ONE GAS, INC., 10-Q filed on 7/30/2019
Quarterly Report
v3.19.2
Document And Entity Information - shares
6 Months Ended
Jun. 30, 2019
Jul. 22, 2019
Document Information [Line Items]    
Title of 12(b) Security Common Stock, par value $0.01 per share  
Entity Registrant Name ONE Gas, Inc.  
Entity Incorporation, State or Country Code OK  
Entity Tax Identification Number 46-3561936  
Entity Address, Address Line One 15 East Fifth Street  
Entity Address, City or Town Tulsa,  
Entity Address, State or Province OK  
Entity Address, Postal Zip Code 74103  
City Area Code (918)  
Local Phone Number 947-7000  
Entity Central Index Key 0001587732  
Current Fiscal Year End Date --12-31  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Shell Company false  
Entity Filer Category Large Accelerated Filer  
Entity Common Stock, Shares Outstanding   52,734,526
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q2  
Document Type 10-Q  
Document Quarterly Report true  
Entity Small Business false  
Amendment Flag false  
Document Period End Date Jun. 30, 2019  
Document Transition Report false  
Entity File Number 001-36108  
Trading Symbol OGS  
Security Exchange Name NYSE  
Entity Emerging Growth Company false  
v3.19.2
STATEMENTS OF INCOME - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Regulated Operating Revenue $ 290,560 $ 292,521 $ 951,560 $ 930,985
Cost of natural gas 82,588 94,159 447,664 444,578
Operating expenses        
Operations and maintenance 101,482 102,995 209,757 205,660
Depreciation and amortization 44,943 39,757 88,789 78,647
General taxes 14,656 14,567 30,840 30,767
Total operating expenses 161,081 157,319 329,386 315,074
Operating income 46,891 41,043 174,510 171,333
Other expense, net (865) (2,194) (436) (4,358)
Interest expense, net (15,399) (12,003) (31,185) (24,355)
Income before income taxes 30,627 26,846 142,889 142,620
Income taxes (6,157) (6,427) (24,759) (31,366)
Net income $ 24,470 $ 20,419 $ 118,130 $ 111,254
Earnings per share        
Basic $ 0.46 $ 0.39 $ 2.23 $ 2.11
Diluted $ 0.46 $ 0.39 $ 2.22 $ 2.10
Weighted Average Number of Shares Outstanding, Basic [Abstract]        
Basic 52,890 52,692 52,858 52,648
Weighted Average Number of Shares Outstanding, Diluted [Abstract]        
Diluted 53,215 52,899 53,210 52,898
Dividends declared per share of stock $ 0.50 $ 0.46 $ 1.00 $ 0.92
v3.19.2
STATEMENTS OF COMPREHENSIVE INCOME STATEMENTS OF COMPREHENSIVE INCOME Parenthetical - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
STATEMENTS OF COMPREHENSIVE INCOME Parenthetical [Abstract]        
Pension and other postemployment benefit plans, tax $ 53 $ (68) $ 106 $ (419)
v3.19.2
STATEMENTS OF COMPREHENSIVE INCOME STATEMENTS OF COMPREHENSIVE INCOME - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Net income $ 24,470 $ 20,419 $ 118,130 $ 111,254
Other comprehensive income (loss), net of tax        
Change in pension and postemployment benefit plan liability, net of tax of $(53) and (351), respectively 160 203 320 123
Other comprehensive income, net of tax 160 203 320 123
Comprehensive income $ 24,630 $ 20,622 $ 118,450 $ 111,377
v3.19.2
BALANCE SHEETS - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2019
Dec. 31, 2018
Document Fiscal Year Focus 2019  
Property, plant and equipment    
Property, plant and equipment $ 6,241,105 $ 6,073,143
Accumulated depreciation and amortization 1,840,457 1,789,431
Net property, plant and equipment 4,400,648 4,283,712
Current assets    
Cash and cash equivalents 11,114 21,323
Accounts receivable, net 169,801 295,421
Materials and supplies 50,344 44,333
Natural gas in storage 88,235 107,295
Regulatory assets 38,372 54,420
Other current assets 18,946 20,495
Total current assets 376,812 543,287
Goodwill and other assets    
Regulatory assets 424,304 437,479
Goodwill 157,953 157,953
Other assets 86,889 46,211
Total goodwill and other assets 669,146 641,643
Total assets 5,446,606 5,468,642
Equity and long-term debt    
Common stock, $0.01 par value: authorized 250,000,000 shares; issued and outstanding 52,734,222 shares at June 30, 2019; issued 52,598,005 and outstanding 52,564,902 shares at December 31, 2018 527 526
Paid-in Capital 1,725,843 1,727,492
Retained earnings 387,077 320,869
Accumulated other comprehensive loss (4,984) (4,086)
Treasury stock, at cost: 33,103 shares at December 31, 2018 0 (2,145)
Total equity 2,108,463 2,042,656
Long-term debt, excluding current maturities and net issuance costs of $11,159 and $11,457, respectively 1,285,811 1,285,483
Total equity and long-term debt 3,394,274 3,328,139
Current liabilities    
Notes payable 293,000 299,500
Accounts payable 67,578 174,510
Accrued taxes other than income 37,312 47,640
Regulatory Liability, Current 46,534 48,394
Customer deposits 58,831 61,183
Other current liabilities 75,098 67,664
Total current liabilities 578,353 698,891
Deferred credits and other liabilities    
Deferred income taxes 673,939 652,426
Regulatory Liability, Noncurrent 508,877 520,866
Employee benefit obligations 168,387 178,720
Other deferred credits 122,776 89,600
Total deferred credits and other liabilities 1,473,979 1,441,612
Commitments and contingencies
Total liabilities and equity 5,446,606 5,468,642
Over-recovered purchased-gas costs [Member]    
Current liabilities    
Regulatory Liability, Current 22,616 13,668
Deferred credits and other liabilities    
Regulatory Liability, Noncurrent $ 0 $ 0
v3.19.2
BALANCE SHEETS BALANCE SHEETS Parenthetical - USD ($)
$ in Thousands
Jun. 30, 2019
Dec. 31, 2018
Common stock, par value per share $ 0.01 $ 0.01
Common stock, shares authorized 250,000,000 250,000,000
Common stock, shares issued 52,734,222 52,598,005
Common stock, shares outstanding 52,734,222 52,564,902
Treasury stock, shares 0 33,103
Debt issuance costs $ 11,159 $ 11,457
v3.19.2
STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Proceeds from Issuance of Common Stock $ 2,536 $ 2,390
Operating activities    
Net income 118,130 111,254
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 88,789 78,647
Deferred income taxes 9,401 30,546
Share-based compensation expense 4,911 4,080
Provision for doubtful accounts 3,557 4,071
Changes in assets and liabilities:    
Accounts receivable 122,063 130,730
Materials and supplies (6,011) 3,548
Natural gas in storage 19,060 49,672
Asset removal costs (24,324) (25,774)
Accounts payable (109,340) (68,428)
Accrued taxes other than income (10,328) (6,393)
Customer deposits (2,352) 438
Regulatory assets and liabilities 25,948 105,967
Other assets and liabilities 1,667 (18,401)
Cash provided by operating activities 241,171 399,957
Investing activities    
Capital expenditures (184,349) (175,834)
Other (3,583) 0
Proceeds from Sale of Other Assets, Investing Activities 598 0
Cash used in investing activities (187,334) (175,834)
Financing activities    
Repayments of notes payable, net (6,500) (172,215)
Dividends paid (52,687) (48,272)
Tax withholdings related to net share settlements of stock compensation (7,395) (7,859)
Cash used in financing activities (64,046) (225,956)
Change in cash and cash equivalents (10,209) (1,833)
Cash and cash equivalents at beginning of period 21,323 14,413
Cash and cash equivalents at end of period $ 11,114 $ 12,580
v3.19.2
STATEMENT OF CHANGES IN EQUITY - USD ($)
$ in Thousands
Total
Common Stock [Member]
Paid-in Capital [Member]
Retained Earnings [Member]
Treasury Stock [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Shares issued, beginning balance at Dec. 31, 2017   52,598,005        
Equity, beginning balance at Dec. 31, 2017 $ 1,960,209 $ 526 $ 1,737,551 $ 246,121 $ (18,496) $ (5,493)
Net income 90,835 0   90,835 0 0
Other comprehensive income (80) $ 0   0   (80)
Common stock issued, shares   0        
Common stock issued, value (5,879) $ 0 (16,074) 0 10,195 0
Common stock dividends - $0.50 and $0.46 per share as of March 31, 2019 and 2018, respectively (24,137) $ 0 224 (24,361) 0 0
Shares issued, ending balance at Mar. 31, 2018   52,598,005        
Equity, ending balance at Mar. 31, 2018 2,020,948 $ 526 1,721,701 312,595 (8,301) (5,573)
Shares issued, beginning balance at Dec. 31, 2017   52,598,005        
Equity, beginning balance at Dec. 31, 2017 1,960,209 $ 526 1,737,551 246,121 (18,496) (5,493)
Net income 111,254          
Other comprehensive income 123          
Shares issued, ending balance at Jun. 30, 2018   52,598,005        
Equity, ending balance at Jun. 30, 2018 2,022,344 $ 526 1,723,795 308,652 (5,259) (5,370)
Shares issued, beginning balance at Mar. 31, 2018   52,598,005        
Equity, beginning balance at Mar. 31, 2018 2,020,948 $ 526 1,721,701 312,595 (8,301) (5,573)
Net income 20,419 0 0 20,419 0 0
Other comprehensive income 203 $ 0 0 0   203
Common stock issued, shares   0        
Common stock issued, value 4,909 $ 0 1,867 0 3,042 0
Common stock dividends - $0.50 and $0.46 per share as of March 31, 2019 and 2018, respectively (24,135) $ 0 227 (24,362) 0 0
Shares issued, ending balance at Jun. 30, 2018   52,598,005        
Equity, ending balance at Jun. 30, 2018 $ 2,022,344 $ 526 1,723,795 308,652 (5,259) (5,370)
Shares issued, beginning balance at Dec. 31, 2018 52,598,005 52,598,005        
Equity, beginning balance at Dec. 31, 2018 $ 2,042,656 $ 526 1,727,492 320,869 (2,145) (4,086)
Net income 93,660 0 0 93,660 0 0
Other comprehensive income 160 0 0 0 0 160
Income Tax Effects Allocated Directly to Equity, Cumulative Effect of Change in Accounting Principle 0 $ 0 0 1,218 0 (1,218)
Common stock issued, shares   88,629        
Common stock issued, value (5,353) $ 1 (7,499) 0 2,145 0
Common stock dividends - $0.50 and $0.46 per share as of March 31, 2019 and 2018, respectively (26,343) $ 0 227 (26,570) 0 0
Shares issued, ending balance at Mar. 31, 2019   52,686,634        
Equity, ending balance at Mar. 31, 2019 $ 2,104,780 $ 527 1,720,220 389,177 0 (5,144)
Shares issued, beginning balance at Dec. 31, 2018 52,598,005 52,598,005        
Equity, beginning balance at Dec. 31, 2018 $ 2,042,656 $ 526 1,727,492 320,869 (2,145) (4,086)
Net income 118,130          
Other comprehensive income $ 320          
Shares issued, ending balance at Jun. 30, 2019 52,734,222 52,734,222        
Equity, ending balance at Jun. 30, 2019 $ 2,108,463 $ 527 1,725,843 387,077 0 (4,984)
Shares issued, beginning balance at Mar. 31, 2019   52,686,634        
Equity, beginning balance at Mar. 31, 2019 2,104,780 $ 527 1,720,220 389,177 0 (5,144)
Net income 24,470 0 0 24,470 0 0
Other comprehensive income 160 $ 0 0 0 0 160
Common stock issued, shares   47,588        
Common stock issued, value 5,397 $ 0 5,397 0 0 0
Common stock dividends - $0.50 and $0.46 per share as of March 31, 2019 and 2018, respectively $ (26,344) $ 0 226 (26,570) 0 0
Shares issued, ending balance at Jun. 30, 2019 52,734,222 52,734,222        
Equity, ending balance at Jun. 30, 2019 $ 2,108,463 $ 527 $ 1,725,843 $ 387,077 $ 0 $ (4,984)
v3.19.2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Notes)
6 Months Ended
Jun. 30, 2019
Significant Accounting Policies [Line Items]  
SIGNIFICANT ACCOUNTING POLICIES
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 2018 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 six months ended June 30, 2019, are not necessarily indicative of the results that may be expected for a 12-month period.

