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Financial Instruments
 12 Months Ended
Sep. 30, 2017
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Financial Instruments
Financial Instruments
We use financial instruments to mitigate commodity price risk and interest rate risk. Our financial instruments do not contain any credit-risk-related or other contingent features that could cause accelerated payments when our financial instruments are in net liability positions.
As discussed in Note 2 and Note 15, we report our financial instruments as risk management assets and liabilities, each of which is classified as current or noncurrent based upon the anticipated settlement date of the underlying financial instrument. The following table shows the fair values of our risk management assets and liabilities at September 30, 2017 and 2016. Risk management assets and liabilities associated with our former natural gas marketing operations have been classified as held for sale at September 30, 2016. These risk management assets and liabilities are presented in Note 15.
 
September 30
 
2017
 
2016
 
(In thousands)
 
 
 
 
Assets from risk management activities, current
$
2,436

 
$
3,029

Assets from risk management activities, noncurrent
803

 
1,822

Liabilities from risk management activities, current(1)
(322
)
 
(56,771
)
Liabilities from risk management activities, noncurrent(1)
(112,076
)
 
(184,048
)
Net assets (liabilities)
$
(109,159
)
 
$
(235,968
)

 
(1)
Includes $25.7 million of cash held on deposit to collateralize certain distribution financial instruments, which were used to offset current and noncurrent risk management liabilities at September 30, 2016.
Distribution Commodity Risk Management Activities
Although our purchased gas cost adjustment mechanisms essentially insulate our distribution segment from commodity price risk, our customers are exposed to the effects of volatile natural gas prices. We manage this exposure through a combination of physical storage, fixed-price forward contracts and financial instruments, primarily over-the-counter swap and option contracts, in an effort to minimize the impact of natural gas price volatility on our customers during the winter heating season.
Our distribution gas supply department is responsible for executing this segment’s commodity risk management activities in conformity with regulatory requirements. In jurisdictions where we are permitted to mitigate commodity price risk through financial instruments, the relevant regulatory authorities may establish the level of heating season gas purchases that can be hedged. Historically, if the regulatory authority does not establish this level, we seek to hedge between 25 and 50 percent of anticipated heating season gas purchases using financial instruments. For the 2016-2017 heating season (generally October through March), in the jurisdictions where we are permitted to utilize financial instruments, we hedged approximately 27 percent, or approximately 16.2 Bcf of the winter flowing gas requirements at a weighted average cost of approximately $3.08 per Mcf. We have not designated these financial instruments as hedges.
Natural Gas Marketing Commodity Risk Management Activities
Our discontinued natural gas marketing segment was exposed to risks associated with changes in the market price of natural gas through the purchase, sale and delivery of natural gas to its customers at competitive prices. Through December 31, 2016, we managed our exposure to such risks through a combination of physical storage and financial instruments, including futures, over-the-counter and exchange-traded options and swap contracts with counterparties. Effective January 1, 2017, as a result of the sale of AEM, these activities were discontinued.
Due to the sale of AEM, we determined that the cash flows associated with our natural gas marketing commodity cash flow hedges were no longer probable of occurring; therefore, we discontinued hedge accounting as of December 31, 2016. As a result, we reclassified the gain in accumulated other comprehensive income associated with the commodity contracts into earnings as a reduction of purchased gas cost and recognized a pre-tax gain of $10.6 million, which is included in income from discontinued operations on the consolidated statement of income for the year ended September 30, 2017.
Interest Rate Risk Management Activities
We currently manage interest rate risk through the use of forward starting interest rate swaps to fix the Treasury yield component of the interest cost associated with anticipated financings.
In October 2012, we entered into forward starting interest rate swaps to fix the Treasury yield component associated with the then anticipated issuance of $500 million senior notes in October 2014. These notes were issued as planned in October 2014 and we settled swaps with the receipt of $13.4 million. Because the swaps were effective, the realized gain was recorded as a component of accumulated other comprehensive income and is being recognized as a component of interest expense over the 30-year life of the senior notes.
In October 2012, we entered into forward starting interest rate swaps to fix the Treasury yield component associated with $210 million of the then anticipated issuance of $250 million unsecured senior notes in June 2017. These notes were issued as planned in June 2017 and we settled swaps with the payment of $37.0 million. Because the swaps were effective, the realized loss was recorded as a component of accumulated other comprehensive loss and is being recognized as a component of interest expense over the 27-year life of the senior notes.
Additionally, in fiscal 2014 and 2015, we entered into forward starting interest rate swaps to effectively fix the Treasury yield component associated with $450 million of the anticipated issuance of $450 million unsecured senior notes in fiscal 2019. We designated all of these swaps as cash flow hedges at the time the agreements were executed. Accordingly, unrealized gains and losses associated with the forward starting interest rate swaps will be recorded as a component of accumulated other comprehensive income (loss). When the forward starting interest rate swaps settle, the realized gain or loss will be recorded as a component of accumulated other comprehensive income (loss) and recognized as a component of interest expense over the life of the related financing arrangement. Hedge ineffectiveness to the extent incurred, will be reported as a component of interest expense.
Prior to fiscal 2012, we entered into several interest rate agreements to fix the Treasury yield component of the interest cost of financing for various issuances of long-term debt and senior notes. The gains and losses realized upon settlement of these interest rate agreements were recorded as a component of accumulated other comprehensive income (loss) when they were settled and are being recognized as a component of interest expense over the life of the associated notes from the date of settlement. The remaining amortization periods for the settled interest rate agreements extend through fiscal 2045.
Quantitative Disclosures Related to Financial Instruments
The following tables present detailed information concerning the impact of financial instruments on our consolidated balance sheet and income statements.
As of September 30, 2017, our financial instruments were comprised of both long and short commodity positions. A long position is a contract to purchase the commodity, while a short position is a contract to sell the commodity. As of September 30, 2017, we had 19,172 MMcf of net long commodity contracts outstanding. These contracts have not been designated as hedges.

