Notes to Consolidated
Financial Statements
(Unaudited)
Note 1
– Basis of Presentation
Corning
Natural Gas Holding Corporation (“Holding Company”) was incorporated in New York in July 2013 to serve as a holding
company for Corning Natural Gas Corporation (the “Gas Company” or “Corning Gas”) and its dormant subsidiary
Corning Natural Gas Appliance Corporation (“Appliance Company”). Pike County Light & Power Company (“Pike”)
and Leatherstocking Gas Company, LLC (“Leatherstocking Gas”), and Leatherstocking Pipeline Company, LLC (“Leatherstocking
Pipeline”). The Holding Company also owns 50% of Leatherstocking Gas of New York. As used in this document, the term “the
Company” refers to the consolidated operations of the Holding Company, Gas Company and Pike. See Note 12 – Subsequent
Events for details on the Company’s purchase of its previously unowned interests in Leatherstocking’s Pennsylvania
assets.
The
Holding Company’s primary business, through its subsidiaries Corning Gas and Pike, is natural gas and electricity distribution.
Corning Gas serves approximately 15,000 residential, commercial, industrial and municipal customers in the Corning, Hammondsport
and Virgil, New York, areas and two other gas utilities which serve the Elmira and Bath, New York, areas. It is franchised to
supply gas service in all of the political subdivisions in which it operates. It also transports for a gas producer from the producer’s
gathering networks. Corning Gas is under the jurisdiction of the New York Public Service Commission (“NYPSC”) which
oversees and sets rates for New York gas distribution companies. In addition, Corning Gas has a contract with Woodhull Municipal
Gas Company, a small local utility, to provide maintenance service on their gas lines. Pike is an electricity and gas utility
regulated by the Pennsylvania Public Utility Commission (“PAPUC”). Pike provides electric service to approximately
4,800 customers in the Townships of Westfall, Milford and the northern part of Dingman and in the Boroughs of Milford and Matamoras.
Pike provides natural gas service to approximately 1,200 customers in Westfall Township and the Borough of Matamoras. All of these
communities are located in Pike County, Pennsylvania. Additionally, Leatherstocking Gas distributes gas in Susquehanna and Bradford
Counties, Pennsylvania. Leatherstocking Pipeline, an unregulated company, serves one customer in Lawton, Pennsylvania.
The
market for natural gas in the Gas Company’s traditional service territories is relatively saturated with limited growth
potential. However, growth opportunities do exist in extending our mains to areas adjacent or reasonably close to areas we currently
serve. In addition, the Gas Company continues to see expansion opportunities in the commercial and industrial markets. We completed
a pipeline to Marcellus Shale gas in Pennsylvania in 2009 and are transporting that gas throughout our pipeline infrastructure.
The Holding Company also owns Leatherstocking Gas and Leatherstocking Pipeline that provide gas to sections of northeast Pennsylvania.
Leatherstocking Gas is expanding gas service to communities that currently have no gas service. Our electric and gas service territory
in Pike County, Pennsylvania has seen economic growth.
The
information furnished herewith reflects all adjustments which are, in the opinion of management, necessary for a fair presentation
of the results for the period. Certain information and footnote disclosures normally included in financial statements prepared
in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant
to SEC rules and regulations, although the Holding Company believes the disclosures which are made are adequate to make the information
presented not misleading.
The
consolidated financial statements contained herein should be read in conjunction with the consolidated financial statements and
notes thereto included in the Holding Company’s latest annual report on Form 10-K for the fiscal year ended September 30,
2019 (“Annual Report”), filed on December 23, 2019. These interim consolidated financial statements are unaudited.
Our
significant accounting policies are described in the notes to the Consolidated Financial Statements in the Holding Company’s
Annual Report. It is important to understand that the application of generally accepted accounting principles in the United States
of America involves certain assumptions, judgments and estimates that affect reported amounts of assets, liabilities, revenues
and expenses. Thus, the application of these principles can have varying results from company to company.
Because
our business is highly seasonal in nature, sales for each quarter of the year vary and are not comparable. Sales vary depending
on seasonal variations in temperature, although the Gas Company’s weather normalization and revenue decoupling clauses approved
by the NYPSC serve to stabilize net revenue by insulating the Gas Company, to an extent, from the effects of unusual temperature
variations and conservation. Certain larger customer classes are not covered by weather normalization or revenue decoupling and
weather will impact revenue from these classes. Neither Pike nor Leatherstocking Gas have weather normalization or revenue decoupling
clauses.
It
is the Holding Company’s policy to reclassify amounts in the prior year financial statements to conform to the current year
presentation.
Adoption
of New Accounting Guidance
On
October 1, 2019, we adopted Accounting Standards Update (“ASU”) 2016-02 “Leases” (Accounting Standards
Codification (“ASC”) Topic 842), including the amendments thereto, using a modified retrospective transition method
of adoption that required no prior period adjustments or charges to retained earnings for cumulative impact. From a lessee standpoint,
on December 13, 2019 the Company purchased the only material item for $280,000, which had been previously leased, a section of
10” gas main. Prior to purchase, the Company paid a nominal fee annually for the use of this 10“ gas main. The Company
did not change how this lease was accounted for prior to purchase. From a lessor standpoint, the only material lease is the lease
of space in the Company’s headquarters to a local appliance company. This lease is an operating lease for which the Company
receives less than $50,000 annually. The accounting for the lease did not change upon adoption of the new standard and there was
no significant impact on these consolidated financial statements as a result of adoption of the new standard.
On
October 1, 2018 we adopted ASU 2016-01 “Financial Instruments—Recognition and Measurement of Financial Assets and
Financial Liabilities” resulting in a reclassification of net after-tax unrealized gains on equity securities
of $100,131 as of October 1, 2018 from accumulated other comprehensive income (loss) to retained earnings. We continue to
carry our investments in equity securities at fair value and there is no change to the asset values or total stockholders’
equity that we would have otherwise recorded. Beginning in fiscal 2019, we are including unrealized gains and losses arising from
the changes in the fair values of our equity securities as a component of investment income in the Consolidated Statements of
Income.
New
Accounting Pronouncements Not Yet Adopted
In
June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13 “Financial Instruments
– Credit Losses” (Topic 326), which provides a model, known as the current expected credit loss model, to estimate
the expected lifetime credit loss on financial assets, including trade and other receivables, rather than incurred losses over
the remaining life of most financial assets measured at amortized cost. The guidance also requires use of an allowance to record
estimated credit losses on available-for-sale debt securities. The new standard is effective for annual and interim periods beginning
after December 15, 2019. The Company is currently evaluating the impact of the guidance on our consolidated financial statements
and related disclosures.
COVID-19
In
light of the current COVID-19 crisis, government mandates have resulted in the shut-down of a significant number of businesses
in the Company’s service territories and many individuals are currently unemployed. The economic slow down is having a negative
effect on sales and margins. In addition, the financial strains on businesses and individuals could have an impact on their ability
to pay their bills, which could lead to a significant increase in uncollectible expense for customer receivables. This bad debt
issue will be compounded by regulatory restrictions on shutting off non-paying customers and an inability to charge late payment
fees. While the combination of the current low cost of natural gas service and the steps taken by the federal government to alleviate
the financial burden on companies and individuals should act as an offset to the overall economic situation, the Company is anticipating
that there will be some level of increase in uncollectible expense depending on the extent and duration of the pandemic crisis.
Bad debt expense attributable to the COVID-19 crisis has not had a material impact on the Company through the quarter ended June
30, 2020. For the quarter ended June 30, 2020 operation and maintenance expenses have increased by $93,000 and capital expenditures
have increased by $35,000 due the COVID-19 pandemic. The increase in O&M results from purchase of incremental sanitation supplies
and payroll charged to expense during the “stay at home” period mandated by New York and Pennsylvania. The capital
expenditures are primarily computer purchases to enable employees to work from home.
