NATIONAL FUEL GAS CO, 10-K filed on 11/16/2018
Annual Report
v3.10.0.1
Document And Entity Information - USD ($)
12 Months Ended
Sep. 30, 2018
Oct. 31, 2018
Mar. 31, 2018
Document And Entity Information [Abstract]      
Document Type 10-K    
Amendment Flag false    
Document Period End Date Sep. 30, 2018    
Document Fiscal Year Focus 2018    
Document Fiscal Period Focus FY    
Entity Registrant Name NATIONAL FUEL GAS CO    
Entity Central Index Key 0000070145    
Current Fiscal Year End Date --09-30    
Entity Filer Category Large Accelerated Filer    
Entity Common Stock, Shares Outstanding   85,963,834  
Entity Public Float     $ 4,333,193,000
Entity Current Reporting Status Yes    
Entity Well-known Seasoned Issuer Yes    
Entity Voluntary Filers No    
Entity Emerging Growth Company false    
Entity Small Business false    
Entity Shell Company false    
v3.10.0.1
Consolidated Statements Of Income And Earnings Reinvested In The Business - USD ($)
$ in Thousands
12 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2016
INCOME      
Operating Revenues $ 1,592,668 $ 1,579,881 $ 1,452,416
Operating Expenses:      
Property, Franchise and Other Taxes 84,393 84,995 81,714
Depreciation, Depletion and Amortization 240,961 224,195 249,417
Impairment of Oil and Gas Producing Properties 0 0 948,307
Total Operating Expenses 1,105,582 1,027,036 1,868,934
Operating Income (Loss) 487,086 552,845 (416,518)
Other Income (Expense):      
Other Income 4,697 7,043 9,820
Interest Income 6,766 4,113 4,235
Interest Expense on Long-Term Debt (110,946) (116,471) (117,347)
Other Interest Expense (3,576) (3,366) (3,697)
Income (Loss) Before Income Taxes 384,027 444,164 (523,507)
Income Tax Expense (Benefit) (7,494) 160,682 (232,549)
Net Income (Loss) Available for Common Stock 391,521 283,482 (290,958)
EARNINGS REINVESTED IN THE BUSINESS      
Balance at Beginning of Year 851,669 676,361 1,103,200
Beginning Retained Earnings Unappropriated And Current Period Net Income Loss 1,243,190 959,843 812,242
Dividends on Common Stock (144,290) (140,090) (135,881)
Cumulative Effect of Adoption of Authoritative Guidance for Stock-Based Compensation 0 31,916 0
Balance at End of Year $ 1,098,900 $ 851,669 $ 676,361
Earnings Per Common Share, Basic:      
Net Income (Loss) Available for Common Stock (in dollars per share) $ 4.56 $ 3.32 $ (3.43)
Earnings Per Common Share, Diluted:      
Net Income (Loss) Available for Common Stock (in dollars per share) $ 4.53 $ 3.30 $ (3.43)
Weighted Average Number of Shares Outstanding:      
Used in Basic Calculation 85,830,597 85,364,929 84,847,993
Used in Diluted Calculation 86,439,698 86,021,386 84,847,993
Utility and Energy Marketing [Member]      
INCOME      
Operating Revenues $ 812,474 $ 755,485 $ 624,602
Operating Expenses:      
Operation and Maintenance 200,780 199,293 192,512
Exploration and Production and Other [Member]      
INCOME      
Operating Revenues 569,808 617,666 611,766
Operating Expenses:      
Operation and Maintenance 141,381 145,099 160,201
Pipeline and Storage and Gathering [Member]      
INCOME      
Operating Revenues 210,386 206,730 216,048
Operating Expenses:      
Operation and Maintenance 100,245 98,200 88,801
Purchased Gas [Member]      
Operating Expenses:      
Purchased Gas $ 337,822 $ 275,254 $ 147,982
v3.10.0.1
Consolidated Statements Of Comprehensive Income - USD ($)
$ in Thousands
12 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2016
Statement of Comprehensive Income [Abstract]      
Net Income (Loss) Available for Common Stock $ 391,521 $ 283,482 $ (290,958)
Other Comprehensive Income (Loss), Before Tax:      
Increase (Decrease) in the Funded Status of the Pension and Other Post-Retirement Benefit Plans 6,225 15,661 (21,378)
Reclassification Adjustment for Amortization of Prior Year Funded Status of the Pension and Other Post-Retirement Benefit Plans 9,704 13,433 10,068
Unrealized Gain (Loss) on Securities Available for Sale Arising During the Period 132 4,008 1,524
Unrealized Gain (Loss) on Derivative Financial Instruments Arising During the Period (74,103) 5,347 60,493
Reclassification Adjustment for Realized (Gains) Losses on Securities Available for Sale in Net Income (430) (1,575) (1,374)
Reclassification Adjustment for Realized (Gains) Losses on Derivative Financial Instruments in Net Income 1,189 (81,605) (220,919)
Other Comprehensive Income (Loss), Before Tax (57,283) (44,731) (171,586)
Income Tax Expense (Benefit) Related to the Increase (Decrease) in the Funded Status of the Pension and Other Post-Retirement Benefit Plans 1,582 6,175 (8,351)
Reclassification Adjustment for Income Tax Benefit Related to the Amortization of the Prior Year Funded Status of the Pension and Other Post-Retirement Benefit Plans 2,437 4,929 3,723
Income Tax Expense (Benefit) Related to Unrealized Gain (Loss) on Securities Available for Sale Arising During the Period (15) 1,505 592
Income Tax Expense (Benefit) Related to Unrealized Gain (Loss) on Derivative Financial Instruments Arising During the Period (22,547) 2,009 18,648
Reclassification Adjustment for Income Tax Benefit (Expense) on Realized Losses (Gains) from Securities Available for Sale in Net Income (158) (580) (527)
Reclassification Adjustment for Income Tax Benefit (Expense) on Realized Losses (Gains) from Derivative Financial Instruments in Net Income (955) (34,286) (86,659)
Income Taxes - Net (19,656) (20,248) (72,574)
Other Comprehensive Loss (37,627) (24,483) (99,012)
Comprehensive Income (Loss) $ 353,894 $ 258,999 $ (389,970)
v3.10.0.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Sep. 30, 2018
Sep. 30, 2017
ASSETS    
Property, Plant and Equipment $ 10,439,839 $ 9,945,560
Less - Accumulated Depreciation, Depletion and Amortization 5,462,696 5,271,486
Property, Plant and Equipment, Net, Total 4,977,143 4,674,074
Current Assets    
Cash and Temporary Cash Investments 229,606 555,530
Hedging Collateral Deposits [1] 3,441 1,741
Receivables - Net of Allowance for Uncollectible Accounts of $24,537 and $22,526, Respectively 141,498 112,383
Unbilled Revenue 24,182 22,883
Gas Stored Underground 37,813 35,689
Materials and Supplies - at average cost 35,823 33,926
Unrecovered Purchased Gas Costs 4,204 4,623
Other Current Assets 68,024 51,505
Total Current Assets 544,591 818,280
Other Assets    
Recoverable Future Taxes 115,460 181,363
Unamortized Debt Expense 15,975 1,159
Other Regulatory Assets 112,918 174,433
Deferred Charges 40,025 30,047
Other Investments 132,545 125,265
Goodwill 5,476 5,476
Prepaid Post-Retirement Benefit Costs 82,733 56,370
Fair Value of Derivative Financial Instruments 9,518 36,111
Other 102 742
Total Other Assets 514,752 610,966
Total Assets 6,036,486 6,103,320
Capitalization:    
Common Stock, $1 Par Value Authorized - 200,000,000 Shares; Issued and Outstanding - 85,956,814 Shares and 85,543,125 Shares, Respectively 85,957 85,543
Paid In Capital 820,223 796,646
Earnings Reinvested in the Business 1,098,900 851,669
Accumulated Other Comprehensive Loss (67,750) (30,123)
Total Comprehensive Shareholders' Equity 1,937,330 1,703,735
Long-term Debt, Net of Current Portion and Unamortized Discount and Debt Issuance Costs 2,131,365 2,083,681
Total Capitalization 4,068,695 3,787,416
Current and Accrued Liabilities    
Notes Payable to Banks and Commercial Paper 0 0
Current Portion of Long-Term Debt [2] 0 300,000
Accounts Payable 160,031 126,443
Amounts Payable to Customers 3,394 0
Dividends Payable 36,532 35,500
Interest Payable on Long-Term Debt 19,062 35,031
Customer Advances 13,609 15,701
Customer Security Deposits 25,703 20,372
Other Accruals and Current Liabilities 132,693 111,889
Fair Value of Derivative Financial Instruments 49,036 1,103
Total Current and Accrued Liabilities 440,060 646,039
Deferred Credits    
Deferred Income Taxes 512,686 891,287
Taxes Refundable to Customers 370,628 95,739
Cost of Removal Regulatory Liability 212,311 204,630
Other Regulatory Liabilities 146,743 113,716
Pension and Other Post-Retirement Liabilities 66,103 149,079
Asset Retirement Obligations 108,235 106,395
Other Deferred Credits 111,025 109,019
Total Deferred Credits 1,527,731 1,669,865
Commitments and Contingencies (Note I) 0 0
Total Capitalization and Liabilities $ 6,036,486 $ 6,103,320
[1] Netting Adjustments represent the impact of legally-enforceable master netting arrangements that allow the Company to net gain and loss positions held with the same counterparties. The net asset or net liability for each counterparty is recorded as an asset or liability on the Company’s balance sheet.
[2] Current Portion of Long-Term Debt at September 30, 2017 consisted of $300.0 million of 6.50% notes that were scheduled to mature in April 2018. The Company redeemed those notes on October 18, 2017 for $307.0 million, plus accrued interest. The call premium was recorded to Unamortized Debt Expense on the Consolidated Balance Sheet in October 2017.
v3.10.0.1
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Sep. 30, 2018
Sep. 30, 2017
Statement of Financial Position [Abstract]    
Receivables, Allowance for Uncollectible Accounts $ 24,537 $ 22,526
Common Stock, Par Value $ 1 $ 1
Common Stock, Shares Authorized 200,000,000 200,000,000
Common Stock, Shares Issued 85,956,814 85,543,125
Common Stock, Shares Outstanding 85,956,814 85,543,125
v3.10.0.1
Consolidated Statements Of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2016
Operating Activities      
Net Income (Loss) Available for Common Stock $ 391,521 $ 283,482 $ (290,958)
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities:      
Impairment of Oil and Gas Producing Properties 0 0 948,307
Depreciation, Depletion and Amortization 240,961 224,195 249,417
Deferred Income Taxes (18,153) 117,975 (246,794)
Excess Tax Benefits Associated with Stock-Based Compensation Awards 0 0 (1,868)
Stock-Based Compensation 15,762 12,262 5,755
Other 16,133 16,476 12,620
Change in:      
Hedging Collateral Deposits (1,700) (257) 9,640
Receivables and Unbilled Revenue (30,882) (3,380) (6,408)
Gas Stored Underground and Materials and Supplies (4,021) (1,417) (3,532)
Unrecovered Purchased Gas Costs 419 (2,183) (2,440)
Other Current Assets (16,519) 7,849 3,179
Accounts Payable 17,962 17,192 (40,664)
Amounts Payable to Customers 3,394 (19,537) (37,241)
Customer Advances (2,092) 939 (1,474)
Customer Security Deposits 5,331 4,353 (471)
Other Accruals and Current Liabilities 3,865 27,004 3,453
Other Assets (9,556) (2,885) 1,941
Other Liabilities 1,178 2,183 (13,483)
Net Cash Provided by Operating Activities 613,603 684,251 588,979
Investing Activities      
Capital Expenditures (584,004) (450,335) (581,576)
Net Proceeds from Sale of Oil and Gas Producing Properties 55,506 26,554 137,316
Other (389) 1,216 (9,236)
Net Cash Used in Investing Activities (528,887) (422,565) (453,496)
Financing Activities      
Excess Tax Benefits Associated with Stock-Based Compensation Awards 0 0 1,868
Net Proceeds from Issuance of Long-Term Debt 295,020 295,151 0
Reduction of Long-Term Debt (566,512) 0 0
Net Proceeds from Issuance of Common Stock 4,110 7,784 13,849
Dividends Paid on Common Stock (143,258) (139,063) (134,824)
Net Cash Provided by (Used in) Financing Activities (410,640) 163,872 (119,107)
Net Increase (Decrease) in Cash and Temporary Cash Investments (325,924) 425,558 16,376
Cash and Temporary Cash Investments At Beginning of Year 555,530 129,972 113,596
Cash and Temporary Cash Investments At End of Year 229,606 555,530 129,972
Supplemental Disclosure of Cash Flow Information      
Cash Paid for Interest 126,079 116,894 119,563
Cash Paid for Income Taxes 31,771 34,826 34,240
Supplemental Disclosure of Cash Flow Information, Non-Cash Investing Activities      
Non-Cash Capital Expenditures 88,813 72,216 60,434
Receivable from Sale of Oil and Gas Producing Properties $ 0 $ 0 $ 19,543
v3.10.0.1
Summary Of Significant Accounting Policies
12 Months Ended
Sep. 30, 2018
Accounting Policies [Abstract]  
Summary Of Significant Accounting Policies
Summary of Significant Accounting Policies
Principles of Consolidation
The Company consolidates all entities in which it has a controlling financial interest. All significant intercompany balances and transactions are eliminated. The Company uses proportionate consolidation when accounting for drilling arrangements related to oil and gas producing properties accounted for under the full cost method of accounting.
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Regulation
The Company is subject to regulation by certain state and federal authorities. The Company has accounting policies which conform to GAAP, as applied to regulated enterprises, and are in accordance with the accounting requirements and ratemaking practices of the regulatory authorities. Reference is made to Note C — Regulatory Matters for further discussion.