We provide natural gas distribution services to our 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 serve residential, commercial, industrial 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 particular 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 and operating business segment: regulated public utilities that deliver natural gas to residential, commercial, industrial 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 operating income. For the three and six months ended June 30, 2019, and 2018, we had no single external customer from which we received 10 percent or more of our gross revenues.

Reclassification of Prior Year Presentation - Certain prior year amounts have been reclassified for consistency with the current year presentation. Adjustments have been made to the consolidated balance sheets and consolidated statements of cash flows for the year ended December 31, 2018, to include accrued interest and accrued liabilities in other current liabilities. These reclassifications had no effect on the reported results of operations in the consolidated statements of income or previously reported cash flows from operating activities in the consolidated statements of cash flows.

Recently Issued Accounting Standards Update - 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 the company would capitalize those same costs under the internal-use software guidance for an arrangement that is a software license. This standard is effective for interim and annual periods in fiscal years beginning after December 15, 2019, and early adoption is permitted. We will adopt this standard January 1, 2020, using the prospective transition approach. We are currently assessing the potential impacts of adopting this standard, but do not expect a material impact on 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. It is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and early adoption is permitted for fiscal years beginning after December 15, 2018. The new guidance will be initially applied through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. We are currently assessing the timing and impacts of adopting this standard, which must be adopted in the first quarter of 2020.

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 allow us to: (1) not evaluate under Topic 842 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. See Note 6 for additional information regarding our leases.
 
Property, Plant and Equipment - Accounts payable for construction work in process and asset removal costs increased by approximately $2.4 million and decreased by approximately $4.8 million for the six months ended June 30, 2019 and 2018, respectively. Such amounts are not included in capital expenditures in our consolidated statements of cash flows.
v3.19.2
REVENUE (Notes)
6 Months Ended
Jun. 30, 2019
Revenue Recognition, Policy [Policy Text Block]
2.REVENUE

We recognize revenue from contracts with customers to depict the transfers of goods and services to customers at an amount that we expect to be entitled to receive in exchange for these goods and services. Our sources of revenue are disaggregated by natural gas sales, transportation revenues, and miscellaneous revenues, which are primarily one-time service fees, that meet the requirements of FASB’s ASU 2014-09, “Revenue from Contracts with Customers” (“ASC 606”). Certain revenues that do not meet the requirements of ASC 606 are classified as other revenues in our Notes to Consolidated Financial Statements in this Quarterly Report.

