ONE GAS, INC., 10-K filed on 2/22/2018
Annual Report
Document And Entity Information (USD $)
In Billions, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Feb. 9, 2018
Jun. 30, 2017
Document Information [Line Items]
 
 
 
Entity Registrant Name
ONE Gas, Inc.  
 
 
Entity Central Index Key
0001587732 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Well-known Seasoned Issuer
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Entity Public Float
 
 
$ 3.5 
Entity Common Stock, Shares Outstanding
 
52,315,980 
 
Document Fiscal Year Focus
2017 
 
 
Document Fiscal Period Focus
FY 
 
 
Document Type
10-K 
 
 
Amendment Flag
false 
 
 
Document Period End Date
Dec. 31, 2017 
 
 
STATEMENTS OF INCOME (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Gross Margin
 
 
 
Revenues
$ 1,539,633 
$ 1,427,232 
$ 1,547,692 
Cost of natural gas
614,501 
541,797 
705,959 
Net margin
925,132 
885,435 
841,733 
Operating expenses
 
 
 
Operations and maintenance
416,542 
417,142 
414,476 
Depreciation and amortization
151,889 
143,829 
133,023 
General taxes
57,225 
55,344 
55,105 
Total operating expenses
625,656 
616,315 
602,604 
Operating income
299,476 
269,120 
239,129 
Other income
4,217 
1,447 
263 
Other expense
(1,490)
(1,490)
(2,813)
Interest expense, net
(46,065)
(43,739)
(44,570)
Income before income taxes
256,138 
225,338 
192,009 
Income taxes
(93,143)
(85,243)
(72,979)
Net income
$ 162,995 
$ 140,095 
$ 119,030 
Earnings per share
 
 
 
Basic
$ 3.10 
$ 2.67 
$ 2.26 
Diluted
$ 3.08 
$ 2.65 
$ 2.24 
Average shares (thousands)
 
 
 
Basic
52,527 
52,453 
52,578 
Diluted
52,979 
52,963 
53,254 
Dividends declared per share of stock
$ 1.68 
$ 1.40 
$ 1.20 
STATEMENTS OF COMPREHENSIVE INCOME STATEMENTS OF COMPREHENSIVE INCOME (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Net income
$ 162,995 
$ 140,095 
$ 119,030 
Other Comprehensive Income (Loss), Net of Tax [Abstract]
 
 
 
Change in pension and other postretirement benefit plans liability, net of tax of $486, $197, and $(483), respectively
(778)
(314)
773 
Other comprehensive income (loss), net of tax
(778)
(314)
773 
Comprehensive income
$ 162,217 
$ 139,781 
$ 119,803 
STATEMENTS OF COMPREHENSIVE INCOME (Parentheticals) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
STATEMENTS OF COMPREHENSIVE INCOME [Abstract]
 
 
 
Pension and other postretirement benefit plans, Tax
$ 486 
$ 197 
$ (483)
BALANCE SHEETS (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2017
Dec. 31, 2016
Property, plant and equipment
 
 
Property, plant and equipment
$ 5,713,912 
$ 5,404,168 
Accumulated depreciation and amortization
1,706,327 
1,672,548 
Net property, plant and equipment
4,007,585 
3,731,620 
Current assets
 
 
Cash and cash equivalents
14,413 
14,663 
Accounts receivable, net
298,768 
290,944 
Materials and supplies
39,672 
34,084 
Natural gas in storage
130,154 
125,432 
Regulatory assets
88,180 
83,146 
Other current assets
17,807 
20,654 
Total current assets
588,994 
568,923 
Goodwill and other assets
 
 
Regulatory assets
405,189 
440,522 
Goodwill
157,953 
157,953 
Other assets
47,157 
43,773 
Total goodwill and other assets
610,299 
642,248 
Total assets
5,206,878 
4,942,791 
Equity and long-term debt
 
 
Common stock, $0.01 par value: authorized 250,000,000 shares; issued 52,598,005 shares and outstanding 52,312,516 shares at December 31, 2017; issued 52,598,005 shares and outstanding 52,283,260 shares at December 31, 2016
526 
526 
Paid-in capital
1,737,551 
1,749,574 
Retained earnings
246,121 
161,021 
Accumulated other comprehensive income (loss)
(5,493)
(4,715)
Treasury stock, at cost: 285,489 shares at December 31, 2017 and 314,745 shares at December 31, 2016
(18,496)
(18,126)
Total equity
1,960,209 
1,888,280 
Long-term debt, excluding current maturities, and net of issuance costs of $8,033 and $8,851, respectively
1,193,257 
1,192,446 
Total equity and long-term debt
3,153,466 
3,080,726 
Current liabilities
 
 
Notes payable
357,215 
145,000 
Accounts payable
143,681 
131,988 
Accrued interest
18,776 
18,854 
Accrued taxes other than income
41,324 
42,571 
Accrued liabilities
30,058 
22,931 
Customer deposits
60,811 
61,209 
Other current liabilities
21,465 
21,380 
Total current liabilities
673,330 
443,933 
Deferred credits and other liabilities [Abstract]
 
 
Deferred income taxes
599,945 
1,038,568 
Regulatory Liability, Noncurrent
519,421 
Employee benefit obligations
172,938 
303,507 
Other deferred credits
87,778 
76,057 
Total deferred credits and other liabilities
1,380,082 
1,418,132 
Commitments and contingencies
   
   
Total liabilities and equity
$ 5,206,878 
$ 4,942,791 
BALANCE SHEETS BALANCE SHEETS Parenthetical (USD $)
In Thousands, except Share data, unless otherwise specified
Dec. 31, 2017
Dec. 31, 2016
Statement of Financial Position [Abstract]
 
 
Common Stock, Par or Stated Value Per Share
$ 0.01 
$ 0.01 
Common Stock, Shares Authorized
250,000,000 
250,000,000 
Common Stock, Shares, Issued
52,598,005 
52,598,005 
Common Stock, Shares, Outstanding
52,312,516 
52,283,260 
Treasury Stock, Shares
285,489 
314,745 
Debt issuance costs
$ 8,033 
$ 8,851 
STATEMENTS OF CASH FLOWS (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Operating activities
 
 
 
Net income
$ 162,995 
$ 140,095 
$ 119,030 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
151,889 
143,829 
133,023 
Deferred income taxes
92,393 
86,788 
63,789 
Share-based compensation expense
8,876 
11,219 
9,187 
Provision for doubtful accounts
7,323 
5,427 
4,520 
Changes in assets and liabilities:
 
 
 
Accounts receivable
(15,147)
(80,028)
105,886 
Materials and supplies
(5,588)
(759)
(5,814)
Income tax receivable
37,480 
4,923 
Natural gas in storage
(4,722)
16,721 
43,147 
Asset removal costs
(52,376)
(53,430)
(51,608)
Accounts payable
1,945 
27,596 
(59,635)
Accrued interest
(78)
(19)
Accrued taxes other than income
(1,247)
5,322 
(7,493)
Accrued liabilities
7,127 
(8,539)
5,451 
Customer deposits
(398)
884 
322 
Regulatory assets and liabilities
29,250 
(49,472)
50,658 
Employee benefit obligation
(118,095)
(25,666)
(15,033)
Other assets and liabilities
(10,347)
33,141 
7,562 
Cash provided by operating activities
253,800 
290,589 
407,916 
Investing activities
 
 
 
Capital expenditures
(356,361)
(309,071)
(294,320)
Other
618 
492 
Cash used in investing activities
(355,743)
(308,579)
(294,320)
Financing activities
 
 
 
Borrowings (repayment) on notes payable, net
212,215 
132,500 
(29,500)
Repurchase of common stock
(17,512)
(24,066)
(24,122)
Issuance of common stock
4,457 
4,017 
7,051 
Dividends paid
(87,951)
(73,209)
(62,826)
Tax withholdings related to net share settlements of stock compensation
(9,516)
(9,022)
(13,709)
Cash provided by (used in) financing activities
101,693 
30,220 
(123,106)
Change in cash and cash equivalents
(250)
12,230 
(9,510)
Cash and cash equivalents at beginning of period
14,663 
2,433 
11,943 
Cash and cash equivalents at end of period
14,413 
14,663 
2,433 
Supplemental cash flow information:
 
 
 
Cash paid for interest, net of amounts capitalized
44,436 
42,129 
42,980 
Cash received for income taxes, net
$ (1,389)
$ (35,702)
$ (5,423)
STATEMENT OF CHANGES IN EQUITY (USD $)
In Thousands, except Share data
Total
Retained Earnings [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Treasury Stock [Member]
Common Stock [Member]
Additional Paid-in Capital [Member]
Equity, beginning balance at Dec. 31, 2014
$ 1,794,037 
$ 39,894 
$ (5,174)
$ 0 
$ 521 
$ 1,758,796 
Shares Issued, beginning balance at Dec. 31, 2014
 
 
 
 
52,083,859 
 
Common Stock, Dividends, Declared, Annualized Basis
$ 1.20 
 
 
 
 
 
Net income
119,030 
119,030 
Other comprehensive loss
773 
773 
Repurchase of common stock
(24,122)
(24,122)
Common stock issued, shares
 
 
 
 
514,146 
 
Common stock issued, value
14,663 
9,631 
5,027 
Common stock dividends
(62,826)
(63,878)
1,052 
Equity, ending balance at Dec. 31, 2015
1,841,555 
95,046 
(4,401)
(14,491)
526 
1,764,875 
Shares Issued, ending balance at Dec. 31, 2015
 