Revenue Recognition
The Company’s Exploration and Production segment records revenue based on entitlement, which means that revenue is recorded based on the actual amount of gas or oil that is delivered to a pipeline and the Company’s ownership interest in the producing well. If a production imbalance occurs between what was supposed to be delivered to a pipeline and what was actually produced and delivered, the Company accrues the difference as an imbalance.
The Company’s Pipeline and Storage segment records revenue for natural gas transportation and storage services. Revenue from reservation charges on firm contracted capacity is recognized through equal monthly charges over the contract period regardless of the amount of gas that is transported or stored. Commodity charges on firm contracted capacity and interruptible contracts are recognized as revenue when physical deliveries of natural gas are made at the agreed upon delivery point or when gas is injected or withdrawn from the storage field. The point of delivery into the pipeline or injection or withdrawal from storage is the point at which ownership and risk of loss transfers to the buyer of such transportation and storage services.
In the Company’s Gathering segment, revenue is recorded at the point at which gathered volumes are delivered into interstate pipelines.
The Company’s Utility segment records revenue for gas sales and transportation in the period that gas is delivered to customers. This includes the recording of receivables for gas delivered but not yet billed to customers based on the Company's estimate of the amount of gas delivered between the last meter reading date and the end of the accounting period. Such receivables are a component of Unbilled Revenue on the Consolidated Balance Sheets.
The Company’s Energy Marketing segment records revenue for gas sales in the period that gas is delivered to customers. This includes the recording of receivables for gas delivered but not yet billed to customers based on the Company's estimate of the amount of gas delivered between the last meter reading date and the end of the accounting period. Such receivables are a component of Unbilled Revenue on the Consolidated Balance Sheets.
Allowance for Uncollectible Accounts
The allowance for uncollectible accounts is the Company’s best estimate of the amount of probable credit losses in the existing accounts receivable. The allowance is determined based on historical experience, the age and other specific information about customer accounts. Account balances are charged off against the allowance twelve months after the account is final billed or when it is anticipated that the receivable will not be recovered.
Regulatory Mechanisms
The Company’s rate schedules in the Utility segment contain clauses that permit adjustment of revenues to reflect price changes from the cost of purchased gas included in base rates. Differences between amounts currently recoverable and actual adjustment clause revenues, as well as other price changes and pipeline and storage company refunds not yet includable in adjustment clause rates, are deferred and accounted for as either unrecovered purchased gas costs or amounts payable to customers. Such amounts are generally recovered from (or passed back to) customers during the following fiscal year.
Estimated refund liabilities to ratepayers represent management’s current estimate of such refunds. Reference is made to Note C — Regulatory Matters for further discussion.
The impact of weather on revenues in the Utility segment’s New York rate jurisdiction is tempered by a WNC, which covers the eight-month period from October through May. The WNC is designed to adjust the rates of retail customers to reflect the impact of deviations from normal weather. Weather that is warmer than normal results in a surcharge being added to customers’ current bills, while weather that is colder than normal results in a refund being credited to customers’ current bills. Since the Utility segment’s Pennsylvania rate jurisdiction does not have a WNC, weather variations have a direct impact on the Pennsylvania rate jurisdiction’s revenues.
The impact of weather normalized usage per customer account in the Utility segment’s New York rate jurisdiction is tempered by a revenue decoupling mechanism. The effect of the revenue decoupling mechanism is to render the Company financially indifferent to throughput decreases resulting from conservation. Weather normalized usage per account that exceeds the average weather normalized usage per customer account results in a refund being credited to customers’ bills. Weather normalized usage per account that is below the average weather normalized usage per account results in a surcharge being added to customers’ bills. The surcharge or credit is calculated over a twelve-month period ending December 31st, and applied to customer bills annually, beginning March 1st.
In the Pipeline and Storage segment, the allowed rates that Supply Corporation and Empire bill their customers are based on a straight fixed-variable rate design, which allows recovery of all fixed costs, including return on equity and income taxes, through fixed monthly reservation charges. Because of this rate design, changes in throughput due to weather variations do not have a significant impact on the revenues of Supply Corporation or Empire.
Property, Plant and Equipment
In the Company’s Exploration and Production segment, oil and gas property acquisition, exploration and development costs are capitalized under the full cost method of accounting. Under this methodology, all costs associated with property acquisition, exploration and development activities are capitalized, including internal costs directly identified with acquisition, exploration and development activities. The internal costs that are capitalized do not include any costs related to production, general corporate overhead, or similar activities. The Company does not recognize any gain or loss on the sale or other disposition of oil and gas properties unless the gain or loss would significantly alter the relationship between capitalized costs and proved reserves of oil and gas attributable to a cost center. For further discussion of capitalized costs, refer to Note L — Supplementary Information for Oil and Gas Producing Activities.
Capitalized costs are subject to the SEC full cost ceiling test. The ceiling test, which is performed each quarter, determines a limit, or ceiling, on the amount of property acquisition, exploration and development costs that can be capitalized. The ceiling under this test represents (a) the present value of estimated future net cash flows, excluding future cash outflows associated with settling asset retirement obligations that have been accrued on the balance sheet, using a discount factor of 10%, which is computed by applying prices of oil and gas (as adjusted for hedging) to estimated future production of proved oil and gas reserves as of the date of the latest balance sheet, less estimated future expenditures, plus (b) the cost of unevaluated properties not being depleted, less (c) income tax effects related to the differences between the book and tax basis of the properties. The natural gas and oil prices used to calculate the full cost ceiling are based on an unweighted arithmetic average of the first day of the month oil and gas prices for each month within the twelve-month period prior to the end of the reporting period. If capitalized costs, net of accumulated depreciation, depletion and amortization and related deferred income taxes, exceed the ceiling at the end of any quarter, a permanent impairment is required to be charged to earnings in that quarter. At September 30, 2018, the ceiling exceeded the book value of the oil and gas properties by $569.1 million. In adjusting estimated future net cash flows for hedging under the ceiling test, estimated future net cash flows were decreased by $25.1 million at September 30, 2018 and were increased by $30.5 million and $215.3 million at September 30, 2017 and 2016, respectively.
The Company entered into a purchase and sale agreement to sell its oil and gas properties in the Sespe Field area of Ventura County, California in October 2017 for $43.0 million.  The Company completed the sale on May 1, 2018, effective as of October 1, 2017, receiving net proceeds of $38.2 million (included in Net Proceeds from Sale of Oil and Gas Producing Properties on the Consolidated Statement of Cash Flows for the year ended September 30, 2018).  The net proceeds received by the Company were adjusted for production revenue and production expenses retained by the Company between the effective date of the sale and the closing date, resulting in lower proceeds from sale at the closing date. The divestiture of the Company’s oil and gas properties in the Sespe Field reflects continuing efforts to focus West Coast development activities in the San Joaquin basin, particularly at the Midway Sunset field in Kern County, California. Under the full cost method of accounting for oil and natural gas properties, the sale proceeds were accounted for as a reduction of capitalized costs.  Since the disposition did not significantly alter the relationship between capitalized costs and proved reserves of oil and gas attributable to the cost center, the Company did not record any gain or loss from this sale.
On December 1, 2015, Seneca and IOG CRV - Marcellus, LLC (IOG), an affiliate of IOG Capital, LP, and funds managed by affiliates of Fortress Investment Group, LLC, executed a joint development agreement that allows IOG to participate in the development of certain oil and gas interests owned by Seneca in Elk, McKean and Cameron Counties, Pennsylvania. On June 13, 2016, Seneca and IOG executed an extension of the joint development agreement. Under the terms of the extended agreement, Seneca and IOG jointly participate in a program to develop up to 75 Marcellus wells, with Seneca serving as program operator. IOG holds an 80% working interest in all of the joint development wells. In total, IOG has funded $305.5 million as of September 30. 2018 for its 80% working interest in the 75 joint development wells, which includes $181.2 million of cash ($137.3 million in fiscal 2016, $26.6 million in fiscal 2017 and $17.3 million in fiscal 2018) included in Net Proceeds from Sale of Oil and Gas Producing Properties on the Consolidated Statements of Cash Flows for fiscal 2016, fiscal 2017 and for fiscal 2018, respectively. Such proceeds from sale represent funding received from IOG for costs previously incurred by Seneca to develop a portion of the 75 joint development wells. As the fee-owner of the property’s mineral rights, Seneca currently retains a 7.5% royalty interest and the remaining 20% working interest (26% net revenue interest) in 48 of the joint development wells. Effective June 1, 2018, actual production for 8 of the joint development wells did not meet production targets, which resulted in an adjustment to Seneca’s royalty interest from 7.5% to 4.98% with no change to the 20% working interest (23.98% net revenue interest). In the remaining 19 wells, Seneca retains a 20% working and net revenue interest. Seneca’s working interest under the agreement will increase to 85% after IOG achieves a 15% internal rate of return.
The principal assets of the Utility and Pipeline and Storage segments, consisting primarily of gas plant in service, are recorded at the historical cost when originally devoted to service.
Maintenance and repairs of property and replacements of minor items of property are charged directly to maintenance expense. The original cost of the regulated subsidiaries’ property, plant and equipment retired, and the cost of removal less salvage, are charged to accumulated depreciation.
 Depreciation, Depletion and Amortization
For oil and gas properties, depreciation, depletion and amortization is computed based on quantities produced in relation to proved reserves using the units of production method. The cost of unproved oil and gas properties is excluded from this computation. In the All Other category, for timber properties, depletion, determined on a property by property basis, is charged to operations based on the actual amount of timber cut in relation to the total amount of recoverable timber. For all other property, plant and equipment, depreciation and amortization is computed using the straight-line method in amounts sufficient to recover costs over the estimated service lives of property in service. The following is a summary of depreciable plant by segment:
 
