ONE GAS, INC., 10-Q filed on 8/5/2014
Quarterly Report
Document And Entity Information
6 Months Ended
Jun. 30, 2014
Jul. 25, 2014
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 Common Stock, Shares Outstanding
51,998,961†
Document Fiscal Year Focus
2014†
Document Fiscal Period Focus
Q2†
Document Type
10-Q†
Amendment Flag
false†
Document Period End Date
Jun. 30, 2014†
STATEMENTS OF INCOME†(USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Jun. 30, 2014
Jun. 30, 2013
Gross Margin
Revenues
$†296,838†
$†311,608†
$†1,063,016†
$†947,541†
Cost of natural gas
120,345†
133,161†
626,687†
517,420†
Net margin
176,493†
178,447†
436,329†
430,121†
Operating expenses
Operations and maintenance
103,826†
93,240†
207,325†
192,934†
Depreciation and amortization
31,318†
32,904†
62,778†
67,771†
General taxes
14,537†
12,996†
30,061†
28,271†
Total operating expenses
149,681†
139,140†
300,164†
288,976†
Operating income
26,812†
39,307†
136,165†
141,145†
Other income
672†
382†
1,305†
2,078†
Other expense
(337)
(425)
(1,485)
(1,502)
Interest expense
(11,776)
(15,163)
(24,726)
(30,469)
Income before income taxes
15,371†
24,101†
111,259†
111,252†
Income taxes
(5,917)
(9,150)
(42,729)
(42,809)
Net income
$†9,454†
$†14,951†
$†68,530†
$†68,443†
Earnings per share (Note 5)
Basic
$†0.18†
$†0.29†
$†1.32†
$†1.31†
Diluted
$†0.18†
$†0.29†
$†1.31†
$†1.31†
Average shares (thousands)
Basic
51,797†
52,319†
52,065†
52,319†
Diluted
52,446†
52,319†
52,481†
52,319†
Dividends declared per share of stock
$†0.28†
$†0.00†
$†0.28†
$†0.00†
STATEMENTS OF COMPREHENSIVE INCOME STATEMENTS OF COMPREHENSIVE INCOME Parenthetical†(USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Jun. 30, 2014
Jun. 30, 2013
STATEMENTS OF COMPREHENSIVE INCOME Parenthetical [Abstract]
Pension and other postretirement benefit plans, tax
$†(2,075)
$†0†
$†49†
$†0†
STATEMENTS OF COMPREHENSIVE INCOME STATEMENTS OF COMPREHENSIVE INCOME†(USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Jun. 30, 2014
Jun. 30, 2013
Net income
$†9,454†
$†14,951†
$†68,530†
$†68,443†
Other comprehensive income (loss), net of tax
Change in pension and postretirement benefit plan liability, net of tax of $(2,075), $0, $49 and $0, respectively
3,315†
0†
(78)
0†
Other comprehensive income (loss), net of tax
3,315†
0†
(78)
0†
Comprehensive income
$†12,769†
$†14,951†
$†68,452†
$†68,443†
BALANCE SHEETS†(USD $)
In Thousands, unless otherwise specified
Jun. 30, 2014
Dec. 31, 2013
Property, plant and equipment
Property, plant and equipment
$†4,704,681†
$†4,534,074†
Accumulated depreciation and amortization
1,530,201†
1,489,216†
Net property, plant and equipment
3,174,480†
3,044,858†
Current assets
Cash and cash equivalents
161,326†
3,171†
Accounts receivable, net
192,104†
356,988†
Natural gas in storage
152,045†
166,128†
Regulatory assets (Note 2)
31,561†
21,657†
Other current assets
33,892†
54,240†
Total current assets
570,928†
602,184†
Goodwill and other assets
Regulatory assets (Note 2)
322,691†
23,822†
Goodwill
157,953†
157,953†
Other assets
57,758†
17,658†
Total goodwill and other assets
538,402†
199,433†
Total assets
4,283,810†
3,846,475†
Equity and long-term debt
Preferred stock, $0.01 par value: authorized 50,000,000 shares; no shares issued
0†
0†
Common stock, $0.01 par value: authorized 250,000,000 shares; issued and outstanding 51,992,547 shares at June 30, 2014; authorized 1,000 shares, issued and outstanding 100 shares at December 31, 2013
520†
0†
Paid-in Capital
1,754,636†
0†
Accumulated other comprehensive income (loss)
(3,471)
0†
Retained earnings
28,401†
0†
Owner's net investment
0†
1,239,023†
Total equity
1,780,086†
1,239,023†
Long-term debt, excluding current maturities
1,201,314†
1,318†
Long-term line of credit with ONEOK
0†
1,027,631†
Total equity and long-term debt
2,981,400†
2,267,972†
Current liabilities
Current maturities of long-term debt
6†
6†
Short-term note payable to ONEOK
0†
444,960†
Affiliate payable
0†
22,403†
Accounts payable
100,357†
169,500†
Accrued interest
19,515†
129†
Accrued taxes other than income
38,641†
32,426†
Customer deposits
57,066†
57,360†
Regulatory liabilities, current
17,983†
17,796†
Other current liabilities
34,794†
24,497†
Total current liabilities
268,362†
769,077†
Deferred credits and other liabilities [Abstract]
Deferred income taxes
834,686†
743,452†
Other deferred credits
199,362†
65,974†
Total deferred credits and other liabilities
1,034,048†
809,426†
Commitments and contingencies (Note 7)
  †
  †
Total liabilities and equity
$†4,283,810†
$†3,846,475†
BALANCE SHEETS BALANCE SHEETS Parenthetical†(USD $)
Jun. 30, 2014
Dec. 31, 2013
Preferred stock, par value per share
$†0.01†
Preferred stock, shares authorized
50,000,000†
Preferred stock, shares issued
0†
Common stock, par value per share
$†0.01†
$†0.01†
Common stock, shares authorized
250,000,000†
1,000†
Common stock, shares issued
51,992,547†
100†
Common stock, shares outstanding
51,992,547†
100†
STATEMENTS OF CASH FLOWS†(USD $)
In Thousands, unless otherwise specified
6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Operating activities
Net income
$†68,530†
$†68,443†
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
62,778†
67,771†
Deferred income taxes
1,880†
42,775†
Share-based compensation expense
3,649†
0†
Provision for doubtful accounts
3,711†
2,666†
Changes in assets and liabilities:
Accounts receivable
161,173†
85,514†
Natural gas in storage
14,083†
(1,570)
Asset removal costs
(21,557)
(22,874)
Affiliate payable
0†
(3,871)
Accounts payable
(66,392)
(43,279)
Accrued interest
19,386†
0†
Accrued taxes other than income
6,215†
(67)
Customer deposits
(294)
(1,975)
Regulatory assets and liabilities
18,613†
47,872†
Other assets and liabilities
(10,079)
(16,396)
Cash provided by operating activities
261,696†
225,009†
Investing activities
Capital expenditures
(148,617)
(130,049)
Proceeds from sale of assets
0†
3,104†
Cash used in investing activities
(148,617)
(126,945)
Financing activities
Settlement of short-term notes payable to ONEOK, net
0†
(85,756)
Issuance of debt, net of discounts
1,199,994†
0†
Long-term debt financing costs
(11,058)
0†
Cash Payment to ONEOK Upon Separation
(1,130,000)
0†
Issuance of common stock
693†
0†
Dividends paid
(14,553)
0†
Repayment of long-term debt
0†
(59)
Distributions to ONEOK
0†
(12,495)
Cash provided by (used in) financing activities
45,076†
(98,310)
Change in cash and cash equivalents
158,155†
(246)
Cash and cash equivalents at beginning of period
3,171†
4,040†
Cash and cash equivalents at end of period
$†161,326†
$†3,794†
STATEMENT OF CHANGES IN EQUITY†(USD $)
In Thousands, except Share data
Total
Common Stock [Member]
Paid-in Capital [Member]
Retained Earnings [Member]
Owner's Net Investment [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Total equity, beginning balance at Dec. 31, 2013
$†1,239,023†
Accumulated Other Comprehensive Income (Loss), beginning balance at Dec. 31, 2013
0†
0†
Paid-in Capital, beginning balance at Dec. 31, 2013
0†
0†
Retained earnings, beginning balance at Dec. 31, 2013
0†
0†
Common Stock Issued, beginning balance at Dec. 31, 2013
0†
0†
Common Stock Issued (in shares), beginning balance at Dec. 31, 2013
100†
100†
Owner's Net Investment, beginning balance at Dec. 31, 2013
1,239,023†
1,239,023†
Net income
68,530†
0†
0†
42,954†
25,576†
0†
Other comprehensive loss
(78)
0†
0†
0†
0†
(78)
Net transfers from ONEOK (Note 1)
482,822†
0†
0†
0†
486,215†
(3,393)
Reclassification of Owner's investment to paid-in capital
0†
0†
1,750,814†
0†
(1,750,814)
0†
Issuance of common stock at the separation, shares
51,941,136†
Issuance of common stock at the separation, value
0†
520†
(520)
0†
0†
0†
Common stock issued, shares
51,311†
Common stock issued, value
4,342†
0†
4,342†
0†
0†
0†
Common stock dividends - $0.28 per share
(14,553)
0†
0†
(14,553)
0†
0†
Total equity, ending balance at Jun. 30, 2014
1,780,086†
Accumulated Other Comprehensive Income (Loss), ending balance at Jun. 30, 2014
(3,471)
(3,471)
Paid-in Capital, ending balance at Jun. 30, 2014
1,754,636†
1,754,636†
Retained earnings, ending balance at Jun. 30, 2014
28,401†
28,401†
Common Stock Issued, ending balance at Jun. 30, 2014
520†
520†
Common Stock Issued (in share), ending balance at Jun. 30, 2014
51,992,547†
51,992,547†
Owner's Net Investment, ending balance at Jun. 30, 2014
$†0†
$†0†
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Notes)
SIGNIFICANT ACCOUNTING POLICIES
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Our accompanying unaudited financial statements have been prepared pursuant to the rules and regulations of the SEC. These statements also have been prepared in accordance with GAAP and reflect all adjustments that, in our opinion, are necessary for a fair presentation of the results for the interim periods presented. All such adjustments are of a normal recurring nature. The 2013 year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. These unaudited financial statements should be read in conjunction with the audited financial statements and footnotes in our Annual Report. Due to the seasonal nature of our business, the results of operations for the three and six months ended June 30, 2014, are not necessarily indicative of the results that may be expected for a 12-month period.

