UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2015
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-643
Corning Natural Gas Holding Corporation
(Exact name of registrant as specified in its charter)
| New York | 46-3235589 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. employer Identification no.) |
330 W. William St.
Corning, New York 14830
(Address of principal executive offices, including zip code)
(607) 936-3755
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. YES [ ] NO [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. YES [ ] NO [X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and a “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one):
Large accelerated Filer [ ] Accelerated Filer [ ] Non-Accelerated Filer [ ] Smaller Reporting Company [X]
Indicate by check mark whether the registrant is a shell company. YES [ ] NO [X]
The aggregate market value of the 1,694,021 shares of the Common Stock held by non-affiliates of the Registrant at the $20.00 average of bid and asked prices as of the last business day of registrant’s most recently completed second fiscal quarter, March 31, 2015, was $33,880,420.
Number of shares of Common Stock outstanding as of the close of business on December 1, 2015: 2,463,574
DOCUMENTS INCORPORATED BY REFERENCE
In accordance with General Instruction G(3) of Form 10-K, certain information required by Part III will either be incorporated by reference to the definitive proxy statement for Corning Natural Gas Holding Corporation’s Annual Meeting of Shareholders filed within 120 days after September 30, 2015, or will be included in an amendment to this Form 10-K filed within that period.
Information contained in this Form 10-K for fiscal 2015 period which is incorporated by reference contains certain forward looking statements which may be impacted by factors beyond the control of the Company, including but not limited to natural gas supplies, regulatory actions and customer demand. As a result, actual conditions and results may differ from present expectations. See “Cautionary Statement Regarding Forward-Looking Statements” below.
| Tables of Contents | ||
| For the Fiscal Year Ended September 30, 2015 | ||
| Contents | ||
| Part I | ||
| Item 1 | Business | 1 |
| Item 1A | Risk Factors | 3 |
| Item 2 | Properties | 6 |
| Item 3 | Legal Proceedings | 6 |
| Item 4 | Mine Safety Disclosures | 6 |
| Part II | ||
| Item 5 | Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 6 |
| Item 7 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 8 |
| Item 8 | Financial Statement and Supplementary Data | 18 |
| Item 9 | Changes In and Disagreements with Accountants on Accounting and Financial Disclosure | 18 |
| Item 9A | Controls and Procedures | 18 |
| Item 9B | Other Information | 19 |
| Part III | ||
| Item 10 | Directors, Executive Officers and Corporate Governance | 19 |
| Item 11 | Executive Compensation | 19 |
| Item 12 | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 19 |
| Item 13 | Certain Relationships and Related Transactions, and Director Independence | 19 |
| Part IV | ||
| Item 15 | Exhibits and Financial Statement Schedules Signatures | 20 |
EXPLANATORY NOTE
Corning Natural Gas Holding Corporation (“Holding Company”) is a successor issuer to Corning Natural Gas Corporation (“Gas Company”) as of November 12, 2013 as a result of a share-for-share exchange, creating a holding company structure. As of November 12, 2013, the Gas Company became a wholly-owned subsidiary of Holding Company.
As used in this Form 10-K, the terms “Gas Company,” “Corning Gas,” “we,” “us,” and “our” mean Corning Natural Gas Corporation, unless the context clearly indicates otherwise. Except as otherwise stated, the information contained in this Form 10-K is as of September 30, 2015.
PART I
ITEM 1 – BUSINESS
General
Corning Natural Gas Holding Corporation (“Holding Company”) was incorporated in New York in July 2013 to serve as a holding company for Corning Natural Gas Corporation (the “Gas Company” or “Corning Gas”) and its dormant subsidiary Corning Natural Gas Appliance Corporation (“Appliance Company”). The Holding Company has 50% ownership interests in our joint ventures, Leatherstocking Gas Company, LLC and Leatherstocking Pipeline Company, LLC.
The Holding Company’s and the Gas Company’s principal executive offices are located at 330 W. William Street, Corning New York 14830 and the telephone number is (607) 936-3755.
Business
The Holding Company’s primary business, through its subsidiary Corning Gas, is natural gas distribution. Corning Gas serves residential, commercial, industrial and municipal customers in the Corning, Hammondsport and Virgil, New York, areas and to two other gas utilities which service the Elmira and Bath, New York, areas. It is franchised to supply gas service in all of the political subdivisions in which it operates. It also transports and compresses gas for a gas producer from its gathering network into an interstate pipeline. It is under the jurisdiction of the New York Public Service Commission (“NYPSC”) which oversees and sets rates for New York gas distribution companies. In addition the Holding Company owns 50% of Leatherstocking Gas LLC, a utility that distributes gas in Susquehanna and Bradford Counties, Pennsylvania, and has an application pending before the NYPSC for authority to provide gas distribution services in Broome County, New York. The Holding Company also owns 50% of Leatherstocking Pipeline, an unregulated company currently supplying gas fromWilliams’ Laser Pipeline to one customer in Lawton, Pennsylvania.
Gas Supply
We have contracted with various sources to provide natural gas to our distribution system. We contract for pipeline capacity, as well as storage capacity of approximately 736,000 dekatherms (“Dth”). Prior to 2014, the Gas Company contracted with a third party to manage its gas supply and storage. After that date we began to manage our transportation and storage capacity with internal resources.
We have secured the NYPSC-required fixed price and storage gas supply for the 2015-2016 winter season and are managing our storage and gas supply contracts following our gas supply and acquisition plan. Assuming no extraordinary conditions for the winter season, gas supply, flowing and storage, will be adequate to serve our approximately 15,000 customers. We do not expect a shortage of natural gas to impact our business over the next five to ten years. Natural gas supply over the last several years has been positive, and domestic reserves and production have increased. This is especially true in proximity to our distribution network. We likewise anticipate no shortages of the necessary pipes and valves for safe distribution of natural gas, and continue to receive material inventory from various reliable sources.
Seasonality
Because our business is highly seasonal in nature, sales for each quarter of the year vary and are not comparable. Sales vary depending on seasonal variations in temperature.
Significant Customers
We have four major customers, Corning Incorporated, New York State Electric & Gas, Bath Electric, Gas & Water Systems, and Repsol Energy North America (“Repsol”, formerly Talisman Energy USA Incorporated). Although Repsol is a significant customer, we do not deliver gas to it. Rather we receive gas from several of its gathering systems and wells, and transport its gas through our system. These customers accounted for approximately 18.8% of our revenues in fiscal 2015 and 17.7% in fiscal 2014. The loss of any of these customers would have an adverse or material impact on our financial results.
Employees
The Gas Company had 58 employees as of September 30, 2015, and 57 as of September 30, 2014. Of this total, nearly half are union labor working under an agreement effective until April 2, 2018.
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Competition
Historically, the competition in our residential market has been primarily from electricity for cooking, water heating and clothes drying, and to a small degree, electricity, fuel oil and propane for heating. The price of gas remains low in comparison to that of alternative fuels in our service territory and our competitive position in the residential, commercial and industrial markets continues to be strong. Over 90 percent of our residential customers heat with gas. When we expand our distribution system to attract new customers, our principal competition is oil and propane. Natural gas enjoys a price advantage over these fuels today.
Environmental Regulation
We believe we are in compliance with present federal, state and local provisions relating to the protection of the environment. We do not expect that continued compliance with these requirements will have any material adverse effect on our capital expenditures, earnings and financial position. The Gas Company has no former manufactured gas plant sites (MGP) and is not a party to any environmental proceedings, litigation or complaints.
Regulatory Matters
The Gas Company is regulated by the NYPSC. On October 19, 2015, the NYPSC adopted the terms of a Joint Proposal for Extension of Gas Rate Plan (“Extension Joint Proposal”) by the Staff of the NYPSC, the Gas Company and other parties to the proceedings. This Extension Joint Proposal settled all contested issues among the parties pertaining to an extension, with modifications, of the original 2012 Joint Proposal’s three year Gas Rate Plan. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Regulatory Matters” for key terms of the order.
Other Recent Developments
As previously reported, on October 13, 2015, the Holding Company entered into a Stock Purchase Agreement with Orange and Rockland Utilities, Inc. for the purchase of all of the outstanding capital stock of Pike County Light & Power Company, a Pennsylvania corporation operating as a regulated electric and gas utility serving approximately 5,800 customers in Pike County, Pennsylvania. The purchase price for the stock of Pike County Light & Power is $13.1 million, with a closing date working capital adjustment which will require the Holding Company to pay no more than $3 million for working capital, and assumption of $3.2 million in Pike County Light & Power’s outstanding bonds. In addition, Orange and Rockland has agreed to provide transition assistance pursuant to a Transition Services Agreement, and to continue to supply electric power and gas to Pike County pursuant to Electric and Gas Supply Agreements. The Gas and Electric Supply Agreements are each for a term of 36 months, with up to three 12-month renewal terms. Consummation of the acquisition is subject to various conditions including, among others, regulatory filings and approvals. The Stock Purchase Agreement may be terminated by mutual consent of Orange and Rockland and the Holding Company, if a condition to closing becomes incapable of fulfillment, and by either party if closing has not occurred within eighteen months after the date of the Agreement (on or before April 13, 2017). See “Risk Factors” and Note 15 to Notes to Consolidated Financial Statements and the Exhibits to this Annual Report on Form 10-K for additional information.
The Holding Company will need additional equity and debt to consummate this acquisition. The Holding Company has a commitment letter from M&T Bank, N.A. to provide, subject to certain conditions, debt financing for a portion of the acquisition costs, and the Holding Company intends to seek additional equity. See “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” below for additional information.
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ITEM 1A. RISK FACTORS.
Our operations could be adversely affected by fluctuations in the price of natural gas.
Prices for natural gas are subject to volatile fluctuations in response to changes in supply and other market conditions. While these costs are usually passed on to customers of the Gas Company pursuant to natural gas adjustment clauses and therefore do not pose a direct risk to earnings, we are unable to predict what effect a sharp increase in natural gas prices may have on our customers’ energy consumption or ability to pay. Higher prices to customers can lead to higher bad debt expense and customer conservation. Higher prices may also have an adverse effect on our cash flow as typically we are required to pay for our natural gas prior to receiving payments for the natural gas from our customers.
Operational issues beyond our control could have an adverse effect on our business.
Our ability to provide natural gas depends both on our own operations and facilities and that of third parties, including local gas producers and natural gas pipeline operators from whom we receive our natural gas supply. The loss of use or destruction of our facilities or the facilities of third parties due to extreme weather conditions, breakdowns, war, acts of terrorism or other occurrences could greatly reduce potential earnings and cash flows and increase our costs of repairs and replacement of assets. Although we carry property insurance to protect our assets, and regulatory policies of the NYPSC provide the opportunity for deferral and recovery of extraordinary incremental costs associated with losses for such incidents for the Gas Company, our losses may not be fully recoverable through insurance or customer rates.
Significantly warmer than normal weather conditions may affect the sale of natural gas and adversely impact our financial position and the results of our operations.
The demand for natural gas is directly affected by weather conditions. Significantly warmer than normal weather conditions in our service areas could reduce our earnings and cash flows as a result of lower gas sales. We mitigate the risk of warmer winter weather through the weather normalization and revenue decoupling clauses in our tariffs. These clauses allow the Gas Company to surcharge customers for under-recovery of revenue. Leatherstocking Gas has neither weather normalization nor revenue decoupling to mitigate the risk of warmer weather.
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There are inherent risks associated with storing and transporting natural gas, which could cause us to incur significant financial losses.
There are inherent hazards and operation risks in gas transportation and distribution activities, such as leaks, accidental explosions and mechanical problems that could cause substantial financial losses. These risks could, if they occur, result in the loss of human life, significant damage to property, environmental pollution, impairment of operations and substantial losses. The location of pipelines and storage facilities near populated areas, including residential areas, commercial business centers and industrial sites, could increase the level of damages resulting from these risks. These activities may subject us to litigation and administrative proceedings that could result in substantial monetary judgments, fines or penalties. To the extent that the occurrence of any of these events is not fully covered by insurance, they could adversely affect our financial position and results of operations.
Changes in regional economic conditions could reduce the demand for natural gas.
Our business follows the economic cycle of the customers in our service regions: Corning, Bath, Virgil, and Hammondsport, New York. A falling,
slow or sluggish economy that would reduce the demand for natural gas in the areas in which we are doing business by forcing temporary plant shutdowns, closing operations or slow economic growth would reduce our earnings potential. One major customer has announced they will close a plant in the service area of the Gas Company if the customer, who accounted for approximately 1.4% of revenues in fiscal 2015, is unable to sell the facility.
Many of our commercial and industrial customers use natural gas in the production of their products. During economic downturns, these customers may see a decrease in demand for their products, which in turn may lead to a decrease in the amount of natural gas they require for production.
During any economic slowdown there is typically an increase in individual and corporate customer bankruptcies. An increase in customer bankruptcies would increase our bad debt expenses and reduce our cash flows.
Our earnings may decrease in the event of adverse regulatory actions.
Most of our operations are subject to the jurisdiction of the NYPSC. The NYPSC approves the rates that we may charge to our customers. If we are required in a rate proceeding to reduce the rates we charge our customers, or if we are unable to obtain approval for rate relief from the NYPSC, particularly when necessary to cover increased costs, including costs that may be incurred in connection with mandated infrastructure improvements, our earnings would decrease.
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We face a variety of risks associated with acquiring and integrating new business operations as we expand into Pennsylvania
We are currently expanding our operations into Pennsylvania through our Leatherstocking joint ventures and the pending acquisition of Pike County Light & Power Company from Orange and Rockland Utilities, Inc. The growth and success of our Pennsylvania business will depend to a great extent on our joint venture partner, Mirabito Regulated Industries, LLC, and on our ability to integrate the operations of Pike County Light & Power Company and any other businesses that we acquire. The integration of the management, personnel, operations, products, services, technologies, and facilities of any businesses that we acquire could involve unforeseen difficulties. These difficulties could disrupt our ongoing businesses, distract our management and employees, and increase our expenses, which could have a material adverse effect on our business, financial condition, and operating results.
There could be material issues concerning an acquired business that are not uncovered in the course of due diligence performed prior to the acquisition and there could be factors outside of our control that later arise. As a result of these factors, after an acquisition is completed, we may be forced to write-down or write-off assets, restructure our operations or incur impairment or other charges relating to an evaluation of goodwill and acquisition-related intangible assets that could result in our reporting losses. In some acquisitions, goodwill is a significant portion of the purchase price, increasing the losses we would incur if such write-downs or write-offs occurred.
Our success depends in large part upon the continued services of a number of significant employees, the loss of which could adversely affect our business, financial condition and results of operation.
Our success depends in large part upon the continued services of our senior executives and other key employees. Although we have entered into an employment agreement with Michael I. German, our president and chief executive officer, he can terminate his agreement on ninety days’ notice. Other significant employees, who entered into change of control agreements on April 17, 2012, may terminate their employment at any time. The loss of the services of any significant employee could have a material adverse effect on our business.
Concentration of share ownership among our largest shareholders may prevent other shareholders from influencing significant corporate decisions.
The six largest holders of our common stock own approximately 59% of the outstanding stock. As a result, if any chose to act together, they would have the ability to exert substantial influence over all matters requiring approval by our shareholders, including the election and removal of directors and any proposed merger, consolidation or sale of all or substantially all of our assets and other corporate transactions. This concentration of ownership could be disadvantageous to other shareholders with differing interests from these shareholders.
Our cash flows from operations will not be sufficient to fund our extraordinary capital expenditures.
We may not generate sufficient cash flows from operations to meet all of our cash needs. As part of our 2012 rate order extension issued in 2015 by the NYPSC, we have estimated capital expenditures to upgrade our distribution system of approximately $5.4 million in fiscal year 2016, approximately $5.5 million in fiscal year 2017, and $5.0 million in fiscal year 2018 that are related to system reliability and other commitments. We also continue to have debt retirement obligations of approximately $3.0 million in 2016 and 2017, $4.0 million in 2018, $2.5 million in 2019 and $.7 million in 2020. Additionally, the Holding Company estimates investments into Leatherstocking Gas of approximately $1 million a year for 2016 through 2017 to fund its one-half of the cost (based on ownership interest) of capital projects.
We will require additional financing which may be difficult or costly to obtain.
In order to fund our extraordinary capital expenditures we will need to obtain additional equity and/or debt financing. The sale of additional equity securities could result in dilution to our shareholders. The incurrence of debt would result in increased debt service obligations and could result in
operating and financing covenants that would restrict our operations. Additional financing for the Gas Company requires NYPSC approval and may have unacceptable terms or may not be available at all for various reasons including:
| * | limits placed on us by our current lenders in our loan agreements, |
| * | our future results of operations, financial condition and cash flows, |
| * | our inability to meet our business plan, |
| * | lenders’ or investors’ perception of, and demand for, securities of natural gas utilities, and |
| * | conditions of the capital markets in which we may seek to raise funds. |
If we cannot raise additional capital on acceptable terms, we may not be able to finance the expansion and mandated upgrading of our distribution system, take advantage of future opportunities or respond to competitive pressures or unanticipated capital requirements. In addition, we will need significant new debt and equity to finance the purchase of Pike County Light & Power Company. This financing could be adversely affected by the above factors.
The Company’s profitability may be adversely affected by increased competition.
We are in a geographical area with a number of interstate pipelines and local production sources. If a major customer decided to connect directly to either an interstate pipeline or a local producer, our earnings and revenues would decrease.
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ITEM 2 – PROPERTIES
Corning Gas and the Holding Company’s headquarters are located at 330 West William Street, Corning, New York. This structure is physically connected to the operations center.
The Gas Company’s pipeline system is surveyed each year as required for compliance with federal and state regulations. Any deficiencies found are corrected as mandated. Approximately 425 miles of distribution main, 15,000 services, and 86 regulating stations, along with various other properties, are owned by the Gas Company, except for one section of 10" gas main that is under long term lease. All of the property owned by the Gas Company is adequately insured and is subject to the lien of the Gas Company’s first mortgage indenture. The Leatherstocking Companies own 4 gate stations and approximately 16 miles of pipe in Susquehanna and Bradford Counties, Pennsylvania.
ITEM 3 - LEGAL PROCEEDINGS
The Gas Company has lawsuits pending of the type incurred in the normal course of business and that the Gas Company believes that any potential losses should be covered by insurance and will not have a material impact on the business. The Holding Company and Appliance Company do not have any lawsuits pending.
ITEM 4 – MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The principal market on which the Holding Company’s common stock is traded is the OTCQX Best Marketplace, under the symbol "CNIG". Trading in the common stock is limited and sporadic. The following table sets forth the high and low closing sale prices as reported on the OTCQX for the Holding Company’s common stock for each quarter within the Holding Company’s last two fiscal years. Because the Holding Company’s stock is traded on the OTCQX, these quotations reflect inter-dealer prices, without retail markup, markdown or commission and may not represent actual transactions. The number of shareholders of record of the Holding Company’s common stock was 618 at September 30, 2015.
MARKET PRICE-(OTCQX)
| Quarter Ended | High | Low | ||||||||
| December 31, 2013 | 19.00 | 17.10 | ||||||||
| March 31, 2014 | 18.30 | 17.05 | ||||||||
| June 30, 2014 | 19.00 | 17.61 | ||||||||
| September 30, 2014 | 22.50 | 18.55 | ||||||||
| December 31, 2014 | 24.99 | 20.50 | ||||||||
| March 31, 2015 | 21.49 | 18.50 | ||||||||
| June 30, 2015 | 21.50 | 19.23 | ||||||||
| September 30, 2015 | 19.50 | 15.79 |
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COMMON STOCK AND DIVIDENDS
For the fiscal year ended September 30, 2015, there were a total of 19,463 shares of common stock issued for $29,785 of cash, $162,414 of services and $132,761 of DRIP (dividend reinvestment program). There were 10,442 shares issued to directors, 526 shares sold to Leatherstocking Gas, which used the shares to compensate its independent director, Carl Hayden, 6,995 of DRIP shares and 1,500 options exercised. On October 21, 2015 an additional 9,000 stock options were exercised for proceeds of $115,470.
Dividends are accrued when declared by the board of directors. At its regular meeting on December 19, 2014, the board of directors approved a quarterly dividend of $.135 a share. This dividend was paid on January 15, 2015 to shareholders of record on December 31, 2014. At its regular meeting on January 20, 2015, the board of directors approved an increase in the quarterly dividend to $.145 a share. This dividend was paid on April 15, 2015 to shareholders of record on March 31, 2015, and on July 15, 2015 to shareholders of record on June 30, 2015. For the quarter ended September 30, 2015, $354,924 was accrued for dividends paid on October 15, 2015 to shareholders of record on September 30, 2015.
As of November 12, 2013, the Holding Company registered 129,004 shares of common stock with a par value of $.01 per share for the DRIP. As part of this program 761 shares were issued in fiscal year 2009, 2,319 shares were issued in fiscal year 2010, 3,976 shares in fiscal year 2011, 5,689 shares in fiscal year 2012, 7,433 shares in fiscal year 2013, 7,219 shares in fiscal year 2014, and 6,995 shares in fiscal year 2015. A total of 34,392 shares have been issued since the program started.
At a special meeting on December 2, 2013, the board of directors of the Gas Company approved the payment and transfer of a dividend of $1.5 million to the Holding Company for the quarter ended December 31, 2013, payable on the same day. At a regular meeting on April 7, 2015, the board of directors of the Gas Company approved the payment and transfer of a dividend of $1.0 million to the Holding Company. These transactions are eliminated in consolidation.
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ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
The Holding Company’s primary business, through its subsidiary Corning Gas, is natural gas distribution. Corning Gas serves approximately 15,000 customers through over 425 miles of pipeline in the Corning, Hammondsport and Virgil, New York areas. The market for natural gas in our traditional service territory is relatively saturated with limited growth potential. However, growth opportunities do exist in extending our mains to areas adjacent or reasonably close to areas we currently serve. In addition, the Company continues to see expansion opportunities in the commercial and industrial markets. Some of our largest customers added additional facilities in our service area that has increased our revenue and margins. We believe that our most promising growth opportunity for both revenues and margins is increasing connection with local gas production sources. We completed a new pipeline to Marcellus Shale gas in Pennsylvania in 2009 and that pipeline has significantly increased throughput and margins on our system. In 2010 we upgraded portions of Line 4 which runs from Caton to the Bradley Station in Elmira and NYSEG, Line 7 which runs from Caton to the Compressor Station and Line 13, which runs from Stateline Station at the New York/Pennsylvania border to Line 4, to increase our capacity to transport local production gas. We have completed a compressor station that is working in conjunction with our pipeline upgrades to transport gas on our system and into the interstate pipeline system. In addition, the Holding Company has 50% interests in two joint ventures, Leatherstocking Gas Company, LLC and Leatherstocking Pipeline Company, LLC, to pipe gas to areas of the northeast currently without gas service. We continue to focus on improving the efficiency of our operations and making capital investments to improve our infrastructure.
As of November 12, 2013, in a share exchange creating our holding company structure, the Holding Company acquired Corning Gas, the Appliance Company and 50% ownership in Leatherstocking Gas and Leatherstocking Pipeline. For periods commencing after November 12, 2013, the financial statements of Corning Gas and the other subsidiaries are consolidated with the financial statements of Holding Company. The restructuring resulting from the share exchange did not and is not expected to materially affect our results of operations, liquidity or requirements for capital resources.
Our key performance indicators are net income and shareholders’ equity.
| Year Ended September 30, | ||||||||
| 2015 | 2014 | |||||||
| Net income | $1,782,081 | $2,067,801 | ||||||
| Shareholders' equity | $29,728,432 | $26,585,186 | ||||||
| Shareholders' equity per weighted average share | $12.18 | $11.35 | ||||||
In 2015, our consolidated net income was approximately $1.8 million, a decrease of approximately $0.3 million from 2014, mainly due to decreased consumption due to warmer weather and less favorable regulatory reconciliations.
As the parent of a regulated utility company, shareholders’ equity is an important performance indicator for us. The NYPSC allows the Gas Company to earn a reasonable return on its book equity. Shareholders’ equity is a precursor of future earnings potential. In 2015, shareholders’ equity increased approximately $3.1 million due mainly to the reduction of other comprehensive income (“OCI”) related to the minimum pension liability discussed further in Notes 5 and 11 to the Consolidated Financial Statements, and an increase to retained earnings related to net income, net of dividends declared. In 2014, shareholders’ equity increased approximately $3.2 million due mainly to net income less dividends and a private placement of common stock that raised approximately $2.5 million offset by a decrease to OCI of approximately $360,000. The changes in OCI do not affect what we earn on equity.
Other performance indicators that we track include leak repair, main and service replacements, and customer service metrics. In 2015, we invested approximately $5.8 million in system improvement and projects, repairing 292 leaks and replacing 492 services and 6.9 miles of main. In 2014, we invested $8.4 million in system improvement and projects, repairing 301 leaks and replacing 411 services and 8.2 miles of main.
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Our customer service group has implemented several changes to positively impact our customers. Beginning in 2007, customers have the option of third party payment of their gas bill through their banking institution. We have also instituted online meter reading. Bill processing has been consolidated to shorten the time between meter readings and mailing, allowing a more direct link between the consumption of gas and the receipt by the customer of their bill. In 2015, due to our new customer information system we were able to institute on-line bill paying. Our principal customer service metric is the number of customer complaints. In 2015, the NYPSC reported 8 complaints against us. This compares to 7 in 2014. None of these complaints were marked against the Gas Company and all were resolved in a timely manner.
Earnings
Earnings on a consolidated basis were as follows:
| Net income | ||||||||
| 2015 | 2014 | |||||||
| Corning Natural Gas income | $1,899,586 | $2,174,722 | ||||||
| (Loss) from Joint ventures | (117,505 | ) | (106,921 | ) | ||||
| Net Income | $1,782,081 | $2,067,801 | ||||||
| Utility operating revenue | ||||||||
| 2015 | 2014 | |||||||
| Retail revenue: | ||||||||
| Residential | $12,835,640 | $14,593,505 | ||||||
| Commercial | 1,985,089 | 2,472,783 | ||||||
| Transportation | 4,266,462 | 4,233,698 | ||||||
| Total retail revenue | 19,087,191 | 21,299,986 | ||||||
| Wholesale | 2,151,761 | 2,593,978 | ||||||
| Local production | 870,496 | 832,435 | ||||||
| Other utility revenues | 393,963 | 738,183 | ||||||
| Total Revenue | $22,503,411 | $25,464,582 | ||||||
The following tables further summarize other income on the utility revenue table above:
| 2015 | 2014 | |||||||
| Other utility revenues: | ||||||||
| Customer discounts forfeited | $112,239 | $129,673 | ||||||
| Reconnect fees | 5,477 | 5,884 | ||||||
| Other gas revenues (see below) | 269,569 | 592,909 | ||||||
| Surcharges | 6,678 | 9,717 | ||||||
| Total other utility revenues | $393,963 | $738,183 | ||||||
| 2015 | 2014 | |||||||
| Other gas revenues: | ||||||||
| Capacity release | 46,674 | — | ||||||
| DRA carrying costs | 5,730 | 7,586 | ||||||
| DRA reconciliation | 104,067 | 62,909 | ||||||
| Monthly RDM amortizations | (254,906 | ) | 39,683 | |||||
| Target customer reconciliation | 371,614 | 482,731 | ||||||
| Annual MFC reconciliations | (103,728 | ) | — | |||||
| Annual RDM reconciliations | (15,216 | ) | — | |||||
| Local production reconciliation | 115,334 | — | ||||||
| Total other gas revenues | 269,569 | 592,909 | ||||||
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2015 compared with 2014. In 2015 our operating revenue decreased by approximately $3 million or 11.6% primarily due primarily to lower gas costs (which are a pass-through item), decreased consumption due to warmer weather (although February 2015 was much colder than normal, the rest of the year was comparatively warmer than the previous year) and less favorable regulatory reconciliations.
| 2015 | 2014 | |||||
| Utility Operating Revenues | $22,503,411 | $25,464,582 | ||||
| Natural Gas Purchased | 7,107,533 | 9,749,281 | ||||
| Margin | $15,395,878 | $15,715,301 | ||||
| 68.42% | 61.71% |
Our margin (the excess of utility operating revenues over the cost of natural gas purchased) decreased $319,423 from 2014 to 2015. This decline was mainly attributable to regulatory reconciliations of $270,122 for the revenue decoupling mechanism (“RDM”) which refunds or surcharges customers to reflect differences between delivery revenue and the revenue target in the last rate case and $103,728 for the merchant function charge (“MFC”) which measures recovery of administrative costs against targets in the last rate case and a decrease in target customer reconciliations of $111,117. These costs are offset by an adjustment to purchase gas of $46,674 to recognize a prior period capacity release re-calculation and a local production reconciliation of $115,334. There has been a decrease of $2.6 million in purchased gas costs due to lower volumes of gas purchased and lower gas costs. The decrease in purchased gas costs led to a margin percentage increase of 6.71%.
Looking forward, we anticipate additional margin growth due to the rate increase allowed by the NYPSC in October 2015. Our cost of gas should remain stable because of our access to local production and current economic and government projections.
Operating Expenses
2015 compared with 2014. Operating and maintenance expenses increased $241,682 from 2014 to 2015 mainly because of increased insurance costs of $127,285, an increase in regulatory expense of $76,501 due to net plant reconciliation and increased costs due to our leak repair project of $241,719 offset by a decrease to our pension expense of approximately $171,000 due to changes in mortality assumptions. We believe these increased expenses are one-time occurrences that we will not have in fiscal 2016. Depreciation increased by $82,323 from 2014 to 2015 due to increases to plant.
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Investment Income
2015 compared with 2014. Investment income increased by $68,190 to $133,551 in 2015 due to higher realized gains and dividends on the Company’s marketable securities.
Effective Tax Rate
There was an effective tax rate of 37.5% for the year ended September 30, 2015 and 38.8% for the year ended September 30, 2014.
Liquidity and Capital Resources
Internally generated cash from operating activities consists of net income, adjusted for non-cash expenses and changes in operating assets and liabilities. Non-cash items include depreciation and amortization, gain or loss on sale of securities and deferred income taxes. Over or under recovered gas costs significantly impact cash flow. In addition, there are significant year-to-year changes in regulatory assets that impact cash flow. Cash flows used in investing activities consist primarily of capital expenditures and investments in our joint ventures. As part of our 2012 rate order extension issued in 2015 by the NYPSC (the “Joint Proposal Extension”), we have estimated capital expenditures to upgrade our distribution system of approximately $5.4 million in fiscal 2016, and approximately $5.5 million and $5.0 million in fiscal years 2017 and 2018, respectively. We expect to finance these planned capital expenditures with a combination of cash provided by operations and issuance of additional long-term debt and equity.
The earnings sharing mechanism approved by the NYPSC in the 2012 rate order and extended in the Joint Proposal Extension provides for sharing between Corning Gas shareholders and customers of the earned return on equity (ROE) above certain levels. Under the earnings sharing mechanism, Corning Gas is allowed to retain all earnings up to and including a 9.4% ROE level, 50% of earnings above 9.4% up to and including 9.8%, 20% of earnings above 9.8% up to and including 10.2%, and 10% of earnings above 10.2%. We believe that these limits do not have a significant effect on our liquidity because even at those limits we have sufficient cash collected from our earnings to support operations.
Cash flows from financing activities consist of sales of Holding Company stock, dividends paid, repayment of long-term debt, new debt and changes in the outstanding balances of our lines-of-credit. For our consolidated operations, we have an $8.5 million revolving line of credit with an interest rate calculated as the 30-day LIBOR plus 2.5%. This line expires on April 1, 2016. The amount outstanding under this line on September 30, 2015 was approximately $7.0 million with an interest rate of 2.9905%. Our lender has a purchase money security interest in all our natural gas purchases utilizing funds advanced by the bank under the credit agreement and all proceeds of sale and accounts receivable from the sale of that gas. We rely heavily on our credit lines to finance the purchase of gas that we place in storage and use our accounts receivable as collateral.
On August 17, 2015, the Gas Company entered into a Term Note and Agreement with M&T Bank in the amount of $2,000,000 with an interest rate of 2.30 percentage points above LIBOR for the purpose of short term financing of mandated construction projects. The maturity date of this note was November 17, 2015. On October 14, 2015, the Gas Company entered into a Term Note and Agreement with M&T Bank in the amount of $1,000,000 with an interest rate of 2.75 percentage points above LIBOR for the purpose of short term financing of mandated construction projects. The maturity date of this note was January 14, 2016. On November 6, 2015, the Gas Company entered into a Term Note and Agreement with M&T Bank in the amount of $3,000,000 that consolidated the notes for $2,000,000 and $1,000,000 into a new note with a maturity date of February 6, 2016. This note has an interest rate of 2.75 percentage points above LIBOR. This note is expected to be either refinanced or extended at maturity.
On September 30, 2015, we had $15.5 million in long term debt outstanding. We repaid $2.8 million during fiscal year 2015 consistent with the requirements of our debt instruments and refinancing activities. \
Prior to April 2014, the Gas Company contracted with a third-party to manage its gas supply and storage. Starting in April 2014, the Gas Company assumed responsibility for managing its gas supply assets. At September 30, 2015, we had 654,040 dekatherms at $1.2 million in storage. As the result of these actions, we anticipate that we will have sufficient gas to supply our customers for the 2015-2016 winter heating season.
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As of September 30, 2015, we believe that cash flow from operating activities and borrowings under our lines of credit will not be sufficient to satisfy our working capital and debt service requirements over the next twelve months. We believe modifications or refinancing of current debt amounts, as well as new debt and proceeds from equity will be required to satisfy our capital expenditures to finance our internal growth needs for the next twelve months. In addition, we will need approximately $19 million of additional debt and equity to complete our purchase of Pike County Light & Power Company. See Note 15 of the Notes to Consolidated Financial Statements for additional information.
Other Comprehensive Income
Other comprehensive income (“OCI”) is comprised of unrealized gains or losses on securities available for sale as required by FASB ASC 320 and pension liability adjustments as required by FASB ASC 715. For the period ending September 30, 2014, there was a $450,465 OCI loss for the period due to a change in the mortality tables used by the actuary to calculate our pension liability which was offset by a change in the methodology used to calculate our discount rate.
In fiscal year 2015, the Gas Company determined that it met the criteria to record the minimum pension liability as a regulatory asset in accordance with ASC 980-715-25-5. Adjustments to OCI and regulatory assets were recorded in the current year in accordance with ASC 980-715-25-8 because the criteria established was determined to be met in the current period. The amount of the regulatory asset was $3,665,926. The increase to OCI was $2,748,238. For additional information, see Note 5 to the Notes to the Consolidated Financial Statements.
Off Balance Sheet Arrangements
We have no off balance sheet arrangements.
Contractual Obligations
The following tables summarize the Gas Company’s expected future contractual cash obligations as of September 30, 2015, and the twelve month periods over which they occur.
The aggregate maturities of long-term debt for each of the five years subsequent to September 30, 2015 are as follows:
| 2016 | $2,923,133 | |||||
| 2017 | $3,020,343 | |||||
| 2018 | $4,206,271 | |||||
| 2019 | $2,548,616 | |||||
| 2020 | $668,009 | |||||
| 2021+ | $2,111,158 |
The estimated interest payments on the above debts are as follows:
| 2016 | $617,278 | |||||
| 2017 | $485,548 | |||||
| 2018 | $315,822 | |||||
| 2019 | $161,176 | |||||
| 2020 | $111,971 | |||||
| 2021+ | $195,796 |
The estimated pension plan benefit payments are as follows:
| 2016 | $1,103,000 | |||||
| 2017 | $1,141,000 | |||||
| 2018 | $1,161,000 | |||||
| 2019 | $1,226,000 | |||||
| 2020 | $1,337,000 | |||||
| 2021+ | $7,057,000 |
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Lines of Credit and Short Term Debt
On October 27, 2015, the Gas Company extended its line of credit agreement with Community Bank N.A. (“Community Bank”) in the amount of $8.5 million that will expire on April 1, 2016. Borrowings outstanding on this line were $7,003,599 and $4,614,541 at September 30, 2015 and 2014, respectively. The maximum amount outstanding during the years ended September 30, 2015 and 2014 were $7,581,344 and $7,140,511 respectively. The interest rate is calculated as the 30-day Libor Rate plus 2.5%. As security for the Gas Company’s line of credit, Community Bank has a purchase money interest in all of our natural gas purchases utilizing funds advanced by Community Bank under the line-of-credit agreement and all proceeds of sale of the gas to customers and related accounts receivable. Under the terms of this line the Gas Company is required to maintain a debt to tangible net worth ratio of less than 2.5 to 1 and a debt service coverage ratio of 1.1 to 1. The Gas Company is in compliance with the loan covenants as of September 30, 2015. On September 30, 2015, the interest rate was 2.9905%. The weighted average interest rates on outstanding borrowings during fiscal years 2015 and 2014 were 2.90% and 3.17%, respectively.
On August 24, 2014, Leatherstocking Gas and Five Star Bank entered into an agreement which allows Leatherstocking Gas to borrow up to $4 million over a two-year period as a line-of-credit note with interest only payments due at a variable rate equal to the prime rate announced in the Wall Street Journal on a monthly basis. On September 1, 2016 the note will convert to a permanent loan payable over five years at a fixed rate. The note required matching 60% of each advance with 40% of borrower equity. That required an investment of $800,000 as of September 30, 2015 from each of the equity holders. Leatherstocking Pipeline is a guarantor of this loan. The interests of the Holding Company and Mirabito Regulated Industries, LLC in equal parts have been pledged as additional collateral. The purpose of this credit note is to finance the work and services required for the infrastructure costs and ongoing costs of underground piping construction projects in Montrose, Bridgewater and Dimock, Pennsylvania.
On October 19, 2015, Leatherstocking Gas and Five Star Bank entered into an agreement which allows Leatherstocking Gas to borrow up to $500,000 as a line-of-credit note with interest only payments due at a variable rate equal to the prime rate announced in the Wall Street Journal on a monthly basis. The note will then convert to a permanent loan payable over five years on a ten year amortization schedule. When the loan converts, Leatherstocking Gas will decide on either a fixed rate or variable rate. This requires an investment of approximately $166,667 from each of the equity holders. Leatherstocking Pipeline is a guarantor of this loan. The interests of the Holding Company and Mirabito Regulated Industries, LLC in equal parts have been pledged as additional collateral. The purpose of this credit note is to finance the continued and additional infrastructure cost of the construction project in Northern Pennsylvania.
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On August 17, 2015, the Gas Company entered into a Term Note and Agreement with M&T in the amount of $2,000,000 with an interest rate of 2.30 percentage points above LIBOR for the purpose of short term financing of mandated construction projects. The maturity date of this note was November 17, 2015. On October 14, 2015, the Gas Company entered into a Term Note and Agreement with M&T in the amount of $1,000,000 with an interest rate of 2.75 percentage points above LIBOR for the purpose of short term financing of mandated construction projects. The maturity date of this note was January 14, 2016. On November 6, 2015, the Gas Company entered into a Term Note and Agreement with M&T in the amount of $3,000,000 that consolidated the notes for $2,000,000 and $1,000,000 into a new note with a maturity date of February 6, 2016. This note has an interest rate of 2.75 percentage points above LIBOR. It is expected that this note will either be refinanced or extended at maturity.
Regulatory Matters
The Holding Company’s primary business, through its subsidiary Corning Gas, is regulated by the NYPSC among other agencies.
On May 24, 2011, the Gas Company filed Case 11-G-0280, a base rate case that requested an increase in revenues for a three-year period ending April 30, 2015. On April 20, 2012, the NYPSC issued a final order in the case accepting a January 13, 2012 Joint Proposal (the “2012 Joint Proposal”) of the parties to the case, including the Gas Company and the NYPSC Staff, to resolve all issues in the rate case, with rates effective May 1, 2012 and subject to adjustment during the three-year period ending April 30, 2015.
On January 8, 2015, the Gas Company filed with the NYPSC a notice of impending settlement negotiations in Case 11-G-0280, identifying the issues expected to be addressed in those negotiations, principally a possible extension of the 2012 Joint Proposal, and noting the measures necessary to effect such an extension. On July 15, 2015, the Company, NYPSC Staff and the other parties to Case 11-G-0280 filed a Joint Proposal for Extension of Gas Rate Plan (“Extension Joint Proposal”). This Extension Joint Proposal settled all contested issues among the parties pertaining to an extension, with modifications, of the original 2012 Joint Proposal’s three-year Gas Rate Plan. Except as modified by the Extension Joint Proposal, the terms of the 2012 Joint Proposal continue in effect and the delivery rates established by the 2012 Joint Proposal continue in effect through April 30, 2017. The Extension Joint Proposal provides for the Gas Company to establish a “Safety and Reliability” customer surcharge on its customers to recover certain carrying costs on approved infrastructure improvements for the period of the extension. The Extension Joint Proposal also resolves a property tax issue and requires the Gas Company to return to customers a “Gas System Benefit Charge” over-collection (a regulatory liability of the Gas Company) over a three-year period. In addition, the Extension Joint Proposal reduces the 2012 Joint Proposal’s Return on Equity (“ROE”) threshold for the commencement of sharing by customers of excess earnings, from 9.5% to 9.0%, thereby increasing the opportunity for customer sharing at various ROE levels above that threshold. On October 19, 2015, the NYPSC adopted the terms of the Extension Joint Proposal, including the Safety and Reliability Charge which permits the Gas Company to collect approximately $466,000 in the first twelve months (May 1, 2015 through April 30, 2016), and approximately $575,000 in the second twelve months (May 1, 2016 through April 30, 2017), of the extended Gas Rate Plan, for a total of approximately $1,041,000. The collection period will be condensed and start November 1, 2015 and end April 30, 2017. The return of the Gas System Benefit Charge over-collection and elimination of its prospective collection (a regulatory liability) partially offset the collections on the Safety and Reliability Charge, resulting in a total cash flow increase expected over the two-year term of the Extension Joint Proposal of approximately $426,000.
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On February 8, 2012, the Gas Company filed a petition in Case 12-G-0049 requesting authorization to issue $12,650,000 in debt and $12,650,000 in equity to support the utility infrastructure and growth programs ($20,950,000), Leatherstocking ($1,800,000) and non-utility investments ($2,500,000). As a result of discussions with the NYPSC Staff, the Gas Company requested that the petition be bifurcated and that the NYPSC immediately review and approve that portion of the petition’s funding request pertaining to the Gas Company’s gas distribution system. On May 17, 2012, the NYPSC acted on the petition. The Gas Company was authorized to issue long-term debt up to $9,000,000 and authorized to issue common stock, convertible preferred stock and stock warrants up to $9,000,000, no later than December 31, 2016. During the preparation of a new debt financing petition filed with the NYPSC in Case 15-G-0460, the Gas Company discovered that it had inadvertently not filed notice to the NYPSC of issuance of debt on August 13, 2013 and September 3, 2013 in the amounts of $750,000 and $2,329,223, respectively. The amount issued under Commission Order in Case 12-G-0049 totaled $10,440,223, exceeding the $9,000,000 authorized in that Order by $1,440,223. On August 3, 2015, the Company notified the NYPSC of the two additional loan issuances. The Company, on August 6, 2015, filed its petition in Case 15-G-0460 seeking authority to issue $34,768,837 in long-term debt to fund its capital expenditures for the period 2015-2021. The amount requested in the petition reflects the deduction of $1,440,223. NYPSC action is expected in the first quarter of 2016.
On March 24, 2014, Leatherstocking Gas filed a petition with the Pennsylvania Public Utility Commission (the “PAPUC”) requesting authorization to issue a commercial promissory note in the amount of $4,000,000. On May 22, 2014, the PAPUC issued an order in Docket No. S-2014-2412743 approving the petition.
On February 20, 2015, Leatherstocking Gas, pursuant to Section 68 of the Public Service Law, filed with the NYPSC for a Certificate of Public Convenience and Necessity and for approval of, and permission to exercise, franchises previously granted in the Town of Windsor (Case 15-G-0098) and Village of Windsor (Case 15-G-0099). The Commission review of the applications is pending.
On February 27, 2015, Leatherstocking Gas, pursuant to Public Service Law Section 69, filed for authority to issue long-term indebtedness in the principal amount of $2,750,000 for the purpose of financing new construction in the Town and Village of Windsor. The Commission review of the application in Case 15-G-0128 is pending.
On June 3, 2015, Leatherstocking Gas filed a petition with the PAPUC requesting authorization to issue a commercial promissory note in the amount of $5,668,963. On July 8, 2015, the PAPUC issued an order in Docket No. S-2015-2486104 approving the petition.
Critical Accounting Policies
Our significant accounting policies are described in the notes to the accompanying Consolidated Financial Statements of this Form 10-K. The application of generally accepted accounting principles involve certain assumptions, judgments and estimates that affect reported amounts of assets, liabilities, revenues and expenses. Thus, the application of these principles can result in varying results from company to company. The principles and policies that most significantly impact us are discussed below.