As of September 30
 
2018
 
2017
 
(Thousands)
Exploration and Production
$
5,222,037

 
$
4,925,409

Pipeline and Storage
2,110,714

 
2,002,736

Gathering
527,188

 
484,768

Utility
2,104,437

 
2,045,074

Energy Marketing
3,604

 
3,564

All Other and Corporate
108,691

 
109,128

 
$
10,076,671

 
$
9,570,679


Average depreciation, depletion and amortization rates are as follows:
 
Year Ended September 30
 
2018
 
2017
 
2016
Exploration and Production, per Mcfe(1)
$
0.70

 
$
0.65

 
$
0.87

Pipeline and Storage
2.2
%
 
2.2
%
 
2.4
%
Gathering
3.4
%
 
3.4
%
 
4.0
%
Utility
2.8
%
 
2.8
%
 
2.7
%
Energy Marketing
7.7
%
 
7.9
%
 
7.9
%
All Other and Corporate
2.2
%
 
1.3
%
 
1.8
%
 
(1)
Amounts include depletion of oil and gas producing properties as well as depreciation of fixed assets. As disclosed in Note L — Supplementary Information for Oil and Gas Producing Activities, depletion of oil and gas producing properties amounted to $0.67, $0.63 and $0.85 per Mcfe of production in 2018, 2017 and 2016, respectively.
Goodwill
The Company has recognized goodwill of $5.5 million as of September 30, 2018 and 2017 on its Consolidated Balance Sheets related to the Company’s acquisition of Empire in 2003. The Company accounts for goodwill in accordance with the current authoritative guidance, which requires the Company to test goodwill for impairment annually. At September 30, 2018, 2017 and 2016, the fair value of Empire was greater than its book value. As such, the goodwill was not considered impaired at those dates. Going back to the origination of the goodwill in 2003, the Company has never recorded an impairment of its goodwill balance.
Financial Instruments
Unrealized gains or losses from the Company’s investments in an equity mutual fund, a fixed income mutual fund and the stock of an insurance company (securities available for sale) are recorded as a component of accumulated other comprehensive income (loss). Reference is made to Note G — Financial Instruments for further discussion.
The Company uses a variety of derivative financial instruments to manage a portion of the market risk associated with fluctuations in the price of natural gas and crude oil and to manage a portion of the risk of currency fluctuations associated with transportation costs denominated in Canadian currency. These instruments include price swap agreements and futures contracts. The Company accounts for these instruments as either cash flow hedges or fair value hedges. In both cases, the fair value of the instrument is recognized on the Consolidated Balance Sheets as either an asset or a liability labeled Fair Value of Derivative Financial Instruments. Reference is made to Note F — Fair Value Measurements for further discussion concerning the fair value of derivative financial instruments.
For effective cash flow hedges, the offset to the asset or liability that is recorded is a gain or loss recorded in accumulated other comprehensive income (loss) on the Consolidated Balance Sheets. The gain or loss recorded in accumulated other comprehensive income (loss) remains there until the hedged transaction occurs, at which point the gains or losses are reclassified to operating revenues, purchased gas expense or operation and maintenance expense on the Consolidated Statements of Income. Reference is made to Note G — Financial Instruments for further discussion concerning cash flow hedges.
For fair value hedges, the offset to the asset or liability that is recorded is a gain or loss recorded to operating revenues or purchased gas expense on the Consolidated Statements of Income. However, in the case of fair value hedges, the Company also records an asset or liability on the Consolidated Balance Sheets representing the change in fair value of the asset or firm commitment that is being hedged (see Other Current Assets section in this footnote). The offset to this asset or liability is a gain or loss recorded to operating revenues or purchased gas expense on the Consolidated Statements of Income as well. If the fair value hedge is effective, the gain or loss from the derivative financial instrument is offset by the gain or loss that arises from the change in fair value of the asset or firm commitment that is being hedged. Reference is made to Note G — Financial Instruments for further discussion concerning fair value hedges.
Accumulated Other Comprehensive Income (Loss)
The components of Accumulated Other Comprehensive Income (Loss) and changes for the year ended September 30, 2018, net of related tax effect, are as follows (amounts in parentheses indicate debits) (in thousands):
 
Gains and Losses on Derivative Financial Instruments
 
Gains and Losses on Securities Available for Sale
 
Funded Status of the Pension and Other Post-Retirement Benefit Plans
 
Total
Year Ended September 30, 2018
 
 
 
 
 
 
 
Balance at October 1, 2017
$
20,801

 
$
7,562

 
$
(58,486
)
 
$
(30,123
)
Other Comprehensive Gains and Losses Before Reclassifications
(51,556
)
 
147

 
4,643

 
(46,766
)
Amounts Reclassified From Other Comprehensive Loss
2,144

 
(272
)
 
7,267

 
9,139

Balance at September 30, 2018
$
(28,611
)
 
$
7,437

 
$
(46,576
)
 
$
(67,750
)
Year Ended September 30, 2017
 
 
 
 
 
 
 
Balance at October 1, 2016
$
64,782

 
$
6,054

 
$
(76,476
)
 
$
(5,640
)
Other Comprehensive Gains and Losses Before Reclassifications
3,338

 
2,503

 
9,486

 
15,327

Amounts Reclassified From Other Comprehensive Loss
(47,319
)
 
(995
)
 
8,504

 
(39,810
)
Balance at September 30, 2017
$
20,801

 
$
7,562

 
$
(58,486
)
 
$
(30,123
)

The amounts included in accumulated other comprehensive income (loss) related to the funded status of the Company’s pension and other post-retirement benefit plans consist of prior service costs and accumulated losses. The total amount for prior service cost was $1.0 million and $1.2 million at September 30, 2018 and 2017, respectively. The total amount for accumulated losses was $45.6 million and $57.3 million at September 30, 2018 and 2017, respectively.
Reclassifications Out of Accumulated Other Comprehensive Income (Loss) 
The details about the reclassification adjustments out of accumulated other comprehensive loss for the year ended September 30, 2018 are as follows (amounts in parentheses indicate debits to the income statement) (in thousands):
Details About Accumulated Other
Comprehensive Income (Loss) Components
 
Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) for the
Year Ended
September 30,
 
Affected Line Item in the Statement Where Net Income (Loss) is Presented
 
 
2018
 
2017
 
 
Gains (Losses) on Derivative Financial Instrument Cash Flow Hedges:
 
 
 
 
 
 
Commodity Contracts
 

$423

 

$83,983

 
Operating Revenues
Commodity Contracts
 
952

 
(1,921
)
 
Purchased Gas
Foreign Currency Contracts
 
(2,564
)
 
(457
)
 
Operation and Maintenance Expense
Gains (Losses) on Securities Available for Sale
 
430

 
1,575

 
Other Income
Amortization of Prior Year Funded Status of the Pension and Other Post-Retirement Benefit Plans:
 
 
 
 
 
 
Prior Service Credit
 
(258
)
 
(288
)
 
(1)
Net Actuarial Loss
 
(9,446
)
 
(13,145
)
 
(1)
 
 
(10,463
)
 
69,747

 
Total Before Income Tax
 
 
1,324

 
(29,937
)
 
Income Tax Expense
 
 

($9,139
)
 

