We are exposed to certain market risks related to our ongoing business operations. Management uses derivative financial and commodity instruments, among other things, to manage these risks. The primary risks managed by derivative instruments are (1) commodity price risk; (2) interest rate risk; and (3) foreign currency exchange rate risk. Although we use derivative financial and commodity instruments to reduce market risk associated with forecasted transactions, we do not use derivative financial and commodity instruments for speculative or trading purposes. The use of derivative instruments is controlled by our risk management and credit policies, which govern, among other things, the derivative instruments we can use, counterparty credit limits and contract authorization limits. Although our commodity derivative instruments extend over a number of years, a significant portion of our commodity derivative instruments economically hedge commodity price risk during the next twelve months. For information on the accounting for our derivative instruments, see Note 2.

Gas Utility’s tariffs contain clauses that permit recovery of all prudently incurred costs of natural gas it sells to retail core-market customers, including the cost of financial instruments used to hedge purchased gas costs. As permitted and agreed to by the PAPUC pursuant to Gas Utility’s annual PGC filings, Gas Utility currently uses NYMEX natural gas futures and option contracts to reduce commodity price volatility associated with a portion of the natural gas it purchases for its retail core-market customers. Gains and losses on Gas Utility’s natural gas futures contracts and natural gas option contracts are recorded in regulatory assets or liabilities

Electric Utility’s DS tariffs permit the recovery of all prudently incurred costs of electricity it sells to DS customers, including the cost of financial instruments used to hedge electricity costs. Electric Utility enters into forward electricity purchase contracts to meet a substantial portion of its electricity supply needs. At September 30, 2019 and 2018, all Electric Utility forward electricity purchase contracts were subject to the NPNS exception.

In order to manage market price risk associated with the Partnership’s fixed-price programs, the Partnership uses over-the-counter derivative commodity instruments, principally price swap contracts. In addition, the Partnership, certain other domestic businesses and our UGI International operations also use over-the-counter price swap contracts to reduce commodity price volatility associated with a portion of their forecasted LPG purchases. The Partnership from time to time enters into price swap agreements to reduce the effects of short-term commodity price volatility. Also, Midstream & Marketing, from time to time, uses NYMEX futures contracts to economically hedge the gross margin associated with the purchase and anticipated later near-term sale of propane.

In order to manage market price risk relating to fixed-price sales contracts for physical natural gas, Midstream & Marketing enters into NYMEX and over-the-counter natural gas futures and over-the-counter and ICE natural gas basis swap contracts. In addition, Midstream & Marketing uses NYMEX and over-the-counter futures and options contracts to economically hedge price volatility associated with the gross margin derived from the purchase and anticipated later near-term sale of natural gas storage inventories. Outside of the financial market, Midstream & Marketing also uses ICE and over-the-counter forward physical contracts. UGI International also uses natural gas futures and forward contracts to economically hedge market price risk associated with fixed-price sales contracts with its customers.

In order to manage market price risk relating to fixed-price sales contracts for electricity, Midstream & Marketing enters into electricity futures and forward contracts. Midstream & Marketing also uses NYMEX and over-the-counter electricity futures contracts to economically hedge the price of a portion of its anticipated future sales of electricity from its electric generation facilities. UGI International also uses electricity futures and forward contracts to economically hedge market price risk associated with fixed-price sales and purchase contracts for electricity.

From time to time we enter into long-term debt agreements with interest rates that are generally indexed to short-term market interest rates. In order to fix the underlying short-term market interest rates, we enter into pay-fixed, receive-variable interest rate swap agreements and designate such swaps as cash flow hedges. As more fully described in Note 6, during Fiscal 2019 UGI Corporation, UGI International, LLC and Energy Services entered into variable-rate, long-term debt agreements and also entered into associated pay-fixed, receive-variable interest rate swap agreements for all or a significant portion of the loans’ outstanding principal balance, and all or a significant portion of the loans’ tenor. In Fiscal 2018, UGI Utilities entered into a variable-rate amortizing term loan agreement and also entered into a forward starting, amortizing, pay-fixed, receive-variable interest rate swap agreement commencing September 30, 2019.

Prior to their repayment on October 25, 2018 (see Note 6), UGI France’s and Flaga’s long-term debt agreements had interest rates that were generally indexed to short-term market interest rates. UGI France and Flaga entered into pay-fixed, receive-variable interest rate swap agreements to hedge the underlying euribor and LIBOR rates of interest on these variable-rate debt agreements. We designated these interest rate swaps as cash flow hedges. These interest rate swaps were settled concurrent with the repayment of the UGI France and Flaga long-term debt.

market rate risk on the underlying benchmark rate of interest associated with near- to medium-term forecasted issuances of fixed-rate debt, from time to time we enter into in IRPAs. We account for IRPAs as cash flow hedges. At September 30, 2019 and 2018, we had no unsettled IRPAs. At September 30, 2019, the amount of net losses associated with interest rate hedges (excluding pay-fixed, receive-variable interest rate swaps) expected to be reclassified into earnings during the next twelve months is $3.5.

