ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and the Notes to Consolidated Financial Statements in this Quarterly Report, as well as our Annual Report. We have disclosed non-GAAP financial measures of adjusted net income and adjusted net income per share. Management and the Board of Directors use these non-GAAP financial measures, in addition to GAAP financial measures, to evaluate financial performance, specifically impacts from certain regulatory mechanisms designed to mitigate regulatory lag, understand and compare operating results across accounting periods, and for planning and forecasting. These non-GAAP financial measures are additional information and should not be considered as alternatives to, or more meaningful than, the related GAAP financial measures or comparable to similar measures used by other companies.
RECENT DEVELOPMENTS
Dividend - In August 2026, we declared a dividend of $0.68 per share ($2.72 per share on an annualized basis) for shareholders of record as of August 17, 2026, payable on August 31, 2026.
REGULATORY ACTIVITIES
Oklahoma - On February 26, 2026, Oklahoma Natural Gas filed its required PBRC application for the year ended December 31, 2025. The filed request included a $28.7 million base rate revenue increase, $2.6 million energy efficiency incentive, and $14.4 million of estimated EDIT to be credited to customers in 2027. At the hearing on June 11, 2026, the administrative law judge recommended approval of the application as filed. Subsequent to the hearing, exceptions to the administrative law judge’s oral ruling were filed at the OCC as well as an appeal to the Oklahoma Supreme Court. Interim rates subject to refund were implemented on June 26, 2026, in compliance with the PBRC tariff.
Kansas - In July 2026, Kansas Gas Service submitted an application to the KCC requesting an increase of approximately $14.3 million related to its GSRS to be effective October 2026. The filing includes expanded infrastructure investments as defined by Kansas House Bill 2435.
Texas - In March 2026, Texas Gas Service made a GRIP filing for all customers requesting a $36.9 million increase to be effective in July 2026. In June 2026, the RRC approved an increase of $36.9 million, and new rates became effective in July 2026.
FINANCIAL RESULTS AND OPERATING INFORMATION
We operate in one reportable business segment: regulated public utilities that deliver natural gas to residential, commercial, and transportation customers. Our accounting policies are the same as described in Note 1 of the Notes to Consolidated Financial Statements in our Annual Report. We evaluate our financial performance principally on net income.
Selected Financial Results - For the three months ended June 30, 2026, net income was $46.8 million, or $0.74 per diluted share, compared with $32.0 million, or $0.53 per diluted share, in the same period last year. Adjusted net income was $52.1 million, or $0.82 adjusted net income per diluted share, for the three months ended June 30, 2026 compared with adjusted net income of $32.7 million, or $0.54 adjusted net income per diluted share, in the same period last year. For the six months ended June 30, 2026, net income was $175.5 million, or $2.78 per diluted share, compared with $151.5 million, or $2.51 per diluted share, in the same period last year. Adjusted net income was $185.5 million, or $2.94 adjusted net income per diluted share, for the six months ended June 30, 2026 compared with adjusted net income of $152.8 million, or $2.53 adjusted net income per diluted share, in the same period last year. See the “Non-GAAP Financial Measures” section for a reconciliation of the Company’s GAAP net income and GAAP EPS to adjusted net income and adjusted net income per share.
The following table sets forth certain selected financial results for our operations for the periods indicated:
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| Three Months Ended | Six Months Ended | Three Months | Six Months |
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| June 30, | June 30, | 2026 vs. 2025 | 2026 vs. 2025 |
| Financial Results | 2026 | 2025 | 2026 | 2025 | Increase (Decrease) | Increase (Decrease) |
| | | | | | | | |
| (Millions of dollars, except percentages) |
| Natural gas sales | $ | 357.8 | | $ | 369.5 | | $ | 1,127.7 | | $ | 1,239.9 | | $ | (11.7) | | (3) | % | $ | (112.2) | | (9) | % |
| Transportation revenues | 31.8 | | 31.0 | | 71.9 | | 74.8 | | 0.8 | | 3 | % | (2.9) | | (4) | % |
| Securitization customer charges | 10.9 | | 13.2 | | 21.9 | | 24.8 | | (2.3) | | (17) | % | (2.9) | | (12) | % |
| Other revenues | 11.1 | | 10.0 | | 21.8 | | 19.5 | | 1.1 | | 11 | % | 2.3 | | 12 | % |
| Total revenues | $ | 411.6 | | $ | 423.7 | | $ | 1,243.3 | | $ | 1,359.0 | | $ | (12.1) | | (3) | % | $ | (115.7) | | (9) | % |
| Cost of natural gas | 90.4 | | 117.9 | | 483.9 | | 630.4 | | (27.5) | | (23) | % | (146.5) | | (23) | % |
| Operating costs | 162.4 | | 154.6 | 334.2 | | 315.2 | | 7.8 | | 5 | % | 19.0 | | 6 | % |
| Depreciation and amortization | 76.2 | | 79.3 | | 153.0 | | 161.0 | | (3.1) | | (4) | % | (8.0) | | (5) | % |
| Operating income | $ | 82.6 | | $ | 71.9 | | $ | 272.2 | | $ | 252.4 | | $ | 10.7 | | 15 | % | $ | 19.8 | | 8 | % |
| Capital expenditures and asset removal costs | $ | 188.3 | | $ | 190.1 | | $ | 357.9 | | $ | 367.8 | | $ | (1.8) | | (1) | % | $ | (9.9) | | (3) | % |
Natural gas sales to customers represent revenue from contracts with customers through implied contracts established by our tariffs and rates approved by regulatory authorities, as well as revenues from regulatory mechanisms related to natural gas sales. Natural gas sales also include recovery of the cost of natural gas.