Our natural gas sales to customers represent revenue from contracts with customers through implied contracts established by our tariff rates approved by the regulatory authorities. For natural gas sales, the customer receives the benefits of our performance when the commodity is received and simultaneously consumed by the customer. The performance obligation is satisfied over time as the customer consumes the natural gas.

Our transportation revenues represent revenue from contracts with customers through implied contracts established by our tariff rates approved by the regulatory authorities and tariff-based negotiated contracts. The customer receives the benefits of our performance when the commodity is delivered to the customer and the performance obligation is satisfied over time as the customer receives the natural gas.

For regulated deliveries of natural gas, we read meters and bill customers on a monthly cycle. We recognize revenues upon the delivery of natural gas commodity or services rendered to customers. The billing cycles for customers do not necessarily coincide with the accounting periods used for financial reporting purposes. We accrue unbilled revenues for natural gas that has been delivered but not yet billed at the end of an accounting period. We use the invoice method practical expedient, where we recognize revenue for volumes delivered for which we have a right to invoice. As a result, we estimate unbilled revenues at the end of each accounting period consistent with past practice. Accrued unbilled revenue is based on a percentage estimate of amounts unbilled each month, which is dependent upon a number of factors, some of which require management’s judgment. These factors include customer consumption patterns and the impact of weather on usage. The accrued unbilled natural gas sales revenue at June 30, 2019 and December 31, 2018, were $48.7 million and $127.6 million, respectively, and are included in accounts receivable in our consolidated balance sheets.

Our miscellaneous revenues from contracts with customers represent implied contracts established by our tariff rates approved
by the regulatory authorities and include miscellaneous utility services with the performance obligation satisfied at a point in time when services are rendered to the customer.

Total other revenues consist of revenues associated with regulatory mechanisms that do not meet the requirements of ASC 606 as revenue from contracts with customers, but authorize us to accrue revenues earned based on tariffs approved by the regulatory authorities. Other revenues - natural gas sales related primarily reflect our weather normalization mechanism in Kansas. This mechanism adjusts our revenues earned for the variance between actual and normal HDDs. This mechanism can have either positive (warmer than normal) or negative (colder than normal) effects on revenues.

We collect and remit other taxes on behalf of governmental authorities, and we record these amounts in accrued taxes other than income in our consolidated balance sheets.

The following table sets forth our revenues disaggregated by source for the periods indicated:
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(Thousands of dollars)
Natural gas sales to customers
 
$
258,560

 
$
261,347

 
$
880,052

 
$
856,273

Transportation revenues
 
23,991

 
24,062

 
59,019

 
57,605

Miscellaneous revenues
 
5,428

 
5,759

 
10,856

 
12,527

Total revenues from contracts with customers
 
287,979

 
291,168

 
949,927

 
926,405

Other revenues - natural gas sales related
 
207

 
(1,108
)
 
(2,737
)
 
(78
)
Other revenues
 
2,374

 
2,461

 
4,370

 
4,658

Total other revenues
 
2,581

 
1,353

 
1,633

 
4,580

Total revenues
 
$
290,560

 
$
292,521

 
$
951,560

 
$
930,985


v3.19.2
REGULATORY ASSETS AND LIABILITIES (Notes)
6 Months Ended
Jun. 30, 2019
SCHEDULE OF REGULATED ASSETS AND LIABILITIES [Line Items]  
Schedule of Regulatory Assets and Liabilities
3.
REGULATORY ASSETS AND LIABILITIES

The tables below present a summary of regulatory assets, net of amortization, and liabilities for the periods indicated:
 
 
 
 
June 30, 2019
 
 
 
 
Current
 
Noncurrent
 
Total
 
 
 
 
(Thousands of dollars)
Under-recovered purchased-gas costs
 
 
 
$
767

 
$

 
$
767

Pension and postemployment benefit costs
 

 
22,966

 
406,441

 
429,407

Reacquired debt costs
 

 
812

 
6,082

 
6,894

Ad valorem tax
 
 
 
2,083

 

 
2,083

MGP remediation costs
 

 
98

 
9,758

 
9,856

Other
 

 
11,646

 
2,023

 
13,669

Total regulatory assets, net of amortization
 
 
 
38,372

 
424,304

 
462,676

Federal corporate income tax rate changes (a)
 
 
 
(15,755
)
 
(508,877
)
 
(524,632
)
Over-recovered purchased-gas costs
 
 
 
(22,616
)
 

 
(22,616
)
Weather normalization
 
 
 
(8,163
)
 

 
(8,163
)
Total regulatory liabilities
 
 
 
(46,534
)
 
(508,877
)
 
(555,411
)
Net regulatory liabilities
 
 
 
$
(8,162
)
 
$
(84,573
)
 
$
(92,735
)
(a) See Note 11 for additional information regarding our federal corporate income tax rate changes to regulatory liabilities.
 
 
 
 
December 31, 2018
 
 
 
 
Current
 
Noncurrent
 
Total
 
 
 
 
(Thousands of dollars)
Under-recovered purchased-gas costs
 

 
$
25,083

 
$

 
$
25,083

Pension and postemployment benefit costs
 

 
23,384

 
421,726

 
445,110

Reacquired debt costs
 

 
812

 
6,487

 
7,299

MGP remediation costs
 
 
 

 
7,724

 
7,724

Ad valorem tax
 
 
 
1,070

 

 
1,070

Other
 

 
4,071

 
1,542

 
5,613

Total regulatory assets, net of amortization
 
 
 
54,420

 
437,479

 
491,899

Federal corporate income tax rate changes (a)
 
 
 
(30,934
)
 
(520,866
)
 
(551,800
)
Over-recovered purchased-gas costs
 

 
(13,668
)
 

 
(13,668
)
Weather normalization
 
 
 
(3,792
)
 

 
(3,792
)
Total regulatory liabilities
 
 
 
(48,394
)
 
(520,866
)
 
(569,260
)
Net regulatory assets (liabilities)
 
 
 
$
6,026

 
$
(83,387
)
 
$
(77,361
)

(a) See Note 11 for additional information regarding our federal corporate income tax rate changes to regulatory liabilities.

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.
v3.19.2
CREDIT FACILITIES (Notes)
6 Months Ended
Jun. 30, 2019
Short-term Debt [Line Items]  
Short-term Debt [Text Block]
4.
CREDIT FACILITY AND SHORT-TERM NOTES PAYABLE

In October 2018, we exercised a one-year extension on the ONE Gas Credit Agreement. The ONE Gas Credit Agreement remains a $700 million revolving unsecured credit facility and includes a $20 million letter of credit subfacility and a $60 million swingline subfacility. We are able to 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. The ONE Gas Credit Agreement expires in October 2023, 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 June 30, 2019, our total debt-to-capital ratio was 43 percent and we were in compliance with all covenants under the ONE Gas Credit Agreement.

At June 30, 2019, we had $1.2 million in letters of credit issued and no borrowings under the ONE Gas Credit Agreement, resulting in $698.8 million of remaining credit available under the ONE Gas Credit Agreement.

