 
(Thousands, except per share amounts)
Basic EPS Calculation   
Net income available for common stock
$17,457 52,933 $0.33 
Diluted EPS Calculation  
Effect of dilutive securities 334  
Net income available for common stock and common stock equivalents$17,457 53,267 $0.33 
 Nine Months Ended September 30, 2020
 IncomeSharesPer Share
Amount
 
(Thousands, except per share amounts)
Basic EPS Calculation   
Net income available for common stock
$138,081 53,084 $2.60 
Diluted EPS Calculation