Our natural gas sales include fixed and variable charges related to the delivery of natural gas and gas costs that are passed through to our customers in accordance with our cost of natural gas regulatory mechanisms. Fixed charges reflect the portion of our natural gas sales attributable to the monthly fixed customer charge component of our rates, which does not fluctuate based on customer usage in each period. Variable charges reflect the portion of our natural gas sales that fluctuate with the volumes delivered and billed and the effects of weather normalization.
Transportation revenues represent revenue from contracts with customers through implied contracts established by our tariffs and rates approved by regulatory authorities, as well as tariff-based negotiated contracts.
Securitization customer charges represent revenue from contracts with customers through implied contracts established by the financing order approved by the KCC, related to the securitization of extraordinary costs incurred during Winter Storm Uri in the state of Kansas. See Note 14 of the Notes to Consolidated Financial Statements in this Quarterly Report for additional discussion of the securitization transaction in Kansas.
Other revenues include primarily miscellaneous service charges, which represent implied contracts with customers established by our tariffs and rates approved by regulatory authorities and other revenues from regulatory mechanisms.
Cost of natural gas includes commodity purchases, fuel, storage, transportation, hedging costs, and settlement proceeds for natural gas price volatility mitigation programs approved by our regulators and other gas purchase costs recovered through our cost of natural gas regulatory mechanisms. Cost of natural gas does not include an allocation of general operating costs or
depreciation and amortization. These regulatory mechanisms provide a method of recovering natural gas costs on an ongoing basis without a profit. Therefore, although our revenues fluctuate with the cost of natural gas that we pass through to our customers, operating income is not affected by fluctuations in the cost of natural gas.
Operating income increased $10.7 million for the three months ended June 30, 2026, compared with the same period last year, due primarily to the following:
•an increase of $16.4 million in revenue from new rates;
•an increase of $1.4 million in residential sales due primarily to net customer growth in Oklahoma and Texas; and
•an increase of $1.3 million in line extension revenue in Oklahoma.
These increases were partially offset by:
•an increase of $7.4 million in employee-related costs;
•an increase of $1.1 million in outside services; and
•an increase of $1.1 million in fleet expense.
Operating income increased $19.8 million for the six months ended June 30, 2026, compared with the same period last year, due primarily to the following:
•an increase of $43.7 million from new rates;
•an increase of $3.2 million in residential sales due primarily to net customer growth in Oklahoma and Texas; and
•an increase of $1.8 million from released transportation capacity to other shippers in Kansas.
These increases were partially offset by:
•an increase of $13.2 million in employee-related costs;
•an increase of $3.4 million in outside services;
•an increase of $1.3 million in fleet expense; and
•a decrease of $10.6 million in revenue due to lower sales and transport volumes, net of the impact of weather normalization mechanisms.
Weather across our service territories was 28 percent warmer than the prior year for the three months ended June 30, 2026 and 25 percent warmer than the prior year for the six months ended June 30, 2026. The impact on operating income was mitigated by our weather normalization mechanisms.
Other Factors Affecting Net Income - Other factors that affected net income for the three months ended June 30, 2026, compared to the same period last year, include an increase of $2.6 million in other income (expense), net due primarily to a credit of $2.4 million due to the change in federal tax regulation for securitization, a $1.7 million increase in the market value of investments associated with our nonqualified deferred compensation plan, partially offset by a $1.3 million decrease in net periodic benefit credit other than service costs.
Other income (expense), net for the six months ended June 30, 2026, compared to the same period last year, increased $33 thousand due primarily to a credit of $2.4 million due to the change in federal tax regulation for securitization, a $0.8 million increase in the market value of investments associated with our nonqualified deferred compensation plan, partially offset by a $2.8 million decrease in net periodic benefit credit other than service costs.
Additionally, net income for the three and six months ended June 30, 2026, compared with the same periods last year, includes decreases in interest expense, net of $4.2 million and $7.5 million, respectively, due primarily to a lower weighted-average interest rate on commercial paper borrowings and the implementation of Texas House Bill 4384.
EDIT - Income tax expense reflects credits for the amortization of the regulatory liability associated with EDIT that were returned to customers of $3.3 million and $2.1 million for the three months ended June 30, 2026 and 2025, respectively, and credits of $12.8 million and $10.2 million for the six months ended June 30, 2026 and 2025, respectively.
Capital Expenditures and Asset Removal Costs - Our capital expenditures program includes expenditures for pipeline integrity, extending service to new areas, reinforcing and increasing system capabilities, pipeline replacements, automated meter reading, government-mandated pipeline relocations, fleet, facilities, IT assets, and cybersecurity. It is our practice to maintain and upgrade our infrastructure, facilities, and systems to ensure safe, reliable, and efficient operations. Asset removal
costs include expenditures associated with the replacement or retirement of long-lived assets that result from the construction, development, and/or normal use of our assets, primarily our pipeline assets.
Capital expenditures and asset removal costs were $1.8 million and $9.9 million lower for the three and six months ended June 30, 2026, compared with the same periods last year. Our full-year capital expenditures and asset removal costs are expected to be approximately $800 million for 2026.
