Regulatory Matters

Regulatory Assets and Liabilities

The Company has recorded the following regulatory assets and liabilities:



	At September 30
	2014			2013
	(Thousands)
Regulatory Assets(1):
Pension Costs(2) (Note H)	$	164,804		$	187,181
Post-Retirement Benefit Costs(2) (Note H)	17,128			29,838
Recoverable Future Taxes (Note D)	163,485			163,355
Environmental Site Remediation Costs(2) (Note I)	25,645			18,104
NYPSC Assessment(3)	12,730			13,169
Asset Retirement Obligations(2) (Note B)	12,006			11,837
Unamortized Debt Expense (Note A)	2,747			3,276
Other(4)	14,842			19,434
Total Regulatory Assets	413,387			446,194
Less: Amounts Included in Other Current Assets	(22,719		)	(26,995		)
Total Long-Term Regulatory Assets	$	390,668		$	419,199



	At September 30
	2014			2013
	(Thousands)
Regulatory Liabilities:
Cost of Removal Regulatory Liability	$	173,199		$	157,622
Taxes Refundable to Customers (Note D)	91,736			85,655
Post-Retirement Benefit Costs (Note H)	53,650			37,923
Amounts Payable to Customers (See Regulatory Mechanisms in Note A)	33,745			12,828
Off-System Sales and Capacity Release Credits(5)	12,805			10,228
Other(6)	32,769			33,411
Total Regulatory Liabilities	397,904			337,667
Less: Amounts included in Current and Accrued Liabilities	(51,817		)	(32,841		)
Total Long-Term Regulatory Liabilities	$	346,087		$	304,826

(1)

The Company recovers the cost of its regulatory assets but generally does not earn a return on them. There are a few exceptions to this rule. For example, the Company does earn a return on Unrecovered Purchased Gas Costs and, in the New York jurisdiction of its Utility segment, earns a return, within certain parameters, on the excess of cumulative funding to the pension plan over the cumulative amount collected in rates.


(2)	Included in Other Regulatory Assets on the Consolidated Balance Sheets.


(3)	Amounts are included in Other Current Assets on the Consolidated Balance Sheets at September 30, 2014 and September 30, 2013 since such amounts are expected to be recovered from ratepayers in the next 12 months.


(4)	$9,989 and $13,826 are included in Other Current Assets on the Consolidated Balance Sheets at September 30, 2014 and 2013, respectively, since such amounts are expected to be recovered from ratepayers in the next 12 months. $4,853 and $5,608 are included in Other Regulatory Assets on the Consolidated Balance Sheets at September 30, 2014 and 2013, respectively.


(5)	Amounts are included in Other Accruals and Current Liabilities on the Consolidated Balance Sheets at September 30, 2014 and September 30, 2013 since such amounts are expected to be passed back to ratepayers in the next 12 months.


(6)	$5,267 and $9,785 are included in Other Accruals and Current Liabilities on the Consolidated Balance Sheets at September 30, 2014 and 2013, respectively, since such amounts are expected to be recovered from ratepayers in the next 12 months. $27,502 and $23,626 are included in Other Regulatory Liabilities on the Consolidated Balance Sheets at September 30, 2014 and 2013, respectively.

If for any reason the Company ceases to meet the criteria for application of regulatory accounting treatment for all or part of its operations, the regulatory assets and liabilities related to those portions ceasing to meet such criteria would be eliminated from the Consolidated Balance Sheets and included in income of the period in which the discontinuance of regulatory accounting treatment occurs.

Cost of Removal Regulatory Liability

In the Company’s Utility and Pipeline and Storage segments, costs of removing assets (i.e. asset retirement costs) are collected from customers through depreciation expense. These amounts are not a legal retirement obligation as discussed in Note B — Asset Retirement Obligations. Rather, they are classified as a regulatory liability in recognition of the fact that the Company has collected dollars from the customer that will be used in the future to fund asset retirement costs.

NYPSC Assessment

On April 7, 2009, the Governor of the State of New York signed into law an amendment to the Public Service Law increasing the allowed utility assessment from the then current rate of one-third of one percent to one percent of a utility’s in-state gross operating revenue, together with a temporary surcharge (expiring March 31, 2014) equal, as applied, to an additional one percent of the utility’s in-state gross operating revenue. Pursuant to a New York State budget agreement in 2014, the temporary increase in the assessment will be phased out over a three year period ending July 1, 2017. The NYPSC, in a generic proceeding initiated for the purpose of implementing the amended law, has authorized the recovery, through rates, of the full cost of the increased assessment. The assessment is currently being applied to customer bills in the Utility segment’s New York jurisdiction.

NYPSC Rate Proceeding

Following negotiations and other proceedings, on December 6, 2013, Distribution Corporation filed an agreement, also executed by the Department of Public Service and intervenors, extending existing rates through, at a minimum, September 30, 2015. Although customer rates were not changed, 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 authorizes 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 Sheet at September 30, 2013 reflected a $7.5 million refund provision related to the settlement agreement. This amount was passed back to ratepayers during 2014 after the NYPSC approved the settlement agreement without modification in an order issued on May 8, 2014.

Off-System Sales and Capacity Release Credits

The Company, in its Utility segment, has entered into off-system sales and capacity release transactions. Most of the margins on such transactions are returned to the customer with only a small percentage being retained by the Company. The amount owed to the customer has been deferred as a regulatory liability.