In order to reduce the volatility in net income associated with our foreign operations, principally as a result of changes in the U.S. dollar exchange rate to the euro and British pound sterling, we enter into forward foreign currency exchange contracts. We layer in these foreign currency exchange contracts over a multi-year period to eventually equal approximately 90% of anticipated UGI International local currency earnings before income taxes. Because these contracts do not qualify for hedge accounting treatment, realized and unrealized gains and losses on these contracts are recorded in “Other non-operating income (expense), net” on the Consolidated Statements of Income.

In order to reduce exposure to foreign exchange rate volatility related to our foreign LPG operations, through September 30, 2016, we entered into forward foreign currency exchange contracts to hedge a portion of anticipated U.S. dollar-denominated LPG product purchases primarily during the heating-season months of October through March, expiring through September 2019. We accounted for these foreign currency exchange contracts associated with anticipated purchases of U.S. dollar-denominated LPG as cash flow hedges. At September 30, 2019, there were no amounts associated with these contracts remaining in AOCI.

From time to time we also enter into forward foreign currency exchange contracts to reduce the volatility of the U.S. dollar value of a portion of our UGI International euro-denominated net investments. We account for these foreign currency exchange contracts as net investment hedges. We use the forward rate method for measuring ineffectiveness for these net investment hedges and all changes in the fair value of the forward foreign currency contracts are reported in the cumulative translation adjustment component of AOCI.

Prior to its repayment on October 25, 2018 (see Note 6), Flaga entered into cross-currency swaps to hedge its exposure to the variability in expected future cash flows associated with the foreign currency and interest rate risk of its U.S. dollar denominated variable-rate term loan. These cross-currency hedges included initial and final exchanges of principal from a fixed euro denomination to a fixed U.S. dollar-denominated amount, to be exchanged at a specified rate, which was determined by the market spot rate on the date of issuance. These cross-currency swaps also included interest rate swaps of a floating U.S. dollar-denominated interest rate to a fixed euro-denominated interest rate. We designated these cross-currency swaps as cash flow hedges. These cross-currency swaps were settled concurrent with the repayment of Flaga’s U.S. dollar variable rate term loan in October 2018.



			Notional Amounts (in millions)
			September 30,
Type	Units	Settlements Extending Through	2019		2018
Commodity Price Risk:
Regulated Utility Operations
Gas Utility NYMEX natural gas futures and option contracts	Dekatherms	October 2020	23.3		23.2
Non-utility Operations
LPG swaps	Gallons	September 2021	800.4		394.3
Natural gas futures, forward and pipeline contracts	Dekatherms	December 2024	196.1		159.7
Natural gas basis swap contracts	Dekatherms	December 2024	131.1		54.4
NYMEX natural gas storage futures contracts	Dekatherms	March 2020	0.3		1.8
NYMEX natural gas option contracts	Dekatherms	March 2020	2.4		—
NYMEX propane storage futures contracts	Gallons	April 2020	0.5		0.6
Electricity long forward and futures contracts	Kilowatt hours	January 2023	3,098.1		4,307.6
Electricity short forward and futures contracts	Kilowatt hours	May 2022	366.7		359.3
Interest Rate Risk:
Interest rate swaps	Euro	October 2022	€	300.0	€	585.8
Interest rate swaps	USD	July 2024	$	1,357.3	$	114.1
Foreign Currency Exchange Rate Risk:
Forward foreign exchange contracts	USD	September 2022	$	516.0	$	512.2
Net investment hedge forward foreign exchange contracts	Euro	October 2024	€	172.8	€	—
Cross-currency swaps	USD	N/A	$	—	$	49.9

We are exposed to risk of loss in the event of nonperformance by our derivative instrument counterparties. Our derivative instrument counterparties principally comprise large energy companies and major U.S. and international financial institutions. We maintain credit policies with regard to our counterparties that we believe reduce overall credit risk. These policies include evaluating and monitoring our counterparties’ financial condition, including their credit ratings, and entering into agreements with counterparties that govern credit limits or entering into netting agreements that allow for offsetting counterparty receivable and payable balances for certain financial transactions, as deemed appropriate. Certain of these agreements call for the posting of collateral by the counterparty or by the Company in the forms of letters of credit, parental guarantees or cash. At September 30, 2019 and 2018, the Company paid (received) cash collateral of $29.3 and $(12.2), respectively. Additionally, our commodity exchange-traded futures contracts generally require cash deposits in margin accounts. At September 30, 2019 and 2018, restricted cash in brokerage accounts totaled $63.7 and $9.6, respectively. Although we have concentrations of credit risk associated with derivative instruments, the maximum amount of loss we would incur if these counterparties failed to perform according to the terms of their contracts, based upon the gross fair values of the derivative instruments, was not material at September 30, 2019. Certain of the Partnership’s derivative contracts have credit-risk-related contingent features that may require the posting of additional collateral in the event of a downgrade of the Partnership’s debt rating. At September 30, 2019, if the credit-risk-related contingent features were triggered, the amount of collateral required to be posted would not be material.

