Summary of Significant Accounting Policies

Unaudited Interim Financial Information

The condensed consolidated financial statements have not been audited. We have prepared the unaudited condensed consolidated financial statements under the rules of the Securities and Exchange Commission (SEC). Therefore, certain financial information and note disclosures normally included in annual financial statements prepared in conformity with generally accepted accounting principles (GAAP) in the United States of America are omitted in this interim report under these SEC rules and regulations. These financial statements should be read in conjunction with the Consolidated Financial Statements and Notes included in our Form 10-K for the year ended October 31, 2013.

Seasonality and Use of Estimates

The unaudited condensed consolidated financial statements include all normal recurring adjustments necessary for a fair presentation of the statement of financial position at July 31, 2014 and October 31, 2013, the results of operations for three months and nine months ended July 31, 2014 and 2013, and cash flows and stockholders’ equity for the nine months ended July 31, 2014 and 2013. Our business is seasonal in nature. The results of operations for the three months and nine months ended July 31, 2014 do not necessarily reflect the results to be expected for the full year.

In accordance with GAAP, we make certain estimates and assumptions regarding reported amounts of assets, liabilities, revenues and expenses and the related disclosures, using historical experience and other assumptions that we believe are reasonable at the time. Our estimates may involve complex situations requiring a high degree of judgment in the application and interpretation of existing literature or in the development of estimates that impact our financial statements. These estimates and assumptions affect the reported amounts of assets and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates and assumptions, which are evaluated on a continual basis.

Significant Accounting Policies

Our accounting policies are described in Note 1 to the consolidated financial statements in our Form 10-K for the year ended October 31, 2013. There were no significant changes to those accounting policies during the nine months ended July 31, 2014.

Rate-Regulated Basis of Accounting

Our utility operations are subject to regulation with respect to rates, service area, accounting and various other matters by the regulatory commissions in the states in which we operate. The accounting regulations provide that rate-regulated public utilities account for and report assets and liabilities consistent with the economic effect of the manner in which independent third-party regulators establish rates. In applying these regulations, we capitalize certain costs and benefits as regulatory assets and liabilities, respectively, in order to provide for recovery from or refund to utility customers in future periods. Generally, regulatory assets are amortized to expense and regulatory liabilities are amortized to income over the period authorized by our regulators.

Our regulatory assets are recoverable through either base rates or rate riders specifically authorized by a state regulatory commission. Base rates are designed to provide both a recovery of cost and a return on investment during the period the rates are in effect. As such, all of our regulatory assets are subject to review by the respective state regulatory commissions during any future rate proceedings. In the event that accounting for the effects of regulation were no longer applicable, we would recognize a write-off of regulatory assets and regulatory liabilities that would result in an adjustment to net income or accumulated other comprehensive income. Our utility operations continue to recover their costs through cost-based rates established by the state regulatory commissions. As a result, we believe that the accounting prescribed under rate-based regulation remains appropriate. It is our opinion that all regulatory assets are recoverable in current rates or future rate proceedings.

Regulatory assets and liabilities in the Condensed Consolidated Balance Sheets as of July 31, 2014 and October 31, 2013 are as follows.



In thousands	July 31, 2014		October 31, 2013
Regulatory Assets:
Current:
Unamortized debt expense	$	1,383	$	1,274
Amounts due from customers	16,304		66,321
Environmental costs	1,558		1,480
Deferred operations and maintenance expenses	916		739
Deferred pipeline integrity expenses	3,470		3,149
Deferred pension and other retirement benefit costs	2,769		2,768
Robeson liquefied natural gas (LNG) development costs	382		382
Other	1,933		1,091
Total current	28,715		77,204
Noncurrent:
Unamortized debt expense	13,524		14,149
Environmental costs	6,801		7,936
Deferred operations and maintenance expenses	4,911		5,637
Deferred pipeline integrity expenses	22,420		16,300
Deferred pension and other retirement benefit costs	19,488		17,968
Amounts not yet recognized as a component of pension and other retirement benefit costs	76,371		80,604
Regulatory cost of removal asset	24,213		22,974
Robeson LNG development costs	1,140		1,426
Other	1,756		2,108
Total noncurrent	170,624		169,102
Total	$	199,339	$	246,306



Regulatory Liabilities:
Current:
Amounts due to customers	$	61,956	$	—
Noncurrent:
Regulatory cost of removal obligations	502,557		493,111
Deferred income taxes	50,345		48,647
Amounts not yet recognized as a component of pension and other retirement benefit costs	128		139
Total noncurrent	553,030		541,897
Total	$	614,986	$	541,897

Inter-company transactions have been eliminated in consolidation where appropriate; however, we have not eliminated inter-company profit on sales to affiliates and costs from affiliates in accordance with accounting regulations prescribed under rate-based regulation. For information on related party transactions, see Note 12 to the condensed consolidated financial statements in this Form 10-Q.