$39,810

 
Net of Tax
 
(1)
These accumulated other comprehensive income (loss) components are included in the computation of net periodic benefit cost. Refer to Note H — Retirement Plan and Other Post-Retirement Benefits for additional details.
Gas Stored Underground 
In the Utility segment, gas stored underground in the amount of $27.6 million is carried at lower of cost or net realizable value, on a LIFO method. Based upon the average price of spot market gas purchased in September 2018, including transportation costs, the current cost of replacing this inventory of gas stored underground exceeded the amount stated on a LIFO basis by approximately $40.2 million at September 30, 2018. All other gas stored underground, which is in the Energy Marketing segment, is carried at an average cost method, subject to lower of cost or net realizable value adjustments.
Unamortized Debt Expense
Costs associated with the reacquisition of debt related to rate-regulated subsidiaries are deferred and amortized over the remaining life of the issue or the life of the replacement debt in order to match regulatory treatment. At September 30, 2018, the remaining weighted average amortization period for such costs was approximately 8 years.
Income Taxes
The Company and its subsidiaries file a consolidated federal income tax return. State tax returns are filed on a combined or separate basis depending on the applicable laws in the jurisdictions where tax returns are filed.
The Company follows the asset and liability approach in accounting for income taxes, which requires the recognition of deferred income taxes for the expected future tax consequences of net operating losses, credits and temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities. A valuation allowance is provided on deferred tax assets if it is determined, within each taxing jurisdiction, that it is more likely than not that the asset will not be realized.
The Company reports a liability or a reduction of deferred tax assets for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. When applicable, the Company recognizes interest relating to uncertain tax positions in Other Interest Expense and penalties in Other Income.
Consolidated Statement of Cash Flows
For purposes of the Consolidated Statement of Cash Flows, the Company considers all highly liquid debt instruments purchased with a maturity of generally three months or less to be cash equivalents.
Hedging Collateral Deposits
This is an account title for cash held in margin accounts funded by the Company to serve as collateral for hedging positions. In accordance with its accounting policy, the Company does not offset hedging collateral deposits paid or received against related derivative financial instrument liability or asset balances.
Other Current Assets
The components of the Company’s Other Current Assets are as follows: 
 
Year Ended September 30
 
2018
 
2017
 
(Thousands)
Prepayments
$
11,126

 
$
10,927

Prepaid Property and Other Taxes
14,088

 
13,974

Federal Income Taxes Receivable
22,457

 

State Income Taxes Receivable
8,822

 
9,689

Fair Values of Firm Commitments
1,739

 
1,031

Regulatory Assets
9,792

 
15,884

 
$
68,024

 
$
51,505


Other Accruals and Current Liabilities
The components of the Company’s Other Accruals and Current Liabilities are as follows:
 
Year Ended September 30
 
2018
 
2017
 
(Thousands)
Accrued Capital Expenditures
$
38,354

 
$
37,382

Regulatory Liabilities
57,425

 
34,059

Federal Income Taxes Payable

 
1,775

Other
36,914

 
38,673

 
$
132,693

 
$
111,889


Customer Advances
The Company’s Utility and Energy Marketing segments have balanced billing programs whereby customers pay their estimated annual usage in equal installments over a twelve-month period. Monthly payments under the balanced billing programs are typically higher than current month usage during the summer months. During the winter months, monthly payments under the balanced billing programs are typically lower than current month usage. At September 30, 2018 and 2017, customers in the balanced billing programs had advanced excess funds of $13.6 million and $15.7 million, respectively.
Customer Security Deposits
The Company, in its Utility, Pipeline and Storage, and Energy Marketing segments, often times requires security deposits from marketers, producers, pipeline companies, and commercial and industrial customers before providing services to such customers. At September 30, 2018 and 2017, the Company had received customer security deposits amounting to $25.7 million and $20.4 million, respectively.
Earnings Per Common Share
Basic earnings per common share is computed by dividing income or loss by the weighted average number of common shares outstanding for the period. Diluted earnings per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. For purposes of determining earnings per common share, the potentially dilutive securities the Company had outstanding were stock options, SARs, restricted stock units and performance shares. For the years ended September 30, 2018 and 2017, the diluted weighted average shares outstanding shown on the Consolidated Statements of Income reflects the potential dilution as a result of these securities as determined using the Treasury Stock Method. Stock options, SARs, restricted stock units and performance shares that are antidilutive are excluded from the calculation of diluted earnings per common share. There were 317,899 securities and 157,649 securities excluded as being antidilutive for the years ended September 30, 2018 and 2017, respectively. As the Company recognized a net loss for the year ended September 30, 2016, the aforementioned potentially dilutive securities, amounting to 431,408 securities, were not recognized in the diluted earnings per share calculation for 2016.
Stock-Based Compensation
The Company has various stock award plans which provide or provided for the issuance of one or more of the following to key employees: SARs, incentive stock options, nonqualified stock options, restricted stock, restricted stock units, performance units or performance shares. The Company follows authoritative guidance which requires the measurement and recognition of compensation cost at fair value for all share-based payments. SARs and stock options under all plans have exercise prices equal to the average market price of Company common stock on the date of grant, and generally no SAR or stock option is exercisable less than one year or more than ten years after the date of each grant. The Company has chosen the Black-Scholes-Merton closed form model to calculate the compensation expense associated with SARs and stock options. For all Company stock awards, forfeitures are recognized as they occur.
Restricted stock is subject to restrictions on vesting and transferability. Restricted stock awards entitle the participants to full dividend and voting rights. The market value of restricted stock on the date of the award is recorded as compensation expense over the vesting period. Certificates for shares of restricted stock awarded under the Company’s stock award plans are held by the Company during the periods in which the restrictions on vesting are effective. Restrictions on restricted stock awards generally lapse ratably over a period of not more than ten years after the date of each grant. Restricted stock units also are subject to restrictions on vesting and transferability. Restricted stock units, both performance and non-performance based, represent the right to receive shares of common stock of the Company (or the equivalent value in cash or a combination of cash and shares of common stock of the Company, as determined by the Company) at the end of a specified time period. The performance based and non-performance based restricted stock units do not entitle the participants to dividend and voting rights. The accounting for performance based and non-performance based restricted stock units is the same as the accounting for restricted share awards, except that the fair value at the date of grant of the restricted stock units (represented by the market value of Company common stock on the date of the award) must be reduced by the present value of forgone dividends over the vesting term of the award. The fair value of restricted stock units on the date of award is recorded as compensation expense over the vesting period.
Performance shares are an award constituting units denominated in common stock of the Company, the number of which may be adjusted over a performance cycle based upon the extent to which performance goals have been satisfied. Earned performance shares may be distributed in the form of shares of common stock of the Company, an equivalent value in cash or a combination of cash and shares of common stock of the Company, as determined by the Company. The performance shares do not entitle the participant to receive dividends during the vesting period. For performance shares based on a return on capital goal, the fair value at the date of grant of the performance shares is determined by multiplying the expected number of performance shares to be issued by the market value of Company common stock on the date of grant reduced by the present value of forgone dividends. For performance shares based on a total shareholder return goal, the Company uses the Monte Carlo simulation technique to estimate the fair value price at the date of grant.
Refer to Note E — Capitalization and Short-Term Borrowings under the heading “Stock Award Plans” for additional disclosures related to stock-based compensation awards for all plans.
New Authoritative Accounting and Financial Reporting Guidance
In May 2014, the FASB issued authoritative guidance regarding revenue recognition. The authoritative guidance provides a single, comprehensive revenue recognition model for all contracts with customers to improve comparability. The revenue standard contains principles that an entity will apply to determine the measurement of revenue and timing of when it is recognized. The Company adopted this authoritative guidance effective October 1, 2018 using the modified retrospective method of adoption. Detailed review of the impact of the guidance on each of the Company’s revenue streams was completed. Based on that review, the Company did not identify any changes to net income, cash flows or the timing of revenue recognition. The Company will be enhancing its financial statement disclosures to comply with the new authoritative guidance for the quarter ending December 31, 2018.
In January 2016, the FASB issued authoritative guidance regarding the recognition and measurement of financial assets and liabilities. The authoritative guidance primarily affects the accounting for equity investments and the presentation and disclosure requirements for financial instruments. All equity investments in unconsolidated entities will be measured at fair value through earnings rather than through accumulated other comprehensive income. The Company adopted this authoritative guidance effective October 1, 2018 and will be, as called for by the modified retrospective method of adoption, recording a cumulative effect adjustment for the quarter ended December 31, 2018 to increase retained earnings by $7.4 million and decrease accumulated other comprehensive income by the same amount.
In February 2016, the FASB issued authoritative guidance, which has subsequently been amended, requiring organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by all leases, regardless of whether they are considered to be capital leases or operating leases. The FASB’s previous authoritative guidance required organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by capital leases while excluding operating leases from balance sheet recognition. The new authoritative guidance will be effective as of the Company’s first quarter of fiscal 2020, with early adoption permitted. The Company does not anticipate early adoption and is currently evaluating the provisions of the revised guidance.
In March 2016, the FASB issued authoritative guidance simplifying several aspects of the accounting for stock-based compensation. The Company adopted this guidance effective as of October 1, 2016, recognizing a cumulative effect adjustment that increased retained earnings by $31.9 million. The cumulative effect represents the tax benefit of previously unrecognized tax deductions in excess of stock compensation recorded for financial reporting purposes. On a prospective basis, the tax effect of all future differences between stock compensation recorded for financial reporting purposes and actual tax deductions for stock compensation will be recognized upon vesting or settlement as income tax expense or benefit in the income statement. From a statement of cash flows perspective, the tax benefits relating to differences between stock compensation recorded for financial reporting purposes and actual tax deductions for stock compensation are now included in cash provided by operating activities instead of cash provided by financing activities. The changes to the statement of cash flows were applied prospectively at the time of adoption.
In March 2017, the FASB issued authoritative guidance related to the presentation of net periodic pension cost and net periodic postretirement benefit cost. The new guidance requires segregation of the service cost component from the other components of net periodic pension cost and net periodic postretirement benefit cost for financial reporting purposes. The service cost component is to be presented on the income statement in the same line items as other compensation costs included within Operating Expenses and the other components of net periodic pension cost and net periodic postretirement benefit cost are to be presented on the income statement below the subtotal labeled Operating Income (Loss). Under this guidance, the service cost component is eligible to be capitalized as part of the cost of inventory or property, plant and equipment while the other components of net periodic pension cost and net periodic postretirement benefit cost are generally not eligible for capitalization, unless allowed by a regulator. The new guidance will be effective as of the Company’s first quarter of fiscal 2019. Refer to Note H — Retirement Plan and Other Post-Retirement Benefits for the components of the Company's net periodic pension cost and net periodic postretirement benefit cost.
In February 2018, the FASB issued authoritative guidance that allows an entity to elect a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the 2017 Tax Reform Act and requires certain disclosures about stranded tax effects. The new guidance will be effective as of the Company’s first quarter of fiscal 2020, with early adoption permitted. The Company anticipates early adoption and is currently awaiting regulatory approval of the reclassification to retained earnings from the FERC for the Company’s Pipeline and Storage segment.
v3.10.0.1
Asset Retirement Obligations
12 Months Ended
Sep. 30, 2018
Asset Retirement Obligation [Abstract]  
Asset Retirement Obligations
Asset Retirement Obligations
The Company accounts for asset retirement obligations in accordance with the authoritative guidance that requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. An asset retirement obligation is defined as a legal obligation associated with the retirement of a tangible long-lived asset in which the timing and/or method of settlement may or may not be conditional on a future event that may or may not be within the control of the Company. When the liability is initially recorded, the entity capitalizes the estimated cost of retiring the asset as part of the carrying amount of the related long-lived asset. Over time, the liability is adjusted to its present value each period and the capitalized cost is depreciated over the useful life of the related asset. The Company estimates the fair value of its asset retirement obligations based on the discounting of expected cash flows using various estimates, assumptions and judgments regarding certain factors such as the existence of a legal obligation for an asset retirement obligation; estimated amounts and timing of settlements; the credit-adjusted risk-free rate to be used; and inflation rates. Asset retirement obligations incurred in the current period were Level 3 fair value measurements as the inputs used to measure the fair value are unobservable.
The Company has recorded an asset retirement obligation representing plugging and abandonment costs associated with the Exploration and Production segment’s crude oil and natural gas wells and has capitalized such costs in property, plant and equipment (i.e. the full cost pool).
In addition to the asset retirement obligation recorded in the Exploration and Production segment, the Company has recorded future asset retirement obligations associated with the plugging and abandonment of natural gas storage wells in the Pipeline and Storage segment and the removal of asbestos and asbestos-containing material in various facilities in the Utility and Pipeline and Storage segments. The Company has also recorded asset retirement obligations for certain costs connected with the retirement of the distribution mains, services and other components of the pipeline system in the Utility segment, the transmission mains and other components in the pipeline system in the Pipeline and Storage segment, and the gathering lines and other components in the Gathering segment. The retirement costs within the distribution, transmission and gathering systems are primarily for the capping and purging of pipe, which are generally abandoned in place when retired, as well as for the clean-up of PCB contamination associated with the removal of certain pipe.
On June 30, 2016, Seneca sold the majority of its Upper Devonian wells in Pennsylvania. While the proceeds from the sale were not significant, it did result in a $58.4 million reduction of its Asset Retirement Obligation at September 30, 2016, which is reflected in Liabilities Settled in the table below. The following is a reconciliation of the change in the Company’s asset retirement obligations:
 