Separation - We were a wholly owned subsidiary of ONEOK as of December 31, 2013. Operations of our company are located in the United States and we are comprised of ONEOK’s former natural gas distribution business. On January 8, 2014, ONEOK’s board of directors approved the distribution of all the shares of our common stock to holders of ONEOK common stock.

In order for ONEOK to effect the distribution, we requested, and the SEC declared effective, our registration statement on Form 10 on January 10, 2014. ONEOK transferred all of the assets and liabilities primarily related to its natural gas distribution business to us. Assets and liabilities included accounts receivable and payable, natural gas in storage, regulatory assets and liabilities, pipeline and other natural gas distribution facilities, customer deposits, employee-related assets and liabilities, including amounts attributable to pension and other postretirement benefits, tax-related assets and liabilities and other assets and liabilities primarily associated with providing natural gas distribution service in Oklahoma, Kansas and Texas. Certain corporate assets, such as office space in the corporate headquarters and certain IT hardware and software, were not transferred to us; however, the Transition Services Agreement between ONEOK and us provides access to such corporate assets as necessary to operate our business for a period of time to enable us to obtain the applicable corporate assets.

Immediately prior to the contribution of the natural gas distribution business to us, ONEOK contributed to the capital of the natural gas distribution business all of the amounts outstanding on the natural gas distribution business’ short-term note payable to and long-term line of credit with ONEOK. We received approximately $1.19 billion of cash from a private placement of senior notes, then used a portion of those proceeds to fund a cash payment of approximately $1.13 billion to ONEOK in connection with the separation. Effective January 31, 2014, the number of our authorized shares increased to 250 million shares of common stock and 50 million shares of preferred stock. On January 31, 2014, ONEOK distributed one share of our common stock for every four shares of ONEOK common stock held by ONEOK shareholders of record as of the close of business on January 21, 2014, the record date of the distribution. At the close of business on January 31, 2014, we became an independent, publicly traded company as a result of the distribution. Our common stock began trading “regular-way” under the ticker symbol “OGS” on the NYSE on February 3, 2014.

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 serve wholesale and public authority customers.

Reorganization Adjustments - In accordance with the terms of the Separation and Distribution Agreement, ONEOK contributed the assets and liabilities of its natural gas distribution business to us. The contributions below represent ONEOK assets and liabilities attributable to pension and other post-retirement employee benefits, general corporate assets and liabilities and related deferred taxes not included previously in the ONE Gas Predecessor balance sheet, but the costs for which were included in ONE Gas Predecessor’s results of operations. The table below also includes the contribution of the short-term note payable to and long-term line of credit with ONEOK previously included in ONE Gas Predecessor balance sheets. The assets and liabilities below were recorded at historical cost as the reorganization was among entities under common control. The balances include certain estimates that we expect to finalize in the third quarter of 2014. Net transfers from ONEOK included:

(Thousands of dollars)
 
 
Property, plant and equipment, net
 
$
21,459

Regulatory assets, pension and other post-retirement benefits
 
331,148

Other assets
 
79,504

Long-term line of credit with ONEOK
 
1,027,631

Short-term note payable to ONEOK
 
397,857

Pension and other postretirement benefits - liabilities
 
(122,909
)
Other liabilities
 
(31,194
)
Deferred taxes
 
(87,281
)
Accumulated other comprehensive loss
 
(3,393
)
Net contribution of assets (liabilities)
 
$
1,612,822

Less: Cash paid to ONEOK
 
1,130,000

  Net transfers from ONEOK
 
$
482,822



Basis of Presentation - Prior to our separation from ONEOK, our financial statements were derived from ONEOK’s financial statements, which included its natural gas distribution business as if we, for accounting purposes, had been a separate company for all periods presented. The assets and liabilities in the financial statements have been reflected on a historical basis. The financial statements for periods prior to the separation also include expense allocations for certain corporate functions historically performed by ONEOK, including allocations of general corporate expenses related to executive oversight, accounting, treasury, tax, legal, information technology and other services. We believe our assumptions underlying the financial statements, including the assumptions regarding the allocation of general corporate expenses from ONEOK, are reasonable. However, the financial statements may not include all of the actual expenses that would have been incurred by us and may not reflect our results of operations, financial position and cash flows had we been a separate publicly traded company during the periods presented prior to the separation.

Because the operations of the natural gas distribution business within ONEOK were conducted through separate divisions, ONEOK’s net investment in us, excluding the long-term line of credit with ONEOK, is shown as owner’s net investment in lieu of stockholder’s equity in the financial statements prior to the separation. Transactions between ONEOK and us which were not part of the long-term line of credit with ONEOK or the short-term notes payable to ONEOK have been identified in the Statement of Changes in Equity as a net transfer from ONEOK. Transactions with ONEOK’s other operating businesses, which generally settle monthly, are shown as accounts receivable-affiliate or accounts payable-affiliate in periods prior to the separation.