Note 2
– Revenue From Contracts With Customers
The following
tables present, for the three and nine months ended June 30, 2020 and 2019, revenue from contracts with customers
as defined in ASC 606 (Revenue From Contracts With Customers), as well as additional revenue from sources other than contracts
with customers, disaggregated by major source.
|
|
For the three months ended
June 30, 2020
|
|
|
|
|
|
|
Revenues
from contracts with customers
|
|
|
|
Other
revenues (a)
|
|
|
|
Total
utility operating revenues
|
|
Corning Gas:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
gas
|
|
|
$3,533,175
|
|
|
|
($189,420
|
)
|
|
|
$3,343,755
|
|
Commercial
gas
|
|
|
369,957
|
|
|
|
—
|
|
|
|
369,957
|
|
Transportation
|
|
|
937,403
|
|
|
|
102,086
|
|
|
|
1,039,489
|
|
Street lights
gas
|
|
|
94
|
|
|
|
—
|
|
|
|
94
|
|
Wholesale
|
|
|
339,688
|
|
|
|
—
|
|
|
|
339,688
|
|
Local
production
|
|
|
170,495
|
|
|
|
—
|
|
|
|
170,495
|
|
Total Corning Gas
|
|
|
$5,350,812
|
|
|
|
($87,334
|
)
|
|
|
$5,263,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pike:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
gas
|
|
|
$219,939
|
|
|
|
($351
|
)
|
|
|
$219,588
|
|
Commercial
gas
|
|
|
57,230
|
|
|
|
—
|
|
|
|
57,230
|
|
Total Pike
retail gas
|
|
|
277,169
|
|
|
|
(351
|
)
|
|
|
276,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
electric
|
|
|
746,204
|
|
|
|
(8,335
|
)
|
|
|
737,869
|
|
Commercial
electric
|
|
|
680,267
|
|
|
|
—
|
|
|
|
680,267
|
|
Electric
– street lights
|
|
|
30,320
|
|
|
|
—
|
|
|
|
30,320
|
|
Total
Pike retail electric
|
|
|
1,456,791
|
|
|
|
(8,335
|
)
|
|
|
1,448,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Pike
|
|
|
$1,733,960
|
|
|
|
($8,686
|
)
|
|
|
$1,725,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
consolidated utility operating revenue
|
|
|
$7,084,772
|
|
|
|
($96,020
|
)
|
|
|
$6,988,752
|
|
(a) Other revenues
include revenue from alternative revenue programs, such as revenue decoupling mechanisms under New York gas rate plans and weather
normalization clauses. This also reflects reductions in revenues resulting from the deferral as regulatory liabilities of the
net benefits of the federal Tax Cuts and Jobs Act of 2017. See “Regulatory Matters” in Note 10.
|
|
For the nine months ended
June 30, 2020
|
|
|
|
|
|
|
Revenues
from contracts with customers
|
|
|
|
Other
revenues (a)
|
|
|
|
Total
utility operating revenues
|
|
Corning Gas:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
gas
|
|
|
$13,280,227
|
|
|
|
($5,502
|
)
|
|
|
$13,274,725
|
|
Commercial
gas
|
|
|
1,922,877
|
|
|
|
—
|
|
|
|
1,922,877
|
|
Transportation
|
|
|
3,679,551
|
|
|
|
92,661
|
|
|
|
3,772,212
|
|
Street lights
gas
|
|
|
301
|
|
|
|
—
|
|
|
|
301
|
|
Wholesale
|
|
|
1,506,837
|
|
|
|
—
|
|
|
|
1,506,837
|
|
Local
production
|
|
|
533,743
|
|
|
|
—
|
|
|
|
533,743
|
|
Total Corning Gas
|
|
|
$20,923,536
|
|
|
|
$87,159
|
|
|
|
$21,010,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pike:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
gas
|
|
|
$1,047,829
|
|
|
|
$1,290
|
|
|
|
$1,049,119
|
|
Commercial
gas
|
|
|
262,041
|
|
|
|
—
|
|
|
|
262,041
|
|
Total Pike
retail gas
|
|
|
1,309,870
|
|
|
|
1,290
|
|
|
|
1,311,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
electric
|
|
|
2,364,886
|
|
|
|
88,940
|
|
|
|
2,453,826
|
|
Commercial
electric
|
|
|
2,228,534
|
|
|
|
—
|
|
|
|
2,228,534
|
|
Electric
– street lights
|
|
|
91,913
|
|
|
|
—
|
|
|
|
91,913
|
|
Total
Pike retail electric
|
|
|
4,685,333
|
|
|
|
88,940
|
|
|
|
4,774,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Pike
|
|
|
$5,995,203
|
|
|
|
$90,230
|
|
|
|
$6,085,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
consolidated utility operating revenue
|
|
|
$26,918,739
|
|
|
|
$177,389
|
|
|
|
$27,096,128
|
|
(a) Other revenues
include revenue from alternative revenue programs, such as revenue decoupling mechanisms under New York gas rate plans and weather
normalization clauses. This also reflects reductions in revenues resulting from the deferral as regulatory liabilities of the
net benefits of the federal Tax Cuts and Jobs Act of 2017. See “Regulatory Matters” in Note 10.
|
|
For the three months ended
June 30, 2019
|
|
|
|
|
|
|
Revenues
from contracts with customers
|
|
|
|
Other
revenues (a)
|
|
|
|
Total
utility operating revenues
|
|
Corning Gas:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
gas
|
|
|
$3,289,092
|
|
|
|
$3,432
|
|
|
|
$3,292,524
|
|
Commercial
gas
|
|
|
481,535
|
|
|
|
(27,031
|
)
|
|
|
454,504
|
|
Transportation
|
|
|
945,835
|
|
|
|
—
|
|
|
|
945,835
|
|
Street lights
gas
|
|
|
108
|
|
|
|
—
|
|
|
|
108
|
|
Wholesale
|
|
|
357,364
|
|
|
|
—
|
|
|
|
357,364
|
|
Local
production
|
|
|
162,708
|
|
|
|
—
|
|
|
|
162,708
|
|
Total Corning Gas
|
|
|
$5,236,642
|
|
|
|
($23,599
|
)
|
|
|
$5,213,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pike:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
gas
|
|
|
$195,908
|
|
|
|
$6,121
|
|
|
|
$202,029
|
|
Commercial
gas
|
|
|
60,461
|
|
|
|
—
|
|
|
|
60,461
|
|
Total Pike
retail gas
|
|
|
256,369
|
|
|
|
6,121
|
|
|
|
262,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
electric
|
|
|
603,535
|
|
|
|
(6,943
|
)
|
|
|
596,592
|
|
Commercial
electric
|
|
|
841,150
|
|
|
|
—
|
|
|
|
841,150
|
|
Electric
– street lights
|
|
|
29,833
|
|
|
|
—
|
|
|
|
29,833
|
|
Total
Pike retail electric
|
|
|
1,474,518
|
|
|
|
(6,943
|
)
|
|
|
1,467,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Pike
|
|
|
$1,730,887
|
|
|
|
($822
|
)
|
|
|
$1,730,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
consolidated utility operating revenue
|
|
|
$6,967,529
|
|
|
|
($24,421)
|
|
|
|
$6,943,108
|
|
(a) Other revenues
include revenue from alternative revenue programs, such as revenue decoupling mechanisms under New York gas rate plans and weather
normalization clauses. This also reflects reductions in revenues resulting from the deferral as regulatory liabilities of the
net benefits of the federal Tax Cuts and Jobs Act of 2017. See “Regulatory Matters” in Note 10.
