Equity Method Investments

The condensed consolidated financial statements include the accounts of wholly owned subsidiaries whose investments in joint venture, energy-related businesses are accounted for under the equity method. Our ownership interest in each entity is included in “Equity method investments in non-utility activities” in “Noncurrent Assets” in the Condensed Consolidated Balance Sheets. Earnings or losses from equity method investments are included in “Income from equity method investments” in “Other Income (Expense)” in the Condensed Consolidated Statements of Operations and Comprehensive Income.

Cardinal Pipeline Company, L.L.C.

We own 21.49% of the membership interests in Cardinal Pipeline Company, L.L.C. (Cardinal), a North Carolina limited liability company. Cardinal owns and operates an intrastate natural gas pipeline in North Carolina and is regulated by the NCUC.

Cardinal enters into interest-rate swap agreements to modify the interest expense characteristics of its unsecured long-term debt. Our share of movements in the market value of these agreements are recorded as a hedge in “Accumulated other comprehensive loss” in “Stockholders’ equity” in the Condensed Consolidated Balance Sheets; the detail of our share of the market value of the swap agreements is combined with our other equity method investments and presented in “Other Comprehensive Income (Loss), net of tax” in the Condensed Consolidated Statements of Operations and Comprehensive Income. Cardinal’s long-term debt is nonrecourse to the members.

We have related party transactions as a transportation customer of Cardinal, and we record the transportation costs charged by Cardinal in “Cost of Gas” in the Condensed Consolidated Statements of Operations and Comprehensive Income. For each period of the three months and nine months ended July 31, 2014 and 2013, these transportation costs and the amounts we owed Cardinal as of July 31, 2014 and October 31, 2013 are as follows.



	Three Months				Nine Months
In thousands	2014		2013		2014		2013
Transportation costs	$	2,204	$	2,240	$	6,607	$	6,534



	July 31, 2014		October 31, 2013
Trade accounts payable	$	747	$	755

Pine Needle LNG Company, L.L.C.

We own 45% of the membership interests in Pine Needle LNG Company, L.L.C. (Pine Needle), a North Carolina limited liability company. Pine Needle owns an interstate LNG storage facility in North Carolina and is regulated by the FERC.

Pine Needle enters into interest-rate swap agreements to modify the interest expense characteristics of its unsecured long-term debt. Our share of movements in the market value of these agreements are recorded as a hedge in “Accumulated other comprehensive loss” in “Stockholders’ equity” in the Condensed Consolidated Balance Sheets; the detail of our share of the market value of the swap agreements is combined with our other equity method investments and presented in “Other Comprehensive Income (Loss), net of tax” in the Condensed Consolidated Statements of Operations and Comprehensive Income. Pine Needle’s long-term debt is nonrecourse to the members.

We have related party transactions as a customer of Pine Needle, and we record the storage costs charged by Pine Needle in “Cost of Gas” in the Condensed Consolidated Statements of Operations and Comprehensive Income. For each period of the three months and nine months ended July 31, 2014 and 2013, these gas storage costs and the amounts we owed Pine Needle as of July 31, 2014 and October 31, 2013 are as follows.



	Three Months				Nine Months
In thousands	2014		2013		2014		2013
Gas storage costs	$	2,935	$	2,791	$	8,429	$	8,307



	July 31, 2014		October 31, 2013
Trade accounts payable	$	989	$	940

SouthStar Energy Services LLC

We own 15% of the membership interests in SouthStar, a Delaware limited liability company. SouthStar primarily sells natural gas in the unregulated retail gas market to residential, commercial and industrial customers in the eastern United States, primarily in Georgia and Illinois. We account for our investment in SouthStar using the equity method, as we have board representation with equal voting rights on significant governance matters and policy decisions, and thus, exercise significant influence over the operations of SouthStar.

SouthStar’s business is seasonal in nature as variations in weather conditions generally result in greater revenue and earnings during the winter months when weather is colder and natural gas consumption is higher. Also, because SouthStar is not a rate-regulated company, the timing of its earnings can be affected by changes in the wholesale price of natural gas. While SouthStar uses financial contracts to moderate the effect of price and weather changes on the timing of its earnings, wholesale price and weather volatility can cause variations in the timing of the recognition of earnings.

These financial contracts, in the form of futures, options and swaps, are considered to be derivatives and fair value is based on selected market indices. Beginning in this quarter, retirement benefits were allocated to SouthStar by its majority member with the activity of prescribed benefit expense items reflected in accumulated OCIL. Our share of movements in the market value of these derivative contracts recorded as a hedge and the activity of the retirement benefit items are reflected in “Accumulated other comprehensive loss” in “Stockholders’ equity” in the Condensed Consolidated Balance Sheets; the detail of our share of the market value of these contracts and the retirement benefits are combined with our other equity method investments and presented in “Other Comprehensive Income (Loss), net of tax” in the Condensed Consolidated Statements of Operations and Comprehensive Income.

We have related party transactions as we sell wholesale gas supplies to SouthStar, and we record the amounts billed to SouthStar in “Operating Revenues” in the Condensed Consolidated Statements of Operations and Comprehensive Income. For each period of the three months and nine months ended July 31, 2014 and 2013, our operating revenues from these sales and the amounts SouthStar owed us as of July 31, 2014 and October 31, 2013 are as follows.



	Three Months				Nine Months
In thousands	2014		2013		2014		2013
Operating revenues	$	1,402	$	1,469	$	2,309	$	2,053



	July 31, 2014		October 31, 2013
Trade accounts receivable	$	432	$	441

Hardy Storage Company, LLC

We own 50% of the membership interests in Hardy Storage Company, LLC (Hardy Storage), a West Virginia limited liability company. Hardy Storage owns and operates an underground interstate natural gas storage facility located in Hardy and Hampshire Counties, West Virginia, that is regulated by the FERC.

We have related party transactions as a customer of Hardy Storage, and we record the storage costs charged by Hardy Storage in “Cost of Gas” in the Condensed Consolidated Statements of Operations and Comprehensive Income. For each period of the three months and nine months ended July 31, 2014 and 2013, these gas storage costs and the amounts we owed Hardy Storage as of July 31, 2014 and October 31, 2013 are as follows.



	Three Months				Nine Months
In thousands	2014		2013		2014		2013
Gas storage costs	$	2,322	$	2,425	$	7,139	$	7,276



	July 31, 2014		October 31, 2013
Trade accounts payable	$	774	$	808

Constitution Pipeline Company, LLC

We own 24% of the membership interests in Constitution Pipeline Company, LLC (Constitution), a Delaware limited liability company. A subsidiary of The Williams Companies is the operator of the project. The purpose of the joint venture is to develop, construct, own and operate approximately 120 miles of interstate natural gas pipeline and related facilities connecting shale natural gas supplies and gathering systems in Susquehanna County, Pennsylvania, to the Iroquois Gas Transmission and Tennessee Gas Pipeline systems in New York. We have committed to fund an amount in proportion to our ownership interest for the development and construction of the new pipeline. Our contributions for the quarter and fiscal year 2014 were $13.3 million and $31.9 million, respectively, with our total equity contribution for the project totaling $47.8 million to date.