 
 
 
52,598,005 
 
Common Stock, Dividends, Declared, Annualized Basis
$ 1.40 
 
 
 
 
 
Net income
140,095 
140,095 
Other comprehensive loss
(314)
(314)
Repurchase of common stock
(24,066)
(24,066)
Common stock issued, shares
 
 
 
 
 
Common stock issued, value
4,219 
20,431 
(16,212)
Common stock dividends
(73,209)
(74,120)
911 
Equity, ending balance at Dec. 31, 2016
1,888,280 
161,021 
(4,715)
(18,126)
526 
1,749,574 
Shares Issued, ending balance at Dec. 31, 2016
 
 
 
 
52,598,005 
 
Adjustment to Additional Paid in Capital, Income Tax Effect from Share-based Compensation, Net
10,982 
10,982 
Common Stock, Dividends, Declared, Annualized Basis
$ 1.68 
 
 
 
 
 
Net income
162,995 
162,995 
Other comprehensive loss
(778)
(778)
Repurchase of common stock
(17,512)
(17,512)
Common stock issued, shares
 
 
 
 
 
Common stock issued, value
4,193 
17,142 
(12,949)
Common stock dividends
(87,951)
(88,877)
926 
Equity, ending balance at Dec. 31, 2017
$ 1,960,209 
$ 246,121 
$ (5,493)
$ (18,496)
$ 526 
$ 1,737,551 
Shares Issued, ending balance at Dec. 31, 2017
 
 
 
 
52,598,005 
 
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Notes)
SIGNIFICANT ACCOUNTING POLICIES
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Operations - We provide natural gas distribution services to more than 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. In addition, we also provide natural gas distribution services to wholesale and public authority customers. We are a corporation incorporated under the laws of the state of Oklahoma, and our common stock is listed on the NYSE under the trading symbol “OGS.” In 2017, we formed a wholly-owned captive insurance company in the state of Oklahoma to provide insurance to our divisions.

Basis of Presentation - The consolidated financial statements include the accounts of the natural gas distribution business as set forth in “Organization and Nature of Operations” above. All significant balances and transactions between our subsidiaries have been eliminated.

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 revenue 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, provisions for doubtful accounts receivable, 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 income 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.

Fair Value Measurements - 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. See Note 7 for additional information regarding our fair value measurements.

Cash and Cash Equivalents - Cash equivalents consist of highly liquid investments, which are readily convertible into cash and have original maturities of three months or less.

Revenue Recognition - For regulated deliveries of natural gas, we read meters and bill customers on a monthly cycle. We recognize revenues upon the delivery of the 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. Revenues are accrued for natural gas delivered and services rendered to customers, but not yet billed. 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 amounts of accrued unbilled natural gas sales revenues at December 31, 2017 and 2016, were $138.5 million and $143.2 million, respectively.

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 on a net basis.

Cost of Natural Gas - Net margin is comprised of total revenues less cost of natural gas.  Cost of natural gas includes commodity purchases, fuel, storage, transportation and other gas purchase costs recovered through our cost of natural gas regulatory mechanisms and does not include an allocation of general operating costs or depreciation and amortization.  In addition, our cost of natural gas regulatory mechanisms provide a method of recovering natural gas costs on an ongoing basis without a profit. Therefore, although our revenues will fluctuate with the cost of gas that we purchase, net margin is not affected by fluctuations in the cost of natural gas. See Note 8 for additional discussion of purchased gas cost recoveries.

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 are required to provide security, including deposits and other forms of collateral, when appropriate. With more than 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 credit environment and other information. In Oklahoma, Kansas and most jurisdictions we serve in Texas, we are able to recover natural gas costs related to doubtful accounts through purchased-gas cost adjustment mechanisms. At December 31, 2017 and 2016, our allowance for doubtful accounts was $4.8 million and $4.2 million, respectively.

Inventories - Natural gas in storage is maintained on the basis of weighted-average cost. Natural gas inventories that are injected into storage are recorded in inventory based on actual purchase costs, including storage and transportation costs. Natural gas inventories that are withdrawn from storage are accounted for in our purchased-gas cost adjustment mechanisms at the weighted-average inventory cost.

Materials and supplies inventories are stated at the lower of weighted-average cost or net realizable value.

Derivatives and Risk Management Activities - 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 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
-
Fair value not recorded
-
Change in fair value not recognized in earnings
Mark-to-market
-
Recorded at fair value
-
Change in fair value recognized in, and
recoverable through, the purchased-gas cost adjustment mechanisms

We have not elected to formally designate any of our derivative instruments as hedges. Gains or losses associated with the fair value of commodity derivative instruments entered into by us are included in, and recoverable through, the purchased-gas cost adjustment mechanisms.

See Note 7 for additional information regarding our fair value measurements and hedging activities using derivatives.

Property, Plant and Equipment - Our properties are stated at cost, which includes direct construction costs such as direct labor, materials, burden and AFUDC. Generally, the cost of our property retired or sold, plus removal costs, less salvage, is charged to accumulated depreciation. Gains and losses from sales or retirement of an entire operating unit or system of our properties are recognized in income. Maintenance and repairs are charged directly to expense.

AFUDC represents the cost of borrowed funds used to finance construction activities. We capitalize interest costs during the construction or upgrade of qualifying assets. Capitalized interest is recorded as a reduction to interest expense.

Our properties are depreciated using the straight-line method over their estimated useful lives. Generally, we apply composite depreciation rates to functional groups of property having similar economic circumstances. We periodically conduct depreciation studies to assess the economic lives of our assets. These depreciation studies are completed as a part of our regulatory proceedings, and the changes in economic lives, if applicable, are implemented prospectively when the new rates are approved by our regulators and become effective. Changes in the estimated economic lives of our property, plant and equipment could have a material effect on our financial position, results of operations or cash flows.

Property, plant and equipment on our Consolidated Balance Sheets includes construction work in process for capital projects that have not yet been placed in service and therefore are not being depreciated. Assets are transferred out of construction work in process when they are substantially complete and ready for their intended use.

See Note 9 for additional information regarding our property, plant and equipment.

Impairment of Goodwill and Long-Lived Assets - We assess our goodwill for impairment at least annually as of July 1. Our goodwill impairment analysis performed in 2017, 2016 and 2015, utilized a qualitative assessment and did not result in any impairment indicators. Subsequent to July 1, 2017, no event has occurred indicating that it is more likely than not that our fair value is less than our carrying value of our net assets.

As part of our goodwill impairment test, we 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 our fair value is less than our carrying amount. If further testing is necessary, we perform an impairment test for goodwill. This assessment is made by comparing our fair value with our book value, including goodwill. If the fair value is less than the book value, we will record an impairment charge, not to exceed the carrying amount of goodwill.

To estimate our fair value, we use two generally accepted valuation approaches, an income approach and a market approach, using assumptions consistent with a market participant’s perspective. Under the income approach, we use anticipated cash flows over a period of years plus a terminal value and discount these amounts to their present value using appropriate discount rates. Under the market approach, we apply acquisition multiples to forecasted cash flows. The acquisition multiples used are consistent with historical market transactions. The forecasted cash flows are based on average forecasted cash flows over a period of years.

We assess our long-lived assets for impairment whenever events or changes in circumstances indicate that an asset’s carrying amount may not be recoverable. An impairment is indicated if the carrying amount of a long-lived asset exceeds the sum of the undiscounted future cash flows expected to result from the use and eventual disposition of the asset. If an impairment is indicated, we record an impairment loss equal to the difference between the carrying value and the fair value of the long-lived asset. We determined that there were no asset impairments in 2017, 2016 or 2015.

Regulation - We are subject to the rate regulation and accounting requirements of the OCC, KCC, RRC and various municipalities in Texas. We follow the accounting and reporting guidance for regulated operations. During the ratemaking process, regulatory authorities set the framework for what we can charge customers for our services and establish the manner that our costs are accounted for, including allowing us to defer recognition of certain costs and permitting recovery of the amounts through rates over time, as opposed to expensing such costs as incurred. Examples include weather normalization, unrecovered purchased-gas costs, pension and postemployment benefit costs and ad-valorem taxes. This allows us to stabilize rates over time rather than passing such costs on to the customer for immediate recovery. Actions by regulatory authorities could have an effect on the amount recovered from rate payers. Any difference in the amount recoverable and the amount deferred is recorded as income or expense at the time of the regulatory action. A write-off of regulatory assets and costs not recovered may be required if all or a portion of the regulated operations have rates that are no longer:
established by independent regulators;
designed to recover the specific entity’s costs of providing regulated services; and
set at levels that will recover our costs when considering the demand and competition for our services.

See Note 8 for additional information regarding our regulatory assets and liabilities disclosures.

Pension and Other Postemployment Employee Benefits - We have defined benefit retirement plans covering eligible employees. We also sponsor welfare plans that provide other postemployment medical and life insurance benefits to eligible employees who retire with at least five years of service. To calculate the costs and liabilities related to our plans, we utilize an outside actuarial consultant, which uses statistical and other factors to anticipate future events. These factors include assumptions about the discount rate, expected return on plan assets, rate of future compensation increases, age and mortality and employment periods. We use tables issued by the Society of Actuaries to estimate mortality rates. In determining the projected benefit obligations and costs, assumptions can change from period to period and may result in material changes in the cost and liabilities we recognize.