Accounting for Utility Revenue and Cost of Gas Recognition
We record revenues from residential and commercial customers based on meters read on a cycle basis throughout each month, while certain large industrial and utility customers’ meters are read at the end of each month. We do not accrue revenue for gas delivered but not yet billed, as the NYPSC requires that such accounting be adopted during a rate proceeding, which we have not done. Currently we do not anticipate adopting unbilled revenue recognition nor do we believe it would have a material impact on our financial results. Our tariffs contain mechanisms that provide for the recovery of the cost of gas applicable to firm customers, which includes estimates. Under these mechanisms, we periodically adjust rates to reflect increases and decreases in the cost of gas. Annually, we reconcile the difference between the total gas costs collected from customers and the cost of gas. We defer any excess or deficiency and subsequently either recover it from, or refund it to, customers over the following twelve-month period. To the extent estimates are inaccurate; a regulatory asset on the balance sheet is increased or decreased.
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Accounting for Regulated Operations - Regulatory Assets and Liabilities
Corning Gas is subject to regulation by NYPSC. We record the results of our regulated activities in accordance with Financial Accounting Standards Board (FASB) ASC 980 (prior authoritative literature: Statement of Financial Accounting Standards (SFAS) No. 71, “Accounting for the Effects of Certain Types of Regulation”), which results in differences in the application of generally, accepted accounting principles between regulated and non-regulated businesses. FASB ASC 980 requires the recording of regulatory assets and liabilities for certain transactions that would have been treated as revenue and expense in non-regulated businesses. In certain circumstances, FASB ASC 980 allows entities whose rates are determined by third-party regulators to defer costs as "regulatory" assets in the balance sheet to the extent that the entity expects to recover these costs in future rates. Management believes that currently available facts support the continued application of FASB ASC 980 and that all regulatory assets and liabilities are recoverable or refundable through the regulatory environment.
In fiscal year 2015, the Gas Company determined that it met the criteria to record the minimum pension liability as a regulatory asset in accordance with ASC 980-715-25-5. Adjustments to OCI and regulatory assets were recorded in the current year in accordance with ASC 980-715-25-8, because the criteria established was determined to be met in the current period. The amount of the regulatory asset was $3,665,926. The increase to OCI was $2,748,238. Factors considered include consistent recovery of the pension costs on an accrual basis historically and in the current rate case, no indication of expected changes to recovery, and the existence of a reconciliation process to track the recovery of these costs. For these reasons management determined the Gas Company meets the criteria as set forth in ASC 980-725-25-5. For additional information, see Note 5 to the Notes to the Consolidated Financial Statements.
Accounting for Income Taxes
The Holding Company uses the asset and liability method to establish deferred tax assets and liabilities for the temporary differences between the financial reporting basis and the tax basis of the Holding Company’s assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. In addition, such deferred tax assets and liabilities will be adjusted for the effects of enacted changes in tax laws and rates.
Accounting for the Compressor Station
The Gas Company bought an $11 million compressor station and $2.1 million pipeline from a local producer for two dollars in fiscal 2011. Although the Company has effectively new plant with an original cost of $13.1 million, only two dollars was recognized on the Balance Sheet in accordance with the Uniform System of Accounts (313.2) which states that in the case of gas plant contributed to the utility, gas plant accounts shall be charged only with such expenses, if any, incurred by the utility. Please see Note 1(s) of the Notes to the Consolidated Financial Statements “311 Transportation Agreement/Compressor Station” for additional information.
Accounting for the Joint Ventures
The investment and equity in Leatherstocking Gas and Leatherstocking Pipeline (collectively, “Joint Ventures”) has been recognized in the consolidated financial statements. The Holding Company has accounted for its equity investment using the equity method of accounting based on the guidelines established in FASB ASC 323. In applying the guidance of FASB ASC 323, the Holding Company recognized the investment in the Joint Ventures as an asset at cost. The investment will fluctuate in future periods based on the Holding Company’s allocable share of earnings or losses from the Joint Ventures which is recognized through earnings.
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Pension and Post-Retirement Benefits
The amounts reported in our financial statements related to pension and other post-retirement benefits are determined on an actuarial basis, which requires the use of many assumptions in the calculation of such amounts. These assumptions include the discount rate, the expected return on plan assets, the rate of compensation increase and, for other post-retirement benefits, the expected annual rate of increase in per capita cost of covered medical and prescription benefits. Changes in actuarial assumptions and actuarial experience could have a material impact on the amount of our pension and post-retirement benefit costs and funding requirements. For the period ended September 30, 2014, the discount rate was prepared by utilizing an analysis of the plan’s expected future cash flows and high-quality fixed-income investments currently available and expected to be available during the period to maturity of the pension benefits. The discount rate used is an estimate of the rate at which a defined benefit pension plan could settle its obligations. Rather than using a rate and curve developed using a bond portfolio, this method selects individual bonds to match to the expected cash flows of the Plan. Management feels this provides a more accurate depiction of the true cost to the plan to settle the obligations as the Plan could theoretically go into the marketplace and purchase the specific bonds used in the analysis in order to settle the obligations of the Plan. The change in methodology for determining the discount rate resulted in an approximate $2,153,000 decrease to the pension benefit obligation. In 2014, the actuary for the pension plan changed the mortality assumption from the 1994 Group Annuity Mortality Table for Males and Females without generational improvements to the RP-200 annuitant/non-annuitant Mortality Table for Males and Females with generational improvements projected using scale BB. This change resulted in an increase to the pension benefit obligation of approximately $1,394,000. The net effect of these two changes to the assumptions is a decrease of approximately $759,000 to the pension benefit obligation. In fiscal 2015, the same methodology was used as in 2014. The change in discount rate from 5.07% to 5.22% did not have a significant effect on the benefit obligation. However, we expect to recover substantially all our net periodic pension and other post-retirement benefit costs attributed to employees in accordance with NYPSC authorization. For financial reporting purposes, the difference between the amounts of such costs as determined under applicable accounting principles is recorded as either a regulatory asset or liability.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report contains statements which, to the extent they are not recitations of historical facts, constitute "forward-looking statements" within the meaning of the Securities Litigation Reform Act of 1995 (Reform Act). The words "estimate", "project", "anticipate", "expect", "intend", "believe", "could" and similar expressions are intended to identify forward-looking statements. All such forward-looking statements are intended to be subject to the safe harbor protection provided by the Reform Act. Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be achieved. As forward looking statements, these statements involve risks, uncertainties and other factors that could cause actual results to differ materially from the expected results. Accordingly, actual results may differ materially from those expressed in any forward looking statements. Factors that could cause results to differ materially from our management's expectations include, but are not limited to, those listed under Item 1A - "Risk Factors" of this Annual Report on Form 10-K for the fiscal year ended September 30, 2015, in addition to:
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| * | the effect of any interruption in our supply of natural gas or a substantial increase in the price of natural gas, |
| * | our ability to successfully negotiate new supply agreements for natural gas as they expire, on terms favorable to us, or at all, |
| * | the effect on our operations of any action by the NYPSC, |
| * | the effect of any litigation, |
| * | the effect on our operations of unexpected changes in any other applicable legal or regulatory requirements, |
| * | the amount of natural gas produced and directed through our pipeline by producers, |
| * | our ability to obtain additional equity or debt financing to fund our capital expenditure plans and for general corporate purposes, |
| * | our successful completion of various capital projects and the use of pipeline, compressor stations and storage by customers and counterparties at levels consistent with our expectations, |
| * | our ability to retain the services of our senior executives and other key employees, |
| * | our vulnerability to adverse general economic and industry conditions generally and particularly the effect of those conditions on our major customers, |
| * | the effect of any events in our transportation and delivery pipelines, and |
| * |
competition to our gas supply and transportation business from other pipelines |
Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update any forward-looking statement in light of new information or future events.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements are filed with this Form 10-K:
Report of Freed Maxick CPAs, P.C., Independent Registered Public Accounting Firm
Consolidated Financial Statements:
Consolidated Balance Sheets as of September 30, 2015 and 2014
Consolidated Statements of Income and Other Comprehensive Income (Loss) for the years ended September 30, 2015 and 2014
Consolidated Statements of Stockholders’ Equity for the years ended September 30, 2015 and 2014
Consolidated Statements of Cash Flows for the years ended September 30, 2015 and 2014
Notes to Consolidated Financial Statements
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
ITEM 9A - CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of September 30, 2015, the Holding Company’s management, with the participation of the Holding Company’s chief executive officer and chief financial officer, evaluated the effectiveness of the design and operation of the Holding Company’s disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended. Based upon the Holding Company’s evaluation, the Holding Company’s chief executive officer and chief financial officer concluded that the Holding Company’s disclosure controls and procedures are effective as of September 30, 2015.
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Management’s Report on Internal Controls over Financial Reporting
The management of the Holding Company is responsible for establishing and maintaining adequate internal controls over financial reporting as such term is defined in Exchange Act Rule 13a-15(f) and 15d-15(f). The Holding Company’s internal controls over financial reporting are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements. Our internal controls over financial reporting is supported by appropriate reviews by management, written policies and guidelines, careful selection and training of qualified personnel, and a written Code of Conduct adopted by our Holding Company’s Board of Directors, applicable to all Company Directors and all officers and employees of our Company.
The Audit Committee of our Holding Company’s Board of Directors meets with the independent public accountants and management periodically to discuss internal controls over financial reporting and auditing and financial reporting matters. The Audit Committee reviews with the independent public accountants the scope and results of the audit effort. The Audit Committee’s Report will be reported in the Proxy Statement issued in connection with the Holding Company’s 2016 Annual Meeting of Shareholders.
The Holding Company’s management, including the Company’s chief executive officer and chief financial officer, assessed the effectiveness of the Holding Company’s internal controls over financial reporting as of September 30, 2015. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework from 2013. Based upon that evaluation, our chief executive officer and chief financial officer concluded that our internal controls over financial reporting was effective as of September 30, 2015.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that was conducted during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B - OTHER INFORMATION
None
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by Item 10 is incorporated herein by reference to the Registrant’s definitive Proxy Statement relating to its 2013 Annual Meeting of Shareholders (the "Proxy Statement"), under the captions "Board of Directors," "Executive Officers," "Section 16(a) Beneficial Ownership Reporting Compliance" and "Code of Business Conduct and Ethics" or an amendment to this Annual Report in Form 10-K. The Proxy Statement, or an amendment to this Annual Report on Form 10-K containing the required information, will be filed with the SEC prior to January 28, 2016.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is contained under the caption "Executive Compensation” in the Proxy Statement and incorporated herein by reference or an amendment to this Annual Report on Form 10-K. The Proxy Statement, or an amendment to this Annual Report on Form 10-K containing the required information, will be filed with the SEC prior to January 28, 2016.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required with respect to security ownership of certain beneficial owners is set forth under the caption "Principal Shareholders" and "Equity Compensation Plan Information at September 30, 2015" in the Proxy Statement and incorporated herein by reference or an amendment to this Annual Report on Form 10-K. The Proxy Statement, or an amendment to this Annual Report on Form 10-K containing the required information, will be filed with the SEC prior to January 28, 2016.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by Item 13 is contained under the caption "Certain Relationships and Related Transactions" and "Director Independence" in the Proxy Statement and incorporated herein by reference or an amendment to this Annual Report on Form 10-K. The Proxy Statement, or an amendment to this Annual Report on Form 10-K containing the required information, will be filed with the SEC prior to January 28, 2016.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by Item 14 will be contained under the caption "Audit Committee Report - Principal Accounting Fees and Services" in the Proxy Statement and incorporated herein by reference or an amendment to this Annual Report on Form 10-K . The Proxy Statement, or an amendment to this Annual Report on Form 10-K containing the required information, will be filed with the SEC prior to January 28, 2016.
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PART IV
ITEM 15 - EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
| (a) Financial Statement Schedules (see Item 8 Financial Statements and Supplementary Data) | ||
| (b) Exhibits | ||
| Exhibits incorporated by reference for filings made before January 1, 1995 may be found in the Company's Commission File 0-643 | ||
| Exhibit No. | Description | |
| 2.1 | Agreement and Plan of Exchange, dated September 12, 2013, between the Gas Company and Holding Company (filed as Exhibit 2.1 to the Holding Company’s Registration Statement on Form S-4 (No. 333-190348 (the “Form S-4”)) | |
| 3.1 | The Holding Company’s Certificate of Incorporation, (included as Exhibit B to the Proxy Statement/Prospectus forming portion of the Form S-4) | |
| 3.2** | Certificate of Exchange, dated November 6, 2013, consented to by the New York Public Service Commission on November 8, 2013, and filed with the New York Department of State on November 12, 2013 | |
| 3.3 | Amended and Restated Bylaws of Corning Natural Gas Holding Corporation, effective June 2, 2014 (incorporated by reference to Exhibit 3.2 of the Holding Company's Current Report on Form 8-K dated June 2, 2014 and filed on June 3, 2014) | |
| 4.1 | See Exhibits 3.1 and 3.2 for provisions in the Holding Company’s Certificate of Incorporation and By-laws defining the rights of holders of the Holding Company Common Stock | |
| 4.2* | Amended and Restated 2007 Stock Plan (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 10-Q dated August 12, 2009) | |
| 4.3 | Dividend Reinvestment Plan (filed as Exhibit 4.3 of the Company’s Registration Statement on Form S-1 (No. 333-182386), originally filed with the Securities and Exchange Commission on June 28, 2012) | |
| 10.1* | Employment Agreement dated November 30, 2006 between Michael German and the Company (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K dated November 30, 2006) | |
| 10.2* | Amended and Restated Severance Agreement effective August 18, 2006 between the Company and Kenneth J. Robinson (incorporated by reference to Exhibit 10.18 of the Company’s Current Report on Form 8-K dated August 14, 2006) | |
| 10.3* | First Amendment to Employment Agreement between Michael I. German and the Company dated December 31, 2008 (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 10-Q dated August 12, 2009) | |
| 10. 4 | Amended and Restated 2007 Stock Plan (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 10-Q dated August 12, 2009) | |
| 10.5 | Commercial Promissory Note between the Company and Community Bank, N.A. dated March 31, 2010 (incorporated by reference to Exhibit 10.3 of The Company’s Current Report on Form 8-K dated May 7, 2010) | |
| 10.6 | Commercial Security Agreement between the Company and Community Bank, N.A. dated March 31, 2010 (incorporated by reference to Exhibit 10.4 of The Company’s Current Report on Form 8-K dated May 7, 2010) | |
| 10.7 | Commercial Security Agreement between The Company and Community Bank, N.A. dated March 31, 2010 (incorporated by reference to Exhibit 10.5 of The Company’s Current Report on Form 8-K dated May 7, 2010) | |
| 10.8 | Commitment Letter between The Company and Manufacturers and Traders Trust Company dated May 10, 2010 (incorporated by reference to Exhibit 10.16 of The Company’s Current Report on Form 10-Q dated May 12, 2010) | |
| 10.9 | Negotiated 311 Gas Transportation Agreement between The Company and Talisman Energy USA, Inc. dated May 13, 2010, with confidential portions redacted. Confidential information omitted and filed separately with the SEC (incorporated by reference to Exhibit 10.1 of The Company’s Current Report on Form 8-K dated May 21, 2010) | |
| 10.10 | Multiple Disbursement Term Note between the Company and Manufacturers and Traders Trust Company dated July 14, 2011 (incorporated by reference to Exhibit 10.1 of The Company’s Current Report on Form 8-K dated July 14, 2011) |
| 20 |
| 10.11 | Letter of Credit Agreement between the Company and Manufacturers and Traders Trust Company dated July 14, 2011 (incorporated by reference to Exhibit 10.1 of The Company’s Current Report on Form 8-K dated July 14, 2011) | |
| 10.12 | Promissory Note between the Company and Five Star Bank dated September 1, 2011 (incorporated by reference The Company’s Current Report on Form 10-K, dated December 28, 2012) | |
| 10.13* | Form of Change of Control Agreement between the Company and Firouzeh Sarhangi, Stanley G. Sleve, Matthew J. Cook and Russell Miller dated April 17, 2012 (incorporated by reference to Exhibit 10.1 of The Company’s Current Report on Form 8-K dated April 17, 2012) | |
| 10.14* | Settlement and Release Agreement between The Company and Thomas K. Barry dated December 30, 2011 (incorporated by reference to Exhibit 10.30 of The Company’s Registration Statement on Form S-1 (No. 333-182386), originally filed with the Securities and Exchange Commission on June 28, 2012) | |
| 10.15 | Operating Agreement of the Leatherstocking Pipeline Company, LLC (incorporated by reference to Exhibit 10.31 of The Company’s Registration Statement on Form S-1 (No. 333-182386), originally filed with the Securities and Exchange Commission on June 28, 2012) | |
| 10.16 | Operating Agreement of the Leatherstocking Gas Company, LLC (incorporated by reference to Exhibit 10.32 of the Company’s Registration Statement on Form S-1 (No. 333-182386), originally filed with the Securities and Exchange Commission on June 28, 2012) | |
| 10.17 | Line of Credit Agreement between The Company and Community Bank N.A. dated July 27, 2012 (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K dated July 30, 2012) | |
| 10.18 | Term Loan Agreement between The Company and Community Bank N.A. dated July 27, 2012 (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K dated July 30, 2012) | |
| 10.19 | Promissory Note in the principal amount of $250,000 payable by The Company to Five Star Bank dated August 13, 2012 (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K dated August 15, 2012) | |
| 10.20 | Promissory Note in the principal amount of $250,000 payable by The Company to Five Star Bank dated August 13, 2012 (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K dated August 15, 2012) | |
| 10.21* | Form of Restricted Stock Agreement – Officers under the Corning Natural Gas Corporation’s Amended and Restated 2007 Stock Plan (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K dated December 11, 2012) | |
| 10.22* | Form of Restricted Stock Agreement - Non-employee Directors under the Corning Natural Gas Corporation’s Amended and Restated 2007 Stock Plan (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K dated December 11, 2012) | |
| 10.23 | Commercial Line of Credit Agreement and Note as of June 21, 2013 by and between Corning Natural Gas Corporation and Community Bank N.A. (incorporated by reference to Exhibit 10.2 of The Company’s Current Report on Form 8-K dated June 21, 2013) |
| 21 |
| 10.24 | Addendum to Commercial Line of Credit Agreement and Note dated June 21, 2013 by and between Corning Natural Gas Corporation and Community Bank N.A. (incorporated by reference to Exhibit 10.3 of The Company’s Current Report on Form 8-K dated June 21, 2013) | |
| 10.25 | Agreement to Cancel Security Agreement dated June 21, 2013 by and between Corning Natural Gas Corporation and Community Bank N.A. (incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K dated June 21, 2013) | |
| 10.26 | Replacement Multiple Disbursement Term Note, dated as of September 3, 2013, by and between the Company and M&T Bank (incorporated by reference to Exhibit 10.1 of The Company’s Current Report on Form 8-K dated September 3, 2013) | |
| 10.27 | Replacement Term Note, dated as of September 3, 2013, by and between the Company and M&T Bank (incorporated by reference to Exhibit 10.2 of The Company’s Current Report on Form 8-K dated September 3, 2013) | |
| 10.28 | Multiple Disbursement Term Note, dated as of September 3, 2013, by and between the Company and M&T Bank (incorporated by reference to Exhibit 10.3 of The Company’s Current Report on Form 8-K dated September 3, 2013) | |
| 10.29 | Specific Security Agreement, dated as of September 3, 2013, by and between the Company and M&T Bank (incorporated by reference to Exhibit 10.4 of The Company’s Current Report on Form 8-K dated September 3, 2013) | |
| 10.30 | Letter of Commitment between the Company and Community Bank N.A. (incorporated by reference to Exhibit 10.1 of the Holding Company’s Current Report on Form 8K dated March 25, 2014) | |
| 10.31 | Commercial Line of Credit Agreement between the Company and Community Bank N.A. (incorporated by reference to Exhibit 10.2 of the Holding Company’s Current Report on Form 8K dated March 25, 2014) | |
| 10.32 | Stock Purchase Agreement between the Holding Company and Article 6 Marital Trust under the First Amended and Restated Jerry Zucker Revocable Trust Dated April 2, 2007, dated April 7, 2014 | |
| 10.33 | Stock Purchase Agreement between the Holding Company and the Retirement Plan for the L.S. Starret Company with QCI Management, Inc., as Registered Investment Advisor dated April 14, 2014 | |
| 10.34 | Stock Purchase Agreement between the Holding Company and DBH, LLC with QCI Asset Management, Inc., as Registered Investment Advisor dated April 14, 2014 | |
| 10.35 | Stock Purchase Agreement between the Holding Company and Cold Spring Construction Profit Sharing Plan with QCI Asset Management, Inc., as Registered Investment Advisor dated April 14, 2014 | |
| 10.37 | Stock Purchase Agreement between the Holding Company and Timothy E. Delaney with QCI Asset Management, Inc., as Registered Investment Advisor dated April 14, 2014 | |
| 10.38 | Stock Purchase Agreement between the Holding Company and Robert B. Johnston dated April 16, 2014 | |
| 10.39 | Multiple Disbursement Note between the Company and Manufacturers and Traders Trust Company dated July 3, 2014 (incorporated by reference to Exhibit 10.1 of the Holding Company's Current Report on Form 8-K dated July 3, 2014 and filed on July 10, 2014 (the "July 2014 8-K")) | |
| 10.40 | Credit Agreement between the Company and Manufacturers and Traders Trust Company dated July 3, 2014 (incorporated by reference to Exhibit 10.2 of the July 2014 8-K) |
| 22 |
| 10.41 | Term Note between the Company and Manufacturers and Traders Trust Company dated July 3, 2014(incorporated by reference to Exhibit 10.3 of the July 2014 8-K) | |
| 10.42 | Credit Agreement between the Company and Manufacturers and Traders Trust Company dated July 3, 2014 (incorporated by reference to Exhibit 10.4 of the July 2014 8-K) | |
| 10.43 | Loan Agreement between Leatherstocking Gas Company, LLC and Leatherstocking Pipeline Company, LLC and Five Star Bank dated August 28, 2014 (incorporated by reference to Exhibit 10.1 of the September 2014 8-K) | |
| 10.44 | Line of Credit Note between Leatherstocking Gas Company, LLC and Five Star Bank dated August 28, 2014 (incorporated by reference the Exhibit 10.2 of the September 2014 8-K) | |
| 10.45 | General Security Agreement between Leatherstocking Gas Company, LLC and Five Star Bank dated August 27, 2014 (incorporated by reference to Exhibit 10.3 of the September 2014 8-K) | |
| 10.46 | General Security Agreement between Leatherstocking Pipeline Company, LLC and Five Star Bank dated August 27, 2014 (incorporated by reference to Exhibit 10.4 of the September 2014 8-K) | |
| 10.47 | Unlimited Continuing Guarantee between Leatherstocking Pipeline, LLC and Five Star Bank dated August 27, 2014 (incorporated by reference to Exhibit 10.5 of the September 2014 8-K) | |
| 10.48 | Pledge and Security Agreement between Corning Natural Gas Holding Corporation and Mirabito Regulated Industries, LLC with Five Star Bank dated August 27, 2014 (incorporated by reference to Exhibit 10.6 of the September 2014 8-K) | |
| 10.49 | Pledge and Security Agreement between Corning Natural Gas Holding Corporation and Mirabito Regulated Industries, LLC with Five Star Bank dated August 27, 2014 (incorporated by reference to Exhibit 10.7of the September 2014 8-K) | |
| 10.50** | Commitment Letter between the Holding Company and Manufacturers and Traders Trust Company dated September 9, 2015 | |
| 10.51 | Loan Agreement between Leatherstocking Gas Company, LLC and Leatherstocking Pipeline Company, LLC and Five Star Bank dated October 19, 2015 (incorporated by reference to Exhibit 10.1 of the October 2015 8-K) | |
| 10.52 | Line of Credit Note between Leatherstocking Gas Company, LLC and Five Star Bank dated October 19, 2015 (incorporated by reference the Exhibit 10.2 of the October 2015 8-K) | |
| 10.53 | General Security Agreement between Leatherstocking Gas Company, LLC and Five Star Bank dated October 13, 2015 (incorporated by reference to Exhibit 10.3 of the October 2015 8-K) | |
| 10.54 | General Security Agreement between Leatherstocking Pipeline Company, LLC and Five Star Bank dated October 14, 2015 (incorporated by reference to Exhibit 10.4 of the October 2015 8-K) | |
| 10.55 | Unlimited Continuing Guarantee between Leatherstocking Pipeline, LLC and Five Star Bank dated October 14, 2015 (incorporated by reference to Exhibit 10.5 of the October 2015 8-K) | |
| 10.56** | Stock Purchase Agreement between the Holding Company and Orange and Rockland Utilities, Inc. dated October 13, 2015 | |
| 21** | Subsidiary of Company | |
| 23.1** | Consent of Freed Maxick CPA's, P.C. | |
| 31.1** | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act - Michael I. German |
| 23 |
| 31.2** | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act - Firouzeh Sarhangi | ||
| 32.1*** | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act | ||
| 101*** | The following materials from the Corning Natural Gas Corporation Annual Report on Form 10-K for the period | ||
| ended September 30, 2015, formatted in XBRL (eXtensible Business Reporting Language): | |||
| (i) the Condensed Consolidated Balance Sheets at September 30, 2015 and 2014 | |||
| (ii) the Condensed Consolidated Statements of Income and Comprehensive Income for the years ended September 30, 2015 and 2014 | |||
| (iii) the Condensed Consolidated Statements of Changes in Stockholders' Equity for the years ended September 30, 2015 and 2014 | |||
| (iv) the Condensed Consolidated Statements of Cash Flows for the years ended September 30, 2015 and 2014 | |||
| (v) related notes to the Condensed Consolidated financial Statements | |||
| * | Indicates management contract or compensatory plan or arrangement | ||
| ** | Filed herewith | ||
| *** | Furnished herewith | ||
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CORNING NATURAL GAS HOLDING CORPORATION
| Date: December 23, 2015 | /s/ Michael I. German |
| Michael I. German | |
|
President and Chief Executive Officer
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Date: December 23, 2015 | /s/ Firouzeh Sarhangi |
| Firouzeh Sarhangi, Chief Financial Officer and Treasurer | |
| (Principal Financial and Accounting Officer) | |
| Date: December 23, 2015 | /s/ Michael I. German |
| Michael I. German, President and Chief Executive Officer and Director | |
| (Principal Executive Officer) | |
| Date: December 23, 2015 | /s/ Henry B. Cook |
| Henry B. Cook, Chairman of the Board of Directors | |
| Date: December 23, 2015 | /s/ Ted W. Gibson |
| Ted W. Gibson, Director | |
| Date: December 23, 2015 | /s/ Robert B. Johnston |
| Robert B. Johnston, Director | |
| Date: December 23, 2015 | /s/ Joseph P. Mirabito |
| Joseph P. Mirabito, Director | |
| Date: December 23, 2015 | /s/ William Mirabito |
| William Mirabito, Director | |
| Date: December 23, 2015 | /s/ George J. Welch |
| George J. Welch, Director | |
| Date: December 23, 2015 | /s/ John B. Williamson III |
| John B. Williamson III, Director |
| 24 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Corning Natural Gas Holding Corporation
Corning, New York
We have audited the accompanying consolidated balance sheets of Corning Natural Gas Holding Corporation and subsidiaries (collectively, the “Company”) as of September 30, 2015 and 2014, respectively, and the related consolidated statements of income and comprehensive income, changes in stockholders’ equity and cash flows for the fiscal years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of September 30, 2015 and 2014, and the results of their operations and their cash flows for the fiscal years then ended, in conformity with accounting principles generally accepted in the United States.
As disclosed in Notes 5 and 11 of the consolidated financial statements, during the year ended September 30, 2015, the Company determined that it meets the criteria to classify the other comprehensive income portion of its pension liability as a regulatory asset in accordance with ASC 980. As a result of this change in estimate, a regulatory asset was established and accumulated other comprehensive income, previously shown net of tax as an offset to stockholders’ equity, has been reduced, resulting in an increase in stockholders’ equity. Our opinion is not modified in respect to this matter.
/s/ Freed Maxick CPAs, P.C.
Rochester, NY
December 23, 2015
| 25 |
| CORNING NATURAL GAS HOLDING CORPORATION AND SUBSIDIARIES | ||||||||
| Consolidated Balance Sheets | ||||||||
| Assets | September 30, 2015 | September 30, 2014 | ||||||
| Plant: | ||||||||
| Utility property, plant and equipment | $74,297,174 | $68,687,509 | ||||||
| Less: accumulated depreciation | (20,984,031 | ) | (19,578,820 | ) | ||||
| Total plant utility and non-utility, net | 53,313,143 | 49,108,689 | ||||||
| Investments: | ||||||||
| Marketable securities available-for-sale at fair value | 2,153,785 | 2,308,138 | ||||||
| Investment in joint ventures | 2,293,252 | 1,280,757 | ||||||
| 4,447,037 | 3,588,895 | |||||||
| Current assets: | ||||||||
| Cash and cash equivalents | 75,289 | 108,086 | ||||||
| Customer accounts receivable, (net of allowance for | ||||||||
| uncollectible accounts of $44,377 and $42,540), respectively | 1,585,845 | 1,788,447 | ||||||
| Related party receivables | 525,920 | 446,154 | ||||||
| Gas stored underground, at average cost | 1,182,955 | 2,291,665 | ||||||
| Materials and supplies inventory | 1,295,304 | 937,459 | ||||||
| Prepaid expenses | 1,203,355 | 982,198 | ||||||
| Total current assets | 5,868,668 | 6,554,009 | ||||||
| Deferred debits and other assets: | ||||||||
| Regulatory assets: | ||||||||
| Unrecovered gas costs | 37,191 | 110,372 | ||||||
| Deferred regulatory costs | 2,751,339 | 2,653,778 | ||||||
| Deferred pension | 4,517,673 | — | ||||||
| Unamortized debt issuance cost (net of accumulated | ||||||||
| amortization of $675,326 and $595,637), respectively | 287,858 | 313,292 | ||||||
| Other | 192,869 | 193,026 | ||||||
| Total deferred debits and other assets | 7,786,930 | 3,270,468 | ||||||
| Total assets | $71,415,778 | $62,522,061 | ||||||
| See accompanying notes to consolidated financial statements. | ||||||||
| 26 |
| CORNING NATURAL GAS HOLDING CORPORATION AND SUBSIDIARIES | ||||||||
| Consolidated Balance Sheets | ||||||||
| September 30, 2015 | September 30, 2014 | |||||||
| Liabilities and capitalization: | ||||||||
| Long-term debt, less current installments | 12,554,397 | 14,571,746 | ||||||
| Current liabilities: | ||||||||
| Current portion of long-term debt | 2,923,133 | 2,697,140 | ||||||
| Borrowings under lines-of-credit and short-term debt | 9,003,599 | 4,614,541 | ||||||
| Accounts payable | 1,721,720 | 1,903,594 | ||||||
| Accrued expenses | 418,221 | 534,059 | ||||||
| Customer deposits and accrued interest | 1,357,452 | 976,734 | ||||||
| Dividends declared | 354,924 | 327,819 | ||||||
| Deferred income taxes | 385,973 | 215,757 | ||||||
| Total current liabilities | 16,165,022 | 11,269,644 | ||||||
| Deferred credits and other: | ||||||||
| Deferred income taxes | 3,207,741 | 1,223,875 | ||||||
| Deferred compensation | 1,492,488 | 1,666,415 | ||||||
| Pension costs and post-retirement benefits | 6,857,399 | 6,091,540 | ||||||
| Other | 1,410,299 | 1,113,655 | ||||||
| Total deferred credits and other liabilities | 12,967,927 | 10,095,485 | ||||||
| Commitments and contingencies (see Note 13) | _ | _ | ||||||
| Common stockholders' equity: | ||||||||
| Common stock (common stock $.01 par | ||||||||
| value per share. Authorized 3,500,000 shares; | ||||||||
| issued and outstanding 2,449,647 shares at | ||||||||
| September 30, 2015 and 2,430,184 at September 30, 2014) | 24,496 | 24,302 | ||||||
| Other paid-in capital | 26,362,369 | 26,037,603 | ||||||
| Retained earnings | 3,312,638 | 2,921,478 | ||||||
| Accumulated other comprehensive income (loss) | 28,929 | (2,398,197 | ) | |||||
| Total common stockholders' equity | 29,728,432 | 26,585,186 | ||||||
| Total liabilities and capitalization | 71,415,778 | 62,522,061 |
See accompanying notes to consolidated financial statements.
| 27 |
| CORNING NATURAL GAS HOLDING CORPORATION AND SUBSIDIARIES | ||||||||||||
| Consolidated Statements of Income and Comprehensive Income | ||||||||||||
| For the Years Ended September 30, 2015 and 2014 | ||||||||||||
| September 30, 2015 | September 30, 2014 | |||||||||||
| Utility operating revenues | $22,503,411 | $25,464,582 | ||||||||||
| Natural gas purchased | 7,107,533 | 9,749,281 | ||||||||||
| Gross margin | 15,395,878 | 15,715,301 | ||||||||||
| Cost and expense | ||||||||||||
| Operating and maintenance expense | 7,806,524 | 7,564,842 | ||||||||||
| Taxes other than income taxes | 1,981,439 | 1,944,352 | ||||||||||
| Depreciation | 1,620,700 | 1,538,377 | ||||||||||
| Other deductions, net | 284,331 | 479,449 | ||||||||||
| Total costs and expenses | 11,692,994 | 11,527,020 | ||||||||||
| Utility operating income | 3,702,884 | 4,188,281 | ||||||||||
| Other income and (expense) | ||||||||||||
| Interest expense | (917,818 | ) | (841,177 | ) | ||||||||
| Other expense | (57,944 | ) | (27,340 | ) | ||||||||
| Other income | 59,992 | 51,750 | ||||||||||
| Investment income | 133,551 | 65,361 | ||||||||||
| (Loss) from joint ventures | (117,505 | ) | (106,921 | ) | ||||||||
| Rental income | 48,552 | 48,552 | ||||||||||
| Net income from utility operations, before income taxes | 2,851,712 | 3,378,506 | ||||||||||
| Income taxes | ||||||||||||
| Income tax (expense), current | (78,000 | ) | (70,000 | ) | ||||||||
| Income tax (expense), deferred | (991,631 | ) | (1,240,705 | ) | ||||||||
| Total income taxes | (1,069,631 | ) | (1,310,705 | ) | ||||||||
| Net income | 1,782,081 | 2,067,801 | ||||||||||
| Other comprehensive income (loss) | ||||||||||||
| Minimum pension liability, net of tax of $155,163 and | ||||||||||||
| $332,859, respectively | (222,363 | ) | (450,465 | ) | ||||||||
| Accumulated OCI reduction for regulatory asset established, | ||||||||||||
| net of tax of $807,192 and $0, respectively | 2,748,238 | — | ||||||||||
| Net unrealized gain (loss) on securities available for sale | ||||||||||||
| net of tax of $45,587 and $49,956, respectively | (98,749 | ) | 90,771 | |||||||||
| Total other comprehensive income | 2,427,126 | (359,694 | ) | |||||||||
| Total comprehensive income | $4,209,207 | $1,708,107 | ||||||||||
| Weighted average earnings per share- | ||||||||||||
| basic: | 0.73 | 0.88 | ||||||||||
| diluted: | 0.73 | 0.88 | ||||||||||
| Average shares outstanding - basic | 2,440,932 | 2,342,034 | ||||||||||
| Average shares outstanding - diluted | 2,444,934 | 2,346,786 | ||||||||||
See accompanying notes to consolidated financial statements
| 28 |
| CORNING NATURAL GAS HOLDING CORPORATION AND SUBSIDIARIES | ||||||||||||||||||||||||
| Consolidated Statements of Changes in Stockholders' Equity | ||||||||||||||||||||||||
| Number of Shares | Common Stock | Additional Paid in Capital | Retained Earnings | Accumulated Other Comprehensive Income | Total | |||||||||||||||||||
| Balances at September 30, 2013 | 2,262,654 | $22,626 | $23,309,764 | $2,098,044 | $(2,038,503 | ) | $23,391,931 | |||||||||||||||||
| Issuance of common stock | 167,530 | 1,676 | 2,727,839 | — | — | 2,729,515 | ||||||||||||||||||
| Dividends declared | — | — | — | (1,244,367 | ) | — | (1,244,367 | ) | ||||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||
| Change in unrealized gain on | ||||||||||||||||||||||||
| securities available for sale, net of | ||||||||||||||||||||||||
| income taxes | — | — | — | — | 90,771 | 90,771 | ||||||||||||||||||
| Minimum pension liability, net of | — | — | — | — | ||||||||||||||||||||
| income taxes | — | — | — | — | (450,465 | ) | (450,465 | ) | ||||||||||||||||
| Net income | — | — | — | 2,067,801 | — | 2,067,801 | ||||||||||||||||||
| Total comprehensive income | 1,708,107 | |||||||||||||||||||||||
| Balances at September 30, 2014 | 2,430,184 | $24,302 | $26,037,603 | $2,921,478 | $(2,398,197 | ) | $26,585,186 | |||||||||||||||||
| Issuance of common stock | 19,463 | 194 | 324,766 | — | — | 324,960 | ||||||||||||||||||
| Dividends declared | — | — | — | (1,390,921 | ) | — | (1,390,921 | ) | ||||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||
| Change in unrealized gain on | ||||||||||||||||||||||||
| securities available for sale, net of | ||||||||||||||||||||||||
| income taxes | — | — | — | — | (98,749 | ) | (98,749 | ) | ||||||||||||||||
| Minimum pension liability, net of | ||||||||||||||||||||||||
| income taxes | — | — | — | — | (222,363 | ) | (222,363 | ) | ||||||||||||||||
| Accumulated OCI reduction for regulatory | ||||||||||||||||||||||||
| asset established, net of income taxes | — | — | — | — | 2,748,238 | 2,748,238 | ||||||||||||||||||
| Net income | — | — | — | 1,782,081 | — | 1,782,081 | ||||||||||||||||||
| Total comprehensive income | 4,209,207 | |||||||||||||||||||||||
| Balances at September 30, 2015 | 2,449,647 | $24,496 | $26,362,369 | $3,312,638 | $28,929 | $29,728,432 | ||||||||||||||||||
See accompanying notes to consolidated financial statements
| 29 |
| CORNING NATURAL GAS CORPORATION AND SUBSIDIARIES | ||||||||
| Consolidated Statements of Cash Flows | ||||||||
| For Years Ended September 30, 2015 and September 30, 2014 | ||||||||
| 2015 | 2014 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $1,782,081 | $2,067,801 | ||||||
| Adjustments to reconcile net income to net cash | ||||||||
| used in operating activities: | ||||||||
| Depreciation | 1,620,700 | 1,538,377 | ||||||
| Amortization of debt issuance cost | 26,416 | 122,952 | ||||||
| Non-cash pension expenses | 965,938 | 929,321 | ||||||
| Regulatory asset amortizations | 219,042 | 274,135 | ||||||
| Stock issued for services | 162,414 | 138,094 | ||||||
| (Gain) on sale of marketable securities | (88,028 | ) | (11,812 | ) | ||||
| Deferred income taxes | 991,631 | 1,240,705 | ||||||
| Bad debt expense | 159,734 | 233,729 | ||||||
| Loss on joint ventures | 117,505 | 106,921 | ||||||
| Changes in assets and liabilities: | ||||||||
| (Increase) decrease in: | ||||||||
| Accounts receivable | 42,868 | (497,976 | ) | |||||
| Gas stored underground | 1,108,710 | (37,202 | ) | |||||
| Materials and supplies inventories | (357,845 | ) | 267,559 | |||||
| Prepaid expenses | (221,157 | ) | (133,497 | ) | ||||
| Unrecovered gas costs | 73,181 | 276,916 | ||||||
| Deferred regulatory costs | (316,603 | ) | (390,020 | ) | ||||
| Other | 157 | 37,382 | ||||||
| Increase (decrease) in: | ||||||||
| Accounts payable | (181,874 | ) | (184,333 | ) | ||||
| Accrued expenses | (115,838 | ) | 26,107 | |||||
| Customer deposits and accrued interest | 380,718 | 24,497 | ||||||
| Deferred compensation | (173,927 | ) | 120,668 | |||||
| Deferred pension costs & post-retirement benefits | (1,055,158 | ) | (1,224,898 | ) | ||||
| Other liabilities and deferred credits | 363,848 | 656,761 | ||||||
| Net cash provided by operating activities | 5,504,513 | 5,582,187 | ||||||
| Cash flows from investing activities: | ||||||||
| Purchase of securities available-for-sale | (934,831 | ) | (422,721 | ) | ||||
| Proceeds from sale of securities available-for-sale | 1,036,993 | 497,408 | ||||||
| Amount received from (paid to) related parties | (79,766 | ) | 221,722 | |||||
| Investment in joint ventures | (1,130,000 | ) | (800,000 | ) | ||||
| Capital expenditures | (5,825,154 | ) | (8,399,036 | ) | ||||
| Net cash (used in) investing activities | (6,932,758 | ) | (8,902,627 | ) | ||||
| Proceeds under lines-of-credit and short-term borrowings | 4,389,058 | 207,236 | ||||||
| Debt issuance costs | (982 | ) | (165,983 | ) | ||||
| Cash received from sale of stock | 29,785 | 2,467,812 | ||||||
| Dividends paid | (1,231,057 | ) | (1,075,566 | ) | ||||
| Proceeds under long-term debt | 982,903 | 6,086,300 | ||||||
| Repayment of long-term deb | (2,774,259 | ) | (4,105,517 | ) | ||||
| Net cash provided by financing activities | 1,395,448 | 3,414,282 | ||||||
| Net increase (decrease) in cash | (32,797 | ) | 93,842 | |||||
| Cash and cash equivalents at beginning of period | 108,086 | 14,244 | ||||||
| Cash and cash equivalents at end of period | $75,289 | $108,086 | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $922,562 | $841,404 | ||||||
| Income taxes | $190,736 | $290,653 | ||||||
| Non-cash financing activities: | ||||||||
| Dividends paid with shares | $132,762 | $123,610 | ||||||
| Number of shares issued for dividends | 6,995 | 7,219 |
See accompanying notes to consolidated financial statements
| 30 |
CORNING NATURAL GAS HOLDING CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
Corning Natural Gas Holding Corporation’s (the “Holding Company”) primary business is gas distribution through Corning Natural Gas Corporation (“Corning Gas” or “Gas Company”), our principal subsidiary, which provides gas on a commodity and transportation basis to its customers in the Southern Tier of New York State. The Holding Company follows the Uniform System of Accounts prescribed by the Public Service Commission of the State of New York (NYPSC) which has jurisdiction over and sets rates for New York State gas distribution companies. The Holding Company’s regulated operations meet the criteria to and, accordingly, follow the accounting and reporting of FASB ASC 980 “Regulated Operations”. The Holding Company’s consolidated financial statements contain the use of estimates and assumptions for reporting certain assets, liabilities, revenue and expenses and actual results could differ from the estimates. The more significant accounting policies of the Holding Company are summarized below.
| (a) | Principles of Consolidation and Presentation |
On July 19, 2013, the Holding Company was incorporated under the laws of the State of New York to serve as the parent holding company of the Gas Company, Corning Natural Gas Appliance Corporation (Appliance Company) and, directly or indirectly, the interests in the Leatherstocking Joint Venture Companies, see Note 1(t). The NYPSC approved the formation of the Holding Company and the reorganization of the Gas Company into a holding company structure on May 17, 2013. The reorganization into the holding company structure was approved by more than two-thirds of the shareholders at a special meeting of the Gas Company’s shareholders on November 6, 2013. The reorganization was effective on November 12, 2013, when each issued and outstanding share of Corning Gas’ common stock, par value $5.00 per share, was converted into one share of the Holding Company’s common stock, par value $0.01 per share.
The consolidated financial statements include the Holding Company and its wholly owned subsidiaries, Corning Gas and Appliance Company. All intercompany accounts and balances have been eliminated.
It is the Holding Company’s policy to reclassify amounts in the prior year financial statements to conform to the current year presentation.
(b) Property, Plant and Equipment
Property, plant and equipment are stated at the historical cost of construction or acquisition. These costs include payroll, fringe benefits, materials and supplies and transportation costs. The Gas Company charges normal repairs to maintenance expense.
(c) Depreciation
The Gas Company provides for depreciation for accounting purposes using a straight-line method based on the estimated economic lives of property and equipment as determined by the current rate plan based on the latest depreciation study. The depreciation rate used for utility plant, expressed as an annual percentage of depreciable property was 2.2% for both of the years ended September 30, 2015 and 2014. The NYPSC allows the Gas Company recovery in revenues to offset costs of building certain projects. At the time utility properties are retired, the original cost plus costs of removal less any salvage are charged to accumulated depreciation.