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 may 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 June 30, 2019, we had $293.0 million of commercial paper outstanding. The ONE Gas Credit Agreement is available to repay the commercial paper notes, if necessary.
v3.19.2
LONG-TERM DEBT (Notes)
6 Months Ended
Jun. 30, 2019
Long-term Debt, Unclassified [Abstract]  
Long-term Debt [Text Block]
5.
LONG-TERM DEBT

In November 2018, ONE Gas issued $400 million of 4.50 percent senior notes due 2048. The proceeds from the issuance were used to retire the $300 million of 2.07 percent senior notes due 2019, 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 in 2024, $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.
v3.19.2
LEASES (Notes)
6 Months Ended
Jun. 30, 2019
Lessee, Lease, Description [Line Items]  
Leases of Lessee Disclosure [Text Block]
6.
LEASES

A lease is a contract that conveys the right to control the use and obtain substantially all the economic benefits from the use of an identified asset for a period of time in exchange for consideration. We determine if an arrangement is a lease at inception and, if so, whether the arrangement is an operating lease or a finance lease. We identify a lease as a finance lease if the agreement includes any of the following criteria: transfer of ownership by the end of the lease term; an option to purchase the underlying asset that the lessee is reasonably certain to exercise; a lease term that represents 75 percent or more of the remaining economic life of the underlying asset; a present value of lease payments and any residual value guaranteed by the lessee that equals or exceeds 90 percent of the fair value of the underlying asset; or an underlying asset that is so specialized in nature that there is no expected alternative use to the lessor at the end of the lease term. A lease that does not meet any of these criteria is considered an operating lease.
Lease right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Right-of-use assets and liabilities are recognized at the commencement date of a lease based on the present value of lease payments over the lease term. Our lease terms may include options to extend or terminate the lease. We include these extension or termination options in the determination of the lease term when it is reasonably certain that we will exercise that option. We have lease agreements with lease and non-lease components, which are accounted for separately. Additionally, for certain office equipment leases, we apply a portfolio approach to effectively account for the operating lease right-of-use assets and liabilities. We do not recognize leases having a term of less than one year in our consolidated balance sheets.
For purposes of determining the present value of the lease payments, we use a lease’s implicit interest rate when readily determinable. As most of our leases do not provide an implicit interest rate, we use a discount rate commensurate with borrowing rates for defined terms that are reviewed annually on December 31st. Lease cost for operating leases is recognized on a straight-line basis over the lease term.
We have operating leases for office facilities, gas storage facilities, information technology equipment and right-of-way contracts. Our leases have remaining lease terms of 1 year to 15 years, some of which include options to extend the leases for up to 10 years, and some of which include options to terminate the leases within specified time frames. We have not entered into any finance leases.
Our right-of-use asset is $37.3 million as of June 30, 2019, and is reported within other assets in our consolidated balance sheets. Current operating lease liabilities are reported within our other current liabilities and other liabilities in our consolidated balance sheets. Total operating lease cost including immaterial amounts attributable to short-term operating leases was $2.2 million and $4.2 million for the three and six months ended June 30, 2019, respectively.
 
Six Months Ended
 
June 30,
Other information related to operating leases
2019
 
(Millions of dollars)
 
 
Weighted-average remaining lease term
7 years
 
 
Weighted-average discount rate
3.62%
 
 
Supplemental cash flows information
 
Lease payments
$
(4.4
)
Right-of-use assets obtained in exchange for lease obligations
$
9.1



 
 
 
 
 
June 30,
Future minimum lease payments under non-cancellable operating leases
 
2019
 
 
(Millions of dollars)
2019 (excluding the six months ended June 30, 2019)
 
$
3.7

2020
 
7.5

2021
 
7.1

2022
 
6.8

2023
 
5.7

Thereafter
 
11.6

Total future minimum lease payments
 
$
42.4

Imputed interest
 
(5.2
)
Total operating lease liability
 
$
37.2

 
 
 
Consolidated balance sheets as of June 30, 2019
 
 
Current operating lease liability
 
$
6.2

Long-term operating lease liability
 
31.0

Total operating lease liability
 
$
37.2



The following table sets forth the required disclosures under Topic 842 for the period indicated under Topic 840, as reported in Note 15 of our Notes to Consolidated Financial Statements in our Annual Report:
 
 
December 31,
Future minimum lease payments under non-cancellable operating leases
 
2018
 
 
(Millions of dollars)
2019
 
$
6.3

2020
 
5.1

2021
 
4.5

2022
 
4.3

2023
 
4.2

Thereafter
 
3.8

Total future minimum lease payments
 
$
28.2


v3.19.2
EQUITY (Notes)
6 Months Ended
Jun. 30, 2019
Class of Stock [Line Items]  
Stockholders' Equity Note Disclosure [Text Block]
EQUITY

Dividends Declared - In July 2019, we declared a dividend of $0.50 per share ($2.00 per share on an annualized basis) for shareholders of record as of August 12, 2019, payable September 3, 2019.
v3.19.2
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Notes)
6 Months Ended
Jun. 30, 2019
Accumulated Other Comprehensive Income (Loss) [Line Items]  
Comprehensive Income (Loss) Note [Text Block]
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 Ended
 
Six Months Ended
 
Affected Line Item in the
Details About Accumulated Other
 
June 30,
 
June 30,
 
Consolidated Statements
Comprehensive Loss Components
 
2019
2018
 
2019
2018
 
of Income
 
 
(Thousands of dollars)
 
 
Pension and other postemployment benefit plan obligations (a)
 
 
 
 
 
 
 
 
Amortization of net loss
 
$
8,821

$
10,950

 
$
17,642

$
21,900

 
 
Amortization of unrecognized prior service credit
 
(168
)
(1,142
)
 
(336
)
(2,284
)
 
 
 
 
8,653

9,808

 
17,306

19,616

 
 
Reclassification of stranded tax effects (b)
 


 
(1,218
)

 
 
Regulatory adjustments (c)
 
(8,440
)
(9,537
)
 
(15,662
)
(19,074
)
 
 
 
 
213

271

 
426

542

 
Income before income taxes
 
 
(53
)
(68
)
 
(106
)
(419
)
 
Income tax expense
Total reclassifications for the period
 
$
160

$
203

 
$
320

$
123

 
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.
v3.19.2
EARNINGS PER SHARE (Notes)
6 Months Ended
Jun. 30, 2019
EARNINGS PER SHARE [Line Items]  
Earnings Per Share [Text Block]
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 June 30, 2019
 
Income
 
Shares
 
Per Share
Amount
 
(Thousands, except per share amounts)
Basic EPS Calculation
 
 
 
 
 
Net income available for common stock
$
24,470

 
52,890

 
$
0.46

Diluted EPS Calculation
 

 
 

 
 

Effect of dilutive securities

 
325

 
 

Net income available for common stock and common stock equivalents
$
24,470

 
53,215

 
$
0.46


 
Three Months Ended June 30, 2018
 
Income
 
Shares
 
Per Share
Amount
 
(Thousands, except per share amounts)
Basic EPS Calculation
 
 
 
 
 
Net income available for common stock
$
20,419

 
52,692

 
$
0.39

Diluted EPS Calculation
 
 
 

 
 

Effect of dilutive securities

 
207

 
 

Net income available for common stock and common stock equivalents
$
20,419

 
52,899

 
$
0.39



 
Six Months Ended June 30, 2019
 
Income
 
Shares
 
Per Share
Amount
 
(Thousands, except per share amounts)
Basic EPS Calculation
 
 
 

 
 
Net income available for common stock
$
118,130

 
52,858

 
$
2.23

Diluted EPS Calculation
 
 
 
 

Effect of dilutive securities

 
352

 

