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Regulatory Matters
6 Months Ended
Mar. 31, 2014
Regulatory Assets and Liabilities, Other Disclosures [Abstract]  
Regulatory Matters
Regulatory Matters
 
Following discussions with regulatory staff with respect to earnings levels, on March 27, 2013, Distribution Corporation filed a plan (“Plan”) with the NYPSC proposing to adopt an “earnings stabilization and sharing mechanism” that would allocate earnings above a rate of return on equity of 9.96% evenly between shareholders and an accounting reserve (“Reserve”).  The Reserve would be utilized to stabilize Distribution Corporation’s earnings and to fund customer benefit programs.  The Plan also proposed to increase capital spending and to aid new customer system expansion efforts.  Discussions were held with NYPSC staff and others with respect to the Plan. 
 
Subsequently, on April 19, 2013, the NYPSC issued an order directing Distribution Corporation to either agree to make its rates and charges temporary subject to refund effective June 1, 2013, or show cause why its gas rates and charges should not be set on a temporary basis subject to refund (“Order”).  The Order recognized Distribution Corporation’s Plan and, while acknowledging the Company’s cost-cutting and efficiency achievements, determined nonetheless that the Plan did not propose to adjust “existing rates . . . enough to compensate for the imbalance between ratepayer and shareholder interests that has developed since . . . 2007 . . .”  Pursuant to the Order, the NYPSC commenced a “temporary rate” proceeding and, following hearings, on June 14, 2013, the NYPSC issued an order (“Temporary Rates Order”) making Distribution Corporation’s rates and charges temporary and subject to refund pending the determination of permanent gas rates through further rate proceedings.  Discussions for settlement of Distribution Corporation’s rates and charges were commenced while the formal case to establish permanent rates proceeded along a parallel path.  
 
In addition to authorizing a “temporary rate” proceeding, the Order also suggested an examination of the applicability of a provision of New York public utility law, PSL §66(20), that provides the NYPSC with stated authority to direct a refund of revenues received by a utility “in excess of its authorized rate of return for a period of twelve months.” On May 17, 2013, Distribution Corporation commenced an action in New York Supreme Court, Erie County, seeking the court’s declaration that PSL §66(20) is unconstitutional.  On October 25, 2013, the court dismissed Distribution Corporation’s complaint without prejudice to recommence the action after a decision is rendered in the rate proceeding before the NYPSC.  In addition, on September 25, 2013, Distribution Corporation commenced an appeal in New York Supreme Court, Albany County, seeking to annul the Temporary Rates Order on various grounds. 
 
On December 6, 2013, Distribution Corporation filed an agreement, executed by five of the six active parties in the rate proceeding, for settlement of the temporary rate proceeding and all issues relating to rates.  The settlement agreement proposes to fix customer rates at existing levels for a minimum two-year term retroactive to October 1, 2013.  Although customer rates are fixed, the parties agreed that the allowed rate of return on equity would be set, for ratemaking purposes, at 9.1%.  Following conventional practice in New York, the agreement also proposes an “earnings sharing mechanism” (“ESM”).  The ESM distributes earnings above the allowed rate of return as follows:  from 9.5% to 10.5%, 50% would be allocated to shareholders, and 50% will be deferred for the benefit of customers; above 10.5%, 20% would be allocated to shareholders and 80% will be deferred for the benefit of customers.  The agreement further authorizes, and rates reflect, an increase in Distribution Corporation’s pipeline replacement spending by $8.2 million per year.  The agreement contains other terms and conditions of service that are customary for settlement agreements recently approved by the NYPSC.  The Consolidated Balance Sheets at March 31, 2014 and September 30, 2013 reflect a $7.5 million refund provision related to the settlement agreement.
 
Signatory parties also filed statements with the NYPSC requesting approval of the settlement agreement without modification.  One special-interest consumer advocate is opposing the settlement agreement.  Following further proceedings, the NYPSC approved the settlement agreement at a regular session held in May 2014.