Year Ended September 30
 
2018
 
2017
 
2016
 
(Thousands)
Balance at Beginning of Year
$
106,395

 
$
112,330

 
$
156,805

Liabilities Incurred
5,597

 
2,963

 
2,719

Revisions of Estimates
(419
)
 
(10,578
)
 
16,721

Liabilities Settled
(12,858
)
 
(4,967
)
 
(72,215
)
Accretion Expense
9,520

 
6,647

 
8,300

Balance at End of Year
$
108,235

 
$
106,395

 
$
112,330

v3.10.0.1
Regulatory Matters
12 Months Ended
Sep. 30, 2018
Regulatory Assets and Liabilities, Other Disclosures [Abstract]  
Regulatory Matters
Regulatory Matters
Regulatory Assets and Liabilities
The Company has recorded the following regulatory assets and liabilities:
 
At September 30
 
2018
 
2017
 
(Thousands)
Regulatory Assets(1):
 
 
 
Pension Costs(2) (Note H)
$
62,703

 
$
125,175

Post-Retirement Benefit Costs(2) (Note H)
11,160

 
13,886

Recoverable Future Taxes (Note D)
115,460

 
181,363

Environmental Site Remediation Costs(2) (Note I)
20,308

 
19,665

Asset Retirement Obligations(2) (Note B)
15,495

 
12,764

Unamortized Debt Expense (Note A)
15,975

 
1,159

Other(3)
13,044

 
18,827

Total Regulatory Assets
254,145

 
372,839

Less: Amounts Included in Other Current Assets
(9,792
)
 
(15,884
)
Total Long-Term Regulatory Assets
$
244,353

 
$
356,955

 
 
At September 30
 
2018
 
2017
 
(Thousands)
Regulatory Liabilities:
 
 
 
Cost of Removal Regulatory Liability
$
212,311

 
$
204,630

Taxes Refundable to Customers (Note D)
370,628

 
95,739

Post-Retirement Benefit Costs (Note H)
134,387

 
102,891

Amounts Payable to Customers (See Regulatory Mechanisms in Note A)
3,394

 

Other(4)
69,781

 
44,884

Total Regulatory Liabilities
790,501

 
448,144

Less: Amounts included in Current and Accrued Liabilities
(60,819
)
 
(34,059
)
Total Long-Term Regulatory Liabilities
$
729,682

 
$
414,085

 
(1)
The Company recovers the cost of its regulatory assets but generally does not earn a return on them. There are a few exceptions to this rule. For example, the Company does earn a return on Unrecovered Purchased Gas Costs and, in the New York jurisdiction of its Utility segment, earns a return, within certain parameters, on the excess of cumulative funding to the pension plan over the cumulative amount collected in rates.
(2)
Included in Other Regulatory Assets on the Consolidated Balance Sheets.
(3)
$9,792 and $15,884 are included in Other Current Assets on the Consolidated Balance Sheets at September 30, 2018 and 2017, respectively, since such amounts are expected to be recovered from ratepayers in the next 12 months. $3,252 and $2,943 are included in Other Regulatory Assets on the Consolidated Balance Sheets at September 30, 2018 and 2017, respectively.
(4)
$57,425 and $34,059 are included in Other Accruals and Current Liabilities on the Consolidated Balance Sheets at September 30, 2018 and 2017, respectively, since such amounts are expected to be recovered from ratepayers in the next 12 months. $12,356 and $10,825 are included in Other Regulatory Liabilities on the Consolidated Balance Sheets at September 30, 2018 and 2017, respectively.
If for any reason the Company ceases to meet the criteria for application of regulatory accounting treatment for all or part of its operations, the regulatory assets and liabilities related to those portions ceasing to meet such criteria would be eliminated from the Consolidated Balance Sheets and included in income of the period in which the discontinuance of regulatory accounting treatment occurs.
Cost of Removal Regulatory Liability
In the Company’s Utility and Pipeline and Storage segments, costs of removing assets (i.e. asset retirement costs) are collected from customers through depreciation expense. These amounts are not a legal retirement obligation as discussed in Note B — Asset Retirement Obligations. Rather, they are classified as a regulatory liability in recognition of the fact that the Company has collected dollars from the customer that will be used in the future to fund asset retirement costs.
New York Jurisdiction
Distribution Corporation's current delivery rates in its New York jurisdiction were approved by the NYPSC in an order issued on April 20, 2017 with rates becoming effective May 1, 2017. The order provided for a return on equity of 8.7%.
On August 9, 2018, in response to the enactment of the 2017 Tax Reform Act, the NYPSC issued an Order Determining Rate Treatment of Tax Changes directing utilities to make compliance filings effective October 1, 2018 to begin providing sur-credits to customers reflecting tax savings associated with the 2017 Tax Reform Act. In compliance with that order, Distribution Corporation filed the necessary tariff amendments to implement the sur-credit effective October 1, 2018. At September 30, 2018, a refund provision of $9.1 million associated with the impact of the 2017 Tax Reform Act in the New York jurisdiction was included in Other Accruals and Current Liabilities on the Consolidated Balance Sheet. Refer to Note D — Income Taxes for further discussion of the 2017 Tax Reform Act.
Pennsylvania Jurisdiction
Distribution Corporation’s Pennsylvania jurisdiction delivery rates are being charged to customers in accordance with a rate settlement approved by the PaPUC. The rate settlement does not specify any requirement to file a future rate case.
In response to the issuance of the 2017 Tax Reform Act, the PaPUC issued an Order to Distribution Corporation on May 17, 2018, requiring that Distribution Corporation file a tariff supplement establishing temporary rates to implement refunds of 2.2% on customer rates beginning July 1, 2018. In compliance with the May 17, 2018 PaPUC Order, Distribution Corporation filed a subsequent tariff supplement adjusting the negative surcharge in connection with the start of its new fiscal year, with the new rates effective October 1, 2018 and subject to reconciliation. At September 30, 2018, a refund provision of $3.4 million associated with the impact of the 2017 Tax Reform Act in the Pennsylvania jurisdiction was included in Other Accruals and Current Liabilities on the Consolidated Balance Sheet. Refer to Note D — Income Taxes for further discussion of the 2017 Tax Reform Act.
FERC Jurisdiction
Supply Corporation currently has no active rate case on file. Supply Corporation's current rate settlement requires a rate case filing no later than December 31, 2019. The FERC’s July 2018 Final Rule in RM18-11-000, et. al, (Order No. 849) requires pipelines to file a new form isolating the tax impact to each pipeline and also to make an election regarding the action the pipelines will take to address the lower tax rates, one of which is filing a Section 4 rate proceeding. Supply Corporation is required to address the Order by December 6, 2018. At this point, the Company cannot predict the outcome of any action taken pursuant to the Order. Refer to Note D — Income Taxes for further discussion of the 2017 Tax Reform Act.
Empire filed a Section 4 rate case on June 29, 2018, proposing rate increases to be effective August 1, 2018. The proposed rates reflect an annual cost of service of $71.5 million, a rate base of $246.8 million and a proposed return on equity of 14%. The FERC has accepted the filed rates and suspended the effective date of the increases until January 1, 2019, when the increased rates will be made effective, subject to refund. Since Empire has filed a rate case, it is not obligated to make a filing under RM18-11-000.
v3.10.0.1
Income Taxes
12 Months Ended
Sep. 30, 2018
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
On December 22, 2017, federal tax legislation referred to as the “Tax Cuts and Jobs Act” (the 2017 Tax Reform Act) was enacted. The 2017 Tax Reform Act significantly changed the taxation of business entities and includes a reduction in the corporate federal income tax rate from 35% to a blended 24.5% for fiscal 2018 and 21% for fiscal 2019 and beyond. The changes had a material impact on the financial statements in the year ended September 30, 2018. The Company’s deferred income taxes were remeasured based upon the new tax rates. For the non-rate regulated activities through the year ended September 30, 2018, the change in beginning of the year deferred income taxes of $103.5 million (which includes the potential sequestration of the refunds of the AMT credit carryovers as described below) was recorded as a reduction to income tax expense. For the Company's rate regulated activities, the reduction in deferred income taxes of $336.7 million was recorded as a decrease to Recoverable Future Taxes of $65.7 million and an increase to Taxes Refundable to Customers of $271.0 million. The 2017 Tax Reform Act includes provisions that stipulate how these excess deferred taxes are to be passed back to customers for certain accelerated tax depreciation benefits. Potential refunds of other deferred income taxes will be determined by the federal and state regulatory agencies. For further discussion, refer to Note C — Regulatory Matters.
The 2017 Tax Reform Act also repealed the corporate alternative minimum tax (AMT) and provides that the Company’s existing AMT credit carryovers are refundable, if not utilized to reduce tax, beginning in fiscal 2019. As of September 30, 2018, the Company had $84.2 million of AMT credit carryovers that are expected to be utilized or refunded between fiscal 2019 and fiscal 2022. These amounts are recorded in Deferred Income Taxes and will be reclassified to a receivable when the amounts are expected to be realized in cash. During the year ended September 30, 2018, the Company recorded a $5.0 million estimate for the potential sequestration of AMT credit refunds.
The SEC issued guidance in Staff Accounting Bulletin 118 (SAB 118) which provides for up to a one year period (the measurement period) in which to complete the required analysis and income tax accounting for the 2017 Tax Reform Act. The Company has determined a reasonable estimate for the measurement of the changes in deferred income taxes (noted above), which have been reflected as provisional amounts in the September 30, 2018 financial statements. The final determination of the impact of the income tax effects of these items will require further interpretation of the 2017 Tax Reform Act from yet to be issued U.S. Treasury regulations, state income tax guidance, federal/state regulatory guidance, and possible technical corrections, which, if issued, the Company expects to finalize within SAB 118’s measurement period (quarter ended December 31, 2018). Any subsequent guidance will be accounted for in the period issued.
The components of federal and state income taxes included in the Consolidated Statements of Income are as follows:
 