(d) Accounting for Impairment
The Financial Accounting Standards Board (FASB) ASC 360-10-15, “Accounting for the Impairment or Disposal of Long-Lived Assets” establishes accounting standards to account for the impairment of long-lived assets, and certain identifiable intangibles. Under FASB ASC 360-10-15, the Gas Company reviews assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. FASB ASC 360-10-15 also requires that a rate regulated enterprise recognize an impairment when regulatory assets are no longer probable of recovery. No impairment losses were incurred for the years ended September 30, 2015 and 2014.
(e) Marketable Securities
Marketable securities, which are intended to fund the Gas Company’s deferred compensation plan obligations, are classified as available for sale. Such securities are reported at fair value based on quoted market prices, with unrealized gains and losses, net of the related income tax effect, excluded from income, and reported as a component of accumulated other comprehensive income in stockholders’ equity until realized. The cost of securities sold was determined using the specific identification method. For all investments in the unrealized loss position, none have been in an unrealized loss position for more than 12 months. None are other than temporary impairments based on management’s analysis of available market research. In 2015 and 2014, the Gas Company sold equity securities for realized gains (losses) included in earnings of $88,028 and $11,812, respectively.
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(f) Fair Value of Financial Instruments
The Gas Company has determined the fair value of debt and other financial instruments using a valuation hierarchy. The hierarchy, which prioritizes the inputs used in measuring fair value, consists of three levels. Level 1 uses observable inputs such as quoted prices in active markets; Level 2 uses inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, which is defined as unobservable inputs in which little or no market data exists, requires the Company to develop its own
assumptions. The carrying amount of debt on the Consolidated Balance Sheets approximates fair value as a result of instruments bearing interest rates that approximate current market rates for similar instruments, and the carrying amounts for cash, accounts receivable and accounts payable approximate fair value due to their short-term nature. The assets used to fund the pension plan and marketable securities, which fund the Gas Company’s deferred compensation plan, are valued based on Level 1 inputs.
The Gas Company has determined the fair value of certain assets through application of FASB ASC 820 “Fair Value Measurements and Disclosures”.
| Fair Value Measurements at Reporting Date Using: | |||||||||||||||||
| Fair Value | Quoted Prices In Active Markets for Identical Assets/Liabilities (Level 1) | Level 2 | Level 3 | ||||||||||||||
| September 30, 2015 | |||||||||||||||||
| Available-for-sale securities | $2,153,785 | $2,153,785 | $— | $— | |||||||||||||
| September 30, 2014 | |||||||||||||||||
| Available-for-sale securities | $2,308,138 | $2,308,138 | $— | $— | |||||||||||||
The pension assets in Note 11 are valued using level 1 inputs.
(g) Cash and Cash Equivalents
Cash and cash equivalents include time deposits, certificates of deposit, and all highly liquid debt instruments with original maturities of three months or less. Cash and cash equivalents at financial institutions may periodically exceed federally insured limits.
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(h) Accounts Receivable
Accounts receivable are stated net of an allowance for doubtful accounts. The Gas Company estimates the allowance based on its analysis of specific balances, taking into consideration the age of past due accounts and relying on rules and guidelines established by the NYPSC regarding customer disconnects.
Related party receivables are expenditures paid on behalf of the Holding Company’s Joint Venture investments. We expect repayment on these amounts during the year ended September 30, 2016.
| (l) | Gas Stored Underground |
Gas stored underground is carried at an average unit cost method as prescribed by the NYPSC.
(j) Materials and Supplies Inventories
Materials and supplies inventories are stated at the lower of cost or market, cost being determined on an average unit price basis.
(k) Debt Issuance Costs
Costs associated with the issuance of debt by the Gas Company are deferred and amortized over the lives of the related debt.
(l) Regulatory Matters
Certain costs of the Gas Company are deferred and recognized as expenses when they are reflected in rates and recovered from customers as permitted by FASB ASC 980. These costs are shown as regulatory assets. Such costs arise from the traditional cost-of-service rate setting approach whereby all prudently incurred costs are generally recoverable through rates. Deferral of these costs is appropriate while the Company’s rates are regulated under a cost-of-service approach of the New York Public Service Commission NYPSC for utilities.
As a regulated utility, the Gas Company deferred certain costs for future recovery. In a purely competitive environment, such costs might have been currently expensed. Accordingly, if the Gas Company’s rate setting were changed from a cost-of-service approach and the Gas Company were no longer allowed to defer these costs under FASB ASC 980, certain of these assets might not be fully recoverable. However, the Gas Company cannot predict the impact, if any, of competition and continues to operate in a cost-of-service based regulatory environment. Accordingly, the Gas Company believes that accounting under FASB ASC 980 is appropriate.
(m) Revenue and Natural Gas Purchased
The Gas Company records revenues from residential and commercial customers based on meters read on a cyclical basis throughout each month, while certain large industrial and utility customers’ meters are read at the end of each month. Several meters are read at the end of each month to calculate local production revenues. The Gas Company does not accrue revenue for gas delivered but not yet
billed, as the NYPSC requires that such accounting must be adopted during a rate proceeding, which the Gas Company has not done. The Gas Company, as part of its currently effective rate plan, has a weather normalization clause as protection against severe weather fluctuations. This affects space heating customers and is activated when degree days are 2.2% greater or less than the 30-year average. As a result, the effect on revenue fluctuations of weather related gas sales is somewhat moderated.
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In addition to weather normalization, starting in September 2009, the Gas Company implemented a revenue decoupling mechanism (RDM). The RDM reconciles actual delivery service revenues to allowed delivery service revenues (which are based on the annual customer and volume forecasts in the last rate case) for certain residential customers. The Gas Company will refund or surcharge customers for differences between actual and allowed revenues. The shortfall or excess after the annual reconciliation will be surcharged or refunded to customers over a twelve month period starting September 1st each year.
Gas purchases are recorded on readings of suppliers’ meters as of the end of each month. The Gas Company’s rate tariffs include a Gas Adjustment Clause (GAC) which adjusts rates to reflect changes in gas costs from levels established in the rate setting process. In order to match such costs and revenue, the NYPSC has provided for an annual reconciliation of recoverable GAC costs with applicable revenue billed. Any excess or deficiency in GAC revenue billed is deferred and the balance at the reconciliation date is either refunded to or recovered from customers over a subsequent twelve-month period.
(n) Federal Income Tax
The Holding Company uses the asset and liability method to establish deferred tax assets and liabilities for the temporary differences between the financial reporting basis and the tax basis of the Holding Company’s assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. In addition, such deferred tax assets and liabilities will be adjusted for the effects of enacted changes in tax laws and rates.
(o) Revenue Taxes
The Gas Company collects state revenue taxes on residential delivery rates. The amount included in Utility Operating Revenue and Taxes other than Federal Income Taxes was $175,294 and $168,900 in 2015 and 2014, respectively.
(p) Stock Based Compensation
The Holding Company accounts for stock based awards in accordance with FASB ASC 718. The Holding Company awards restricted shares as compensation to our directors. The shares awarded become unrestricted upon a director leaving the board. Directors who also serve as officers of Corning Gas are not compensated for their service as directors. Since these shares are restricted, in recording compensation expense, the expense incurred is 25% less than the closing price of the stock on the day the stock was awarded. Each director is awarded 375 shares for each quarter served. Seven directors received a total of 9,000 shares during fiscal 2014 and 10,442 shares during fiscal 2015. On November 13, 2014, shares were issued for the quarter ended September 30, 2014 with the new director, Robert Johnston receiving 317 shares (accrued for his service during the quarter). On December 1, 2015, 2,625 shares were issued for the quarter ended September 30, 2015.
The Board of Directors authorized the issuance December 12, 2012, of 600 shares of the Holding Company’s common stock to Carl T. Hayden in compensation for his past service as a director of the Holding Company’s joint venture affiliate, Leatherstocking Gas Company, LLC and 75 shares each quarter thereafter until Leatherstocking Gas Company started serving customers at which point quarterly compensation increased to 112 shares for the quarter ended December 31, 2013. Quarterly compensation increased to 150 shares for the quarter ended March 31, 2015. Mr. Hayden has received a total of 937 shares for his service. These shares are sold to Leatherstocking Gas Company from time to time at the fair market value determined as the closing price of the Holding Company’s common stock on the 20th business day after quarter end.
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(q) Earnings Per Share
Basic earnings per share are computed by dividing income available for common stock by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. The only potentially dilutive securities the Holding Company has outstanding are stock options. The diluted weighted average shares outstanding shown on the Consolidated Statements of Income reflects the potential dilution as a result of these stock options as determined using the Treasury Stock Method. Stock options that are antidilutive are excluded from the calculation of diluted earnings per common share.
(r) 311 Transportation Agreement /Compressor Station
On January 11, 2010, the Gas Company entered into a contract (311 Transportation Agreement) with a local gas producer that provided for the building of a compressor station as well as the transfer of a 6” pipeline owned by the gas producer to the Company for nominal consideration. The contract also sets forth the terms, rates and condition of the transport of the local producer gas to the interstate pipeline system. On May 21, 2010, the 311 Transportation Agreement was revised to reflect a change in the projected gas delivery schedule and delivery volumes. The previously agreed to transportation rates did not change. The contract’s maximum daily delivery quantity remained the same. The schedule for attaining the maximum daily delivery quantity was altered to accommodate the project’s construction schedule. The Gas Company bought the $11 million compressor station and $2.1 million pipeline from the local producer for two dollars. The local producer has the right to repurchase these facilities for two dollars in ten years. This transaction became effective on May 12, 2011, when the station began operations. Although the Gas Company has a plant available for use that had an original cost of $13.1 million, only two dollars was recognized in accordance with the Uniform System of Accounts (313.2) which states that in the case of gas plant contributed to the utility, gas plant accounts shall be charged only with such expenses, if any, incurred by the utility.
(s) Collective Bargaining Agreement
The Gas Company had 58 employees as of September 30, 2015, and 57 as of September 30, 2014. Of this total, nearly half are members of the International Brotherhood of Electrical Workers Local 139 labor union working under an agreement effective until April 2, 2018.
(t) Leatherstocking Companies
The Holding Company has a 50% investment in Leatherstocking Gas Company, LLC (“Leatherstocking Gas”) and Leatherstocking Pipeline Company, LLC (“Leatherstocking Pipeline”). The investment and equity in both companies (collectively, “Joint Ventures”) has been recognized in the consolidated financial statements. The Holding Company has accounted for its equity investment using the
equity method of accounting based on the guidelines established in FASB ASC 323. In applying the guidance of FASB ASC 323, the Holding Company recognized the investment in the Joint Ventures as an asset at cost. The investment will fluctuate in future periods based on the Holding Company’s allocable share of earnings or losses from the Joint Ventures which is recognized through earnings.
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(u) New Accounting Pronouncements Not Yet Adopted
In May 2014, the FASB issued new accounting guidance on revenue from contracts with customers. The new guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods and services to customers. The updated guidance will replace most existing revenue recognition guidance in GAAP when it becomes effective. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. We are currently evaluating the effect the updated standard will have on our consolidated financial statements and related disclosures.
In April 2015, the FASB issued new accounting guidance on the presentation of debt issuance costs. The new guidance requires that debt issuance costs related to a note be presented as a direct deduction from that note. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years. We do not believe this guidance will have a material effect on our consolidated financial statements when adopted.
In July 2015, the FASB issued new accounting guidance simplifying inventory measurement by requiring companies to value inventory at the lower of cost and net realizable value. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. We do not believe this guidance will have a material effect on our consolidated financial statements when adopted.
In September 2015, the FASB issued new accounting guidance on the recognition by the acquiring entity of adjustment to provisional amounts during the measurement period. The new guidance requires that the adjustments that are identified to be recognized in the same period’s financial statements in which the adjustment amounts are determined. The entity must also present separately on the face of the income statement, or disclose separately in the notes, the portion of the amount recorded in the current-period earnings by line item that would have been recorded in previous periods if the adjustment had been identified as of the acquisition date. We are still evaluating whether this guidance will have a material effect on our consolidated financial statements when adopted.
In November 2015, the FASB issued new accounting guidance on the classification of deferred taxes. The new guidance requires that all deferred tax asset and liabilities be classified as noncurrent in a classified statement of financial position. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. Early application is permitted. When the guidance is effective all deferred tax assets and liabilities will be presented as noncurrent. We do not believe this guidance will have a material effect on our consolidated financial statements when adopted.
(2) Major Customers
The Gas Company has three major customers to which the Gas Company delivers gas: Corning Incorporated, New York State Electric & Gas (NYSEG) and Bath Electric Gas & Water Systems (BEGWS). Although no customer represents at least 10% of our total revenue, the loss of any of these customers could have a significant impact on the Company’s financial results.
| 36 |
(3) Property, Plant and Equipment
The following table summarizes fixed assets included in utility plant on the Holding Company’s Consolidated Balance Sheet at September 30, 2015 and 2014:
| 2015 | 2014 | |||||||
| Utility Plant | $21,641,078 | $19,727,468 | ||||||
| Pipeline | 39,939,110 | 38,013,151 | ||||||
| Structures | 5,119,970 | 4,979,761 | ||||||
| Land | 696,067 | 661,864 | ||||||
| All Other | 6,900,949 | 5,305,265 | ||||||
| $74,297,174 | $68,687,509 |
Useful life for the above assets range from 35 to 52 years for utility plant, 66 years for pipeline, from 45 to 47 years for structures, 65 years for land rights and 8 to 25 years for all other and corporate fixed assets.
(4) Marketable Securities
A summary of the marketable securities at September 30, 2015 and 2014 is as follows:
| Cost Basis | Unrealized Gain | Unrealized Loss | Market Value | |||||||||||||
| 2015 | ||||||||||||||||
| Cash and equivalents | $41,500 | — | — | $41,500 | ||||||||||||
| Metlife stock value | 51,185 | — | — | 51,185 | ||||||||||||
| Government and agency bonds | 301,673 | 1,763 | — | 303,436 | ||||||||||||
| Corporate bonds | 337,757 | — | 3,973 | 333,784 | ||||||||||||
| Mutual funds | 79,515 | — | 8,555 | 70,960 | ||||||||||||
| Equity securities | 1,293,039 | 59,881 | — | 1,352,920 | ||||||||||||
| Total securities | $2,104,669 | $61,644 | $12,528 | $2,153,785 | ||||||||||||
| 2014 | ||||||||||||||||
| Cash and equivalents | $59,096 | — | — | $59,096 | ||||||||||||
| Metlife stock value | 51,185 | — | — | 51,185 | ||||||||||||
| Government and agency bonds | 301,673 | — | 4,029 | 297,644 | ||||||||||||
| Corporate bonds | 303,428 | — | 5,050 | 298,378 | ||||||||||||
| Mutual funds | 56,515 | — | 449 | 56,066 | ||||||||||||
| Equity securities | 1,342,789 | 202,980 | — | 1,545,769 | ||||||||||||
| Total securities | $2,114,686 | $202,980 | $9,528 | $2,308,138 | ||||||||||||
The government and agency bonds have contractual maturity dates between August 31, 2017 and November 21, 2024. The contractual maturity dates for the corporate bonds are from September 15, 2016 to December 1, 2022.
| 37 |
(5) Regulatory Matters
Below is a summary of the Gas Company’s regulatory assets as of September 30, 2015 and 2014:
| 2015 | 2014 | |||||||
| Unrecovered gas costs | $37,191 | $110,372 | ||||||
| Deferred regulatory costs | 2,751,339 | 2,653,778 | ||||||
| Deferred pension costs | 4,517,673 | — | ||||||
| Total regulatory assets | $7,306,203 | $2,764,150 | ||||||
Unrecovered gas costs arise from an annual reconciliation of certain gas revenue and costs (as described in Note 1) and are recoverable in customer rates in the year following the reconciliation.
The following table summarizes regulatory costs at September 30, 2015 and 2014:
| 2015 | 2014 | |||||||
| Deferred rate case costs | $897,942 | $971,364 | ||||||
| Deferred rate case reconciliations | 1,853,397 | 1,682,413 | ||||||
| Total | $2,751,339 | $2,653,778 | ||||||
Deferred rate case costs are costs that were incurred in prior rate cases that are amortized over a period determined by the NYPSC in the current rate case and are recoverable over that period. Deferred rate case reconciliations result from target reconciliations set up in the current rate case and recovery will be determined by the NYPSC either through Delivery Rate Adjustment or the next rate case.
In fiscal year 2015 the Gas Company determined that it meets the criteria to record the minimum pension liability as a regulatory asset in accordance with ASC 980-715-25-5. As a result of this change in estimate, amounts previously recorded as Accumulated OCI, net of tax have been recorded as regulatory assets in the current year in accordance with ASC 980-715-25-8, as well as a related deferred tax liability. The amount of the regulatory asset was $3,665,926. The increase to OCI was $2,748,238. Factors considered include: (1) consistent recovery of the pension costs on an accrual basis historically and in the current rate case, (2) no indication of expected changes to recovery, and (3) the existence of a reconciliation process to track the recovery of these costs. For these reasons management determined the Gas Company meets the criteria as set forth in ASC 980-725-25-5.
Also included in pension costs and post-retirement benefits is approximately ($35,000) and $131,000 for 2015 and 2014, respectively, for regulatory assets and (liabilities) related to pension and post-retirement costs. These amounts include both amounts approved to be amortized in the previous rate case and amounts being accumulated for the next rate case. Included in other in deferred credits and other is $1,338,048 and $1,041,345 for the periods ended September 30, 2015 and 2014 for deferred rate case reconciliations.
Although the Gas Company expects to recover the cost of its regulatory assets, it does not earn a return on them. The Gas Company expects that regulatory assets other than deferred unrecovered gas costs and deferred pension costs related to minimum pension liability will be fully recoverable from customers by the end of its next rate case expected during the year ended September 30, 2018.
| 38 |
(6) Long-term Debt
Long-term debt, including the current portion, was as follows at September 30, 2015 and 2014:
| 2015 | 2014 | |||||||
| Note payable - variable rate with 4.5% floor with monthly | ||||||||
| installments through May 2020 | $501,931 | $618,168 | ||||||
| Note Payable - 5.79% with monthly installments through | ||||||||
| August 2018 | 451,323 | 593,857 | ||||||
| Note Payable - variable rate with 4.25% floor, with monthly | ||||||||
| installments through November 2016 | 1,313,318 | 1,498,988 | ||||||
| Note Payable - variable rate with 3.75% floor, with monthly | ||||||||
| installments through November 2017 | 1,847,391 | 2,067,499 | ||||||
| Note Payable - 4.46% with monthly installments through | ||||||||
| July 2017, then refinanced at new rate | 184,654 | 206,934 | ||||||
| Note Payable - 4.46% with monthly installments through | ||||||||
| July 2017, then refinanced at new rate | 184,651 | 206,931 | ||||||
| Note Payable - 4.2% with monthly installments through | ||||||||
| November 2018 | 2,950,113 | 3,827,582 | ||||||
| Note Payable - 4.51% with monthly installments through | ||||||||
| September 2018 | 1,831,886 | 2,406,486 | ||||||
| Note Payable - 4.18% with monthly installments through | ||||||||
| November 2018 | 1,972,221 | 2,170,363 | ||||||
| Note Payable - 4.39% with monthly installments | ||||||||
| through November 2019 | 3,540,206 | 2,852,549 | ||||||
| Note Payable - 4.49% with monthly installments | ||||||||
| through July 2019 | 552,853 | 602,899 | ||||||
| M&T Bank - vehicle loans bearing interest at rates ranging | ||||||||
| from 4.37% to 5% | 146,983 | 216,630 | ||||||
| Total long-term debt | $15,477,530 | $17,268,886 | ||||||
| Less current installments | 2,923,133 | 2,697,140 | ||||||
| Long-term debt less current installments | $12,554,397 | $14,571,746 |
The aggregate maturities of long-term debt for each of the five years subsequent to September 30, 2015 are as follows:
| 2016 | $2,923,133 | |||||
| 2017 | $3,020,343 | |||||
| 2018 | $4,206,271 | |||||
| 2019 | $2,548,616 | |||||
| 2020 | $668,009 | |||||
| 2021+ | $2,111,158 |
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On May 10, 2010, the Gas Company entered into a credit agreement with Community Bank N.A. for a $1.05 million Promissory Note at a fixed interest rate of 6.25% for the purpose of paying for the construction projects of our new franchise located in the town of Virgil, New York. This agreement gives our lender a security interest in all fixtures, equipment and inventory related to the Gas Company’s franchise in the town of Virgil as well as marketable securities. The note also required an equity contribution of $350,000 which was accomplished by the exercise of 24,000 stock options by Michael I. German, President and CEO, at $15.00 per share or $360,000. The agreement included the following covenants to be measured at each fiscal year end starting with the September 30, 2009 financial statement: (i) maintain a tangible net worth of not less than $11.0 million, (ii) maintain a debt to tangible net worth of less than 3.0 to 1.0, and (iii) maintain a debt service coverage ratio of 1.10 to 1. On March 7, 2011, the interest rate on this loan was modified from a fixed interest rate to a floating rate of 30-day LIBOR plus 2.75% with a floor rate of 4.5% and a ceiling rate of 6.25%. The rate was 4.5% as of September 30, 2015. On May 8, 2015, this loan was extended until May 10, 2020 with the same terms and monthly payment amount.
In September 2010, the Gas Company entered into an agreement with Five Star Bank to provide $750,000 to fund construction of an upgrade to existing natural gas piping to serve increased gas demands on one of our main supply lines, including three Corning Incorporated plants. The Gas Company gave the bank a security interest in all funds, deposits and other property, now or hereafter in the possession of the bank as collateral for this agreement. Interest is payable monthly at a fixed rate of 4.25% per annum and, unless sooner accelerated or demanded, the note was to mature on September 25, 2011. This note was refinanced with Five Star Bank on September 1, 2011 with no change in terms. On August 13, 2012 the note was refinanced at a variable interest rate of prime rate plus 1.00% until July 30, 2013. Commencing July 30, 2013 and continuing until August 1, 2018, the Gas Company will pay principal and interest at a fixed rate equal to the prevailing Federal Home Loan Bank of New York Fixed Advance Rate as published five days prior to July 30, 2013, plus 3.75%. The interest rate at September 30, 2015 was 5.79%.
On July 14, 2011, the Gas Company entered into a Multiple Disbursement Term Note and Credit Agreement in the amount of $2 million with M&T Bank to fund construction projects in our NYPSC-mandated repair/replacement program for calendar year 2011. No additional collateral was required for this note. Until October 31, 2011, the note was payable as interest only at a rate of the greater of 3.50 percentage points above 30-day LIBOR or 4.25%. On November 1, 2011 the note converted to a permanent loan payable monthly for five years calculated on a ten-year amortization schedule with a variable rate, adjusting daily, based on the greater of 3.25 basis points above 30-day LIBOR or 4.25%.
On July 27, 2012, the Gas Company entered into a Line of Credit Agreement and Term Loan Agreement in the amount of $2.45 million with Community Bank, N.A. to fund construction projects in our NYPSC mandated repair/replacement program for 2012. This agreement gives our lender security interest in all fixtures, equipment and inventory related to the Gas Company’s investment from these construction projects as well as marketable securities. From July 27, 2012 to November 30, 2012 (“Draw Period”), the note was payable as interest only at a rate of the greater of 3.00 percentage points above 30-day LIBOR or 3.75%. On December 1, 2012, the note converted to a permanent loan payable monthly for five years with the same interest rate calculated on a ten-year amortization schedule. A final payment will be due on the maturity date equal to the outstanding principal and interest.
On August 13, 2012, the Gas Company entered into agreements with Five Star Bank pursuant to two Promissory Notes in the amount of $250,000 each. Each Note is payable monthly for five years at the fixed interest rate of 4.46% per annum. At that time, the Notes will have the option to be paid-in-full, refinanced or remain in place for an additional five years with a new effective rate established at that time. The purpose of these Notes was to fund construction of two major projects. Collateral for these notes is a first priority lien on all underground piping associated with one project and a first priority lien on the contract between the Gas Company and the customer for the other project.
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On September 3, 2013, the Gas Company refinanced approximately $7.8 million of its existing indebtedness with M&T Bank and obtained $4.0 million in new financing from M&T Bank. The Gas Company entered into the following two notes in favor of M&T, which are in replacement of and in substitution for (a) a $6 million loan agreement and note with M&T, dated as of March 4, 2010, that had an interest rate to 6.5%, and (b) a note, dated as of October 27, 2010, executed by the Gas Company in favor of M&T in the original principal amount of approximately $1.8 million that had an interest rate of 5.76%.
Also on September 3, 2013, the Gas Company entered into a Multiple Disbursement Term Note with M&T Bank, dated as of September 3, 2013, in the original principal amount of $4.0 million, the proceeds of which were used to fund construction projects related to furnishing natural gas within the Gas Company's service area. As collateral, the Gas Company granted M&T Bank security interest in all fixed assets and equipment, contract rights, easements, right of ways, etc. of the Gas Company. Until November 30, 2013, the note was payable as interest only at an interest rate equal to the rate in effect each day as announced by M&T Bank as its prime rate of interest. On November 30, 2013, the note converted to a permanent loan payable over five years in equal monthly installments of principal and interest of $23,438 calculated on a ten-year amortization schedule. The interest rate on this note during the permanent loan period is 4.18% and the loan will mature on December 3, 2018. The Gas Company borrowed $2,329,223 before the note converted to a permanent loan.
On July 3, 2014, the Gas Company entered into a Multiple Disbursement Term Note and Credit Agreement in the amount of $3,796,000 with M&T. As collateral, the Gas Company granted M&T a security interest in all fixed assets and equipment, contract rights, easements, right of ways, etc. of the Gas Company. From July 3, 2014 to November 29, 2014 (“Draw Period”), the Note will be payable as interest only at the prime interest rate in effect at time of draw. On November 30, 2014 the Note converted to a permanent loan payable monthly for five years at an interest rate of 2.75 percentage points above the sum of the yield on United States Treasury Obligations to a constant maturity of five years plus the “ask” side of the five-year LIBOR swap. The monthly repayment amount will be calculated on a ten year amortization schedule. A final payment equal to the outstanding principal and interest will be due on the maturity date. The purpose of this Note is to fund construction projects in our NYPSC mandated repair/replacement program for 2014. As of the loan conversion on November 30, 2014, the Gas Company had drawn the total amount of the note, with $943,451 drawn during the quarter ended December 31, 2014. The interest rate for this loan is 4.39% with monthly payments of $39,257.
Also on July 3, 2014, the Gas Company entered into a Term Note and Credit Agreement with M&T in the amount of $615,000. As collateral, the Gas Company granted M&T a security interest in all fixed assets and equipment, contract rights, easements, right of ways, etc. of the Gas Company. Interest on this note will be a fixed rate of 4.49%. The monthly payments will be $6,371 with a final balloon payment due at loan maturity in July 2019. The purpose of this note is to refinance costs associated with 2013 mandated repair/replacement projects.
The Gas Company is in compliance with all of its loan covenants as of September 30, 2015.
(7) Lines of Credit and Short Term Debt
On October 27, 2015, the Gas Company extended its line of credit agreement with Community Bank N.A. (“Community Bank”) in the amount of $8.5 million that will expire on April 1, 2016. Borrowings outstanding on this line were $7,003,599 and $4,614,541 at September 30, 2015 and 2014, respectively. The maximum amount outstanding during the years ended September 30, 2015 and 2014 were $7,581,344 and $7,140,511 respectively. The interest rate is calculated as the 30-day Libor Rate plus 2.5%. As security for the Gas Company’s line of credit, Community Bank has a purchase money interest in all of our natural gas purchases utilizing funds advanced by Community Bank under the line-of-credit agreement and all proceeds of sale of the gas to customers and related accounts receivable. Under the terms of this line the Gas Company is required to maintain a debt to tangible net worth ratio of less than 2.5 to 1 and a debt service coverage ratio of 1.1 to 1. The Gas Company is in compliance with the loan covenants as of September 30, 2015. On September 30, 2015, the interest rate was 2.9905%. The weighted average interest rates on outstanding borrowings during fiscal years 2015 and 2014 were 2.90% and 3.17%, respectively.
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On August 17, 2015, the Gas Company entered into a Term Note and Agreement with M&T in the amount of $2,000,000 with an interest rate of 2.30 percentage points above LIBOR for the purpose of short term financing of mandated construction projects. The maturity date of this note was November 17, 2015. On October 14, 2015, the Gas Company entered into a Term Note and Agreement with M&T in the amount of $1,000,000 with an interest rate of 2.75 percentage points above LIBOR for the purpose of short term financing of mandated construction projects. The maturity date of this note was January 14, 2016. On November 6, 2015, the Gas Company entered into a Term Note and Agreement with M&T in the amount of $3,000,000 that consolidated the notes for $2,000,000 and $1,000,000 into a new note with a maturity date of February 6, 2016. This note has an interest rate of 2.75 percentage points above LIBOR. This note will either be refinanced or extended at maturity.
As of September 30, 2015, we believe that cash flow from operating activities and borrowings under our lines of credit will not be sufficient to satisfy our working capital and debt service requirements over the next twelve months. We believe modifications and or refinancing of current debt amounts, as well as new debt instruments and proceeds from equity will be required to satisfy our capital expenditures to finance our internal growth needs for the next twelve months. Also see Note 15 to the Notes to the Consolidated Financial Statements for additional borrowings to finance a potential acquisition.
(8) Stockholders Equity
For the fiscal year ended September 30, 2015 there were a total of 19,463 shares of common stock issued for $29,785 of cash, $162,414 of services and $132,761 of the DRIP (dividend reinvestment program). There were 10,442 shares issued to directors, 526 shares sold to Leatherstocking Gas, which used the shares to compensate its independent director, Carl Hayden, 6,995 of DRIP shares and 1,500 options exercised. On October 21, 2015 an additional 9,000 options were exercised for proceeds of $115,470.
On May 28, 2009, the Gas Company registered with the Securities and Exchange Commission (“SEC”) 100,000 shares of common stock with a par value of $.01 per share for the DRIP. On January 10, 2014, the Holding Company filed with the SEC a registration statement with respect to the then remaining 129,000 shares of the Holding Company’s common stock issuable under the dividend reinvestment plan. As part of this program 761 shares were issued in fiscal year 2009, 2,319 shares were issued in fiscal year 2010, 3,976 shares in fiscal year 2011, 5,689 shares in fiscal year 2012, 7,433 shares in fiscal year 2013, 7,219 shares in fiscal year 2014, and 6,995 shares in fiscal year 2015. A total of 34,392 shares have been issued since the program started.
The Holding Company entered into a series of stock purchase agreements selling to six investors an aggregate of 150,000 shares of common stock at a price of $16.40 per share. This private placement of common stock resulted in gross proceeds to the Holding Company of $2,460,000. A stock purchase agreement for 75,000 shares dated April 7, 2014, was entered into with the Article 6 Marital Trust under the First Amended and Restated Jerry Zucker Revocable Trust dated April 2, 2007 (the "Zucker Trust"). Closing was funded on or about April 9, 2014. Prior to this purchase, Anita G. Zucker, as trustee of the Zucker Trust, reported holding 214,451 shares of the Holding Company's common stock on a Schedule 13D dated September 24, 2012. On April 15, 2014, the Holding Company entered into four separate Stock Purchase Agreements with QCI Asset Management LLC (“QCI”) and four of its advisees for an aggregate of 70,000 shares of common stock held for the benefit of the accounts of those advisees managed by QCI. QCI also manages certain funds of the Holding Company and subsidiaries. On April 16, 2014, the Holding Company entered into a stock purchase agreement with Robert B. Johnston for 5,000 shares. Mr. Johnston is or may be deemed an affiliate of the Zucker Trust and as of July 15, 2014, become a member the Holding Company’s Board of Directors. The price of $16.40 per share was the same under each of the stock purchase agreements. Closing on these remaining 75,000 shares occurred on April 16, 2014. The proceeds were used initially to reduce the outstanding balance on the Company’s line of credit and in the long term to help fund the Company’s capital projects.
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Dividends are accrued when declared by the board of directors. A dividend of $.125 a share was paid on October 15, 2013 to shareholders of record on September 30, 2013 and on January 15, 2014 to shareholders of record on December 3, 2013. At its regular meeting on February 20, 2014, the board of directors approved an increase in the quarterly dividend to $.135 a share. This dividend was paid on April 15, 2014 to shareholders of record on March 31, 2014 and on July 15, 2014 for shareholders of record on June 30, 2104. For the quarter ended September 30, 2014, $327,819 was accrued for dividends paid on October 15, 2014 to shareholders of record on September 30, 2014. At its regular meeting on December 19, 2014, the board of directors approved a quarterly dividend of $.135 a share. This dividend was paid on January 15, 2015 to shareholders of record on December 31, 2014. At its regular meeting on January 20, 2015, the board of directors approved an increase in the quarterly dividend to $.145 a share. This dividend was paid on April 15, 2015 to shareholders of record on March 31, 2015, and on July 15, 2015 to shareholders of record on June 30, 2015. For the quarter ended September 30, 2015, $354,924 was accrued for dividends paid on October 15, 2015 to shareholders of record on September 30, 2015.
(9) Investment in Joint Ventures
The Holding Company has an interest in Leatherstocking Gas, a joint venture with Mirabito Regulated Industries, LLC, accounted for by the equity method. This joint venture is currently moving forward on expansions to several areas in the northeast. The Holding Company and Mirabito Regulated Industries, LLC each own 50% of the joint venture and each appoints three managers to operate Leatherstocking Gas. The seventh manager is a neutral manager agreed to by the Holding Company and Mirabito Regulated Industries, LLC, who is not an officer, director, or employee of either company, currently Carl T. Hayden. The current managers are Joseph P. Mirabito, John J. Mirabito and William Mirabito from Mirabito Regulated Industries, LLC; Matthew J. Cook, Michael I. German and Russell S. Miller from the Holding Company; and Carl T. Hayden as the neutral manager. Michael I. German is the Chief Executive Officer and President of the Holding Company and is also a stockholder and current board member of the Holding Company. Joseph P. Mirabito and William Mirabito are stockholders and current board members of the Holding Company. Leatherstocking Gas has received franchises from the Village and Town of Sidney, Village and Town of Bainbridge, Village and Town of Windsor, Village and Town of Unadilla, and Village and Town of Delhi in New York. Leatherstocking Gas’ petition for authority to exercise its franchises in the Town and Village of Winsor is currently pending before the NYPSC. In addition, Leatherstocking Gas has acquired sixteen franchises in Susquehanna and Bradford Counties, Pennsylvania. Leatherstocking Gas has met with potential customers and public officials, as well as attended public hearings, and believes there is interest in acquiring gas service. On July 25, 2013, Leatherstocking Gas signed a loan agreement with Five Star Bank for $1.5 million to finance the construction in Bridgewater, Pennsylvania. This agreement increased to $1.8 million before converting to a long-term note. Construction in the Township of Bridgewater began in July 2013 and Leatherstocking Gas began serving customers in October 2013. Construction of the Borough of Montrose system started in the spring of 2014 and construction started in the Township of Dimock in November 2014. Leatherstocking Gas currently serves 240 customers in these boroughs and townships as of September 30, 2015. On August 28, 2014, Leatherstocking Gas, as borrower, and Leatherstocking Pipeline as guarantor, entered into a loan agreement with Five Star Bank for up to $4 million over two years to finance the work and services required for the infrastructure costs and ongoing costs of underground piping construction projects in Montrose, Bridgewater and Dimock, Pennsylvania. This agreement required equity investments from the Holding Company and Mirabito Regulated Industries for a total of 66% of all amounts borrowed. During fiscal year 2014, $1,500,000 was borrowed and both the Holding Company and Mirabito Regulated Industries invested $500,000. During fiscal year 2015, $2,500,000 was borrowed and both the Holding Company and Mirabito Regulated Industries invested $850,000. As of September 30, 2015, Leatherstocking Gas has drawn the $4 million available over the two year period on this loan. Both of these agreements have a loan covenant related to debt service coverage being at least 1.15 to 1 at September 30, 2015. Leatherstocking Gas was in violation of this covenant. Leatherstocking Gas received a waiver from Five Star Bank as of September 30, 2015. In February 2015 Leatherstocking Gas purchased a 1.5 mile high pressure gas main along with a meter, heater and regulator station for $900,000. This purchase was funded with a new loan agreement with Five Star Bank for $540,000 and investment from the Holding Company and Mirabito Regulated Industries of $180,000 each. Another $100,000 was invested by both companies for total investments of $1,130,000 by each for the year ended September 30, 2015. The new note matures on March 1, 2020 with an interest rate of 4.58%. With this purchase, Leatherstocking Gas began service to a large industrial customer. On October 19, 2015, Leatherstocking Gas and Five Star Bank entered into an agreement which allows Leatherstocking Gas to borrow up to $500,000 as a line-of-credit note with interest only payments to finance the continued and additional infrastructure cost of the construction project in Northern Pennsylvania. This requires an investment of approximately $166,667 from both the Holding Company and Mirabito Regulated Industries. Leatherstocking Pipeline is a guarantor of this loan.
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The interests in Leatherstocking Pipeline, which was formed with the same structure and managers as Leatherstocking Gas, are also held by the Holding Company. Leatherstocking Pipeline is an unregulated company whose purpose is to serve one customer in Lawton, Pennsylvania. In the spring and summer of 2012, Leatherstocking Pipeline built and placed in service facilities to serve that customer.
The investment and equity in both Leatherstocking companies (collectively, “Joint Ventures”) has been recognized in the consolidated financial statements. The Holding Company has accounted for its equity investment using the equity method of accounting based on the guidelines established in FASB ASC 323. In applying the guidance of FASB ASC 323, the Holding Company recognized the investment in the Joint Ventures as an asset at cost. The investment will fluctuate in future periods based on the Holding Company’s allocable share of earnings or losses from the Joint Ventures which is recognized through earnings.
The following table represents the Holding Company’s investment activity in the Joint Ventures at September 30, 2015 and September 30, 2014:
| 2015 | 2014 | |||||||
| Beginning balance in investment in joint ventures | $1,280,757 | $587,678 | ||||||
| Investment in joint ventures during year | 1,130,000 | 800,000 | ||||||
| Income (loss) in joint ventures during year | (117,505 | ) | (106,921 | ) | ||||
| Ending balance in joint ventures | $2,293,252 | $1,280,757 |
At September 30, 2015, the Joint Ventures had combined assets of $11.9 million, combined liabilities of $7.3 million and combined net losses of approximately $235,000.
(10) Income Taxes
| Income tax expense for the years ended September 30 is as follows: | ||||||||
| 2015 | 2014 | |||||||
| Current | $78,000 | $70,000 | ||||||
| Deferred | 991,631 | 1,240,705 | ||||||
| Total | $1,069,631 | $1,310,705 | ||||||
| Actual income tax expense differs from the expected tax expense (computed by applying the federal |
| corporate tax rate of 34% and state tax rate of 7.1% to income before income tax expense) as follows: |
| 2015 | 2014 | |||||||
| Expected federal tax expense | $969,582 | $1,148,692 | ||||||
| Regulatory adjustment | (55,600 | ) | (80,054 | ) | ||||
| Dividends received deduction | (11,433 | ) | (12,665 | ) | ||||
| State tax expense (net of federal) | 175,331 | 223,157 | ||||||
| Other, net | (8,249 | ) | 31,575 | |||||
| Actual tax expense | $1,069,631 | $1,310,705 |
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The tax effects of temporary differences that result in deferred income tax assets and liabilities at September 30 are as follows:
| 2015 | 2014 | |||||||
| Deferred income tax assets: | ||||||||
| Unbilled revenue | $57,521 | $15,510 | ||||||
| Deferred compensation reserve | 604,458 | 684,897 | ||||||
| Post-retirement benefit obligations | 2,246,383 | 551,579 | ||||||
| Comprehensive income | — | 1,563,865 | ||||||
| Inventories | 27,788 | 54,629 | ||||||
| Deficiency of gas adjustment clause revenues billed | 85,262 | 121,316 | ||||||
| NOL carryforwards | 2,597,946 | 3,146,186 | ||||||
| Other | 1,285,010 | 407,984 | ||||||
| Total deferred income tax assets | 6,904,368 | 6,545,966 | ||||||
| Deferred income tax liabilities: | ||||||||
| Property, plant and equipment, principally due to | ||||||||
| differences in depreciation | 7,759,860 | 7,197,083 | ||||||
| Pension benefit obligations | 1,298,794 | 238,880 | ||||||
| Comprehensive income | 19,892 | — | ||||||
| Deferred rate expense and allocations | 365,091 | 438,469 | ||||||
| Other | 1,054,445 | 111,166 | ||||||
| Total deferred income tax liabilities | 10,498,082 | 7,985,598 | ||||||
| Net deferred income tax liabilities | $3,593,714 | $1,439,632 |
The Holding Company has federal and New York State tax net operating loss carry forwards available of approximately $6.4 million as of September 30, 2015 that begin to expire at the end of the Holding Company’s fiscal 2025 tax year.
The accounting rules for uncertain taxes provide for the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recognized in the financial statements. The Holding Company has evaluated its tax positions and accordingly has not identified any significant uncertain tax positions. The Holding Company’s policy is to classify interest associated with uncertain tax positions as interest expense in the financial statements. Penalties are classified under other expense. The Holding Company will file a consolidated federal income tax return and state income tax returns in New York and Pennsylvania. The federal returns for the tax years ended September 30, 2012 and prior to September 30, 2011 are no longer subject to examination. The state returns for the tax years ended prior to September 30, 2012 are no longer subject to examination. The Gas Company’s federal return is currently being examined for the tax year ended September 30, 2011. At this time, the Holding Company and Gas Company do not know of any material financial impact as a result of the examination.
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(11) Pension and Other Post-retirement Benefit Plans
There are currently three covered participants related to the deferred compensation obligation that are all former officers. The liability on the consolidated balance sheet represents the present value of the future obligation. In 1997, the Gas Company established a trust (the Rabbi Trust) to fund a deferred compensation plan for certain officers. The fair market value of assets in the trust was $2,102,600 (plus $51,185 in additional stock) and $2,256,953 (plus $51,185 in additional stock) at September 30, 2015 and 2014, respectively, and the plan liability, which is labeled as deferred compensation on the balance sheet, was $1,492,488 and $1,666,415 at September 30, 2015 and 2014, respectively. The assets of the trust are available to general creditors in the event of insolvency. In 2015, the mortality assumption was changed from the RP-2000 annuitant/non-annuitant mortality table with generational improvements using scale BB to the 2008 VBT Primary Male Smoker tables with generational improvements for two of the covered participants which resulted in a decrease to the pension obligation of approximately $171,000. In 2014, the mortality assumption was changed from the 1994 Group Annuity Mortality Table for Males and Females without generational improvements to the RP-2000 annuitant/non-annuitant Mortality Table for Males and Females with generational improvements projected using scale BB. This change resulted in an increase to the pension benefit obligation of approximately $131,200 in fiscal 2014.
The Gas Company has defined benefit pension plans covering substantially all of its employees. The benefits are based on years of service and the employee’s highest average compensation during a specified period. The Gas Company makes annual contributions to the plans equal to amounts determined in accordance with the funding requirements of the Employee Retirement Security Act of 1974. Contributions are intended to provide for benefits attributed for service to date, and those expected to be earned in the future.
In addition to the Gas Company’s defined benefit pension plans, the Gas Company offers post-retirement benefits comprised of medical and life coverage to its employees who meet certain age and service criteria. For union participants who retire on or after September 2, 1992, the Gas Company cost for post-retirement benefits is contractually limited and will not exceed $150 per month. This contract is in effect until April 2, 2018. The monthly benefit for all non-union employees, who retire between the ages of 62 and 65, will be the lesser of 40% of the retiree’s plan premium or $150. After age 65, the Gas Company pays up to $150 a month for the cost of the retiree’s supplemental plan. In addition, the Gas Company offers limited life insurance coverage to active employees and retirees. The post-retirement benefit plan is not funded. The Gas Company accrues the cost of providing post-retirement benefits during the active service period of the employee.