Income Taxes - Deferred income taxes are recorded for the difference between the financial statement and income tax basis of assets and liabilities and carryforward items, based on income tax laws and rates existing at the time the temporary differences are expected to reverse. The effect on deferred income taxes of a change in tax rates is deferred and amortized for operations regulated by the OCC, KCC, RRC and various municipalities in Texas, if, as a result of an action by a regulator, it is probable that the effect of the change in tax rates will be recovered from or returned to customers through future rates. We continue to amortize previously deferred investment tax credits for ratemaking purposes over the periods prescribed by our regulators.

A valuation allowance for deferred income tax assets is recognized when it is more likely than not that some or all of the benefit from the deferred income tax asset will not be realized. To assess that likelihood, we use estimates and judgment regarding our future taxable income, as well as the jurisdiction in which such taxable income is generated, to determine whether a valuation allowance is required. Such evidence can include our current financial position, our results of operations, both actual and forecasted, the reversal of deferred income tax liabilities, as well as the current and forecasted business economics of our industry. We had no valuation allowance at December 31, 2017 and 2016.

We utilize a more-likely-than-not recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position that is taken or expected to be taken in a tax return. We reflect penalties and interest as part of income tax expense as they become applicable for tax provisions that do not meet the more-likely-than-not recognition threshold and measurement attribute. There were no material uncertain tax positions at December 31, 2017 and 2016.

See Note 12 for additional information regarding income taxes.

Asset Retirement Obligations - Asset retirement obligations represent legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or normal use of the asset. Certain long-lived assets that comprise our natural gas distribution systems, primarily our pipeline assets, are subject to agreements or regulations that give rise to an asset retirement obligation for removal or other disposition costs associated with retiring the assets in place upon the discontinued use of the natural gas distribution system. We recognize the fair value of a liability for an asset retirement obligation in the period when it is incurred if a reasonable estimate of the fair value can be made. We are not able to estimate reasonably the fair value of the asset retirement obligations for portions of our assets because the settlement dates are indeterminable given our expected continued use of the assets with proper maintenance. We expect our natural gas distribution systems will continue in operation as long as natural gas supply and demand for natural gas distribution service exists. Based on the widespread use of natural gas for heating and cooking activities by residential and commercial customers in our service areas, management expects supply and demand to exist for the foreseeable future.

In accordance with long-standing regulatory treatment, we collect through rates the estimated costs of removal on certain regulated properties through depreciation expense, with a corresponding credit to accumulated depreciation and amortization. These removal costs collected through our rates include costs attributable to legal and nonlegal removal obligations; however, the amounts collected that are in excess of these nonlegal asset-removal costs incurred are accounted for as a regulatory liability for financial reporting purposes. Historically, with the exception of the regulatory authority in Kansas, the regulatory authorities that have jurisdiction over our regulated operations have not required us to quantify or disclose this amount; rather, these costs are addressed prospectively in depreciation rates and are set in each general rate order. We have made an estimate of our regulatory liability using current rates since the last general rate order in each of our jurisdictions if the removal costs collected have exceeded our removal cost incurred; however, for financial reporting purposes, significant uncertainty exists regarding the future disposition of this regulatory liability, pending, among other issues, clarification of regulatory intent. We continue to monitor the regulatory requirements, and the liability may be adjusted as more information is obtained. We record the estimated asset removal obligation in noncurrent liabilities in other deferred credits on our Consolidated Balance Sheets. To the extent this estimated liability is adjusted, such amounts will be reclassified between accumulated depreciation and amortization and other deferred credits and therefore will not have an impact on earnings.

Contingencies - Our accounting for contingencies covers a variety of business activities, including contingencies for legal and environmental exposures. We accrue these contingencies when our assessments indicate that it is probable that a liability has been incurred or an asset will not be recovered and an amount can be estimated reasonably. We expense legal fees as incurred and base our legal liability estimates on currently available facts and our estimates of the ultimate outcome or resolution. Accruals for estimated losses from environmental remediation obligations generally are recognized no later than the completion of a remediation feasibility study. Recoveries of environmental remediation costs from other parties are recorded as assets when their receipt is deemed probable. Actual results may differ from our estimates resulting in an impact, positive or negative, on earnings.

See Note 13 for additional information regarding contingencies.

Share-Based Payments - We expense the fair value of share-based payments net of estimated forfeitures. We estimate forfeiture rates based on historical forfeitures under our share-based payment plans.

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 the above, plus unvested stock awards granted under our compensation plans, but only to the extent these instruments dilute earnings per share.

Segments - We operate in one reportable business segment: regulated public utilities that deliver natural gas to residential, commercial, industrial, wholesale, public authority and transportation customers. We define reportable business segments as components of an organization for which discrete financial information is available and operating results are evaluated on a regular basis by the chief operating decision maker (“CODM”) in order to assess performance and allocate resources. Our CODM is our Chief Executive Officer (“CEO”). Characteristics of our organization that were relied upon in making this determination include the similar nature of services we provide, the functional alignment of our organizational structure, and the reports that are regularly reviewed by the CODM for the purpose of assessing performance and allocating resources. Our management is functionally aligned and centralized, with performance evaluated based upon results of the entire distribution business. Capital allocation decisions are driven by asset integrity management, operating efficiency, growth opportunities and government relocations, not geographic location or regulatory jurisdiction.

In 2017, 2016 and 2015, we had no single external customer from which we received 10 percent or more of our gross revenues.

Treasury Stock - We record treasury stock purchases at cost, which includes incremental direct transaction costs. Amounts are recorded as reductions in equity in our Consolidated Balance Sheets. We record the reissuance of treasury stock at our weighted average cost of treasury shares recorded in equity in our Consolidated Balance Sheets.

Recently Issued Accounting Standards Update - 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 to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017.  This new guidance is required for our interim and annual reports for periods beginning after December 15, 2018, and early adoption is permitted.  We are currently assessing the timing and impacts of adopting this standard, but do not expect a material impact to our consolidated financial statements.


In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities,” which allows more types of hedging strategies to be eligible for hedge accounting and simplifies application of hedge accounting. This new guidance is required for our interim and annual reports for periods beginning after December 15, 2018, and early adoption is permitted, but must be applied as of the beginning of the fiscal year, or initial application date. The impact of this guidance is not material to us, as we have not elected hedge accounting due to the nature of the types of derivatives we have entered.

In March 2017, the FASB issued ASU 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” which requires (1) separation of net periodic service costs for pension and other postemployment benefits into service cost and other components, (2) presentation of the service cost component in the same line as other compensation costs rendered by pertinent employees during the period, and (3) reporting the other components of net periodic benefit costs separately from the service cost component and outside a subtotal of income from operations. Additionally, only the service cost component is eligible for capitalization for GAAP, when applicable. However, all of our cost components remain eligible for capitalization under the accounting requirements for rate regulated entities.

We will adopt this guidance for our interim and annual reports in the first quarter of 2018. When adopted, the presentation changes required for net periodic benefit costs will not impact previously reported net income; however, the reclassification of the other components of benefits costs will result in an increase in operating income and an increase in other expenses for 2017 and 2016 of $17.3 million and $19.8 million, respectively. We will use the retroactive presentation that permits the use of the amounts disclosed for the various components of net benefit cost in our Employee Benefit Plans footnote to our consolidated financial statements as the basis for the retrospective application. In addition, we updated our information systems for the capitalization of service costs to property and non-service costs to a regulatory asset on a prospective basis, as well as the appropriate accounts for non-service costs to apply retroactive reclassification.

In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” which simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 of the goodwill test, where the measurement of a goodwill impairment loss was determined by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Upon adoption, a goodwill impairment will be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.  We early adopted this new guidance in the current year, and it did not have an impact on our consolidated financial statements. See our conclusions regarding our current year Goodwill Impairment Test above.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments,’’ which introduced 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 may be adopted a year earlier. 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 by the first quarter of 2020.