Fair Value Measurements

We have financial and nonfinancial assets and liabilities subject to fair value measurement. The financial assets and liabilities measured and carried at fair value in the Condensed Consolidated Balance Sheets are cash and cash equivalents, marketable securities held in rabbi trusts established for our deferred compensation plans and derivative assets and liabilities, if any, that are held for our utility operations. The carrying values of receivables, short-term debt, accounts payable, accrued interest and other current assets and liabilities approximate fair value as all amounts reported are to be collected or paid within one year. Our nonfinancial assets and liabilities include our qualified pension and postretirement plan assets and liabilities that are recorded at fair value in the Condensed Consolidated Balance Sheets in accordance with employers’ accounting and related disclosures of postretirement plans.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, or exit date. We utilize market data or assumptions that market participants would use in valuing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable. We primarily apply the market approach for fair value measurements and endeavor to utilize the best available information. Accordingly, we use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value of our financial assets and liabilities are subject to potentially significant volatility based on changes in market prices, the portfolio valuation of our derivative contracts, as well as the maturity and settlement of those contracts, and subsequent newly originated transactions, each of which directly affects the estimated fair value of our financial instruments. We are able to classify fair value balances based on the observance of those inputs at the lowest level that is significant to the fair value measurement, in its entirety, in the fair value hierarchy levels as set forth in the fair value guidance.

For the fair value measurements of our derivatives and marketable securities, see Note 8 to the condensed consolidated financial statements in this Form 10-Q. For the fair value measurements of our benefit plan assets, see Note 9 to the consolidated financial statements in our Form 10-K for the year ended October 31, 2013. For further information on our fair value methodologies, see “Fair Value Measurements” in Note 1 to the consolidated financial statements in our Form 10-K for the year ended October 31, 2013. There were no significant changes to these fair value methodologies during the three months ended July 31, 2014.

Recently Issued Accounting Guidance

In July 2013, the Financial Accounting Standards Board (FASB) issued accounting guidance on presenting an unrecognized tax benefit when net operating loss (NOL) carryforwards exist. The guidance was issued in an effort to eliminate diversity in practice resulting from a lack of guidance on this topic in current U.S. GAAP. The update provides that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a NOL carryforward, a similar tax loss, or a tax credit carryforward, except under certain circumstances outlined in the update. The amendments in the update are effective for annual periods, and interim periods within those periods, beginning after December 15, 2013, with early adoption permitted. The adoption of this guidance will have no impact on our financial position, results of operations or cash flows.

In May 2014, the FASB and the International Accounting Standards Board issued converged accounting guidance on the recognition of revenue from contracts with customers. Under the new standard, entities will recognize revenue to depict the transfer of goods and services to customers in amounts that reflect the payment to which the entity expects to be entitled in exchange for those goods or services. The disclosure requirements will provide information about the nature, amount, timing and uncertainty of revenue and cash flows from an entity’s contracts with customers. The new guidance is effective for annual periods beginning after December 15, 2016, and interim periods within those periods, which for us is our fiscal year 2018. We are currently evaluating the effect on our financial position, results of operations and cash flows.

In June 2014, the FASB amended accounting guidance to eliminate certain financial reporting requirements for development stage entities, including an amendment to variable interest entity (VIE) guidance. The modification to the guidance may change the consolidation analysis, consolidation decision and disclosure requirements for a reporting entity that has an interest in an entity in the development stage. The amendments in the update are effective for annual periods, and interim periods within those periods, beginning after December 15, 2015, with early adoption permitted. We will consider this guidance regarding one of our current joint venture investments where the investment infrastructure is under development and any future investments that are development stage projects, particularly any disclosures about risks and uncertainties of the development of the project and our equity method investment.