Regulatory Matters

Regulatory Assets and Liabilities

The Company has recorded the following regulatory assets and liabilities:



	At September 30
	2015			2014
	(Thousands)
Regulatory Assets(1):
Pension Costs(2) (Note H)	$	202,781		$	164,804
Post-Retirement Benefit Costs(2) (Note H)	34,217			17,128
Recoverable Future Taxes (Note D)	168,214			163,485
Environmental Site Remediation Costs(2) (Note I)	24,606			25,645
NYPSC Assessment(3)	13,916			12,730
Asset Retirement Obligations(2) (Note B)	12,250			12,006
Unamortized Debt Expense (Note A)	2,218			2,747
Other(4)	10,895			14,842
Total Regulatory Assets	469,097			413,387
Less: Amounts Included in Other Current Assets	(20,438		)	(22,719		)
Total Long-Term Regulatory Assets	$	448,659		$	390,668



	At September 30
	2015			2014
	(Thousands)
Regulatory Liabilities:
Cost of Removal Regulatory Liability	$	184,907		$	173,199
Taxes Refundable to Customers (Note D)	89,448			91,736
Post-Retirement Benefit Costs (Note H)	60,013			53,650
Amounts Payable to Customers (See Regulatory Mechanisms in Note A)	56,778			33,745
Off-System Sales and Capacity Release Credits(5)	21,027			12,805
Other(6)	32,923			32,769
Total Regulatory Liabilities	445,096			397,904
Less: Amounts included in Current and Accrued Liabilities	(62,124		)	(51,817		)
Total Long-Term Regulatory Liabilities	$	382,972		$	346,087

(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, 2015 and September 30, 2014 since such amounts are expected to be recovered from ratepayers in the next 12 months.


(4)	$6,522 and $9,989 are included in Other Current Assets on the Consolidated Balance Sheets at September 30, 2015 and 2014, respectively, since such amounts are expected to be recovered from ratepayers in the next 12 months. $4,373 and $4,853 are included in Other Regulatory Assets on the Consolidated Balance Sheets at September 30, 2015 and 2014, respectively.


(5)	The September 30, 2015 amount is included in Other Regulatory Liabilities on the Consolidated Balance Sheet at September 30, 2015. The September 30, 2014 amount is included in Other Accruals and Current Liabilities on the Consolidated Balance Sheet at September 30, 2014 since such amount is expected to be passed back to ratepayers in the next 12 months.


(6)	$5,346 and $5,267 are included in Other Accruals and Current Liabilities on the Consolidated Balance Sheets at September 30, 2015 and 2014, respectively, since such amounts are expected to be recovered from ratepayers in the next 12 months. $27,577 and $27,502 are included in Other Regulatory Liabilities on the Consolidated Balance Sheets at September 30, 2015 and 2014, 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 of the agreement. The agreement contains other terms and conditions of service that are customary for settlement agreements recently approved by the NYPSC. A $7.5 million refund provision was passed back to ratepayers during 2014 after the NYPSC approved the settlement agreement without modification in an order issued on May 8, 2014. All significant terms of the agreement, including existing rates, continue in effect beyond September 30, 2015 until modified by the NYPSC. The agreement also states that nothing in the agreement precludes the parties from meeting to discuss extending the agreement on mutually acceptable terms, and presenting such extension to the NYPSC for approval. On May 22, 2015, Distribution Corporation filed with the NYPSC a Notice of Impending Settlement Discussions stating that settlement discussions would be scheduled in the near future, and that such discussions might include, among other things, the possible extension of the agreement on mutually acceptable terms. Distribution Corporation is currently involved in such settlement discussions.

FERC Rate Proceeding

On September 29, 2015, Supply Corporation filed a rate case settlement at the FERC that would, upon approval, extend the Company’s current FERC-approved rate case settlement with a required rate case filing at the latest by December 31, 2019 and prohibit any party from seeking to initiate a rate case proceeding before September 30, 2017. Prior to this settlement, Supply Corporation had been otherwise required by its current rate settlement to make a general rate filing no later than January 1, 2016. The settlement extension provides for, among other things, the following: Supply Corporation will reduce its maximum reservation, capacity, demand and deliverability rates by 2% on November 1, 2015 and by an additional 2% on November 1, 2016. Supply Corporation will also adopt a mechanism that allows it to recover, as a surcharge, certain pipeline safety and greenhouse gas costs it may incur as a result of new rules and regulations. FERC approved the settlement extension on November 13, 2015.

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.