The following table shows reconciliations of the Gas Company’s pension and post-retirement plan benefits as of September 30:
| Pension Benefit | Post-retirement Benefits | |||||||
| 2015 | 2014 | 2015 | 2014 | |||||
| Change in benefit obligations: | ||||||||
| Benefit obligation at beginning of year | $18,633,318 | $17,099,633 | $1,264,378 | $1,118,819 | ||||
| Service cost | 337,039 | 306,274 | 20,979 | 16.096 | ||||
| Interest cost | 919,156 | 806,489 | 48,673 | 52,682 | ||||
| Participant contributions | - | - | 63,673 | 62,600 | ||||
| Actuarial (gain) loss | 300,931 | 1,299,938 | 25,891 | 136,781 | ||||
| Benefits paid | (905,842) | (879,016) | (128,001) | (122,600) | ||||
| Curtailments | - | - | - | - | ||||
| Benefit obligation at end of year | 19,284,602 | 18,633,318 | 1,295,660 | 1,264,378 | ||||
| Change in plan assets: | ||||||||
| Fair value of plan assets at beginning of year | 13,675,154 | 12,224,984 | - | - | ||||
| Actual return on plan assets | 4,126 | 1,164,288 | - | - | ||||
| Company contributions | 990,897 | 1,164,898 | 64,261 | 60,000 | ||||
| Participant contributions | - | - | 63,740 | 62,600 | ||||
| Benefits paid | (912,338) | (879,016) | (128,001) | (122,600) | ||||
| Fair value of plan assets at end of year | 13,757,839 | 13,675,154 | - | - | ||||
| Funded status | (5,526,763) | (4,958,164) | (1,295,660) | (1,264,378) | ||||
| Unrecognized net actuarial loss/(gain) | 4,403,014 | 3,572,106 | (45,221) | (79,013) | ||||
| Unrecognized prior service cost | 9,797 | 19,203 | 150,083 | 153,630 | ||||
| (Accrued) prepaid benefit cost | (1,113,952) | (1,366,855) | (1,190,798) | (1,189,761) | ||||
| Accrued contribution | - | - | - | - | ||||
| Amounts recognized in the balance sheet consists of: | ||||||||
| Prepaid (accrued) benefit liability | (5,526,763) | (4,958,164) | (1,295,660) | (1,264,378) | ||||
| Amounts recognized in the Balance Sheets consist of: | ||||||||
| (Accrued)/prepaid pension cost as of beginning of fiscal year | (1,366,855) | (1,894,275) | (1,189,761) | (1,201,413) | ||||
| Pension (cost) income | (986,115) | (737,994) | (70,313) | (56,348) | ||||
| Contributions | 990,897 | 1,164,898 | - | - | ||||
| Change in receivable contribution | 248,121 | 100,516 | - | - | ||||
| Net benefits paid | - | - | 69,276 | 68,000 | ||||
| Change in additional minimum liability | - | - | - | - | ||||
| (Accrued)/prepaid pension cost as of end of fiscal year | (1,113,952) | (1,366,855) | (1,190,798) | (1,189,761) | ||||
| Fair value of plan assets at end of year | ||||||||
| Cash and equivalents | 175,950 | 333,449 | - | - | ||||
| Government and agency issues | 2,920,406 | 2,084,850 | - | - | ||||
| Corporate bonds | 3,691,645 | 3,523,711 | - | - | ||||
| Fixed index funds | 324,804 | 609,911 | - | - | ||||
| Fixed income | 540,732 | 1,095,214 | - | - | ||||
| Equity securities | 6,104,302 | 6,028,019 | - | - | ||||
| 13,757,839 | 13,675,154 | - | - | |||||
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The funded status of both plans totaling a deficiency of approximately $6,800,000 and $6,200,000 at September 30, 2015 and 2014, respectively, are included in deferred pension & post-retirement benefits on the consolidated balance sheets which are offset by a pension regulatory liability of approximately $35,000 at September 2015 and a pension regulatory asset of approximately $131,000 at September 30, 2014. In accordance with ASC 715, the net actuarial loss/(gain) and unrecognized prior service cost are collectively adjusted through other comprehensive income (loss)-minimum pension liability and included in accumulated other comprehensive income in the consolidated financial statements, which are presented net of tax for fiscal 2014. In the fourth quarter of fiscal 2015 the Gas Company determined that it meets the criteria to record these items as a regulatory asset in accordance with ASC 980-715-25-5. See Note 5 to the financial statements.
During the year ended September 30, 2015, the pre-tax accumulated net actuarial loss/(gain) and unrecognized prior service cost increased by $851,547 from $3,666,126 to $4,517,673. Historically, the change in these items had been recorded net of tax in the consolidated statements of changes in stockholders’ equity. During first three quarters of the year ended September 30, 2015, the Gas Company recorded $222,363 ($377,526, net of tax) through OCI for the estimated change in these items based on estimates prepared by the actuary during the year ended September 30,2014. After removing these items from OCI and establishing the regulated asset in the fourth quarter of the year ended September 30, 2015, the remaining change of $474,021 was recorded directly as an increase to this asset. Beginning with the year ended September 30, 2016 the change in pre-tax net actuarial loss/(gain) and unrecognized prior service will be recorded directly to the regulatory asset related to pension.
Amortization of unrecognized net (gain)/loss for the Retirement Plan for fiscal year ending September 30, 2015:
| 1 | Projected benefit obligation as of September 30, 2015 | $19,284,602 | ||||||
| 2 | Plan assets at September 30, 2015 | (13,757,839 | ) | |||||
| 3 | Unrecognized (gain)/loss as of September 30, 2015 | 4,403,014 | ||||||
| 4 | Ten percent of greater of (1) or (2) | 1,928,460 | ||||||
| 5 | Unamortized (gain)/loss subject to amortization - (3) minus (4) | 2,474,554 | ||||||
| 6 | Active future service of active plan participants expected to receive benefits | 9.79 | ||||||
| 7 | Minimum amortization of unamortized net (gain)/loss - (5)/(6) | $252,763 | ||||||
| 8 | Amortization of (gain)/loss for 2015-2016 | $672,265 | ||||||
Amortization of unrecognized net (gain)/loss for the Post-Retirement Plan for the fiscal year ended September 30, 2015:
| Amount to be amortized 2015 - 2016 | $(45,221) |
| Amortization period | 10 years |
| Amortization for 2015 - 2016 ((gain)/loss divided by period) | $(4,522) |
| Pension Benefits | Post-retirement Benefits | |||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| Components of net period benefit cost (benefit): | ||||||||||||||||
| Service cost | 343,039 | 311,274 | 20,979 | 16,096 | ||||||||||||
| Interest cost | 919,156 | 806,489 | 48,673 | 52,682 | ||||||||||||
| Expected return on plan assets | (1,027,565 | ) | (926,361 | ) | ||||||||||||
| Amortization of prior service | 9,406 | 10,749 | 3,547 | 3,547 | ||||||||||||
| Amortization of unrecognized actuarial loss (gain) | 493,958 | 435,327 | (7,901 | ) | (23,977 | ) | ||||||||||
| Net periodic benefit cost (benefit) | 737,994 | 637,478 | 65,298 | 48,348 | ||||||||||||
For ratemaking and financial statement purposes, pension expense represents the amount approved by the NYPSC in the Gas Company’s most recently approved rate case. Pension expense (benefit) for ratemaking and financial statement purposes was approximately $970,000 for the years ended September 30, 2015 and 2014. The difference between the pension expense (benefit) for ratemaking and financial statement purposes, and the amount computed above has been deferred as regulatory assets and are not included in the prepaid pension cost noted above. The cumulative amounts deferred equal $89,746 and $227,024 as of September 30, 2015 and 2014, respectively.
The NYPSC has allowed the Gas Company to recover incremental cost associated with post-retirement benefits through rates on a current basis. Due to the timing differences between the Company’s rate case filings and financial reporting period, a regulatory receivable of $123,174 and $147,168 has been recognized at September 30, 2015 and 2014, respectively.
| Pension Benefits | Post-retirement Benefits | |||
| 2015 | 2014 | 2015 | 2014 | |
| Weighted average assumptions used to determine net | ||||
| period cost at September 30: | ||||
| Discount rate | 5.22% | 5.07% | 4.00% | 3.95% |
| Salary increases | 2.00% | 2.00% | N/A | N/A |
Expected return on assets |
7.50% | 7.50% | N/A | N/A |
| 47 |
For the period ended September 30, 2014, the discount rate was prepared by utilizing an analysis of the plan’s expected future cash flows and high-quality fixed-income investments currently available and expected to be available during the period to maturity of the pension benefits. The discount rate used is an estimate of the rate at which a defined benefit pension plan could settle its obligations. Rather than using a rate and curve developed using a bond portfolio, this method selects individual bonds to match to the expected cash flows of the Plan. Management feels this provides a more accurate depiction of the true cost to the plan to settle the obligations as the Plan could theoretically go into the marketplace and purchase the specific bonds used in the analysis in order to settle the obligations of the Plan. In 2014, the mortality assumption has changed from the 1994 Group Annuity Mortality Table for Males and Females without generational improvements to the RP-200 annuitant/non-annuitant Mortality Table for Males and Females with generational improvements projected using scale BB. This change resulted in an increase to the pension benefit obligation of approximately $1,394,000. The net effect of these two changes to the assumptions is a decrease of approximately $759,000 to the pension benefit obligation. In fiscal year 2015, the same methodology was used as in 2014. The change in discount rate from 5.07% to 5.22% did not have a significant effect on the benefit obligation.
The expected returns on plan assets of the Retirement Plan and Post-Retirement Plan are applied to the market-related value of plan assets of the respective plans. For the Retirement Plan, the market-related value of assets recognizes the performance of its portfolio over five years and reduces the effects of short-term market fluctuations. The Gas Company’s Retirement Plan assets are invested by a manager that reports at least annually to the Gas Company’s Investment Committee for review and evaluation. The manager has been given the objective to achieve modest capital appreciation with a secondary objective of achieving a relatively high level of current income using a mix of cash equivalents, fixed income securities and equities to structure a balanced investment portfolio. The Investment Committee does not reserve control over investment decisions, with the exception of certain limitations and holds the manager responsible and accountable to achieve the stated objectives. The market-related value of Post-Retirement Plan assets is set equal to market value.
For measurement purposes, a 6% annual rate of increase in the per capita cost of covered benefits (health care cost trend rate) was assumed for 2015. The rate is assumed to increase by 6% each year thereafter. A 1% increase in the actual health care cost trend would result in approximately a 3.9% increase in the service and interest cost components of the annual net periodic post-retirement benefit cost and a 5.7% increase in the accumulated post-retirement benefit obligation. A 1% decrease in the actual health care cost trend would result in approximately a 3.2% decrease in the service and interest cost components of the annual net periodic post-retirement benefit cost and a 4.8% decrease in the accumulated post-retirement benefit obligation.
The Gas Company expects to contribute $960,819 to the Retirement Plan during the year ended September 30, 2016.
| The estimated pension plan benefit payments are as follows: | ||||||
| 2016 | $ | 1,103,000 | ||||
| 2017 | $ | 1,141,000 | ||||
| 2018 | $ | 1,161,000 | ||||
| 2019 | $ | 1,226,000 | ||||
| 2020 | $ | 1,337,000 | ||||
| 2021+ | $ | 7,057,000 | ||||
| 48 |
The Gas Company also maintains the Corning Natural Gas Corporation Employee Savings Plan (the “Savings Plan”). All employees of the Gas Company who work for more than 1,000 hours per year and who have completed one year of service may enroll in the Savings Plan at the beginning of each calendar quarter. Under the Savings Plan, participants may contribute up to 50% of their wages. For all employees, the Gas Company will match one-half of the participant’s contribution up to a total of 50% of the participant’s contribution up to a total of 6% of the participant’s wages. The plan is subject to the federal limitation. The Gas Company contribution to the plan was $87,456 in 2015 and $87,712 in 2014.
(12) Stock Options
A summary of all stock option activity and information related to all options outstanding follows:
| 2014 | ||||||||||||
| Stock Options | ||||||||||||
| Number of | Weighted | Average | ||||||||||
| Shares | Average | Remaining | ||||||||||
| Remaining | Exercise | Contractual | ||||||||||
| Options | Price | Term | ||||||||||
| Outstanding at October 1, 2013 | 13,500 | $12.83 | ||||||||||
| Options granted | — | |||||||||||
| Options exercised during year ended September 30, 2014 | — | |||||||||||
| Options expired during year ended September 30, 2014 | — | |||||||||||
| Outstanding at September 30, 2014 | 13,500 | $12.83 | 1.25 years | |||||||||
| Exercisable at September 30, 2014 | 13,500 | $12.83 | 1.25 years | |||||||||
| 2015 | ||||||||||||
| Stock Options | ||||||||||||
| Number of | Weighted | Average | ||||||||||
| Shares | Average | Remaining | ||||||||||
| Remaining | Exercise | Contractual | ||||||||||
| Options | Price | Term | ||||||||||
| Outstanding at October 1, 2014 | 13,500 | $12.83 | ||||||||||
| Options granted | — | |||||||||||
| Options exercised during year ended September 30, 2015 | 1,500 | $12.83 | ||||||||||
| Options expired during year ended September 30, 2015 | — | |||||||||||
| Outstanding at September 30, 2015 | 12,000 | 12.83 | .25 years | |||||||||
| Exercisable at September 30, 2015 | 12,000 | 12.83 | .25 years | |||||||||
There is no unrecognized cost related to options at September 30, 2015 because all options are vested. On October 21, 2015, an additional 9,000 options were exercised.
| 49 |
(13) Commitments
The Gas Company is a local distribution company and has contracted for gas supply from various sources to provide the commodity to the city gates. The city gate is the transfer point at which we take ownership of the gas supply from local producers and interstate pipelines and billing metering starts. The Gas Company maintains storage capacity of approximately 736,000 Dekatherms. Prior to April 2014, the Gas Company contracted with a third-party to manage its gas supply and storage. Starting in April 2014, the Gas Company assumed responsibility for managing its gas supply assets. At September 30, 2015, we had 654,040 dekatherms at $1.2 million in storage. As the result of these actions, we anticipate that we will have sufficient gas to supply our customers for the 2015-2016 winter heating season.
The Gas Company has secured the NYPSC required fixed price and storage gas supply for the winter season and is managing its gas storage and gas contracts to assure that the Gas Company follows its gas supply and acquisition plan. The gas supply plan is a formal document that defines how we acquire natural gas to supply our customers. The plan is submitted to the NYPSC every year and adherence to the plan is a regulatory mandate. Assuming no extraordinary conditions for the winter season, gas supply, both flowing and storage, will be adequate to serve our approximately 14,800 customers.
On September 9, 2015, the Holding Company and M&T Bank signed a Commitment Letter for up to a $12 million term loan and a $2 million line of credit loan for partially financing the stock purchase of Pike County Light & Power Company from Orange & Rockland Utilities. See Note 15 Subsequent Events of Notes to the Consolidated Financial Statements for additional information. The term loan will mature five years from the date of closing with interest only payments for the first six months, then monthly payment of principal and interest based on an amortization not to exceed ten years. This loan will have a variable interest rate based on one month LIBOR plus 300 basis points. The line of credit note will be a demand facility billed interest only monthly at a variable rate equal to one month LIBOR plus 275 basis points.
Environmental Considerations: The Gas Company is subject to various federal, state and local environments laws and regulations. The Gas Company has established procedures for the ongoing evaluation of its operations to identify potential environmental exposures and assure compliance with regulatory policies and procedures. Management believes the Gas Company is in compliance with all applicable regulations.
(14) Related Party Transactions
A director performed legal services for the Gas Company of approximately $174,000 in 2015 which resulted in some property tax savings but the legal service cost was reimbursed by the customer responsible for payment of the property tax. No amounts have been recorded in the consolidated financial statements.
Related party receivables are expenditures paid on behalf of the Holding Company’s joint venture investments. There were costs incurred in fiscal year 2015 of $118,108 with approximately $10,500 due for shares sold to Leatherstocking Gas for director services. There were no payments made in fiscal year 2015 but we expect repayment on these amounts during the year ended September 30, 2016.
(15) Subsequent Events
On October 13, 2015, the Holding Company entered into a Stock Purchase Agreement with Orange and Rockland Utilities, Inc. (“O&R”) for the purchase of all of the outstanding capital stock of Pike County Light & Power Company (“PCL&P”), a Pennsylvania corporation operating as a regulated electric and gas utility serving approximately 5,800 customers in Pike County, Pennsylvania. The purchase price for the stock of PCL&P is $13.1 million, with a closing date working capital adjustment of no more than $3 million and assumption of $3.2 million in PCL&P’s outstanding bonds. The Holding Company expects to cause these bonds to be redeemed soon after closing of the stock purchase. The consummation of the transactions contemplated by the Stock Purchase Agreement is subject to various closing conditions including: regulatory filings with, and/or approvals by the NYPSC, Pennsylvania Public Utility Commission and the Federal Energy Regulatory Commission. The Stock Purchase Agreement may be terminated by mutual consent of the Holding Company and O&R, if a condition to closing becomes incapable of fulfillment and by either party if closing has not occurred on or before April 13, 2017.
| 50 |
On October 14, 2015, the Gas Company entered into a Term Note and Agreement with M&T in the amount of $1,000,000 with an interest rate of 2.75 percentage points above LIBOR for the purpose of short term financing of mandated construction projects. The maturity date of this note was January 14, 2016. On November 6, 2015, the Gas Company entered into a Term Note and Agreement with M&T in the amount of $3,000,000 that consolidated the notes for $2,000,000 and $1,000,000 into a new note with a maturity date of February 6, 2016. This note has an interest rate of 2.75 percentage points above LIBOR. This note is expected to be either refinanced or extended at maturity.
On October 19, 2015, the NYPSC adopted the terms of the Extension Joint Proposal, including the Safety and Reliability Charge which permits the Gas Company to collect approximately $466,000 in the first twelve months (May 1, 2015 through April 30, 2016), and approximately $575,000 in the second twelve months (May 1, 2016 through April 30, 2017), of the extended Gas Rate Plan, for a total of approximately $1,041,000 with collection condensed and starting November 1, 2015 and ending April 30, 2017. The return of the Gas System Benefit Charge over-collection and elimination of its prospective collection (a regulatory liability) partially offset the collections on the Safety and Reliability Charge, resulting in a total cash flow increase expected over the two-year term of the Extension Joint Proposal of approximately $426,000.
On October 19, 2015, Leatherstocking Gas and Five Star Bank entered into an agreement which allows Leatherstocking Gas to borrow up to $500,000 as a line-of-credit note with interest only payments due at a variable rate equal to the prime rate announced in the Wall Street Journal on a monthly basis. The note will then convert to a permanent loan payable over five years on a ten year amortization schedule. When the loan converts, Leatherstocking Gas will decide on either a fixed rate or variable rate. This requires an investment of approximately $166,667 by each equity holder. Leatherstocking Pipeline is a guarantor of this loan. The interests of the Holding Company and Mirabito Regulated Industries, LLC have been pledged as additional collateral. The purpose of this credit note is to finance the continued and additional infrastructure costs of the construction projects in Northern Pennsylvania.
On October 21, 2015, 9,000 stock options were exercised for proceeds of $115,470.
On December 1, 2015, 2,625 shares were issued to our Board for the quarter ended September 30, 2015 for services provided to the Company.
M & T Bank
88 Exchange Street
Binghamton, NY 13901
September 9, 2015
Mr. Michael German, President
Corning Natural Gas Holding Corporation
330 West Williams Street
Corning, NY 14830
Re: Financing Request for Pike County Opportunity
Dear Mike:
I am pleased to inform you that your request for financing the stock purchase of Pike County Light & Power Company from Orange & Rockland Utilities has been approved. Attached with this letter is a list of terms and conditions of the respective credit facilites.
This Commitment Letter is not intended to set forth each and every requirement of the Bank with respect to this loan transaction. This loan shall be further contingent upon (i) the execution and delivery to the Bank of all agreements, instruments and other writings that the Bank or its counsel deems necessary or appropriate in connection with this loan; and (ii) there not having occurred or existed on or after the date of this letter and before the loan is closed any event or condition that we reasonably believe would or might have a material adverse affect on you or on your business, render any collateral less valuable than we had previously determined it to be or would cause us to deem ourselves insecure in making the loan.
This Commitment Letter constitutes the entire agreement and understanding between you and M&T Bank with respect to the Commitment and supersedes all prior negotiations, understandings and agreements between such parties with respect to this Commitment, including, without limitation, those expressed in any prior proposal or commitment letter delivered by us to you. No modification, recission, waiver, release or amendment of any provision of this Commitment Letter shall be made, except by a written agreement signed by you and a duly authorized officer of M&T Bank.
This Commitment Letter, which is not assignable by you, shall automatically expire and be null and void if (i) we have not received an original of this letter executed by you, along with the fee set forth in Attachment A , executed by you on or before September 15, 2015 (ii) prior to any such receipt, we, orally or in writing, give notice of withdrawal hereof; or (iii) if this loan has not closed on or before August 30, 2016 (the “Closing Date”). We may extend the Closing Date, in our sole discretion, provided such extension is in writing and, if so extended, the interest rate may be adjusted to market conditions.
Kindly acknowledge your approval of this Commitment by signing and returning this letter along with the referenced fee. Thank you for the opportunity to provide this financing. I am confident that you will be pleased with the quality service provided by M&T Bank. If you have any questions, please contact me at (607) 779-5909.
Very truly yours,
MANUFACTURERS AND TRADERS TRUST COMPANY
By:/s/ Edgar B Parson III
Edgar B. Parsons III, Vice President
Acknowledged, agreed and accepted this 9th day of September , 2015.
Corning Natural Gas Holding Corporation.
By: /s/ Michael I. German
Name: Michael I. German
Title: President and CEO
| 1 |
Attachment A
Pike County Acquisition
Terms and Conditions:
| Borrower: |
Pike County Light & Power Company (collectively known as the "Borrower")
|
| Purpose: | Partially finance the purchase of Pike County Light & Power Company from Orange & Rockland Utilities. |
| Credit Facilities: |
1. Up to $12,000,000 Term loan. 2. $2,000,000 in Line of Credit for short term working capital purposes. |
| Facility Term/Amortization: |
1. The Term Loan will mature Five (5) years from the date of closing. Billed interest only for 6 months, then commence monthly payments of principal and interest based on an amortization not to exceed 10 years. 2. The Line of Credit will be a Demand facility billed Interest only monthly. |
|
Pricing:
|
Facility 1 will price on a variable interest based on 1 Month LIBOR plus 300 basis points. Facility 2 will price on a variable interest based on 1 Month LIBOR plus 275 basis points.
|
| Interest Rate Hedging | The Borrower may elect to hedge the interest rate risk of variable pricing on the Term Loan through an interest rate derivative at any point in the amortization of the loan. |
| Commitment Fee: |
A 50 basis point fee on the term loan amount. The $60,000 fee is considered earned and is due upon issuance of the Commitment. |
|
| Corporate Guarantor: | All loans shall have an unlimited corporate guaranty of the parent entity, Corning Natural Gas Holding Corporation. | |
| Collateral: | Perfected First lien Uniform Commercial Code Financing statements covering all business assets now owned or hereafter acquired related to the Borrower. | |
| 2 |
| Covenants, Reporting and Other Terms: | |
| Covenants: |
Customary and normal for this type of transaction to include, at a minimum, debt service coverage, liquidity, and leverage. Covenants shall be set at levels mutually acceptable to Borrower and M&T Bank.
|
| Financial Reporting: |
Customary reporting including, but not limited to the following: 1. Borrower’s and Guarantor’s annual audited financial statements within 120 days of fiscal year end. 2. Operating and capital budget for the following fiscal year to be delivered prior to 12/31 of the current year. 3. Quarterly submission of management prepared financial statements, and covenant compliance certificate. |
Other Terms and Conditions: |
Existing Mortgage Bond in approximate amount of $3,200,000 to be paid off at closing. M&T Bank agrees to work with Corning and Woodmen to seek a waiver of the notice provision so that closing, redemption and our new loan could occur concurrently. If this proved unsuccessful, we would accept a second security position on all of Pike’s assets as well as a guarantee of the debt by Corning Natural Gas Holding Corporation (“CNGHC”). We would loan Pike County Light and Power Company $8.8 million to close the transaction with Orange & Rockland and approximately 30 days later an additional $3.2 million to retire the first mortgage bonds. At that time we would have a first priority security interest in all of Pike’s assets.
Any existing debt, including Intercompany short and long term payables, to be paid off at closing.
Borrower shall have delivered to M&T, sufficiently in advance of closing, all information and documentation required by M&T to evidence or facilitate both the Borrower’s and M&T’s compliance with all applicable laws and regulations, including, without limitation, all “know your customer” rules in effect from time to time pursuant to the Bank Secrecy Act, USA PATRIOT Act and other applicable laws. Any failure by Borrower or any necessary third party to deliver to M&T, in a timely manner, any material information or documentation requested, or any misrepresentation or inaccuracy with respect to such information or documentation, or if M&T reasonably determines that opening any account contemplated herein would potentially violate M&T’s regulatory compliance policies or applicable law, shall permit M&T to withdraw or cancel this financing offer, without liability.
|
|
Representations and Warranties, Permits |
Customary, including, but not limited to, corporate existence, due authorization, execution, delivery, validity and enforceability of documentation, no violation of law or any agreement or instrument, financial information, solvency, litigation and compliance with law, agreements and instruments.
|
| 3 |
| Equity Raise: | Evidence that the required equity portion of the transaction has been raised and is available for closing. |
| Fees and Expenses: | All costs associated with this transaction, including but not limited to, the costs of preparation of documents, Bank's counsel's fees and all other out of pocket expenses of M&T Bank shall be the responsibility of the Corning Natural Gas Holding Company regardless of whether the transaction closes. |
Exhibit 21
Subsidiary of Corning Natural Gas Holding Corporation
| Name | Jurisdiction of Incorporation |
| Corning Natural Gas Appliance Corporation | New York State |
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Registration No. 333-190348) of Corning Natural Gas Holding Corporation of our report dated December 23, 2015 relating to the consolidated financial statements, which appear in this Form 10-K of Corning Natural Gas Holding Corporation for the year ended September 30, 2014.
Freed Maxick CPAs, P.C.
Rochester, New York
December 23, 2015
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Registration No. 333-190348) of Corning Natural Gas Holding Corporation of our report dated December 23, 2015 relating to the consolidated financial statements, which appear in this Form 10-K of Corning Natural Gas Holding Corporation for the year ended September 30, 2014.
Freed Maxick CPAs, P.C.
Rochester, New York
December 23, 2015
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
17 CFR SECTION 240.13a-14(a)
I, Michael I. German, certify that:
1. I have reviewed this annual report on Form 10-K of Corning Natural Gas Holding Corporation for the fiscal year ended September 30, 2015;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date: December 23, 2015
/s/ Michael I. German |
|
Michael I. German, Chief Executive Officer and President (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO
17 CFR SECTION 240.13a-14(a)
I, Firouzeh Sarhangi, certify that:
1. I have reviewed this annual report on Form 10-K of Corning Natural Gas Holding Corporation for the fiscal year ended September 30, 2015;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date: December 23, 2015
/s/ Firouzeh Sarhangi |
|
Firouzeh Sarhangi, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) |
Exhibit 32.1
CERTIFICATION FURNISHED PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the filing of the Annual Report of Corning Natural Gas Holding Corporation (the “Company”) on Form 10-K for the period ending September 30, 2015 (the “Report”) with the Securities and Exchange Commission, I, Michael I. German, Chief Executive Officer and President of the Company and I, Firouzeh Sarhangi, Chief Financial Officer and Treasurer of the Company, certify pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Report fairly presents, in all material respects, the financial condition and the results of operations of the Company for such period.
Dated: December 23, 2015
| /s/ MICHAEL I. GERMAN |
Michael I. German, Chief Executive Officer and President
(Principal Executive Officer)
| /s/ FIROUZEH SARHANGI |
Firouzeh Sarhangi, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
STOCK PURCHASE AGREEMENT
by and between
ORANGE AND ROCKLAND UTILITIES, INC.
and
CORNING NATURAL GAS HOLDING CORPORATION
Dated: October 13, 2015
TABLE OF CONTENTS
Page
| ARTICLE I DEFINITIONS | 1 |
| Section 1.1 Certain Definitions | 1 |
| Section 1.2 Other Definitions | 4 |
| ARTICLE II PURCHASE OF SHARES | 5 |
| Section 2.1 Purchase of Shares | 5 |
| Section 2.2 Purchase Price | 5 |
| ARTICLE III THE CLOSING | 6 |
| Section 3.1 Closing | 6 |
| Section 3.2 Closing Deliverables | 6 |
| Section 3.3 Purchase Price Adjustment | 9 |
| ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER | 9 |
| Section 4.1 Organization and Related Matters | 9 |
| Section 4.2 Subsidiaries | 10 |
| Section 4.3 Authority | 10 |
| Section 4.4 No Violation | 10 |
| Section 4.5 Consents and Approvals | 10 |
| Section 4.6 Stock Ownership; Capitalization | 11 |
| Section 4.7 Financial Statements | 11 |
| Section 4.8 No Brokers | 11 |
| Section 4.9 Legal Proceedings | 11 |
| Section 4.10 Undisclosed Liabilities | 11 |
| Section 4.11 Compliance with Applicable Law | 12 |
| Section 4.12 Absence of Certain Changes | 13 |
| Section 4.13 Intellectual Property | 13 |
| Section 4.14 Employees; Employee Benefit Plans | 13 |
| Section 4.15 Taxes | 13 |
| Section 4.16 Contracts | 14 |
| Section 4.17 Title to Assets | 15 |
| Section 4.18 Transactions with Certain Persons | 15 |
| Section 4.19 Environmental Laws | 15 |
| Section 4.20 Insurance Coverage | 15 |
| Section 4.21 Real Property | 16 |
| ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER | 16 |
| Section 5.1 Organization and Related Matters | 16 |
| Section 5.2 Authority | 16 |
| Section 5.3 No Violation | 16 |
| Section 5.4 Consents and Approvals | 17 |
| Section 5.5 Legal Proceedings | 17 |
| Section 5.6 Investment Intent of Buyer | 17 |
| Section 5.7 Brokers | 17 |
| Section 5.8 Financial Resources | 18 |
| Section 5.9 Opportunity for Independent Investigation | 18 |
| Section 5.10 No Knowledge of Seller’s Breach | 18 |
| Section 5.11 Bankruptcy | 18 |
| ARTICLE VI COVENANTS | 18 |
| Section 6.1 Conduct of Business | 18 |
| Section 6.2 Public Announcements | 19 |
| Section 6.3 Expenses | 20 |
| Section 6.4 Access; Certain Communications | 20 |
| Section 6.5 Regulatory Matters; Third Party Consents | 20 |
| Section 6.6 Further Assurances | 21 |
| Section 6.7 Notification of Certain Matters | 21 |
| Section 6.8 Updated Schedules; Disclosures | 22 |
| Section 6.9 Access To Records After Closing Date | 22 |
| Section 6.10 Insurance | 23 |
| Section 6.11 Termination of Affiliated Interest Agreement | 23 |
| Section 6.12 Termination of Power Supply Agreement and Gas Arrangement | 23 |
| Section 6.13 Financing Matters | 23 |
| ARTICLE VII TAX MATTERS | 24 |
| Section 7.1 Indemnity | 24 |
| Section 7.2 Tax Allocation Agreement Payments | 25 |
| Section 7.3 Returns and Payments | 26 |
| Section 7.4 Refunds | 26 |
| Section 7.5 Contests | 27 |
| Section 7.6 Section 338(h)(10) Election | 27 |
| Section 7.7 Time of Payment | 28 |
| Section 7.8 Cooperation and Exchange of Information | 28 |
| Section 7.9 Conveyance Taxes | 28 |
| ARTICLE VIII CONDITIONS TO CLOSING | 29 |
| Section 8.1 Conditions to Buyer's Obligations | 29 |
| Section 8.2 Conditions to Seller’s Obligations | 30 |
| Section 8.3 Mutual Conditions | 31 |
| ARTICLE IX SURVIVAL; INDEMNIFICATION | 31 |
| Section 9.1 Survival | 31 |
| Section 9.2 Obligation of Seller to Indemnify | 31 |
| Section 9.3 Obligation of Buyer to Indemnify | 32 |
| Section 9.4 Notice and Opportunity to Defend Against Third Party Claims | 32 |
| Section 9.5 Net Indemnity | 33 |
| Section 9.6 Tax Indemnification | 33 |
| Section 9.7 Limits on Indemnification | 33 |
| Section 9.8 Release | 33 |
| ARTICLE X TERMINATION | 34 |
| Section 10.1 Termination | 34 |
| Section 10.2 Obligations upon Termination | 34 |
| ARTICLE XI MISCELLANEOUS | 34 |
| Section 11.1 Amendments | 34 |
| Section 11.2 Entire Agreement | 34 |
| Section 11.3 Interpretation | 34 |
| Section 11.4 Severability | 34 |
| Section 11.5 Notices | 34 |
| Section 11.6 Binding Effect; Persons Benefiting; No Assignment | 34 |
| Section 11.7 Counterparts | 34 |
| Section 11.8 No Prejudice | 34 |
| Section 11.9 Governing Law; Submission to Jurisdiction | 35 |
LIST OF EXHIBITS
Exhibit A Form of Electric Agreement
Exhibit B Form of Gas Agreement
Exhibit C Form of Transition Services Agreement
LIST OF SCHEDULES
Schedule 1.1(a) Knowledge of Seller
Schedule 1.1(b) Tax Allocation Agreements
Schedule 1.1(c) Tax Allocation Agreements
Schedule 1.1(d) Working Capital
Schedule 3.1 Ownership Demarcation Points
Schedule 4.1 Other States
Schedule 4.4 No Violation
Schedule 4.5 Consents and Approvals
Schedule 4.9 Legal Proceedings
Schedule 4.10 Undisclosed Liabilities
Schedule 4.11 Compliance with Applicable Law
Schedule 4.12 Absence of Certain Changes
Schedule 4.13 Intellectual Property
Schedule 4.15 Taxes
Schedule 4.16 Contracts
Schedule 4.17 Title to Assets
Schedule 4.18 Transactions with Certain Persons
Schedule 4.19 Environmental Laws
Schedule 4.21(a) Owned Real Property Schedule 4.21(b) Leases and Licenses
Schedule 5.4 Consents and Approvals
Schedule 6.1 Conduct of Business
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, dated as of October 13, 2015, is made and entered into by and between Orange and Rockland Utilities, Inc., a New York corporation (“Seller”), and Corning Natural Gas Holding Corporation, a New York corporation (“Buyer”).
RECITALS:
WHEREAS, Seller is the owner of all of the issued and outstanding shares of common stock of Pike County Light & Power Company, a Pennsylvania corporation (the “Company”) (collectively, the “Shares”); and
WHEREAS, upon and subject to the terms and conditions set forth herein, Seller desires to sell to Buyer, and Buyer desires to purchase from Seller, all of the Shares in exchange for the consideration set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the mutual representations, warranties, covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, intending to be legally bound hereby, Buyer and Seller hereby agree as follows:
ARTICLE
I
DEFINITIONS
Section 1.1 Certain Definitions. The following terms, as used herein, have the meanings set forth below:
“Affiliate” means, with respect to any Person, any other Person who directly or indirectly controls, is controlled by or is under common control with such Person. The term “control”, for the purposes of this definition, means the power to direct or cause the direction of the management or policies of the controlled Person.
“Affiliated Interest Agreement” means the Affiliated Interest Agreement, made as of July 1, 2014, by and between Seller and the Company, as amended from time to time.
“Agreement” means this Stock Purchase Agreement, including the Exhibits and Schedules hereto, as it may hereafter be amended, supplemented or otherwise modified from time to time.
“Books and Records” means, without limitation, all existing books, ledgers, files, reports, plans, records, correspondence, shareholder consents, board of director minutes and consents, stock ledgers, transfer records and certificates, plats, surveys, architectural plans, drawings, specifications, creative materials, advertising and promotional materials, studies, manuals, maps and engineering data, test and environmental reports, in each case relating solely to the Company, its assets, business or operations.
“Business Day” means any day other than a Saturday, a Sunday or a day on which banks in New York, New York are required to be closed for regular banking business.
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“Code” means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute.
“Confidentiality Agreement” means the Confidentiality Agreement, dated April 29, 2015, between Corning Natural Gas Corporation and Seller, as it may be amended, supplemented or otherwise modified from time to time.
“Crossing Facilities” means Company facilities or portions thereof located generally above and/or along the shore of the Delaware River.
“Encumbrance” means any lien, pledge, security interest, claim, easement or other encumbrance; provided, however, that this definition of “Encumbrance” shall not include: (a) with respect to all property other than the Shares, (i) liens for current Taxes not yet due and payable, including liens for nondelinquent ad valorem Taxes and nondelinquent statutory liens arising other than by reason of any default on the part of Seller or the Company for which appropriate reserves have been established and are reflected on the relevant financial statements, (ii) such liens, easements or imperfections of title on real property, leasehold estates or personalty as do not interfere in a material respect with the present use of the property subject thereto, (iii) materialmen’s, mechanics’, workmen’s, repairmen’s, employees’, carriers’, warehousemen’s and other like liens arising in the ordinary course of business or relating to any construction, rebuilding or repair of any property leased pursuant to any lease agreement; and (iv) mortgages, liens and security interests arising from or related to the Indenture and the bonds issued pursuant thereto; and (b) with respect to the Shares only, any lien, pledge, security interest, claim, easement or other encumbrance (i) arising as a result of any action taken by Buyer or any of its Affiliates, and (ii) imposed upon the transfer of the Shares by the Securities Act of 1933, as amended, or any applicable state securities or other laws regulating the disposition of the Shares.
“Employee Benefit Plan” means an “employee benefit plan” (within the meaning of Section 3(3) of ERISA).
“Environmental Laws” means any applicable law relating to the control of any pollutant or hazardous material, the protection of the environment or the effect of the environment on human health, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended.
“Environmental Permits” means all permits, approvals, licenses and other authorizations required under any Environmental Law.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
“GAAP” means generally accepted accounting principles in the United States of America as in effect at the time any applicable financial statements were prepared or any act requiring the application of GAAP was performed.
“Governmental Authority” means any nation or government, any state or other political subdivision thereof, or any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.
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“Indebtedness” means, with respect to any Person, (a) all indebtedness of such Person for money borrowed by such Person, (b) all obligations of such Person evidenced by notes, bonds, debentures or similar instruments, and (c) all indebtedness created or arising under any conditional sale agreement with respect to any property acquired by such Person; provided, however, that Indebtedness shall not include any amounts owed by the Company to Seller or its Affiliates pursuant to the Affiliated Interest Agreement, the Gas Arrangement, the Power Supply Agreement and the Tax Allocation Agreements.
“Indenture” means the Indenture of Mortgage and Deed of Trust dated July 15, 1971, as supplemented and amended by the First Supplemental Indenture dated as of August 15, 1990 and the Second Supplemental Indenture dated as of October 1, 1998
“Independent Accounting Firm” means a nationally recognized accounting firm mutually selected by Buyer and Seller; provided that if Buyer and Seller are unable to agree on such accounting film within five (5) Business Days, Buyer and Seller shall each select an independent accounting firm and the two independent accounting firms shall select a third independent accounting firm of recognized national standing to serve as the Independent Accounting Firm.
“IRS” means the Internal Revenue Service.
“Knowledge of Buyer” means the actual knowledge of any of the personnel of Buyer listed in Schedule 1.1(a), upon due inquiry of the individuals responsible for the applicable subject matter for Buyer.
“Knowledge of Seller” means the actual knowledge of any of the personnel of Seller listed in Schedule 1.1(b), upon due inquiry of the individuals responsible for the applicable subject matter for the Company.
“Losses” means any and all claims, losses, liabilities, and damages and reasonable costs and expenses (including reasonable attorney’s fees and expenses) related thereto.
“Material Adverse Effect” means a material adverse effect on the business, results of operations or financial condition of the Company, other than effects resulting from: (i) general economic conditions in any of the markets or geographical areas in which the Company operates; (ii) changes in economic conditions or the financial, banking, currency or capital markets in general; (iii) other conditions generally affecting any of the industries in which the Company operates; (iv) acts of God, calamities, national or international political or social conditions, including the engagement by any country in hostilities, whether commenced before or after the date hereof, and whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack; (v) changes in law or in GAAP or interpretations thereof; (vi) any actions taken, or failures to take action, or such other changes or events, in each case, required by this Agreement or to which Buyer has expressly consented; or (vii) the announcement or pendency of the transactions contemplated by this Agreement, including by reason of the identity of Buyer or any communication by Buyer regarding the plans or intentions of Buyer with respect to the conduct of the business of the Company.
“Person” means any individual, corporation, company, partnership (limited or general), joint venture, limited liability company, association, trust or other entity.
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“Power Supply Agreement” means the Agreement, made as of January 1, 1993, as amended as of May 1, 2006, by and between Seller and the Company, and as may be further amended prior to the Closing.
“Tax” means any foreign, federal, state, county or local income, sales and use, excise, franchise, occupancy, real and personal property, gross receipt, capital stock, production, business and occupation, disability, employment, payroll, severance, or withholding tax or other tax, duty, custom, levy, fee, assessment or charge in the nature of (or similar to) taxes imposed by any Taxing Authority or other Governmental Authority, including any interest, addition to Tax or penalties related thereto.
“Tax Allocation Agreements” means the tax allocation agreements listed on Schedule 1.1(c), as they may be amended prior to the Closing.
“Tax Return” means any return, report, declaration, information return or other document filed or required to be filed with any Taxing Authority with respect to Taxes.
“Taxing Authority” means the IRS and any other domestic or foreign Governmental Authority responsible for the administration of any Tax.
“Working Capital” means the working capital of the Company as calculated in accordance with Schedule 1.1(d) hereto.
Section 1.2 Other Definitions. Each of the following terms is defined in the Section set forth opposite such term:
| DEFINED TERM | CROSS-REFERENCE |
| Allocation | Section 7.6(b) |
| Asserted Liability | Section 9.4(a) |
| Base Purchase Price | Section 2.2 |
| Buyer | Preamble |
| Claims Notice | Section 9.4(a) |
| Closing | Section 3.1 |
| Closing Date | Section 3.1 |
| Commitment | Section 5.8 |
| Company | Recitals |
| Company GAAP Financial Statements | Section 4.7 |
| Consolidated Return | Section 7.3(a) |
| Contest | Section 7.5(a) |
| Contracts | Section 4.16(a) |
| Dispute Notice | Section 3.3(d) |
| Downward Final Working Capital Adjustment | Section 3.3(f) |
| Election | Section 7.6(a) |
| Electric Agreement | Section 3.2(a)(iii) |
| Estimated Closing Adjustment | Section 3.3(b) |
| Estimated Working Capital | Section 3.3(a) |
| FERC | Section 6.12 |
| Section 3.3(g) | |
| Final Working Capital | Section 3.3(e) |
| Final Working Capital Adjustment | Section 3.3(f) |
| Gas Agreement | Section 3.2(a)(iv) |
| Gas Arrangement | Section 6.12 |
| Indemnifying Party | Section 9.4(a) |
| Indemnitee | Section 9.4(a) |
| Insurance Policies | Section 4.20 |
| Interim Financial Statements | Section 4.7 |
| Leases and Licenses | Section 4.21(b) |
| Notice of Proposed Adjustments | Section 7.1(c) |
| NYSPSC | Section 4.5 |
| Owned Real Property | Section 4.21(a) |
| PAPUC | Section 4.5 |
| Permits | Section 4.11(a) |
| Preliminary Closing Statement | Section 3.3(c) |
| Proposed Allocation | Section 7.6(b) |
| Seller | Preamble |
| Seller Schedules | Section 6.8(b) |
| Shares | Recitals |
| Transition Services Agreement | Section 3.2(a)(v) |
| Treasury Regulations | Section 7.6(a) |
| Updated Schedules | Section 6.8(a) |
| Upward Final Working Capital Adjustment | Section 3.3(f) |
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ARTICLE
II
PURCHASE OF SHARES
Section 2.1 Purchase of Shares. Upon the terms and subject to the conditions set forth in this Agreement, at the Closing Seller shall sell to Buyer, and Buyer shall purchase from Seller, the Shares.
Section 2.2 Purchase Price. The base purchase price for the Shares shall be Thirteen Million One Hundred Sixteen Thousand Nine Hundred Twenty-Four and 07/100 Dollars ($13,116,924.07) (the “Base Purchase Price”), subject to adjustment as provided in Section 3.3 below; provided, however, that that such adjustment shall not increase the Base Purchase Price by more than Three Million Dollars ($3,000,000). On the Closing Date, Buyer shall pay to Seller, by wire transfer of immediately available funds to an account designated by Seller, an amount equal to the Base Purchase Price plus or minus, as applicable, any adjustment required pursuant to Section 3.3(b); provided, however, that such adjustment shall not increase the Base Purchase Price by more than Three Million Dollars ($3,000,000). The Final Purchase Price shall be calculated in accordance with Section 3.3; provided, however, that the adjustments and calculations in accordance with Section 3.3 shall not increase the Base Purchase Price by more than Three Million Dollars ($3,000,000). The parties agree that, subject to the Company, in its sole discretion, redeeming all or a portion of such bonds prior to the Closing or Seller, in its sole discretion,
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subsequently agreeing to an arrangement whereby Buyer redeems (and Buyer bears all costs and expenses of redeeming) all or a portion of such bonds simultaneously with the Closing, bonds in a principal amount not to exceed Three Million Two Hundred Thousand Dollars ($3,200,000) issued by the Company under the Indenture will remain outstanding as of the Closing and the Company shall continue to have immediately after the Closing all of the obligations arising from such bonds and the Indenture that the Company had immediately prior to the Closing.
