Annual Report 2020

Resilient and Reliable Energy

For a Better Tomorrow

In 2020, our mission to deliver natural gas for a better tomorrow guided our business strategy and daily operations during an unprecedented year of challenges in our country and our communities. As the homes of our customers transitioned to places of work, schooling and much more, we continued delivering affordable natural gas through our resilient and reliable systems bringing comfort and stability in the face of uncertainty.

As part of our safety culture, we closely monitored data relative to the coronavirus, took numerous safety precautions and continued delivering natural gas safely and reliably to customers while protecting our employees and supporting our communities.

Adversity continued into 2021 as our employees and our customers endured some of the coldest, most extreme weather ever seen in our service areas. Due to the intensity and duration of this winter storm, we experienced unforeseeable and unprecedented circumstances across our service area, including the coldest day recorded in over a century, rolling electric brownouts and countless water main breaks. For seven long days, our employees worked through these adverse conditions and collectively, with our customers’ help, we kept the gas flowing to meet the most basic need of our customers — keeping them warm.

Our culture and our core values continue to lead us every day – including through these challenging events. We’d like to express our gratitude for our employees’ teamwork, resiliency and responsiveness as we dealt with back-to-back 100-year events between this historic winter storm and a pandemic. Our response is a testament to the culture of this company.

As one of the largest publicly traded natural gas distribution companies, our focused business model offers a clear mission, vision, strategy and values-driven culture that enables us to deliver a reliable and affordable energy choice to more than 2.2 million customers each day.

In 2020, net income increased to $196 million compared with $187 million in 2019. Diluted earnings per share increased approximately five percent to $3.68. We increased our dividends by eight percent over dividends paid in 2019.

Modernizing our distribution systems remains a pivotal way we decrease emissions while maintaining safe and reliable operations. This requires significant capital investments and collaborative relationships with regulators to enable us to provide the most cost effective, safe and reliable service to our growing customer base. We have replaced an average of 244 miles of vintage pipe per year since 2014. With the remaining vintage materials left to replace, we have a 20-plus-year runway to deploy our capital.

Our portfolio of regulatory mechanisms provides for the timely recovery of investments. These mechanisms support our ability to continue to invest in improving our systems. Ninety percent of our capital investments are included in annual regulatory filings.

In 2020, we invested $512 million, with 70 percent of that capital investment dedicated to system integrity and replacement projects. Replacing pipelines helps us maintain safe and reliable operations while decreasing leaks and emissions from our systems. Our ongoing investment also results in new customers. In 2020, we set approximately 26,400 new meters, an 18 percent increase over 2019 and more meters than any previous year in our history.

Safety doesn’t just happen. It’s driven by our 3,700 employees who have committed to a culture of zero harm. Success is reliant on continuous education and training, real-time reporting and shared responsibility so that our employees know what is expected to keep themselves, their co-workers, our customers and communities safe.

Our safety efforts are overseen by our Environment, Safety, Health & Compliance (ESH&C) Steering Committee which is chaired by our COO and reports to the CEO. Its primary purpose is to provide vision, direction and oversight of our ESH&C programs, processes and management systems in order to protect our employees, customers, the environment, and the communities we serve. It also governs the safe design and operation of our systems and assets.

In 2020, we remained in the first quartile in all safety metrics tracked by the American Gas Association. In 2020, our Days Away, Restricted or Transferred (DART) was the lowest in company history and the lowest of all similar-sized local distribution companies for the third year in a row.

To build a better tomorrow for everyone, we have created a culture that embraces inclusion and diversity and encourages collaboration. Our programs and policies consider our employees’ physical, social, emotional and financial health and help attract diverse talent. Our CEO-chaired Inclusion and Diversity Council and employee-led resource groups encourage employee retention and development.

In 2020, we again had high participation in our annual employee engagement survey, with 90 percent of employees providing feedback. Employee engagement scores were in the top quartile of Gallup’s Overall Company Database and showed improvement for the fourth consecutive year.

World events in 2020, including a pandemic and social injustices, challenged us to further explore how we can strengthen a sense of belonging – from employees and customers to suppliers and the communities we serve. As a leader in our industry and the communities we serve, we are committed to listening and learning with a goal of providing a more equitable experience for all.

Technology is a major driver of true innovation. ONE Gas continues to invest in the development and adoption of innovative technology that improves operational and end-use efficiencies and allows us to continue to provide safe, reliable, cost-effective service while reducing our carbon footprint.

In 2020, we leveraged technology to quickly transition more than half of our workforce to a remote working environment in only three days due to the COVID-19 pandemic. The transition allowed our teams to continue reliable service for our customers and reduce risk for our employees.

We also piloted new ways to detect and reduce emissions with mobile methane detection technology. The technology allowed us to analyze our emissions data at a speed and scale not previously possible. The result was an increase in data-driven decision making to better inform our capital investments and prioritize pipe replacement.

In 2021 and beyond, we will continue investing in innovative solutions that lead to more reliable and resilient natural gas delivery systems that also lowers greenhouse gas emissions. This includes looking at how we can use our existing assets and technology to expand renewable natural gas capture from agriculture, waste-water treatment plants and landfills. We’re also participating in research studies that explore the use of hydrogen production and blending for use in our systems.

We pledge to create exceptional value for all our stakeholders and deliver naturalgas for a better tomorrow. Although we have only been operating under the ONE Gas name since 2014, we have been serving customers in these communities for more than 100 years. With our mission in mind, we are committed tocontinuously improve and invest in safety while caring forour employees, our communities and the environment.

Our core values — safety, ethics, inclusion and diversity,service and value — are the foundation for all that we do and guide our sustainability strategy. We believe that weshare the responsibility to protect our environment and are an important part of any energy transformation to lower carbon emissions — offering resiliency and reliability.

ONE Gas and natural gas as a fuel choice are nimble and responsive to change, as evident in our performanceover the past year. We’re confident natural gas willplay a critical role as the U.S. moves towards achievingemission reduction goals and increasing the use ofrenewable energy sources.

No single energy source will be the solution to supportour country’s energy needs. It will take multiple sources to satisfy the demand for affordable, resilient andreliable energy. For more than 100 years, the naturalgas industry has evolved through innovation to meetcustomer needs. We’ll continue to implement that spirit of innovation and leverage our resilient and sustainable infrastructure to be part of the solution for reachingnet-zero emissions.

Abetter tomorrow means embracing the opportunities presented through energy transformation and being part of real change for our planet. We look forward to showing you our progress on that journey.

Thank you for your support and interest in ONE Gas as we expand our role in the energy transformation underway and deliver on our mission for a better tomorrow.