In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting,” which includes various new aspects to simplify how share-based payments are accounted for and presented in the consolidated financial statements. The new standard modifies several aspects of the accounting and reporting for employee share-based payments and related tax accounting impacts, including the presentation in the consolidated statements of operations and cash flows. We adopted this new guidance in the first quarter 2017, and in accordance with the transition requirements, we recorded $5.2 million of excess tax benefit in income tax expense and have transitioned all provisions of this new guidance prospectively, other than our presentation of our withholding shares for tax-withholding purposes, which we accounted for retrospectively in the Financing Activities section of our Consolidated Statement of Cash Flows. We recorded a noncash cumulative-effect increase of $11.0 million to retained earnings, with an offset to a deferred income tax asset, as of the beginning of the reporting period in 2017, for excess tax benefits earned prior to January 1, 2017, that had not been recognized. We continue our use of the estimation method to account for share unit award forfeitures rather than actual forfeitures. The retrospective impact of our withholding shares for tax-withholding purposes to our Consolidated Statement of Cash Flows for the year ended December 31, 2016, was a $9.0 million increase to net cash provided by operating activities and a $9.0 million decrease to net cash used in financing activities. The retrospective impact of our withholding shares for tax-withholding purposes to our Consolidated Statement of Cash Flows for the year ended December 31, 2015, was a $13.7 million increase to net cash provided by operating activities and a $13.7 million decrease to net cash used in financing activities.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which prescribes recognizing lease assets and liabilities on the balance sheet and includes disclosure of key information about leasing arrangements.  A modified retrospective transition approach is required for leases existing at the time of adoption. In January 2018, the FASB issued ASU 2018-01, “Leases (Topic 842),” as an amendment to address stakeholder concerns about the costs and complexity of complying with the transition provisions of the new lease requirements to provide an optional transition practical expedient to not evaluate under Topic 842 existing or expired land easements that were not previously accounted for as leases under the current leases guidance in Topic 840. We are continuing to evaluate our population of leases, analyzing lease agreements, and holding meetings with cross-functional teams to determine the potential impact of this accounting standard on our financial position and results of operations and the transition approach we will utilize. We will adopt this new guidance in the first quarter of 2019.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” (“ASC 606”), which clarifies and converges the revenue recognition principles under GAAP and International Financial Reporting Standards. In July 2015, FASB delayed the effective date for one year. We have evaluated all of our sources of revenue to determine the potential effect on our financial position, results of operations, cash flows and the related accounting policies and business processes. We will adopt this new guidance for our interim and annual reports beginning in the first quarter 2018, using the modified retrospective method. There will not be a cumulative adjustment to our opening retained earnings. The only impact we expect would be a reclassification of certain revenues that do not meet the requirements under ASC 606 as revenues from contracts with customers, but will continue to be reflected as other revenues in determining total revenue. The items we expect to reclassify relate primarily to the weather normalization mechanism in Kansas, where the KCC determines how we reflect variations in weather in our rates billed to customers. We have determined the majority of our tariffs to be contracts with customers which are settled over time, where our performance obligation is settled with our customer when natural gas is delivered and simultaneously consumed.

The majority of our revenues that meet the requirements under ASC 606 are considered implied contracts, as established by our tariff rates approved by regulatory authorities. Our sources of revenue will be disaggregated by natural gas sales (including sales to residential, commercial, industrial, wholesale and public authority customers), transportation revenue, and other utility revenues, which are primarily one-time service fees, that meet the requirements under ASC 606. The reclassification of certain revenues that do not meet the requirements under ASC 606 will be classified as other revenues on the Consolidated Income Statement and in our Notes to Consolidated Financial Statements. Additionally, for our natural gas sales and transportation revenues, our customers receive 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 and consumes the natural gas. For our other utility revenue, the performance obligation of one time services are satisfied at a point in time when services are rendered to the customer. In addition, we will use the invoice method practical expedient, where we will recognize revenue for volumes delivered for which we have a right to invoice.
CREDIT FACILITY AND SHORT-TERM NOTES PAYABLE (Notes)
Short-term Debt [Text Block]
2.
CREDIT FACILITY AND SHORT-TERM NOTES PAYABLE

In October 2017, we amended and restated our revolving 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 will also be 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 2022, 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. The ONE Gas Credit Agreement also contains customary affirmative and negative covenants, including covenants relating to liens, indebtedness of subsidiaries, investments, changes in the nature of business, fundamental changes, transactions with affiliates, burdensome agreements, and use of proceeds. In the event of a breach of certain covenants by ONE Gas, amounts outstanding under the ONE Gas Credit Agreement may become due and payable immediately. At December 31, 2017, our total debt-to-capital ratio was 44 percent and we were in compliance with all covenants under the ONE Gas Credit Agreement.

The ONE Gas Credit Agreement contains provisions for an applicable margin rate and an annual 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 79.5 basis points, and the annual facility fee is 8 basis points.

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 sold generally at par less a discount representing an interest factor.

The ONE Gas Credit Agreement is available to repay the commercial paper notes, if necessary. Amounts outstanding under the commercial paper program reduce the borrowing capacity under the ONE Gas Credit Agreement.

At December 31, 2017, we had $357.2 million of commercial paper, $2.1 million in letters of credit issued under the ONE Gas Credit Agreement, with no borrowings and $340.7 million of remaining credit available under the ONE Gas Credit Agreement. The weighted-average interest rate on our commercial paper was 1.55 percent and 0.95 percent at December 31, 2017 and 2016, respectively.
LONG-TERM DEBT (Notes)
Long-term Debt [Text Block]
3.
LONG-TERM DEBT

We have senior notes consisting of $300 million of 2.07 percent senior notes due 2019, $300 million of 3.61 percent senior notes due 2024 and $600 million of 4.658 percent senior notes due 2044. 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 the aggregate principal amount of the outstanding Senior Notes to declare those senior notes immediately due and payable in full.

We may redeem our Senior Notes at par, plus accrued and unpaid interest to the redemption date, starting one month, three months, and six months, respectively, before their maturity dates. Prior to these dates, we may redeem these Senior Notes, in whole or in part, at a redemption price equal to the principal amount, plus accrued and unpaid interest and a make-whole premium. The redemption price will never be less than 100 percent of the principal amount of the respective note plus accrued and unpaid interest to the redemption date. Our Senior Notes are senior unsecured obligations, ranking equally in right of payment with all of our existing and future unsecured senior indebtedness.
EQUITY (Notes)
Stockholders' Equity Note Disclosure [Text Block]
4.
EQUITY

Preferred Stock - At December 31, 2017, we had 50 million, $0.01 par value, authorized shares of preferred stock available. We have not issued or established any classes or series of shares of preferred stock.

Common Stock - At December 31, 2017, we had approximately 197.7 million shares of authorized common stock available for issuance.

Treasury Shares - We purchase treasury shares to be used to offset shares issued under our equity compensation plan and the ESPP. Our Board of Directors established an annual limit of $20 million of treasury stock purchases, exclusive of funds received through the dividend reinvestment and the ESPP. Stock purchases may be made in the open market or in private transactions at times, and in amounts that we deem appropriate. There is no guarantee as to the exact number of shares that we purchase, and we can terminate or limit the program at any time.

Dividends Declared - In January 2018, we declared a dividend of $0.46 per share ($1.84 per share on an annualized basis) for shareholders of record on February 23, 2018, payable March 9, 2018.
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Notes)
Comprehensive Income (Loss) Note [Text Block]
5.
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table sets forth the balance in accumulated other comprehensive income (loss) for the period indicated:
 
 
Accumulated Other Comprehensive Income (Loss)
 
 
(Thousands of dollars)
January 1, 2016
 
$
(4,401
)
Pension and other postemployment benefit plans obligations
 
 
Other comprehensive income (loss) before reclassification, net of tax of $486
 
(776
)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax of $(289)
 
462

Other comprehensive income (loss)
 
(314
)
December 31, 2016
 
(4,715
)
Pension and other postemployment benefit plans obligations
 
 
Other comprehensive income (loss) before reclassification, net of tax of $808
 
(1,293
)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax of $(322)
 
515

Other comprehensive income (loss)
 
(778
)
December 31, 2017
 
$
(5,493
)


The following table sets forth the effect of reclassifications from accumulated other comprehensive income (loss) on our Consolidated Statements of Income for the period indicated:
 
 
 
 
 
 
 
Affected Line Item in the
Details about Accumulated Other Comprehensive Income
 
Year Ended December 31,
Consolidated Statements of
(Loss) Components
 
2017
 
2016
 
2015
Income
 
 
(Thousands of dollars)
 
Pension and other postemployment benefit plan obligations (a)
 
 
 
 
 
 
 
Amortization of net loss
 
$
42,591

 
$
40,912

 
$
47,494

 
Amortization of unrecognized prior service cost
 
(4,597
)
 
(3,316
)
 
(1,962
)
 
 
 
37,994

 
37,596

 
45,532

 
Regulatory adjustments (b)
 
(37,157
)
 
(36,845
)
 
(44,615
)
 
 
 
837

 
751

 
917

Income before income taxes
 
 
(322
)
 
(289
)
 
(353
)
Income tax expense
Total reclassifications for the period
 
$
515

 
$
462

 
$
564

Net income
(a) These components of accumulated other comprehensive income (loss) are included in the computation of net periodic benefit cost. See Note 11 for additional information regarding our net periodic benefit cost.
(b) 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 8 for additional information regarding our regulatory assets and liabilities.
EARNINGS PER SHARE (Notes)
Earnings Per Share [Text Block]
6.
EARNINGS PER SHARE

The following tables set forth the computation of basic and diluted EPS from continuing operations for the periods indicated:
 
Year Ended December 31, 2017
 
Income
 
Shares
 
Per Share
Amount
 
(Thousands, except per share amounts)
Basic EPS Calculation
 
 
 
 
 
Net income available for common stock
$
162,995

 
52,527

 
$
3.10

Diluted EPS Calculation
 

 
 

 
 

Effect of dilutive securities

 
452

 
 

Net income available for common stock and common stock equivalents
$
162,995

 
52,979

 
$
3.08


 
Year Ended December 31, 2016
 
Income
 
Shares
 
Per Share
Amount
 
(Thousands, except per share amounts)
Basic EPS Calculation
 
 
 
 
 
Net income available for common stock
$
140,095

 
52,453

 
$
2.67

Diluted EPS Calculation
 
 
 

 
 

Effect of dilutive securities

 
510

 
 

Net income available for common stock and common stock equivalents
$
140,095

 
52,963

 
$
2.65


 
Year Ended December 31, 2015
 
Income
 
Shares
 
Per Share
Amount
 
(Thousands, except per share amounts)
Basic EPS Calculation
 
 
 
 
 
Net income available for common stock
$
119,030

 
52,578

 
$
2.26

Diluted EPS Calculation
 

 
 

 
 

Effect of dilutive securities

 
676

 
 

Net income available for common stock and common stock equivalents
$
119,030

 
53,254

 
$
2.24

DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Notes)
Fair Value Disclosures
7.
DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

Derivative Instruments - At December 31, 2017, we held purchased natural gas call options for the heating season ending March 2018, with total notional amounts of 14.1 Bcf, for which we paid premiums of $5.5 million, and which had a fair value of $1.1 million. At December 31, 2016, we held purchased natural gas call options for the heating season ended March 2017, with total notional amounts of 14.3 Bcf, for which we paid premiums of $5.4 million, and which had a fair value of $6.5 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 periods presented.