Non-GAAP Financial Measures - Adjusted net income and adjusted net income per share are calculated as GAAP net income plus the deferral of an equity portion of a carrying cost attributable to shareholders’ investment capitalized for regulatory purposes but not for financial reporting purposes. These carrying costs relate to property, plant and equipment that has been placed in service, but not yet reflected in Texas rates. Property, plant and equipment placed in service may vary by quarter based on the timing and complexity of projects, weather impacts, construction completion schedules, contractor activities, and other operational factors. During the three months ended June 30, 2026, we placed $53.8 million of property, plant and equipment in service eligible for this treatment, compared with $62.6 million in the same period last year. For the six months ended June 30, 2026, we placed $125.3 million of property, plant and equipment in service eligible for this treatment, compared with $125.5 million in the same period last year. Adjusted net income and adjusted net income per share should not be considered in isolation or as a substitute for GAAP net income or GAAP EPS.
Management believes these non‑GAAP measures provide useful information because they offer a more complete view of our overall regulatory economics, reflect the period-specific effects of certain regulatory mechanisms designed to mitigate regulatory lag associated with property, plant and equipment placed in service prior to regulatory action, and reflect the impact of regulatory timing differences that arise under the Company’s rate-setting framework. These adjustments, net of applicable tax effects, are expected to recur as a result of the Company’s regulatory framework and are a consistent part of our earnings profile.
The following table contains a reconciliation of the Company’s GAAP net income and GAAP EPS to adjusted net income and adjusted net income per share:
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| Three Months Ended | Six Months Ended | |
| June 30, | June 30, | |
| 2026 | 2025 | 2026 | 2025 | | |
| (Thousands of dollars, except per share amounts) | |
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| Net income - GAAP | $ | 46,808 | $ | 32,033 | $ | 175,481 | $ | 151,452 | | |
Other income - deferred carrying cost (a) | 5,257 | 653 | 9,982 | 1,301 | | |
Income taxes (b) | — | — | — | — | | |
| Adjusted net income - non-GAAP | $ | 52,065 | | $ | 32,686 | | $ | 185,463 | | $ | 152,753 | | | |
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| Earnings per share - GAAP | | | | | | |
| Basic | $ | 0.74 | $ | 0.53 | $ | 2.79 | $ | 2.52 | | |
| Diluted | $ | 0.74 | $ | 0.53 | $ | 2.78 | $ | 2.51 | | |
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| Adjusted net income per share - non-GAAP | | | | | | |
| Basic | $ | 0.83 | $ | 0.54 | $ | 2.95 | $ | 2.54 | | |
| Diluted | $ | 0.82 | $ | 0.54 | $ | 2.94 | $ | 2.53 | | |
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Average shares (thousands) | | | | | | |
| Basic | 62,959 | 60,113 | 62,936 | 60,095 | | |
| Diluted | 63,153 | 60,455 | 63,178 | 60,361 | | |
(a) The allowance for earnings on shareholders’ investment capitalized for regulatory purposes but not for financial reporting purposes applied to property, plant and equipment placed in service, but not yet reflected in Texas rates, as authorized by our regulators or state law. Property, plant and equipment placed in service may vary by quarter based on the timing and complexity of projects, weather impacts, construction completion schedules, contractor activities, and other operational factors. During the three months ended June 30, 2026, we placed $53.8 million of property, plant and equipment in service eligible for this treatment, compared with $62.6 million in the same period last year. For the six months ended June 30, 2026, we placed $125.3 million of property, plant and equipment in service eligible for this treatment, compared with $125.5 million in the same period last year. (b) This deferred carrying cost increases book income but is non-taxable, creating a permanent tax difference. | |
Selected Operating Information - The following tables set forth certain selected operating information for the periods indicated:
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| | Three Months Ended | Variances |
| | June 30, | 2026 vs. 2025 |
| (in thousands) | | 2026 | 2025 | Increase (Decrease) |
| Average Number of Customers | | OK | KS | TX | Total | OK | KS | TX | Total | OK | KS | TX | Total |
| Residential | | 855 | | 599 | | 679 | | 2,133 | | 850 | | 600 | | 674 | | 2,124 | | 5 | | (1) | | 5 | | 9 | |
| Commercial and industrial | | 76 | | 51 | | 34 | | 161 | | 78 | | 51 | | 35 | | 164 | | (2) | | — | | (1) | | (3) | |
| Other | | — | | — | | 3 | | 3 | | — | | — | | 3 | | 3 | | — | | — | | — | | — | |
| Transportation | | 5 | | 5 | | 1 | | 11 | | 5 | | 5 | | 1 | | 11 | | — | | — | | — | | — | |
| Total customers | | 936 | | 655 | | 717 | | 2,308 | | 933 | | 656 | | 713 | | 2,302 | | 3 | | (1) | | 4 | | 6 | |
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| | Six Months Ended | Variances |
| | June 30, | 2026 vs. 2025 |
| (in thousands) | | 2026 | 2025 | Increase (Decrease) |
| Average Number of Customers | | OK | KS | TX | Total | OK | KS | TX | Total | OK | KS | TX | Total |
| Residential | | 856 | | 601 | | 678 | | 2,135 | | 851 | | 601 | | 673 | | 2,125 | | 5 | | — | | 5 | | 10 | |
| Commercial and industrial | | 76 | | 51 | | 35 | | 162 | | 78 | | 51 | | 35 | | 164 | | (2) | | — | | — | | (2) | |
| Other | | — | | — | | 3 | | 3 | | — | | — | | 3 | | 3 | | — | | — | | — | | — | |
| Transportation | | 5 | | 5 | | 1 | | 11 | | 5 | | 5 | | 1 | | 11 | | — | | — | | — | | — | |
| Total customers | | 937 | | 657 | | 717 | | 2,311 | | 934 | | 657 | | 712 | | 2,303 | | 3 | | — | | 5 | | 8 | |
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The increase in the average number of customers for the periods presented is due primarily to the connection of new customers resulting from the extension and expansion of our system in our service areas. For the three months ended June 30, 2026, our average customer count includes approximately 4,800 new customer connections in the period. For the six months ended June 30, 2026, our average customer count includes approximately 9,600 new customer connections in the period. For the year ended December 31, 2025, our average customer count included approximately 23,000 new customer connections.