ARTICLE
III
THE CLOSING
Section 3.1 Closing. Upon the terms and subject to the conditions set forth in this Agreement, the closing of the purchase and sale of the Shares and the other transactions contemplated by this Agreement (the “Closing”) shall take place at the offices of Seller, One Blue Hill Plaza, Pearl River, NY 10965, at 10:00 A.M. local time on the last Business Day of the month in which the conditions to the Closing set forth in Article VIII (other than conditions which by their nature can be satisfied only at the Closing) have been satisfied or waived, or at such other time or place as Buyer and Seller may agree. The date on which the Closing actually occurs is hereinafter referred to as the “Closing Date.” The ownership point of demarcation as between Seller and the Company as of the Closing with respect to the electric and gas facilities set forth on Schedule 3.1 shall be as described on Schedule 3.1.
Section 3.2 Closing Deliverables.
(a) Seller Closing Deliverables. At the Closing, Seller shall deliver, or cause to be delivered, to Buyer (or, in the case of the Books and Records, make them available to Buyer, subject to Section 6.9):
(i) the certificate or certificates evidencing the Shares, duly executed in blank or accompanied by stock powers duly executed in blank, in proper form for transfer;
(ii) the Books and Records;
(iii) the Electric Supply Agreement, in the form attached hereto as Exhibit A (the “Electric Agreement”), duly executed and delivered by an authorized officer of Seller;
(iv) the Gas Supply and Transportation Agreement, in the form attached hereto as Exhibit B (the “Gas Agreement”), duly executed and delivered by an authorized officer of Seller;
(v) the Transition Services Agreement, in substantially the form attached hereto as Exhibit C (the “Transition Services Agreement”), duly executed and delivered by an authorized officer of Seller;
(vi) evidence of the resignation or removal, as of the Closing, of all directors and officers of the Company immediately prior to the Closing; and
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(vii) all other certificates, agreements, instruments or documents required to be delivered by Seller at the Closing pursuant to this Agreement.
(b) Buyer Closing Deliverables. At the Closing, Buyer shall deliver, or cause to be delivered, to Seller:
(i) the Base Purchase Price plus or minus any adjustment required pursuant to Section 3.3(b) in accordance with Section 2.2;
(ii) the Electric Agreement, duly executed and delivered by an authorized officer of the Company together with the “Cash Security” or “PCL&P L/C” in the “Initial Amount” (as such quoted terms are defined in such agreement) and as otherwise required by such agreement;
(iii) the Gas Agreement, duly executed and delivered by an authorized officer of the Company together with the “Cash Security” or “PCL&P L/C” in the “Initial Amount” (as such quoted terms are defined in such agreement) and as otherwise required by such agreement;
(iv) the Transition Services Agreement, duly executed and delivered by an authorized officer of the Company together with the “Cash Security” or “PCL&P L/C” in the “Initial Amount” (as such quoted terms are defined in such agreement) and as otherwise required by such agreement;
(v) the releases required by Section 9.8, duly executed by authorized officers of Buyer and the Company; and
(vi) all other certificates, agreements, instruments or documents required to be delivered by Buyer at the Closing pursuant to this Agreement.
Section 3.3 Purchase Price Adjustment.
(a) No later than five (5) Business Days prior to the Closing Date, Seller shall prepare and deliver to Buyer a statement setting forth in reasonable detail, including each of the components described on Schedule 1.1(d), Seller’s good faith estimate of the Working Capital as of the Closing Date (the “Estimated Working Capital”).
(b) On the Closing Date, the Base Purchase Price shall be (i) increased, if the Estimated Working Capital exceeds $0, by an amount equal to such excess up to a maximum of $3,000,000 (notwithstanding that the Estimated Working Capital may exceed $0 by more than $3,000,000) or (ii) decreased, if the Estimated Working Capital is less than $0, by an amount equal to the absolute value of such negative amount (such increase or decrease, as the case may be, being the “Estimated Closing Adjustment”).
(c) Within sixty (60) days following the Closing Date, Buyer shall deliver or cause to be delivered to Seller a statement (the “Preliminary Closing Statement”) setting forth in reasonable detail Buyer’s good faith calculation of the Working Capital as of the Closing Date, along with a copy of the computations and workpapers used in connection with the Preliminary Closing Statement (it being understood that, if Buyer or the Company employs a firm of independent accountants in connection with the preparation of the Preliminary Closing Statement, Buyer shall cause such independent accountants to make available to Seller any computations and workpapers used in connection with the preparation of the Preliminary Closing Statement). Seller shall make available to Buyer and its independent accountants such access to such Books and Records as may be reasonably requested by Buyer to prepare the Preliminary Closing Statement.
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(d) Seller shall have thirty (30) days following receipt of the Preliminary Closing Statement to review the calculation of the Working Capital as of the Closing Date set forth therein and to notify Buyer in writing if Seller disputes the amount of the Working Capital as of the Closing Date set forth in the Preliminary Closing Statement (the “Dispute Notice”), specifying the reasons therefor in reasonable detail. In connection with Seller’s review, Buyer shall cause to be provided to Seller and its representatives reasonable access, during normal business hours and upon reasonable notice, to all relevant work papers, schedules, memoranda and other documents prepared by Buyer, the Company or their respective representatives (including any independent accounting firm) in connection with the preparation of the Preliminary Closing Statement and the calculation of the Working Capital as of the Closing Date set forth therein, and to personnel of Buyer, the Company and of their respective representatives (including any independent accounting firm) who contributed to or have knowledge of the preparation of the Preliminary Closing Statement and the calculation of the Working Capital as of the Closing Date set forth therein and any other information which Seller reasonably requests, and Buyer shall, and shall cause the Company and the respective representatives of the Buyer and the Company (including any independent accounting film) to, cooperate reasonably with Seller and its representatives in connection therewith.
(e) In the event that Seller shall deliver a Dispute Notice to Buyer, Buyer and Seller shall cooperate in good faith to resolve such dispute as promptly as practicable and, upon such resolution, if any, any adjustments to the Preliminary Closing Statement and the calculation of the Working Capital as of the Closing Date set forth therein shall be made in accordance with the agreement of Buyer and Seller. If Buyer and Seller are unable to resolve any such dispute within fifteen (15) Business Days of Seller’s delivery of such Dispute Notice (or such longer period as Buyer and Seller shall agree in writing), such dispute shall be resolved by the Independent Accounting Film, and such determination shall be final and binding on the parties hereto. The Independent Accounting Firm shall consider only those items and amounts as to which Buyer and Seller have disagreed within the time periods and on the terms specified above. In making such determination, the Independent Accounting Firm may rely only upon information submitted to it by Buyer and Seller. Seller shall provide the Independent Accounting Firm with such access to such Books and Records as may still be in the possession of Seller as may be reasonably requested by such Independent Accounting Firm to conduct its review. The Independent Accounting Firm shall be instructed to use reasonable best efforts to deliver to Buyer and Seller a written report setting forth the resolution of each disputed matter within thirty (30) days of submission of such dispute to it and, in any case, as promptly as practicable after such submission. Any expenses relating to the engagement of the Independent Accounting Firm in respect of its services pursuant to this Section 3.3(e) shall be shared equally by Buyer and Seller. The “Final Working Capital” shall be (i) if no Dispute Notice has been timely delivered by Seller, the Working Capital as of the Closing Date set forth in the Preliminary Closing Statement, or (ii) if a Dispute Notice has been timely delivered by Seller, the Working Capital as of the Closing Date set forth in the Preliminary
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Closing Statement, as adjusted to take into account the resolution of such dispute in accordance with this Section 3.3(e).
(f) The “Final Working Capital Adjustment” shall equal (i) if the Final Working Capital exceeds the Estimated Working Capital, an amount equal to the Final Working Capital minus the Estimated Working Capital (any such amount, an “Upward Final Working Capital Adjustment”) or (ii) if the Final Working Capital is less than the Estimated Working Capital, an amount equal to the Estimated Working Capital minus the Final Working Capital (any such amount, a “Downward Final Working Capital Adjustment”).
(g) The “Final Purchase Price” shall equal (i) the Base Purchase Price, (ii) plus or minus any adjustment required pursuant to Section 3.3(b), (iii) (A) plus any Upward Final Working Capital Adjustment or (B) minus any Downward Final Working Capital Adjustment, provided, however, that any increase to the Base Purchase Price resulting from the foregoing shall be limited to $3,000,000 in the aggregate.
(h) If the Final Working Capital Adjustment is (i) an Upward Final Working Capital Adjustment, then Buyer shall pay such amount to Seller or (ii) a Downward Final Working Capital Adjustment, then Seller shall pay such amount to Buyer. Any payments required to be made by Buyer or by Seller pursuant to this Section 3.3(h) shall be delivered within five (5) Business Days after the determination of the Final Working Capital pursuant to Section 3.3(e), by wire transfer of immediately available funds, without deduction, set-off, counterclaim or withholding, together with interest thereon from the Closing Date to the date of payment at the U.S. dollar prime rate per annum of JP Morgan Chase Bank in effect on the Closing Date. Such interest shall be calculated based on a year of 365 days and the number of days elapsed since the Closing Date.
(i) Buyer agrees that, from the Closing through the date on which the Final Working Capital becomes finally determined, it shall not, and shall cause the Company not to, take any action with respect to any accounting books, records, policies or procedures on which the calculation of the Working Capital as of the Closing Date is to be based that (i) are inconsistent with the practices of the Company prior to the Closing Date or (ii) would make it impossible or impracticable to calculate the Working Capital as of the Closing Date in the manner and using the methods required hereby.
ARTICLE
IV
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer as follows:
Section 4.1 Organization and Related Matters.
(a) The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania and has the corporate power and authority to carry on its business as it is now being conducted and to own, lease or operate all of its properties and assets; and is duly licensed or qualified to do business and is in good standing in each state in which the nature of the business there conducted by it or the character of the assets there owned by it makes such qualification or licensing necessary, except where the failure to be so qualified or licensed would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Each such other state is listed on Schedule 4.1(a).
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(b) Seller is a corporation duly incorporated, validly existing and in good standing under the laws of the State of New York.
Section 4.2 Subsidiaries. The Company does not have any subsidiaries or own, or have any obligation to acquire, any equity interests in another Person.
Section 4.3 Authority. Seller has the corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by Seller and the consummation by Seller of the transactions contemplated hereby have been duly and validly approved by all requisite corporate action on the part of Seller, and no other corporate proceedings on the part of Seller are necessary to approve this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Seller and, assuming the due authorization, execution and delivery of this Agreement by Buyer, constitutes the valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights generally, and to general principles of equity (whether considered in a proceeding at law or in equity).
Section 4.4 No Violation. Except as set forth on Schedule 4.4 and assuming that the filings, notifications, authorizations, consents and/or approvals referred to in Section 4.5 (including Schedule 4.5) are, as applicable, duly made and/or obtained, neither the execution and delivery of this Agreement by Seller nor the consummation by Seller of the transactions contemplated hereby will (a) violate any provision of the Certificate of Incorporation or Bylaws of Seller or the Articles of Incorporation or Bylaws of the Company, (b) violate in any material respect any law applicable to Seller, the Company or any of their respective properties or assets, (c) result in the creation of any Encumbrance that has a material effect upon any of the Shares or upon any of the assets or properties of the Company, or (d) violate, conflict with, result in a breach of, or constitute a default under, any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other contract to which Seller or the Company is a party or by which Seller or the Company or any of their respective properties or assets may be bound, except in the case of clauses (a) and (d) above, for such violations, Encumbrances, conflicts, breaches or defaults which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
Section 4.5 Consents and Approvals. Except for (i) any and all approvals of the Pennsylvania Public Utility Commission (the “PAPUC”) and the New York State Public Service Commission (the “NYSPSC”) required by applicable law with respect to the transactions contemplated by this Agreement, the Electric Agreement, the Gas Agreement and the Transition Services Agreement, (ii) the filings, notifications, authorizations, consents or approvals listed on Schedule 4.5, and (iii) such other filings, notifications, authorizations, consents or approvals, the failure of which to make or obtain would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, no consents or approvals of or filings or registrations with any Governmental Authority or other third party are necessary in connection with the execution and delivery of this Agreement, the Electric Agreement, the Gas Agreement and the Transition Services Agreement by Seller or the consummation by Seller of the transactions contemplated hereby and thereby.
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Section 4.6 Stock Ownership; Capitalization. Seller owns, beneficially and of record, all of the Shares, free and clear of all Encumbrances. Upon consummation of the transactions contemplated hereby, Buyer will own all of the issued and outstanding capital stock of the Company free and clear of all Encumbrances. Seller has the full and unrestricted power to sell, assign, transfer and deliver the Shares to Buyer upon the terms and subject to the conditions of this Agreement. All of the Shares are duly authorized, validly issued, fully paid, nonassessable and free of any preemptive rights. There is no outstanding option, warrant, right, subscription, call, preemptive right, convertible or exchangeable security, or other agreement or right of any kind to purchase or otherwise acquire any capital stock of the Company. There is no outstanding contract or other agreement of Seller or the Company to purchase, redeem or otherwise acquire any outstanding shares of capital stock of the Company.
Section 4.7 Financial Statements. Seller has made available to Buyer true and correct copies of (i) the audited balance sheets of the Company at December 31, 2013 and December 31, 2014 and the audited statements of operations and cash flows of the Company for the periods then-ended (collectively, the “Company GAAP Financial Statements”) and (ii) the unaudited balance sheet of the Company for the three (3) month period ended June 30, 2015 and the unaudited statements of operations and cash flows of the Company for the period then-ended (the “Interim Financial Statements”). The Company GAAP Financial Statements and Interim Financial Statements have been prepared in accordance with GAAP, consistently applied throughout the periods involved (except as disclosed in the footnotes thereto), and fairly present, in all material respects, the financial position of the Company as of the dates thereof and the results of operations and cash flows of the Company for the periods then ended, subject, in the case of unaudited statements, to normal year-end audit adjustments and the absence of notes thereto.
Section 4.8 No Brokers. No broker, investment banker, financial advisor or similar intermediary is entitled to any broker’s, finder’s, financial advisor’s or other similar fee or commission from Seller or any of its Affiliates in connection with this Agreement or the transactions contemplated hereby.
Section 4.9 Legal Proceedings. Except as set forth on Schedule 4.9, (i) there are no pending or, to the Knowledge of Seller, threatened actions or proceedings, at law or in equity, by or before any Governmental Authority against Seller or the Company or any of their respective properties or assets that (a) challenge the validity or enforceability of this Agreement or seek to enjoin or prohibit the consummation of the transactions contemplated by this Agreement or (b) if adversely determined, would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, and (ii) there is no outstanding injunction, order, judgment or decree by or with any Governmental Authority, other than such injunctions, orders, judgments or decrees that are publicly available, to which the Company or any of its properties or assets is subject, which would, individually or in the aggregate, reasonably be expected to materially affect the Company, its properties or assets.
Section 4.10 Undisclosed Liabilities. Except for (i) those liabilities or items set forth on Schedule 4.10 or any other Schedule to this Agreement, (ii) those liabilities that are reflected or reserved against on the Company GAAP Financial Statements (or the notes thereto) or the Interim Financial Statements, and (iii) liabilities incurred since June 30, 2015, in the ordinary course of business consistent with past practice, the Company has not incurred any liabilities of any nature, whether or not accrued, contingent or otherwise, that would be required by GAAP to be reflected or reserved against on (or disclosed in the footnotes to) a balance sheet of the Company and which, in the aggregate, would be material and there are no liabilities of the Company of which Seller has Knowledge that (i) are not required by GAAP to be so disclosed and (ii) would reasonably be expected to have a Material Adverse Effect if determined adversely to the Company.
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Section 4.11 Compliance with Applicable Law.
(a) Except as set forth on Schedule 4.11, the Company possesses or holds all licenses, permits and authorizations of Governmental Authorities (other than Environmental Permits (which are addressed solely in Section 4.19)) (“Permits”) required under applicable law for the conduct of its business as now conducted, all such Permits are in full force and effect, and neither Seller nor the Company has received written notice asserting any violation of any Permit, except for such failures to possess or hold any Permit, for such failures of any Permit to be in full force and effect and for such violations, if any, which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(b) Except as set forth on Schedule 4.11, the Company is in material compliance with laws applicable to it or any of its assets, properties or operations.
Section 4.12 Absence of Certain Changes. Except (i) as set forth on Schedule 4.12, (ii) as reflected on the Interim Financial Statements, or (iii) as otherwise contemplated or permitted by this Agreement, since December 31, 2014, the Company (x) has conducted its business in the ordinary course of business consistent with past practice and (y) has not:
(a) made any commitment for any capital expenditure where the amount of such commitment that will remain to be made after the Closing Date will exceed 5250,000 in the aggregate;
(b) incurred any Indebtedness where the principal amount of such Indebtedness that remains to be paid after the Closing Date will be in excess of $250,000 in the aggregate;
(c) made any loan to, guaranteed any Indebtedness of, or otherwise incurred such Indebtedness on behalf of, any other Person where the principal amount of such loan, guarantee or Indebtedness for which the Company will remain responsible after the Closing Date, individually or in the aggregate, is in excess of $250,000 in the aggregate;
(d) amended its Articles of Incorporation or Bylaws;
(e) paid, discharged, settled or satisfied any claim, liability or obligation (absolute, accrued, asserted or unasserted, contingent or otherwise), except (1) where the amount that remains to be paid after the Closing Date is $250,000 or less, and (2) for the repayment of Indebtedness or payment of contractual obligations when due in the ordinary course of business;
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(f) renewed, amended, modified or terminated any of its contracts, or assigned any of its rights thereunder, except (1) for such renewals, amendments, modifications, terminations, or assignments, as well as the expiration of contracts, as may be effectuated by the terms of such contracts without affirmative act by the Company, (2) as may have been made in the ordinary course of business, or (3) as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect;
(g) suffered or experienced any changes in its business or operations since the date of the balance sheet contained in the Interim Financials Statements which, individually or in the aggregate, has had, or would reasonably be expected to have, a Material Adverse Effect; or
(h) agreed, whether in writing or otherwise, to take any of the actions specified in this Section 4.12, except as expressly contemplated by this Agreement.
Section 4.13 Intellectual Property.
(a) Schedule 4.13 sets forth a list of all material U.S.: (i) patents and patent applications; (ii) trademark registrations and applications (including Internet domain name registrations); (iii) copyright registrations and applications; and (iv) unregistered common law trademarks and service marks material to the business of the Company, in each case owned by the Company.
(b) Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect or as set forth in Schedule 4.13, (i) to the Knowledge of Seller, the conduct of the business of the Company does not infringe or otherwise violate the intellectual property rights of any Person, and there is no claim pending or, to the Knowledge of Seller, threatened against the Company alleging such infringement or other violation; (ii) to the Knowledge of Seller, no Person is infringing or otherwise violating any intellectual property right owned by the Company, and no claims are pending or, to the Knowledge of Seller, threatened against any Person by the Company alleging such infringement or other violation; and (iii) the Company has the right to use all of the intellectual property that is material to the conduct by the Company of its business as currently conducted.
Section 4.14 Employees; Employee Benefit Plans. Other than the Company’s officers, who are employees of an Affiliate of the Company and who shall resign their positions with the Company effective as of the Closing, the Company does not have any employees and does not maintain any Employee Benefit Plan. The Company does not have any liability to fund any Employee Benefit Plan.
Section 4.15 Taxes. Except as set forth on Schedule 4.15 and except for any inaccuracies with respect to any of the representations and warranties in this Section 4.15 as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect:
(a) The Company (and any affiliated group of which the Company is a member) has timely filed with the appropriate taxing authorities all Tax Returns required to be filed (taking into account all valid extensions) and all such Tax Returns are complete and accurate. No Taxing Authority has asserted in writing that the Company is required to file Tax Returns and/or pay Taxes in any jurisdiction where the Company does not currently file Tax Returns.
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(b) All Taxes that are due and payable by the Company before the date hereof have been timely paid, except such Taxes, if any, as are being contested in good faith and as to which adequate reserves have been provided in the relevant financial statements.
(c) There are no Encumbrances on any of the assets of the Company that arose in connection with any failure to pay any Taxes (other than Taxes that are not due as of the date hereof). There are no “reportable transactions” within the meaning of Section 6707A(c)(1) of the Code and Treasury Regulations Section 1.6011-4(b) which have been or are required to be reported to any Taxing Authority by or on behalf of the Company.
(d) No material audit or other administrative or court proceeding is pending with regard to any Tax Returns of the Company, and the Company has not received any written notice that any such material audit or other administrative or court proceeding is threatened with respect to any Tax Return filed by or with respect to the Company.
(e) The Company has not requested an extension of time within which to file any Tax Return in respect of any taxable year which has subsequently not been filed and no outstanding waivers or comparable consents regarding the application of the statute of limitations with respect to any Taxes or Tax Returns has been given by or on behalf of the Company.
Section 4.16 Contracts.
(a) Schedule 4.16 sets forth a complete and accurate list, as of the date hereof, of (i) all contracts (including the Indenture and all contracts for the repayment of Indebtedness), other than contracts and any Indebtedness between Seller and the Company that will expire or be terminated on or prior to the Closing, pursuant to which (A) the Company is a party and (B) the Company has non-contingent obligations to the contract counterparty in excess of S250,000 per annum, (ii) all contracts other than contracts between Seller and the Company that will expire or be terminated on or prior to the Closing, pursuant to which (A) the Company is a party and (B) the contract counterparty has non-contingent obligations to the Company in excess of $250,000 per annum, (iii) all Encumbrances with respect to the assets of the Company or the Shares, which secure repayment of any Indebtedness of the Company, and (iv) all contracts that limit or purport to limit the Company in any line of business or with any Person or in any geographic area (the contracts referenced in clauses (i), (ii), (iii), and (iv) are referred to herein collectively as the “Contracts”). Except as set forth in Schedule 4.16, neither Seller nor the Company has received written notice of a cancellation of or an intent to cancel any Contract the cancellation of which would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(b) Except as set forth on Schedule 4.16, assuming the due authorization, execution and delivery by the other parties thereto, each Contract is legal, valid, binding, and enforceable against the Company and, to the Knowledge of Seller, the other parties thereto, is in full force and effect, and will not cease to be in full force and effect as a result of the consummation of the transactions contemplated by this Agreement.
(c) Except as set forth on Schedule 4.16, the Company is not in material breach of, or default under, any Contract and, to the Knowledge of Seller, no other party to any Contract is in material breach thereof or default thereunder. True and complete copies of all such Contracts including all amendments and modifications thereof have been made available to Buyer.
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Section 4.17 Title to Assets. Except as set forth in Schedule 4.17, the Company has good title to all real and personal property and other assets on its books that is reflected as owned by the Company on the Company’s balance sheet at December 31, 2014 and June 30, 2015 included as part of the Company GAAP Financial Statements and the Interim Financial Statements, respectively, or acquired in the ordinary course of business consistent with past practice since December 31, 2014 or June 30, 2015, as appropriate, which would have been required to be reflected on such balance sheet if acquired on or prior to such date, other than assets which have been disposed of in the ordinary course of business and other than assets with respect to which the failure to have good title does not materially affect the operations of the Company conducted in the ordinary course of business consistent with past practice. The Company has valid leasehold interests in all personal property which it leases other than personal property with respect to which the failure to have valid leasehold interests does not materially affect the operations of the Company conducted in the ordinary course of business consistent with past practice. None of the material properties and assets of the Company is subject to any Encumbrance, except for Encumbrances set forth on Schedule 4.17 or reflected in the Company GAAP Financial Statements or the Interim Financial Statements.
Section 4.18 Transactions with Certain Persons. Except as set forth on Schedule 4.18, neither any officer, director or employee of Seller or the Company, nor any member of any such Person’s immediate family, is a party to any material transaction with the Company, including any contract or other binding arrangement (a) providing for the furnishing of material services by such Person (except in such Person’s capacity as an officer, director, employee or consultant of Seller or the Company), (b) providing for the rental of material real or personal property from such Person, or (iii) otherwise requiring material payments (whether pursuant to Indebtedness or otherwise) to such Person (other than for services as an officer, director, employee or consultant of Seller or the Company).
Section 4.19 Environmental Laws. Except as set forth on Schedule 4.19: (i) to the Knowledge of Seller, the Company is in compliance in all material respects with all applicable Environmental Laws, and possesses and is in compliance with all material Environmental Permits required under such laws, for the conduct of its business operations as currently conducted, and (ii) no written notice, demand, request for information, citation or complaint has been received by the Company from and, to the Knowledge of Seller, no action or proceeding is pending or threatened by, any Governmental Authority against the Company, with respect to any applicable Environmental Law. To the knowledge of the Seller, the Company has never owned a manufactured gas plant.
Section 4.20 Insurance Coverage. The Company has furnished to Buyer a true and correct list, as of the date hereof, of all policies of insurance maintained by or for the benefit of the Company relating to the assets, properties, business, operations, employees, officers or directors of the Company (the “Insurance Policies”) (provided that, in accordance with Section 6.10, from and after the Closing, none of the Insurance Policies will be available to Buyer or its Affiliates (including, from and after the Closing, the Company)).
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Section 4.21 Real Property.
(a) Schedule 4.21(a) identifies the parcels of real property owned in fee by the Company (collectively, the “Owned Real Property”). Except as set forth on Schedule 4.21(a), there are no pending or, to the Knowledge of Seller, threatened condemnation proceedings against the Owned Real Property and there are no outstanding options, rights of first offer or rights of first refusal to purchase such Owned Real Property or any portion thereof
(b) Schedule 4.21(b) lists all leases and licenses of real property to which the Company requiring the payment of more than $125,000 (collectively, the “Leases and Licenses”).
(c) There are no pending or, to the Knowledge of Seller, threatened condemnation proceedings against any of the real property governed by the Leases and Licenses.
ARTICLE
V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as follows:
Section 5.1 Organization and Related Matters. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of New York.
Section 5.2 Authority. Buyer has full power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by Buyer and the consummation by Buyer of the transactions contemplated hereby have been duly and validly approved by all requisite action on the part of Buyer, and no other proceedings on the part of Buyer are necessary to approve this Agreement and to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Buyer and, assuming the due authorization, execution and delivery of this Agreement by Seller, constitutes the valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights generally, and to general principles of equity (whether considered in a proceeding at law or in equity).
Section 5.3 No Violation. Assuming that the filings, notifications, authorizations, consents and/or approvals referred to in Section 5.4 (including Schedule 5.4) are, as applicable, duly made and/or obtained, neither the execution and delivery of this Agreement by Buyer nor the consummation by Buyer of the transactions contemplated hereby will (a) violate any provision of the Certificate of Incorporation or Bylaws or other organizational documents of Buyer, (b) violate any law applicable to Buyer or any of its properties or assets, or (c) violate, conflict with, result in a breach of, or constitute a default under, any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other contract to which Buyer is a party or by which Buyer or any of its properties or assets may be bound, except, in the case of clauses (a) through (c) above, for such violations, conflicts, breaches or defaults which would not, individually or in the aggregate, prevent or materially delay the consummation of the transactions contemplated by this Agreement or the performance by Buyer of any of its obligations hereunder.
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Section 5.4 Consents and Approvals. Except for (i) any and all approvals of the Pennsylvania Public Utility Commission (the “PAPUC”) and the New York State Public Service Commission (the “NYSPSC”) required by applicable law with respect to the transactions contemplated by this Agreement, the Electric Agreement, the Gas Agreement and the Transition Services Agreement, (ii) the filings, notifications, authorizations, consents or approvals listed in Schedule 5.4, and (iii) such other filings, notifications, authorizations, consents or approvals, the failure of which to make or obtain would not, individually or in the aggregate, prevent or materially delay the consummation of the transactions contemplated by this Agreement, the Electric Agreement, the Gas Agreement or the Transition Services Agreement or the performance by Buyer of any of its obligations hereunder or thereunder, no consents or approvals of or filings or registrations with any Governmental Authority or other third party are necessary in connection with the execution and delivery by Buyer of this Agreement, the Electric Agreement, the Gas Agreement or the Transition Services Agreement or the consummation by Buyer of the transactions contemplated hereby and thereby.
Section 5.5 Legal Proceedings. There are no pending or, to the knowledge of Buyer, threatened actions or proceedings, at law or in equity, by or before any Governmental Authority against Buyer or any of its properties or assets that (a) challenge the validity or enforceability of this Agreement or seek to enjoin or prohibit the consummation of the transactions contemplated by this Agreement or (b) if adversely determined, would, individually or in the aggregate, prevent or materially delay the consummation of the transactions contemplated by this Agreement or the performance by Buyer of any of its obligations pursuant to this Agreement. There is no outstanding injunction, order, judgment or decree by or with any Governmental Authority to which Buyer or any of its properties or assets is subject which would, individually or in the aggregate, prevent or materially delay the performance by Buyer of any of its obligations pursuant to this Agreement.
Section 5.6 Investment Intent of Buyer. The Shares will be acquired by Buyer for its own account and not for the purpose of a distribution. Buyer confirms that it has been afforded the opportunity to ask questions and receive answers regarding the Company and has reviewed the data and information it requested from Seller and the Company in connection with this Agreement. Buyer will refrain from transferring or otherwise disposing of any of the Shares acquired by it, or any interest therein, in such manner as to violate any registration provision of the Securities Act of 1933, as amended, or any applicable state securities law regulating the disposition thereof Buyer agrees that the certificates representing the Shares may bear legends to the effect that the Shares have not been registered under the Securities Act of 1933, as amended, or such other state securities laws, and that no interest therein may be transferred or otherwise disposed of in violation of the provisions thereof
Section 5.7 Brokers. No broker, investment banker, financial advisor or similar intermediary is entitled to any broker’s, finder’s, financial advisor’s or other similar fee or commission from Buyer, or any Affiliate of Buyer, in connection with this Agreement or the transactions contemplated hereby.
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Section 5.8 Financial Resources. Buyer has delivered, or caused to be delivered, to Seller, a correct, complete and fully executed copy of a signed commitment letter, dated September 9, 2015, from Manufacturers and Traders Trust Company to provide debt financing to Buyer in the aggregate amount of $12,000,000 (the “Commitment”). As soon as practicable after the date of this Agreement, Buyer will file a registration statement with the U.S. Securities and Exchange Commission to register shares of its common stock for sale to its current shareholders in a “rights” offering to raise equity capital. Buyer shall have at the Closing sufficient cash to consummate the transactions contemplated hereby and to pay all related fees and expenses. The Commitment has not been amended or modified, and the respective commitments contained in the Commitment have not been withdrawn or rescinded in any respect. The Commitment is in full force and effect and is a legal, valid and binding obligation of Buyer and, to the Knowledge of Buyer, the other parties thereto. Buyer is not in breach of any of the terms or conditions set forth in the Commitment and no event has occurred which, with or without notice, lapse of time or both, would reasonably be expected to constitute a breach or failure to satisfy a condition precedent set forth therein. Buyer has paid any and all commitment or other fees required by the Commitments that are due as of the date hereof. Notwithstanding the delivery of the Commitment to Seller and the Buyer’s representations and warranties concerning them, Buyer acknowledges and agrees that Buyer’s obligations hereunder are not contingent on (a) Buyer obtaining any financing for the consummation of the transactions contemplated by this Agreement, including pursuant to the Commitment, or (b) Buyer’s satisfaction of any conditions to the effectiveness of any financing, including any conditions relating to the effectiveness of the Commitment.
Section 5.9 Opportunity for Independent Investigation. Prior to its execution of this Agreement, Buyer has conducted to its satisfaction an independent investigation and verification of the current condition and affairs of the Company. In making its decision to execute this Agreement and to purchase the Shares, Buyer has relied and will rely solely upon the results of such independent investigation and verification and the accuracy and completeness of the express representations and warranties of Seller set forth in this Agreement as well as the terms and conditions of this Agreement.
Section 5.10 No Knowledge of Seller’s Breach. To the Knowledge of Buyer, there has been no breach of any representation or warranty by Seller and there is no other condition or circumstance that would excuse Buyer from timely performance of its obligations hereunder.
Section 5.11 Bankruptcy. There are no bankruptcy, reorganization, or arrangement proceedings pending against, being contemplated by, or to the knowledge of Buyer, threatened against Buyer.
ARTICLE
VI
COVENANTS
Section 6.1 Conduct of Business. From the date hereof until the earlier of the Closing Date or the termination of this Agreement pursuant to the terms hereof: (a) except for the events or circumstances described in Schedule 6.1, (b) except as otherwise contemplated or permitted by this Agreement and (c) except to the extent that Buyer otherwise consents in writing (which consent shall not be unreasonably delayed, conditioned or withheld), Seller shall cause the Company to conduct its business in the ordinary course of business consistent with past practices except as otherwise provided in this Agreement, and use commercially reasonable efforts to: (i) preserve intact its present organization; (ii) maintain in effect all material Permits necessary to carry on its business as currently conducted; and (iii) preserve material existing relationships with its customers, suppliers and others having material business relationships with it. Without limiting the generality of the foregoing, during the period from the date hereof to the Closing Date, Seller shall cause the Company to:
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(a) operate the Company’s cash management in the ordinary course of business consistent with past practice, including paying its accounts payables (including 19 to Affiliates) and Indebtedness, collecting its receivables (including from Affiliates), incurring and financing capital expenditures; provided, however, that nothing herein shall prevent or restrict the Company, in its sole discretion, from (i) making cash dividends to Seller that do not exceed the sum of (A) Two Million Five Hundred Fifty Thousand Dollars ($2,550,000) plus (B) the amount of any and all aggregate positive net income of the Company during the period July 1, 2015 to the Closing Date, or (ii) accelerating payment of any accounts payable (including to Seller or Seller’s Affiliates) or Indebtedness. Notwithstanding the foregoing, Seller shall cause the Company, during the period from the date of this Agreement to immediately prior to the Closing, to not pay the principal amount of the $9,966,924.07 non-current liability referenced in Note D to Schedule 1.1(d).
(b) maintain its assets in the ordinary course of business consistent with past practice;
(c) maintain the Books and Records in the ordinary course of business consistent with past practice;
(d) not amend its certificate of incorporation, by-laws, nor issue or redeem any capital stock of the Company, other than issuing any such capital stock to Seller;
(e) not incur, create or assume any Encumbrance on any of its assets other than in the ordinary course of business consistent with past practice and except for any Encumbrances that will be extinguished, discharged or otherwise removed prior to the Closing;
(f) not sell, lease, license, transfer or dispose of any assets of the Company other than in the ordinary course of business consistent with past practice; and
(g) not enter into any commitment to take any of the foregoing actions in the future.
Section 6.2 Public Announcements. Buyer and Seller shall consult with each other before issuing, and provide each other the opportunity to review and comment upon, any press release or other public statements with respect to the transactions contemplated by this Agreement, and shall not issue any such press release or make any such public statement prior to such consultation and without the prior written consent of the other party, except as may be required by applicable law or court process or by obligations pursuant to any listing agreement with any national securities exchange.
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Section 6.3 Expenses. Regardless of whether any or all of the transactions contemplated by this Agreement are consummated, and except as otherwise expressly provided herein, Buyer and Seller shall each bear their respective direct and indirect expenses incurred in connection with the negotiation and preparation of this Agreement and the consummation of the transactions contemplated hereby.
Section 6.4 Access; Certain Communications. From the date hereof until the earlier of the Closing Date or the termination of this Agreement pursuant to the terms hereof, subject to applicable laws relating to the exchange of information and subject to the provisions of contracts entered into by Seller and the Company with third parties prior to the date of this Agreement (provided that Seller shall reasonably cooperate with Buyer in attempting to provide alternate access to the information material to the Company or its business that such contracts may restrict), Seller shall (and shall cause the Company to) afford to Buyer and its authorized agents and representatives access, upon reasonable advance notice and during normal business hours, to all books, records, documents and other information of the Company; provided, however, that Buyer’s investigation shall be conducted in a manner which does not unreasonably interfere with the normal operations, customers and employee relations of the Company. Notwithstanding the foregoing, Buyer shall not have access to personnel records of the Company relating to individual performance or evaluation records, medical histories or other books, records, documents or information that, in Seller’s good faith opinion, is sensitive or the disclosure of which could subject Seller or the Company to risk of liability. Without limiting any of the terms thereof, the terms of the Confidentiality Agreement shall govern Buyer’s and its agents’ and representatives’ obligations with respect to all confidential information with respect to the Company which has been or is provided or made available to them at any time as though Buyer and its representatives were signatories thereto.
Section 6.5 Regulatory Matters; Third Party Consents.
(a) Buyer and Seller shall cooperate with each other and (i) shall use their commercially reasonable efforts promptly to prepare and to file all necessary documentation, and to effect all applications, notices, petitions and filings, with each Governmental Authority which are necessary to consummate the transactions contemplated by this Agreement, and (ii) shall use their commercially reasonable efforts to obtain as promptly as practicable any permit, consent, approval, waiver or authorization of such Governmental Authority which is necessary to consummate the transactions contemplated by this Agreement.
(b) Buyer and Seller shall cooperate with each other and (i) shall use their commercially reasonable efforts promptly to prepare and to file all necessary documentation, and to effect all applications, notices, petitions and filings, with each third party other than a Governmental Authority which are necessary to consummate the transactions contemplated by this Agreement, and (ii) shall use their commercially reasonable efforts to obtain as promptly as practicable any permit, consent, approval, waiver or authorization of such third party which is necessary to consummate the transactions contemplated by this Agreement.
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(c) Subject to applicable law relating to the exchange of information, Buyer and Seller shall have the right to review in advance, and shall consult with the other party on, all the information relating to Seller and the Company or Buyer, as the case may be, and any of their respective Affiliates, which appears in any filing made with, or written materials submitted to, any Governmental Authority or any other third party in connection with the transactions contemplated by this Agreement. The parties hereto agree that they will consult with each other with respect to the obtaining of any permit, consent, approval or authorization of a Governmental Authority or other third party necessary to consummate the transactions contemplated by this Agreement and each party shall keep the other apprised of the status of obtaining any such permit, consent, approval or authorization. The party responsible for any such filing shall promptly deliver to the other party evidence of the filing of all applications, filings, registrations and notifications relating thereto, and any supplement, amendment or item of additional information in connection therewith. The party responsible for a filing shall also promptly deliver to the other party a copy of each notice, order, opinion and other item of correspondence received from or sent to any Governmental Authority by such filing party in respect of any such application. In exercising the foregoing rights and obligations, Buyer and Seller shall act reasonably and promptly.
(d) Buyer and Seller shall, upon request, furnish each other with all information concerning themselves, their subsidiaries, directors, officers and stockholders and such other matters as may be reasonably necessary in connection with any statement, filing, notice or application made by or on behalf of Buyer, the Company or any of their respective Affiliates to any Governmental Authority in connection with the transactions contemplated by this Agreement (except to the extent that such information would be, or relates to information that would be, filed under a claim of confidentiality).
(e) Buyer and Seller shall promptly advise each other upon receiving any communication from any Governmental Authority whose consent or approval is required for consummation of the transactions contemplated by this Agreement which causes such party to believe that there is a reasonable likelihood that any requisite regulatory approval will not be obtained or that the receipt of any such approval will be materially delayed.
Section 6.6 Further Assurances. Subject to the terms and conditions hereof, each of the parties hereto shall execute such documents and other papers and perform such further acts as may be reasonably required to carry out the provisions hereof and the transactions contemplated hereby.
Section 6.7 Notification of Certain Matters.
(a) During the period between the date hereof and the Closing Date, each party shall give prompt notice to the other party of: (i) the occurrence, or failure to occur, of any event or the existence of any condition known to such party that has caused any of its representations or warranties contained in this Agreement to be materially breached and (ii) any failure on its part to comply with or satisfy, in any material respect, any covenant, condition or agreement to be complied with or satisfied by it under this Agreement.
(b) Except as otherwise required pursuant to applicable law, each party hereto shall give prompt notice to the other party of (i) any material communication received from or given to any Governmental Authority in connection with any of the transactions contemplated hereby, (ii) any notice or other communication from or on behalf of any Person alleging that the consent of such Person is or may be required in connection with the transactions contemplated by this Agreement; and (iii) any actions, suits, claims or investigations commenced or, to such party’s knowledge threatened against Buyer, Seller or the Company, as applicable, that seek to restrain or enjoin the consummation of the transactions contemplated by this Agreement.
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Section 6.8 Updated Schedules; Disclosures.
(a) Prior to the Closing, Seller shall have the right to deliver amendments or supplements to its disclosure schedules relating to Sections 4.1, 4.4, 4.5, 4.9, 4.10, 4.11, 4.13, 4.15, 4.16, 4.19 and 4.21 of this Agreement with respect to any development arising after the date of this Agreement that, if existing on the date of this Agreement, would have been required to be set forth or described therein (any such amendments or supplements, the “Updated Schedules”), provided, however, in no event shall the delivery of the Updated Schedules in any way modify or be deemed to modify the representations and warranties of Seller in Section 4.12, permit Seller or the Company to sell, transfer or otherwise dispose of any one or more of the five parcels of the Owned Real Property set forth on Schedule 4.21(a) as of the date of this Agreement, or alter the method by which Working Capital is calculated pursuant to Schedule 1.1(d).
(b) Seller and Buyer acknowledge and agree that that the inclusion of any item or statement in any Schedule or Updated Schedule delivered by Seller pursuant to this Agreement (collectively, the “Seller Schedules”), which item or statement was not required to be included in such documents (because it does not meet a threshold amount for inclusion or for any other reason), shall not be construed to create any obligation to include any item or statement in the same of any different Seller Schedule, which item or statement is not required to be so included (because it does meet a threshold amount for inclusion or for another reason). Any matter disclosed in any Seller Schedule shall be considered disclosed with respect to each other Seller Schedule to the extent the relevance of such disclosure to such other Seller Schedule is reasonably apparent. The inclusion of information in any Seller Schedule shall not be construed as an admission that such information is material or that such matter actually constitutes noncompliance with, or a violation of, any law, permit or contract or other topic to which such disclosure is applicable.
Section 6.9 Access To Records After Closing Date.
(a) The parties acknowledge that Seller’s transfer to Buyer of many of the Books and Records will involve and be limited to transfer of data in electronic form from information technology systems and databases maintained by Seller or its Affiliates to information technology systems and databases maintained by Buyer or its Affiliates or implemented by the Company after the Closing Date. In fulfillment of its obligations pursuant to Section 3.2(a)(ii) with respect to Books and Records in electronic form, Seller shall cause such Books and Records to be transferred a commercially reasonable electronic format to the information technology systems and databases maintained by Buyer or its Affiliates no later than the date that is six (6) months after the Closing Date.
(b) From and after the Closing Date, for a period of six years after the Closing Date, each of the parties shall permit the other party reasonable access to any records or other documents with respect to the Company actually in the possession of the party receiving the request, and the right to duplicate such records or other documents, to the extent that the requesting party has a reasonable business purpose for requesting such access or duplication, and upon reasonable advance notice and during normal business hours; provided, however, that the requesting party’s access shall be conducted in a manner which does not unreasonably interfere with the normal operations, customers and employee relations of the Company and/or the party receiving such request. Notwithstanding any other provision of this Section, access to any records or other documents of the Company may be denied to the requesting party if the other party is required under applicable law or agreement to deny such access, provided, however, that, except in cases where applicable law requires that access be denied, in no event shall Buyer be denied access to Books and Records in the possession of Seller (other than the personnel records as described in the penultimate sentence of Section 6.4).
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Section 6.10 Insurance. Buyer acknowledges that, from and after the Closing Date, none of the Insurance Policies will be available to Buyer or its Affiliates (including, from and after the Closing, the Company). Any and all insurance coverage available under the Insurance Policies may be cancelled or modified at any time in the sole discretion of Seller or its Affiliates other than, after the Closing, the Company.
Section 6.11 Termination of Affiliated Interest Agreement. Buyer acknowledges and agrees that, pursuant to Article 5 thereof, the Affiliated Interest Agreement shall terminate as of the Closing as the Company will then cease to be affiliated with Seller; provided, however, that, to the extent that any amount for services provided to the Company under the Affiliated Interest Agreement has not been paid as of the Closing Date and is not reflected in Working Capital, Buyer shall pay, or cause the Company to pay, such amount promptly (and, in any event, within ten (10) days) after the Closing Date.