All financial information presented after the separation represents the results of operations, financial position and cash flows of ONE Gas. Accordingly:
Our Statements of Income and Comprehensive Income for the three and six months ended June 30, 2014, consist of the results of ONE Gas for the three and five months ended June 30, 2014, and the results of ONE Gas Predecessor for the one month ended January 31, 2014. Our Statements of Income and Comprehensive Income for the three and six months ended June 30, 2013, consist entirely of the results of ONE Gas Predecessor. Our net income for the period prior to January 31, 2014, was recorded to owner’s net investment.
Our Balance Sheet at June 30, 2014, consists of the balances of ONE Gas, while at December 31, 2013, it consists of the balances of ONE Gas and ONE Gas Predecessor.
Our Statement of Cash Flows for the six months ended June 30, 2014, consists of the results of ONE Gas for the five months ended June 30, 2014, and the results of ONE Gas Predecessor for the one month ended January 31, 2014. Our Statement of Cash Flows for the six months ended June 30, 2013, consists entirely of the results of ONE Gas Predecessor.
Our Statement of Changes in Equity for the six months ended June 30, 2014, consists of both the activity for ONE Gas Predecessor prior to January 31, 2014, and the activity for ONE Gas completed in connection with, and subsequent to, the separation on January 31, 2014.

All significant balances and transactions among our divisions have been eliminated.

Use of Estimates - The preparation of our 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 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, provision for doubtful accounts, unbilled revenues for natural gas delivered but for which meters have not been read, natural gas purchased but for which no invoice has been received, provision for income taxes, including any deferred tax valuation allowances, the results of litigation and various other recorded or disclosed amounts.

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

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

Related-Party Transactions - Prior to our separation from ONEOK on January 31, 2014, we had certain transactions with ONEOK, including, but not limited to, natural gas supply, allocated corporate services, employee benefits, cash management, derivatives and long-term lines of credit. Following the separation, we and ONEOK are still providing some services to each other under the Transition Services Agreement, but these services are now considered third-party transactions. The remaining related-party transactions are not material. See Note 7 for disclosures of our agreements with ONEOK after the separation.

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. Through the effective date of the separation, our operations were included in the consolidated federal and state income tax returns of ONEOK, except for certain state filings. Prior to the separation, the income tax provision has been calculated on a separate return basis for us.

The determination of our effective state tax rate requires judgment, as we did not exist as a stand-alone filer prior to the separation and the effective state tax rate can change periodically based on changes in our operations. Our effective state tax rate is based upon our current structure and the jurisdictions in which we operate.

Segments - We operate as one business segment: regulated public utilities that deliver natural gas to residential, commercial, industrial and transportation customers. The accounting policies for our segment are the same as described in Note 1 of our Notes to the Financial Statements in our Annual Report. We evaluate our financial performance principally on operating income. For the three and six months ended June 30, 2014, and 2013, we had no single external customer from which we received 10 percent or more of our gross revenues.

Recently Issued Accounting Standards Update - In June 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period,” which provides explicit guidance under GAAP for share-based awards, which may provide that a performance target could be achieved after an employee completes the requisite service period. We are evaluating the impact of this recently issued guidance, which is required to be adopted for our quarterly and annual reports beginning with the first quarter 2016.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers,” which clarifies and converges the revenue recognition principles under GAAP and International Financial Reporting Standards. We are evaluating the impact of this recently issued guidance, which is required to be adopted for our quarterly and annual reports beginning with the first quarter 2017.
REGULATORY ASSETS AND LIABILITIES (Notes)
Schedule of Regulatory Assets and Liabilities
2.
REGULATORY ASSETS AND LIABILITIES

The tables below present a summary of regulatory assets, net of amortization, and liabilities for the periods indicated:
 
 
 
 
June 30, 2014
 
 
 
 
Current
 
Noncurrent
 
Total
 
 
 
 
(Thousands of dollars)
Under-recovered purchased-gas costs
 

 
$
16,399

 
$

 
$
16,399

Pension and postretirement benefit costs (see Note 6)
 

 
11,598

 
309,844

 
321,442

Reacquired debt costs
 

 
812

 
10,135

 
10,947

Other
 

 
2,752

 
2,712

 
5,464

Total regulatory assets, net of amortization
 
 
 
31,561

 
322,691

 
354,252

Accumulated removal costs (a)
 

 

 
(18,688
)
 
(18,688
)
Over-recovered purchased-gas costs
 

 
(17,983
)
 

 
(17,983
)
Total regulatory liabilities
 
 
 
(17,983
)
 
(18,688
)
 
(36,671
)
Net regulatory assets (liabilities)
 
 
 
$
13,578

 
$
304,003

 
$
317,581

(a) Included in other deferred credits in our Balance Sheets.
 
 
 
 
December 31, 2013
 
 
 
 
Current
 
Noncurrent
 
Total
 
 
 
 
(Thousands of dollars)
Under-recovered purchased-gas costs
 

 
$
12,393

 
$

 
$
12,393

Pension and postretirement benefit costs
 

 
298

 
9,556

 
9,854

Reacquired debt costs
 

 
812

 
10,541

 
11,353

Other
 

 
8,154

 
3,725

 
11,879

Total regulatory assets, net of amortization
 
 
 
21,657

 
23,822

 
45,479

Accumulated removal costs (a)
 

 

 
(21,375
)
 
(21,375
)
Over-recovered purchased-gas costs
 

 
(17,796
)
 

 
(17,796
)
Total regulatory liabilities
 
 
 
(17,796
)
 
(21,375
)
 
(39,171
)
Net regulatory assets (liabilities)
 
 
 
$
3,861

 
$
2,447

 
$
6,308

(a) Included in other deferred credits in our Balance Sheets.

Base rates are designed to provide a recovery of costs 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 riders or base rates, and we believe that we will be able to recover such costs, consistent with our historical recoveries.

Unrecovered purchased-gas costs represent the costs that have been over- or under-recovered from customers through the purchased-gas cost adjustment mechanisms and include natural gas utilized in our operations.
CREDIT FACILITIES (Notes)
Short-term Debt [Text Block]
3.
CREDIT FACILITIES

ONE Gas Credit Agreement - The ONE Gas Credit Agreement, which became effective upon our separation from ONEOK and is scheduled to expire in January 2019, contains certain financial, operational and legal covenants. Among other things, these covenants include maintaining ONE Gas’ 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 June 30, 2014, our debt-to-capital ratio was 40 percent and we were in compliance with all covenants under the ONE Gas Credit Agreement.

The ONE Gas Credit Agreement includes a $50 million sublimit for the issuance of standby letters of credit and also features an option to request an increase in the size of the facility to an aggregate of $1.2 billion from $700 million upon satisfaction of customary conditions, including receipt of commitments from new lenders or increased commitments from existing lenders. Borrowings made under the facility are available for general corporate purposes. 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 may reduce the unutilized portion of the ONE Gas Credit Agreement in whole or in part without premium or penalty. The ONE Gas Credit Agreement contains customary events of default. Upon the occurrence of certain events of default, the obligations under the ONE Gas Credit Agreement may be accelerated and the commitments may be terminated.
LONG-TERM DEBT (Notes)
Long-term Debt [Text Block]
4.
LONG-TERM DEBT

Senior Notes Issuance - In January 2014, we completed a private placement of 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 (collectively, our “Senior Notes”). The net proceeds from the private placement were approximately $1.19 billion and were used to fund a one-time cash payment to ONEOK of approximately $1.13 billion as part of the separation. The remaining portion of the net proceeds was retained by us in order to provide sufficient financial flexibility and to support working capital requirements and capital expenditures.