|
|
For the nine months ended
June 30, 2019
|
|
|
|
|
|
|
Revenues
from contracts with customers
|
|
|
|
Other
revenues (a)
|
|
|
|
Total
utility operating revenues
|
|
Corning Gas:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
gas
|
|
|
$13,913,428
|
|
|
|
$156,987
|
|
|
|
$14,070,415
|
|
Commercial
gas
|
|
|
2,228,169
|
|
|
|
(96,514
|
)
|
|
|
2,131,655
|
|
Transportation
|
|
|
3,587,388
|
|
|
|
—
|
|
|
|
3,587,388
|
|
Street lights
gas
|
|
|
363
|
|
|
|
—
|
|
|
|
363
|
|
Wholesale
|
|
|
2,008,337
|
|
|
|
—
|
|
|
|
2,008,337
|
|
Local
production
|
|
|
525,857
|
|
|
|
—
|
|
|
|
525,857
|
|
Total Corning Gas
|
|
|
$22,263,542
|
|
|
|
$60,473
|
|
|
|
$22,324,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pike:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
gas
|
|
|
$1,232,125
|
|
|
|
$15,511
|
|
|
|
$1,247,636
|
|
Commercial
gas
|
|
|
305,873
|
|
|
|
—
|
|
|
|
305,873
|
|
Total Pike
retail gas
|
|
|
1,537,998
|
|
|
|
15,511
|
|
|
|
1,553,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
electric
|
|
|
2,984,694
|
|
|
|
58,398
|
|
|
|
3,043,092
|
|
Commercial
electric
|
|
|
3,112,054
|
|
|
|
—
|
|
|
|
3,112,054
|
|
Electric
– street lights
|
|
|
96,872
|
|
|
|
—
|
|
|
|
96,872
|
|
Total
Pike retail electric
|
|
|
6,193,620
|
|
|
|
58,398
|
|
|
|
6,252,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Pike
|
|
|
$7,731,618
|
|
|
|
$73,909
|
|
|
|
$7,805,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
consolidated utility operating revenue
|
|
|
$29,995,160
|
|
|
|
$134,382
|
|
|
|
$30,129,542
|
|
(a) Other revenues
include revenue from alternative revenue programs, such as revenue decoupling mechanisms under New York gas rate plans and weather
normalization clauses. This also reflects reductions in revenues resulting from the deferral as regulatory liabilities of the
net benefits of the federal Tax Cuts and Jobs Act of 2017. See “Regulatory Matters” in Note 10.
The
Gas Company records revenues from residential and commercial customers based on meters read on a cyclical basis throughout each
month, while certain large industrial and utility customers’ meters are read at the end of each month. Several meters are
read at the end of each month to calculate local production revenues. The Gas Company does not accrue revenue for gas delivered
but not yet billed, as the NYPSC requires that such accounting must be adopted during a rate proceeding, which the Gas Company
has not done. The Gas Company, as part of its currently effective rate plan, has a weather normalization clause for residential
and small commercial customers as protection against severe weather fluctuations. This affects space heating customers and is
activated when degree days are 2.2% greater or less than the 30-year average. As a result, the effect on revenue fluctuations
of weather-related gas sales is somewhat moderated.
Pike
recognizes revenues for electric and gas service on a monthly billing cycle basis. Pike does not accrue for gas and electricity
delivered. Pike does not have a weather normalization clause as protection against severe weather.
In
addition to weather normalization, the Gas Company has implemented a revenue decoupling mechanism (RDM). The RDM reconciles actual
delivery service revenues to allowed residential delivery service revenues (which are based on the annual customer revenue forecasts
in the last rate case) for residential customers. The Gas Company will refund or surcharge customers for differences between actual
and allowed revenues. The shortfall or excess after the annual reconciliation will be surcharged or refunded to customers over
a twelve-month period starting on September 1 each year. Pike does not have a revenue decoupling mechanism as part of its rate
structure.
Revenues
are recorded as energy is delivered, generated, or services are provided and billed to customers. Amounts billed are recorded
in customer accounts receivable, with payment generally due the following month.
Note 3
- Pension and Other Post-Retirement Benefit Plans
Components
of Net Periodic Benefit Cost:
Pension Benefits
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Nine Months Ended June 30,
|
|
|
|
2020
|
|
|
|
2019
|
|
|
|
2020
|
|
|
|
2019
|
|
Service
Cost
|
|
|
$186,111
|
|
|
|
$116,453
|
|
|
|
$558,333
|
|
|
|
$349,360
|
|
Interest Cost
|
|
|
246,324
|
|
|
|
258,774
|
|
|
|
738,972
|
|
|
|
776,323
|
|
Expected return on plan
assets
|
|
|
(325,249
|
)
|
|
|
(319,966
|
)
|
|
|
(975,748
|
)
|
|
|
(959,898
|
)
|
Amortization
of net gain
|
|
|
224,321
|
|
|
|
212,665
|
|
|
|
672,965
|
|
|
|
637,996
|
|
Net
periodic benefit cost
|
|
|
$331,507
|
|
|
|
$267,926
|
|
|
|
$994,522
|
|
|
|
$803,781
|
|
Other Benefits
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Nine Months Ended June 30,
|
|
|
|
2020
|
|
|
|
2019
|
|
|
|
2020
|
|
|
|
2019
|
|
Service
Cost
|
|
|
$4,633
|
|
|
|
$4,123
|
|
|
|
$13,900
|
|
|
|
$12,369
|
|
Interest Cost
|
|
|
9,255
|
|
|
|
11,939
|
|
|
|
27,766
|
|
|
|
35,817
|
|
Amortization of prior
service cost
|
|
|
3,494
|
|
|
|
888
|
|
|
|
10,484
|
|
|
|
2,664
|
|
Amortization
of net (gain) loss
|
|
|
654
|
|
|
|
(1,677
|
)
|
|
|
1,963
|
|
|
|
(5,032
|
)
|
Net
periodic benefit cost
|
|
|
$18,036
|
|
|
|
$15,273
|
|
|
|
$54,113
|
|
|
|
$45,818
|
|
For
ratemaking and financial statement purposes, pension expense represents the amount approved by the NYPSC in the Gas Company’s
most recently approved rate case. Pension expense for ratemaking and financial statement purposes was $218,683 for the three months
ended June 30, 2020 and $221,152 for the three months ended June 30, 2019. Pension expense for ratemaking and financial statement
purposes was $656,049 for the nine months ended June 30, 2020 and $663,457 for the nine months ended June 30, 2019. Total pension
costs are recorded in accordance with accounting prescribed by the NYPSC in 1993. The cumulative net difference between the pension
expense for ratemaking and financial statement purposes, since 1993, has been deferred as a regulatory asset and amounted to $1,225,004
and $792,492 at June 30, 2020 and June 30, 2019, respectively.
The
NYPSC has allowed the Gas Company to recover incremental costs associated with other post-retirement benefits through rates on
a current basis. Other post-retirement benefit expense (benefit) (OPEB) for ratemaking and financial statement purposes was $14,680
for the three months ended June 30, 2020 and $16,408 for the three months ended June 30, 2019. OPEB for ratemaking and financial
statement purposes was $44,040 for the nine months ended June 30, 2020 and $42,614 for the nine months ended June 30, 2019. The
difference between OPEB for ratemaking and financial statement purposes, and the amount computed above has been deferred as a
regulatory asset.
Contributions
The
Gas Company expects to contribute $952,404 to its Pension Plan during the year ending September 30, 2020. A total of $663,750
was paid to the Pension Plan during the nine months ending June 30, 2020 and $577,045 was paid to the Pension Plan during the
nine months ended June 30, 2019.