Section 6.12 Termination of Power Supply Agreement and Gas Arrangement. Buyer and Seller agree to terminate, as of the Closing Date, the Power Supply Agreement and all agreements and arrangements between Seller and the Company under which Seller provides gas and gas transportation to the Company (collectively, the “Gas Arrangement”) and to use their commercially reasonable efforts (i) promptly to prepare and to file all necessary documentation, and to effect all applications, notices, petitions and filings, with the Federal Energy Regulatory Commission (the “FERC”) to effectuate such terminations and (ii) to obtain as promptly as practicable any permit, consent, approval, waiver or authorization of the FERC which is necessary to terminate the Power Supply Agreement and the Gas Arrangement as aforesaid. The provisions of Section 6.5 shall apply to these applications, notices, petitions and filings with, and obtaining any related permit, consent, approval, waiver or authorization of, the FERC. Notwithstanding any termination of the Power Supply Agreement or the Gas Arrangement, to the extent that any amount for electricity provided to the Company under the Power Supply Agreement or gas or gas transportation provided to the Company under the Gas Arrangement has not been paid as of the Closing Date and is not reflected in Working Capital, Buyer shall pay, or cause the Company to pay, such amount promptly (and, in any event, within ten (10) days) after the Closing Date.
Section 6.13 Financing Matters. Buyer shall use its reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to arrange and consummate, at or prior to the Closing, the financing of the transactions contemplated by this Agreement on the terms and conditions described in the Commitment, including using reasonable best efforts to (a) satisfy on a timely basis all terms, covenants and conditions to obtaining the financing contemplated by the Commitment and (b) negotiate definitive agreements with respect to the financing contemplated by the Commitment.
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ARTICLE VII
TAX MATTERS
Section 7.1 Indemnity.
(a) (i) Subject to the terms of Section 7.1(c), (ii) excluding payments to Seller pursuant to Section 7.2, (iii) except to the extent that any such Tax is attributable to an audit adjustment that results in an increase in the taxable income of the Company for any such period and a correlative decrease in such taxable income in a later taxable period beginning on or after the Closing Date (in which case the amount of the indemnity shall be reduced by the discounted present value of the resulting reasonably estimated future benefit), and (iv) except as otherwise provided in Section 7.9, Seller agrees to indemnify and hold harmless Buyer and the Company against the following Taxes: (x) Taxes imposed on the Company with respect to taxable periods ending on or before the Closing Date; (y) Taxes imposed on any member of any consolidated, combined or unitary group with which the Company files or has filed a Tax Return on a consolidated, combined or unitary basis for a taxable period ending on or before the Closing Date; and (z) with respect to taxable periods beginning before the Closing Date and ending after the Closing Date, Taxes imposed on the Company which are allocable, pursuant to Section 7.1(b), to the portion of such Tax period ending on the Closing Date.
(b) In the case of Taxes that are payable with respect to a taxable period that begins before the Closing Date and ends after the Closing Date, the portion of any such Taxes that are allocable to the portion of the period ending on the Closing Date shall be:
(i) in the case of Taxes that are either (A) based upon or related to income or receipts, other than any income to Seller as a result of the transactions contemplated by this Agreement, or (B) imposed in connection with any sale or other transfer or assignment of property (real or personal, tangible or intangible) other than conveyances or deemed conveyances pursuant to this Agreement as provided under Section 7.9, deemed equal to the amount which would be payable if the taxable period had ended with the Closing Date; and
(ii) in the case of Taxes imposed on a periodic basis with respect to the assets of the Company, or otherwise measured by the level of any item, deemed to be the amount of such Taxes for the entire period (or, in the case of such Taxes determined on an arrears basis, the amount of such Taxes for the immediately preceding period), multiplied by a fraction the numerator of which is the number of calendar days in the period ending on the Closing Date and the denominator of which is the number of calendar days in the entire period.
(c) Notwithstanding any provision in this Agreement to the contrary, Seller shall only be obligated to Buyer pursuant to the provisions of Section 7.1(a) for Taxes for which (i) Buyer or the Company or Seller and/or its Affiliates, as the case may be, has received a notice of proposed adjustment in writing from a Taxing Authority (e.g., receipt of Form 5701 “Notice of Proposed Adjustments” for U.S. federal tax purposes) on or prior to the sixth anniversary of the Closing Date (ii) and, with respect to such notices received by Buyer of the Company, Seller has received written notice thereof from Buyer on or prior to the sixth anniversary of the Closing Date.
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(d) Buyer hereby agrees to indemnify and hold harmless Seller for all Taxes imposed on the Company or on any member of any consolidated, combined or unitary group with which the Company files or has filed a Tax Return on a consolidated, combined or unitary basis with respect to the Company, its business, operations or assets and which are not allocated to Seller pursuant to the provisions of Section 7.1(a).
(e) Buyer shall not (and, from and after the Closing Date, Buyer shall cause the Company not to) take or allow to be taken any action the effect of which would be to accelerate the making of any claim, the commencement or completion of any audit or other inquiry by a Taxing Authority or the payment of (or increase in the amount of) any Tax liability for which Seller has an obligation to indemnify Buyer pursuant to the terms of this Section 7.1, provided, however, that the foregoing shall not be deemed to restrict Buyer from filing any Tax Return to maintain compliance with applicable law. If Buyer, the Company or any employee or agent of any of them takes or causes to be taken any such action in violation of the preceding sentence, Seller’s indemnity provided in this Section 7.1 shall be void to the extent of any associated payment or increase in Tax liability. Seller shall not take or permit to be taken any action the effect of which would be to delay the making of any claim, the commencement or completion of any audit or other inquiry by a Taxing Authority or the payment of (or increase in the amount of) any Tax liability for which Seller has an obligation to indemnify Buyer pursuant to the terms of this Section 7.1.
(f) Without Seller’s prior written consent, Buyer shall not (and, from and after the Closing Date, Buyer shall cause the Company not to) amend any Tax return filed or to be filed by or on behalf of the Company with respect to Pennsylvania state Taxes which are allocable, pursuant to Section 7.1(b), to any Tax period (or any portion thereof) ending on or before the Closing Date; provided, however, that the foregoing shall not be deemed to restrict Buyer from filing any Tax Return to maintain compliance with applicable law.
(g) Notwithstanding anything to the contrary in this Agreement, Seller’s obligations pursuant to this Section 7.1, together with Seller’s indemnification obligations pursuant to Article IX, shall in no event exceed, in the aggregate, an amount equal to the Final Purchase Price.
Section 7.2 Tax Allocation Agreement Payments. After the Closing Date, in accordance with the Tax Allocation Agreements and past intercompany accounting practices of the Company, the Company shall make further payments of Tax to Seller or an appropriate Taxing Authority to the extent that the Company’s share of current Taxes attributable to taxable periods or portions thereof ending on or before the Closing Date exceeds its previously paid share of estimated Taxes; provided, however, that notwithstanding any other provisions of this Agreement, no such payment or any other payment from Buyer or the Company to Seller or its Affiliates shall include any amount of Tax attributable directly or indirectly to the sale of the Shares pursuant to this Agreement, including by reason of any deemed sale of the assets of the Company pursuant to the elections described in Section 7.6. Any payment under this Section 7.2 which is to be made to Seller shall be due not earlier than five (5) Business Days before the due date of the corresponding payment to the appropriate Taxing Authority. Except as otherwise provided in this Section 7.2, Seller and Buyer (and Buyer on behalf of the Company) agrees that the Company’s rights and obligations under the Tax Allocation Agreements (and the rights and obligations of any other party to the Tax Allocation Agreements to the Company) as of the Closing Date shall be terminated, and, after the Closing Date, the Company shall not have any right to any payment under the Tax Allocation Agreements, including any payment in respect of tax losses or other tax benefits relating to any period prior to the Closing Date (all of which tax losses or other benefits shall belong solely to, and be permitted to be used solely by, Seller and its Affiliates other than the Company).
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Section 7.3 Returns and Payments.
(a) Seller shall prepare and file or otherwise furnish in proper form to the appropriate Taxing Authority (or cause to be prepared and filed or so furnished) in a timely manner all (i) consolidated, combined and unitary Tax Returns (each a “Consolidated Return”) that include Seller and (ii) Tax Returns relating to the Company that are attributable to periods ending on or before the Closing Date (and Buyer shall do the same with respect to any non-Consolidated Return for the Company attributable to periods ending after the Closing Date). Tax Returns of the Company not yet filed for any taxable period that begins before the Closing Date shall be prepared in a manner consistent with past practices employed with respect to the Company (except to the extent counsel for Seller or the Company renders a legal opinion that it is less likely than not that such practices would be sustained by the courts if challenged or determines that a Tax Return cannot be so prepared and filed without being subject to penalties). With respect to any non-Consolidated Return required to be filed by Buyer or Seller with respect to the Company and as to which an amount of Tax is allocable to the other party under Section 7.1(b), the filing party shall provide the other party and its authorized representatives with a copy of such completed Tax Return and a statement certifying the amount of Tax shown on such Tax Return that is allocable to such other party pursuant to Section 7.1(b), together with appropriate supporting information and schedules at least forty-five (45) days prior to the due date (including any extension thereof) for the filing of such Tax Return, and such other party and its authorized representatives shall have the right to review and comment on such Tax Return and statement prior to the filing of such Tax Return.
(b) After the Closing Date, Seller shall pay when due and payable all Taxes with respect to the Company that are unpaid as of the Closing Date and are allocable to Seller pursuant to Sections 7.1(a) and 7.1(b) or Section 7.9, either directly to the appropriate Taxing Authority or, as appropriate, to Buyer or the Company.
(c) Buyer shall or shall cause the Company to pay all Taxes that are allocable to Buyer pursuant to Section 7.1(d) or Section 7.9 either directly to the appropriate Taxing Authority or to Seller.
Section 7.4 Refunds. Any Tax refund (including any interest with respect thereto) relating to the Company for Taxes paid for any taxable period or portion thereof ending on or prior to the Closing Date shall be the property of Seller and, if received by Buyer or the Company, shall be paid over promptly to Seller. Any Tax refund (including any interest with respect thereto) relating to the Company for Taxes paid for any portion of a taxable period that is after the Closing Date shall be the property of the Company and, if received by Seller or its Affiliates, shall be paid over promptly to the Company.
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Section 7.5 Contests.
(a) After the Closing, Buyer shall promptly notify Seller in writing of any written notice of a proposed assessment, audit, contest, proceeding or litigation (a “Contest”) of Buyer or the Company which could reasonably be expected to result in grounds for indemnification by Seller under this Article VII.
(b) For all Contests for which the Seller alone has an indemnification obligation under Section 7.1, Seller, at its expense, shall control all such Contests. Prior to the Closing Date, Seller, at its expense, shall control all Contests relating to the Company. After the Closing Date, in the case of a Contest that relates to a non-Consolidated Return (or any item relating thereto or reported thereon) for a taxable period ending on or before the Closing Date or for any taxable period that begins before the Closing Date and ends after the Closing Date, Seller shall have the right at its expense to participate in and control the conduct of such Contest. For all taxable periods that begin after the Closing Date, Buyer, at its expense, shall control such Contests. If Seller does not assume the defense of any such Contest for a taxable period ending on or before the Closing Date, Buyer may defend the same in such manner as it may deem appropriate, including settling such Contest after giving thirty (30) days’ prior written notice to Seller setting forth the terms and conditions of settlement.
(c) Buyer and Seller agree to cooperate, and Buyer agrees to cause the Company to cooperate, in the defense against or compromise of any claim in any Contest, provided, however, that the Company and Buyer shall not be required to agree to any compromise of any portion of any Contest pertaining to Taxes of the Company pertaining to the period after the Closing Date that, in the reasonable opinion of the Company and Buyer, will have the effect of adversely affecting the Tax position of the Company after the Closing Date.
Section 7.6 Section 338(h)(10) Election.
(a) Seller and Buyer shall make a joint election pursuant to Section 338(h)(10) of the Code and similar provisions of state and local laws, to the extent permitted (the “Election”) to treat the Buyer’s acquisition of the Shares as a deemed acquisition of the Company’s assets. Buyer and Seller shall cooperate in timely making such Election and in filing all returns, documents, statements, and other forms that are required to be submitted to any Taxing Authority in connection with the Election, including any “statement of Section 338 election” and IRS Form 8023 or any successor form (together with any schedules or attachments thereto) pursuant to regulations (collectively, the “Treasury Regulations”) promulgated by the United States Department of the Treasury (or its successor).
(b) For purposes of making such Election, Buyer shall determine the value of the tangible and intangible assets of the affected entities and shall prior to the Closing Date provide Seller with a draft allocation of Buyer’s “adjusted grossed-up basis” in the Shares (within the meaning of the Treasury Regulations under Section 338 of the Code) to such assets (the “Proposed Allocation”). The Proposed Allocation shall be binding upon Buyer and Seller for purposes of allocating the “deemed selling price” (within the meaning of the Treasury Regulations) among the assets of the Company; provided, however, that if, upon the advice of tax advisers, Seller believes that the Allocation incorrectly applies the Regulations, Seller shall give notice of such fact to Buyer within twenty (20) Business Days after receipt of the Proposed Allocation specifying the reasons therefor in reasonable detail. If Seller objects to the Proposed Allocation and the parties do not agree on a final Allocation within ten (10) Business Days after Buyer’s receipt of Seller’s objection, the parties shall refer the matter to the Independent Accounting Firm which shall determine the elements of the Proposed Allocation that are in dispute and the determination of such Independent Accounting Finn shall be final. The Proposed Allocation if not timely objected to by Seller, or the allocation agreed upon by the parties, or the allocation determined by the Independent Accounting Firm shall be the “Allocation” and Seller and Buyer shall be bound by the Allocation.
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(c) Neither Buyer nor Seller shall agree to any proposed adjustment to the Allocation by any Taxing Authority without first giving the other prior written notice and the opportunity to challenge such proposed adjustment.
(d) Buyer shall not, without the prior written consent of Seller, make any election under Section 338(g) of the Code or take any other action which may cause the Buyer’s acquisition of the Shares to fail to qualify as a deemed acquisition of the Company’s assets pursuant to Section 338(h)(10) of the Code and similar provisions of state and local laws.
Section 7.7 Time of Payment. Except as provided in Section 7.2 hereof, payment of any amounts due under this Article VII in respect of Taxes shall be made (i) at least three (3) Business Days before the due date of the applicable Tax Return required to be filed by either Buyer or Seller, as the case may be, that shows Taxes due for which the other party is responsible under Sections 7.1(a) and 7.1(d), or (ii) within three (3) Business Days following an agreement between Seller and Buyer that an indemnity amount is payable, an assessment of a Tax by a Taxing Authority, or a “determination” having been made as such term is defined in Section 1313(a) of the Code. If liability under this Article VII is in respect of costs or expenses other than Taxes, payment of any amounts due under this Article VII shall be made within five (5) Business Days after the date when the relevant party has been notified that such party has a liability for a determinable amount under this Article VII and is provided with calculations or other materials supporting such liability.
Section 7.8 Cooperation and Exchange of Information. Each of Seller and Buyer shall retain all Tax Returns, schedules and work papers, records and other documents in its possession relating to Tax matters of the Company for each taxable period first ending after the Closing Date and for all prior taxable periods until the later of (i) the expiration of the statute of limitations of the taxable periods to which such Tax Returns, schedules and work papers, records and other documents relate, without regard to extensions except to the extent notified in writing of such extensions for the respective Tax periods, or (ii) three years following the due date (without extension) for such Tax Returns, provided, however, that Seller may satisfy its obligations hereunder by delivering all such Tax Returns, schedules and work papers, records and other documents to Buyer. Any information obtained under this Section 7.8 shall be kept confidential in accordance with Section 6.4 except as may be otherwise necessary in connection with the filing of Tax Returns or claims for refund or in conducting a Contest.
Section 7.9 Conveyance Taxes. Buyer shall be liable for and shall hold Seller harmless against any real property transfer or sales, use, transfer, value added, stock transfer, and stamp taxes, any transfer, recording, registration, and other fees, and any similar Taxes which become payable in connection with the transactions contemplated by this Agreement (excluding any Tax related to income from the sale of the Shares or the deemed sale of the assets of the Company pursuant to the elections described in Section 7.6) and shall file such applications and documents as shall permit any such Tax to be assessed and paid on or prior to the Closing Date in accordance with any available pre-sale filing procedure. Buyer or Seller, as appropriate, shall execute and deliver all instruments and certificates necessary to enable the other to comply with any filing requirements relating to any such Taxes.
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ARTICLE
VIII
CONDITIONS TO CLOSING
Section 8.1 Conditions to Buyer’s Obligations. In addition to the conditions set forth in Section 8.3, the obligation of Buyer to effect the Closing shall be subject to the satisfaction on or prior to the Closing Date of the following conditions, unless waived in writing by Buyer:
(a) Except for the representations and warranties of Seller set forth in Sections 4.1, 4.2, 4.3 and 4.6, the representations and warranties of Seller set forth in this Agreement shall, without giving effect to any materiality or Material Adverse Effect qualifications therein, be true and correct (i) as of the date of this Agreement, giving effect to the Schedules, and (ii) as of the Closing Date as though made as of the Closing Date, giving effect to the Schedules as updated by the Updated Schedules (except that any such representation and warranty that is given as of a particular date or period and relates solely to such particular date or period shall be true and correct only as of such date or period), except for such failures to be true and correct as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect;
(b) The representations and warranties of Seller set forth in Sections 4.1, 4.2, 4.3 and 4.6 shall be true and correct (i) as of the date of this Agreement, giving effect to the Schedules, and (ii) as of the Closing Date as though made as of the Closing Date, giving effect to the Schedules as updated by the Updated Schedules (except that any such representation and warranty that is given as of a particular date or period and relates solely to such particular date or period shall be true and correct only as of such date or period);
(c) Seller shall have performed and complied in all material respects with all covenants and obligations required by this Agreement, to be performed or complied with by Seller on or prior to the Closing Date;
(d) Seller shall have delivered to Buyer a certificate, executed by a duly authorized officer of Seller, certifying that the conditions set forth in Sections 8.1(a), (b) and (c) have been satisfied;
(e) Seller shall have delivered to Buyer resolutions of the board of directors of Seller, certified by the Secretary or Assistant Secretary of Seller, approving and authorizing the execution, delivery and performance of this Agreement by Seller and the consummation by Seller of the transactions contemplated hereby;
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(f) Seller shall have delivered to Buyer a certificate of the Secretary or Assistant Secretary of Seller as to the incumbency of the officer executing this Agreement, the Electric Agreement, the Gas Agreement and the Transition Services Agreement on behalf of Seller and the genuineness of such officer’s signature; and
(g) Seller shall have delivered to Buyer a release that, subject to Buyer’s performance of the payment obligations set forth in Section 6.11 and Section 6.12 (or the inclusion in Working Capital of the unpaid amounts as of the Closing Date under the Affiliated Interest Agreement, the Gas Arrangement and the Power Supply Agreement) and Buyer’s performance of the payment obligations set forth in Section 7.2, releases and discharges the Company from liability for any amounts owed by the Company to Seller pursuant to the Affiliated Interest Agreement, the Gas Arrangement, the Power Supply Agreement and the Tax Allocation Agreements.
Section 8.2 Conditions to Seller’s Obligations. In addition to the conditions set forth in Section 8.3, the obligation of Seller to effect the Closing shall be subject to the satisfaction on or prior to the Closing Date of the following conditions, unless waived in writing by Seller:
(a) Except for the representations and warranties of Buyer set forth in Sections 5.1, 5.2, 5.6 and 5.10, the representations and warranties of Buyer set forth in this Agreement shall, without giving effect to any materiality qualifications or qualifications pertaining to preventing or delaying Buyer performance of any of its obligations hereunder or preventing or delaying consummation by Buyer of the transactions contemplated by this Agreement, be true and correct (i) as of the date of this Agreement and (ii) as of the Closing Date as though made as of the Closing Date (except that any such representation and warranty that is given as of a particular date or period and relates solely to such particular date or period shall be true and correct only as of such date or period), except for such failures to be true and correct as would not, individually or in the aggregate, reasonably be expected to impair or delay consummation by Buyer of the transactions contemplated by this Agreement;
(b) The representations of Buyer set forth in Sections 5.1, 5.2, 5.6 and 5.10 shall be true and correct (i) as of the date of this Agreement and (ii) as of the Closing Date as though made as of the Closing Date (except that any such representation and warranty that is given as of a particular date or period and relates solely to such particular date or period shall be true and correct only as of such date or period);
(c) Buyer shall have performed and complied with in all material respects all covenants and obligations required by this Agreement to be performed or complied with by Buyer on or prior to the Closing Date;
(d) Buyer shall have delivered to Seller a certificate, executed by a duly authorized officer of Buyer, certifying that the conditions set forth in Sections 8.2(a), (b) and (c) have been satisfied;
(e) Buyer shall have delivered to Seller resolutions of the board of directors of Buyer, certified by the Secretary or Assistant Secretary of Buyer, approving and authorizing the execution, delivery and performance of this Agreement by Buyer and the consummation by Buyer of the transactions contemplated hereby;
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(f) Buyer shall have delivered to Seller a certificate of the Secretary or Assistant Secretary of Buyer as to the incumbency of the officer executing this Agreement and the releases required by Section 9.8 on behalf of Buyer and the genuineness of such officer’s signature; and
(g) Buyer shall have delivered to Seller a certificate of the Secretary or Assistant Secretary of the Company as to the incumbency of the officer executing the Electric Agreement, the Gas Agreement, the Transition Services Agreement and the releases required by Section 9.8 on behalf of the Company and the genuineness of such officer’s signature.
Section 8.3 Mutual Conditions. The obligations of each of Buyer and Seller to effect the Closing shall be subject to the satisfaction on or prior to the Closing Date of the following conditions, unless waived in writing, as to itself, by either party:
(a) No temporary restraining order, preliminary or permanent injunction or other order issued by a court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the transactions contemplated by this Agreement shall be in effect; and
(b) All approvals of Governmental Authorities set forth on Schedule 4.5 and Schedule 5.4 shall have been obtained and shall remain in full force and effect.
ARTICLE
IX
SURVIVAL; INDEMNIFICATION
Section 9.1 Survival.
(a) Except as may be otherwise specified in this Agreement with regard to any specific representation and warranty, the representations and warranties of the parties set forth in this Agreement shall survive the closing of the transactions contemplated by this Agreement and terminate on the date that is twelve months after the Closing Date. Notice with respect to any claim in respect of any inaccuracy in or breach of any representation or warranty shall be in writing and shall be given to the party against which such claim is asserted on or before the date on which the survival of such representation or warranty terminates.
(b) All covenants and agreements made by the parties to this Agreement which contemplate performance following the Closing Date shall survive the Closing Date in accordance with their respective terms. All other covenants and agreements shall not survive the Closing Date and shall terminate as of the Closing Date.
Section 9.2 Obligation of Seller to Indemnify. Subject to the limitations set forth in Sections 9.1, 9.5, 9.6 and 9.7, Seller shall indemnify, defend and hold harmless Buyer and its directors, officers, employees, Affiliates, and their respective successors and assigns, from and against any Losses incurred by any of them based upon or arising out of (a) any inaccuracy in or breach of any representation or warranty made by Seller in this Agreement (giving effect to the Schedules, as updated by the Updated Schedules), provided that Buyer’s notice with respect to the claim of such inaccuracy or breach is received by Seller on or before the date on which the survival of such representation or warranty terminates in accordance with Section 9.1(a), and (b) any failure by Seller to perform any unwaived covenant or agreement of Seller contained in this Agreement, provided that such covenant or agreement survives the Closing Date in accordance with Section 9.1(b) and Buyer’s notice with respect to the claim of such failure to perform is received by Seller on or before the date on which the survival of such covenant or agreement terminates.
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Section 9.3 Obligation of Buyer to Indemnify. Subject to the limitations set forth in Sections 9.1, 9.5, 9.6 and 9.7, Buyer shall indemnify, defend and hold harmless Seller and its directors, officers, employees, Affiliates, and their respective successors and assigns, from and against any Losses incurred by any of them based upon or arising out of (a) any inaccuracy in or breach of any representation or warranty made by Buyer in this Agreement (giving effect to the Schedules), provided that Seller’s notice with respect to the claim of such inaccuracy or breach is received by Buyer on or before the date on which the survival of such representation or warranty terminates in accordance with Section 9.1(a), and (b) any failure by Buyer to perform any unwaived covenant or agreement of Buyer in this Agreement, provided that such covenant or agreement survives the Closing Date in accordance with Section 9.1(b) and Seller’s notice with respect to the claim of such failure to perform is received by Buyer on or before the date on which the survival of such covenant or agreement terminates.
Section 9.4 Notice and Opportunity to Defend Against Third Party Claims.
(a) Promptly after receipt from any third party by either party hereto or any other party entitled to indemnification hereunder (the “Indemnitee”) of a notice of any demand, claim or circumstance that, immediately or with the lapse of time, would give rise to a claim or the commencement (or threatened commencement) of any action, proceeding or investigation (an “Asserted Liability”) that may result in Losses for which indemnification may be sought hereunder, the Indemnitee shall give written notice thereof (the “Claims Notice”) to the party obligated to provide indemnification pursuant to Section 9.2 or Section 9.3 (the “Indemnifying Party”); provided, however, that a failure to give such prompt notice shall not prejudice the Indemnitee’s right to indemnification hereunder except to the extent that the Indemnifying Party is prejudiced or forfeits substantive rights or defenses as a result of such failure and, provided, further, that nothing in this Section 9.4 shall extend the time within which notice with respect to a claim of inaccuracy in or breach of a representation or representation or notice with respect to a claim of failure to perform an unwaived covenant or agreement must be received by the Indemnifying Party pursuant to Sections 9.1, 9.2 and 9.3 in order for indemnification to be sought for any Losses resulting from such inaccuracy or breach or failure to perform. The Claims Notice shall describe the Asserted Liability in reasonable detail, and shall indicate the amount (estimated, if necessary) of the Losses that have been or may be suffered by the Indemnitee.
(b) The Indemnifying Party may elect to compromise or defend, at its own expense and by its own counsel, any Asserted Liability. If the Indemnifying Party elects to compromise or defend such Asserted Liability, it shall, within twenty (20) Business Days following its receipt of the Claims Notice notify the Indemnitee of its intent to do so, and the Indemnitee shall cooperate, at the expense of the Indemnifying Party, in the compromise of, or defense against, such Asserted Liability. If the Indemnifying Party elects not to compromise or defend the Asserted Liability or fails to notify the Indemnitee of its election within such twenty (20) Business Day period, the Indemnitee may compromise or defend such Asserted Liability. Notwithstanding the foregoing, neither the Indemnifying Party nor the Indemnitee may settle or compromise any Asserted Liability without the consent of the other party; provided, however, that such consent to settlement or compromise shall not be unreasonably delayed, conditioned or withheld. In any event, the Indemnitee and the Indemnifying Party may participate, at their own expense, in the defense of such Asserted Liability. If the Indemnifying Party chooses to compromise or defend any Asserted Liability, the Indemnitee shall make available to the Indemnifying Party any books, records or other documents within its control that are necessary or appropriate for such defense.
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Section 9.5 Net Indemnity. The amount of any Losses from and against which either party is liable to indemnify, defend and hold harmless the other party or any other Person pursuant to Section 9.2 or Section 9.3 shall be reduced by any insurance or other recoveries or any Tax benefit that such Indemnitee actually realizes as a result of or in connection with such Losses.
Section 9.6 Tax Indemnification. Notwithstanding any provision of this Article IX or any other provision of this Agreement, any issue or matter relating to Taxes shall be governed solely by Article VII (except for the termination of the representations and warranties contained in Section 4.15, which is governed by Section 9.1).
Section 9.7 Limits on Indemnification.
(a) No party shall have any right to seek indemnification under this Agreement (i) as to any individual item or series of related items of Losses, to the extent such Losses are less than 0.5% of the Purchase Price, (ii) with respect to Losses contemplated by Section 9.2(a) which would otherwise be indemnifiable hereunder (including Losses incurred by all other Indemnitees affiliated with or related to such party) until such Losses exceed 1% of the Purchase Price in the aggregate, after insurance or other recoveries and on an after-tax basis, as provided in Section 9.5, in which case such party (including such affiliated or related Persons) shall only be entitled to be indemnified for Losses in excess of such aggregate amount, or (iii) for punitive, special, indirect or consequential damages, including lost profits, lost revenues, lost savings and increased costs of operations.
(b) Notwithstanding any provision of this Agreement, the aggregate liability of Seller under this Article IX shall be limited to an amount equal to 10% of the Final Purchase Price.
(c) After the Closing, the remedies provided by this Article IX shall be the sole and exclusive remedy for the parties to this Agreement with respect to any dispute arising from, or related to, this Agreement, except in the case of fraud and except that injunctive relief (including specific performance) shall continue to be available to the extent such remedy is in respect of a then-surviving representation, warranty, covenant or agreement.
Section 9.8 Release. From and after the Closing, Buyer agrees to (and to cause the
Company to) release Seller, its Affiliates and the officers and directors of the Company (acting in their capacity as such) from and against any Losses for controlling stockholder liability or breach of any fiduciary or other duty not arising hereunder relating to any pre-Closing actions or failure to act in connection with the business of the Company prior to the Closing.
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ARTICLE
X
TERMINATION
Section 10.1 Termination.
(a) This Agreement may be terminated on or prior to the Closing Date only as follows:
(i) by mutual written consent of Buyer and Seller;
(ii) by either Buyer or Seller if a condition to its obligation to perform becomes incapable of fulfillment, provided, however, that the right to terminate this Agreement pursuant to this Section 10.1(a)(ii) shall not be available to a party if its condition to its obligation to perform became incapable of fulfillment due to its failure to fulfill any obligation under this Agreement; and
(iii) by either Buyer or Seller upon written notice to the other if the Closing shall not have occurred by the date that is eighteen (18) months after the date of this Agreement; provided, however, that the right to terminate this Agreement pursuant to this Section 10.1(a)(iii) shall not be available to a party whose breach of any provision of this Agreement resulted in the Closing not occurring by such date.
(b) The termination of this Agreement shall be effectuated by the delivery of a written notice of such termination from the party terminating this Agreement to the other party.
Section 10.2 Obligations upon Termination. In the event that this Agreement shall be terminated pursuant to Section 10.1, all obligations of the parties hereto under this Agreement shall terminate and there shall be no liability of either party hereto to the other party hereto, except (i) as set forth in Section 6.2 and Section 6.3, and (ii) that nothing herein will relieve any party from liability for any breach of this Agreement.
ARTICLE
XI
MISCELLANEOUS
Section 11.1 Amendments. This Agreement may not be amended, altered or modified except by written instrument executed by Buyer and Seller.
Section 11.2 Entire Agreement.
(a) This Agreement, the Confidentiality Agreement, the Transition Services Agreement, the Gas Agreement and the Electric Agreement constitute the entire understanding of the parties hereto with respect to the transactions contemplated hereby, and supersede all prior agreements and understandings, written and oral, between the parties with respect to the subject matter hereof.
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(b) BUYER ACKNOWLEDGES THAT NONE OF SELLER, ANY OF ITS AFFILIATES, OR ANY REPRESENTATIVE OR ADVISOR OF ANY OF THEM HAS MADE ANY REPRESENTATION OR WARRANTY TO BUYER EXCEPT AS SPECIFICALLY SET FORTH IN THIS AGREEMENT, THE TRANSITION SERVICES AGREEMENT, THE GAS AGREEMENT AND THE ELECTRIC AGREEMENT. IN PARTICULAR, NO SUCH PERSON HAS MADE ANY REPRESENTATION OR WARRANTY TO BUYER WITH RESPECT TO: (I) ANY INFORMATION OR MATERIALS DISTRIBUTED BY SELLER, THE COMPANY, THEIR RESPECTIVE AFFILIATES OR ANY OTHER PERSON IN CONNECTION WITH THE PROPOSED SALE OF THE COMPANY OR (II) ANY FINANCIAL PROJECTION OR FORECAST RELATING TO THE COMPANY. WITH RESPECT TO ANY SUCH PROJECTION OR FORECAST DELIVERED BY OR ON BEHALF OF SELLER TO BUYER, BUYER ACKNOWLEDGES THAT: (A) THERE ARE UNCERTAINTIES INHERENT IN ATTEMPTING TO MAKE SUCH PROJECTIONS AND FORECASTS, (B) IT IS FAMILIAR WITH SUCH UNCERTAINTIES, (C) IT IS TAKING FULL RESPONSIBILITY FOR MAKING ITS OWN EVALUATION OF THE ADEQUACY AND ACCURACY OF ALL SUCH PROJECTIONS AND FORECASTS SO FURNISHED TO IT AND (D) IT SHALL HAVE NO CLAIM AGAINST ANY SUCH PERSON BASED ON ANY SUCH PROJECTION OR FORECAST.
Section 11.3 Interpretation. When reference is made in this Agreement to any Article, Section, Exhibit or Schedule, such reference is to an Article, Section, Exhibit or Schedule of this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation.” The phrases “the date of this Agreement,” “the date hereof’ and terms of similar import, unless the context otherwise requires, shall be deemed to refer to the date set forth in the first paragraph of this Agreement. The words “hereof’, “herein”, “hereby” and other words of similar import refer to this Agreement as a whole unless otherwise indicated. Whenever the singular is used herein, the same shall include the plural, and whenever the plural is used herein, the same shall include the singular, where appropriate.
Section 11.4 Severability. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, that provision shall be interpreted to be only so broad as is enforceable.
Section 11.5 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given and delivered if they are: (a) delivered in person, (b) transmitted by facsimile (with confirmation), (c) delivered by certified or registered mail (return receipt requested), or (d) delivered by a nationally recognized express courier (with confirmation) to a party at its address listed below (or at such other address as such party shall deliver to the other party by like notice):
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Consolidated Edison Company of New York, Inc. 4 Irving Place, Room 1810-S New York, NY 10003 Facsimile: (212) 677-5850 Attention: Deputy General Counsel
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With a concurrent copy to: |
Steptoe & Johnson LLP 1330 Connecticut Avenue, NW Washington, DC 20036 Facsimile: (202) 429-3902 Attention: Julie A. S. Vinyard
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| If to Buyer, to: |
Corning Natural Gas Holding Corporation 330 W. William Street Corning, New York 14830 Facsimile: (607) 962-2844 Attention: Michael I. German
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With a concurrent copy to: |
Moonstone Consulting, LLC 4547 Lake in the Woods Spring Hill, FL 34607 Attention: Mario DiValentino |
Section 11.6 Binding Effect; Persons Benefiting; No Assignment. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns. Nothing in this Agreement is intended or shall be construed to confer upon any Person other than the parties hereto and their respective successors and permitted assigns any right, remedy or claim under or by reason of this Agreement or any part hereof. This Agreement may not be assigned by either party hereto without the prior written consent of the other party.
Section 11.7 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same agreement, it being understood that all of the parties need not sign the same counterpart.
Section 11.8 No Prejudice. This Agreement has been jointly prepared by the parties hereto and the terms hereof shall not be construed in favor of or against any party on account of its participation in such preparation.
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Section 11.9 Governing Law; Submission to Jurisdiction. THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT RECOURSE TO SUCH STATE’S CHOICE OF LAW PRINCIPLES. Each of Buyer and Seller hereby (a) consents to submit to the personal jurisdiction of a Federal court located in the Borough of Manhattan in the City of New York or, if such court does not have subject matter jurisdiction, to the personal jurisdiction of any New York State court located in the Borough of Manhattan in the City of New York, with respect to all actions, suits and proceedings arising out of or relating to this Agreement, (b) agrees not to attempt to deny such personal jurisdiction by motion or other request for leave from any such court, (c) agrees not to bring any action, suit or proceeding arising out of or relating to this Agreement in any court other than a Federal court located in the Borough of Manhattan in the City of New York or, if such court does not have subject matter jurisdiction, in any court other than a New York State court located in the Borough of Manhattan in the City of New York, (d) agrees that all claims with respect to any such action, suit or proceeding may be heard and determined in such Federal or New York State court, (e) agrees that service of process, summons, notice or other applicable document by hand delivery or U.S. certified mail at the address specified for such party in Section 11.5 (or such other address in the United States specified by such party from time to time pursuant to Section 11.5) shall be effective service of process for any such action, suit or proceeding brought against such party in any such court and (f) waives the defense of an inconvenient forum in any such action, suit or proceeding.
* * *
[signature page follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first set forth above.
ORANGE AND ROCKLAND UTILITIES, INC.
By: /s/ Timothy P. Cawley
Name: Timothy P. Cawley
Title: President and Chief Executive Officer
CORNING NATURAL GAS HOLDING CORPORATION
By: /s/ Michael German
Name: Michael I. German
Title: President
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Exhibit A
Form of Electric Agreement
[Form of agreement follows]
ELECTRIC SUPPLY AGREEMENT
ELECTRIC SUPPLY AGREEMENT, dated as of _________, 20__ (this “Agreement”), between Orange and Rockland Utilities, Inc., a New York corporation (“O&R”), and Pike County Light & Power Company, a Pennsylvania corporation (“PCL&P”) (O&R and PCL&P are sometimes referred to herein individually as a “Party” and collectively as the “Parties”).
WHEREAS, O&R and Corning Natural Gas Holding Corporation (“Corning”) have entered into a Stock Purchase Agreement, dated as of October 13, 2015 (the “SPA”), pursuant to which O&R agreed to sell to Corning and Corning agreed to purchase from O&R all of the issued and outstanding shares of PCL&P, all as more particularly set forth in the SPA (capitalized terms used and not otherwise defined herein have the meanings ascribed to them in the SPA; provided, however, that when reference is made in this Agreement to any Section or Exhibit, such reference is to a Section or Exhibit of this Agreement unless otherwise indicated); and
WHEREAS, from and after the Closing, O&R is willing to provide, or cause to be provided, the transitional electric supply requirements of PCL&P on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual agreements and covenants hereinafter set forth, O&R and PCL&P hereby agree as follows:
| 1. | Provision of Transition Services; Term; Payment |
(a) O&R agrees to provide, or to cause its Affiliates and/or third-party contractors, subcontractors or other service providers or suppliers (collectively, the “Contractors”) to provide, to PCL&P the electric supply for PCL&P to serve its electric customers (the “Electric Supply Service”) for a period (the “Term”) commencing on the Closing and ending on the date that is thirty-six (36) months after the Closing, subject to extending the Term in accordance with Section 1(b) and to earlier termination in accordance with Section 5.
(b) Within thirty (30) days after the first annual anniversary date of this Agreement, PCL&P may elect, by written notice to O&R, to extend the Term for an additional twelve (12) months. If PCL&P elects this first optional extension, PCL&P may then elect, within thirty (30) days after the second annual anniversary date of this Agreement, to extend the extended Term for an additional twelve (12) months. If PCL&P elects this second optional extension, PCL&P may then elect, within thirty (30) days after the third annual anniversary date of this Agreement, to extend the extended Term for an additional twelve (12) months.
(c) O&R shall provide, or shall cause its Affiliates and/or the Contractors to provide, the Electric Supply Service pursuant to this Agreement in a manner consistent with, and with a level of care no less than, the manner and level of care with which such Electric Supply Service was previously provided by O&R, its Affiliates and the Contractors to PCL&P during the twelve (12) month period immediately prior to the Closing.
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(d) The Parties acknowledge the transitional nature of O&R providing the Electric Supply Service and agree to cooperate in good faith to effectuate a smooth transition to PCL&P of the Electric Supply Service furnished hereunder; provided, however, that O&R, its Affiliates and the Contractors shall have no obligation to incur any expense, including, without limitation, in connection with constructing, installing, replacing, modifying, operating, or maintaining any facilities or infrastructure, in connection with such transition (it being understood that this proviso does not affect O&R’s obligations, during the Term, to operate and maintain O&R facilities or O&R infrastructure in a manner sufficient to provide the Electric Supply Service pursuant to the teams and conditions hereof).
(e) PCL&P shall pay O&R an amount for the Electric Supply Services that is calculated in accordance with the methodology set forth in the Exhibit A attached hereto. Each written invoice (each, an “Invoice”) that O&R prepares with respect to the Electric Supply Service provided during the Term shall specify the amount and price of the Electric Supply Service and the period during which it was provided (it being understood and agreed that the “Supply Cost” portion, as described in Exhibit A attached hereto, of each Invoice shall be subject to subsequent invoices for additional amounts (or credits) reflecting subsequent NYISO true-ups relating to the period at issue). PCL&P shall pay each Invoice, by the method specified in the Invoice, no later than ten (10) days after PCL&P’s receipt of the Invoice. All Invoices sent by O&R hereunder shall be sent to the following address:
Pike County Light & Power Company
do Corning Natural Gas Holding Corporation
330 West William Street
Coming, New York 14830
Attention: Michael I. German
Fax: (607) 962-2844
| 2. | Limitation of Liability; Release; Waiver; Indemnification; Insurance |
(a) To the fullest extent permitted by law, PCL&P hereby releases and discharges O&R, its Affiliates, the Contractors, and O&R’s, its Affiliates’ and the Contractors’ respective directors, trustees, officers, employees, agents, successors, and assigns, (collectively, the “O&R Protected Parties”) from, waives against the O&R Protected Parties, and agrees to defend, indemnify and hold the O&R Protected Parties harmless from and against, any and all suits, actions, causes of action, claims, liabilities, losses, damages, costs, and expenses (including court costs and reasonable attorney’s fees) arising from or relating to providing the Electric Supply Service or any failure to provide or delay in providing the Electric Supply Service, except to the extent that such suits, actions, causes of action, claims, liabilities, losses, damages, costs and expenses arise from the willful misconduct of the O&R Protected Parties.
(b) Without limiting the provisions of Section 2(a), to the fullest extent permitted by law, PCL&P hereby releases and discharges the O&R Protected Parties from, waives against the O&R Protected Parties, and agrees to defend, indemnify and hold the O&R Protected Parties harmless from and against, any and all suits, actions, causes of action, claims, and liabilities for (and court costs and reasonable attorney’s fees in connection with) any and all special, indirect, incidental, consequential and punitive damages, including but not limited to damage, loss, liability, costs, and expenses resulting from loss of use, loss of business or business opportunities, loss of profits or revenue, costs of capital, loss of goodwill, cost of purchased or replacement power, and like items of special, indirect, incidental, or consequential loss and damage, arising from or relating to providing the Electric Supply Service or any failure to provide or delay in providing the Electric Supply Service.
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(c) Subject to the other limitation of liability provisions in this Agreement, in no event shall the cumulative liability of the O&R Protected Parties relating to or arising from providing any Electric Supply Service exceed the payment received by O&R hereunder with respect to such Electric Supply Service.
(d) PCL&P shall procure and maintain (or cause its parent corporation, Corning Natural Gas Holding Corporation, to procure and maintain for the benefit of PCL&P) the following insurance during the Term and until any and all Electric Supply Service has been fully and completely performed: Comprehensive (also called Commercial) General Liability Insurance, including Contractual Liability coverage, with limits of at least $5,000,000 per occurrence for bodily injury or death and $1,000,000 per occurrence for property damage or a combined single limit of at least $5,000,000 (such insurance shall contain an “occurrence” and not a “claims made” determinant of coverage, shall name the O&R Protected Parties as additional insureds and contain a waiver of subrogation claims against the O&R Protected Parties, and shall not contain an exclusion for claims by PCL&P’s or its contractor’s or subcontractor’s employees against the O&R Protected Parties or any of them based on injury to or the death of such employees). Such insurance requirements may be satisfied through the combination of a primary or underlying policy and an excess policy and it is understood and agreed that, so long as PCL&P complies at all times with the minimum per occurrence amounts and other insurance requirements specified above in this Agreement, in Section 2(d) of the Gas Supply and Gas Transportation Agreement of even date herewith between O&R and PCL&P (the “Gas Agreement”), and in Section 2(d) of the of the Transition Services Agreement of even date herewith between O&R and PCL&P (the “Transition Services Agreement”), PCL&P need not procure and maintain (or cause its parent Company, Corning Natural Gas Holding Corporation, to procure and maintain for the benefit of PCL&P) (i) separate insurance policies for each of this Agreement, the Gas Agreement, and the Transition Services Agreement or (ii) insurance policies with per occurrence limits that equal or exceed the sum of (A) the minimum per occurrence amounts specified above in this Agreement, plus (B) the minimum per occurrence amounts specified in Section 2(d) of the Gas Agreement and/or (C) the minimum per occurrence amounts specified in Section 2(d) of the Transition Services Agreement.
| 3. | Confidentiality |
Each Party hereby acknowledges that the terms of this Agreement (the “Information”) are confidential. Each Party agrees to, and shall cause its agents, representatives, Affiliates, employees, officers, directors and trustees to: (i) treat and hold as confidential (and not disclose or provide access to any Person to) the Information, (ii) in the event that a Party or any of its agents, representatives, Affiliates, employees, officers, directors or trustees becomes legally required to disclose any of the Information, provide such other Party (the “Non-Compelled Party”) with prompt written notice of such requirement so that the Non-Compelled Party may seek a protective order or other remedy or waive compliance with this Section 3, and (iii) in the event that such protective order or other remedy is not sought or obtained, or the Non-Compelled Party waives compliance with this Section 3, furnish only those portions of the Information which are legally required to be provided and exercise commercially reasonable efforts to obtain assurances that confidential treatment will be accorded such Information. This Section 3 shall not apply to Information that, at the time of disclosure, is available publicly and was not disclosed in breach of this Agreement.