The indenture governing our Senior Notes includes an event of default upon the acceleration of other indebtedness of $100 million or more. Such events of default would entitle the trustee or the holders of 25 percent in aggregate principal amount of the outstanding Senior Notes to declare those Senior Notes immediately due and payable in full.

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 senior 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.

In connection with the issuance of our Senior Notes, we entered into a registration rights agreement, pursuant to which we are obligated to use our commercially reasonable efforts to file with the SEC and cause to become effective a registration statement with respect to an offer to exchange each series of our Senior Notes for new notes, with terms substantially identical in all material respects to each such series of our Senior Notes. Alternatively, if the exchange offers are not available, cannot be completed or the Senior Notes are ineligible to be exchanged in the exchange offers for one or more series of senior notes, we will be required to use our commercially reasonable efforts to file a shelf registration statement to cover resales of our Senior Notes under the Securities Act. If we do not comply with these obligations, we will be required to pay additional interest on our Senior Notes under specified circumstances. We expect to complete the exchange offer for our Senior Notes in the third quarter of 2014.
EARNINGS PER SHARE (Notes)
Earnings Per Share [Text Block]
5.
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.
On January 31, 2014, 51,941,236 shares of our common stock were distributed to ONEOK shareholders in conjunction with the separation. For comparative purposes, and to provide a more meaningful calculation of weighted-average shares outstanding, we have assumed this amount and any shares associated with fully vested stock awards that have not been issued to be outstanding as of the beginning of each period prior to the separation presented in the calculation of weighted-average shares.
The following tables set forth the computation of basic and diluted EPS from continuing operations for the periods indicated:
 
Three Months Ended June 30, 2014
 
Income
 
Shares
 
Per Share
Amount
 
(Thousands, except per share amounts)
Basic EPS Calculation
 
 
 
 
 
Net income available for common stock
$
9,454

 
51,797

 
$
0.18

Diluted EPS Calculation
 

 
 

 
 

Effect of dilutive securities

 
649

 
 

Net income available for common stock and common stock equivalents
$
9,454

 
52,446

 
$
0.18


 
Three Months Ended June 30, 2013
 
Income
 
Shares
 
Per Share
Amount
 
(Thousands, except per share amounts)
Basic EPS Calculation
 
 
 
 
 
Net income available for common stock
$
14,951

 
52,319

 
$
0.29

Diluted EPS Calculation
 
 
 

 
 

Effect of dilutive securities

 

 
 

Net income available for common stock and common stock equivalents
$
14,951

 
52,319

 
$
0.29


 
Six Months Ended June 30, 2014
 
Income
 
Shares
 
Per Share
Amount
 
(Thousands, except per share amounts)
Basic EPS Calculation
 
 
 
 
 
Net income available for common stock
$
68,530

 
52,065

 
$
1.32

Diluted EPS Calculation
 

 
 

 
 

Effect of dilutive securities

 
416

 
 

Net income available for common stock and common stock equivalents
$
68,530

 
52,481

 
$
1.31


 
Six Months Ended June 30, 2013
 
Income
 
Shares
 
Per Share
Amount
 
(Thousands, except per share amounts)
Basic EPS Calculation
 
 
 
 
 
Net income available for common stock
$
68,443

 
52,319

 
$
1.31

Diluted EPS Calculation
 
 
 

 
 

Effect of dilutive securities

 

 
 

Net income available for common stock and common stock equivalents
$
68,443

 
52,319

 
$
1.31



Dividends - On May 15, 2014, we paid dividends on our common stock to shareholders of record at the close of business on April 30, 2014, equal to $0.28 per share ($1.12 per share on an annualized basis). In July 2014, a dividend of $0.28 per share ($1.12 per share on an annualized basis) was declared for shareholders of record on August 1, 2014, payable August 15, 2014.
EMPLOYEE BENEFIT PLANS (Notes)
EMPLOYEE BENEFIT PLANS
6.
EMPLOYEE BENEFIT PLANS

Prior to the separation, certain ONEOK employees participated in defined benefit pension plans and postretirement health and welfare plans (“Shared Plans”) sponsored by ONEOK, including employees who directly supported our operations. Through December 31, 2013, we accounted for such Shared Plans as multiemployer benefit plans. Accordingly, we did not record an asset or liability to recognize the funded status of the Shared Plans on our balance sheets until the separation date. We recorded expenses of $14.1 million and $27.2 million for the three and six months ended June 30, 2013, respectively, for our allocation of pension costs prior to the separation.

The assets and liabilities of certain defined benefit plans and postretirement health and welfare benefit plans, allocable to our employees, were transferred to us on January 1, 2014. We recorded sponsored pension and postretirement plan obligations of approximately $1.1 billion, and sponsored pension and postretirement plan assets of approximately $1.0 billion. Additionally, as a result of the transfer of unrecognized losses from ONEOK, our regulatory assets and deferred income taxes increased by approximately $331 million and $86 million, respectively.
The following tables set forth the components of net periodic benefit cost for our pension and postretirement benefit plans for the periods indicated:
 
Pension Benefits
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2014
 
2014
 
(Thousands of dollars)
Components of net periodic benefit cost
 
 
 
Service cost
$
2,905

 
$
5,673

Interest cost
10,948

 
21,896

Expected return on assets
(14,965
)
 
(29,930
)
Amortization of unrecognized prior service cost
137

 
274

Amortization of net loss
7,549

 
15,099

Net periodic benefit cost
$
6,574

 
$
13,012


 
Postretirement Benefits
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2014
 
2014
 
(Thousands of dollars)
Components of net periodic benefit cost
 
 
 
Service cost
$
867

 
$
2,041

Interest cost
2,901

 
5,802

Expected return on assets
(2,848
)
 
(5,696
)
Amortization of unrecognized prior service cost
(440
)
 
(880
)
Amortization of net loss
992

 
1,984

Net periodic benefit cost
$
1,472

 
$
3,251



We recover qualified pension benefit plan and other postretirement benefit plan costs through rates charged to our customers. Certain utility commissions require that the recovery of these costs be based on specific guidelines. The difference between these regulatory-based amounts and the periodic benefit cost calculated pursuant to GAAP is deferred as a regulatory asset or liability and amortized to expense over periods in which this difference will be recovered in rates, as promulgated by the applicable utility commission. Regulatory adjustments to the net periodic benefit cost were not material for the three and six months ended June 30, 2014.
COMMITMENTS AND CONTINGENCIES (Notes)
COMMITMENTS AND CONTINGENCIES
7.
COMMITMENTS AND CONTINGENCIES

Agreements with ONEOK after the Separation - We entered into the Separation and Distribution Agreement and several other agreements with ONEOK to effect the separation and provide a framework for our relationships with ONEOK after the distribution. These agreements govern the relationship between ONEOK and us subsequent to the completion of the distribution. The Separation and Distribution Agreement contains many of the key provisions related to our separation from ONEOK and the distribution of our shares of common stock to ONEOK’s shareholders, including cross-indemnities between us and ONEOK. In general, ONEOK agreed to indemnify us for any liabilities relating to ONEOK’s business following the distribution, including ONEOK Partners and ONEOK’s former Energy Services segments, and we agreed to indemnify ONEOK for any liabilities relating to the natural gas distribution business. If a liability does not relate to either of ONEOK’s remaining business or to our natural gas distribution business, then we and ONEOK will each be responsible for a portion of such liability. In addition to the Separation and Distribution Agreement, we entered into the following agreements with ONEOK related to the separation:

Transition Services Agreement;
Tax Matters Agreement; and
Employee Matters Agreement.