Net income available for common stock and common stock equivalents
$
118,130

 
53,210

 
$
2.22

 
Six Months Ended June 30, 2018
 
Income
 
Shares
 
Per Share
Amount
 
(Thousands, except per share amounts)
Basic EPS Calculation
 
 
 
 
 
Net income available for common stock
$
111,254

 
52,648

 
$
2.11

Diluted EPS Calculation
 
 
 

 
 

Effect of dilutive securities

 
250

 
 

Net income available for common stock and common stock equivalents
$
111,254


52,898


$
2.10


v3.19.2
EMPLOYEE BENEFIT PLANS (Notes)
6 Months Ended
Jun. 30, 2019
Employee Benefit Plans [Line Items]  
EMPLOYEE BENEFIT PLANS
EMPLOYEE BENEFIT PLANS

The following tables set forth the components of net periodic benefit cost for our pension and other postemployment benefit plans for the periods indicated:
 
Pension Benefits
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2019
2018
 
2019
2018
 
(Thousands of dollars)
Components of net periodic benefit cost
 
 
 
 
 
Service cost
$
3,008

$
3,230

 
$
6,016

$
6,460

Interest cost (a)
10,168

9,200

 
20,336

18,400

Expected return on assets (a)
(15,485
)
(15,145
)
 
(30,970
)
(30,290
)
Amortization of net loss (a)
8,260

9,978

 
16,520

19,956

Net periodic benefit cost
$
5,951

$
7,263

 
$
11,902

$
14,526

(a) These amounts, net of any amounts capitalized as a regulatory asset since adoption of ASU 2017-07 on January 1, 2018, have been recognized as other income (expense), net in the consolidated statements of income. See Note 12 for additional detail of our other income (expense), net.

 
Other Postemployment Benefits
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2019
2018
 
2019
2018
 
(Thousands of dollars)
Components of net periodic benefit cost (credit)
 
 
 
 
 
Service cost
$
434

$
589

 
$
868

$
1,178

Interest cost (a)
2,329

2,279

 
4,658

4,558

Expected return on assets (a)
(3,147
)
(3,571
)
 
(6,294
)
(7,142
)
Amortization of unrecognized prior service credit (a)
(168
)
(1,142
)
 
(336
)
(2,284
)
Amortization of net loss (a)
561

972

 
1,122

1,944

Net periodic benefit cost (credit)
$
9

$
(873
)
 
$
18

$
(1,746
)

(a) These amounts, net of any amounts capitalized as a regulatory asset since adoption of ASU 2017-07 on January 1, 2018, have been recognized as other income (expense), net in the consolidated statements of income. See Note 12 for additional detail of our other income (expense), net.

We recover qualified pension benefit plan and other postemployment benefit plan costs through rates charged to our customers. Certain regulatory authorities require that the recovery of these costs be based on specific guidelines. The difference between these regulatory-based amounts and the periodic benefit cost calculated pursuant to GAAP is deferred as a regulatory asset or liability and amortized to expense over periods in which this difference will be recovered in rates, as authorized by the applicable regulatory authorities. Regulatory deferrals related to net periodic benefit cost were not material for the three and six months ended June 30, 2019 and 2018.

Since adoption of ASU 2017-07 on January 1, 2018, we continue to capitalize all eligible service cost and non-service cost components under the accounting requirements of ASC Topic 980 (Regulated Operations) for rate-regulated entities. Our consolidated balance sheets reflect the capitalized non-service cost components as a regulatory asset. We have recognized a regulatory asset of $2.9 million and $1.5 million as of June 30, 2019 and December 31, 2018, respectively. See Note 3 of the Notes to Consolidated Financial Statements in this Quarterly Report for additional information.
v3.19.2
INCOME TAXES (Notes)
6 Months Ended
Jun. 30, 2019
Income Tax Disclosure [Abstract]  
Income Tax Disclosure
INCOME TAXES

We use an estimated annual effective tax rate for purposes of determining the income tax provision during interim reporting periods. In calculating our estimated annual effective tax rate, we consider forecasted annual pre-tax income and estimated permanent book versus tax differences, as well as tax credits. Adjustments to the effective tax rate and estimates will occur as information and assumptions change.

Changes in tax laws or tax rates are recognized in the financial reporting period that includes the enactment date.

As a result of the enactment of the Tax Cuts and Jobs Act of 2017, we remeasured our ADIT. As a regulated entity, the change in ADIT was recorded as a regulatory liability and is subject to refund to our customers. The Tax Cuts and Jobs Act of 2017 retains the tax normalization provisions of the Code that stipulate how these excess deferred income taxes for certain accelerated tax depreciation benefits are to be refunded to customers. Our customers will receive refunds as determined by our regulators beginning in 2019. In each state, we received accounting orders requiring us to refund the reduction in ADIT due to the remeasurement and to establish a separate 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.

We have completed or made a reasonable estimate for the measurement and accounting of the effects of the Tax Cuts and Jobs Act of 2017, which were reflected in our December 31, 2018, consolidated financial statements. While we still expect additional guidance from the U.S. Department of the Treasury and the IRS, we have finalized our calculations using available guidance. Any additional issued guidance or future actions of our regulators could potentially affect the final determination of the accounting effects arising from the implementation of the Tax Cuts and Jobs Act of 2017.

In January 2019, the OCC issued an order in response to Oklahoma Natural Gas’ March 2018 PBRC filing requiring Oklahoma Natural Gas to credit customers for the reduction in ADIT based upon an amortization period in compliance with the tax normalization rules for the portions of excess ADIT stipulated by the Code and ten years for all other components of excess ADIT. In February 2019, the KCC issued an order adjusting Kansas Gas Service’s base rates, which included an amortization credit associated with the refund of ADIT based on an amortization period in compliance with the tax normalization rules for the portion of excess ADIT stipulated by the Code and five years for all other components of excess ADIT. As a result of the orders in Oklahoma and Kansas, the estimated excess ADIT is being returned to customers beginning in 2019. During the six months ended June 30, 2019, we credited income tax expense $8.9 million for the amortization of the regulatory liability associated with excess ADIT that was returned to customers. The treatment of our excess ADIT in Texas and the degree to which it impacts us will be determined as we work with our regulators.

In 2018, we accrued a separate regulatory liability associated with the change in the federal corporate income tax rates collected in our rates resulting in a reduction to our revenues of $36.6 million for the year ended December 31, 2018. In January 2019, the OCC issued an order that resulted in the establishment of a $15.8 million liability, including interest, at December 31, 2018, for the estimated impact on customer rates of earnings, including amounts attributable to tax savings, above the 9.5 percent approved ROE in the 2018 review period to be returned to customers within the 2019 PBRC filing. In a separate order issued in February 2019, the KCC required Kansas Gas Service to refund the regulatory liability for the portion of its revenue representing the difference between the 21 percent and 35 percent federal corporate income tax rate for the period between January 1, 2018, and through the date on which the KCC issued a final order in Kansas Gas Service’s June 2018 rate case. In the first quarter 2019, we accrued an additional $2.4 million reduction to revenues for the period until new rates were implemented in Kansas. The refund of $16.6 million was issued through a bill credit in the second quarter 2019. In 2018,
Texas Gas Service issued one-time refunds totaling $6.6 million for the reduction in the federal corporate income tax rate for the period between January 1, 2018, to the dates new rates were implemented in its service areas.
v3.19.2
OTHER INCOME AND OTHER EXPENSE (Notes)
6 Months Ended
Jun. 30, 2019
Other Income and Other Expense Disclosure [Text Block]
OTHER INCOME AND OTHER EXPENSE

The following table sets forth the components of other income and other expense for the periods indicated:
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(Thousands of dollars)
Net periodic benefit cost other than service cost
 
$
(1,469
)
 
$
(2,403
)
 
$
(3,068
)
 
$
(4,137
)
Other, net
 
604

 
209

 
2,632

 
(221
)
Total other expense, net
 
$
(865
)
 
$
(2,194
)
 
$
(436
)
 
$
(4,358
)

v3.19.2
COMMITMENTS AND CONTINGENCIES (Notes)
6 Months Ended
Jun. 30, 2019
Commitments and Contingencies [Line Items]  
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES

Environmental Matters - We are subject to multiple historical, wildlife preservation and environmental laws and/or regulations, 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, hazardous materials 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 Clean Air Act 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, 2019 and 2018.