Financial Instruments on the Balance Sheet
The following tables present the fair value and balance sheet classification of our financial instruments as of September 30, 2017 and 2016. The gross amounts of recognized assets and liabilities are netted within our Consolidated Balance Sheets to the extent that we have netting arrangements with the counterparties.
 
 
 
 
 
Balance Sheet Location
 
Assets
 
Liabilities
 
 
 
 (In thousands)
September 30, 2017
 
 
 
 
 
Designated As Hedges:
 
 
 
 
 
Interest rate contracts
Deferred charges and other assets /
Deferred credits and other liabilities
 
$
—

 
$
(112,076
)
Total
 
 
—

 
(112,076
)
Not Designated As Hedges:
 
 
 
 
 
Commodity contracts
Other current assets /
Other current liabilities
 
2,436

 
(322
)
Commodity contracts
Deferred charges and other assets /
Deferred credits and other liabilities
 
803

 
—

Total
 
 
3,239

 
(322
)
Gross Financial Instruments
 
 
3,239

 
(112,398
)
Gross Amounts Offset on Consolidated Balance Sheet:
 
 
 
 
 
Contract netting
 
 
—

 
—

Net Financial Instruments
 
 
3,239

 
(112,398
)
Cash collateral
 
 
—

 
—

Net Assets/Liabilities from Risk Management Activities
 
 
$
3,239

 
$
(112,398
)

 
 
 
 
 
 
Balance Sheet Location
 
Assets
 
Liabilities
 
 
 
 (In thousands)
September 30, 2016
 
 
 
 
 
Designated As Hedges:
 
 
 
 
 
Commodity contracts
Current assets of disposal group classified as held for sale / Current liabilities of disposal group classified as held for sale
 
$
6,612

 
$
(21,903
)
Interest rate contracts
Other current assets /
Other current liabilities
 
—

 
(68,481
)
Commodity contracts
Noncurrent assets of disposal group classified as held for sale / Noncurrent liabilities of disposal group classified as held for sale
 
2,178

 
(3,779
)
Interest rate contracts
Deferred charges and other assets /
Deferred credits and other liabilities
 
—

 
(198,008
)
Total
 
 
8,790

 
(292,171
)
Not Designated As Hedges:
 
 
 
 
 
Commodity contracts
Other current assets /
Other current liabilities
 
3,029

 
—

Commodity contracts
Current assets of disposal group classified as held for sale / Current liabilities of disposal group classified as held for sale

 
18,157

 
(18,812
)
Commodity contracts
Deferred charges and other assets /
Deferred credits and other liabilities
 
1,822

 
—

Commodity contracts
Noncurrent assets of disposal group classified as held for sale / Noncurrent liabilities of disposal group classified as held for sale
 
12,343

 
(12,701
)
Total
 
 
35,351

 
(31,513
)
Gross Financial Instruments
 
 
44,141

 
(323,684
)
Gross Amounts Offset on Consolidated Balance Sheet:
 
 
 
 
 
Contract netting
 
 
(39,290
)
 
39,290

Net Financial Instruments
 
 
4,851

 
(284,394
)
Cash collateral
 
 
6,775

 
43,575

Net Assets/Liabilities from Risk Management Activities
 
 
$
11,626

 
$
(240,819
)


Impact of Financial Instruments on the Income Statement
Hedge ineffectiveness for our natural gas marketing segment was recorded as a component of purchased gas cost, which is included in discontinued operations on the consolidated statements of income, and primarily results from differences in the location and timing of the derivative instrument and the hedged item. For the years ended September 30, 2017, 2016 and 2015, we recognized a gain arising from fair value and cash flow hedge ineffectiveness of $3.4 million, $21.6 million and $0.2 million. Additional information regarding ineffectiveness recognized in the income statement is included in the tables below.

Fair Value Hedges
The impact of our natural gas marketing segment commodity contracts designated as fair value hedges and the related hedged item on the results of discontinued operations on our consolidated income statement for the years ended September 30, 2017, 2016 and 2015 is presented below.
 