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.

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 $1.2 billion at both December 31, 2017 and 2016. The estimated fair value of our long-term debt, including current maturities, was $1.3 billion  and $1.2 billion at December 31, 2017 and 2016, respectively. The estimated fair value of our Senior Notes was determined using quoted market prices, and are considered Level 2.
REGULATORY ASSETS AND LIABILITIES (Notes)
Schedule of Regulatory Assets and Liabilities
8.
REGULATORY ASSETS AND LIABILITIES

The table below presents a summary of regulatory assets, net of amortization, and liabilities for the periods indicated:
 
 
 
 
December 31, 2017
 
 
Remaining Recovery Period
 
Current
 
Noncurrent
 
Total
 
 
 
 
(Thousands of dollars)
Under-recovered purchased-gas costs
 
1 year
 
$
41,238

 
$

 
$
41,238

Pension and other postemployment benefit costs
 
See Note 11
 
25,156

 
387,582

 
412,738

Weather normalization
 
1 year
 
17,461

 

 
17,461

Reacquired debt costs
 
10 years
 
812

 
7,298

 
8,110

MGP remediation costs
 
15 years
 

 
6,104

 
6,104

Other
 
1 to 21 years
 
3,513

 
4,205

 
7,718

Total regulatory assets, net of amortization
 
 
 
88,180

 
405,189

 
493,369

Federal income tax rate changes (a)
 
See Note 12
 

 
(519,421
)
 
(519,421
)
Over-recovered purchased-gas costs
 
1 year
 
(9,434
)
 

 
(9,434
)
Ad-valorem tax
 
1 year
 
(4
)
 

 
(4
)
Total regulatory liabilities
 
 
 
(9,438
)
 
(519,421
)
 
(528,859
)
Net regulatory assets and liabilities
 
 
 
$
78,742

 
$
(114,232
)
 
$
(35,490
)
(a) See Note 12 for additional information regarding our federal income tax rate changes regulatory liabilities.

 
 
 
 
December 31, 2016
 
 
Remaining Recovery Period
 
Current
 
Noncurrent
 
Total
 
 
 
 
(Thousands of dollars)
Under-recovered purchased-gas costs
 
1 year
 
$
29,901

 
$

 
$
29,901

Pension and other postemployment benefit costs
 
See Note 11
 
31,498

 
427,448

 
458,946

Weather normalization
 
1 year
 
17,661

 

 
17,661

Reacquired debt costs
 
11 years
 
812

 
8,108

 
8,920

Other
 
1 to 22 years
 
3,274

 
4,966

 
8,240

Total regulatory assets, net of amortization
 
 
 
83,146

 
440,522

 
523,668

Over-recovered purchased-gas costs
 
1 year
 
(10,154
)
 

 
(10,154
)
Ad-valorem tax
 
1 year
 
(1,768
)
 

 
(1,768
)
Total regulatory liabilities
 
 
 
(11,922
)
 

 
(11,922
)
Net regulatory assets and liabilities
 
 
 
$
71,224

 
$
440,522

 
$
511,746


Regulatory assets on our Consolidated Balance Sheets, as authorized by the various regulatory authorities, are probable of recovery. Base rates are designed to provide a recovery of cost during the period 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 recoverable through base rates are subject to review by the respective regulatory authorities during future rate proceedings. We are not aware of any evidence that these costs will not be recoverable through either rate riders or base rates, and we believe that we will be able to recover such costs, consistent with our historical recoveries.

Purchased-gas costs represent the natural gas costs that have been over- or under-recovered from customers through the purchased-gas cost adjustment mechanisms, and includes natural gas utilized in our operations and premiums paid and any cash settlements received from our purchased natural gas call options.

We amortize reacquired debt costs in accordance with the accounting guidelines prescribed by the OCC and KCC.

Weather normalization represents revenue over- or under-recovered through the WNA rider in Kansas. This amount is deferred as a regulatory asset or liability for a 12-month period. Kansas Gas Service then applies an adjustment to the customers’ bills for 12 months to refund the over-collected revenue or bill the under-collected revenue.

Ad-valorem tax represents an increase or decrease in Kansas Gas Service’s taxes above or below the amount approved in a rate case. This amount is deferred as a regulatory asset or liability for a 12-month period. Kansas Gas Service then applies an adjustment to the customers’ bills for 12 months to refund the over-collected revenue or bill the under-collected revenue.

Recovery through rates resulted in amortization of regulatory assets of approximately $1.0 million, $3.8 million and $1.6 million for the years ended December 31, 2017, 2016 and 2015, respectively.

We collect, through our rates, the estimated costs of removal on certain regulated properties through depreciation expense, with a corresponding credit to accumulated depreciation and amortization. These removal costs are nonlegal obligations; however, the amounts collected that are in excess of these nonlegal asset-removal costs incurred are accounted for as a regulatory liability. We have made an estimate of our regulatory liability using current rates since the last general rate order in each of our jurisdictions if the removal costs collected have exceeded our removal costs incurred. We record the estimated nonlegal asset-removal obligation in noncurrent liabilities in other deferred credits on our Consolidated Balance Sheets.

In 2017, we recorded a regulatory asset of approximately $5.9 million for estimated costs expected to be incurred at, and nearby, our 12 former MGP sites which we own or retain responsibility for certain environmental conditions.

In January 2016, as a result of our rate case in Oklahoma, we recorded a regulatory asset of $2.4 million to recover certain information technology costs incurred as a result of our separation from ONEOK in 2014, which will be recovered over four years.
PROPERTY, PLANT AND EQUIPMENT (Notes)
PROPERTY, PLANT AND EQUIPMENT
9.
PROPERTY, PLANT AND EQUIPMENT

The following table sets forth our property, plant and equipment by property type, for the periods indicated:
 
 
December 31,
 
December 31,
 
 
2017
 
2016
 
 
(Thousands of dollars)
Natural gas distribution pipelines and related equipment
 
$
4,572,343

 
$
4,321,429

Natural gas transmission pipelines and related equipment
 
497,791

 
481,953

General plant and other
 
513,445

 
530,459

Construction work in process
 
130,333

 
70,327

Property, plant and equipment
 
5,713,912

 
5,404,168

Accumulated depreciation and amortization
 
(1,706,327
)
 
(1,672,548
)
Net property, plant and equipment
 
$
4,007,585

 
$
3,731,620



We compute depreciation expense by applying composite, straight-line rates of 2.0 percent to 3.0 percent that were approved by various regulatory authorities.

We recorded capitalized interest of $3.0 million, $3.6 million and $2.6 million for the years ended December 31, 2017, 2016 and 2015, respectively. We incurred liabilities for construction work in process and asset removal costs that had not been paid at December 31, 2017, 2016 and 2015 of $21.7 million, $11.9 million and $15.0 million, respectively. Such amounts are not included in capital expenditures on our Consolidated Statements of Cash Flows.
SHARE-BASED PAYMENTS (Notes)
Disclosure of Compensation Related Costs, Share-based Payments
10.
SHARE-BASED PAYMENTS

The ECP provides for the granting of stock-based compensation, including incentive stock options, nonstatutory stock options, stock bonus awards, restricted stock awards, restricted stock unit awards, performance stock awards and performance unit awards to eligible employees and the granting of stock awards to nonemployee directors. We have reserved 2.8 million shares of common stock for issuance under the ECP. At December 31, 2017, we had approximately 0.5 million shares available for issuance under the ECP, which reflect shares issued and estimated shares expected to be issued upon vesting of outstanding awards granted under the plan, less forfeitures. The plan allows for the deferral of awards granted in stock or cash, in accordance with Internal Revenue Code section 409A requirements.

Compensation cost expensed for our share-based payment plans was $4.9 million, net of tax benefits of $3.0 million, for 2017, $7.0 million, net of tax benefits of $4.3 million, for 2016, and $5.7 million, net of tax benefits of $3.5 million, for 2015.

Restricted Stock Unit Awards - We have granted restricted stock unit awards to key employees that vest over a service period of generally three years and entitle the grantee to receive shares of our common stock. Restricted stock unit awards granted accrue dividend equivalents in the form of additional restricted stock units prior to vesting. Restricted stock unit awards are measured at fair value as if they were vested and issued on the grant date, reduced by expected dividend payments for awards that do not accrue dividends and adjusted for estimated forfeitures. Compensation expense is recognized on a straight-line basis over the vesting period of the award. A forfeiture rate of 3 percent per year based on historical forfeitures under our share-based payment plans is used.