Year Ended September 30
 
2018
 
2017
 
2016
 
(Thousands)
Current Income Taxes —
 
 
 
 
 
Federal
$
2,025

 
$
32,034

 
$
(6,658
)
State
8,634

 
10,673

 
20,903

Deferred Income Taxes —
 
 
 
 
 
Federal
(38,927
)
 
103,046

 
(164,818
)
State
20,774

 
14,929

 
(81,976
)
 
(7,494
)
 
160,682

 
(232,549
)
Deferred Investment Tax Credit
(105
)
 
(173
)
 
(348
)
Total Income Taxes
$
(7,599
)
 
$
160,509

 
$
(232,897
)
Presented as Follows:
 
 
 
 
 
Other Income
$
(105
)
 
$
(173
)
 
$
(348
)
Income Tax Expense (Benefit)
(7,494
)
 
160,682

 
(232,549
)
Total Income Taxes
$
(7,599
)
 
$
160,509

 
$
(232,897
)

Total income taxes as reported differ from the amounts that were computed by applying the federal income tax rate to income (loss) before income taxes. The following is a reconciliation of this difference:
 
Year Ended September 30
 
2018
 
2017
 
2016
 
(Thousands)
U.S. Income (Loss) Before Income Taxes
$
383,922

 
$
443,991

 
$
(523,855
)
Income Tax Expense (Benefit), Computed at
U.S. Federal Statutory Rate(1)
$
94,061

 
$
155,397

 
$
(183,349
)
Impact of 2017 Tax Reform Act(2)
(112,598
)
 

 

State Income Taxes (Benefit)(3)
22,203

 
16,641

 
(39,697
)
Federal Tax Credits
(6,576
)
 
(6,679
)
 
(3,262
)
Miscellaneous
(4,689
)
 
(4,850
)
 
(6,589
)
Total Income Taxes
$
(7,599
)
 
$
160,509

 
$
(232,897
)

 
(1)
For fiscal 2018, represents the blended rate of 24.5%. Calculated as 35% for the first quarter of the fiscal year and 21% for the remaining three quarters.
(2)
Represents the remeasurement of deferred income taxes as a result of the lower U.S. corporate income tax rate including a $5.0 million estimate for the potential sequestration of AMT credit refunds and the benefit of $9.1 million as a result of the blended tax rate described above.
(3)
The state income taxes (benefit) shown above includes income tax benefits related to state enhanced oil recovery tax credits and adjustments to the estimated state effective tax rates utilized in the calculation of deferred income taxes.
Significant components of the Company’s deferred tax liabilities and assets were as follows:
 
At September 30
 
2018
 
2017
 
(Thousands)
Deferred Tax Liabilities:
 
 
 
Property, Plant and Equipment
$
770,794

 
$
1,141,432

Pension and Other Post-Retirement Benefit Costs
39,541

 
79,516

Other
49,734

 
77,046

Total Deferred Tax Liabilities
860,069

 
1,297,994

Deferred Tax Assets:
 
 
 
Pension and Other Post-Retirement Benefit Costs
(62,969
)
 
(123,532
)
Tax Loss and Credit Carryforwards
(214,128
)
 
(200,344
)
Other
(75,286
)
 
(82,831
)
Total Gross Deferred Tax Assets
(352,383
)
 
(406,707
)
Valuation Allowance
5,000

 

Total Deferred Tax Assets
(347,383
)
 
(406,707
)
Total Net Deferred Income Taxes
$
512,686

 
$
891,287


As explained in Note A — Summary of Significant Accounting Policies under the heading "New Authoritative Accounting and Financial Reporting Guidance," the Company adopted authoritative guidance issued by the FASB simplifying several aspects of the accounting for stock-based compensation effective as of October 1, 2016. Under this guidance, the Company recognizes excess tax benefits as incurred. The Company recognized $31.9 million, that arose directly from excess tax benefits related to stock-based compensation in prior periods, as a cumulative effect adjustment increasing retained earnings at October 1, 2016.
Regulatory liabilities representing the reduction of previously recorded deferred income taxes associated with rate-regulated activities that are expected to be refundable to customers amounted to $370.6 million and $95.7 million at September 30, 2018 and 2017, respectively. Also, regulatory assets representing future amounts collectible from customers, corresponding to additional deferred income taxes not previously recorded because of ratemaking practices, amounted to $115.5 million and $181.4 million at September 30, 2018 and 2017, respectively.
The following is a reconciliation of the change in unrecognized tax benefits:
 
Year Ended September 30
 
2018
 
2017
 
2016
 
(Thousands)
Balance at Beginning of Year
$
1,251

 
$
396

 
$
5,085

Additions for Tax Positions of Prior Years

 
1,251

 
396

Reductions for Tax Positions of Prior Years
(788
)
 
(396
)
 
(1,314
)
Reductions Related to Settlements with Taxing Authorities
(463
)
 

 
(3,771
)
Balance at End of Year
$

 
$
1,251

 
$
396


The IRS is currently conducting examinations of the Company for fiscal 2018 in accordance with the Compliance Assurance Process (“CAP”). The CAP audit employs a real time review of the Company’s books and tax records by the IRS that is intended to permit issue resolution prior to the filing of the tax return. The federal statute of limitations remains open for fiscal 2009, fiscal 2015 and later years. During fiscal 2009, preliminary consent was received from the IRS National Office approving the Company’s application to change its tax method of accounting for certain capitalized costs relating to its utility property, subject to the final guidance. The Company is awaiting the issuance of IRS guidance addressing the issue for natural gas utilities.
The Company is also subject to various routine state income tax examinations. The Company’s principal subsidiaries operate mainly in four states which have statutes of limitations that generally expire between three to four years from the date of filing of the income tax return.
As of September 30, 2018, the Company has the following carryforwards available:
Jurisdiction
 
Tax Attribute
 
Amount
(Thousands)
 
Expires
Federal Pre-Fiscal 2018
 
Net Operating Loss
 
$
191,006

(1)
2029-2037
Federal Post-Fiscal 2017
 
Net Operating Loss
 
58,334

 
Unlimited
Pennsylvania
 
Net Operating Loss
 
351,879

 
2029-2038
California
 
Net Operating Loss
 
191,468

 
2029-2038
Federal
 
Alternative Minimum Tax Credit
 
84,185

(2)
Unlimited
California
 
Alternative Minimum Tax Credit
 
6,983

 
Unlimited
Federal
 
Enhanced Oil Recovery Credit
 
18,160

 
2029-2038
California
 
Enhanced Oil Recovery Credit
 
7,613

 
2019-2033
Federal
 
R&D Tax Credit
 
5,876

 
2031-2037
Federal
 
Charitable Contributions
 
3,067

 
2023

 
(1)
Approximately $1.8 million of the federal Net Operating Loss carryforward is subject to certain annual limitations.
(2)
The $5.0 million estimate recorded for the potential sequestration of AMT credit refunds is not included in this amount.
v3.10.0.1
Capitalization And Short-Term Borrowings
12 Months Ended
Sep. 30, 2018
Capitalization And Short-Term Borrowings [Abstract]  
Capitalization And Short-Term Borrowings
Capitalization and Short-Term Borrowings
Summary of Changes in Common Stock Equity
 
Common Stock
 
Paid In
Capital
 
Earnings
Reinvested
in the
Business
 
Accumulated
Other
Comprehensive
Income (Loss)
Shares
 
Amount
 
 
(Thousands, except per share amounts)
Balance at September 30, 2015
84,594

 
$
84,594

 
$
744,274

 
$
1,103,200

 
$
93,372

Net Income (Loss) Available for Common Stock
 
 
 
 
 
 
(290,958
)
 
 
Dividends Declared on Common Stock ($1.60 Per Share)
 
 
 
 
 
 
(135,881
)
 
 
Other Comprehensive Loss, Net of Tax
 
 
 
 
 
 
 