Note 4
– Financing Activities
On
June 27, 2019, the Gas Company entered into a $3.127 million multiple disbursement term note with Manufactures and Traders Trust
Company Bank (“M&T”) which permitted draws from time to time for capital expenditures in accordance with its terms
until October 31, 2019 at which time amounts outstanding under the note totaling $3.127 million converted to a ten year term loan,
payable in 119 equal monthly installments with an additional final installment of unpaid principal and interest due on November
30, 2029. Before converting to a term loan, borrowings on the note had a variable interest rate of the one-month LIBOR rate
plus 3%. After October 31, 2019, the interest rate was fixed at 3.51%.
On
June 27, 2019, Pike entered into a $2.072 million multiple disbursement term note with M&T which permitted draws from time
to time for capital expenditures in accordance with its terms until October 31, 2019 at which time amounts outstanding under the
note totaling $2.072 million converted to a ten year term loan, payable in 119 equal monthly installments with an additional final
installment of unpaid principal and interest due on November 30, 2029. Before converting to a term loan, borrowings on the
note had a variable interest rate of the one-month LIBOR rate plus 3%. After October 31, 2019, the interest rate was fixed
at 3.51%.
On
May 6, 2020, Corning Gas received a $970,900 loan under the U.S. Small Business Administration’s Payroll Protection Program.
All or a portion of this loan may be forgiven as part of the program. Payments on any amount not forgiven are expected to be deferred
for six months, then paid back over an eighteen month amortization period. Interest accrues at 1.0%. The proceeds from this loan
are restricted as to use and cannot be used to retire existing debt.
On
April 28, 2020, Pike received a $137,200 loan under the U.S. Small Business Administration’s Payroll Protection Program.
All or a portion of this loan may be forgiven as part of the program. Payments on any amount not forgiven are expected to be deferred
for six months, then paid back over an eighteen month amortization period. Interest accrues at 1.0%. The proceeds from this loan
are restricted as to use and cannot be used to retire existing debt.
We are in
compliance with our financial covenant calculations as of June 30, 2020.
Note
5 – Fair Value of Financial Instruments
The
Holding Company has determined the fair value of debt and other financial instruments using a valuation hierarchy. The hierarchy,
which prioritizes the inputs used in measuring fair value, consists of three levels. Level 1 uses observable inputs such as quoted
prices in active markets; Level 2 uses inputs other than quoted prices in active markets that are either directly or indirectly
observable; and Level 3, which is defined as unobservable inputs in which little or no market data exists, requires the Holding
Company to develop its own assumptions. The carrying amount of debt on the Consolidated Balance Sheets approximates fair value
as a result of instruments bearing interest rates that approximate current market rates for similar instruments, and the carrying
amounts for cash, accounts receivable and accounts payable approximate fair value due to their short-term nature. Investment assets,
which fund the Holding Company’s deferred compensation plan, are valued based on Level 1 inputs.
The
Holding Company has determined the fair value of certain assets through application of FASB ASC 820 “Fair Value Measurements
and Disclosures”.
Fair value
of assets and liabilities measured on a recurring basis at June 30, 2020 and September 30, 2019 are as follows:
Fair Value
Measurements at Reporting Date
|
|
Fair
Value
|
|
Quoted
Prices In Active Markets for Identical Assets/Liabilities (Level 1)
|
|
Level
2
|
|
Level 3
|
June 30, 2020
|
|
|
|
|
|
|
|
|
Available-for-sale
securities
|
|
|
$2,111,120
|
|
|
|
$2,111,120
|
|
|
|
$—
|
|
|
|
$—
|
|
September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
|
$2,184,170
|
|
|
|
$2,184,170
|
|
|
|
$—
|
|
|
|
$—
|
|
A summary
of the marketable securities at June 30, 2020 and September 30, 2019 is as follows:
|
|
Cost
Basis
|
|
Unrealized
Gain
|
|
Unrealized
Loss
|
|
Market
Value
|
June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and
equivalents
|
|
|
$60,922
|
|
|
|
$—
|
|
|
|
$—
|
|
|
|
$60,922
|
|
Metlife stock value
|
|
|
29,303
|
|
|
|
—
|
|
|
|
—
|
|
|
|
29,303
|
|
Government and agency
bonds
|
|
|
144,039
|
|
|
|
9,278
|
|
|
|
—
|
|
|
|
153,317
|
|
Corporate bonds
|
|
|
158,249
|
|
|
|
4,708
|
|
|
|
—
|
|
|
|
162,957
|
|
Mutual funds
|
|
|
42,667
|
|
|
|
1,980
|
|
|
|
—
|
|
|
|
44,647
|
|
Holding Company Preferred
A Stock
|
|
|
572,875
|
|
|
|
56,142
|
|
|
|
—
|
|
|
|
629,017
|
|
Equity
securities
|
|
|
837,537
|
|
|
|
193,420
|
|
|
|
—
|
|
|
|
1,030,957
|
|
Total securities
|
|
|
$1,845,592
|
|
|
|
$265,528
|
|
|
|
$—
|
|
|
|
$2,111,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents
|
|
|
64,457
|
|
|
|
$—
|
|
|
|
$—
|
|
|
|
$64,457
|
|
Metlife stock value
|
|
|
39,810
|
|
|
|
—
|
|
|
|
—
|
|
|
|
39,810
|
|
Government and agency
bonds
|
|
|
229,850
|
|
|
|
8,024
|
|
|
|
—
|
|
|
|
237,874
|
|
Corporate bonds
|
|
|
190,113
|
|
|
|
2,477
|
|
|
|
—
|
|
|
|
192,590
|
|
Mutual funds
|
|
|
22,359
|
|
|
|
486
|
|
|
|
—
|
|
|
|
22,845
|
|
Holding Company Preferred
A Stock
|
|
|
572,875
|
|
|
|
41,247
|
|
|
|
—
|
|
|
|
614,122
|
|
Equity
securities
|
|
|
866,600
|
|
|
|
145,872
|
|
|
|
—
|
|
|
|
1,012,472
|
|
Total securities
|
|
|
$1,986,064
|
|
|
|
$198,106
|
|
|
|
$—
|
|
|
|
$2,184,170
|
|
Realized gains
(losses) included in earnings for the periods reported in investment income are as follows:
Investment
Income
|
|
|
|
|
|
Three
Months Ended June 30,
|
Nine
Months Ended June 30,
|
|
2020
|
2019
|
2020
|
2019
|
Net
realized gains and (losses) recognized during
the
period on investments
|
$13,208
|
$7,042
|
($9,344)
|
($2,378)
|
Unrealized
gains on equity securities included in investment income for the three and nine months ended June 30, 2020 were $160,051 and $73,996,
respectively. Unrealized gains on equity securities included in investment income for the three and nine months ended June 30,
2019 were $18,014 and $76,947, respectively.
Financial
assets and liabilities valued using level 1 inputs are based on unadjusted quoted market prices as of the close of business on
the days noted within active markets.