The following table reflects total volumes delivered, excluding the effects of WNA mechanisms on sales volumes:
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| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
Volumes (MMcf) | 2026 | | 2025 | | 2026 | | 2025 | | |
| Natural gas sales | | | | | | | | | |
| Residential | 10,373 | | | 12,589 | | | 54,367 | | | 71,510 | | | |
| Commercial and industrial | 5,007 | | | 5,761 | | | 20,053 | | | 24,987 | | | |
| Other | 490 | | | 518 | | | 1,363 | | | 1,655 | | | |
| Total sales volumes delivered | 15,870 | | | 18,868 | | | 75,783 | | | 98,152 | | | |
| Transportation | 50,689 | | | 48,731 | | | 109,794 | | | 114,073 | | | |
| Total volumes delivered | 66,559 | | | 67,599 | | | 185,577 | | | 212,225 | | | |
The impact of weather on residential and commercial natural gas sales is mitigated by WNA mechanisms in all jurisdictions.
The following table sets forth the HDDs by state for the periods indicated:
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| | Three Months Ended |
| | June 30, |
| | 2026 | | 2025 | | 2026 vs. 2025 | | 2026 | | 2025 |
| HDDs | | Actual | | Normal | | Actual | | Normal | | Actual Variance | | Actual as a percent of Normal |
| Oklahoma | | 126 | | 5h | 230 | | | 164 | | 5h | 230 | | | (23) | % | | 55 | % | | 71 | % |
| Kansas | | 234 | | 5j | 397 | | | 319 | | 5j | 397 | | | (27) | % | | 59 | % | | 80 | % |
| Texas | | 32 | | 5l | 51 | | | 64 | | 5l | 46 | | | (50) | % | | 63 | % | | 139 | % |
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| | Six Months Ended |
| | June 30, |
| | 2026 | | 2025 | | 2026 vs. 2025 | | 2026 | | 2025 |
| HDDs | | Actual | | Normal | | Actual | | Normal | | Actual Variance | | Actual as a percent of Normal |
| Oklahoma | | 1,537 | | 5b | 2,028 | | | 2,080 | | | 2,027 | | | (26) | % | | 76 | % | | 103 | % |
| Kansas | | 2,304 | | 5d | 2,883 | | | 2,929 | | | 2,883 | | | (21) | % | | 80 | % | | 102 | % |
| Texas | | 710 | | 5f | 999 | | | 1,051 | | | 994 | | | (32) | % | | 71 | % | | 106 | % |
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Normal HDDs are established through rate proceedings in each of our jurisdictions for use primarily in weather normalization billing calculations. See further discussion on weather normalization in our Regulatory Overview section in Part 1, Item 1, “Business,” of our Annual Report. Normal HDDs disclosed above are based on:
•Oklahoma - A 10-year weighted average as of June 30, 2021, as calculated using 11 weather stations across Oklahoma and weighted on average customer count.
•Kansas - A 30-year rolling average for years 1994-2023 calculated using three weather stations across Kansas and weighted on HDDs by weather station and customers.
•Texas - An average of HDDs authorized in our most recent rate proceeding in each jurisdiction and weighted using a rolling 10-year average of actual natural gas distribution sales volumes.
Actual HDDs are based on the quarter weighted average of:
•11 weather stations and customers by month for Oklahoma;
•3 weather stations and customers by month for Kansas; and
•9 weather stations and natural gas distribution sales volumes for Texas.
CONTINGENCIES
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 outcome of such matters will not have a material adverse effect on our results of operations, financial position or cash flows.
LIQUIDITY AND CAPITAL RESOURCES
General - We have relied primarily on operating cash flow, commercial paper, and equity forward agreements for our liquidity and capital resource requirements. We fund operating expenses, working capital requirements, including purchases of natural gas, and capital expenditures primarily with cash from operations, commercial paper, and settlements of equity forward agreements.
Our stable cash flow and earnings profile is due to the significant residential component of our customer base, the fixed-charge component of our natural gas sales revenues, and the rate mechanisms that we have in place. Additionally, we have rate mechanisms in place in our jurisdictions that reduce the lag in earning a return on our capital expenditures and provide for recovery of certain changes in our cost of service by allowing for adjustments to rates between rate cases. We anticipate that our cash flow generated from operations and our expected short- and long-term financing arrangements will enable us to maintain our current and planned level of operations and provide us flexibility to finance our infrastructure investments. Our ability to
access capital markets for debt and equity financing under reasonable terms depends on market conditions, our financial condition, and credit ratings.
Short-term Debt - The ONE Gas Credit Agreement provides for a $1.5 billion revolving unsecured credit facility, which includes a $20 million letter of credit subfacility and a $60 million swingline subfacility. Under the terms of the agreement, the Company may, subject to satisfaction of customary conditions and receipt of commitments from new or existing lenders, request an increase in total commitments of up to an additional $750 million. Proceeds from the agreement may be used for working capital, capital expenditures, acquisitions and mergers, the issuance of letters of credit, and 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, excluding the debt of KGSS-I, of no more than 70 percent at the end of any calendar quarter. At June 30, 2026, our total debt-to-capital ratio, excluding KGSS-I, was 47.1 percent and we were in compliance with all covenants under the ONE Gas Credit Agreement. We may reduce the unutilized portion of the ONE Gas Credit Agreement in whole or in part without premium or penalty. The ONE Gas Credit Agreement contains customary events of default. Upon the occurrence of certain events of default, our obligations under the ONE Gas Credit Agreement may be accelerated and the commitments may be terminated.