We own or retain legal responsibility for certain environmental conditions at 12 former MGP sites in Kansas. These sites contain contaminants generally associated with MGP sites and are subject to control or remediation under various environmental laws and regulations. A consent agreement with the KDHE governs all environmental investigation and remediation work at these sites. The terms of the consent agreement require us to investigate these sites and set remediation activities based upon the results of the investigations and risk analysis. Remediation typically involves the management of contaminated soils and may involve removal of structures and monitoring and/or remediation of groundwater. Regulatory closure has been achieved at three of the 12 sites, but these sites remain subject to potential future requirements that may result in additional costs.

We have completed or are addressing removal of the source of soil contamination at all 12 sites and continue to monitor groundwater at eight of the 12 sites according to plans approved by the KDHE. During the first quarter of 2019, we completed a project to remove a source of contamination and associated contaminated materials at the twelfth site where no active soil remediation had previously occurred. We are also finalizing a study of the feasibility of various options to address the remainder of the site.

With regard to one of our former MGP sites in Kansas, periodic monitoring and a 2016 interim site investigation indicated elevated levels of contaminants generally associated with MGP sites. In 2016, we estimated the potential costs associated with additional investigation and remediation to be in the range of $4.0 million to $7.0 million. We have submitted a remediation plan to the KDHE for this site. The KDHE is currently reviewing our plan. In the second quarter of 2018, we revised our estimate of the potential costs associated with additional investigation and remediation to be in the range of $5.6 million to $7.0 million. A single reliable estimate of the remediation costs was not feasible due to the amount of uncertainty in the ultimate remediation approach that will be utilized. Accordingly, we recorded in the second quarter of 2018 an adjustment to the reserve of $1.6 million bringing the total to $5.6 million for this site, which also increased our regulatory asset pursuant to our AAO in Kansas.

In Kansas, 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. At the time future investigation and remediation work, net of any related insurance recoveries, is expected to exceed $15.0 million, Kansas Gas Service will be required to file an application with the KCC for approval to increase the $15.0 million cap.

We also own or retain legal responsibility for certain environmental conditions at a former MGP site in Texas. At the request of the Texas Commission on Environmental Quality, we began investigating the level and extent of contamination associated with the site under their Texas Risk Reduction Program. A preliminary site investigation revealed that this site contains contaminants generally associated with MGP sites and is subject to control or remediation under various environmental laws and regulations. Until the investigation is complete, we are unable to determine what, if any, active remediation will be required. A reliable estimate of potential remediation costs is not feasible at this point due to the amount of uncertainty as to the levels and extent of contamination.

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, 2019 and 2018. A number of environmental issues may exist with respect to MGP sites that are unknown to us. Accordingly, future costs are dependent on the final determination and regulatory approval of any remedial actions, the complexity of the site, level of remediation required, changing technology and governmental regulations, and to the extent not recovered by insurance or recoverable in rates from our customers, could be material to our financial condition, results of operations or cash flows.

We are subject to environmental regulation by federal, state and local authorities. Due to the inherent uncertainties surrounding the development of federal and state environmental laws and regulations, we cannot determine with specificity the impact such laws and regulations may have on our existing and future facilities. With the trend toward stricter standards, greater regulation and more extensive permit requirements for the types of assets operated by us, our environmental expenditures could increase in the future, and such expenditures may not be fully recovered by insurance or recoverable in rates from our customers, and those costs may adversely affect our financial condition, results of operations and cash flows. However, we do not expect expenditures for these matters to have a material adverse effect on our financial condition, results of operations or cash flows.

Pipeline Safety - We are subject to PHMSA regulations, including integrity-management regulations. PHMSA regulations require pipeline companies operating high-pressure transmission pipelines to perform integrity assessments on pipeline segments that pass through densely populated areas or near specifically designated high-consequence areas. In January 2012, the Pipeline Safety, Regulatory Certainty and Job Creation Act was signed into law. The law increased maximum penalties for violating federal pipeline safety regulations and directs the DOT and the Secretary of Transportation to conduct further review or studies on issues that may or may not be material to us. These issues include, but are not limited to, the following:

an evaluation of whether natural gas pipeline integrity-management requirements should be expanded beyond current high-consequence areas;
a verification of records for pipelines in class 3 and 4 locations and high-consequence areas to confirm maximum allowable operating pressures; and
a requirement to test previously untested pipelines operating above 30 percent yield strength in high-consequence areas.

In April 2016, PHMSA published a NPRM, the Safety of Gas Transmission & Gathering Lines Rule, in the Federal Register to revise pipeline safety regulations applicable to the safety of onshore natural gas transmission and gathering pipelines. Proposals include changes to pipeline integrity-management requirements and other safety-related requirements. The NPRM comment period ended July 7, 2016, and comments are under review by PHMSA. As part of the comment review process, PHMSA is being advised by the Technical Pipeline Safety Standards Committee, informally known by PHMSA as the GPAC, a statutorily mandated advisory committee that advises PHMSA on proposed safety policies for natural gas pipelines.  The GPAC reviews PHMSA's proposed regulatory initiatives to assure the technical feasibility, reasonableness, cost-effectiveness and practicality of each proposal. The GPAC has met six times since January 2017 to review public comments and make recommendations to PHMSA. The GPAC completed their review of the NPRM on March 28, 2018, except for gas gathering pipelines. The GPAC met in June 2019 on gathering pipelines. In addition to reviewing public and committee comments, PHMSA announced they will split this NPRM into three separate final rulemakings:

the first final rule will address the legislative mandates from the Pipeline Safety, Regulatory Certainty and Jobs Creation Act and will be called the Safety of Gas Transmission Pipelines: Maximum Allowable Operating Pressure Reconfirmation, Expansion of Assessment Requirements, and Other Related Amendments;
the second final rule will be called the Safety of Gas Transmission Pipelines: Repair Criteria, Integrity Management Improvements, Cathodic Protection, Management of Change, and Other Related Amendments and will cover all remaining elements of the NPRM (except for gas gathering pipelines); and
the third final rule will be called the Safety of Gas Gathering Pipelines and will address gas gathering pipelines.

A significant number of recommendations have been made to PHMSA to improve the NPRM. The industry trade associations filed joint comments to the “legislative mandates” rulemaking to amend the federal safety regulations applicable to gas transmission and gathering pipelines. The timing of each final rule being published is unknown, but they are expected to be published during 2019.  The potential capital and operating expenditures associated with compliance with the proposed rules are currently being evaluated and could be significant depending on the final regulations.