Note 6
– Stockholders’ Equity
For
the three months ended June 30, 2020, there were a total of 6,870 shares of common stock issued for $89,190. For the three months
ended June 30, 2019, there were a total of 5,569 shares of common stock issued for $95,866. For the nine months ended June 30,
2020 there were a total of 18,889 shares of common stock issued for $286,600. For the nine months ended June 30, 2019 there were
a total of 19,200 shares of common stock issued for $318,852. The amounts issued were for the following:
|
|
Three months ended June 30,
2020
|
|
Nine months ended June 30,
2020
|
|
|
|
Shares
|
|
|
|
Amount
|
|
|
|
Shares
|
|
|
|
Amount
|
|
Dividend
reinvestment program (DRIP)
|
|
|
3,570
|
|
|
|
$50,244
|
|
|
|
8,989
|
|
|
|
$151,011
|
|
Directors
|
|
|
3,150
|
|
|
|
36,619
|
|
|
|
9,450
|
|
|
|
127,469
|
|
Leatherstocking Gas
Company
|
|
|
150
|
|
|
|
2,327
|
|
|
|
450
|
|
|
|
8,120
|
|
Officers
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
|
6,870
|
|
|
|
$89,190
|
|
|
|
18,889
|
|
|
|
$286,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended June 30, 2019
|
|
Nine
months ended June 30, 2019
|
|
|
|
Shares
|
|
|
|
Amount
|
|
|
|
Shares
|
|
|
|
Amount
|
|
Dividend reinvestment
program (DRIP)
|
|
|
2,269
|
|
|
|
$45,992
|
|
|
|
7,300
|
|
|
|
$133,423
|
|
Directors
|
|
|
3,150
|
|
|
|
46,589
|
|
|
|
9,450
|
|
|
|
138,651
|
|
Leatherstocking Gas
Company
|
|
|
150
|
|
|
|
3,285
|
|
|
|
450
|
|
|
|
8,778
|
|
Officers
|
|
|
—
|
|
|
|
—
|
|
|
|
2,000
|
|
|
|
38,000
|
|
Total
|
|
|
5,569
|
|
|
|
$95,866
|
|
|
|
19,200
|
|
|
|
$318,852
|
|
Shares
issued to Leatherstocking Gas were used to compensate its independent director, Carl Hayden.
For
the three months ended September 30, 2019, dividends were paid on October 15, 2019 to stockholders of record on September 30,
2019 in the amount of $441,494, less DRIP shares valued at $53,503. For the three months ended December 31, 2019, dividends were
paid on January 14, 2020 in the amount of $442,396 less DRIP shares valued at $47,264. For the three months ended March 31, 2020,
dividends were paid on April 14, 2020 in the amount of $466,161 less DRIP shares valued at $50,244. For the quarter ended June
30, 2020, $467,210 was accrued for dividends paid on July 15, 2020 to stockholders of record on June 30, 2020.
Series
A Cumulative Preferred Stock accrues cumulative dividends at a rate of 6.0% of the liquidation preference per share ($25.00) and
are expected to be paid on or about the 14th day of April, July, October and January of each year and began October 14, 2016.
For the three months ended September 30, 2019, dividends were paid on October 15, 2019 in the amount of $78,975. For the three
months ended December 31, 2019, $78,975 was paid on January 15, 2020. For the three months ended March 31, 2020, $78,975 was paid
on April 14, 2020. For the three months ended June 30, 2020, $78,975 was paid on July 15, 2020. Dividends on the Series A Cumulative
Preferred Stock are reported as interest expense.
Series
B Convertible Preferred Stock accrues cumulative dividends at a rate of 4.8% of the liquidation preference per share ($20.75)
and are expected to be paid on or about the 14th day of April, July, October and January of each year and began October 14, 2016.
At September 30, 2019 there was $61,065 accrued for Series B dividends paid on October 15, 2019. For the three months ended December
31, 2019, $61,066 was accrued for dividends paid on January 15, 2020. For the three months ended March 31, 2020, $61,066 was accrued
for dividends paid on April 14, 2020. For the three months ended June 30, 2020, $61,065 was accrued for dividends paid on July
15, 2020. See Note 9 for additional information on the preferred stock, including its mandatory redemption provisions.
Series
C Cumulative Preferred Stock accrues cumulative dividends at a rate of 6.0% of the liquidation preference per share ($25.00) and
are expected to be paid on or about the 14th day of April, July, October and January of each year and began July 15, 2020. For
the three months ended June 30, 2020, $74,250 was paid on July 15, 2020. Dividends on the Series C Cumulative Preferred Stock
are reported as interest expense.
Basic
earnings (loss) per share are computed by dividing income (loss) available for common stock (net income less dividends declared
on Series B Preferred Stock) by the weighted average number of common shares outstanding for the period. Diluted earnings per
share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or
converted into common stock.
293,116
shares of common stock issuable upon conversion of Series B Convertible Preferred Stock were excluded from the calculation of
diluted earnings per share for the three months ended June 30, 2020 and 2019 because their inclusion would have been anti-dilutive.
Note 7
– Investment in Joint Ventures
The
Holding Company has an interest in Leatherstocking Gas and Leatherstocking Pipeline (the Joint Ventures), each of which is a joint
venture with Mirabito Regulated Industries, LLC, accounted for by the equity method.
The
following table represents the Holding Company’s investment activity in the Joint Ventures for the nine months ended June
30, 2020 and 2019:
|
|
|
2020
|
|
|
|
2019
|
|
Beginning
balance in investment in joint ventures
|
|
|
$2,597,919
|
|
|
|
$2,740,575
|
|
Loss
from joint ventures
|
|
|
(50,442
|
)
|
|
|
(15,324
|
)
|
Ending balance in joint
ventures
|
|
|
$2,547,477
|
|
|
|
$2,725,251
|
|
As
of and for the nine months ended June 30, 2020 and 2019, the Joint Ventures financial summary is as follows:
|
|
|
2020
|
|
|
|
2019
|
|
Total assets
|
|
|
$12,066,000
|
|
|
|
$13,000,000
|
|
Total liabilities
|
|
|
$6,971,000
|
|
|
|
$7,600,000
|
|
Net loss
|
|
|
$101,000
|
|
|
|
$31,000
|
|
On
July 1, 2020 the Company completed the purchase of the interest in the 50% of Leatherstocking’s Pennsylvania assets the
Company did not previously own, resulting the in Company owning 100% of Leatherstocking’s Pennsylvania assets. A new joint
venture with Mirabito Regulated Industries, LLC owns Leatherstocking’s New York assets. The Company and Mirabito Regulated
Industries, LLC each own 50% of this new joint venture. See Note 12 – Subsequent Events.
Note 8
– Income Taxes
Income tax (benefit) expense for the periods ended June
30 are as follows:
|
|
|
|
|
Three
Months Ended
|
|
|
|
Three
Months Ended
|
|
|
|
Nine
Months Ended
|
|
|
|
Nine
Months Ended
|
|
|
|
|
June
30, 2020
|
|
|
|
June
30, 2019
|
|
|
|
June
30, 2020
|
|
|
|
June
30, 2019
|
|
Current
|
|
|
$—
|
|
|
|
$—
|
|
|
|
$—
|
|
|
|
$—
|
|
Deferred
|
|
|
(7,645
|
)
|
|
|
58,875
|
|
|
|
1,158,045
|
|
|
|
1,326,628
|
|
Total
|
|
|
($7,645
|
)
|
|
|
$58,875
|
|
|
|
$1,158,045
|
|
|
|
$1,326,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual income tax (benefit) expense differs from the
expected tax expense (computed by applying the federal corporate tax rate of 21% before income tax expense) as follows:
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
|
Three
Months Ended
|
|
|
|
Nine
Months Ended
|
|
|
|
Nine
Months Ended
|
|
|
|
|
June
30, 2020
|
|
|
|
June
30, 2019
|
|
|
|
June
30, 2020
|
|
|
|
June
30, 2019
|
|
Expected
federal tax expense
|
|
|
$115,491
|
|
|
|
$20,423
|
|
|
|
$1,023,709
|
|
|
|
$1,000,257
|
|
State tax expense (net
of federal)
|
|
|
26,528
|
|
|
|
2,480
|
|
|
|
253,415
|
|
|
|
263,120
|
|
Federal income sur credit
amortization
|
|
|
11,761
|
|
|
|
11,761
|
|
|
|
46,016
|
|
|
|
46,046
|
|
AMT credit refund
|
|
|
(272,079
|
)
|
|
|
—
|
|
|
|
(272,079
|
)
|
|
|
—
|
|
Tax accrual true up
|
|
|
88,027
|
|
|
|
—
|
|
|
|
88,027
|
|
|
|
(11,405
|
)
|
Other,
net
|
|
|
22,627
|
|
|
|
24,211
|
|
|
|
18,957
|
|
|
|
28,610
|
|
Actual tax (benefit)
expense
|
|
|
($7,645
|
)
|
|
|
$58,875
|
|
|
|
$1,158,045
|
|
|
|
$1,326,628
|
|
On
December 22, 2017, the Federal Tax Cuts and Jobs Act (“Tax Act”) was signed into law. The Tax Act makes significant
changes to the federal tax structure, which will impact the tax liabilities of utility companies. On August 9, 2018 the NYSPSC
issued an order in Case 17-M-0815 that required the Company to return to customers the difference between the federal income tax
allowance in base rates and the new statutory rate of 21%. The refund to customers began on October 1, 2018. Impacted customers
experienced a decrease of 5.20% on their overall bill in the year starting October 1, 2018 and experienced a decrease of 7.83%
in the year starting October 1, 2019. The amounts returned to customers were $1,317,719 during the year ended September 30, 2019
and will be $2,112,540 during the year ending September 30, 2020. These refunds will not impact the Company’s earnings.