At June 30, 2026, we had approximately $2.4 million in letters of credit issued and no borrowings under the ONE Gas Credit Agreement, with approximately $1.5 billion of remaining credit, which is available to repay our commercial paper borrowings and for other permitted purposes.
Under our commercial paper program, we may issue unsecured commercial paper up to the maximum amount of $1.5 billion to fund short-term borrowing needs. The maturities of the commercial paper vary but may not exceed 270 days from the date of issue. Commercial paper is generally sold at par less a discount representing an interest factor. At June 30, 2026 and December 31, 2025, we had $770.8 million and $737.4 million of commercial paper outstanding with a weighted-average interest rate of 4.09 percent and 3.94 percent, respectively.
Senior Notes - At June 30, 2026, our long-term debt-to-capital ratio was 40.3 percent, exclusive of KGSS-I debt.
At June 30, 2026, we had outstanding $2.2 billion of Senior Notes with none due within the next year. 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.
Depending on the series, we may redeem our Senior Notes at par, plus accrued and unpaid interest to the redemption date, starting one month, three months, or six months 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.
Unsecured Term Loan - In August 2025, we entered into a 13-month unsecured term loan agreement totaling $250 million. The loan bears interest at a variable rate based on Term SOFR, initially set using the 6-month Term SOFR at closing, plus a 90 bps spread as specified in the agreement. The interest rate resets automatically at months six and twelve, each based on the prevailing 6-month Term SOFR plus a spread of 90 bps, and 1-month Term SOFR plus a spread of 90 bps, respectively, until the term loan matures in September 2026. Interest is payable quarterly, and the loan includes customary covenants and default provisions. Proceeds of the term loan will be available for working capital, capital expenditures, acquisitions, mergers, and other general corporate purposes.
On February 11, 2026, the variable interest rate on our unsecured term loan reset for the new six‑month interest period to 6‑month Term SOFR of 3.58 percent plus a 90 bps spread, resulting in a 4.48 percent all‑in interest rate, a decrease from the prior rate of 4.96 percent.
Credit Ratings - Our credit ratings at June 30, 2026, were:
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| Rating Agency | Long-term Rating | Short-term Rating | Outlook |
| Moody’s | A3 | Prime-2 | Stable |
| S&P | A- | A-2 | Stable |
We intend to maintain credit metrics at a level that supports our balanced approach to capital investment and a return of capital to shareholders via a dividend that we believe will be competitive with our peer group.
Securitized Utility Tariff Bonds - At June 30, 2026, we had outstanding $242.5 million of 5.486 percent KGSS-I Securitized Utility Tariff Bonds with $31.4 million due within the next year. The bonds are governed by an indenture between KGSS-I and the indenture trustee. The indenture contains certain covenants that restrict KGSS-I’s ability to sell, transfer, convey, exchange, or otherwise dispose of its assets.
At-the-Market Equity Program - In February 2026, we entered into an at-the-market equity distribution agreement under which we may issue and sell shares of our common stock with an aggregate offering price up to $225 million. Sales of common stock are made by means of ordinary brokers’ transactions on the NYSE and the NYSE Texas, in block transactions or as otherwise agreed to between us and the sales agent. We are under no obligation to offer and sell common stock under the program. At June 30, 2026, we had $204.4 million of equity available for issuance under the program. Had we fully settled all 506,607 shares sold under our forward sale agreements, as of June 30, 2026, we would have generated net proceeds of approximately $41.5 million.
Pension and Other Postemployment Benefit Plans - In 2026, our contributions are expected to be approximately $12.7 million to our defined benefit pension plans, and no contributions are expected to be made to our other postemployment benefit plans. We use a December 31 measurement date for our plans.
Information about our pension and other postemployment benefit plans, including anticipated contributions, is included under Note 11 of the Notes to Consolidated Financial Statements in our Annual Report. See Note 9 of the Notes to Consolidated Financial Statements in this Quarterly Report for additional information.
CASH FLOW ANALYSIS
We use the indirect method to prepare our consolidated statements of cash flows. Under this method, we reconcile net income to cash flows provided by operating activities by adjusting net income for those items that impact net income but may not result in actual cash receipts or payments and changes in our assets and liabilities not classified as investing or financing activities during the period. Items that impact net income but may not result in actual cash receipts or payments include, but are not limited to, depreciation and amortization, deferred income taxes, share-based compensation expense, and provision for doubtful accounts.