Legal Proceedings - We are a party to various litigation matters and claims that have arisen in the normal course of our operations. While the results of litigation and claims cannot be predicted with certainty, we believe the reasonably possible losses from such matters, individually and in the aggregate, are not material. Additionally, we believe the probable final outcome of such matters will not have a material adverse effect on our results of operations, financial position or cash flows.
v3.19.2
DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Notes)
6 Months Ended
Jun. 30, 2019
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]  
Fair Value Disclosures
DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

Accounting Treatment - We record all derivative instruments at fair value, with the exception of normal purchases and normal sales that are expected to result in physical delivery. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, if so, the reason for holding it, or if regulatory rulings require a different accounting treatment.

If certain conditions are met, we may elect to designate a derivative instrument as a hedge to mitigate the risk of exposure to changes in fair values or cash flows.

The table below summarizes the various ways in which we account for our derivative instruments and the impact on our consolidated financial statements:
 
 
Recognition and Measurement
Accounting Treatment
 
Balance Sheet
 
Income Statement
Normal purchases and
normal sales
-
Recorded at historical cost
-
Change in fair value not recognized in earnings
Mark-to-market
-
Recorded at fair value
-
Change in fair value deferred through the purchased-gas cost adjustment mechanisms

We have not elected to designate any of our derivative instruments as hedges. Premiums paid and any cash settlements received associated with the commodity derivative instruments entered into by us are included in, and recoverable through, the purchased-gas cost adjustment mechanisms.

Determining Fair Value - We define fair value as the price that would be received from the sale of an asset or the transfer of a liability in an orderly transaction between market participants at the measurement date. We use the market and income approaches to determine the fair value of our assets and liabilities and consider the markets in which the transactions are executed. We measure the fair value of a group of financial assets and liabilities consistent with how a market participant would price the net risk exposure at the measurement date.

Fair Value Hierarchy - At each balance sheet date, we utilize a fair value hierarchy to classify fair value amounts recognized or disclosed in our consolidated financial statements based on the observability of inputs used to estimate such fair value. The levels of the hierarchy are described below:
Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 - Significant observable pricing inputs other than quoted prices included within Level 1 that are, either directly or indirectly, observable as of the reporting date. Essentially, this represents inputs that are derived principally from or corroborated by observable market data; and
Level 3 - May include one or more unobservable inputs that are significant in establishing a fair value estimate. These unobservable inputs are developed based on the best information available and may include our own internal data.

We recognize transfers into and out of the levels as of the end of each reporting period.

Determining the appropriate classification of our fair value measurements within the fair value hierarchy requires management’s judgment regarding the degree to which market data is observable or corroborated by observable market data. We categorize derivatives for which fair value is determined using multiple inputs within a single level, based on the lowest level input that is significant to the fair value measurement in its entirety.

Derivative Instruments -  At June 30, 2019, we held purchased natural gas call options for the heating season ending March 31, 2020, with total notional amounts of 15.1 Bcf, for which we paid premiums of $3.9 million, and had a fair value of $3.0 million. At December 31, 2018, we held purchased natural gas call options for the heating season ended March 31, 2019, with total notional amounts of 14.3 Bcf, for which we paid premiums of $4.1 million, and had a fair value of $2.1 million. The premiums paid and any cash settlements received are recorded as part of our unrecovered purchased-gas costs in current regulatory assets as these contracts are included in, and recoverable through, the purchased-gas cost adjustment mechanisms. Additionally, changes in fair value associated with these contracts are deferred as part of our unrecovered purchased-gas costs in our consolidated balance sheets. Our natural gas call options are classified as Level 1, as fair value amounts are based on unadjusted quoted prices in active markets including NYMEX-settled prices. There were no transfers between levels for the three and six months ended June 30, 2019 and 2018.

Other Financial Instruments - The approximate fair value of cash and cash equivalents, accounts receivable and accounts payable is equal to book value, due to the short-term nature of these items. Our cash and cash equivalents are comprised of bank and money market accounts, and are classified as Level 1. Our other current and noncurrent assets include $1.5 million of corporate bonds and $1.5 million of United States treasury notes, for which the fair value approximates our cost and are also classified as Level 1.

Short-term notes payable and commercial paper are due upon demand and, therefore, the carrying amounts approximate fair value and are classified as Level 1. The book value of our long-term debt, including current maturities, was $1.3 billion at both June 30, 2019 and December 31, 2018. The estimated fair value of our long-term debt, including current maturities, was $1.5 billion and $1.4 billion at June 30, 2019 and December 31, 2018, respectively. The estimated fair value of our long-term debt at June 30, 2019 and December 31, 2018, was determined using quoted market prices, and is classified as Level 2.
v3.19.2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
6 Months Ended
Jun. 30, 2019
Significant Accounting Policies [Line Items]  
Use of Estimates
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 particular 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
Segments - We operate in one reportable and operating business segment: regulated public utilities that deliver natural gas to residential, commercial, industrial 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 operating income. For the three and six months ended June 30, 2019, and 2018, we had no single external customer from which we received 10 percent or more of our gross revenues.
Recently Issued Accounting Standards Update
Recently Issued Accounting Standards Update - 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 the company would capitalize those same costs under the internal-use software guidance for an arrangement that is a software license. This standard is effective for interim and annual periods in fiscal years beginning after December 15, 2019, and early adoption is permitted. We will adopt this standard January 1, 2020, using the prospective transition approach. We are currently assessing the potential impacts of adopting this standard, but do not expect a material impact on 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. It is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and early adoption is permitted for fiscal years beginning after December 15, 2018. The new guidance will be initially applied through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. We are currently assessing the timing and impacts of adopting this standard, which must be adopted in the first quarter of 2020.

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 allow us to: (1) not evaluate under Topic 842 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. See Note 6 for additional information regarding our leases.
 
Property, Plant and Equipment - Accounts payable for construction work in process and asset removal costs increased by approximately $2.4 million and decreased by approximately $4.8 million for the six months ended June 30, 2019 and 2018, respectively. Such amounts are not included in capital expenditures in our consolidated statements of cash flows.
v3.19.2
DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Policies)
6 Months Ended
Jun. 30, 2019
Accounting Policies [Abstract]  
Derivatives

Accounting Treatment - We record all derivative instruments at fair value, with the exception of normal purchases and normal sales that are expected to result in physical delivery. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, if so, the reason for holding it, or if regulatory rulings require a different accounting treatment.

If certain conditions are met, we may elect to designate a derivative instrument as a hedge to mitigate the risk of exposure to changes in fair values or cash flows.

The table below summarizes the various ways in which we account for our derivative instruments and the impact on our consolidated financial statements:
 
 
Recognition and Measurement
Accounting Treatment
 
Balance Sheet
 
Income Statement
Normal purchases and
normal sales
-
Recorded at historical cost
-
Change in fair value not recognized in earnings
Mark-to-market
-
Recorded at fair value
-
Change in fair value deferred through the purchased-gas cost adjustment mechanisms

We have not elected to designate any of our derivative instruments as hedges. Premiums paid and any cash settlements received associated with the commodity derivative instruments entered into by us are included in, and recoverable through, the purchased-gas cost adjustment mechanisms.
Fair Value Measurement
Determining Fair Value - We define fair value as the price that would be received from the sale of an asset or the transfer of a liability in an orderly transaction between market participants at the measurement date. We use the market and income approaches to determine the fair value of our assets and liabilities and consider the markets in which the transactions are executed. We measure the fair value of a group of financial assets and liabilities consistent with how a market participant would price the net risk exposure at the measurement date.