Environmental Matters - We are subject to multiple historical, wildlife preservation and environmental laws and/or regulations that affect many aspects of our present and future operations. Regulated activities include but are not limited to those involving air emissions, storm water and wastewater discharges, handling and disposal of solid and hazardous wastes, wetland preservation, hazardous materials transportation, and pipeline and facility construction. These laws and regulations require us to obtain and/or comply with a wide variety of environmental clearances, registrations, licenses, permits and other approvals. Failure to comply with these laws, regulations, licenses and permits may expose us to fines, penalties and/or interruptions in our operations that could be material to our results of operations. In addition, emission controls and/or other regulatory or permitting mandates under the Clean Air Act and other similar federal and state laws could require unexpected capital expenditures. We cannot assure that existing environmental statutes and regulations will not be revised or that new regulations will not be adopted or become applicable to us. Revised or additional statutes or regulations that result in increased compliance costs or additional operating restrictions could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We own or retain legal responsibility for the environmental conditions at 12 former manufactured natural gas sites in Kansas. These sites contain potentially harmful materials that are subject to control or remediation under various environmental laws and regulations. A consent agreement with the KDHE governs all work at these sites. The terms of the consent agreement allow us to investigate these sites and set remediation activities based upon the results of the investigations and risk analysis. Remediation involves typically the management of contaminated soils and may involve removal of structures and monitoring and/or remediation of groundwater.

We have completed or addressed removal of the source of soil contamination at 11 of the 12 sites according to plans approved by KDHE. Regulatory closure has been achieved at three of the sites. We have begun site assessment at the remaining site where no active remediation has occurred.

Our expenditures for environmental evaluation, mitigation, remediation and compliance to date have not been significant in relation to our financial position, results of operations or cash flows, and our expenditures related to environmental matters had no material effects on earnings or cash flows during 2014 and 2013. We do not expect to incur material expenditures for these matters in the future.

Pipeline Safety - We are subject to PHMSA regulations, including integrity-management regulations. The Pipeline Safety Improvement Act requires pipeline companies operating high-pressure pipelines to perform integrity assessments on pipeline segments that pass through densely populated areas or near specifically designated high-consequence areas. In January 2012, the Pipeline Safety, Regulatory Certainty and Job Creation Act was signed into law. The law increased maximum penalties for violating federal pipeline safety regulations and directs the DOT and the Secretary of Transportation to conduct further review or studies on issues that may or may not be material to us. These issues include but are not limited to the following:
an evaluation of whether natural gas pipeline integrity-management requirements should be expanded beyond current high-consequence areas;
a verification of records for pipelines in class 3 and 4 locations and high-consequence areas to confirm maximum allowable operating pressures; and
a requirement to test previously untested pipelines operating above 30 percent yield strength in high-consequence areas.

The potential capital and operating expenditures related to this legislation, the associated regulations or other new pipeline safety regulations are unknown.

Legal Proceedings - We are a party to various litigation matters and claims that have arisen in the normal course of our operations. While the results of litigation and claims cannot be predicted with certainty, we believe the reasonably possible losses from such matters, individually and in the aggregate, are not material. Additionally, we believe the probable final outcome of such matters will not have a material adverse effect on our results of operations, financial position or cash flows.
DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Notes)
Fair Value Disclosures
8.
DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

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

If certain conditions are met, we may elect to designate a derivative instrument as a hedge 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 financial statements:
 
 
Recognition and Measurement
Accounting Treatment
 
Balance Sheet
 
Income Statement
Normal purchases and
normal sales
-
Recorded at historical cost
-
Change in fair value not recognized in earnings
Mark-to-market
-
Recorded at fair value
-
Change in fair value recognized in, and
recoverable through, the purchased-gas cost adjustment mechanisms

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

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

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

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

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

Derivative Instruments -  At June 30, 2014, we held purchased natural gas call options for the heating season ending March 2015, with total notional amounts of 16.5 Bcf, for which we paid premiums of $6.9 million, and had a fair value of $4.8 million. At December 31, 2013, we held purchased natural gas call options for the heating season ending March 2014, with total notional amounts of 26.6 Bcf, for which we paid premiums of $8.6 million, and had a fair value of $8.7 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 purchase gas costs in our balance sheets. Our natural gas call options are classified as Level 1 as fair value amounts are based on unadjusted quoted prices in active markets including NYMEX-settled prices. There were no transfers between levels for the three and six months ended June 30, 2014 and 2013.

All of our natural gas derivative financial contracts were with ONEOK Energy Services Company, a subsidiary of ONEOK, prior to March 31, 2014. ONEOK Energy Services Company entered into similar natural gas derivative financial contracts with third parties at our direction and on our behalf. ONEOK announced an accelerated wind down of ONEOK Energy Services Company operations that was completed substantially by March 31, 2014. We have entered into natural gas derivative financial contracts with third parties during the three months ending June 30, 2014.

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.

The short-term notes payable were due upon demand and, therefore, the carrying amounts approximate fair value and are classified as Level 1. The estimated fair value of our long-term debt, including current maturities, was $1.3 billion at June 30, 2014. The estimated fair value of our long-term line of credit with ONEOK at December 31, 2013, was $1.2 billion. The book value of our long-term debt, including current maturities, was $1.2 billion at June 30, 2014. The book value of our long-term line of credit with ONEOK at December 31, 2013, was $1.0 billion. The estimated fair value of our Senior Notes at June 30, 2014, was determined using quoted market prices, and are considered Level 2. The estimated fair value of our long-term line of credit with ONEOK was valued using the income approach by discounting the future payments and are considered Level 3. Significant inputs include the discount rate, which we estimated using a rate that we could have borrowed at each measurement date.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
Basis of Presentation - Prior to our separation from ONEOK, our financial statements were derived from ONEOK’s financial statements, which included its natural gas distribution business as if we, for accounting purposes, had been a separate company for all periods presented. The assets and liabilities in the financial statements have been reflected on a historical basis. The financial statements for periods prior to the separation also include expense allocations for certain corporate functions historically performed by ONEOK, including allocations of general corporate expenses related to executive oversight, accounting, treasury, tax, legal, information technology and other services. We believe our assumptions underlying the financial statements, including the assumptions regarding the allocation of general corporate expenses from ONEOK, are reasonable. However, the financial statements may not include all of the actual expenses that would have been incurred by us and may not reflect our results of operations, financial position and cash flows had we been a separate publicly traded company during the periods presented prior to the separation.

Because the operations of the natural gas distribution business within ONEOK were conducted through separate divisions, ONEOK’s net investment in us, excluding the long-term line of credit with ONEOK, is shown as owner’s net investment in lieu of stockholder’s equity in the financial statements prior to the separation. Transactions between ONEOK and us which were not part of the long-term line of credit with ONEOK or the short-term notes payable to ONEOK have been identified in the Statement of Changes in Equity as a net transfer from ONEOK. Transactions with ONEOK’s other operating businesses, which generally settle monthly, are shown as accounts receivable-affiliate or accounts payable-affiliate in periods prior to the separation.