The impact of the change in the Tax Act on deferred regulatory balances will be deferred until the Company’s next base rate
case. The Company has recorded those amounts as Regulatory Liabilities on the accompanying consolidated balance sheets.
The
PAPUC issued an order in Case M-2018-2641242 that requires the Company to return to customers the difference between the federal
income tax allowance in base rates and the new statutory rate of 21%. Pike’s electric customers began receiving a total
refund of $73,923 or decrease of 0.67% on their overall bill beginning October 1, 2018. This refund is subject to reconciliation
and will remain in effect until Pike’s next base rate case. No refunds were ordered for Pike’s gas operation because
amounts were not material. The impact of the change in the Tax Act on deferred regulatory balances will be deferred until the
Company’s next base rate case. The Company has recorded those amounts as Regulatory Liabilities on the accompanying consolidated
balance sheets.
In
June of 2020, the Company filed its 2019 Consolidated Federal Income Tax return, and it utilized $272,079 of alternative minimum
tax (AMT) credits. The Company recorded as an expense the AMT in the years it was paid. Accordingly, the Company recorded its
anticipated tax refund as income in the quarter.
Note 9
– Preferred Stock
Effective
March 27, 2020, the Holding Company issued 180,000 shares of newly authorized 6% Series C Cumulative Preferred Stock at $25.00
per share, for gross proceeds of $4,500,000. Series C Cumulative Preferred Stock accrues cumulative dividends at a rate of 6.0%
of the liquidation preference per share ($25.00) and are expected to be paid on or about the 14th day of April, July, October
and January of each year starting July 14, 2020. The dates of record for the dividends, if any, will be March 31, June 30, September
30 and December 31, immediately preceding the relevant dividend payment date. On September 30, 2026, outstanding shares of Series
C Cumulative Preferred Stock will mature and be redeemed solely in cash at a redemption price equal to the liquidation preference
per share plus an amount equal to all accrued but unpaid dividends subject to our having funds legally available for redemption
under New York law. In the event of a fundamental change as defined on the Certificate of Amendment to the Certificate of Incorporation,
holders of Series C Cumulative Preferred Stock have the right to redeem their shares at a redemption price equal to the liquidation
preference per share plus an amount equal to all accrued but unpaid dividends prior to the effective date of the fundamental change
subject to our having funds legally available for such redemption under New York law. A fundamental change is generally defined
as a change of control of the Holding Company. The holders of Series C Cumulative Preferred Stock will have no voting rights except
as specifically required by New York laws or by the Charter, as amended by the Certificate of Amendment, which allows voting rights
under specific circumstances. The proceeds of this issuance will be used to buy Leatherstocking’s Pennsylvania assets not
owned by the Company and finance capital improvement projects at Pike and Corning.
The
Series C Cumulative Preferred Stock will, with respect to both dividend rights and rights upon liquidation, winding-up or dissolution
of the Corporation, rank: (i) senior to all classes or series of the Corporation’s Common Stock; (ii) senior to any other
class or series of the Corporation’s capital stock issued in the future, unless the terms of that capital stock expressly
provide that it ranks senior to, or on parity with, the Series C Cumulative Preferred Stock; (iii) on parity with any class or
series of the Corporation’s capital stock, the terms of which expressly provide that it will rank on parity with the Series
C Cumulative Preferred Stock, including without limitation, the Series A Cumulative Preferred Stock and the Series B Convertible
Preferred Stock; and (iv) junior to any other class of series of the Corporation’s capital stock, the terms of which expressly
provide that it will rank senior to the Series C Cumulative Preferred Stock, none of which exists on the date hereof, and the
issue of which would be subject to the approval of a majority of the outstanding shares of Preferred Stock voting as a class;
and (v) subject to funds legally available and payment of or provision for the Corporation’s debts and other liabilities.
In
accordance with ASC 480 (Distinguishing Liabilities from Equity), because of the mandatory redemption feature, Series C Cumulative
Preferred Stock is treated as debt. The issuance costs are treated as debt issuance costs and will be amortized over the life
of the instrument. The debt issuance costs reduce the carrying value of the liability. The amortization of the Series C Preferred
Stock debt issuance costs was $20 for the three and nine month periods ended June 30, 2020. The amortization of the Series C Preferred
Stock debt issuance costs was $0 for the three and nine month periods ended June 30, 2019. Dividends are recorded as interest
expense. The dividends for the three and nine month periods ended June 30, 2020 were $74,250. The dividends for the three and
nine month periods ended June 30, 2019 were $0.
Series
A Preferred Stock accrues cumulative dividends at a rate of 6.0% of the liquidation preference per share ($25.00) and are expected
to be paid on or about the 14th day of April, July, October and January of each year. The dates of record for the dividends,
are March 31, June 30, September 30 and December 31, immediately preceding the relevant dividend payment date. On September 30,
2023, outstanding shares of Series A Preferred Stock will mature and be redeemed solely in cash at a redemption price equal to
the liquidation preference per share plus an amount equal to all accrued but unpaid dividends subject to our having funds legally
available for redemption under New York law. The dividends for each of the three month periods ended June 30, 2020 and 2019 were
$78,975. The dividends for each of the nine month periods ended June 30, 2020 and 2019 were $236,925. Dividends on Series A Preferred
Stock are recorded as interest expense.
In
accordance with ASC 480, because of the mandatory redemption feature Series A Preferred Stock is treated as debt. The issuance
costs are treated as debt issuance costs and will be amortized over the life of the instrument. The debt issuance costs reduce
the carrying value of the liability. The amortization of the Series A Preferred Stock debt issuance costs was $5,183 for each
of the three month periods ended June 30, 2020 and 2019. The amortization of the Series A Preferred Stock debt issuance costs
was $15,548 for each of the nine month periods ended June 30, 2020 and 2019.
On
July 1, 2020, 50,000 shares of the Company’s Series A Preferred Stock were issued as part of the consideration for the purchase
of the interest in the 50% of Leatherstocking’s Pennsylvania assets the Company did not previously own. See Note 12 –
Subsequent Events.
Series
B Preferred Stock accrues cumulative dividends at a rate of 4.8% of the liquidation preference per share ($20.75) and are expected
to be paid on or about the 14th day of April, July, October and January of each year. The dates of record for the dividends, if
any, will be March 31, June 30, September 30 and December 31, immediately preceding the relevant dividend payment date.