Fiscal Year Ended September 30
 
2017
 
2016
 
2015
 
(In thousands)
Commodity contracts
$
(9,567
)
 
$
3,516

 
$
10,311

Fair value adjustment for natural gas inventory designated as the hedged item
12,858

 
18,079

 
(9,768
)
Total decrease in purchased gas cost reflected in income from discontinued operations
$
3,291

 
$
21,595

 
$
543

The decrease in purchased gas cost reflected in income from discontinued operations is comprised of the following:
 
 
 
 
 
Basis ineffectiveness
$
(597
)
 
$
(1,390
)
 
$
811

Timing ineffectiveness
3,888

 
22,985

 
(268
)
 
$
3,291

 
$
21,595

 
$
543


Basis ineffectiveness arises from natural gas market price differences between the locations of the hedged inventory and the delivery location specified in the hedge instruments. Timing ineffectiveness arises due to changes in the difference between the spot price and the futures price, as well as the difference between the timing of the settlement of the futures and the valuation of the underlying physical commodity. As the commodity contract nears the settlement date, spot-to-forward price differences should converge, which should reduce or eliminate the impact of this ineffectiveness on purchased gas cost.
To the extent that the Company’s natural gas inventory does not qualify as a hedged item in a fair-value hedge, or has not been designated as such, the natural gas inventory is valued at the lower of cost or market.
Cash Flow Hedges
The impact of cash flow hedges on our consolidated income statements for the years ended September 30, 2017, 2016 and 2015 is presented below. Note that this presentation does not reflect the financial impact arising from the hedged physical transaction. Therefore, this presentation is not indicative of the economic gross profit we realized when the underlying physical and financial transactions were settled.
 
Fiscal Year Ended September 30
 
2017
 
2016
 
2015
 
(In thousands)
Loss reclassified from AOCI for effective portion of natural gas marketing commodity contracts
$
(2,612
)
 
$
(52,651
)
 
$
(41,716
)
Gain (loss) arising from ineffective portion of natural gas marketing commodity contracts
111

 
(19
)
 
(325
)
Gain on discontinuance of cash flow hedging of natural gas marketing commodity contracts reclassified from AOCI
10,579

 
—

 
—

Total impact on purchased gas cost reflected in income from discontinued operations
8,078

 
(52,670
)
 
(42,041
)
Net loss on settled interest rate agreements reclassified from AOCI into interest expense
(1,043
)
 
(546
)
 
(853
)
Total impact from cash flow hedges
$
7,035

 
$
(53,216
)
 
$
(42,894
)

 
The following table summarizes the gains and losses arising from hedging transactions that were recognized as a component of other comprehensive income (loss), net of taxes, for the years ended September 30, 2017 and 2016. The amounts included in the table below exclude gains and losses arising from ineffectiveness because these amounts are immediately recognized in the income statement as incurred.
 
Fiscal Year Ended
September 30
 
2017
 
2016
 
(In thousands)
Increase (decrease) in fair value:
 
 
 
Interest rate agreements
$
74,560

 
$
(99,029
)
Forward commodity contracts
9,847

 
(11,662
)
Recognition of (gains) losses in earnings due to settlements:
 
 
 
Interest rate agreements
662

 
347

Forward commodity contracts
(4,865
)
 
32,117

Total other comprehensive income (loss) from hedging, net of tax(1)
$
80,204

 
$
(78,227
)

 
(1)
Utilizing an income tax rate ranging from approximately 37 percent to 39 percent based on the effective rates in each taxing jurisdiction.
Deferred gains (losses) recorded in AOCI associated with our interest rate agreements are recognized in earnings as they are amortized. The following amounts, net of deferred taxes, represent the expected recognition in earnings of the deferred gains (losses) recorded in AOCI associated with our financial instruments, based upon the fair values of these financial instruments as of September 30, 2017. However, the table below does not include the expected recognition in earnings of our outstanding interest rate agreements as those financial instruments have not yet settled.
 
Interest Rate
Agreements
 
(In thousands)
2018
$
(1,509
)
2019
(1,533
)
2020
(1,557
)
2021
(1,557
)
2022
(1,557
)
Thereafter
(33,420
)
Total(1) 
$
(41,133
)

 
(1)
Utilizing an income tax rate of 37 percent.
Financial Instruments Not Designated as Hedges
The impact of financial instruments that have not been designated as hedges on our consolidated income statements for the years ended September 30, 2017, 2016 and 2015 was an increase (decrease) in purchased gas cost reflected in income from discontinued operations of $6.8 million, $(15.5) million and $15.5 million. Note that this presentation does not reflect the expected gains or losses arising from the underlying physical transactions associated with these financial instruments. Therefore, this presentation is not indicative of the economic gross profit we realized when the underlying physical and financial transactions were settled.
As discussed above, financial instruments used in our distribution segment are not designated as hedges. However, there is no earnings impact on our distribution segment as a result of the use of these financial instruments because the gains and losses arising from the use of these financial instruments are recognized in the consolidated statement of income as a component of purchased gas cost when the related costs are recovered through our rates and recognized in revenue. Accordingly, the impact of these financial instruments is excluded from this presentation.