Note 3 - Regulated Operations

3 Months Ended

Mar. 31, 2014

Regulatory Assets and Liabilities Disclosure [Abstract]

Schedule of Regulatory Assets and Liabilities [Text Block]

Note 3 - Regulated Operations

We account for the financial effects of regulation in accordance with authoritative guidance related to regulated entities whose rates are designed to recover the costs of providing service. In accordance with this guidance, incurred costs and estimated future expenditures that would otherwise be charged to expense in the current period are capitalized as regulatory assets when it is probable that such costs or expenditures will be recovered in rates in the future. Similarly, we recognize regulatory liabilities when it is probable that regulators will require customer refunds through future rates or when revenue is collected from customers for estimated expenditures that have not yet been incurred. Generally, regulatory assets are amortized into expense and regulatory liabilities are amortized into income over the period authorized by the regulatory commissions. The following table summarizes our regulatory assets and liabilities as of the dates presented.

In millions	March 31, 2014		December 31, 2013		March 31, 2013
Regulatory assets
Deferred natural gas costs	$	161	$	1	$	-
Recoverable regulatory infrastructure program costs		48		48		47
Recoverable ERC		38		45		28
Recoverable pension and retiree welfare benefit costs		9		9		19
Other		41		59		25
Total regulatory assets – current		297		162		119
Recoverable ERC		419		433		415
Recoverable pension and retiree welfare benefit costs		97		99		192
Recoverable regulatory infrastructure program costs		96		87		135
Long-term debt fair value adjustment		80		82		88
Other		44		36		48
Total regulatory assets - long-term		736		737		878
Total regulatory assets	$	1,033	$	899	$	997
Regulatory liabilities
Bad debt over collection	$	41	$	41	$	39
Accumulated removal costs		27		27		17
Accrued natural gas costs		24		92		133
Deferred seasonal rates		20		-		20
Other		49		23		29
Total regulatory liabilities – current		161		183		238
Accumulated removal costs		1,456		1,445		1,413
Regulatory income tax liability		27		27		26
Unamortized investment tax credit		25		26		28
Bad debt over collection		14		17		20
Other		28		3		11
Total regulatory liabilities - long-term		1,550		1,518		1,498
Total regulatory liabilities	$	1,711	$	1,701	$	1,736

Base rates are designed to provide the opportunity for both a recovery of cost and a return on investment during the period rates are in effect. As such, all of our regulatory assets recoverable through base rates are subject to review by the respective state regulatory commission during future rate proceedings. We believe that we will be able to recover such costs consistent with our historical recoveries.

In the event the provisions of authoritative guidance related to regulated operations were no longer applicable, we would recognize a write-off of regulatory assets that would result in a charge to net income and be classified as an extraordinary item. Additionally, while some regulatory liabilities would be written off, others would continue to be recorded as liabilities, but not as regulatory liabilities.

Natural Gas Costs We charge our utility customers for natural gas consumed using natural gas cost recovery mechanisms set by the state regulatory agencies. Under these mechanisms, all prudently incurred natural gas costs are passed through to customers without markup, subject to regulatory review. We defer or accrue the difference between the actual cost of gas and the amount of commodity revenue earned in a given period, such that no operating margin is recognized related to these costs. The deferred or accrued amount is either billed or refunded to our customers prospectively through adjustments to the commodity rate. Deferred natural gas costs are reflected as regulatory assets and accrued natural gas costs are reflected as regulatory liabilities. The following table illustrates the change in net position of these costs from March 31, 2013 to March 31, 2014.

In millions	March 31, 2014			March 31, 2013			Change
Deferred natural gas costs	$	161		$	-		$	161
Accrued natural gas costs		(24	)		(133	)		109
Total (1)	$	137		$	(133	)	$	270

(1) The $270 million change resulted from increased natural gas prices during the first quarter of 2014 compared to the first quarter of 2013, primarily driven by colder weather experienced in the current quarter. These costs will be fully recovered in future periods.

Environmental Remediation Costs We are subject to federal, state and local laws and regulations governing environmental quality and pollution control that require us to remove or remedy the effect on the environment of the disposal or release of specified substances at our current and former operating sites. The ERC assets and liabilities are associated with our distribution operations segment and are generally recoverable through rate mechanisms.

Our ERC liabilities are estimates of future remediation costs for investigation and cleanup of our current and former operating sites that are contaminated. These estimates are based on conventional engineering estimates and the use of probabilistic models of potential costs when such estimates cannot be made, on an undiscounted basis. As cleanup options and plans mature and cleanup contracts are entered into, we are increasingly able to provide conventional engineering estimates of the likely costs of many elements of the remediation program. These estimates contain various engineering assumptions, which we refine and update on an ongoing basis. These liabilities do not include other potential expenses, such as unasserted property damage claims, personal injury or natural resource damage claims, legal expenses or other costs for which we may be held liable but for which we cannot reasonably estimate an amount. The following table provides additional information on the costs related to remediation of our current and former operating sites as of March 31, 2014 and reflects minor changes in estimates since we filed our 2013 Form 10-K.

In millions	Probabilistic model cost estimates			Engineering estimates		Amount recorded		Expected costs over next 12 months
Illinois	$211	-	$461	$	42	$	246	$	39
New Jersey	139	-	233		6		144		25
Georgia and Florida	28	-	112		8		39		10
North Carolina		n/a			11		11		8
Total	$378	-	$806	$	67	$	440	$	82