The following table sets forth the changes in cash flows by operating, investing and financing activities for the periods indicated:
| | | | | | | | | | | | | | | | | | |
| | | | Six Months Ended | | |
| | | | | | June 30, | Variance | |
| | | | | | 2026 | 2025 | | 2026 vs. 2025 | |
| | | | | | (Millions of dollars) |
| Total cash provided by (used in): | | | | | | | | | | |
| Operating activities | | | | | | $ | 387.3 | | $ | 448.8 | | | $ | (61.5) | | |
| Investing activities | | | | | | (329.7) | | (348.5) | | | 18.8 | | |
| Financing activities | | | | | | (60.7) | | (136.1) | | | 75.4 | | |
| Change in cash, cash equivalents, restricted cash and restricted cash equivalents | | | | | | (3.1) | | (35.8) | | | 32.7 | | |
| Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period | | | | | | 33.7 | | 78.5 | | | (44.8) | | |
| Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period | | | | | | $ | 30.6 | | $ | 42.7 | | | $ | (12.1) | | |
Operating Cash Flows - Changes in cash flows from operating activities are due primarily to changes in sales revenues, natural gas costs, and operating expenses discussed in “Financial Results and Operating Information,” and changes in working capital. Changes in natural gas prices and demand for our services or natural gas, whether because of general economic
conditions, variations in weather not mitigated by WNA mechanisms, changes in supply, or increased competition from other service providers, could affect our earnings and operating cash flows. Typically, our cash flows from operations are greater in the first half of the year compared to the second half of the year.
Operating cash flows were lower for the six months ended June 30, 2026, compared with the prior period, due primarily to working capital changes related to the recovery of regulatory assets, net.
Investing Cash Flows - Cash used in investing activities decreased for the six months ended June 30, 2026, compared with the prior period, due primarily to the timing of capital expenditures for system integrity and extension of service to new areas.
Financing Cash Flows - Cash used in financing activities decreased for the six months ended June 30, 2026, compared with the prior period, due primarily to higher net commercial paper repayments in 2025.
ENVIRONMENTAL, SAFETY, AND REGULATORY MATTERS
Environmental Matters - We are subject to multiple laws and regulations regarding protection of the environment and natural and cultural resources, which affect many aspects of our present and future operations. Regulated activities include, but are not limited to, those involving air emissions, storm water and wastewater discharges, handling and disposal of solid and hazardous wastes, wetland preservation, plant and wildlife protection, hazardous materials use, storage, and transportation, and pipeline and facility construction. These laws and regulations require us to obtain and/or comply with a wide variety of environmental clearances, registrations, licenses, permits, and other approvals. Failure to comply with these laws, regulations, licenses, and permits or the discovery of presently unknown environmental conditions may expose us to fines, penalties, and/or interruptions in our operations that could be material to our results of operations. In addition, emission controls and/or other regulatory or permitting mandates under the CAA and other similar federal and state laws could require unexpected capital expenditures. We cannot assure that existing environmental statutes and regulations will not be revised or that new regulations will not be adopted or become applicable to us. Revised or additional statutes or regulations that result in increased compliance costs or additional operating restrictions could have a material adverse effect on our business, financial condition, and results of operations. Our expenditures for environmental investigation and remediation compliance to date have not been significant in relation to our financial position, results of operations, or cash flows, and our expenditures related to environmental matters had no material effects on earnings or cash flows during the three and six months ended June 30, 2026, and 2025.
We own or retain legal responsibility for certain environmental conditions at 12 former MGP sites in Kansas. These sites contain contaminants generally associated with MGP sites and are subject to control or remediation under various environmental laws and regulations. A consent agreement with the KDHE governs all environmental investigation and remediation work at these sites. The terms of the consent agreement require us to investigate these sites and set remediation activities based upon the results of the investigations and risk analysis. Remediation typically involves the management of contaminated soils and may involve removal of structures and monitoring and/or remediation of groundwater. We have completed or are addressing removal of the source of soil contamination at all 12 sites and continue to monitor groundwater at seven of the 12 sites according to plans approved by the KDHE. Regulatory closure has been achieved at five of the 12 sites, but these sites remain subject to potential future requirements that may result in additional costs.
We have an AAO that allows Kansas Gas Service to defer and seek recovery of costs necessary for investigation and remediation at, and nearby, these 12 former MGP sites that are incurred after January 1, 2017. In January 2025, Kansas Gas Service requested to increase the cap on the AAO to $32.0 million from $15.0 million. The original $15.0 million cap approved in 2017 was the result of a unanimous settlement agreement and contained additional reporting requirements and obligations. In May 2025, Kansas Gas Service, the KCC staff, and the Citizens’ Utility Ratepayer Board filed a unanimous settlement agreement with the KCC agreeing to increase the cap to $32.0 million and to leave all of the other provisions of the 2017 settlement agreement in place. The KCC issued an order approving the settlement agreement in July 2025.
Pursuant to the AAO, costs approved for recovery in a future rate proceeding are to be amortized over a 15-year period. The unamortized amounts are not included in rate base or accumulate carrying charges. Following a determination that future investigation and remediation work approved by the KDHE exceeds $32.0 million, net of any related insurance recoveries, Kansas Gas Service is required to file an application with the KCC for approval to increase the $32.0 million cap. At June 30, 2026 and December 31, 2025, we have deferred $30.3 million and $30.1 million, respectively, for accrued investigation and remediation costs, net of insurance proceeds, pursuant to our AAO.
We also own or retain legal responsibility for certain environmental conditions at a former MGP site in Texas. At the request of the TCEQ, we began investigating the level and extent of contamination associated with the site under their Texas Risk Reduction Program. A preliminary site investigation revealed that this site contains contaminants generally associated with
MGP sites and is subject to control or remediation under various environmental laws and regulations. At June 30, 2026, estimated costs associated with expected remediation activities for this site are not material.
Our expenditures for environmental evaluation, mitigation, remediation, and compliance to date have not been significant in relation to our financial position, results of operations, or cash flows, and our expenditures related to environmental matters had no material effects on earnings or cash flows during the three and six months ended June 30, 2026, and 2025. The reserve for remediation of our MGP sites was $13.0 million and $13.7 million at June 30, 2026 and December 31, 2025, respectively.