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| 4. | Security for PCL&P’s Performance |
(a) Simultaneously with the execution of this Agreement, PCL&P, as security for PCL&P’s performance of its obligations hereunder (including, but not limited to PCL&P’s obligations pursuant to Section 1(e) and Section 2), shall furnish cash security (the “Cash Security”) or cause a letter of credit (such letter of credit, as amended or replaced from time to time by a “Substitute PCL&P LC” (as defined below), the “PCL&P L/C”) to be furnished to O&R in the amount of $1,251,390 (the “Initial Amount”); provided, however, that following PCL&P’s receipt of the first Invoice and thereafter following PCL&P’s receipt of each subsequent Invoice pursuant to Section 1(e), the Initial Amount shall be subject to increase or decrease in accordance with this Section 4(a) and Section 4(b). During the period from the execution of this Agreement to immediately before the first such increase or decrease, PCL&P shall cause the amount of the Cash Security or the PCL&P L/C, as applicable, that remains available for drawing upon by O&R to be in an amount equal to the Initial Amount and during the period from the first such increase or decrease to the “Permitted Expiry” (as defined below), PCL&P, subject to exercising its right pursuant to the first proviso in Section 4(e), shall cause the amount of the Cash Security or the PCL&P L/C, as applicable, that remains available for drawing upon by O&R to be in an amount that is not less than twice the amount of the most recent Invoice sent by O&R to PCL&P pursuant to Section 1(e) (the Initial Amount, subject to such increase or decrease, the “Required Amount”). To the extent that PCL&P fails to timely perform its obligations hereunder, O&R, in addition to and not in lieu of any other rights and remedies available to it, including termination of this Agreement pursuant to Section 5, may draw upon the Cash Security or PCL&P L/C, as applicable, to satisfy, in whole or in part, such obligations.
(b) Increases (i.e., because the Required Amount has increased or the Cash Security previously has been drawn upon by O&R) in the amount of the Cash Security remaining for drawing upon by O&R that are necessary to satisfy the then applicable Required Amount shall be made by PCL&P furnishing the applicable amount of cash to O&R within five (5) Business Days after (i) PCL&P’s receipt of the Invoice pursuant to Section 1(e) that results in an increase in the Required Amount (in cases where the Required Amount increases due to such Invoice), or (ii) PCL&P’s receipt of written notice from O&R that O&R has drawn on the Cash Security and the amount of the Cash Security remaining for drawing upon by O&R is less than the then applicable Required Amount (in cases where O&R previously has drawn upon the Cash Security). Decreases (i.e., because the Required Amount has decreased) in the amount of the Cash Security remaining for drawing upon by O&R to a level equal to the then applicable Required Amount shall be made by O&R returning the applicable amount of cash to PCL&P within five (5) Business Days after O&R’s receipt of PCL&P’s written request to return the amount of Cash Security that is in excess of the then applicable Required Amount. Cash furnished to O&R or PCL&P shall be by wire transfer to an account specified by the party that is to receive the cash. Increases (i.e., because the Required Amount has increased or the PCL&P L/C previously has been drawn upon by O&R) in the amount of the PCL&P L/C remaining for drawing upon by O&R that are necessary to satisfy the then applicable Required Amount shall be made by PCL&P furnishing to O&R a Substitute PCL&P L/C within five (5) Business Days after (i) PCL&P’s receipt of the Invoice pursuant to Section 1(e) that results in an increase in the Required Amount (in cases where the Required Amount increases due to such Invoice), or (ii) PCL&P’s receipt of written notice from O&R that O&R has drawn upon the PCL&P L/C and the amount of the PCL&P L/C remaining for drawing upon is less than the then applicable Required Amount (in cases where O&R previously has drawn upon the PCL&P L/C). Decreases (i.e., because the Required Amount has decreased) in the amount of the PCL&P L/C remaining for drawing upon by O&R to a level equal to the then applicable Required Level shall be made by PCL&P furnishing to O&R a Substitute PCL&P L/C that accomplishes such decrease and O&R countersigning such Substitute PCL&P L/C.
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(c) If at any time prior to the Permitted Expiry, (i) the PCL&P L/C has an expiration date that is earlier than the Permitted Expiry, PCL&P shall cause to be provided to O&R, at least twenty (20) Business Days prior to the expiration date of the PCL&P L/C, a Substitute PCL&P L/C containing an expiration date that is at least ninety (90) days later than the expiration date of the PCL&P L/C that it is amending or replacing, or (ii) the credit rating of the bank issuing the PCL&P L/C falls below the level specified in the “L/C Requirements” (as defined below) or such bank repudiates its obligations under, or fails to honor or pay against, the PCL&P L/C, PCL&P, within five (5) Business Days after receipt of written notice from O&R requesting a Substitute L/C, shall cause to be furnished to O&R a Substitute PCL&P L/C, issued by different bank, that replaces such PCL&P L/C. Promptly following O&R’s receipt of a Substitute PCL&P L/C that replaces (as distinguished from one that amends) a PCL&P L/C, O&R shall return to PCL&P the PCL&P L/C that has been replaced.
(d) Should PCL&P fail to cause a Substitute PCL&P L/C to be furnished to O&R within the time specified in, and as otherwise required by, this Agreement, including under circumstances where (a) the credit rating of the bank issuing the PCL&P L/C that is to be replaced by the Substitute PCL&P L/C falls below the level specified in the L/C Requirements, (b) the bank issuing the PCL&P L/C that is to be replaced by the Substitute PCL&P L/C repudiates its obligations under, or fails to honor or pay against, the PCL&P L/C, (c) the expiration date of the PCL&P L/C to be extended by the Substitute PCL&P L/C is required to be extended, or (d) the amount of the PCL&P L/C remaining available to O&R for drawing upon is required to be increased by the Substitute PCL&P L/C, then O&R, in addition to and not in lieu of any other rights and remedies available to it, including termination of this Agreement, shall be entitled to draw upon the entire remaining amount of the PCL&P L/C. The parties agree that, for purposes of O&R making such a drawing, O&R may make any certification or statement required to be submitted in order to effectuate such drawing, including that the amount of the drawing is owed to O&R pursuant to this Agreement. Should O&R exercise its rights under this Section 4(d) to draw down the entire remaining amount of the PCL&P L/C, the cash obtained as a result of such drawing shall be deemed to be the Cash Security (the amount of which is subject to increase or decrease in accordance with this Agreement), with O&R having the right to draw upon such Cash Security as otherwise permitted by this Agreement with respect to the Cash Security.
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(e) At all times during the period from the execution of this Agreement to the Permitted Expiry, any PCL&P L/C (which includes any Substitute PCL&P L/C) that PCL&P utilizes to satisfy the then applicable Required Amount must satisfy the L/C Requirements. To the fullest extent permitted by law, (i) O&R shall not be required to keep any Cash Security in a separate account, but rather, shall be entitled to use, possess, invest, commingle, assign, sell, or pledge such cash security deposit in any way it sees fit free from any claim or right of any nature whatsoever, including any right of redemption, and (ii) any interest, return on investment, or other result of O&R’s use, investment, commingling, assignment, sale or pledge of such Cash Security shall be the sole property of O&R and shall not be furnished to PCL&P at any time; provided, however, that, assuming the Cash Security is then in the Required Amount and PCL&P is not then in breach of this Agreement, PCL&P shall be entitled to apply the Cash Security to payment in whole or in part of the final Invoice received by PCL&P pursuant to Section 1(e) of this Agreement and, provided, further, that promptly following the occurrence of the Permitted Expiry O&R shall return to PCL&P any balance of the Cash Security then remaining.
(f) As used in this Agreement: “L/C Requirements” means an irrevocable, transferable, standby letter of credit issued by a major U.S. commercial bank or the U.S. branch office of a foreign bank, which, in either case, has counters for presentment and payment located in the City of New York and a credit rating (i.e., the rating then assigned to such entity’s unsecured, senior long-term debt obligations not supported by third party credit enhancements, or if such entity does not have a rating for its senior unsecured long-term debt, then the rating then assigned to such entity as an issuer rating) of at least (i) “A-” by Standard and Poor’s Rating Group (a division of McGraw-Hill, Inc.) or its successor (“S&P”) and “A3” by Moody’s Investor Services, Inc. or its successor (“Moody’s”), if such entity is rated by both S&P and Moody’s or (ii) “A-” by S&P or “A3” by Moody’s, if such entity is rated by either S&P or Moody’s, but not both, and which letter of credit is in a form reasonably acceptable to O&R, including, but not limited to, drawings being permitted solely upon a statement from O&R that the amount of the drawing is owed to O&R pursuant to this Agreement; “Permitted Expiry” means the date that is six (6) months after the end of the Term referenced in Section 1(a) as such Term may be extended in accordance with Section 1(b) or earlier terminated in accordance with Section 5, provided, however, that if, as of such date, there are then outstanding, or in O&R’s good faith judgment reasonable grounds then exist for any future, suits, actions, causes of action, claims, liabilities, losses, damages, costs, and expenses that are, or reasonably would be, the subject of PCL&P’s defense, indemnification and hold harmless obligations pursuant to Section 2 then Permitted Expiry shall mean the later date on which such suits, actions, causes of action, claims, liabilities, losses, damages, costs, and expenses are fully and finally resolved and PCL&P’s obligations pursuant to Section 2 with respect thereto are fully and finally performed; and “Substitute PCL&P L/C” means an amendment to, or a replacement of, the PCL&P L/C or a prior Substitute PCL&P L/, as applicable.
| 5. | Termination |
Notwithstanding anything to the contrary in this Agreement, either Party may terminate this Agreement upon at least thirty (30) days written notice to the other Party of a material breach of this Agreement by such other Party that is not cured within thirty (30) days after receipt of such notice; provided, however, that O&R may terminate this Agreement upon at least five (5) days following written notice by O&R to PCL&P of its failure to make payment pursuant to Section 1(e) and PCL&P not curing such breach within five (5) days following receipt of such notice and O&R may terminate this Agreement immediately upon written notice to PCL&P of its failure to timely perform its obligations pursuant to Section 4.
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| 6. | Effective Time |
This Agreement shall be effective upon the commencement of the Term.
| 7. | Right to Audit |
For a period of twelve (12) months after PCL&P receives an Invoice from O&R for providing the Electric Supply Service, PCL&P or a nationally recognized accounting firm retained by PCL&P that is reasonably acceptable to O&R shall be provided, following O&R’s receipt of reasonable advance written notice from PCL&P, reasonable access to and the right to audit (at PCL&P’s cost and expense) during normal business hours, O&R’s books and records principally relating to the provision of Electric Supply Service for which such Invoice was submitted; provided, however, that any such access and audit shall be subject to Section 3.
| 8. | Notices |
All notices, requests, demands, claims and other communications (including Invoices) hereunder shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by courier service, by fax or by registered or certified mail (postage prepaid, return receipt requested) to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 8):
if to O&R:
Orange and Rockland Utilities, Inc.
390 West Route 59
Spring Valley, NY 10977
Attention: Francis Peverly
Fax: (845) 577-3074
if to PCL&P:
Pike County Light & Power Company
c/o Corning Natural Gas Holding Corporation
330 West William Street
Corning, New York 14830
Attention: Michael I. German
Fax: (607) 962-2844
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| 9. | Independent Contractor |
In providing the Electric Supply Service, O&R shall be an independent contractor, and not an agent, of PCL&P or its Affiliates and the employees or O&R, its Affiliates or the Contractors who assist or have a role in O&R providing the Electric Supply Service shall not be considered employees or contractors of PCL&P or its Affiliates.
| 10. | Assignment |
Neither this Agreement nor the rights or obligations of either Party hereunder may be assigned or delegated in whole or in part by either Party without the prior written consent of the other Party; provided, however, that O&R may assign its rights or delegate its obligations under this Agreement in whole or in part to any Affiliate of O&R that, in O&R’s judgment, has the resources, capabilities and personnel necessary to fulfill O&R’s obligations under this Agreement without the consent of PCL&P.
| 11. | No Third Party Beneficiaries |
This Agreement shall be binding upon and inure solely to the benefit of the Parties hereto and their successors and permitted assigns and, except for the protections and benefits extended to O&R Protected Parties pursuant to Section 2, nothing herein, express or implied, is intended to or shall confer upon any other Person, including, without limitation, any union or any employee or Contractor or former employee or Contractor of O&R or its Affiliates, any legal or equitable right, benefit or remedy of any nature whatsoever, including, without limitation, any rights of employment for any specified period, under or by reason of this Agreement.
| 12. | Entire Agreement |
This Agreement constitutes the entire agreement between the Parties with respect to the subject matter hereof and supersedes all other prior agreements and understandings, oral or written, between the Parties with respect to the subject matter hereof.
| 13. | Amendment |
This Agreement, including the Exhibits, may not be amended or modified except by a written instrument signed by or on behalf of each of O&R and PCL&P.
| 14. | Administration |
Each of O&R and PCL&P shall appoint one representative as its primary point of operational contact for the administration and operation of this Agreement (the “Contact Managers”). The Contact Managers will have overall responsibility for coordinating, on behalf of O&R or PCL&P, as applicable, actions taken with respect to providing the Electric Supply Service, including handling any disputes that may arise in connection therewith.
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| 15. | Waiver |
Either Party may waive compliance with any of the obligations of the other Party hereunder; provided, however, that (i) any such waiver shall be valid only if set forth in an instrument in writing and signed by the Party granting the waiver, (ii) any waiver of any provision of this Agreement shall not be construed as a waiver of any subsequent breach or a subsequent waiver of the same provision, or a waiver of any other provision of this Agreement. The failure of any Party to assert any of its rights hereunder shall not constitute a waiver of any such rights.
| 16. | Severability |
If any provision of this Agreement is invalid, illegal or incapable of being enforced by any law or public policy, all other provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any Party. Upon such determination that any provision is invalid, illegal or incapable of being enforced, the Parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby are consummated as originally contemplated to the greatest extent possible.
| 17. | Counterparts |
This Agreement may be executed in one or more counterparts, and by the different Parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement.
| 18. | Specific Performance |
The Parties hereto acknowledge and agree that remedies at law would be an inadequate remedy for the breach of any provision contained herein and that in addition thereto, the Parties hereto shall be entitled to specific performance of the provisions hereof or other equitable remedies in the event of any such breach.
| 19. | Governing Law |
This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts executed in and to be performed in that State, without giving effect to any conflict or choice of law provision or principle that would result in the application of another state’s laws.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.
ORANGE AND ROCKLAND UTILITIES, INC
By:
Name:
Title:
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PIKE COUNTY LIGHT & POWER COMPANY
By:
Name:
Title:
EXHIBIT A
TO
ELECTRIC SUPPLY AGREEMENT
The price that O&R shall charge PCL&P for the Electric Supply Service provided pursuant to this Agreement shall be calculated on a monthly basis and be comprised of the sum of the following three components:
| (i) | Supply Cost – PCL&P’s load-based allocated portion [i.e., PCL&P’s load ÷ sum of O&R’s (including Rockland Electric Company’s) NYISO Zone G load and PCL&P’s NYISO Zone G load)] of O&R’s monthly NYISO charges for energy, capacity and any and all other NYISO charges for the applicable month, which shall be subject to subsequent NYISO true-ups. The supply provided to PCL&P’s electric customers is measured by meters at or in the vicinity of the New York/Pennsylvania border, including through metering at or in the vicinity of O&R’s Port Jervis substation. The supply to O&R’s and Rockland Electric Company’s customers is measured by interchange metering at all supply points that are recorded and reconciled monthly with the NYISO/PJM. (Transmission losses are allocated to each jurisdiction based on a ratio of the total system transmission losses to the energy metered for each jurisdiction); and |
| (ii) | Carrying Cost – To reflect O&R’s cost of maintaining and operating the physical infrastructure of O&R required to deliver electric supply to PCL&P, the monthly carrying cost component that shall be charged to PCL&P is as follows: |
$48,973 per month for each month of the first twelve months of the Term
$51,422 per month for each month of the second twelve months of the Term
$53,993 per month for each month of the third twelve months of the Term
$56,692 per month for each month of the fourth twelve months of the Term if PCL&P so extends the Term in accordance with this Agreement
$59,527 per month for each month of the fifth twelve months of the Term if PCL&P so extends the Term in accordance with this Agreement
$62,503 per month for each month of the sixth twelve months of the Term if PCL&P so extends the Term in accordance with this Agreement; and
| (iii) | Service Fee –The monthly service fee component that shall be charged to PCL&P is as follows: |
$2,250 per month for each month of the first twelve months of the Term
$2,363 per month for each month of the second twelve months of the Term
$2,481 per month for each month of the third twelve months of the Term
$2,606 per month for each month of the fourth twelve months of the Term if PCL&P so extends the Term in accordance with this Agreement
$2,737 per month for each month of the fifth twelve months of the Term if PCL&P so extends the Term in accordance with this Agreement
$2,874 per month for each month of the sixth twelve months of the Term if PCL&P so extends the Term in accordance with this Agreement.
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Exhibit B
Form of Gas Agreement
[Form of agreement follows]
GAS SUPPLY AND GAS TRANSPORTATION AGREEMENT
GAS SUPPLY AND GAS TRANSPORTATION AGREEMENT, dated as of __________, 20__ (this “Agreement”), between Orange and Rockland Utilities, Inc., a New York corporation (“O&R”), and Pike County Light & Power Company, a Pennsylvania corporation (“PCL&P”) (O&R and PCL&P are sometimes referred to herein individually as a “Party” and collectively as the “Parties”).
WHEREAS, O&R and Coming Natural Gas Holding Corporation (“Corning”) have entered into a Stock Purchase Agreement, dated as of October 13, 2015 (the “SPA”), pursuant to which O&R agreed to sell to Coming and Corning agreed to purchase from O&R all of the issued and outstanding shares of PCL&P, all as more particularly set forth in the SPA (capitalized terms used and not otherwise defined herein have the meanings ascribed to them in the SPA; provided, however, that when reference is made in this Agreement to any Section or Exhibit, such reference is to a Section or Exhibit of this Agreement unless otherwise indicated); and
WHEREAS, from and after the Closing, O&R is willing to provide, or cause to be provided, the transitional gas supply and gas transportation requirements of PCL&P on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual agreements and covenants hereinafter set forth, O&R and PCL&P hereby agree as follows:
| 1. | Provision of Transitional Requirements; Term; Payment |
(a) O&R agrees to provide, or to cause its Affiliates and/or third-party contractors, subcontractors or other service providers or suppliers (collectively, the “Contractors”) to provide, to PCL&P the supply of gas and gas transportation for PCL&P to serve its gas customers (the “Gas Supply and Transportation Service”) for a period (the “Term”) commencing on the Closing and ending on the date that is thirty-six (36) months after the Closing, subject to extending the Term in accordance with Section 1(b) and to earlier termination in accordance with Section 5.
(b) Within thirty (30) days after the first annual anniversary date of this Agreement, PCL&P may elect, by written notice to O&R, to extend the Term for an additional twelve (12) months. If PCL&P elects this first optional extension, PCL&P may then elect, within thirty (30) days after the second annual anniversary date of this Agreement, to extend the extended Term for an additional twelve (12) months. If PCL&P elects this second optional extension, PCL&P may then elect, within thirty (30) days after the third annual anniversary date of this Agreement, to extend the extended Term for an additional twelve (12) months.
(c) O&R shall provide, or shall cause its Affiliates and/or the Contractors to provide, the Gas Supply and Transportation Service pursuant to this Agreement in a manner consistent with, and with a level of care no less than, the manner and level of care with which such Gas Supply and Transportation Service was previously provided by O&R, its Affiliates and/or the Contractors to PCL&P during the twelve (12) month period immediately prior to the Closing.
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(d) The Parties acknowledge the transitional nature of O&R providing the Gas Supply and Transportation Service hereunder and agree to cooperate in good faith to effectuate a smooth transition to PCL&P of the Gas Supply and Transportation Service furnished hereunder; provided, however, that O&R, its Affiliates and the Contractors shall have no obligation to incur any expense, including, without limitation, in connection with constructing, installing, replacing, modifying operating, or maintaining any facilities or infrastructure, in connection with such transition (it being understood that this proviso does not affect O&R’s obligations, during the Term, to operate and maintain O&R facilities or O&R infrastructure in a manner sufficient to provide the Gas Supply and Transportation Service pursuant to the terms and conditions hereof).
(e) PCL&P shall pay O&R an amount for the Gas Supply and Transportation Service that is calculated in accordance with the methodology set forth in the Exhibit A attached hereto. Each written invoice (each, an “Invoice”) that O&R prepares with respect to the Gas Supply and Transportation Service provided during the Term shall specify the amount and price of the Gas Supply and Transportation Service and the period during which it was provided (it being understood and agreed that the “Supply Cost” portion, as described in Exhibit A attached hereto, of each Invoice shall be subject to subsequent invoices for additional amounts (or credits) reflecting subsequent true-ups from interstate pipeline providers and gas commodity providers relating to the period at issue). PCL&P shall pay each Invoice, by the method specified in the Invoice, no later than ten (10) days after PCL&P’s receipt of the Invoice. All Invoices sent by O&R hereunder shall be sent to the following address:
Pike County Light & Power Company
c/o Corning Natural Gas Holding Corporation
330 West William Street
Corning, New York 14830
Attention: Michael I. German
Fax: (607) 962-2844
| 2. | Limitation of Liability; Release; Waiver; Indemnification; Insurance |
(a) To the fullest extent permitted by law, PCL&P hereby releases and discharges O&R, its Affiliates, the Contractors, and O&R’s, its Affiliates’ and the Contractors’ respective directors, trustees, officers, employees, agents, successors, and assigns (collectively, the “O&R Protected Parties”) from, waives against the O&R Protected Parties, and agrees to defend, indemnify and hold the O&R Protected Parties harmless from and against, any and all suits, actions, causes of action, claims, liabilities, losses, damages, costs, and expenses (including court costs and reasonable attorney’s fees) arising from or relating to providing the Gas Supply and Transportation Service or any failure to provide or delay in providing the Gas Supply and Transportation Service, except to the extent that such suits, actions, causes of action, claims, liabilities, losses, damages, costs and expenses arise from the willful misconduct of the O&R Protected Parties.
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(b) Without limiting the provisions of Section 2(a) immediately above, to the fullest extent permitted by law, PCL&P hereby releases and discharges the O&R Protected Parties from, waives against the O&R Protected Parties, and agrees to defend, indemnify and hold the O&R Protected Parties harmless from and against, any and all suits, actions, causes of action, claims, and liabilities for (and court costs and reasonable attorney’s fees in connection with) any and all special, indirect, incidental, consequential, and punitive damages, including but not limited to damage, loss, liability, costs, and expenses resulting from loss of use, loss of business or business opportunities, loss of profits or revenue, costs of capital, loss of goodwill, cost of purchased or replacement gas supply and transportation, and any like items of special, indirect, incidental, or consequential loss and damage, arising from or relating to providing the Gas Supply and Transportation Service or any failure to provide or delay in providing the Gas Supply and Transportation Service.
(c) Subject to the other limitation of liability provisions in this Agreement, in no event shall the cumulative liability of the O&R Protected Parties relating to or arising from providing any Gas Supply and Transportation Service exceed the payment received by O&R hereunder with respect to providing such Gas Supply and Transportation Service.
(d) PCL&P shall procure and maintain (or cause its parent Company, Coming Natural Gas Holding Corporation, to procure and maintain for the benefit of PCL&P) the following insurance during the Term and until any and all Gas Supply and Transportation Service has been fully and completely performed: Comprehensive (also called Commercial) General Liability Insurance, including Contractual Liability coverage, with limits of at least $5,000,000 per occurrence for bodily injury or death and $1,000,000 per occurrence for property damage or a combined single limit of at least $5,000,000 (such insurance shall contain an “occurrence” and not a “claims made” determinant of coverage, shall name the O&R Protected Parties as additional insureds and contain a waiver of subrogation claims against the O&R Protected Parties, and shall not contain an exclusion for claims by PCL&P’s or its contractor’s or subcontractor’s employees against the O&R Protected Parties or any of them based on injury to or the death of such employees). Such insurance may be satisfied through the combination of a primary or underlying policy and an excess policy and it is understood and agreed that, so long as PCL&P complies at all times with the minimum per occurrence amounts and other insurance requirements specified above in this Agreement, in Section 2(d) of the Electric Supply Agreement of even date herewith between O&R and PCL&P (the “Electric Agreement”), and in Section 2(d) of the of the Transition Services Agreement of even date herewith between O&R and PCL&P (the “Transition Services Agreement”), PCL&P need not procure and maintain (or cause its parent Company, Corning Natural Gas Holding Corporation, to procure and maintain for the benefit of PCL&P) (i) separate insurance policies for each of this Agreement, the Electric Agreement, and the Transition Services Agreement or (ii) insurance policies with per occurrence limits that equal or exceed the sum of (A) the minimum per occurrence amounts specified above in this Agreement, plus (B) the minimum per occurrence amounts specified in Section 2(d) of the Electric Agreement and/or (C) the minimum per occurrence amounts specified in Section 2(d) of the Transition Services Agreement.
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| 3. | Confidentiality |
Each Party hereby acknowledges that the teams of this Agreement (the “Information”) are confidential. Each Party agrees to, and shall cause its agents, representatives, Affiliates, employees, officers, directors and trustees to: (i) treat and hold as confidential (and not disclose or provide access to any Person to) the Information, (ii) in the event that a Party or any of its agents, representatives, Affiliates, employees, officers, directors or trustees becomes legally required to disclose any of the Information, provide such other Party (the “Non-Compelled Party”) with prompt written notice of such requirement so that the Non-Compelled Party may seek a protective order or other remedy or waive compliance with this Section 3, and (iii) in the event that such protective order or other remedy is not sought or obtained, or the Non-Compelled Party waives compliance with this Section 3, furnish only those portions of the Information which are legally required to be provided and exercise commercially reasonable efforts to obtain assurances that confidential treatment will be accorded such Information. This Section 3 shall not apply to Information that, at the time of disclosure, is available publicly and was not disclosed in breach of this Agreement.
| 4. | Security for PCL&P’s Performance |
(a) Simultaneously with the execution of this Agreement, PCL&P, as security for PCL&P’s performance of its obligations hereunder (including, but not limited to PCL&P’s obligations pursuant to Section 1(e) and Section 2), shall furnish cash security (the “Cash Security”) or cause a letter of credit (such letter of credit, as amended or replaced from time to time by a “Substitute PCL&P LC” (as defined below), the “PCL&P L/C”) to be furnished to O&R in the amount of $373,330 (the “Initial Amount”); provided, however, that following PCL&P’s receipt of the first Invoice and thereafter following PCL&P’s receipt of each subsequent Invoice pursuant to Section 1(e), the Initial Amount shall be subject to increase or decrease in accordance with this Section 4(a) and Section 4(b). During the period from the execution of this Agreement to immediately before the first such increase or decrease, PCL&P shall cause the amount of the Cash Security or the PCL&P L/C, as applicable, that remains available for drawing upon by O&R to be in an amount equal to the Initial Amount and during the period from the first such increase or decrease to the “Permitted Expiry” (as defined below), PCL&P, subject to exercising its right pursuant to the first proviso in Section 4(e), shall cause the amount of the Cash Security or the PCL&P L/C, as applicable, that remains available for drawing upon by O&R to be in an amount that is not less than twice the amount of the most recent Invoice sent by O&R to PCL&P pursuant to Section 1(e) (the Initial Amount, subject to such increase or decrease, the “Required Amount”). To the extent that PCL&P fails to timely perform its obligations hereunder, O&R, in addition to and not in lieu of any other rights and remedies available to it, including termination of this Agreement pursuant to Section 5, may draw upon the Cash Security or PCL&P L/C, as applicable, to satisfy, in whole or in part, such obligations.
(b) Increases (i.e., because the Required Amount has increased or the Cash Security previously has been drawn upon by O&R) in the amount of the Cash Security remaining for drawing upon by O&R that are necessary to satisfy the then applicable Required Amount shall be made by PCL&P furnishing the applicable amount of cash to O&R within five (5) Business Days after (i) PCL&P’s receipt of the Invoice pursuant to Section 1(e) that results in an increase in the Required Amount (in cases where the Required Amount increases due to such Invoice), or (ii) PCL&P’s receipt of written notice from O&R that O&R has drawn on the Cash Security and the amount of the Cash Security remaining for drawing upon by O&R is less than the then applicable Required Amount (in cases where O&R previously has drawn upon the Cash Security). Decreases (i.e., because the Required Amount has decreased) in the amount of the Cash Security remaining for drawing upon by O&R to a level equal to the then applicable Required Amount shall be made by O&R returning the applicable amount of cash to PCL&P within five (5) Business Days after O&R’ s receipt of PCL&P’s written request to return the amount of Cash Security that is in excess of the then applicable Required Amount. Cash furnished to O&R or PCL&P shall be by wire transfer to an account specified by the party that is to receive the cash. Increases (i.e., because the Required Amount has increased or the PCL&P L/C previously has been drawn upon by O&R) in the amount of the PCL&P L/C remaining for drawing upon by O&R that are necessary to satisfy the then applicable Required Amount shall be made by PCL&P furnishing to O&R a Substitute PCL&P L/C within five (5) Business Days after (i) PCL&P’s receipt of the Invoice pursuant to Section 1(e) that results in an increase in the Required Amount (in cases where the Required Amount increases due to such Invoice), or (ii) PCL&P’s receipt of written notice from O&R that O&R has drawn upon the PCL&P L/C and the amount of the PCL&P L/C remaining for drawing upon is less than the then applicable Required Amount (in cases where O&R previously has drawn upon the PCL&P L/C). Decreases (i.e., because the Required Amount has decreased) in the amount of the PCL&P L/C remaining for drawing upon by O&R to a level equal to the then applicable Required Level shall be made by PCL&P furnishing to O&R a Substitute PCL&P L/C that accomplishes such decrease and O&R countersigning such Substitute PCL&P L/C.
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(c) If at any time prior to the Permitted Expiry, (i) the PCL&P L/C has an expiration date that is earlier than the Permitted Expiry, PCL&P shall cause to be provided to O&R, at least twenty (20) Business Days prior to the expiration date of the PCL&P L/C, a Substitute PCL&P L/C containing an expiration date that is at least ninety (90) days later than the expiration date of the PCL&P L/C that it is amending or replacing, or (ii) the credit rating of the bank issuing the PCL&P L/C falls below the level specified in the “L/C Requirements” (as defined below) or such bank repudiates its obligations under, or fails to honor or pay against, the PCL&P L/C, PCL&P, within five (5) Business Days after receipt of written notice from O&R requesting a Substitute L/C, shall cause to be furnished to O&R a Substitute PCL&P L/C, issued by different bank, that replaces such PCL&P L/C. Promptly following O&R’s receipt of a Substitute PCL&P L/C that replaces (as distinguished from one that amends) a PCL&P L/C, O&R shall return to PCL&P the PCL&P L/C that has been replaced.
(d) Should PCL&P fail to cause a Substitute PCL&P L/C to be furnished to O&R within the time specified in, and as otherwise required by, this Agreement, including under circumstances where (a) the credit rating of the bank issuing the PCL&P L/C that is to be replaced by the Substitute PCL&P L/C falls below the level specified in the L/C Requirements, (b) the bank issuing the PCL&P L/C that is to be replaced by the Substitute PCL&P L/C repudiates its obligations under, or fails to honor or pay against, the PCL&P L/C, (c) the expiration date of the PCL&P L/C to be extended by the Substitute PCL&P L/C is required to be extended, or (d) the amount of the PCL&P L/C remaining available to O&R for drawing upon is required to be increased by the Substitute PCL&P L/C, then O&R, in addition to and not in lieu of any other rights and remedies available to it, including termination of this Agreement, shall be entitled to draw upon the entire remaining amount of the PCL&P L/C. The parties agree that, for purposes of O&R making such a drawing, O&R may make any certification or statement required to be submitted in order to effectuate such drawing, including that the amount of the drawing is owed to O&R pursuant to this Agreement. Should O&R exercise its rights under this Section 4(d) to draw down the entire remaining amount of the PCL&P L/C, the cash obtained as a result of such drawing shall be deemed to be the Cash Security (the amount of which is subject to increase or decrease in accordance with this Agreement), with O&R having the right to draw upon such Cash Security as otherwise permitted by this Agreement with respect to the Cash Security.
(e) At all times during the period from the execution of this Agreement to the Permitted Expiry, any PCL&P L/C (which includes any Substitute PCL&P L/C) that PCL&P utilizes to satisfy the then applicable Required Amount must satisfy the L/C Requirements. To the fullest extent permitted by applicable law, (i) O&R shall not be required to keep any Cash Security in a separate account, but rather, shall be entitled to use, possess, invest, commingle, assign, sell, or pledge such cash security deposit in any way it sees fit free from any claim or right of any nature whatsoever, including any right of redemption, and (ii) any interest, return on investment, or other result of O&R’s use, investment, commingling, assignment, sale or pledge of such Cash Security shall be the sole property of O&R and shall not be furnished to PCL&P at any time; provided, however, that, assuming the Cash Security is then in the Required Amount and PCL&P is not then in breach of this Agreement, PCL&P shall be entitled to apply the Cash Security to payment in whole or in part of the final Invoice received by PCL&P pursuant to Section 1(e) of this Agreement and, provided, further, that promptly following the occurrence of the Permitted Expiry O&R shall return to PCL&P any balance of the Cash Security then remaining.
(f) As used in this Agreement: “L/C Requirements” means an irrevocable, transferable, standby letter of credit issued by a major U.S. commercial bank or the U.S. branch office of a foreign bank, which, in either case, has counters for presentment and payment located in the City of New York and a credit rating (i.e., the rating then assigned to such entity’s unsecured, senior long-term debt obligations not supported by third party credit enhancements, or if such entity does not have a rating for its senior unsecured long-term debt, then the rating then assigned to such entity as an issuer rating) of at least (i) “A-” by Standard and Poor’s Rating Group (a division of McGraw-Hill, Inc.) or its successor (“S&P”) and “A3” by Moody’s Investor Services, Inc. or its successor (“Moody’s”), if such entity is rated by both S&P and Moody’s or (ii) “A-” by S&P or “A3” by Moody’s, if such entity is rated by either S&P or Moody’s, but not both, and which letter of credit is in a form reasonably acceptable to O&R, including, but not limited to, drawings being permitted solely upon a statement from O&R that the amount of the drawing is owed to O&R pursuant to this Agreement; “Permitted Expiry” means the date that is six (6) months after the end of the Term referenced in Section 1(a) as such Term may be extended in accordance with Section 1(b) or earlier terminated in accordance with Section 5, provided, however, that if, as of such date, there are then outstanding, or in O&R’s good faith judgment reasonable grounds then exist for any future, suits, actions, causes of action, claims, liabilities, losses, damages, costs, and expenses that are, or reasonably would be, the subject of PCL&P’s defense, indemnification and hold harmless obligations pursuant to Section 2 then Permitted Expiry shall mean the later date on which such suits, actions, causes of action, claims, liabilities, losses, damages, costs, and expenses are fully and finally resolved and PCL&P’s obligations pursuant to Section 2 with respect thereto are fully and finally performed;and “Substitute PCL&P L/C” means an amendment to, or a replacement of, the PCL&P L/C or a prior Substitute PCL&P L/, as applicable.
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| 5. | Termination |
Notwithstanding anything to the contrary in this Agreement, either Party may terminate this Agreement thirty (30) days following written notice to the other Party of a material breach of this Agreement by such other Party that is not cured within such thirty (30) day period; provided, however, that O&R may terminate this Agreement upon at least five (5) days following written notice by O&R to PCL&P of its failure to make payment pursuant to Section 1(e) and PCL&P not curing such breach within five (5) days following receipt of such notice and O&R may terminate this Agreement immediately upon written notice to PCL&P of its failure to timely perform its obligations pursuant to Section 4.
| 6. | Effective Time |
This Agreement shall be effective upon the commencement of the Term.
| 7. | Right to Audit |
For a period of twelve (12) months after PCL&P receives an Invoice from O&R for providing the Gas Supply and Transportation, PCL&P or a nationally recognized accounting firm retained by PCL&P that is reasonably acceptable to O&R shall be provided, following O&R’s receipt of reasonable advance written notice from PCL&P, reasonable access to and the right to audit (at PCL&P’s cost and expense) during normal business hours, O&R’s books and records principally relating to the provision of the Gas Supply and Transportation Service for which such Invoice was submitted; provided, however, that any such access and audit shall be subject to Section 3.
| 8. | Notices |
All notices, requests, demands, claims and other communications (including Invoices) hereunder shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by courier service, by fax or by registered or certified mail (postage prepaid, return receipt requested) to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 8):
if to O&R:
Orange and Rockland Utilities, Inc.
390 West Route 59
Spring Valley, NY 10977
Attention: Francis Peverly
Fax: (845) 577-3074
if to PCL&P:
Pike County Light & Power Company
c/o Coming Natural Gas Holding Corporation
330 West William Street
Coming, New York 14830
Attention: Michael I. German
Fax: (607) 962-2844
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| 9. | Independent Contractor |
In providing the Gas Supply and Transportation Service, O&R shall be an independent contractor, and not an agent, of PCL&P or its Affiliates and the employees of O&R, its Affiliates or the Contractors who assist or have a role in O&R providing the Gas Supply and Transportation Service shall not be considered employees, agents or contractors of PCL&P or its Affiliates.
| 10. | Assignment |
Neither this Agreement nor the rights or obligations of either Party hereunder may be assigned or delegated in whole or in part by either Party without the prior written consent of the other Party; provided, however, that O&R may assign its rights and delegate its obligations under this Agreement in whole or in part to any Affiliate of O&R that, in O&R’s judgment, has the resources, capabilities and personnel necessary to fulfill O&R’s obligations under this Agreement without the consent of PCL&P.
| 11. | No Third Party Beneficiaries |
This Agreement shall be binding upon and inure solely to the benefit of the Parties hereto and their successors and permitted assigns and, except for the protections and benefits extended to O&R Protected Parties pursuant to Section 2, nothing herein, express or implied, is intended to or shall confer upon any other Person, including, without limitation, any union or any employee or Contractor or former employee or Contractor of O&R or its Affiliates, any legal or equitable right, benefit or remedy of any nature whatsoever, including, without limitation, any rights of employment for any specified period, under or by reason of this Agreement.
| 12. | Entire Agreement |
This Agreement constitutes the entire agreement between the Parties with respect to the subject matter hereof and supersedes all other prior agreements and understandings, oral or written, between the Parties with respect to the subject matter hereof.
| 13. | Amendment |
This Agreement, including the Exhibits, may not be amended or modified except by a written instrument signed by or on behalf of each of O&R and PCL&P.
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| 14. | Administration |
Each of O&R and PCL&P shall appoint one representative as its primary point of operational contact for the administration and operation of this Agreement (the “Contact Managers”). The Contact Managers will have overall responsibility for coordinating, on behalf of O&R or PCL&P, as applicable, actions taken with respect to providing the Gas Supply and Transportation Service, including handling any disputes that may arise in connection therewith.
| 15. | Waiver |
Either Party to this Agreement may waive compliance with any of the obligations of the other Party hereunder; provided, however, that (i) any such waiver shall be valid only if set forth in an instrument in writing and signed by the Party granting the waiver, (ii) any waiver of any provision of this Agreement shall not be construed as a waiver of any subsequent breach or a subsequent waiver of the same provision, or a waiver of any other provision of this Agreement. The failure of any Party to assert any of its rights hereunder shall not constitute a waiver of any such rights.
| 16. | Severability |
If any provision of this Agreement is invalid, illegal or incapable of being enforced by any law or public policy, all other provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any Party. Upon such determination that any provision is invalid, illegal or incapable of being enforced, the Parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby are consummated as originally contemplated to the greatest extent possible.
| 17. | Counterparts |
This Agreement may be executed in one or more counterparts, and by the different Parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement.
| 18. | Specific Performance |
The Parties hereto acknowledge and agree that remedies at law would be an inadequate remedy for the breach of any provision contained herein and that in addition thereto, the Parties hereto shall be entitled to specific performance of the provisions hereof or other equitable remedies in the event of any such breach.
| 19. | Governing Law |
This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts executed in and to be performed in that State, without giving effect to any conflict or choice of law provision or principle that would result in the application of another state’s laws.
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IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.
ORANGE AND ROCKLAND UTILITIES, INC
By:
Name:
Title:
PIKE COUNTY LIGHT & POWER COMPANY
By:
Name:
Title:
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EXHIBIT A
TO
GAS SUPPLY AND GAS TRANSPORTATION AGREEMENT
The price that O&R shall charge PCL&P for the Gas Supply and Transportation provided pursuant to this Agreement shall be calculated on a monthly basis and be comprised of the sum of the following three components:
| (i) | Supply Cost – PCL&P’s allocated portion [i.e., usage of PCL&P’s gas customers ± sum of usage of O&R’s gas customers and PCL&P’s gas customers] of the cost of (a) interstate pipeline demand charges to O&R and/or its Affiliates based on weighted average cost of O&R’s/its Affiliate’s portfolio of interstate pipeline providers, and (b) monthly gas commodity charges for gas delivered to O&R/its Affiliates for the applicable month, each of which shall be subject to subsequent interstate pipeline provider and gas commodity provider true-ups. The usage of PCL&P’s gas customers will be measured by metering at an O&R metering and regulation station located in Port Jervis; and |
| (ii) | Carrying Cost –To reflect O&R’s cost of maintaining and operating the physical infrastructure of O&R required to deliver gas to PCL&P, the monthly carrying cost component that shall be charged to PCL&P is as follows: |
$15,250 per month for each month of the first twelve months of the Term
$16,013 per month for each month of the second twelve months of the Term
$16,814 per month for each month of the third twelve months of the Term
$17,655 per month for each month of the fourth twelve months of the Term if PCL&P so extends the Term in accordance with this Agreement
$18,538 per month for each month of the fifth twelve months of the Term if PCL&P so extends the Term in accordance with this Agreement
$19,465 per month for each month of the sixth twelve months of the Term if PCL&P so extends the Term in accordance with this Agreement; and
| (iii) | Service Fee – The monthly service fee component that shall be charged to PCL&P is as follows: |
$2,250 per month for each month of the first twelve months of the Term
$2,363 per month for each month of the second twelve months of the Term
$2,481 per month for each month of the third twelve months of the Term
$2,606 per month for each month of the fourth twelve months of the Term if PCL&P so extends the Term in accordance with this Agreement
$2,737 per month for each month of the fifth twelve months of the Term if PCL&P so extends the Term in accordance with this Agreement
$2,874 per month for each month of the sixth twelve months of the Term if PCL&P so extends the Term in accordance with this Agreement.
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Exhibit C
Form of Transition Services Agreement
[Form of agreement follows]
TRANSITION SERVICES AGREEMENT
TRANSITION SERVICES AGREEMENT, dated as of __________, 20__ (this “Agreement”), between Orange and Rockland Utilities, Inc., a New York corporation (“O&R”), and Pike County Light & Power Company, a Pennsylvania corporation (“PCL&P”) (O&R and PCL&P are sometimes referred to herein individually as a “Party” and collectively as the “Parties”).
WHEREAS, O&R and Corning Natural Gas Holding Corporation (“Corning”) have entered into a Stock Purchase Agreement, dated as of October13, 2015 (the “SPA”), pursuant to which O&R agreed to sell to Corning and Corning agreed to purchase from O&R all of the issued and outstanding shares of PCL&P, all as more particularly set forth in the SPA (capitalized terms used and not otherwise defined herein have the meanings ascribed to them in the SPA; provided, however, that when reference is made in this Agreement to any Section or Exhibit, such reference is to a Section or Exhibit of this Agreement unless otherwise indicated); and
WHEREAS, from and after the Closing, O&R is willing to provide, or cause to be provided, certain services to PCL&P on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual agreements and covenants hereinafter set forth, O&R and PCL&P hereby agree as follows:
| 1. | Provision of Transition Services; Term; Payment |
(a) O&R agrees to provide, or to cause its Affiliates and/or third-party contractors, subcontractors or other service providers or suppliers (collectively, the “Contractors”) to provide, to PCL&P each line item of service (each such item, a “Service”, and, collectively, all such items provided hereunder being the “Services”) set forth on Exhibit “A” attached hereto (as may be amended from time to time by a written instrument signed by each of the Parties hereto, the “Exhibit”) for a period (the “Term”) commencing on the Closing and ending on the date that is twelve (12) months after the Closing, subject to earlier termination in accordance with Section 1(e) or Section 5; provided, however, that no particular Service shall be provided beyond the end date for such Service listed in the applicable Exhibit and, provided further, that notwithstanding anything to the contrary in this Agreement, the provision of and payment for Service described in Service Item 2 (“Field Services – Electric”) and for Service described in Service Item 3 (“Field Services – Gas) on the Exhibit shall be subject to the “Hours Limitation” described in the Exhibit.