All financial information presented after the separation represents the results of operations, financial position and cash flows of ONE Gas. Accordingly:
Our Statements of Income and Comprehensive Income for the three and six months ended June 30, 2014, consist of the results of ONE Gas for the three and five months ended June 30, 2014, and the results of ONE Gas Predecessor for the one month ended January 31, 2014. Our Statements of Income and Comprehensive Income for the three and six months ended June 30, 2013, consist entirely of the results of ONE Gas Predecessor. Our net income for the period prior to January 31, 2014, was recorded to owner’s net investment.
Our Balance Sheet at June 30, 2014, consists of the balances of ONE Gas, while at December 31, 2013, it consists of the balances of ONE Gas and ONE Gas Predecessor.
Our Statement of Cash Flows for the six months ended June 30, 2014, consists of the results of ONE Gas for the five months ended June 30, 2014, and the results of ONE Gas Predecessor for the one month ended January 31, 2014. Our Statement of Cash Flows for the six months ended June 30, 2013, consists entirely of the results of ONE Gas Predecessor.
Our Statement of Changes in Equity for the six months ended June 30, 2014, consists of both the activity for ONE Gas Predecessor prior to January 31, 2014, and the activity for ONE Gas completed in connection with, and subsequent to, the separation on January 31, 2014.

All significant balances and transactions among our divisions have been eliminated.

Use of Estimates - The preparation of our 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 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, provision for doubtful accounts, unbilled revenues for natural gas delivered but for which meters have not been read, natural gas purchased but for which no invoice has been received, provision for income taxes, including any deferred tax valuation allowances, the results of litigation and various other recorded or disclosed amounts.

We evaluate these estimates on an ongoing basis using historical experience and other methods we consider reasonable based on the particular circumstances. Nevertheless, actual results may differ significantly from the estimates. Any effects on our financial position or results of operations from revisions to these estimates are recorded in the period when the facts that give rise to the revision become known.
Cash and Cash Equivalents - Cash equivalents consist of highly liquid investments, which are readily convertible into cash and have maturities of three months or less.
Related-Party Transactions - Prior to our separation from ONEOK on January 31, 2014, we had certain transactions with ONEOK, including, but not limited to, natural gas supply, allocated corporate services, employee benefits, cash management, derivatives and long-term lines of credit. Following the separation, we and ONEOK are still providing some services to each other under the Transition Services Agreement, but these services are now considered third-party transactions. The remaining related-party transactions are not material. See Note 7 for disclosures of our agreements with ONEOK after the separation.
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. Through the effective date of the separation, our operations were included in the consolidated federal and state income tax returns of ONEOK, except for certain state filings. Prior to the separation, the income tax provision has been calculated on a separate return basis for us.

The determination of our effective state tax rate requires judgment, as we did not exist as a stand-alone filer prior to the separation and the effective state tax rate can change periodically based on changes in our operations. Our effective state tax rate is based upon our current structure and the jurisdictions in which we operate.
Segments - We operate as one business segment: regulated public utilities that deliver natural gas to residential, commercial, industrial and transportation customers. The accounting policies for our segment are the same as described in Note 1 of our Notes to the Financial Statements in our Annual Report. We evaluate our financial performance principally on operating income. For the three and six months ended June 30, 2014, and 2013, we had no single external customer from which we received 10 percent or more of our gross revenues.
Recently Issued Accounting Standards Update - In June 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period,” which provides explicit guidance under GAAP for share-based awards, which may provide that a performance target could be achieved after an employee completes the requisite service period. We are evaluating the impact of this recently issued guidance, which is required to be adopted for our quarterly and annual reports beginning with the first quarter 2016.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers,” which clarifies and converges the revenue recognition principles under GAAP and International Financial Reporting Standards. We are evaluating the impact of this recently issued guidance, which is required to be adopted for our quarterly and annual reports beginning with the first quarter 2017.
DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Policies)
Accounting Treatment - We record all derivative instruments at fair value, with the exception of normal purchases and normal sales that are expected to result in physical delivery. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, if so, the reason for holding it, or if regulatory rulings require a different accounting treatment.

If certain conditions are met, we may elect to designate a derivative instrument as a hedge 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 financial statements:
 
 
Recognition and Measurement
Accounting Treatment
 
Balance Sheet
 
Income Statement
Normal purchases and
normal sales
-
Recorded at historical cost
-
Change in fair value not recognized in earnings
Mark-to-market
-
Recorded at fair value
-
Change in fair value recognized in, and
recoverable through, the purchased-gas cost adjustment mechanisms

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

Fair Value Hierarchy - At each balance sheet date, we utilize a fair value hierarchy to classify fair value amounts recognized or disclosed in our 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.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)
NET TRANSFERS FROM ONEOK [Table Text Block]
Net transfers from ONEOK included:

(Thousands of dollars)
 
 
Property, plant and equipment, net
 
$
21,459

Regulatory assets, pension and other post-retirement benefits
 
331,148

Other assets
 
79,504

Long-term line of credit with ONEOK
 
1,027,631

Short-term note payable to ONEOK
 
397,857

Pension and other postretirement benefits - liabilities
 
(122,909
)
Other liabilities
 
(31,194
)
Deferred taxes
 
(87,281
)
Accumulated other comprehensive loss
 
(3,393
)
Net contribution of assets (liabilities)
 
$
1,612,822

Less: Cash paid to ONEOK
 
1,130,000

  Net transfers from ONEOK
 
$
482,822

REGULATORY ASSETS AND LIABILITIES (Tables)
SCHEDULE OF REGULATED ASSETS AND LIABILITIES
The tables below present a summary of regulatory assets, net of amortization, and liabilities for the periods indicated:
 
 
 
 
June 30, 2014
 
 
 
 
Current
 
Noncurrent
 
Total
 
 
 
 
(Thousands of dollars)
Under-recovered purchased-gas costs
 

 
$
16,399

 
$

 
$
16,399

Pension and postretirement benefit costs (see Note 6)
 

 
11,598

 
309,844

 
321,442

Reacquired debt costs
 

 
812

 
10,135

 
10,947

Other
 

 
2,752

 
2,712

 
5,464

Total regulatory assets, net of amortization
 
 
 
31,561

 
322,691

 
354,252

Accumulated removal costs (a)
 

 

 
(18,688
)
 
(18,688
)
Over-recovered purchased-gas costs
 

 
(17,983
)
 

 
(17,983
)
Total regulatory liabilities
 
 
 
(17,983
)
 
(18,688
)
 
(36,671
)
Net regulatory assets (liabilities)
 
 
 
$
13,578

 
$
304,003

 
$
317,581

(a) Included in other deferred credits in our Balance Sheets.
 
 
 
 
December 31, 2013
 
 
 
 
Current
 
Noncurrent
 
Total
 
 
 
 
(Thousands of dollars)
Under-recovered purchased-gas costs
 

 
$
12,393

 
$

 
$
12,393

Pension and postretirement benefit costs
 

 
298

 
9,556

 
9,854

Reacquired debt costs
 

 
812

 
10,541

 
11,353

Other
 

 
8,154

 
3,725

 
11,879

Total regulatory assets, net of amortization
 
 
 
21,657

 
23,822

 
45,479

Accumulated removal costs (a)
 

 

 
(21,375
)
 
(21,375
)
Over-recovered purchased-gas costs
 

 
(17,796
)
 

 
(17,796
)
Total regulatory liabilities
 
 
 
(17,796
)
 
(21,375
)
 
(39,171
)
Net regulatory assets (liabilities)
 
 
 
$
3,861

 
$
2,447

 
$
6,308

(a) Included in other deferred credits in our Balance Sheets.