Environmental issues may exist with respect to these MGP sites that are unknown to us. Accordingly, future costs are dependent on the final determination and regulatory approval of any remedial actions, the complexity of the site, level of remediation required, changing technology and governmental regulations, and to the extent not recovered by insurance or recoverable in rates from our customers, such costs could be material to our financial condition, results of operations, or cash flows.
We are subject to environmental regulation by federal, state, and local authorities. Due to the inherent uncertainties surrounding the development of federal and state environmental laws and regulations, we cannot determine with specificity the impact such laws and regulations may have on our existing and future facilities. With the trend toward stricter standards, greater regulation, and more extensive permit requirements for the types of assets operated by us, our environmental expenditures could increase in the future. Such expenditures may not be fully recovered by insurance or recoverable in rates from our customers, and those costs may adversely affect our financial condition, results of operations, and cash flows.
Environmental Footprint - We cannot assure that existing environmental statutes and regulations will not be revised or that new regulations will not be adopted or become applicable to us. Revised or additional regulations that result in increased compliance costs or additional operating restrictions could have a material adverse effect on our business, financial condition, and results of operations. Our expenditures for environmental investigation and remediation compliance to date have not been significant in relation to our financial position, results of operations, or cash flows, and our expenditures related to environmental matters had no material effects on earnings or cash flows for the three and six months ended June 30, 2026, and 2025.
Pipeline Safety - We are subject to regulation under federal pipeline safety statutes and any analogous state regulations. These include safety requirements for the design, construction, operation, and maintenance of pipelines, including transmission and distribution pipelines. At the federal level, we are regulated by PHMSA. PHMSA regulations require the following for certain pipelines: inspection and maintenance plans; integrity management programs, including the determination of pipeline integrity risks and periodic assessments on certain pipeline segments; an operator qualification program, which includes certain trainings; a public awareness program that provides certain information; and a control room management plan.
PHMSA promulgates various regulations related to pipeline safety. As part of the Consolidated Appropriations Act, 2021, the PIPES Act reauthorized PHMSA through 2023 and directed the agency to move forward with several regulatory actions. Outstanding regulatory actions include the “Pipeline Safety: Safety of Gas Distribution Pipelines” and “Pipeline Safety: Gas Pipeline Leak Detection” proposed rulemakings. On May 28, 2026, PHMSA hosted a meeting of the Gas Pipeline Advisory Committee to cover the proposed “Pipeline Safety: Safety of Gas Distribution Pipelines” rule. PHMSA is anticipating publishing the final rule to the Federal Register in December of 2026. The “Pipeline Safety: Gas Pipeline Leak Detection” proposed rule would require operators of new and existing transmission and distribution pipeline facilities to conduct certain leak detection and repair programs and require facility inspection and maintenance plans to align with those regulations. On January 20, 2025, an executive order began a regulatory freeze on all rulemakings that were not yet effective pending further review. On July 8, 2026, PHMSA published the NPRM for Gas Transmission Pipelines Repair Criteria in the Federal Register. This rule proposes to modernize and clarify anomaly response criteria. To the extent such rulemakings impose more stringent requirements on our facilities, we may be required to incur expenditures that may be material.
Regulatory - Several regulatory initiatives impacted the earnings and future earnings potential of our business. See additional information regarding our regulatory initiatives in the “Regulatory Activities” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations.
IMPACT OF NEW ACCOUNTING STANDARDS
Information about the impact of new accounting standards, if any, is included in Note 1 of the Notes to Consolidated Financial Statements in this Quarterly Report.
CRITICAL ACCOUNTING 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 amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements. These estimates and assumptions also affect the reported amounts of revenues and expenses during the reporting period. Although we believe these estimates and assumptions are reasonable, actual results could differ from our estimates.
Information about our estimates and critical accounting policies is included under Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, “Critical Estimates and Accounting Policies,” in our Annual Report.
FORWARD-LOOKING STATEMENTS
Some of the statements contained and incorporated in this Quarterly Report are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. The forward-looking statements relate to our anticipated financial performance, liquidity, management’s plans and objectives for our future operations, our business prospects, the outcome of regulatory and legal proceedings, market conditions, and other matters. We make these forward-looking statements in reliance on the safe harbor protections provided under the Private Securities Litigation Reform Act of 1995. The following discussion is intended to identify important factors that could cause future outcomes to differ materially from those set forth in the forward-looking statements.
Forward-looking and other statements in this Quarterly Report regarding our environmental, social, and other sustainability plans and goals are not an indication that these statements are necessarily material to investors or required to be disclosed in our filings with the SEC. In addition, historical, current, and forward-looking environmental, social, and sustainability-related statements may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future.
Forward-looking statements include the items identified in the preceding paragraph, the information concerning possible or assumed future results of our operations and other statements contained or incorporated in this Quarterly Report identified by words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “should,” “goal,” “forecast,” “guidance,” “could,” “may,” “continue,” “might,” “potential,” “scheduled,” “likely,” and other words and terms of similar meaning.
