Utility Regulatory Assets and Liabilities and Regulatory Matters

9 Months Ended

Jun. 30, 2022

Utility Regulatory Assets and Liabilities and Regulatory Matters

Note 7 — Utility Regulatory Assets and Liabilities and Regulatory Matters

For a description of the Company’s regulatory assets and liabilities, other than those described below, see Note 9 in the Company’s 2021 Annual Report. Other than removal costs, Utilities currently does not recover a rate of return on its regulatory assets listed below. The following regulatory assets and liabilities associated with Utilities are included on the Condensed Consolidated Balance Sheets:


	June 30, 2022		September 30, 2021		June 30, 2021
Regulatory assets (a):
Income taxes recoverable	$	151	$	143	$	131
Underfunded pension and postretirement plans	103		108		166
Environmental costs	34		58		58
Deferred fuel and power costs	14		11		—
Removal costs, net	22		24		24
Other	47		53		17
Total regulatory assets	$	371	$	397	$	396
Regulatory liabilities (a):
Postretirement benefit overcollections	$	12	$	13	$	12

Deferred fuel and power refunds	1		36		21
State tax benefits — distribution system repairs	34		32		30

Excess federal deferred income taxes	281		287		269
Other	8		20		2
Total regulatory liabilities	$	336	$	388	$	334

(a)Current regulatory assets are included in “Prepaid expenses and other current assets” and regulatory liabilities are included in “Other current liabilities” and “Other noncurrent liabilities” on the Condensed Consolidated Balance Sheets.

Deferred fuel and power - costs and refunds. Utilities’ tariffs contain clauses that permit recovery of all prudently incurred purchased gas and power costs through the application of PGC rates and DS tariffs. These clauses provide for periodic adjustments to PGC and DS rates for differences between the total amount of purchased gas and electric generation supply costs collected from customers and recoverable costs incurred. Net undercollected costs are classified as a regulatory asset and net overcollections are classified as a regulatory liability.

PA Gas Utility uses derivative instruments to reduce volatility in the cost of gas it purchases for retail core-market customers. Realized and unrealized gains or losses on natural gas derivative instruments are included in deferred fuel and power costs or refunds. Net unrealized gains on such contracts at June 30, 2022, September 30, 2021 and June 30, 2021 were $7, $35 and $9, respectively.

Other Regulatory Matters

Base Rate Filings. On January 28, 2022, PA Gas Utility filed a request with the PAPUC to increase its base operating revenues for residential, commercial and industrial customers by $83 annually. The increased revenues would fund ongoing system improvements and operations necessary to maintain safe and reliable natural gas service and continue to fund programs designed to promote and reward customers’ efforts to increase efficient use of natural gas. On June 24, 2022, a Joint Petition for Approval of Settlement of all issues supported by all active parties was filed with the PAPUC providing for a $49 annual base distribution rate increase for PA Gas Utility, through a phased approach, with $38 beginning October 29, 2022 and an additional $11 beginning October 1, 2023. In accordance with the terms of the Joint Petition, PA Gas Utility will not be permitted to file a rate case prior to January 1, 2024. Also, in accordance with the terms of the Joint Petition, PA Gas Utility is authorized to implement a weather normalization adjustment rider as a 5-year pilot program beginning on the effective date of the new rates. Under this rider, customer billings for distribution services will be adjusted to reflect normal weather conditions if weather deviates more than 3% from normal. Additionally, under the terms of the Joint Petition, PA Gas Utility will be authorized to implement a DSIC once its total property, plant and equipment less accumulated depreciation reaches $3,368. The Joint Petition was approved by a PAPUC administrative law judge on July 28, 2022, and is further subject to receipt of an order from the PAPUC approving the settlement. The Company cannot predict the timing or the ultimate outcome of the rate case review process.

On February 8, 2021, Electric Utility filed a rate request with the PAPUC to increase its annual base distribution revenues by $9. On October 28, 2021, the PAPUC issued a final order approving a settlement that permitted Electric Utility, effective November 9, 2021, to increase its base distribution revenues by $6.

On January 28, 2020, PA Gas Utility filed a request with the PAPUC to increase its annual base distribution operating revenues by $75 annually. On October 8, 2020, the PAPUC issued a final Order approving a settlement that permitted PA Gas Utility to increase its annual base distribution rates by $20, through a phased approach, with $10 beginning January 1, 2021 and an additional $10 beginning July 1, 2021. Additionally, PA Gas Utility was authorized to implement a DSIC once PA Gas Utility total property, plant and equipment less accumulated depreciation reached $2,875. This threshold was achieved in December 2020, and PA Gas Utility implemented a DSIC effective April 1, 2021. The PAPUC’s final Order also included enhanced COVID-19 customer assistance measures, including the establishment of an Emergency Relief Program for a defined set of payment troubled customers (“ERP”). Additionally, the PAPUC’s final order permitted PA Gas Utility to establish a regulatory asset for certain incremental expenses attributable to the ongoing COVID-19 pandemic, most notably expenses related to the ERP and uncollectible accounts expense, through the effective date of rates in the next PA Gas Utility base rate case, to be recovered and amortized over a 10-year period. In accordance with the terms of the final Order, PA Gas Utility was not permitted to file a rate case prior to January 1, 2022.