Regulatory Matters

Regulatory Assets and Liabilities

The Company has recorded the following regulatory assets and liabilities:



	At September 30
	2018			2017
	(Thousands)
Regulatory Assets(1):
Pension Costs(2) (Note H)	$	62,703		$	125,175
Post-Retirement Benefit Costs(2) (Note H)	11,160			13,886
Recoverable Future Taxes (Note D)	115,460			181,363
Environmental Site Remediation Costs(2) (Note I)	20,308			19,665
Asset Retirement Obligations(2) (Note B)	15,495			12,764
Unamortized Debt Expense (Note A)	15,975			1,159
Other(3)	13,044			18,827
Total Regulatory Assets	254,145			372,839
Less: Amounts Included in Other Current Assets	(9,792		)	(15,884		)
Total Long-Term Regulatory Assets	$	244,353		$	356,955



	At September 30
	2018			2017
	(Thousands)
Regulatory Liabilities:
Cost of Removal Regulatory Liability	$	212,311		$	204,630
Taxes Refundable to Customers (Note D)	370,628			95,739
Post-Retirement Benefit Costs (Note H)	134,387			102,891
Amounts Payable to Customers (See Regulatory Mechanisms in Note A)	3,394			—
Other(4)	69,781			44,884
Total Regulatory Liabilities	790,501			448,144
Less: Amounts included in Current and Accrued Liabilities	(60,819		)	(34,059		)
Total Long-Term Regulatory Liabilities	$	729,682		$	414,085

(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)	$9,792 and $15,884 are included in Other Current Assets on the Consolidated Balance Sheets at September 30, 2018 and 2017, respectively, since such amounts are expected to be recovered from ratepayers in the next 12 months. $3,252 and $2,943 are included in Other Regulatory Assets on the Consolidated Balance Sheets at September 30, 2018 and 2017, respectively.


(4)	$57,425 and $34,059 are included in Other Accruals and Current Liabilities on the Consolidated Balance Sheets at September 30, 2018 and 2017, respectively, since such amounts are expected to be recovered from ratepayers in the next 12 months. $12,356 and $10,825 are included in Other Regulatory Liabilities on the Consolidated Balance Sheets at September 30, 2018 and 2017, 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.

New York Jurisdiction

Distribution Corporation's current delivery rates in its New York jurisdiction were approved by the NYPSC in an order issued on April 20, 2017 with rates becoming effective May 1, 2017. The order provided for a return on equity of 8.7%.

On August 9, 2018, in response to the enactment of the 2017 Tax Reform Act, the NYPSC issued an Order Determining Rate Treatment of Tax Changes directing utilities to make compliance filings effective October 1, 2018 to begin providing sur-credits to customers reflecting tax savings associated with the 2017 Tax Reform Act. In compliance with that order, Distribution Corporation filed the necessary tariff amendments to implement the sur-credit effective October 1, 2018. At September 30, 2018, a refund provision of $9.1 million associated with the impact of the 2017 Tax Reform Act in the New York jurisdiction was included in Other Accruals and Current Liabilities on the Consolidated Balance Sheet. Refer to Note D — Income Taxes for further discussion of the 2017 Tax Reform Act.

Pennsylvania Jurisdiction

Distribution Corporation’s Pennsylvania jurisdiction delivery rates are being charged to customers in accordance with a rate settlement approved by the PaPUC. The rate settlement does not specify any requirement to file a future rate case.

In response to the issuance of the 2017 Tax Reform Act, the PaPUC issued an Order to Distribution Corporation on May 17, 2018, requiring that Distribution Corporation file a tariff supplement establishing temporary rates to implement refunds of 2.2% on customer rates beginning July 1, 2018. In compliance with the May 17, 2018 PaPUC Order, Distribution Corporation filed a subsequent tariff supplement adjusting the negative surcharge in connection with the start of its new fiscal year, with the new rates effective October 1, 2018 and subject to reconciliation. At September 30, 2018, a refund provision of $3.4 million associated with the impact of the 2017 Tax Reform Act in the Pennsylvania jurisdiction was included in Other Accruals and Current Liabilities on the Consolidated Balance Sheet. Refer to Note D — Income Taxes for further discussion of the 2017 Tax Reform Act.

FERC Jurisdiction

Supply Corporation currently has no active rate case on file. Supply Corporation's current rate settlement requires a rate case filing no later than December 31, 2019. The FERC’s July 2018 Final Rule in RM18-11-000, et. al, (Order No. 849) requires pipelines to file a new form isolating the tax impact to each pipeline and also to make an election regarding the action the pipelines will take to address the lower tax rates, one of which is filing a Section 4 rate proceeding. Supply Corporation is required to address the Order by December 6, 2018. At this point, the Company cannot predict the outcome of any action taken pursuant to the Order. Refer to Note D — Income Taxes for further discussion of the 2017 Tax Reform Act.

Empire filed a Section 4 rate case on June 29, 2018, proposing rate increases to be effective August 1, 2018. The proposed rates reflect an annual cost of service of $71.5 million, a rate base of $246.8 million and a proposed return on equity of 14%. The FERC has accepted the filed rates and suspended the effective date of the increases until January 1, 2019, when the increased rates will be made effective, subject to refund. Since Empire has filed a rate case, it is not obligated to make a filing under RM18-11-000.