Performance Stock Unit Awards - We have granted performance stock unit awards to key employees. The shares of common stock underlying the performance stock units vest at the expiration of a service period of generally three years if certain performance criteria are met by us as determined by the Executive Compensation Committee of the Board of Directors. Upon vesting, a holder of performance stock units is entitled to receive a number of shares of common stock equal to a percentage (0 percent to 200 percent) of the performance stock units granted, based on our total shareholder return over the vesting period, compared with the total shareholder return of a peer group of other utilities over the same period.

If paid, the outstanding performance stock unit awards entitle the grantee to receive shares of our common stock. The outstanding performance stock unit awards are equity awards with a market-based condition, which results in the compensation expense for these awards being recognized on a straight-line basis over the requisite service period, provided that the requisite service period is fulfilled, regardless of when, if ever, the market condition is satisfied. The performance stock unit awards granted accrue dividend equivalents in the form of additional performance stock units prior to vesting. The fair value of these performance stock units was estimated on the grant date based on a Monte Carlo model. The compensation expense on these awards will only be adjusted for changes in forfeitures. A forfeiture rate of 3 percent per year based on historical forfeitures under our share-based payment plans was used.

Restricted Stock Unit Award Activity

As of December 31, 2017, there was $2.6 million of total unrecognized compensation costs related to the nonvested restricted stock unit awards, which is expected to be recognized over a weighted-average period of 1.7 years. The following tables set forth activity and various statistics for restricted stock unit awards outstanding under the respective plans for the period indicated:
 
 
Number of
Units
 
Weighted-
Average Price
Nonvested at December 31, 2016
 
194,900

 
$
41.68

Granted
 
37,825

 
$
63.97

Vested
 
(85,490
)
 
$
33.76

Forfeited
 
(6,570
)
 
$
52.65

Nonvested at December 31, 2017
 
140,665

 
$
51.97

 
 
2017
 
2016
 
2015
Weighted-average grant date fair value (per share)
 
$
63.97

 
$
58.30

 
$
41.40

Fair value of shares granted (thousands of dollars)
 
$
2,420

 
$
2,503

 
$
3,141



The fair value of restricted stock vested was $5.5 million and $4.5 million in 2017 and 2016, respectively.

Performance Stock Unit Award Activity

As of December 31, 2017, there was $5.1 million of total unrecognized compensation cost related to the nonvested performance stock unit awards, which is expected to be recognized over a weighted-average period of 1.7 years. The following tables set forth activity and various statistics related to our performance stock unit awards and the assumptions used by us in the valuations of the 2017, 2016 and 2015 grants at the grant date:
 
 
Number of
Units
 
Weighted-
Average Price
Nonvested at December 31, 2016
 
288,811

 
$
46.06

Granted
 
74,120

 
$
68.94

Vested
 
(117,626
)
 
$
35.98

Forfeited
 
(7,981
)
 
$
58.58

Nonvested at December 31, 2017
 
237,324

 
$
57.78

 
 
2017
 
2016
 
2015
 
Volatility (a)
 
20.70%
 
18.20%
 
15.90%
 
Dividend yield
 
2.63%
 
2.40%
 
2.90%
 
Risk-free interest rate
 
1.48%
 
0.91%
 
1.10%
 
(a) - Volatility based on historical volatility over three years using daily stock price observations of our peer utilities.
 
 
 
2017
 
2016
 
2015
Weighted-average grant date fair value (per share)
 
$
68.94

 
$
64.06

 
$
44.48

Fair value of shares granted (thousands of dollars)
 
$
5,110

 
$
4,766

 
$
4,486



The fair value of performance stock vested was $15.6 million and $19.5 million in 2017 and 2016, respectively.

Employee Stock Purchase Plan

We have reserved a total of 700 thousand shares of common stock for issuance under our ESPP.  Subject to certain exclusions, all employees who work more than 20 hours per week are eligible to participate in the ESPP.  Employees can choose to have up to 10 percent of their annual base pay withheld to purchase our common stock, subject to terms and limitations of the plan. The purchase price of the stock is 85 percent of the lower of the average market price of our common stock on the grant date or exercise date. Approximately 43 percent, 41 percent and 40 percent of employees participated in the plan in 2017, 2016 and 2015, respectively, and purchased 78,472 shares at $56.80 in 2017, 83,431 shares at $54.51 in 2016, and 51,092 shares at $36.15 in 2015. Compensation expense, before taxes, was $1.2 million, $1.4 million and $1.3 million in 2017, 2016 and 2015, respectively.

Employee Stock Award Program

Under the Employee Stock Award Program, we issued, for no monetary consideration, one share of our common stock to all eligible employees when the per-share closing price of our common stock on the NYSE closed for the first time at or above each $1.00 increment above $34. The total number of shares of our common stock authorized for issuance under this program was 125,000. Shares issued to employees under this program during 2017, 2016 and 2015 totaled 13,791, 50,573 and 23,506, respectively, leaving 1,812 shares remaining. Compensation expense, before taxes, related to the Employee Stock Award Program was $0.9 million, $3.0 million and $1.1 million for 2017, 2016 and 2015, respectively. The Employee Stock Award Program will not be renewed.
EMPLOYEE BENEFIT PLANS (Notes)
Pension and Other Postemployment Benefits Disclosure [Text Block]
11.
EMPLOYEE BENEFIT PLANS

Retirement and Other Postemployment Benefit Plans

Retirement Plans - We have a defined benefit pension plan covering nonbargaining-unit employees hired before January 1, 2005, and certain bargaining-unit employees hired before December 15, 2011. Nonbargaining-unit employees hired after December 31, 2004; employees represented by Local No. 304 of the International Brotherhood of Electrical Workers (“IBEW”) hired on or after July 1, 2010; employees represented by the United Steelworkers hired on or after December 15, 2011; and employees who accepted a one-time opportunity to opt out of the defined benefit pension plan are covered by a profit-sharing plan. Certain employees of the Texas Gas Service division are entitled to benefits under a frozen cash-balance pension plan. In addition, we have a supplemental executive retirement plan for the benefit of certain officers. No new participants in the supplemental executive retirement plan have been approved since 2005, and it was formally closed to new participants as of January 1, 2014. We fund our defined benefit pension costs at a level needed to maintain or exceed the minimum funding levels required by the Employee Retirement Income Security Act of 1974, as amended, and the Pension Protection Act of 2006. Pension expense was $30.2 million, $32.0 million and $38.0 million in 2017, 2016 and 2015, respectively.

Other Postemployment Benefit Plans - We sponsor health and welfare plans that provide postemployment medical and life insurance benefits to certain employees who retire with at least five years of service. The postemployment medical plan is contributory based on hire date, age and years of service, with retiree contributions adjusted periodically, and contains other cost-sharing features such as deductibles and coinsurance. Other postemployment benefit expense was $1.7 million, $2.6 million and $5.0 million in 2017, 2016 and 2015, respectively, prior to regulatory deferrals.

Plan Amendments - In September 2016, due to uncertain market conditions with health insurance exchange providers, we elected not to move the eligible pre-65 participants in our postemployment medical plans to a healthcare exchange. As a result, we remeasured the respective plan assets and benefit obligations, effective September 30, 2016. In the fourth quarter of 2016, we further amended our other postemployment medical plan to allow certain participants access to reimbursable retirement accounts. The net impact of these plan amendments in 2016 was a $483 thousand increase in our other postemployment benefit plan obligation.
 
Actuarial Assumptions - The following table sets forth the weighted-average assumptions used to determine benefit obligations for pension and postemployment benefits for the periods indicated:
 
 
December 31,
 
 
2017
 
2016
Discount rate - pension plans
 
3.80%
 
4.30%
Discount rate - other postemployment plans
 
3.70%
 
4.20%
Compensation increase rate
 
3.25% - 3.35%
 
3.25% - 3.40%

The following table sets forth the weighted-average assumptions used by us to determine the periodic benefit costs for the periods indicated:
 
 
Years Ended December 31,
 
 
 
2017
 
2016
 
 
2015
 
Discount rate - pension plans
 
4.30%
 
4.75%
 
 
4.25%/4.75%
(c)
Discount rate - other postemployment plans
 
4.20%
 
4.75%/3.75%
(a)
 
4.25%/4.75%
(c)
Expected long-term return on plan assets - pension plans
 
7.75%
 
7.75%
 
 
7.75%
 
Expected long-term return on plan assets - other postemployment plans
 
7.60%
 
8.00%/7.75%
(b)
 
7.75%
 
Compensation increase rate
 
3.25% - 3.40%
 
3.35% - 3.40%
 
 
3.30% - 3.50%
 

(a) Discount rate for the nine months ended September 30, 2016, and three months ended December 31, 2016, respectively.
(b) Expected long-term return on plan assets for the nine months ended September 30, 2016, and three months ended December 31, 2016, respectively.
(c) Discount rate for the nine months ended September 30, 2015, and three months ended December 31, 2015, respectively.

We determine our overall expected long-term rate of return on plan assets, based on our review of historical returns and economic growth models. At December 31, 2017, we updated our assumed mortality rates to incorporate the new set of mortality tables issued by the Society of Actuaries in October 2017.

