Annual Report 2021

Creating Value

For a Better Tomorrow

2021 Financial Performance at a Glance

New revenues from investments in system integrity and expansion of services to meet customer growth contributed to our healthy financial position. In 2021, net income increased to $206 million compared with $196 million in 2020. Diluted earnings per share increased approximately 5% to $3.85 compared to $3.68 per diluted share last year. Paid dividends rose 7.4% in 2021 versus the prior year and we increased our quarterly payout by an additional 6.9% in the first quarter 2022.

During Winter Storm Uri, the strength of our balance sheet allowed us to raise over $2.5 billion of interim debt financing to pay for increased purchased gas costs as a result of higher market pricing and higher usage due to extreme cold. Thanks to the hard work of our employees and collaboration with legislators and regulators, securitization will allow us to mitigate the financial impact of the storm on our customers. Excluding the interim storm financing, we finished the year with an equity capitalization of approximately 60%.

Well-Defined Capital Investment Plan

System modernization remains a pivotal way we enhance our pipeline safety and reliability. This requires ongoing capital investments and a portfolio of regulatory mechanisms that support continuous improvements to our systems and recovery of those investments. Ninety percent of our capital investments are included in annual regulatory filings.

In 2021, we invested $544 million in capital projects, a 6% increase over 2020. In addition to system integrity and replacements, this investment allows us to capitalize on the significant organic growth opportunities in our service territory, which includes some of the fastest-growing cities in the U.S.

The critical importance of these integrity investments in maintaining the reliability of our distribution systems was proven in February 2021 when Winter Storm Uri caused unprecedented strain on energy resources across our service area, which included the coldest day recorded in over a century. Despite the challenges brought on by the storm, our systems continued to provide natural gas to our residential customers and critical care facilities in the communities we serve, keeping them safe and warm.

Focused on the Future

Since day one, creating value has been our commitment. How we create that value in new ways is our opportunity. For 2022, we’ve refined our strategy with a focus on growth and a clear vision for our role in a cleaner energy future.

Our strategy includes an increase in capital spending driven by continued investments in system integrity and reliability and to support new levels of customer growth. This investment also improves the emissions profile of our systems.

In 2022 and the years to come, we will measure the value we create with five key strategic areas of focus.

Safety remains our primary focus — the safety of our employees, customers, communities, systems and operations is woven into everything we do. We also are committed to continuous improvement. We will continue to refine our training, processes and procedures to achieve our goal of zero harm.

System modernization also is pivotal to enhancing pipeline safety and reliability and reducing our environmental impact. New initiatives to reduce ourthird-party damages, which can create safety issuesand disrupt planned work and customer service, also are underway. We will strengthen and expand our cybersecurity defense and response capabilities through state-of-the-art security solutions and frequent staff training.

We are expanding our core business by capitalizing on the significant organic growth opportunities in our service territory. Total capital spending for the next five years is anticipated to be $3.5 billion, an increase of 19%, or $500 million, from the previous five-year plan. Investments in system integrity represent about half of the increase in spending expected in 2022. The other half of the increase is for growth as we continue to execute on opportunities to expand our systems to reach new customers.

On average, we expect to see approximately 1.2% annual customer growth across our entire service territory over the five-year period, with the most growth in Texas, where we expect customer growth to approach 2%. The growth capital we plan to spend in 2022 and 2023 includes mainline extensions to build out additional infrastructure that supports several new master planned communities near Austin, Texas, the fastest-growing major metro in the U.S.

Our transition to a clean energy future is another addition to our strategic plan. Over the past year, we’ve been intentional and transparent about our approach to setting climate-related goals. We announced a goal to achieve a 55% reduction in emissions due to leaks from distribution pipelines by 2035 from a 2005 baseline, a goal that includes projected future growth of our assets.

We also will pursue new opportunities to lower net methane emissions, like transporting renewable natural gas (RNG) on our systems. Our service territory is in an area of the country with abundant supplies of feedstock that can be converted into RNG, and our assets are well-positioned to support the use of RNG.

We begin 2022 with a total of 22 active RNG projects. Many of these projects originate from approximately 175 Bcf of potential RNG feedstock that has been identified across our territories through our partnership with Vanguard Renewables. We expect the momentum and demand for RNG to continue as many of our customers, including residential, commercial and industrial transport customers, look to reduce their emissions.

Affordability is a key differentiator for natural gas in the energy transition underway. Natural gas is also in demand. The American Gas Association estimates one new residential customer signs up for natural gas service every minute, and approximately 60 businesses begin new natural gas service everyday. ONE Gas plays a critical role in meeting the peak energy needs of our customers and does soat a competitive price – natural gas maintains a competitive price advantage of approximately 3.3-to-1 compared with electricity in our service areas.

We’re working to expand our energy efficiency programs to new customers and new markets. These programs, including rebates and water conservation kits, help customers make smarter, cost-saving energy choices that benefit them and the environment. We’re also working to expand our low-income programs to help customers with financial hardships.

We firmly believe that every employee makes a difference and contributes to our success. We’ve seen firsthand how an inclusive work culture, where all viewpoints are welcome, creates an engaged and high-performing workforce and an environment where top talent wants to work.

We continue enhancing our programs and policies to attract diverse talent, provide professional development opportunities and offer benefits that support our employees’ physical, social, emotional and financial health.

Our safety metrics and annual employee engagement survey, which focuses on company values, provide insight into the effectiveness of these efforts.

Our 2021 performance positions us well to build on our legacy of safely delivering reliable and affordable natural gas to our customers while protecting our planet for a better tomorrow.

Our focus on growth while reducing emissions leverages the unique opportunities presented by our assets to meet our customers’ demand for affordable, reliable and renewable energy, now and into the future. See our environmental, social and governance milestones at esg.onegas.com.

We remain confident that natural gas and our vast utility infrastructure will play a critical role as the U.S. moves toward achieving emissions reduction goals and increasing the use of renewable energy sources while supplying reliable and affordable energy.

Every day, groups across our company explore new ways our systems can play a role in a sustainable energy future. Their innovation will allow us to make even more headway to reduce our emissions and the emissions of our customers. We look forward to showing you our progress along the way.

Thank you for your support and interest in ONE Gas.