EARNINGS PER SHARE (Tables)
Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]
The following tables set forth the computation of basic and diluted EPS from continuing operations for the periods indicated:
 
Three Months Ended June 30, 2014
 
Income
 
Shares
 
Per Share
Amount
 
(Thousands, except per share amounts)
Basic EPS Calculation
 
 
 
 
 
Net income available for common stock
$
9,454

 
51,797

 
$
0.18

Diluted EPS Calculation
 

 
 

 
 

Effect of dilutive securities

 
649

 
 

Net income available for common stock and common stock equivalents
$
9,454

 
52,446

 
$
0.18


 
Three Months Ended June 30, 2013
 
Income
 
Shares
 
Per Share
Amount
 
(Thousands, except per share amounts)
Basic EPS Calculation
 
 
 
 
 
Net income available for common stock
$
14,951

 
52,319

 
$
0.29

Diluted EPS Calculation
 
 
 

 
 

Effect of dilutive securities

 

 
 

Net income available for common stock and common stock equivalents
$
14,951

 
52,319

 
$
0.29


 
Six Months Ended June 30, 2014
 
Income
 
Shares
 
Per Share
Amount
 
(Thousands, except per share amounts)
Basic EPS Calculation
 
 
 
 
 
Net income available for common stock
$
68,530

 
52,065

 
$
1.32

Diluted EPS Calculation
 

 
 

 
 

Effect of dilutive securities

 
416

 
 

Net income available for common stock and common stock equivalents
$
68,530

 
52,481

 
$
1.31


 
Six Months Ended June 30, 2013
 
Income
 
Shares
 
Per Share
Amount
 
(Thousands, except per share amounts)
Basic EPS Calculation
 
 
 
 
 
Net income available for common stock
$
68,443

 
52,319

 
$
1.31

Diluted EPS Calculation
 
 
 

 
 

Effect of dilutive securities

 

 
 

Net income available for common stock and common stock equivalents
$
68,443

 
52,319

 
$
1.31

EMPLOYEE BENEFIT PLANS (Tables)
Schedule of Net Benefit Costs [Table Text Block]
The following tables set forth the components of net periodic benefit cost for our pension and postretirement benefit plans for the periods indicated:
 
Pension Benefits
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2014
 
2014
 
(Thousands of dollars)
Components of net periodic benefit cost
 
 
 
Service cost
$
2,905

 
$
5,673

Interest cost
10,948

 
21,896

Expected return on assets
(14,965
)
 
(29,930
)
Amortization of unrecognized prior service cost
137

 
274

Amortization of net loss
7,549

 
15,099

Net periodic benefit cost
$
6,574

 
$
13,012


 
Postretirement Benefits
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2014
 
2014
 
(Thousands of dollars)
Components of net periodic benefit cost
 
 
 
Service cost
$
867

 
$
2,041

Interest cost
2,901

 
5,802

Expected return on assets
(2,848
)
 
(5,696
)
Amortization of unrecognized prior service cost
(440
)
 