Although
by its terms the Series B Preferred Stock is mandatorily redeemable on September 30, 2026, in accordance with ASC 480 it is not
considered mandatorily redeemable for accounting purposes as a result of the conversion feature presenting a contingency related
to the redemption dates. Accordingly, this is not considered a liability. However, as a result of the decision related to conversion
and not reaching redemption resting with the holder, this instrument has been classified as temporary equity in accordance with
ASC 480. Upon conversion, the instrument would be reclassified as permanent equity. Dividends were $183,197 for each of the three
month periods ended June 30, 2020 and 2019. Dividends were $61,065 for each of the three month periods ended June 30, 2020 and
2019. The issuance costs of approximately $120,000 reduced the initial proceeds and will be accreted until redemption or conversion.
During each of the three month periods ended June 30, 2020 and 2019 there was accretion of $3,762. During each of the nine month
periods ended June 30, 2020 and 2019 there was accretion of $11,285.
Note 10
– Regulatory Matters
On
February 27, 2020, Corning Natural Gas Corporation (the “Gas Company”), a regulated utility subsidiary of Corning
Natural Gas Holding Corporation (the “Holding Company”), filed with the NYSPSC for increases in revenues of $6,255,926,
$845,142, and $680,913 for the years ending January 31, 2022, 2023 and 2024, respectively (Case 20-G-0101). These standalone rate
year increases would impact customer total bills by 23.4%, 2.56% and 2.01%, respectively. The base period (i.e., test year) for
this filing is the 12 months ended September 30, 2019. The levelized amount would be $3,523,167 in each of the years ending January
31, 2022, 2023 and 2024. The levelized increases would impact customer total bills by 10.93% per year. We are requesting a levelized
approach.
The
filing with the NYSPSC reflects a return on equity of 10.20% and pro-forma equity ratios of 50.67%, 52.95% and 55.26% for the
12-month periods ending January 31, 2022, 2023 and 2024, respectively. The two most important reasons for the increase are: first,
NYSPSC-mandated initiatives, including investment in replacing older distribution pipe, and new safety, training and cyber security
requirements; and second, the Gas Company is proposing shorter depreciation lives for its pipeline infrastructure to reflect new
decarbonization legislation. These two cost items comprise approximately 50% of the rate increase request. The balance of the
request is to recover increases in health insurance, wages and other inflationary costs.
On
June 26, 2020 the Department of Public Service Staff (“Staff”) filed its direct testimony in the rate case. The Staff
recommended a one year revenue requirement of $517,063 compared to the Company’s request of $6,223,603. The primary difference
between the Staff and Company revenue requirements is the Staff’s equity return recommendation of 8.45% compared to 10.20%,
disallowance of the Company’s request for shorter depreciation lives, differences in health insurance escalators, extension
of the recovery period of regulatory costs from 3 years to 5 years and disallowance of leak repair amortization. The Company does
not agree with the Staff’s proposals. The Company expects to enter into settlement negotiations with the Staff in the fourth
quarter of fiscal 2020.
By
statute, the NYSPSC may take up to 11 months to rule on the filing. Accordingly, the Gas Company does not anticipate that new
rates will be effective before February 1, 2021. The NYSPSC may adopt rates for a multi-year period, as proposed in the filing,
or for a shorter period, such as a single year.
The
Joint Proposal (“JP”) in Case 16-G-0369 included the normalization of the revenue requirement over a three year period.
The normalization procedure allowed recovery of the rate increase granted by the Commission equally over the three rate years.
The twelve months ended May 31, 2020 (Rate Year 3) delivery base rates if left unchanged would permit the Company to recover revenues
in excess of the amount granted by the Commission. Accordingly, the JP provided that if the Company did not file for new rates
to become effective at the end of Rate Year 3, it would reduce rates to take effect on June 1, 2020 to eliminate the amount of
over-recovery created by normalization. The Company has made the tariff compliance filing with the NYSPSC Commission to reduce
rates on June 1, 2020. The Company estimates that delivery rates will be reduced by approximately $481,000 net of tax until new
rate become effective on February 1, 2021.
Total
Regulatory Assets on the accompanying Consolidated Balance Sheets at June 30, 2020 amount to $13,456,030 compared to $12,681,496
at September 30, 2019. The Regulatory Assets include $1,471,957 at June 30, 2020 and $1,544,347 at September 30, 2019 that is
subject to Deferred Accounting Petitions with the NYPSC and PAPUC. The PAPUC commission approved the storm cost petition in docket
number P-2018-3001395 on June 14, 2018. The Company was permitted to defer the cost for storm Riley for subsequent recovery in
the Pike’s next base rate case. The remaining items in regulatory assets are either approved in rates, part of annual reconciliations
approved by the NYSPSC and PAPUC, or approved through various commission directives.
The
Gas Company, in accordance with the rate order in Case 16-G-0369, was required to make capital expenditures to reach a net plant
target of $50,427,717, $53,930,803 and $56,959,911 at May 31, 2018, 2019 and 2020 respectively. The annual net plant target is
developed by taking the forecast Rate Year average of the monthly averages of: (1) plant in service, (2) construction
work in process, (3) deferred taxes associated with tax depreciation, accelerated recovery of plant and contributions in
aid of construction (“CIAC”), and (4) depreciation reserve including accelerated recovery of plant. If the actual
net plant in service falls short of the target net plant in service for a particular Rate Year, Corning Gas will defer carrying
costs for customers’ benefit equal to the shortfall multiplied by the authorized pre-tax rate of return, as well as depreciation
expense associated with the shortfall. If the actual net plant in service exceeds the target net plant in service for a particular
Rate Year, no adjustment (i.e., no surcharge to customers) will be made. The determination of any shortfall or excess will
be made on a cumulative basis at the end of the three year period. For the period ended May 31, 2018, the Company exceeded the
target by $318,396. For the period ended May 31, 2019, the Company exceeded the target by $269,090. The Company, at this time,
believes that it will meet the 2020 target.
Pike’s
current rates for electric and gas services have been in effect since 2014. The Company expects to file new Pike rate cases for
both electric and gas services by the end of fiscal 2020.
Note
11 – Segment Reporting
The
Company’s reportable segments have been determined based upon the nature of the products and services offered, customer
base, availability of discrete internal financial information, homogeneity of products, delivery channel and other factors.
The
Gas Company is a gas distribution company providing gas on a commodity and transportation basis to its customers in the Southern
Tier of New York State. Pike provides electricity and natural gas services to Pike County, Pennsylvania. Leatherstocking Gas provides
gas utility service in northeastern Pennsylvania. See Note 12 – Subsequent Events for details on the Company’s purchase
of its previously unowned interests in Leatherstocking’s Pennsylvania assets.
The
following table reflects the results of the segments consistent with the Holding Company’s internal financial reporting
process. The following results are used in part, by management, both in evaluating the performance of, and in allocating resources
to, each of the segments for the three months and nine months ended June 30, 2020 and 2019.