 
(99,012
)
Share-Based Payment Expense(2)
 
 
 
 
4,843

 
 
 
 
Common Stock Issued Under Stock and Benefit Plans(1)
525

 
525

 
22,047

 
 
 
 
Balance at September 30, 2016
85,119

 
85,119

 
771,164

 
676,361

 
(5,640
)
Net Income Available for Common Stock
 
 
 
 
 
 
283,482

 
 
Dividends Declared on Common Stock ($1.64 Per Share)
 
 
 
 
 
 
(140,090
)
 
 
Cumulative Effect of Adoption of Authoritative Guidance for Stock-Based Compensation
 
 
 
 
 
 
31,916

 


Other Comprehensive Loss, Net of Tax
 
 
 
 


 
 
 
(24,483
)
Share-Based Payment Expense(2)


 


 
10,902

 
 
 
 
Common Stock Issued Under Stock and Benefit Plans
424

 
424

 
14,580

 


 


Balance at September 30, 2017
85,543

 
85,543

 
796,646

 
851,669

 
(30,123
)
Net Income Available for Common Stock
 
 
 
 
 
 
391,521

 
 
Dividends Declared on Common Stock ($1.68 Per Share)
 
 
 
 
 
 
(144,290
)
 
 
Other Comprehensive Loss, Net of Tax
 
 
 
 
 
 
 
 
(37,627
)
Share-Based Payment Expense(2)
 
 
 
 
14,235

 
 
 
 
Common Stock Issued Under Stock and Benefit Plans
414

 
414

 
9,342

 
 
 
 
Balance at September 30, 2018
85,957

 
$
85,957

 
$
820,223

 
$
1,098,900

(3)
$
(67,750
)
 
(1)
Paid in Capital includes tax benefits of $1.9 million for September 30, 2016, related to stock-based compensation.
(2)
Paid in Capital includes compensation costs associated with SARs, performance shares and/or restricted stock awards. The expense is included within Net Income Available For Common Stock, net of tax benefits.
(3)
The availability of consolidated earnings reinvested in the business for dividends payable in cash is limited under terms of the indentures covering long-term debt. At September 30, 2018, $954.7 million of accumulated earnings was free of such limitations.
Common Stock
The Company has various plans which allow shareholders, employees and others to purchase shares of the Company common stock. The National Fuel Gas Company Direct Stock Purchase and Dividend Reinvestment Plan allows shareholders to reinvest cash dividends and make cash investments in the Company’s common stock and provides investors the opportunity to acquire shares of the Company common stock without the payment of any brokerage commissions in connection with such acquisitions. The 401(k) Plans allow employees the opportunity to invest in the Company common stock, in addition to a variety of other investment alternatives. Generally, at the discretion of the Company, shares purchased under these plans are either original issue shares purchased directly from the Company or shares purchased on the open market by an independent agent. During 2018, the Company issued 138,997 original issue shares of common stock for the Direct Stock Purchase and Dividend Reinvestment Plan and 75,745 original issue shares of common stock for the Company's 401(k) plans.
During 2018, the Company issued 75,971 original issue shares of common stock as a result of SARs exercises, 72,918 original issue shares of common stock for restricted stock units that vested and 79,079 original issue shares of common stock for performance shares that vested. Holders of stock-based compensation awards will often tender shares of common stock to the Company for payment of applicable withholding taxes. During 2018, 57,065 shares of common stock were tendered to the Company for such purposes. The Company considers all shares tendered as cancelled shares restored to the status of authorized but unissued shares, in accordance with New Jersey law.
The Company also has a director stock program under which it issues shares of Company common stock to the non-employee directors of the Company who receive compensation under the Company’s 2009 Non-Employee Director Equity Compensation Plan, as partial consideration for the directors’ services during the fiscal year. Under this program, the Company issued 28,044 original issue shares of common stock during 2018.
Stock Award Plans
The Company has various stock award plans which provide or provided for the issuance of one or more of the following to key employees: SARs, incentive stock options, nonqualified stock options, restricted stock, restricted stock units, performance units or performance shares.
Stock-based compensation expense for the years ended September 30, 2018, 2017 and 2016 was approximately $14.2 million, $10.8 million and $4.8 million, respectively. Stock-based compensation expense is included in operation and maintenance expense on the Consolidated Statements of Income. The total income tax benefit related to stock-based compensation expense during the years ended September 30, 2018, 2017 and 2016 was approximately $3.4 million, $4.4 million and $1.9 million, respectively. A portion of stock-based compensation expense is subject to capitalization under IRS uniform capitalization rules. Stock-based compensation of $0.1 million, $0.1 million and $0.1 million was capitalized under these rules during the years ended September 30, 2018, 2017 and 2016, respectively. The tax benefit recognized from stock-based compensation exercises and vestings was $1.0 million for the year ended September 30, 2018.

SARs
Transactions for 2018 involving SARs for all plans are summarized as follows:
 
Number of
Shares Subject
To Option
 
Weighted
Average
Exercise Price
 
Weighted
Average
Remaining
Contractual
Life (Years)
 
Aggregate
Intrinsic
Value
(In thousands)
Outstanding at September 30, 2017
1,505,911

 
$
48.64

 
 
 
 
Granted in 2018

 
$

 
 
 
 
Exercised in 2018
(206,823
)
 
$
35.70

 
 
 
 
Forfeited in 2018

 
$

 
 
 
 
Expired in 2018

 
$

 
 
 
 
Outstanding at September 30, 2018
1,299,088

 
$
50.70

 
1.77
 
$
8,199

SARs exercisable at September 30, 2018
1,299,088

 
$
50.70

 
1.77
 
$
8,199

Shares available for future grant at September 30, 2018(1)
1,478,086

 
 
 
 
 
 
 

(1)
Includes shares available for options, SARs, restricted stock and performance share grants.
The Company did not grant any SARs during the years ended September 30, 2017 and 2016. The Company’s SARs include both performance based and non-performance based SARs, but the performance conditions associated with the performance based SARs at the time of grant have all been subsequently met. The SARs are considered equity awards under the current authoritative guidance for stock-based compensation. The accounting for SARs is the same as the accounting for stock options.
The total intrinsic value of SARs exercised during the years ended September 30, 2018, 2017 and 2016 totaled approximately $4.4 million, $1.6 million, and $0.4 million, respectively. For the years ended September 30, 2017 and 2016, 5,000 SARs and 113,082 SARs, respectively, became fully vested. There were no SARs that became fully vested during the year ended September 30, 2018, and all SARs outstanding have been fully vested since fiscal 2017. The total fair value of the SARs that became vested during the years ended September 30, 2017 and 2016 was approximately $0.1 million and $1.2 million, respectively.
Restricted Share Awards
Transactions for 2018 involving restricted share awards for all plans are summarized as follows: 
 
Number of
Restricted
Share Awards
 
Weighted Average
Fair Value per
Award
Outstanding at September 30, 2017
20,000

 
$
47.46

Granted in 2018

 
$

Vested in 2018

 
$

Forfeited in 2018

 
$

Outstanding at September 30, 2018
20,000

 
$
47.46


The Company did not grant any restricted share awards (non-vested stock as defined by the current accounting literature) during the years ended September 30, 2017 and 2016. As of September 30, 2018, unrecognized compensation expense related to restricted share awards totaled approximately $0.2 million, which will be recognized over a weighted average period of 2.1 years.
Vesting restrictions for the 20,000 outstanding shares of non-vested restricted stock at September 30, 2018 will lapse in 2021.
Restricted Stock Units
Transactions for 2018 involving non-performance based restricted stock units for all plans are summarized as follows:
 
Number of
Restricted
Stock Units
 
Weighted Average
Fair Value per
Award
Outstanding at September 30, 2017
233,199

 
$
48.99

Granted in 2018
89,672

 
$
51.23

Vested in 2018
(72,918
)
 
$
53.73

Forfeited in 2018
(4,637
)
 
$
46.04

Outstanding at September 30, 2018
245,316

 
$
48.45


The Company also granted 87,143 and 101,943 non-performance based restricted stock units during the years ended September 30, 2017 and 2016, respectively. The weighted average fair value of such non-performance based restricted stock units granted in 2017 and 2016 was $52.13 per share and $35.89 per share, respectively. As of September 30, 2018, unrecognized compensation expense related to non-performance based restricted stock units totaled approximately $5.0 million, which will be recognized over a weighted average period of 2.2 years.
Vesting restrictions for the non-performance based restricted stock units outstanding at September 30, 2018 will lapse as follows: 2019 — 80,354 units; 2020 — 68,189 units; 2021 — 57,175 units; 2022 - 26,448 units; and 2023 - 13,150 units.
Performance Shares
Transactions for 2018 involving performance shares for all plans are summarized as follows:
 
Number of
Performance
Shares
 
Weighted Average
Fair Value per
Award
Outstanding at September 30, 2017
527,748

 
$
45.44

Granted in 2018
208,588

 
$
50.95

Vested in 2018
(79,079
)
 
$
65.38

Forfeited in 2018
(15,967
)
 