(880
)
Amortization of net loss
992

 
1,984

Net periodic benefit cost
$
1,472

 
$
3,251

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details)†(USD $)
1 Months Ended 3 Months Ended 6 Months Ended
Jan. 31, 2014
Jun. 30, 2014
Jun. 30, 2013
Jun. 30, 2014
Jun. 30, 2013
Dec. 31, 2013
Significant Accounting Policies [Line Items]
Proceeds from Debt, Net of Issuance Costs
$†1,190,000,000†
Cash payment to ONEOK upon separation
(1,130,000,000)
(1,130,000,000)
0†
Common stock, shares authorized
250,000,000†
250,000,000†
250,000,000†
1,000†
Preferred stock, shares authorized
50,000,000†
50,000,000†
50,000,000†
Number of natural gas distribution services customers
2,000,000†
2,000,000†
Segment Reporting, Disclosure of Major Customers
0†
0†
0†
0†
Net transfers from ONEOK upon separation:
Plant, property and equipment, net, transferred upon separation
21,459,000†
Regulatory assets, pension and other post-retirements benefits transferred upon separation
331,148,000†
Other assets transferred upon separation
79,504,000†
Long-term line of credit with ONEOK transferred upon separation
1,027,631,000†
Short-term note payable to ONEOK transferred upon separation
397,857,000†
Pension and other postretirement benefits liabilities transferred upon separation
(122,909,000)
Other liabilities transferred upon separation
(31,194,000)
Deferred taxes transferred upon separation
(87,281,000)
Accumulated other comprehensive loss transferred upon separation
(3,393,000)
Net contributions of assets (liabilities) upon separation
1,612,822,000†
Less: Cash paid to ONEOK
1,130,000,000†
Net transfers from ONEOK upon separation
$†482,822,000†
REGULATORY ASSETS AND LIABILITIES (Details)†(USD $)
In Thousands, unless otherwise specified
Jun. 30, 2014
Dec. 31, 2013
SCHEDULE OF REGULATED ASSETS AND LIABILITIES [Line Items]
Regulatory Assets, Current
$†31,561†
$†21,657†
Regulatory Assets, Noncurrent
322,691†
23,822†
Regulatory Liability, Current
(17,983)
(17,796)
Net regulatory assets and liabilities, current
13,578†
3,861†
Net regulatory assets and liabilities, noncurrent
304,003†
2,447†
Net Regulatory Assets
317,581†
6,308†
Accumulated removal costs [Member]
SCHEDULE OF REGULATED ASSETS AND LIABILITIES [Line Items]
Regulatory Liability, Current
0†
0†
Regulatory Liability, Noncurrent
(18,688)
(21,375)
Regulatory Liabilities
(18,688)
(21,375)
Over-recovered purchased-gas costs [Member]
SCHEDULE OF REGULATED ASSETS AND LIABILITIES [Line Items]
Regulatory Liability, Current
(17,983)
(17,796)
Regulatory Liability, Noncurrent
0†
0†
Regulatory Liabilities
(17,983)
(17,796)
Total regulated liabilities [Member]
SCHEDULE OF REGULATED ASSETS AND LIABILITIES [Line Items]
Regulatory Liability, Current
(17,983)
(17,796)
Regulatory Liability, Noncurrent
(18,688)
(21,375)
Regulatory Liabilities
(36,671)
(39,171)
Under-recovered purchased-gas costs [Member]
SCHEDULE OF REGULATED ASSETS AND LIABILITIES [Line Items]
Regulatory Assets, Current
16,399†
12,393†
Regulatory Assets, Noncurrent
0†
0†
Regulatory Assets
16,399†
12,393†
Pension and postretirement benefit costs [Member]
SCHEDULE OF REGULATED ASSETS AND LIABILITIES [Line Items]
Regulatory Assets, Current
11,598†
298†
Regulatory Assets, Noncurrent
309,844†
9,556†
Regulatory Assets
321,442†
9,854†
Reacquired debt costs [Member]
SCHEDULE OF REGULATED ASSETS AND LIABILITIES [Line Items]
Regulatory Assets, Current
812†
812†
Regulatory Assets, Noncurrent
10,135†
10,541†
Regulatory Assets
10,947†
11,353†
Other regulatory assets [Member]
SCHEDULE OF REGULATED ASSETS AND LIABILITIES [Line Items]
Regulatory Assets, Current
2,752†
8,154†
Regulatory Assets, Noncurrent
2,712†
3,725†
Regulatory Assets
5,464†
11,879†
Total regulatory assets, net of amortization [Member]
SCHEDULE OF REGULATED ASSETS AND LIABILITIES [Line Items]
Regulatory Assets, Current
31,561†
21,657†
Regulatory Assets, Noncurrent
322,691†
23,822†
Regulatory Assets
$†354,252†
$†45,479†
CREDIT FACILITIES (Details)†(USD $)
6 Months Ended
Jun. 30, 2014
Line of Credit Facility [Line Items]
Ratio of Indebtedness to Net Capital
0.4†
Line of Credit [Member]
Line of Credit Facility [Line Items]
Debt Instrument, Covenant Description
The ONE Gas Credit Agreement, which became effective upon our separation from ONEOK, is scheduled to expire in January 2019, contains certain financial, operational and legal covenants. Among other things, these covenants include maintaining ONE Gasí 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.†
Line of Credit Facility, Interest Rate Description
Borrowings, if any, will accrue interest at LIBOR plus 79.5 basis points. †
Line of credit facility sublimit
$†50,000,000†
Line Of Credit Facility Option To Increase Borrowing Capacity
1,200,000,000†
Line of Credit Facility, Maximum Borrowing Capacity
$†700,000,000†
Line of Credit Facility, Commitment Fee Description
The annual facility fee is 8 basis points.†
LONG-TERM DEBT (Details)†(USD $)
1 Months Ended 6 Months Ended
Jan. 31, 2014
Jun. 30, 2014
Jun. 30, 2013
Debt Instrument [Line Items]
Proceeds from Issuance of Private Placement
$†1,190,000,000†
Cash payment to ONEOK upon separation
(1,130,000,000)
(1,130,000,000)
0†
Note Payable Due 2019 [Member]
Debt Instrument [Line Items]
Debt Instrument, Covenant Description
The indenture governing our Senior Notes includes an event of default upon the acceleration of other indebtedness of $100 million or more. Such events of default would entitle the trustee or the holders of 25 percent in aggregate principal amount of the outstanding Senior Notes to declare those Senior Notes immediately due and payable in full.†
Debt Instrument, Call Feature
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 senior 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.†
Long-term Debt, Gross
300,000,000†
Debt Instrument, Interest Rate, Stated Percentage
2.07%†
Note Payable Due 2024 [Member]
Debt Instrument [Line Items]
Debt Instrument, Covenant Description
The indenture governing our Senior Notes includes an event of default upon the acceleration of other indebtedness of $100 million or more. Such events of default would entitle the trustee or the holders of 25 percent in aggregate principal amount of the outstanding Senior Notes to declare those Senior Notes immediately due and payable in full.†
Debt Instrument, Call Feature
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 senior 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.†
Long-term Debt, Gross
300,000,000†
Debt Instrument, Interest Rate, Stated Percentage
3.61%†
Notes Payable Due 2044 [Member]
Debt Instrument [Line Items]
Debt Instrument, Covenant Description
The indenture governing our Senior Notes includes an event of default upon the acceleration of other indebtedness of $100 million or more. Such events of default would entitle the trustee or the holders of 25 percent in aggregate principal amount of the outstanding Senior Notes to declare those Senior Notes immediately due and payable in full. †
Debt Instrument, Call Feature
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 senior 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.†
Long-term Debt, Gross
$†600,000,000†
Debt Instrument, Interest Rate, Stated Percentage
4.658%†
EARNINGS PER SHARE (Details)†(USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Jun. 30, 2014
Jun. 30, 2013
Jan. 31, 2014
Dec. 31, 2013
EARNINGS PER SHARE [Line Items]
Common stock, shares issued
51,992,547†
51,992,547†
51,941,236†
100†
Basic EPS Calculation
Net income available for common stock
$†9,454†
$†14,951†
$†68,530†
$†68,443†
Weighted Average Number of Shares Outstanding, Basic
51,797,000†
52,319,000†
52,065,000†
52,319,000†
Earnings Per Share, Basic
$†0.18†
$†0.29†
$†1.32†
$†1.31†
Diluted EPS Calculation
Net income available for common stock
9,454†
14,951†
68,530†
68,443†
Effect of dilutive securities on income
$†0†
$†0†
$†0†
$†0†
Effect of dilutive securities on shares
649,000†
0†
416,000†
0†
Weighted Average Number of Shares Outstanding, Diluted
52,446,000†
52,319,000†
52,481,000†
52,319,000†
Earnings Per Share, Diluted
$†0.18†
$†0.29†
$†1.31†
$†1.31†
Dividends
Dividends declared per share of stock
$†0.28†
$†0.00†
$†0.28†
$†0.00†
Common Stock, Dividends, Paid, Annualized Basis
$†1.12†
Common Stock, Dividends, Per Share, Declared
$†0.28†
Common Stock, Dividends, Declared, Annualized Basis
$†1.12†
EMPLOYEE BENEFIT PLANS (Details)†(USD $)
1 Months Ended 3 Months Ended 6 Months Ended 3 Months Ended 6 Months Ended 3 Months Ended 6 Months Ended
Jan. 31, 2014
ONE Gas Pension and Postretirement Benefit Plans [Member]
Jun. 30, 2013
ONE Gas Pension and Postretirement Benefit Plans [Member]
Jun. 30, 2013
ONE Gas Pension and Postretirement Benefit Plans [Member]
Jun. 30, 2014
ONE Gas Pension Plans [Member]
Jun. 30, 2014
ONE Gas Pension Plans [Member]
Jun. 30, 2014
ONE Gas Postretirement Benefit Plans [Member]
Jun. 30, 2014
ONE Gas Postretirement Benefit Plans [Member]
Employee Benefit Plans [Line Items]
Benefit obligation transferred from ONEOK
$†1,100,000,000†
Fair value of plan assets transferred from ONEOK
1,000,000,000†
Increase in regulatory assets as a result of the transfer of unrecognized losses from ONEOK
331,000,000†
Increase in deferred income taxes as a result of the transfer of unrecognized losses from ONEOK
86,000,000†
Components of net periodic benefit cost:
Service cost
2,905,000†
5,673,000†
867,000†
2,041,000†
Interest cost
10,948,000†
21,896,000†
2,901,000†
5,802,000†
Expected return on assets
(14,965,000)
(29,930,000)
(2,848,000)
(5,696,000)
Amortization of unrecognized prior service cost
137,000†
274,000†
(440,000)
(880,000)
Amortization of net loss
7,549,000†
15,099,000†
992,000†
1,984,000†
Net periodic benefit cost
$†14,100,000†
$†27,200,000†
$†6,574,000†
$†13,012,000†
$†1,472,000†
$†3,251,000†
COMMITMENTS AND CONTINGENCIES (Details)
Jun. 30, 2014
Commitments and Contingencies [Line Items]
Number Of Former Manufactured Gas Sites Where We Own Or Retain Legal Responsibility For Environmental Conditions
12†
Number of sites where we have completed or addressed removal of the source of soil contamination according to plans approved by KDHE
11†
Number of sites where regulatory closure has been achieved
3†
Percentage yield of high consequence pipeline areas
30.00%†
DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Details)†(USD $)
3 Months Ended 6 Months Ended
Jun. 30, 2014
MMcf
Jun. 30, 2013
Jun. 30, 2014
MMcf
Jun. 30, 2013
Dec. 31, 2013
MMcf
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Derivative, Nonmonetary Notional Amount
16,500.0†
16,500.0†
26,600.0†
Premiums recorded in other current assets on natural gas contracts held
$†6,900,000†
$†6,900,000†
$†8,600,000†
Fair Value Assets, Transfers between Levels
0†
0†
0†
0†
Long-term line of credit with ONEOK
0†
0†
1,027,631,000†
Long-term Debt
1,200,000,000†
1,200,000,000†
Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Fair value, natural gas call options
4,800,000†
4,800,000†
8,700,000†
Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Long-term Debt, Fair Value
$†1,300,000,000†
$†1,300,000,000†
$†1,200,000,000†