Fair Value Hierarchy - At each balance sheet date, we utilize a fair value hierarchy to classify fair value amounts recognized or disclosed in our consolidated financial statements based on the observability of inputs used to estimate such fair value. The levels of the hierarchy are described below:
Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 - Significant observable pricing inputs other than quoted prices included within Level 1 that are, either directly or indirectly, observable as of the reporting date. Essentially, this represents inputs that are derived principally from or corroborated by observable market data; and
Level 3 - May include one or more unobservable inputs that are significant in establishing a fair value estimate. These unobservable inputs are developed based on the best information available and may include our own internal data.

We recognize transfers into and out of the levels as of the end of each reporting period.

Determining the appropriate classification of our fair value measurements within the fair value hierarchy requires management’s judgment regarding the degree to which market data is observable or corroborated by observable market data. We categorize derivatives for which fair value is determined using multiple inputs within a single level, based on the lowest level input that is significant to the fair value measurement in its entirety.
v3.19.2
REVENUE (Tables)
6 Months Ended
Jun. 30, 2019
Revenues Disaggregated by Source [Table]
The following table sets forth our revenues disaggregated by source for the periods indicated:
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(Thousands of dollars)
Natural gas sales to customers
 
$
258,560

 
$
261,347

 
$
880,052

 
$
856,273

Transportation revenues
 
23,991

 
24,062

 
59,019

 
57,605

Miscellaneous revenues
 
5,428

 
5,759

 
10,856

 
12,527

Total revenues from contracts with customers
 
287,979

 
291,168

 
949,927

 
926,405

Other revenues - natural gas sales related
 
207

 
(1,108
)
 
(2,737
)
 
(78
)
Other revenues
 
2,374

 
2,461

 
4,370

 
4,658

Total other revenues
 
2,581

 
1,353

 
1,633

 
4,580

Total revenues
 
$
290,560

 
$
292,521

 
$
951,560

 
$
930,985


v3.19.2
REGULATORY ASSETS AND LIABILITIES (Tables)
6 Months Ended
Jun. 30, 2019
SCHEDULE OF REGULATED ASSETS AND LIABILITIES [Line Items]  
SCHEDULE OF REGULATED ASSETS AND LIABILITIES

The tables below present a summary of regulatory assets, net of amortization, and liabilities for the periods indicated:
 
 
 
 
June 30, 2019
 
 
 
 
Current
 
Noncurrent
 
Total
 
 
 
 
(Thousands of dollars)
Under-recovered purchased-gas costs
 
 
 
$
767

 
$

 
$
767

Pension and postemployment benefit costs
 

 
22,966

 
406,441

 
429,407

Reacquired debt costs
 

 
812

 
6,082

 
6,894

Ad valorem tax
 
 
 
2,083

 

 
2,083

MGP remediation costs
 

 
98

 
9,758

 
9,856

Other
 

 
11,646

 
2,023

 
13,669

Total regulatory assets, net of amortization
 
 
 
38,372

 
424,304

 
462,676

Federal corporate income tax rate changes (a)
 
 
 
(15,755
)
 
(508,877
)
 
(524,632
)
Over-recovered purchased-gas costs
 
 
 
(22,616
)
 

 
(22,616
)
Weather normalization
 
 
 
(8,163
)
 

 
(8,163
)
Total regulatory liabilities
 
 
 
(46,534
)
 
(508,877
)
 
(555,411
)
Net regulatory liabilities
 
 
 
$
(8,162
)
 
$
(84,573
)
 
$
(92,735
)
(a) See Note 11 for additional information regarding our federal corporate income tax rate changes to regulatory liabilities.
 
 
 
 
December 31, 2018
 
 
 
 
Current
 
Noncurrent
 
Total
 
 
 
 
(Thousands of dollars)
Under-recovered purchased-gas costs
 

 
$
25,083

 
$

 
$
25,083

Pension and postemployment benefit costs
 

 
23,384

 
421,726

 
445,110

Reacquired debt costs
 

 
812

 
6,487

 
7,299

MGP remediation costs
 
 
 

 
7,724

 
7,724

Ad valorem tax
 
 
 
1,070

 

 
1,070

Other
 

 
4,071

 
1,542

 
5,613

Total regulatory assets, net of amortization
 
 
 
54,420

 
437,479

 
491,899

Federal corporate income tax rate changes (a)
 
 
 
(30,934
)
 
(520,866
)
 
(551,800
)
Over-recovered purchased-gas costs
 

 
(13,668
)
 

 
(13,668
)
Weather normalization
 
 
 
(3,792
)
 

 
(3,792
)
Total regulatory liabilities
 
 
 
(48,394
)
 
(520,866
)
 
(569,260
)
Net regulatory assets (liabilities)
 
 
 
$
6,026

 
$
(83,387
)
 
$
(77,361
)

(a) See Note 11 for additional information regarding our federal corporate income tax rate changes to regulatory liabilities.

v3.19.2
LEASES Leases (Tables)
6 Months Ended
Jun. 30, 2019
Leases [Abstract]  
Schedule of Future Minimum Rental Payments for Operating Leases Under ASC 840 [Table Text Block]
The following table sets forth the required disclosures under Topic 842 for the period indicated under Topic 840, as reported in Note 15 of our Notes to Consolidated Financial Statements in our Annual Report:
 
 
December 31,
Future minimum lease payments under non-cancellable operating leases
 
2018
 
 
(Millions of dollars)
2019
 
$
6.3

2020
 
5.1

2021
 
4.5

2022
 
4.3

2023
 
4.2

Thereafter
 
3.8

Total future minimum lease payments
 
$
28.2


Lessee, Operating Lease, Liability, Maturity [Table Text Block]
 
 
 
 
 
June 30,
Future minimum lease payments under non-cancellable operating leases
 
2019
 
 
(Millions of dollars)
2019 (excluding the six months ended June 30, 2019)
 
$
3.7

2020
 
7.5

2021
 
7.1

2022
 
6.8

2023
 
5.7

Thereafter
 
11.6

Total future minimum lease payments
 
$
42.4

Imputed interest
 
(5.2
)
Total operating lease liability
 
$
37.2

 
 
 
Consolidated balance sheets as of June 30, 2019
 
 
Current operating lease liability
 
$
6.2

Long-term operating lease liability
 
31.0

Total operating lease liability
 
$
37.2


Other Information Related to Operating Leases [Table Text Block]
 
Six Months Ended
 
June 30,
Other information related to operating leases
2019
 
(Millions of dollars)
 
 
Weighted-average remaining lease term
7 years
 
 
Weighted-average discount rate
3.62%
 
 
Supplemental cash flows information
 
Lease payments
$
(4.4
)
Right-of-use assets obtained in exchange for lease obligations
$
9.1



v3.19.2
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Tables)
6 Months Ended
Jun. 30, 2019
Accumulated Other Comprehensive Income (Loss) [Line Items]  
Reclassification out of Accumulated Other Comprehensive Income [Table Text Block]

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 Ended
 
Six Months Ended
 
Affected Line Item in the
Details About Accumulated Other
 
June 30,
 
June 30,
 
Consolidated Statements
Comprehensive Loss Components
 
2019
2018
 
2019
2018
 
of Income
 
 
(Thousands of dollars)
 
 
Pension and other postemployment benefit plan obligations (a)
 
 
 
 
 
 
 
 
Amortization of net loss
 
$
8,821

$
10,950

 
$
17,642

$
21,900

 
 
Amortization of unrecognized prior service credit
 
(168
)
(1,142
)
 
(336
)