As
of and for the three months ended June 30, 2020
|
|
Gas Company
|
|
Pike
|
|
Holding Company
|
|
Total Consolidated
|
Total electric
utility revenue
|
|
|
$0
|
|
|
|
$1,448,456
|
|
|
|
$0
|
|
|
|
$1,448,456
|
|
Total gas utility revenue
|
|
|
$5,263,478
|
|
|
|
$276,818
|
|
|
|
$0
|
|
|
|
$5,540,296
|
|
Investment income
|
|
|
$173,752
|
|
|
|
$0
|
|
|
|
($8,622
|
)
|
|
|
$165,130
|
|
Equity earnings from
joint ventures
|
|
|
$0
|
|
|
|
$0
|
|
|
|
($53,912
|
)
|
|
|
($53,912
|
)
|
Net income (loss)
|
|
|
$542,944
|
|
|
|
($50,740
|
)
|
|
|
$65,401
|
|
|
|
$557,605
|
|
Income tax expense (benefit)
|
|
|
$293,408
|
|
|
|
($13,023
|
)
|
|
|
($288,030
|
)
|
|
|
($7,645
|
)
|
Interest expense
|
|
|
$326,616
|
|
|
|
$162,552
|
|
|
|
$136,113
|
|
|
|
$625,281
|
|
Depreciation expense
|
|
|
$466,658
|
|
|
|
$181,074
|
|
|
|
$915
|
|
|
|
$648,647
|
|
Amortization expense
|
|
|
$68,190
|
|
|
|
$97,431
|
|
|
|
$11,965
|
|
|
|
$177,586
|
|
Total assets
|
|
|
$92,719,009
|
|
|
|
$28,938,796
|
|
|
|
$3,339,499
|
|
|
|
$124,997,304
|
|
Capital expenditures
|
|
|
$1,231,859
|
|
|
|
$551,212
|
|
|
|
$0
|
|
|
|
$1,783,071
|
|
As
of and for the three months ended June 30, 2019
|
|
Gas Company
|
|
Pike
|
|
Holding Company
|
|
Total Consolidated
|
Total electric
utility revenue
|
|
|
$0
|
|
|
|
$1,467,575
|
|
|
|
$0
|
|
|
|
$1,467,575
|
|
Total gas utility revenue
|
|
|
$5,213,043
|
|
|
|
$262,490
|
|
|
|
$0
|
|
|
|
$5,475,533
|
|
Investment income
|
|
|
$34,454
|
|
|
|
$0
|
|
|
|
$0
|
|
|
|
$34,454
|
|
Equity earnings from
joint ventures
|
|
|
$0
|
|
|
|
$0
|
|
|
|
($56,877
|
)
|
|
|
($56,877
|
)
|
Net income (loss)
|
|
|
$254,705
|
|
|
|
($96,466
|
)
|
|
|
($119,859
|
)
|
|
|
$38,380
|
|
Income tax expense (benefit)
|
|
|
$67,402
|
|
|
|
$2,844
|
|
|
|
($11,371
|
)
|
|
|
$58,875
|
|
Interest expense
|
|
|
$323,052
|
|
|
|
$157,264
|
|
|
|
$78,976
|
|
|
|
$559,292
|
|
Depreciation expense
|
|
|
$460,400
|
|
|
|
$164,759
|
|
|
|
$915
|
|
|
|
$626,074
|
|
Amortization expense
|
|
|
$125,864
|
|
|
|
$111,457
|
|
|
|
$16,174
|
|
|
|
$253,495
|
|
Total assets
|
|
|
$83,042,452
|
|
|
|
$26,851,360
|
|
|
|
$3,216,038
|
|
|
|
$113,109,850
|
|
Capital expenditures
|
|
|
$879,754
|
|
|
|
$580,981
|
|
|
|
$0
|
|
|
|
$1,460,735
|
|
As
of and for the nine months ended June 30, 2020
|
|
Gas Company
|
|
Pike
|
|
Holding Company
|
|
Total Consolidated
|
Total electric
utility revenue
|
|
|
$0
|
|
|
|
$4,774,273
|
|
|
|
$0
|
|
|
|
$4,774,273
|
|
Total gas utility revenue
|
|
|
$21,010,695
|
|
|
|
$1,311,160
|
|
|
|
$0
|
|
|
|
$22,321,855
|
|
Investment income
|
|
|
$96,290
|
|
|
|
$0
|
|
|
|
$114
|
|
|
|
$96,404
|
|
Loss from joint ventures
|
|
|
$0
|
|
|
|
$0
|
|
|
|
($50,442
|
)
|
|
|
($50,442
|
)
|
Net income (loss)
|
|
|
$3,725,463
|
|
|
|
$65,949
|
|
|
|
($74,650
|
)
|
|
|
$3,716,762
|
|
Income tax expense
|
|
|
$1,387,459
|
|
|
|
$49,220
|
|
|
|
($278,634
|
)
|
|
|
$1,158,045
|
|
Interest expense
|
|
|
$1,018,235
|
|
|
|
$508,082
|
|
|
|
$317,951
|
|
|
|
$1,844,268
|
|
Depreciation expense
|
|
|
$1,402,213
|
|
|
|
$543,222
|
|
|
|
$2,745
|
|
|
|
$1,948,180
|
|
Amortization expense
|
|
|
$221,629
|
|
|
|
$303,767
|
|
|
|
$35,853
|
|
|
|
$561,249
|
|
Total assets
|
|
|
$92,719,009
|
|
|
|
$28,938,796
|
|
|
|
$3,339,499
|
|
|
|
$124,997,304
|
|
Capital expenditures
|
|
|
$4,329,908
|
|
|
|
$1,610,654
|
|
|
|
$0
|
|
|
|
$5,940,562
|
|
As
of and for the nine months ended June 30, 2019
|
|
Gas Company
|
|
Pike
|
|
Holding Company
|
|
Total Consolidated
|
Total electric
utility revenue
|
|
|
$0
|
|
|
|
$6,252,018
|
|
|
|
$0
|
|
|
|
$6,252,018
|
|
Total gas utility revenue
|
|
|
$22,324,015
|
|
|
|
$1,553,509
|
|
|
|
$0
|
|
|
|
$23,877,524
|
|
Investment income
|
|
|
$94,352
|
|
|
|
$0
|
|
|
|
$0
|
|
|
|
$94,352
|
|
Loss from joint ventures
|
|
|
$0
|
|
|
|
$0
|
|
|
|
($15,324
|
)
|
|
|
($15,324
|
)
|
Net income (loss)
|
|
|
$3,196,579
|
|
|
|
$491,894
|
|
|
|
($251,971
|
)
|
|
|
$3,436,502
|
|
Income tax expense (benefit)
|
|
|
$1,124,665
|
|
|
|
$198,083
|
|
|
|
$3,880
|
|
|
|
$1,326,628
|
|
Interest expense
|
|
|
$1,048,523
|
|
|
|
$476,377
|
|
|
|
$251,591
|
|
|
|
$1,776,491
|
|
Depreciation expense
|
|
|
$1,369,717
|
|
|
|
$494,266
|
|
|
|
$2,745
|
|
|
|
$1,866,728
|
|
Amortization expense
|
|
|
$230,322
|
|
|
|
$282,830
|
|
|
|
$34,986
|
|
|
|
$548,138
|
|
Total assets
|
|
|
$83,042,452
|
|
|
|
$26,851,360
|
|
|
|
$3,216,038
|
|
|
|
$113,109,850
|
|
Capital expenditures
|
|
|
$2,939,110
|
|
|
|
$1,508,091
|
|
|
|
$0
|
|
|
|
$4,447,201
|
|
Note
12 – Subsequent Events
On
July 1, 2020, the Company completed the acquisition of its partner’s 50% interests in Leatherstocking Gas Company, LLC,
and Leatherstocking Pipeline Company, LLC (“The Leatherstocking Companies”). The purchase price of $6.69 million was
paid in preferred stock of the Holding Company ($1.250 million), cash ($1.950 million), and assumption of debt and other liabilities
($3.49 million). The acquisition will result in the recording of goodwill in the amount of $0.918 million. Immediately before
the acquisition, on July 1, 2020, Leatherstocking Gas Company, LLC distributed to its members franchises, engineering and gas
pipeline assets located in New York having a book value of $0.532 million. These assets were then contributed to the equity of
Leatherstocking Gas Company of New York, Inc. The Company owns 50% of the common shares of the newly formed Leatherstocking Gas
Company of New York, Inc. and will account for this investment using the equity method of accounting.