We determine our discount rates annually.  We estimate our discount rate based upon a comparison of the expected cash flows associated with our future payments under our defined benefit pension and other postemployment obligations to a hypothetical bond portfolio created using high-quality bonds that closely match expected cash flows.  Bond portfolios are developed by selecting a bond for each of the next 60 years based on the maturity dates of the bonds.  Bonds selected to be included in the portfolios are only those rated by Moody’s as AA- or better and exclude callable bonds, bonds with less than a minimum issue size, yield outliers and other filtering criteria to remove unsuitable bonds.

Regulatory Treatment - The OCC, KCC and regulatory authorities in Texas have approved the recovery of pension costs and other postemployment benefits costs through rates for Oklahoma Natural Gas, Kansas Gas Service and Texas Gas Service, respectively. The costs recovered through rates are based on current funding requirements and the net periodic benefit cost for defined benefit pension and other postemployment costs. Differences, if any, between the expense and the amount recovered through rates would be reflected in earnings, net of authorized deferrals.

We historically have recovered defined benefit pension and other postemployment benefit costs through rates. We believe it is probable that regulators will continue to include the net periodic pension and other postemployment benefit costs in our cost of service.

Obligations and Funded Status - The following table sets forth our defined benefit pension and other postemployment benefit plans, benefit obligations and fair value of plan assets for the periods indicated:

 
Pension Benefits
 
Other Postemployment Benefits
 
December 31,
 
December 31,
 
2017
 
2016
 
2017
 
2016
Changes in Benefit Obligation
(Thousands of dollars)
 
 
Benefit obligation, beginning of period
$
966,531

 
$
985,624

 
$
243,548

 
$
228,253

Service cost
12,176

 
12,055

 
2,509

 
2,675

Interest cost
40,453

 
45,550

 
9,890

 
10,235

Plan participants’ contributions

 

 
3,483

 
3,043

Actuarial loss (gain)
76,325

 
25,886

 
12,129

 
14,309

Benefits paid
(55,107
)
 
(71,066
)
 
(16,690
)
 
(15,450
)
Plan amendment

 

 
171

 
483

Settlements
(46,487
)
 
(31,518
)
 

 

   Benefit obligation, end of period
993,891

 
966,531

 
255,040

 
243,548

 
 
 
 
 
 
 
 
Change in Plan Assets
 
 
 
 
 
 
 
Fair value of plan assets, beginning of period
739,586

 
785,161

 
166,046

 
155,495

Actual return on plan assets
135,056

 
48,768

 
31,228

 
9,733

Employer contributions
111,936

 
12,441

 
6,159

 
13,225

Plan participants’ contributions

 

 
3,483

 
3,043

Benefits paid
(55,107
)
 
(71,066
)
 
(16,690
)
 
(15,450
)
Settlements
(46,667
)
 
(35,718
)
 

 

   Fair value of assets, end of period
884,804

 
739,586

 
190,226

 
166,046

   Balance at December 31
$
(109,087
)
 
$
(226,945
)
 
$
(64,814
)
 
$
(77,502
)
 
 
 
 
 
 
 
 
Current liabilities
$
(963
)
 
$
(941
)
 
$

 
$

Noncurrent liabilities
(108,124
)
 
(226,004
)
 
(64,814
)
 
(77,502
)
   Balance at December 31
$
(109,087
)
 
$
(226,945
)
 
$
(64,814
)
 
$
(77,502
)


We made contributions to our pension plan of $111.9 million and $12.4 million during 2017 and 2016, respectively. During 2017 and 2016, we purchased group annuity contracts for approximately $46.7 million and $35.7 million, respectively, and transferred to a third-party insurance company liabilities of approximately $46.5 million and $31.5 million, respectively, related to certain participants in our defined benefit pension plan. Benefits paid includes $18.1 million of lump sum payments to certain terminated vested participants during 2016.

The accumulated benefit obligation for our defined benefit pension plans was $936.7 million and $912.4 million at December 31, 2017 and 2016, respectively.

There are no plan assets expected to be withdrawn and returned to us in 2018.

Components of Net Periodic Benefit Cost - The following tables set forth the components of net periodic benefit cost for our defined benefit pension and other postemployment benefit plans for the period indicated:

 
Pension Benefits
 
Year Ended December 31,
 
2017
 
2016
 
2015
 
(Thousands of dollars)
Components of net periodic benefit cost
 
 
 
 
 
Service cost
$
12,176

 
$
12,055

 
$
13,660

Interest cost
40,453

 
45,550

 
43,542

Expected return on assets
(58,496
)
 
(61,183
)
 
(61,769
)
Amortization of unrecognized prior service cost

 

 
266

Amortization of net loss
36,107

 
35,543

 
42,226

Settlements

 

 
27

   Net periodic benefit cost
$
30,240

 
$
31,965

 
$
37,952


 
Other Postemployment Benefits
 
Year Ended December 31,
 
2017
 
2016
 
2015
 
(Thousands of dollars)
Components of net periodic benefit cost
 
 
 
 
 
Service cost
$
2,509

 
$
2,675

 
$
3,257

Interest cost
9,890

 
10,235

 
10,628

Expected return on assets
(12,590
)
 
(12,370
)
 
(11,892
)
Amortization of unrecognized prior service cost
(4,597
)
 
(3,316
)
 
(2,228
)
Amortization of net loss
6,484

 
5,369

 
5,268

   Net periodic benefit cost
$
1,696

 
$
2,593

 
$
5,033



Other Comprehensive Income (Loss) - The following table sets forth the amounts recognized in other comprehensive income (loss) related to our defined benefit pension benefits for the period indicated:

 
Pension Benefits
 
Year Ended December 31,
 
2017
 
2016
 
2015
 
(Thousands of dollars)
Net gain (loss) arising during the period
$
(2,101
)
 
$
(1,262
)
 
$
339

Amortization of loss
837

 
751

 
917

Deferred income taxes
486

 
197

 
(483
)
   Total recognized in other comprehensive income (loss)
$
(778
)
 
$
(314
)
 
$
773



There were no amounts recognized in other comprehensive income (loss) related to our other postemployment benefits for the periods presented.

The tables below set forth the amounts in accumulated other comprehensive income (loss) that had not yet been recognized as components of net periodic benefit expense for the periods indicated:

 
Pension Benefits
 
December 31,
 
2017
 
2016
 
(Thousands of dollars)
Prior service credit (cost)
$

 
$

Accumulated loss
(378,595
)
 
(414,757
)
Accumulated other comprehensive loss
  before regulatory assets
(378,595
)
 
(414,757
)
Regulatory asset for regulated entities
369,647

 
407,073

Accumulated other comprehensive loss
  after regulatory assets
(8,948
)
 
(7,684
)
Deferred income taxes
3,455

 
2,969

Accumulated other comprehensive loss,
  net of tax
$
(5,493
)
 
$
(4,715
)

 
Other Postemployment Benefits
 
December 31,
 
2017
 
2016
 
(Thousands of dollars)
Prior service credit (cost)
$
5,442

 
$
10,211

Accumulated loss
(49,030
)
 
(62,084
)
Accumulated other comprehensive loss
  before regulatory assets
(43,588
)
 
(51,873
)
Regulatory asset for regulated entities
43,588

 
51,873

Accumulated other comprehensive loss
  after regulatory assets

 

Deferred income taxes

 

Accumulated other comprehensive loss,
  net of tax
$

 
$



The following table sets forth the amounts recognized in either accumulated comprehensive income (loss) or regulatory assets expected to be recognized as components of net periodic benefit expense in the next fiscal year:

 
Pension Benefits
 
Other Postemployment Benefits
Amounts to be recognized in 2018
(Thousands of dollars)
Prior service credit (cost)
$

 
$
(4,567
)
Actuarial net loss
$
39,913

 
$
3,887



Health Care Cost Trend Rates - The following table sets forth the assumed health care cost-trend rates for the periods indicated:


2017
 
2016
Health care cost-trend rate assumed for next year
7.00%
 
7.25%
Rate to which the cost-trend rate is assumed to decline
  (the ultimate trend rate)
5.00%
 
5.00%
Year that the rate reaches the ultimate trend rate
2023
 
2022


Assumed health care cost-trend rates have a significant effect on the amounts reported for our health care plans. A one percentage point change in assumed health care cost-trend rates would have the following effects:


One Percentage

One Percentage

Point Increase

Point Decrease

(Thousands of dollars)
Effect on total of service and interest cost
$
239


$
(238
)
Effect on other postemployment benefit obligation
$
2,906


$
(3,006
)


Plan Assets - Our investment strategy is to invest plan assets in accordance with sound investment practices that emphasize long-term fundamentals. The goal of this strategy is to maximize investment returns while managing risk in order to meet the plan’s current and projected financial obligations. To achieve this strategy, we have established a liability-driven investment strategy to change the allocations as the plan reaches certain funded status. The plan’s investments include a diverse blend of various domestic and international equities, investment-grade debt securities which mirror the cash flows of our liability, insurance contracts and alternative investments. The current target allocation for the assets of our defined benefit pension plan is as follows:
 
 
Investment-grade bonds
40.0
%
U.S. large-cap equities
18.0
%
Alternative investments
14.0
%
Developed foreign large-cap equities
10.0
%
Mid-cap equities
7.0
%
Emerging markets equities
6.0
%
Small-cap equities
5.0
%
  Total
100
%

As part of our risk management for the plans, minimums and maximums have been set for each of the asset classes listed above. All investment managers for the plan are subject to certain restrictions on the securities they purchase and, with the exception of indexing purposes, are prohibited from owning our stock.