Derivative assets and liabilities are presented net by counterparty on the Consolidated Balance Sheets if the right of offset exists. We offset amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral against amounts recognized for derivative instruments executed with the same counterparty. Our derivative instruments include both those that are executed on an exchange through brokers and centrally cleared and over-the-counter transactions. Exchange contracts utilize a financial intermediary, exchange, or clearinghouse to enter, execute, or clear the transactions. Over-the-counter contracts are bilateral contracts that are transacted directly with a third party. Certain over-the-counter and exchange contracts contain contractual rights of offset through master netting arrangements, derivative clearing agreements, and contract default provisions. In addition, the contracts are subject to conditional rights of offset through counterparty nonperformance, insolvency or other conditions.

In general, most of our over-the-counter transactions and all exchange contracts are subject to collateral requirements. Types of collateral generally include cash or letters of credit. Cash collateral paid by us to our over-the-counter derivative counterparties, if any, is reflected in the table below to offset derivative liabilities. Cash collateral received by us from our over-the-counter derivative counterparties, if any, is reflected in the table below to offset derivative assets. Certain other accounts receivable and accounts payable balances recognized on the Consolidated Balance Sheets with our derivative counterparties are not included in the table below but could reduce our net exposure to such counterparties because such balances are subject to master netting or similar arrangements.



	2019			2018
Derivative assets:
Derivatives designated as hedging instruments:
Foreign currency contracts	$	17.4		$	1.5
Cross-currency contracts	—			0.9
	17.4			2.4
Derivatives subject to PGC and DS mechanisms:
Commodity contracts	1.4			3.0
Derivatives not designated as hedging instruments:
Commodity contracts	40.7			208.0
Foreign currency contracts	41.6			19.1
	82.3			227.1
Total derivative assets – gross	101.1			232.5
Gross amounts offset in the balance sheet	(29.0		)	(34.3		)
Cash collateral received	—			(12.2		)
Total derivative assets – net	$	72.1		$	186.0

Derivative liabilities:
Derivatives designated as hedging instruments:
Foreign currency contracts	$	—		$	(0.4	)
Interest rate contracts	(12.3		)	(1.0		)
	(12.3		)	(1.4		)
Derivatives subject to PGC and DS mechanisms:
Commodity contracts	(3.7		)	(0.1		)
Derivatives not designated as hedging instruments:
Commodity contracts	(171.3		)	(43.3		)
Foreign currency contracts	(4.3		)	(14.0		)
	(175.6		)	(57.3		)
Total derivative liabilities – gross	(191.6		)	(58.8		)
Gross amounts offset in the balance sheet	29.0			34.3
Cash collateral pledged	29.3			—
Total derivative liabilities – net	$	(133.3	)	$	(24.5	)



	Gain (Loss) Recognized in AOCI							Gain (Loss) Reclassified from AOCI into Income									Location of Gain (Loss) Reclassified from AOCI into Income
	2019			2018		2017		2019			2018			2017			Location of Gain (Loss) Reclassified from AOCI into Income
Cash Flow Hedges:
Foreign currency contracts	$	1.2		$	0.4	$	0.2	$	2.4		$	(3.0	)	$	17.8		Cost of sales
Cross-currency contracts	(0.1		)	1.2		0.5		(0.3		)	1.1			(0.1		)	Interest expense /other operating income, net
Interest rate contracts	(11.6		)	0.2		1.5		(4.5		)	(5.0		)	(3.9		)	Interest expense
Total	$	(10.5	)	$	1.8	$	2.2	$	(2.4	)	$	(6.9	)	$	13.8
Net Investment Hedges:
Foreign currency contracts	$	17.4		$	—	$	—



	Gain (Loss) Recognized in Income									Location of Gain (Loss) Recognized in Income
	2019			2018			2017			Location of Gain (Loss) Recognized in Income
Derivatives Not Designated as Hedging Instruments:
Commodity contracts	$	(344.1	)	$	155.4		$	166.0		Cost of sales
Commodity contracts	7.2			(5.3		)	(2.0		)	Revenues
Commodity contracts	(0.3		)	0.3			0.2			Operating and administrative expenses
Foreign currency contracts	37.7			16.2			(23.8		)	Other non-operating income (expense), net
Total	$	(299.5	)	$	166.6		$	140.4

We are also a party to a number of other contracts that have elements of a derivative instrument. These contracts include, among others, binding purchase orders, contracts that provide for the purchase and delivery, or sale, of energy products, and service contracts that require the counterparty to provide commodity storage, transportation or capacity service to meet our normal sales commitments. Although certain of these contracts have the requisite elements of a derivative instrument, these contracts qualify for NPNS exception accounting because they provide for the delivery of products or services in quantities that are expected to be used in the normal course of operating our business and the price in the contract is based on an underlying that is directly associated with the price of the product or service being purchased or sold.