$
57.15

Outstanding at September 30, 2018
641,290

 
$
44.49


The Company also granted 184,148 and 309,996 performance shares during the years ended September 30, 2017 and 2016, respectively. The weighted average grant date fair value of such performance shares granted in 2017 and 2016 was $56.39 per share and $30.71 per share, respectively. As of September 30, 2018, unrecognized compensation expense related to performance shares totaled approximately $11.2 million, which will be recognized over a weighted average period of 1.7 years. Vesting restrictions for the outstanding performance shares at September 30, 2018 will lapse as follows: 2019 - 253,704 shares; 2020 - 181,446 shares; and 2021 - 206,140 shares.
Half of the performance shares granted during the years ended September 30, 2018, 2017 and 2016 must meet a performance goal related to relative return on capital over a three-year performance cycle. The performance goal over the respective performance cycles for the performance shares granted during 2018, 2017 and 2016 is the Company’s total return on capital relative to the total return on capital of other companies in a group selected by the Compensation Committee (“Report Group”).  Total return on capital for a given company means the average of the Report Group companies’ returns on capital for each twelve month period corresponding to each of the Company’s fiscal years during the performance cycle, based on data reported for the Report Group companies in the Bloomberg database.  The number of these performance shares that will vest and be paid will depend upon the Company’s performance relative to the Report Group and not upon the absolute level of return achieved by the Company.  The fair value of these performance shares is calculated by multiplying the expected number of shares that will be issued by the average market price of Company common stock on the date of grant reduced by the present value of forgone dividends over the vesting term of the award.  The fair value is recorded as compensation expense over the vesting term of the award.  
The other half of the performance shares granted during the years ended September 30, 2018, 2017 and 2016 must meet a performance goal related to relative total shareholder return over a three-year performance cycle.  The performance goal over the respective performance cycles for the total shareholder return performance shares ("TSR performance shares") granted during 2018, 2017 and 2016 is the Company’s three-year total shareholder return relative to the three-year total shareholder return of the other companies in the Report Group.  Three-year shareholder return for a given company will be based on the data reported for that company (with the starting and ending stock prices over the performance cycle calculated as the average closing stock price for the prior calendar month and with dividends reinvested in that company’s securities at each ex-dividend date) in the Bloomberg database.  The number of these TSR performance shares that will vest and be paid will depend upon the Company’s performance relative to the Report Group and not upon the absolute level of return achieved by the Company.  The fair value price at the date of grant for the TSR performance shares is determined using a Monte Carlo simulation technique, which includes a reduction in value for the present value of forgone dividends over the vesting term of the award.  This price is multiplied by the number of TSR performance shares awarded, the result of which is recorded as compensation expense over the vesting term of the award. In calculating the fair value of the award, the risk-free interest rate is based on the yield of a Treasury Note with a term commensurate with the remaining term of the TSR performance shares. The remaining term is based on the remainder of the performance cycle as of the date of grant. The expected volatility is based on historical daily stock price returns. For the TSR performance shares, it was assumed that there would be no forfeitures, based on the vesting term and the number of grantees. The following assumptions were used in estimating the fair value of the TSR performance shares at the date of grant:
 
Year Ended September 30
 
2018
 
2017
 
2016
Risk-Free Interest Rate
1.96
%
 
1.54
%
 
1.26
%
Remaining Term at Date of Grant (Years)
2.78

 
2.79

 
2.79

Expected Volatility
22.0
%
 
22.6
%
 
20.5
%
Expected Dividend Yield (Quarterly)
N/A

 
N/A

 
N/A


Redeemable Preferred Stock
As of September 30, 2018, there were 10,000,000 shares of $1 par value Preferred Stock authorized but unissued.
Long-Term Debt
The outstanding long-term debt is as follows:
 
At September 30
 
2018
 
2017
 
(Thousands)
Medium-Term Notes(1):
 
 
 
7.4% due March 2023 to June 2025
$
99,000

 
$
99,000

Notes(1)(3)(4):
 
 
 
3.75% to 5.20% due December 2021 to September 2028
2,050,000

 
2,300,000

Total Long-Term Debt
2,149,000

 
2,399,000

Less Unamortized Discount and Debt Issuance Costs
17,635

 
15,319

Less Current Portion(2)

 
300,000

 
$
2,131,365

 
$
2,083,681

 
(1)
The Medium-Term Notes and Notes are unsecured.
(2)
Current Portion of Long-Term Debt at September 30, 2017 consisted of $300.0 million of 6.50% notes that were scheduled to mature in April 2018. The Company redeemed those notes on October 18, 2017 for $307.0 million, plus accrued interest. The call premium was recorded to Unamortized Debt Expense on the Consolidated Balance Sheet in October 2017.
(3)
The holders of these notes may require the Company to repurchase their notes at a price equal to 101% of the principal amount in the event of both a change in control and a ratings downgrade to a rating below investment grade.
(4)
The interest rate payable on $300.0 million of 4.75% notes and $300.0 million of 3.95% notes will be subject to adjustment from time to time, with a maximum of 2.00%, if certain change of control events involving a material subsidiary result in a downgrade of the credit rating assigned to the notes to below investment grade (or if the credit rating assigned to the notes is subsequently upgraded).
On August 17, 2018, the Company issued $300.0 million of 4.75% notes due September 1, 2028. After deducting underwriting discounts, commissions and other debt issuance costs, the net proceeds to the Company amounted to $295.0 million. The proceeds of this debt issuance were used for general corporate purposes, including the redemption of $250.0 million of 8.75% notes on September 7, 2018 that were scheduled to mature in May 2019. The Company redeemed those notes for $259.5 million, plus accrued interest. In the Utility and Pipeline and Storage segments, the call premium of $8.5 million was recorded to Unamortized Debt Expense on the Consolidated Balance Sheet as of September 30, 2018, and in the Exploration and Production segment, the call premium of $1.0 million was recorded to Interest Expense on Long-Term Debt on the Consolidated Income Statement during the year ended September 30, 2018.
On September 27, 2017, the Company issued $300.0 million of 3.95% notes due September 15, 2027. After deducting underwriting discounts, commissions and other debt issuance costs, the net proceeds to the Company amounted to $295.2 million. The proceeds of this debt issuance were used to redeem $300.0 million of 6.50% notes in October 2017, as discussed above in a footnote to the table of long-term debt outstanding.
As of September 30, 2018, the aggregate principal amounts of long-term debt maturing during the next five years and thereafter are as follows: zero in 2019, 2020 and 2021, $500.0 million in 2022, $549.0 million in 2023, and $1,100.0 million thereafter.
Short-Term Borrowings
The Company historically has obtained short-term funds either through bank loans or the issuance of commercial paper. On October 25, 2018, the Company entered into a Fourth Amended and Restated Credit Agreement (Credit Agreement) with a syndicate of 12 banks. This Credit Agreement provides a $750.0 million multi-year unsecured committed revolving credit facility through October 25, 2023. The Company also has an uncommitted line of credit with a financial institution for general corporate purposes. Borrowings under this uncommitted line of credit would be made at competitive market rates. The uncommitted credit line is revocable at the option of the financial institution and is reviewed on an annual basis. The Company anticipates that its uncommitted line of credit generally will be renewed or substantially replaced by a similar line. Other financial institutions may also provide the Company with uncommitted or discretionary lines of credit in the future. The total amount available to be issued under the Company’s commercial paper program is $500.0 million. At September 30, 2018, the commercial paper program was backed by the Credit Agreement.
The Company did not have any outstanding commercial paper or short term notes payable to banks at September 30, 2018 and 2017.
Debt Restrictions
The Credit Agreement provides that the Company's debt to capitalization ratio will not exceed .65 at the last day of any fiscal quarter. For purposes of calculating the debt to capitalization ratio, the Company's total capitalization will be increased by adding back 50% of the aggregate after-tax amount of non-cash charges directly arising from any ceiling test impairment occurring on or after July 1, 2018, not to exceed $250 million. At September 30, 2018, the Company’s debt to capitalization ratio (as calculated under the facility) was .52. The constraints specified in the Credit Agreement would have permitted an additional $1.46 billion in short-term and/or long-term debt to be outstanding (further limited by the indenture covenants discussed below) before the Company’s debt to capitalization ratio exceeded .65.
A downgrade in the Company’s credit ratings could increase borrowing costs, negatively impact the availability of capital from banks, commercial paper purchasers and other sources, and require the Company's subsidiaries to post letters of credit, cash or other assets as collateral with certain counterparties. If the Company is not able to maintain investment-grade credit ratings, it may not be able to access commercial paper markets. However, the Company expects that it could borrow under its credit facilities or rely upon other liquidity sources, including cash provided by operations.
The Credit Agreement contains a cross-default provision whereby the failure by the Company or its significant subsidiaries to make payments under other borrowing arrangements, or the occurrence of certain events affecting those other borrowing arrangements, could trigger an obligation to repay any amounts outstanding under the Credit Agreement. In particular, a repayment obligation could be triggered if (i) the Company or any of its significant subsidiaries fails to make a payment when due of any principal or interest on any other indebtedness aggregating $40.0 million or more, or (ii) an event occurs that causes, or would permit the holders of any other indebtedness aggregating $40.0 million or more to cause, such indebtedness to become due prior to its stated maturity. As of September 30, 2018, the Company did not have any debt outstanding under the Credit Agreement.
Under the Company’s existing indenture covenants at September 30, 2018, the Company would have been permitted to issue up to a maximum of $714.0 million in additional long-term indebtedness at then current market interest rates in addition to being able to issue new indebtedness to replace maturing debt. The Company's present liquidity position is believed to be adequate to satisfy known demands. However, if the Company were to experience a significant loss in the future (for example, as a result of an impairment of oil and gas properties), it is possible, depending on factors including the magnitude of the loss, that these indenture covenants would restrict the Company's ability to issue additional long-term unsecured indebtedness for a period of up to nine calendar months, beginning with the fourth calendar month following the loss. This would not preclude the Company from issuing new indebtedness to replace maturing debt. Please refer to Part II, Item 7, Critical Accounting Estimates section above for a sensitivity analysis concerning commodity price changes and their impact on the ceiling test.
The Company’s 1974 indenture pursuant to which $99.0 million (or 4.6%) of the Company’s long-term debt (as of September 30, 2018) was issued, contains a cross-default provision whereby the failure by the Company to perform certain obligations under other borrowing arrangements could trigger an obligation to repay the debt outstanding under the indenture. In particular, a repayment obligation could be triggered if the Company fails (i) to pay any scheduled principal or interest on any debt under any other indenture or agreement, or (ii) to perform any other term in any other such indenture or agreement, and the effect of the failure causes, or would permit the holders of the debt to cause, the debt under such indenture or agreement to become due prior to its stated maturity, unless cured or waived.
v3.10.0.1
Fair Value Measurements
12 Months Ended
Sep. 30, 2018
Fair Value Disclosures [Abstract]  
Fair Value Measurements
Fair Value Measurements
The FASB authoritative guidance regarding fair value measurements establishes a fair-value hierarchy and prioritizes the inputs used in valuation techniques that measure fair value. Those inputs are prioritized into three levels. Level 1 inputs are unadjusted quoted prices in active markets for assets or liabilities that the Company can access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly at the measurement date. Level 3 inputs are unobservable inputs for the asset or liability at the measurement date. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.
The following table sets forth, by level within the fair value hierarchy, the Company’s financial assets and liabilities (as applicable) that were accounted for at fair value on a recurring basis as of September 30, 2018 and 2017. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The fair value presentation for over-the-counter swaps combines gas and oil swaps because a significant number of the counterparties enter into both gas and oil swap agreements with the Company. 
 
At Fair Value as of September 30, 2018