The current target allocation for the assets of our other postemployment benefits plan is 30 percent fixed income securities and 70 percent equity securities.

The following tables set forth our pension benefits and other postemployment benefits plan assets by fair value category as of the measurement date:


Pension Benefits

December 31, 2017
Asset Category
Level 1
Level 2
Level 3
Total

(Thousands of dollars)
Investments:




Equity securities (a)
$
301,911

$
91,014

$

$
392,925

Government obligations

74,596


74,596

Corporate obligations (b)

260,907


260,907

Cash and money market funds (c)
21,139

20,787


41,926

Insurance contracts and group annuity contracts


35,158

35,158

Other investments (d)

585

78,707

79,292

  Total assets
$
323,050

$
447,889

$
113,865

$
884,804

(a) - This category represents securities of the various market sectors from diverse industries.
(b) - This category represents bonds from diverse industries.
(c) - This category is primarily money market funds.
(d) - This category represents alternative investments such as hedge funds and other financial instruments.

 
Pension Benefits
 
December 31, 2016
Asset Category
Level 1
Level 2
Level 3
Total
 
(Thousands of dollars)
Investments:
 
 
 
 
Equity securities (a)
$
371,655

$
58,987

$

$
430,642

Government obligations

47,445


47,445

Corporate obligations (b)

129,036


129,036

Cash and money market funds (c)
13,786

16,114


29,900

Insurance contracts and group annuity contracts


45,140

45,140

Other investments (d)

71

57,352

57,423

  Total assets
$
385,441

$
251,653

$
102,492

$
739,586

(a) - This category represents securities of the various market sectors from diverse industries.
(b) - This category represents bonds from diverse industries.
(c) - This category is primarily money market funds.
(d) - This category represents alternative investments such as hedge funds and other financial instruments.

 
Other Postemployment Benefits
 
December 31, 2017
Asset Category
Level 1
Level 2
Level 3
Total
 
(Thousands of dollars)
Investments:
 
 
 
 
Equity securities (a)
$
63,180

$
123

$

$
63,303

Government obligations

101


101

Corporate obligations (b)

25,905


25,905

Cash and money market funds (c)
4,512

28


4,540

Insurance contracts and group annuity contracts

96,377


96,377

  Total assets
$
67,692

$
122,534

$

$
190,226

(a) - This category represents securities of the various market sectors from diverse industries.
(b) - This category represents bonds from diverse industries.
(c) - This category is primarily money market funds.

 
Other Postemployment Benefits
 
December 31, 2016
Asset Category
Level 1
Level 2
Level 3
Total
 
(Thousands of dollars)
Investments:
 
 
 
 
Equity securities (a)
$
39,817

$
7,323

$

$
47,140

Government obligations

75


75

Corporate obligations (b)

19,948


19,948

Cash and money market funds (c)
74

16,989


17,063

Insurance contracts and group annuity contracts

81,820


81,820

  Total assets
$
39,891

$
126,155

$

$
166,046

(a) - This category represents securities of the various market sectors from diverse industries.
(b) - This category represents bonds from diverse industries.
(c) - This category is primarily money market funds.
The following table sets forth the reconciliation of Level 3 fair value measurements of our pension plans for the periods indicated:

 
Pension Benefits
 
Insurance
Contracts
 
Other
Investments
 
Total
 
(Thousands of dollars)
January 1, 2016
$
56,465

 
$
57,972

 
$
114,437

Net realized and unrealized gains (losses)
4,518

 
(620
)
 
3,898

Settlements
(15,843
)
 

 
(15,843
)
December 31, 2016
$
45,140

 
$
57,352

 
$
102,492

Net realized and unrealized gains (losses)
2,569

 
5,055

 
7,624

Purchases

 
16,300

 
16,300

Sales and settlements
(12,551
)
 

 
(12,551
)
December 31, 2017
$
35,158

 
$
78,707

 
$
113,865



Contributions - During 2017, we contributed $111.9 million to our defined benefit pension plans and we contributed $6.2 million to our other postemployment benefit plans. In 2018, we expect to contribute $1.0 million to our defined benefit pension plans and expect to contribute $3.0 million to our other postemployment benefit plans.

Pension and Other Postemployment Benefit Payments - Benefit payments for our defined benefit pension and other postemployment benefit plans for the period ended December 31, 2017 were $55.1 million and $16.7 million, respectively. The following table sets forth the pension benefits and other postemployment benefits payments expected to be paid in 2018-2027:

 
Pension
Benefits
 
Other Postemployment
Benefits
Benefits to be paid in:
(Thousands of dollars)
2018
$
50,875

 
$
17,293

2019
$
51,635

 
$
17,383

2020
$
52,518

 
$
17,538

2021
$
53,516

 
$
17,485

2022
$
54,289

 
$
17,558

2023 through 2027
$
286,188

 
$
85,543



The expected benefits to be paid are based on the same assumptions used to measure our benefit obligation at December 31, 2017, and include estimated future employee service.

Other Employee Benefit Plans

401(k) Plan - We have a 401(k) Plan which covers all full-time employees, and employee contributions are discretionary. We match 100 percent of each participant’s eligible contribution up to 6 percent of eligible compensation, subject to certain limits. Our contributions made to the plan were $11.7 million, $10.8 million and $10.2 million in 2017, 2016 and 2015, respectively.

Profit Sharing Plan - We have a profit sharing plan for all employees who do not participate in our defined benefit pension plan. We plan to make a contribution to the profit sharing plan each quarter equal to 1 percent of each participant’s eligible compensation during the quarter. Additional discretionary employer contributions may be made at the end of each year. Employee contributions are not allowed under the plan. Our contributions made to the plan were $8.1 million, $6.0 million and $6.5 million in 2017, 2016 and 2015, respectively.

Employee Deferred Compensation Plan - Our Nonqualified Deferred Compensation Plan provides certain employees with the option to defer portions of their compensation and provides nonqualified deferred compensation benefits that are not available due to limitations on employer and employee contributions to qualified defined contribution plans under the federal tax laws. Contributions made to the plan were not material in 2017, 2016 and 2015.
INCOME TAXES (Notes)
INCOME TAXES
12.
INCOME TAXES

In December 2017, the Tax Cuts and Jobs Act of 2017 was signed into law. Substantially all of the provisions of the new law are effective for taxable years beginning after December 31, 2017. The new law includes significant changes to the Code, including amendments which significantly change the taxation of business entities and includes specific provisions related to regulated public utilities. The more significant changes that impact us include reductions in the corporate federal statutory income tax rate to 21 percent from 35 percent, and several technical provisions including, among others, the elimination of full expensing for tax purposes of certain property acquired after September 27, 2017, the continuation of certain rate normalization requirements for accelerated depreciation benefits and the general allowance for the continued deductibility of interest expense. Additionally, the new law limits the utilization of NOLs arising after December 31, 2017, to 80 percent of taxable income with an indefinite carryforward.

The staff of the SEC has recognized the complexity of reflecting the impacts of the Tax Cuts and Jobs Act of 2017 and issued guidance in Staff Accounting Bulletin 118 (“SAB 118”) which clarifies accounting for income taxes under ASC 740 if information is not yet available or complete and provides for up to a one-year period in which to complete the required analyses and accounting. 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 have been reflected in our December 31, 2017, consolidated financial statements. We are still analyzing certain aspects of the Tax Cuts and Jobs Act of 2017, refining our calculations and expect additional guidance from the U.S. Department of the Treasury and the Internal Revenue Service.  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.

The following table sets forth our provision for income taxes for the periods indicated:

 
Years Ended December 31,
 
2017
 
2016
 
2015
 
(Thousands of dollars)
Current income tax provision
 
 
 
 
 
Federal
$

 
$
(2,016
)
 
$
7,135

State
750

 
471

 
2,055

Total current income tax provision
750

 
(1,545
)
 
9,190

Deferred income tax provision
 
 
 
 
 
Federal
83,138

 
76,247

 
56,440

State
9,255

 
10,541

 
7,349

Total deferred income tax provision
92,393

 
86,788

 
63,789

Total provision for income taxes
$
93,143

 
$
85,243

 
$
72,979



The following table is a reconciliation of our income tax provision for the periods indicated:
 
Years Ended December 31,
 
2017
 
2016
 
2015
 
(Thousands of dollars)
Income before income taxes
$
256,138

 
$
225,338

 
$
192,009

Federal statutory income tax rate
35
%
 
35
%
 
35
%
Provision for federal income taxes
89,648

 
78,868

 
67,203

State income taxes, net of federal tax benefit
6,503

 
7,158

 
6,114

Nonregulated deferred tax rate decrease
2,162

 

 

Tax benefit of employee share based compensation
(5,162
)
 

 

Other, net
(8
)
 
(783
)
 
(338
)
Total provision for income taxes
$
93,143

 
$
85,243

 
$
72,979



The following table sets forth the tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and liabilities for the periods indicated:
 
December 31,
 
2017
 
2016
 
(Thousands of dollars)
Deferred tax assets
 
 
 
Employee benefits and other accrued liabilities
$
40,277

 
$
123,333

Regulatory adjustments for enacted tax rate changes
129,421

 

Net operating loss
24,712

 
23,094

Other
2,984

 
5,716

Total deferred tax assets
197,394

 
152,143

Deferred tax liabilities
 
 
 
Excess of tax over book depreciation
677,249