One should not place undue reliance on forward-looking statements, which are applicable only as of the date of this Quarterly Report. Known and unknown risks, uncertainties, and other factors may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by forward-looking statements. Those factors may affect our operations, costs, liquidity, markets, products, services, and prices. In addition to any assumptions and other factors referred to specifically in connection with the forward-looking statements, factors that could cause our actual results to differ materially from those contemplated in any forward-looking statement include, among others, the following:
•our ability to recover costs, income taxes, and amounts equivalent to the cost of property, plant and equipment, regulatory assets, and our allowed rate of return in our regulated rates or other recovery mechanisms;
•cyber-attacks, which continue to increase in volume and sophistication, or breaches of technology systems that could disrupt our operations or result in the loss or exposure of confidential or sensitive customer, employee, vendor, counterparty, or Company information; further, increased remote working arrangements have required enhancements and modifications to our IT infrastructure (e.g. Internet, Virtual Private Network, remote collaboration systems, etc.), and any failures of the technologies, including those provided by third-party service providers, that facilitate working remotely could limit our ability to conduct ordinary operations or expose us to increased risk or effect of an attack;
•our ability to manage our operations and maintenance costs;
•changes in regulation of natural gas distribution services, particularly those in Oklahoma, Kansas, and Texas;
•the economic climate and, particularly, its effect on the natural gas requirements of our residential and commercial customers;
•the length and severity of a pandemic or other health crisis which could significantly disrupt or prevent us from operating our business in the ordinary course for an extended period;
•competition from alternative forms of energy, including, but not limited to, electricity, solar power, wind power, geothermal energy, and biofuels;
•adverse weather conditions and variations in weather, including seasonal effects on demand and/or supply, the occurrence of severe storms in the territories in which we operate, climate change, and the related effects on supply, demand, and costs;
•indebtedness, which could make us more vulnerable to general adverse economic and industry conditions, limit our ability to borrow additional funds and/or place us at a competitive disadvantage compared with competitors;
•our ability to secure reliable, competitively priced and flexible natural gas transportation, storage, and supply, including decisions by natural gas producers to reduce production or shut-in producing natural gas wells and expiration of existing supply and transportation and storage arrangements that are not replaced with contracts with similar terms and pricing;
•our ability to complete necessary or desirable expansion or infrastructure development projects, which may delay or prevent us from serving our customers or expanding our business;
•operational and mechanical hazards or interruptions;
•adverse labor relations;
•the effectiveness of our strategies to reduce earnings lag, revenue protection strategies and risk mitigation strategies, which may be affected by risks beyond our control such as commodity price volatility, counterparty performance or creditworthiness, and interest rate risk;
•the capital-intensive nature of our business, and the availability of and access to, in general, funds to meet our debt obligations prior to or when they become due and to fund our operations and capital expenditures, either through (i) cash on hand, (ii) operating cash flow, or (iii) access to the capital markets and other sources of liquidity;
•our ability to obtain capital on commercially reasonable terms, or on terms acceptable to us, or at all;
•limitations on our operating flexibility, earnings, and cash flows due to restrictions in our financing arrangements;
•cross-default provisions in our borrowing arrangements, which may lead to our inability to satisfy all of our outstanding obligations in the event of a default on our part;
•changes in the financial markets during the periods covered by the forward-looking statements, particularly those affecting the availability of capital and our ability to refinance existing debt and fund investments and acquisitions to execute our business strategy;
•actions of rating agencies, including the ratings of debt, general corporate ratings, and changes in the rating agencies’ ratings criteria;
•changes in inflation and interest rates;
•our ability to recover the costs of upstream transportation, storage, and natural gas purchased for our customers and any related financing required to support our purchase of natural gas supply;
•impact of potential impairment charges;
•volatility and changes in markets for natural gas and our ability to secure additional and sufficient liquidity on reasonable commercial terms to cover costs associated with such volatility;
•possible loss of local distribution company franchises or other adverse effects caused by the actions of municipalities;
•payment and performance by counterparties and customers as contracted and when due, including our counterparties maintaining ordinary course terms of supply and payments;
•changes in existing or the addition of new environmental, safety, tax, cybersecurity, and other laws or regulations to which we and our subsidiaries are subject, including those that may require significant expenditures, significant increases in operating costs or, in the case of noncompliance, substantial fines or penalties;
•the effectiveness of our risk-management policies and procedures, and employees violating our risk-management policies;
•the uncertainty of estimates, including accruals and costs of environmental remediation;
•advances in technology, including technologies that increase efficiency or that improve electricity’s competitive position relative to natural gas;
•population growth rates and changes in the demographic patterns of the markets we serve in Oklahoma, Kansas, and Texas, and economic conditions in these areas;
•acts of nature and naturally occurring disasters;
•political unrest and the potential effects of threatened or actual terrorism and war;
•the sufficiency of insurance coverage to cover losses;
•the effects of our strategies to reduce tax payments;
•changes in accounting standards;
•changes in corporate governance standards;
•existence of material weaknesses in our internal controls;
•our ability to comply with all covenants in our indentures and our short and long term credit agreements, a violation of which, if not cured in a timely manner, could trigger a default of our obligations;
•our ability to attract and retain talented employees, management, and directors, and any shortage of skilled labor;
•unexpected increases in the costs of providing health care benefits, along with pension and postemployment health care benefits, as well as declines in the discount rates on, declines in the market value of the debt and equity securities of, and increases in funding requirements for, our defined benefit plans; and
•our ability to successfully complete merger, acquisition, or divestiture plans, regulatory or other limitations imposed as a result of a merger, acquisition, or divestiture, and the success of the business following a merger, acquisition, or divestiture.
These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other factors could also have material adverse effects on our future results. These and other risks are described in greater detail in Part 1, Item 1A, Risk Factors, in our Annual Report. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these factors. Other than as required under securities laws, we undertake no obligation to update publicly any forward-looking statement whether as a result of new information, subsequent events or change in circumstances, expectations, or otherwise.