(b) O&R shall provide, or shall cause its Affiliates and/or the Contractors to provide, each Service pursuant to this Agreement in a manner consistent with, and with a level of care no less than, the manner and level of care with which such Service was previously provided by O&R, its Affiliates and/or the Contractors to PCL&P during the twelve (12) month period immediately prior to the Closing.
(c) The Parties acknowledge the transitional nature of O&R providing the Services and agree to cooperate in good faith to effectuate a smooth transition to PCL&P of the Services furnished hereunder; provided, however, that O&R, its Affiliates and the Contractors shall have no obligation to incur any expense, including, without limitation, in connection with constructing, installing, replacing, modifying, operating, or maintaining any facilities or infrastructure, in connection with such transition (it being understood that this proviso does not affect O&R’s obligations, during the Term, to operate and maintain O&R facilities or O&R infrastructure in a manner sufficient to provide the Services pursuant to the terms and conditions hereof).
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(d) PCL&P shall pay O&R an amount for each Service that is calculated in accordance with the price and/or methodology set forth in the Exhibit applicable to such Service. Each written invoice (each, an “Invoice”) that O&R prepares with respect to each Service provided during the Term shall specify the amount and price of the Service and the period during which it was provided. PCL&P shall pay each Invoice, by the method specified in the Invoice, no later than ten (10) days after PCL&P’s receipt of the Invoice. All Invoices sent by O&R hereunder shall be sent to the following address:
Pike County Light & Power Company
c/o Corning Natural Gas Holding Corporation
330 West William Street
Corning, New York 14830
Attention: Michael I. German
Fax: (607) 962-2844
(e) Subject to PCL&P’s obligation to make payments pursuant to this Agreement for Services previously rendered and subject to the obligation of PCL&P to pay for reasonably documented third-party termination or cancellation charges and similar costs and expenses incurred by O&R, its Affiliates and the Contractors due to the termination of this Agreement by PCL&P, PCL&P may terminate any or all Services, either in whole or in part, under this Agreement upon ten (10) Business Days’ prior written notice to O&R.
(f) As between O&R and PCL&P, O&R shall be responsible for selecting the employees of O&R or its Affiliates (collectively, the “Employees”) and the Contractor who will perform any particular Service and for administering such Employees and Contractors; provided, however, that O&R shall not be obligated to (i) employ or continue to employ or to cause its Affiliates to employ or continue to employ any particular Employees, or (ii) retain or continue to retain or to cause its Affiliates to retain or continue to retain any particular Contractors.
| 2. | Limitation of Liability; Release; Waiver; Indemnification; Insurance |
(a) To the fullest extent permitted by law, PCL&P hereby releases and discharges O&R, its Affiliates, the Contractors, and O&R’s, its Affiliates’ and the Contractors’ respective directors, trustees, officers, employees, agents, successors, and assigns, (collectively, the “O&R Protected Parties”) from, waives against the O&R Protected Parties, and agrees to defend, indemnify and hold the O&R Protected Parties harmless from and against, any and all suits, actions, causes of action, claims, liabilities, losses, damages, costs, and expenses (including court costs and reasonable attorney’s fees) arising from or relating to providing any Services or any failure to provide or delay in providing any Services, except to the extent that such suits,actions, causes of action, claims, liabilities, losses, damages, costs and expenses arise from the willful misconduct of the O&R Protected Parties.
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(b) Without limiting the provisions of Section 2(a), to the fullest extent permitted by law, PCL&P hereby releases and discharges the O&R Protected Parties from, waives against the O&R Protected Parties, and agrees to defend, indemnify and hold the O&R Protected Parties harmless from and against, any and all suits, actions, causes of action, claims, and liabilities for (and court costs and reasonable attorney’s fees in connection with) any and all special, indirect, incidental, consequential and punitive damages, including but not limited to damage, loss, liability, costs, and expenses resulting from loss of use, loss of business or business opportunities, loss of profits or revenue, costs of capital, loss of goodwill, cost of purchased or replacement power, and like items of special, indirect, incidental, or consequential loss and damage, arising from or relating to providing any Services or any failure to provide or delay in providing any Services.
(c) Subject to the other limitation of liability provisions in this Agreement, in no event shall the cumulative liability of the O&R Protected Parties relating to or arising from providing any Service exceed the payment received by O&R hereunder with respect to such Service.
(d) PCL&P shall procure and maintain (or cause its parent Company, Corning Natural Gas Holding Corporation, to procure and maintain for the benefit of PCL&P) the following insurance during the Term and until any and all Services have been fully and completely performed: Comprehensive (also called Commercial) General Liability Insurance, including Contractual Liability coverage, with limits of at least $5,000,000 per occurrence for bodily injury or death and $1,000,000 per occurrence for property damage or a combined single limit of at least $5,000,000 (such insurance shall contain an “occurrence” and not a “claims made” determinant of coverage, shall name the O&R Protected Parties as additional insureds and contain a waiver of subrogation claims against the O&R Protected Parties, and shall not contain an exclusion for claims by PCL&P’s or its contractor’s or subcontractor’s employees against the O&R Protected Parties or any of them based on injury to or the death of such employees). Such insurance may be satisfied through the combination of a primary or underlying policy and an excess policy and it is understood and agreed that, so long as PCL&P complies at all times with the minimum per occurrence amounts and other insurance requirements specified above in this Agreement, in Section 2(d) of the Electric Supply Agreement of even date herewith between O&R and PCL&P (the “Electric Agreement”), and in Section 2(d) of the Gas Supply and Gas Transportation Agreement of even date herewith between O&R and PCL&P (the “Gas Agreement), PCL&P need not procure and maintain (or cause its parent Company, Coming Natural Gas Holding Corporation, to procure and maintain for the benefit of PCL&P) (i) separate insurance policies for each of this Agreement, the Electric Agreement, and the Gas Agreement or (ii) insurance policies with per occurrence limits that equal or exceed the sum of (A) the minimum per occurrence amounts specified above in this Agreement, plus (B) the minimum per occurrence amounts specified in Section 2(d) of the Electric Agreement and/or (C) the minimum per occurrence amounts specified in Section 2(d) of the Gas Agreement.
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| 3. | Confidentiality |
Each Party hereby acknowledges that its confidential information (the “Information”) may be exposed to the other party’s agents, representatives, Affiliates, employees, officers, directors and trustees as a result of the activities contemplated by this Agreement. Each Party agrees to, and shall cause its agents, representatives, Affiliates, employees, officers, directors and trustees to: (i) treat and hold as confidential (and not disclose or provide access to any Person to) the Information of the other Party (other than as may be necessary to perform the Services), (ii) in the event that a Party or any of its agents, representatives, Affiliates, employees, officers, directors or trustees becomes legally required to disclose any Information of the other Party, provide such other Party (the “Non-Compelled Party”) with prompt written notice of such requirement so that the Non-Compelled Party may seek a protective order or other remedy or waive compliance with this Section 3, and (iii) in the event that such protective order or other remedy is not sought or obtained, or the Non-Compelled Party waives compliance with this Section 3, furnish only those portions of such Information of the Non-Compelled which are legally required to be provided and exercise commercially reasonable efforts to obtain assurances that confidential treatment will be accorded such Information. This Section 3 shall not apply to Information that, at the time of disclosure, is available publicly and was not disclosed in breach of this Agreement.
| 4. | Security for PCL&P’s Performance |
(a) Simultaneously with the execution of this Agreement, PCL&P, as security for PCL&P’s performance of its obligations hereunder (including, but not limited to PCL&P’s obligations pursuant to Section 1(e) and Section 2), shall furnish cash security (the “Cash Security”) or cause a letter of credit (such letter of credit, as amended or replaced from time to time by a “Substitute PCL&P LC” (as defined below), the “PCL&P L/C”) to be furnished to O&R in the amount of $500,000 (the “Initial Amount”); provided, however, that following PCL&P’s receipt of the first Invoice and thereafter following PCL&P’s receipt of each subsequent Invoice pursuant to Section 1(e), the Initial Amount shall be subject to increase or decrease in accordance with this Section 4(a) and Section 4(b). During the period from the execution of this Agreement to immediately before the first such increase or decrease, PCL&P shall cause the amount of the Cash Security or the PCL&P L/C, as applicable, that remains available for drawing upon by O&R to be in an amount equal to the Initial Amount and during the period from the first such increase or decrease to the “Permitted Expiry” (as defined below), PCL&P, subject to exercising its right pursuant to the first proviso in Section 4(e), shall cause the amount of the Cash Security or the PCL&P L/C, as applicable, that remains available for drawing upon by O&R to be in an amount that is not less than twice the amount of the most recent Invoice sent by O&R to PCL&P pursuant to Section 1(e) (the Initial Amount, subject to such increase or decrease, the “Required Amount”). To the extent that PCL&P fails to timely perform its obligations hereunder, O&R, in addition to and not in lieu of any other rights and remedies available to it, including termination of this Agreement pursuant to Section 5, may draw upon the Cash Security or PCL&P L/C, as applicable, to satisfy, in whole or in part, such obligations.
(b) Increases (i.e., because the Required Amount has increased or the Cash Security previously has been drawn upon by O&R) in the amount of the Cash Security remaining for drawing upon by O&R that are necessary to satisfy the then applicable Required Amount shall be made by PCL&P furnishing the applicable amount of cash to O&R within five (5) Business Days after (i) PCL&P’s receipt of the Invoice pursuant to Section 1(d) that results in an increase in the Required Amount (in cases where the Required Amount increases due to such Invoice), or (ii) PCL&P’s receipt of written notice from O&R that O&R has drawn on the Cash Security and the amount of the Cash Security remaining for drawing upon by O&R is less than the then applicable Required Amount (in cases where O&R previously has drawn upon the Cash Security). Decreases (i.e., because the Required Amount has decreased) in the amount of the Cash Security remaining for drawing upon by O&R to a level equal to the then applicable Required Amount shall be made by O&R returning the applicable amount of cash to PCL&P within five (5) Business Days after O&R’s receipt of PCL&P’s written request to return the amount of Cash Security that is in excess of the then applicable Required Amount. Cash furnished to O&R or PCL&P shall be by wire transfer to an account specified by the party that is to receive the cash. Increases (i.e., because the Required Amount has increased or the PCL&P L/C previously has been drawn upon by O&R) in the amount of the PCL&P L/C remaining for drawing upon by O&R that are necessary to satisfy the then applicable Required Amount shall be made by PCL&P furnishing to O&R a Substitute PCL&P L/C within five (5) Business Days after (i) PCL&P’s receipt of the Invoice pursuant to Section 1(d) that results in an increase in the Required Amount (in cases where the Required Amount increases due to such Invoice), or (ii) PCL&P’s receipt of written notice from O&R that O&R has drawn upon the PCL&P L/C and the amount of the PCL&P L/C remaining for drawing upon is less than the then applicable Required Amount (in cases where O&R previously has drawn upon the PCL&P L/C). Decreases (i.e., because the Required Amount has decreased) in the amount of the PCL&P L/C remaining for drawing upon by O&R to a level equal to the then applicable Required Level shall be made by PCL&P furnishing to O&R a Substitute PCL&P L/C that accomplishes such decrease and O&R countersigning such Substitute PCL&P L/C.
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(c) If at any time prior to the Permitted Expiry, (i) the PCL&P L/C has an expiration date that is earlier than the Permitted Expiry, PCL&P shall cause to be provided to O&R, at least twenty (20) Business Days prior to the expiration date of the PCL&P L/C, a Substitute PCL&P L/C containing an expiration date that is at least ninety (90) days later than the expiration date of the PCL&P L/C that it is amending or replacing, or (ii) the credit rating of the bank issuing the PCL&P L/C falls below the level specified in the “L/C Requirements” (as defined below) or such bank repudiates its obligations under, or fails to honor or pay against, the PCL&P L/C, PCL&P, within five (5) Business Days after receipt of written notice from O&R requesting a Substitute L/C, shall cause to be furnished to O&R a Substitute PCL&P L/C, issued by different bank, that replaces such PCL&P L/C. Promptly following O&R’s receipt of a Substitute PCL&P L/C that replaces (as distinguished from one that amends) a PCL&P L/C, O&R shall return to PCL&P the PCL&P L/C that has been replaced.
(d) Should PCL&P fail to cause a Substitute PCL&P L/C to be furnished to O&R within the time specified in, and as otherwise required by, this Agreement, including under circumstances where (a) the credit rating of the bank issuing the PCL&P L/C that is to be replaced by the Substitute PCL&P L/C falls below the level specified in the L/C Requirements, (b) the bank issuing the PCL&P L/C that is to be replaced by the Substitute PCL&P L/C repudiates its obligations under, or fails to honor or pay against, the PCL&P L/C, (c) the expiration date of the PCL&P L/C to be extended by the Substitute PCL&P L/C is required to be extended, or (d) the amount of the PCL&P L/C remaining available to O&R for drawing upon is required to be increased by the Substitute PCL&P L/C, then O&R, in addition to and not in lieu of any other rights and remedies available to it, including termination of this Agreement, shall be entitled to draw upon the entire remaining amount of the PCL&P L/C. The parties agree that, for purposes of O&R making such a drawing, O&R may make any certification or statement required to be submitted in order to effectuate such drawing, including that the amount of the drawing is owed to O&R pursuant to this Agreement. Should O&R exercise its rights under this Section 4(d) to draw down the entire remaining amount of the PCL&P L/C, the cash obtained as a result of such drawing shall be deemed to be the Cash Security (the amount of which is subject to increase or decrease in accordance with this Agreement), with O&R having the right to draw upon such Cash Security as otherwise permitted by this Agreement with respect to the Cash Security.
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(e) At all times during the period from the execution of this Agreement to the Permitted Expiry, any PCL&P L/C (which includes any Substitute PCL&P L/C) that PCL&P utilizes to satisfy the then applicable Required Amount must satisfy the L/C Requirements. To the fullest extent permitted by applicable law, (i) O&R shall not be required to keep any Cash Security in a separate account, but rather, shall be entitled to use, possess, invest, commingle, assign, sell, or pledge such cash security deposit in any way it sees fit free from any claim or right of any nature whatsoever, including any right of redemption, and (ii) any interest, return on investment, or other result of O&R’s use, investment, commingling, assignment, sale or pledge of such Cash Security shall be the sole property of O&R and shall not, be furnished to PCL&P at any time; provided, however, that, assuming the Cash Security is then in the Required Amount and PCL&P is not then in breach of this Agreement, PCL&P shall be entitled to apply the Cash Security to payment in whole or in part of the final Invoice received by PCL&P pursuant to Section 1(e) of this Agreement and, provided, further, that promptly following the occurrence of the Permitted Expiry O&R shall return to PCL&P any balance of the Cash Security then remaining.
(f) As used in this Agreement: “L/C Requirements” means an irrevocable, transferable, standby letter of credit issued by a major U.S. commercial bank or the U.S. branch office of a foreign bank, which, in either case, has counters for presentment and payment located in the City of New York and a credit rating (i.e., the rating then assigned to such entity’s unsecured, senior long-term debt obligations not supported by third party credit enhancements, or if such entity does not have a rating for its senior unsecured long-term debt, then the rating then assigned to such entity as an issuer rating) of at least (i) “A-” by Standard and Poor’s Rating Group (a division of McGraw-Hill, Inc.) or its successor (“S&P”) and “A3” by Moody’s Investor Services, Inc. or its successor (“Moody’s”), if such entity is rated by both S&P and Moody’s or (ii) “A-” by S&P or “A3” by Moody’s, if such entity is rated by either S&P or Moody’s, but not both, and which letter of credit is in a form reasonably acceptable to O&R, including, but not limited to, drawings being permitted solely upon a statement from O&R that the amount of the drawing is owed to O&R pursuant to this Agreement; “Permitted Expiry” means the date that is three (3) months after the end of the Term referenced in Section 1(a) as such Term may be extended in accordance with Section 1(b) or earlier terminated in accordance with Section 5, provided, however, that if, as of such date, there are then outstanding, or in O&R’s good faith judgment reasonable grounds then exist for any future, suits, actions, causes of action, claims, liabilities, losses, damages, costs, and expenses that are, or reasonably would be, the subject of PCL&P’s defense, indemnification and hold harmless obligations pursuant to Section 2 then Permitted Expiry shall mean the later date on which such suits, actions, causes of action, claims, liabilities, losses, damages, costs, and expenses are fully and finally resolved and PCL&P’s obligations pursuant to Section 2 with respect thereto are fully and finally performed; and “Substitute PCL&P L/C” means an amendment to, or a replacement of, the PCL&P L/C or a prior Substitute PCL&P L/, as applicable.
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| 5. | Termination |
Notwithstanding anything to the contrary in this Agreement, either Party may terminate any or all of the Services thirty (30) days following written notice to the other party of a material breach of this Agreement by such other party that is not cured within such thirty (30) day period; provided, however, that O&R may terminate this Agreement upon at least five (5) days following written notice by O&R to PCL&P of its failure to make payment pursuant to Section 1(d) and PCL&P not curing such breach within five (5) days following receipt of such notice and O&R may terminate this Agreement immediately upon written notice to PCL&P of its failure to timely perform its obligations pursuant to Section 4.
| 6. | Effective Time |
This Agreement shall be effective upon the commencement of the Term.
| 7. | Right to Audit |
For a period of twelve (12) months after PCL&P receives an Invoice from O&R for the provision of Services, PCL&P or a nationally recognized accounting firm retained by PCL&P that is reasonably acceptable to O&R shall be provided, following O&R’s receipt of reasonable advance written notice from PCL&P, reasonable access to and the right to audit (at PCL&P’s cost and expense) during normal business hours, O&R’s books and records principally relating to the provision of the Services for which such Invoice was submitted; provided, however, that any such access and audit shall be subject to Section 3.
| 8. | Notices |
All notices, requests, demands, claims and other communications (including Invoices) hereunder shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by courier service, by fax or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 8):
if to O&R:
Orange and Rockland Utilities, Inc.
One Blue Hill Plaza
Pearl River, NY 10965
Attention: Francis Peverly
Fax: (845) 577-3074
if to PCL&P:
c/o Corning Natural Gas Holding Corporation
330 West William Street
Corning, New York 14830
Attention: Michael I. German
Fax: (607) 962-2844
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| 9. | Independent Contractor |
In providing the Services, O&R shall be an independent contractor, and not an agent, of PCL&P or its Affiliates and the employees of O&R, its Affiliates or the Contractors who assist or have a role in O&R providing the Services shall not be considered employees or contractors of PCL&P or its Affiliates.
| 10. | Assignment |
Neither this Agreement nor the rights or obligations of either Party hereunder may be assigned or delegated in whole or in part by either Party without the prior written consent of the other Party; provided, however, that O&R may assign its rights or delegate its obligations under this Agreement in whole or in part to any Affiliate of O&R that, in O&R’s judgment, has the resources, capabilities and personnel necessary to fulfill O&R’s obligations under this Agreement without the consent of PCL&P.
| 11. | No Third Party Beneficiaries |
This Agreement shall be binding upon and inure solely to the benefit of the Parties hereto and their successors and permitted assigns and, except for the protections and benefits extended to O&R Protected Parties pursuant to Section 2, nothing herein, express or implied, is intended to or shall confer upon any other Person, including, without limitation, any union or any employee or contractor or former employee or contractor of O&R or its Affiliates, any legal or equitable right, benefit or remedy of any nature whatsoever, including, without limitation, any rights of employment for any specified period, under or by reason of this Agreement.
| 12. | Entire Agreement |
This Agreement constitutes the entire agreement between the Parties with respect to the subject matter hereof and supersedes all other prior agreements and understandings, oral or written, between the parties with respect to the subject matter hereof.
| 13. | Amendment |
This Agreement, including the Exhibit, may not be amended or modified except by a written instrument signed by or on behalf of each of O&R and PCL&P.
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| 14. | Administration |
Each of O&R and PCL&P shall appoint one representative as its primary point of operational contact for the administration and operation of this Agreement (the “Contact Managers”). The Contact Managers will have overall responsibility for coordinating, on behalf of O&R or PCL&P, as applicable, actions taken with respect to the provision of Services, including handling any disputes that may arise in connection therewith.
| 15. | Waiver |
Either Party to this Agreement may waive compliance with any of the obligations of the other Party hereunder; provided, however, that (i) any such waiver shall be valid only if set forth in an instrument in writing and signed by the Party granting the waiver, and (ii) any waiver of any provision of this Agreement shall not be construed as a waiver of any subsequent breach or a subsequent waiver of the same provision, or a waiver of any other provision of this Agreement. The failure of any Party to assert any of its rights hereunder shall not constitute a waiver of any such rights.
| 16. | Severability |
If any provision of this Agreement is invalid, illegal or incapable of being enforced by any law or public policy, all other provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any Party. Upon such determination that any provision is invalid, illegal or incapable of being enforced, the Parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby are consummated as originally contemplated to the greatest extent possible.
| 17. | Counterparts |
This Agreement may be executed in one or more counterparts, and by the different Parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement.
| 18. | Specific Performance |
The Parties hereto acknowledge and agree that remedies at law would be an inadequate remedy for the breach of any provision contained herein and that in addition thereto, the Parties hereto shall be entitled to specific performance of the provisions hereof or other equitable remedies in the event of any such breach.
| 19. | Governing Law |
This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts executed in and to be performed in that State, without giving effect to any conflict or choice of law provision that would result in the application of another state’s laws.
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IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.
ORANGE AND ROCKLAND UTILITIES, INC
By:
Name:
Title:
PIKE COUNTY LIGHT & POWER COMPANY
By:
Name:
Title:
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EXHIBIT A
TO
TRANSITION SERVICES AGREEMENT
|
Service Items
[the scope of each service being as Seller rendered such service to PCL&P during the 12 month period prior to the Closing under the SPA]
|
End Date | Price/Methodology | |
| 1. |
Customer Services and Support Operations
|
||
|
· Customer Billing, Call Center Services, Customer Collections, CIMS Technical Analysis, Retail Access and Reporting
|
3 months |
Each month of service at the applicable per month service rate set forth on the attached Pricing Schedule plus all other applicable charges described therein
| |
|
· Payment Processing, Remittance, and Reporting
|
3 months |
Each month of service at the applicable per month service rate described on the attached Pricing Schedule plus all other applicable charges described therein
| |
|
· Electric and Gas Meter Reading and related field services (includes meter readings, collections, meter turn ons/turn offs, data transfer of meter reads and reporting)
|
1 months |
Hours of service performed each month multiplied by the applicable per hour service rate set forth on the attached Pricing Schedule plus all other applicable charges described therein
| |
|
· Meter Operations Services (includes new meter sets, meter wiring, meter investigation, regulatory testing program, field and lab testing)
|
2 months |
Hours of service performed each month multiplied by the applicable per hour service rate set forth on the attached Pricing Schedule plus all other applicable charges described therein
|
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|
Field Services - Electric (provision of and invoicing and payment for the Field Services described in this Service Item 2 are subject to the “Hours Limitation” described below)
|
|||
|
· Electric Operations (including Substation Operations) – · Inspection of services provided by contractors: construction including other mandated work · Inspections, trouble calls, and systems issues including normal outage response · Continuity of compliance requirements (includes electric inspection and maintenance, pole inspections and transformer inspections) · Environmental Response (third party cost only)
|
1 month | Hours of service performed each month multiplied by the applicable per hour service rate set forth on the attached Pricing Schedule plus all other applicable charges described | |
| 3. | Field Services – Gas (provision of and invoicing and payment for the Field Services described in this Service Item 3 are subject to the “Hours Limitation” described below) | ||
|
· Gas Operations · Gas Odor · Inspection of services provided by contractors: construction, leak surveys, including other mandated work · Field pressure readings, inspections, trouble calls, systems issues, leak repairs · Continuity of compliance requirements (includes gas inspection and maintenance, leak surveys, cathodic protection) |
1 month | Hours of service performed each month multiplied by the applicable per hour service rate set forth on the attached Pricing Schedule plus all other applicable charges described therein |
|
Emergency Response Services – includes responding and remediating by Electric Operations (including Substation Operations) and Gas Operations: · Electric and Gas Storm response · Environmental Response (3rd party costs only) |
9 months | Hours of service performed each month multiplied by the applicable per hour service rate set forth on the attached Pricing Schedule plus all other applicable charges described therein | |
| 5. |
SCADA Electric and Gas System Monitoring and Reporting: · Provide monitoring for 1 gas meter at Port Jervis Metering and Regulating Station. · Provide monitoring for 3 electric RTU’s, one located at Matamoras Substation, one on Line 7 and one on Circuit 5-10-34. (excludes software maintenance) |
6 months | Each month of service at the applicable per month service rate set forth on the attached Pricing Schedule plus all other applicable charges described therein |
| 6. |
Technology Services (including Software Maintenance)
|
9 months | Each month of service at the applicable per month service rate set forth on the attached Pricing Schedule plus all other applicable charges described therein |
Hours Limitation (applicable to Service Item 2 (“Field Services – Electric”) and Service Item 3 (“Field Services – Gas”)):
O&R shall not be obligated to provide (or cause its Affiliates or the Contractors to provide), and PCL&P shall not be obligated to pay for (A) hours rendered to provide Service consisting of Service Item 2 (“Field Services - Electric”) in excess of 2,200 hours by Electric Operations (including Substation Operations) Personnel for such Service during the first six month period commencing upon the start of such Service or in excess of 2,200 hours by Electric Operations (including Substation Operations) Personnel during any second six month period of such Service or (B) hours rendered to provide Service consisting of Service Item 3 (“Field Services – Gas”) in excess of 450 hours by Gas Operations Personnel for such Service during the first six month period commencing upon the start of such Service or in excess of 450 hours by Gas Operations Personnel during any second six month period of such Service, it being understood that (i) the amount of personnel assigned by O&R to perform each such Service will be in accordance with O&R’ s ordinary course of business consistent with past practice, (ii) any regular or routine preventative maintenance or inspection work that is part of any such Service (excluding, without limitation, response to trouble calls, work relating to system issues, outage response, gas odor response, environmental response, and other emergent work) shall not be performed unless and until PCL&P (by a PCL&P general manager or officer or an officer of PCL&P’s parent, Corning Natural Gas Holding Corporation) requests the same to be performed by written notice to O&R (in which case work of the nature requested shall
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continue to be authorized until the request is revoked by written notice to O&R), and (iii) travel time, sick time, vacation time, energy control center or distribution control center hours will not be logged or charged for such personnel in connection with any such Service (or counted against the above six month period 2,200 hour maximum or 450 hour maximum, as applicable) as the cost of such time is included in the Per Hour Service Rates for such personnel set forth in the Pricing Schedule.
PRICING SCHEDULE
TO EXHIBIT A
TO TRANSITION SERVICES AGREEMENT
Per Hour Service Rates* ++
| Regular Straight Time Rate (per hour) |
Time and One Half Overtime Rate (per hour) |
Double Time Overtime Rate (per hour) | |
| Electric Operations (including Substation Operations) Personnel | $181.00 | $220.00 | 237.00 |
| Gas Operations Personnel | $101.00 | $124.50 | $148.00 |
| Customer Service Meter Operations Personnel | $35.00 | $50.88 | $66.75 |
| Customer Service Meter Reading (and related field services) Personnel | $46.00 | $68.05 | $90.09 |
* All of the per hour service rates shown in the table shall be increased forty-five percent (45%) to reflect fringe benefits and other costs in connection with calculating the amount to be charged in Invoices to, and paid by, PCL&P
++ Effective January 1, 2017, all of the per hour service rates shown in the table shall increase 3%
Per Month Service Rates ###
| Per Month Rate | |
| Customer Billing, Call Center Services, Customer Collections, CIMS Technical Analysis, Retail Access and Reporting | $24,000 |
| Payment Processing, Remittance, and Reporting | $500 |
| SCADA Electric and Gas System Monitoring and Reporting | $4,600 |
| Technology Services (including Software Maintenance) | $2,300 |
### Effective January 1, 2017, all of the per month service rates shown in the table shall increase 3%
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Material Costs
All materials from storerooms will be billed at the current replacement purchase cost to Seller plus a 28% storeroom handling and minor items fee.
Outside Contract Work and Direct Purchases
Outside contract work and direct purchases, including incremental license and maintenance fees with respect to software and any other intellectual property that supports and/or is utilized in connection with Seller performing the services for Buyer, will be billed at actual cost to Seller.
Corporate Overheads
A corporate overhead of 3.4% for administrative and general expenses of Seller will be applied to the sum billed for the Per Hour Service Rates, the Per Month Service Rates, the Material Costs, and the Outside Contract Work and Direct Purchases.
Markup
A markup of 3% will be applied to the sum billed for the Per Hour Service Rates, the Per Month Service Rates, the Material Costs, the Outside Contract Work and Direct Purchases, and the Corporate Overheads.
Carrying Charge for Systems and Facilities
A carrying charge of $33,800 per month will be charged for the systems and facilities that support and/or are utilized in connection with Seller performing any of the services described in Exhibit A to Transition Services Agreement, provided that if the Service Item 1 (“Customer Services and Support Operations”), Service Item 2 (“Field Services – Electric”) and/or Service Item 3 (“Field Services – Gas”) are terminated by PCL&P pursuant to Section 1(e) of this Agreement with respect to the next full month and the subsequent months (collectively, the “Applicable Months”) then the otherwise applicable carrying charge of $33,800 per month will be reduced for the Applicable Months as follows:
if Service Item 1 (“Customer Services and Support Operations”) is so terminated – a reduction of $19,200;
if Service Item 2 (“Field Services – Electric”) is so terminated – a reduction of $12,300; and
if Service Item 3 (“Field Services – Gas”) is so terminated – a reduction of $2,300.
Sales and Use Tax
Any and all applicable state and local sales and use taxes will be applied to the sum billed for the Per Hour Service Rates, the Per Month Service Rates, the Material Costs, the Outside Contract Work and Direct Purchases, the Corporate Overheads, the Markup, and the Carrying Charge for Systems and Facilities
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Schedule 1.1(a)
Knowledge of Buyer
President & CEO (i.e., the position currently held by Michael German)
Chief Financial Officer (i.e., the position currently held by Firouzeh Sarhangi)
Schedule 1.1(b)
Knowledge of Seller
President & CEO (i.e., the position currently held by Timothy Cawley)
Vice President (i.e., the position currently held by Francis Peverly)
Vice President (i.e., the position currently held by Edwin Ortiz)
Director of Finance (i.e., the position currently held by Kenneth Kosior)
Schedule 1.1(c)
Tax Allocation Agreements
Tax Sharing Agreement made as of September 23, 1999, by and among Consolidated Edison, Inc. and Seller (including all subsidiaries of Seller (including the Company) that would be considered members of Seller’s affiliated group of corporations as defined in section 1504(a) of the Code were Seller to file a separate consolidated Federal income tax return), for taxable years commencing on or after January 1, 1999.
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Schedule 1.1(d)
Working Capital
The Working Capital of the Company shall be the dollar amount (whether a positive or negative number) that is equal to the sum of (i) the aggregate dollar amount of all of the items with respect to the Company under the “Group A Accounts” heading below minus (ii) the aggregate dollar amount of all of the items with respect to the Company under the “Group B Accounts” heading below, in each case subject to the Notes below, provided however that any increase to the Base Purchase Price arising from Working Capital shall not exceed Three Million Dollars ($3,000,000).
| Group A Accounts | Group B Accounts | ||
|
Account Number
|
Account Name | Account Number | Account Name |
| 1310 | CASH | 2320 | ACCOUNTS PAYABLE Note A |
| 1360 | TEMPORARY CASH INVESTMENTS | 2350 | CUSTOMER DEPOSITS |
| 1420 | CUSTOMER ACCOUNTS RECEIVABLE | 2360 | TAXES ACCRUED |
| 1430 | OTHER ACCOUNTS RECEIVABLE | 2370 | INTEREST ACCRUED |
| 1440 | ACCUMULATED PROVISION FOR UNCOLLECTIBLE ACCOUNTS-CREDIT (a negative number) | 2420 | MISCELLANEOUS CURRENT AND ACCRUED LIABILITIES |
| 1540 | PLANT MATERIALS AND OPERATING SUPPLIES Note C | 20243 | REFUNDABLE ENERGY COSTS CURRENT |
| 1650 | PREPAYMENTS | 24211 | FUTURE INCOME TAXES – CURRENT LIABILITY |
| 1730 | ACCRUED UTILITY REVENUES | 1460 | ACCOUNTS RECEIVABLE FROM AFFILIATED COMPANIES Note B |
| 10280 | RECOVERABLE ENERGY COSTS CURRENT | ||
|
12233
|
ACCUMULATED DEFERRED – FEDERAL INCOME TAX – 190 CURRENT | ||
|
12234
|
ACCUMULATED DEFERRED – FEDERAL INCOME TAX – 282 CURRENT | ||
| 12235 | ACCUMULATED DEFERRED – FEDERAL INCOME TAX – 283 CURRENT | ||
| 12236 | ACCUMULATED DEFERRED STATE INCOME TAX – 190 CURRENT |
| ACCOUNTS PAYABLE TO AFFILIATED COMPANIES Note D |
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Notes
Note A – For the purpose of calculating the Working Capital of the Company pursuant to the Stock Purchase Agreement, the Account No. 2320, Accounts Payable, shall exclude any amount of Company accounts payable to affiliated companies as such amount is treated elsewhere in this Schedule 1.1(d) and in Section 2.2 of the Stock Purchase Agreement.
Note B – For the purpose of calculating the Working Capital of the Company pursuant to the Stock Purchase Agreement, Account No. 1460, Accounts Receivable From Affiliated Companies, shall exclude any amount of (i) Company accounts receivable from affiliated companies under the Tax Allocation Agreements in accordance with Section 7.2 of the Stock Purchase Agreement and (ii) Company accounts receivable from Seller under the Affiliated Interest Agreement as the invoices under such agreement represent the amount due thereunder from the Company to Seller after netting out any amount due thereunder from Seller to the Company (and the amount due from the Company thereunder always has exceeded the amount due from the Seller thereunder). Note that no amounts are ever due from Seller to the Company under the Gas Arrangement or the Power Supply Agreement.
Note C – For the purpose of calculating the Working Capital of the Company pursuant to the Stock Purchase Agreement Account No. 1540, Plant Materials And Operating Supplies, shall contain only the amount for plant materials and operating supplies located at Company facilities or locations and shall exclude any amount for the Company’s allocated share of plant materials and operating supplies located at facilities or locations belonging to Seller or other affiliated companies (which plant materials and operating supplies shall be retained by Seller or such other non-affiliated companies, as applicable, and shall not be assets as to which the Company has any rights of ownership, possession, use or access on and after the Closing Date).
Note D – For the purpose of calculating the Working Capital of the Company pursuant to the Stock Purchase Agreement Account No. 2340, Accounts Payable To Affiliated Companies, shall contain only (i) the amounts for (a) Company accounts payable to Seller under the Affiliated Interest Agreement, the Gas Arrangement and the Power Supply Agreement relating to the twelve (12) month period ending on the Closing Date and inclusive of unpaid interest, if any, accruing on such amount during such twelve (12) month period, and (b) various other Company accounts payable (inclusive of interest) to Seller and other affiliated companies (Consolidated Edison Solutions, Inc., Rockland Electric Company, and Consolidated Edison Company of New York, Inc.) and (ii) the amount of unpaid interest, if any, accruing at the rate of 4.75% per annum during the period from July 1, 2015 to the Closing Date on the $9,966,924.07 non-current liability amount due under the Affiliated Interest Agreement, the Gas Arrangement and the Power Supply Agreement, which $9,966,924.07 amount is included as a part of the Base Purchase Price referenced in Section 2.2 of this Agreement.
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Schedule 3.1
Ownership Demarcation Points
Seller’s ownership of Port Jervis electric circuit 6-8-13, Port Jervis electric circuit 7-6-34, Port Jervis electric circuit 6-9-13, Cuddebackville electric circuit 5-10-34, Rio electric circuit 3-1-34, and the 6 inch diameter gas main (together with their respective conduits, attachments, and appurtenances) shall be up and to and including the point where such facilities are at or above the New York side of the New York/Pennsylvania boundary line and the Company’s ownership of such electric circuits and gas main shall be from and after the point where such facilities are at or above the Pennsylvania side of the New York/Pennsylvania boundary line.
Schedule 4.1(a)
Other States
None
Schedule 4.4
No Violation
None
Schedule 4.5
Consents and Approvals
Filing with, notice to, acceptance by and/or approval by the FERC to the extent required by applicable law to terminate the Power Supply Agreement and the Gas Arrangement as of the Closing Date.
Filing with, notice to, acceptance by and/or approval by the FERC to the extent required by applicable law to authorize and/or make effective as of the Closing the Electric Agreement and the Gas Agreement
Schedule 4.9
Legal Proceedings
None
Schedule 4.10
Undisclosed Liabilities
None
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Schedule 4.11
Compliance with Applicable Law
None, except to the extent that any Crossing Facilities, not exempt from the same due to vintage or other attributes, may be subject to any requirements relating to Permits not possessed or held in the Company’s name
Schedule 4.12
Absence of Certain Changes
None
Schedule 4.13
Intellectual Property
None
Schedule 4.15
Taxes
Consolidated Edison, Inc. (“CEI”), the ultimate parent corporation of the Company, files a consolidated tax return with the IRS and participates in the IRS CAP program. Pursuant to the CAP program, CEI and its subsidiaries of each tier, including the Company, are under continuous audit by the IRS. The 2012 tax year audit and the 2013 tax year audit have been completed. In these audits, the IRS has not identified any issues related to the Company.
Schedule 4.16
Contracts
The Indenture
Schedule 4.17
Title to Assets
None
Schedule 4.18
Transactions with Certain Persons
None
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Schedule 4.19
Environmental Laws
None, except to the extent that any Crossing Facilities, not exempt from the same due to vintage or other attributes, may be subject to any requirements relating to Environmental Permits not possessed or held in the Company’s name
Schedule 4.21(a)
Owned Real Property
|
Site
|
Location
|
Grantor
|
Date of Deed
|
| Substation Site - Vacant | Broad Street | Drake Holding Co., Inc. | 10/15/1926 |
| Matamoras Substation | 230 Tenth St. | Paul Holtz | 1/8/1937 |
| Matamoras Substation Expansion | 230 Tenth St. | Leonard W. & Irma L. Balmos | 7/18/1991 |
| Matamoras Substation Expansion | 230 Tenth St. | Pike County Light & Power Co. | 12/22/1992 |
| Substation & Regional Operating Center | Route 6 & 209 | Albert K., Thomas A. & James D. Luhrs | 6/8/2011 |
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Schedule 4.21(b)
Leases and Licenses
None
Schedule 5.4
Consents and Approvals
Filing with, notice to, acceptance by and/or approval by the FERC to the extent required by applicable law to terminate the Power Supply Agreement and the Gas Arrangement as of the Closing Date
Filing with, notice to, acceptance by and/or approval by the FERC to the extent required by applicable law to authorize and/or make effective as of the Closing the Electric Agreement and the Gas Agreement
Schedule 6.1
Conduct of Business
None
Document and Entity Information - USD ($) |
12 Months Ended | ||
|---|---|---|---|
Sep. 30, 2015 |
Dec. 01, 2015 |
Mar. 31, 2015 |
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| Document And Entity Information [Abstract] | |||
| Entity Registrant Name | Corning Natural Gas Holding Corp | ||
| Entity Central Index Key | 0001582244 | ||
| Document Type | 10-K | ||
| Document Period End Date | Sep. 30, 2015 | ||
| Amendment Flag | false | ||
| Current Fiscal Year End Date | --09-30 | ||
| Is Entity a Well-known Seasoned Issuer? | No | ||
| Is Entity a Voluntary Filer? | No | ||
| Is Entity's Reporting Status Current? | Yes | ||
| Entity Filer Category | Smaller Reporting Company | ||
| Entity Public Float | $ 33,880,420 | ||
| Entity Common Stock, Shares Outstanding | 2,463,574 | ||
| Document Fiscal Period Focus | FY | ||
| Document Fiscal Year Focus | 2015 | ||
| Trading Symbol | CNIG |
Consolidated Balance Sheets (Parenthetical) - USD ($) |
Sep. 30, 2015 |
Sep. 30, 2014 |
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| Current assets: | ||
| Allowance for uncollectible accounts | $ 44,377 | $ 42,540 |
| Net Regulatory Assets [Abstract] | ||
| Accumulated amortization of debt issuance cost | $ 675,326 | $ 595,637 |
| Common stockholders' equity | ||
| Common stock, par value | $ 0.01 | $ 0.01 |
| Common stock, authorized shares | 3,500,000 | 3,500,000 |
| Common stock, shares issued | 2,449,647 | 2,430,184 |
| Common stock, shares outstanding | 2,449,647 | 2,430,184 |
Consolidated Statements of Income and Comprehensive Income (Parenthetical) - USD ($) |
12 Months Ended | |
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Sep. 30, 2015 |
Sep. 30, 2014 |
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| Consolidated Statements of Income and Comprehensive Income [Abstract] | ||
| Income taxes for minimum pension liability | $ 155,163 | $ 332,859 |
| Income taxes for establishment of regulatory asset | 807,192 | 0 |
| Income taxes for change in unrealized gain on securities available for sale | $ 45,587 | $ 49,956 |
Summary of Significant Accounting Policies |
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| Summary of Significant Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Significant Accounting Policies | (1) Summary of Significant Accounting Policies Corning Natural Gas Holding Corporation's (the “Holding Company”) primary business is gas distribution through Corning Natural Gas Corporation (“Corning Gas” or “Gas Company”), our principal subsidiary, which provides gas on a commodity and transportation basis to its customers in the Southern Tier of New York State. The Holding Company follows the Uniform System of Accounts prescribed by the Public Service Commission of the State of New York (NYPSC) which has jurisdiction over and sets rates for New York State gas distribution companies. The Holding Company's regulated operations meet the criteria to and, accordingly, follow the accounting and reporting of FASB ASC 980 “Regulated Operations”. The Holding Company's consolidated financial statements contain the use of estimates and assumptions for reporting certain assets, liabilities, revenue and expenses and actual results could differ from the estimates. The more significant accounting policies of the Holding Company are summarized below. (a) Principles of Consolidation and Presentation On July 19, 2013, the Holding Company was incorporated under the laws of the State of New York to serve as the parent holding company of the Gas Company, Corning Natural Gas Appliance Corporation (Appliance Company) and, directly or indirectly, the interests in the Leatherstocking Joint Venture Companies, see Note 1(t). The NYPSC approved the formation of the Holding Company and the reorganization of the Gas Company into a holding company structure on May 17, 2013. The reorganization into the holding company structure was approved by more than two-thirds of the shareholders at a special meeting of the Gas Company's shareholders on November 6, 2013. The reorganization was effective on November 12, 2013, when each issued and outstanding share of Corning Gas' common stock, par value $5.00 per share, was converted into one share of the Holding Company's common stock, par value $0.01 per share. The consolidated financial statements include the Holding Company and its wholly owned subsidiaries, Corning Gas and Appliance Company. All intercompany accounts and balances have been eliminated. It is the Holding Company's policy to reclassify amounts in the prior year financial statements to conform to the current year presentation. (b) Property, Plant and Equipment Property, plant and equipment are stated at the historical cost of construction or acquisition. These costs include payroll, fringe benefits, materials and supplies and transportation costs. The Gas Company charges normal repairs to maintenance expense. (c) Depreciation The Gas Company provides for depreciation for accounting purposes using a straight-line method based on the estimated economic lives of property and equipment as determined by the current rate plan based on the latest depreciation study. The depreciation rate used for utility plant, expressed as an annual percentage of depreciable property was 2.2% for both of the years ended September 30, 2015 and 2014. The NYPSC allows the Gas Company recovery in revenues to offset costs of building certain projects. At the time utility properties are retired, the original cost plus costs of removal less any salvage are charged to accumulated depreciation. (d) Accounting for Impairment The Financial Accounting Standards Board (FASB) ASC 360-10-15, “Accounting for the Impairment or Disposal of Long-Lived Assets” establishes accounting standards to account for the impairment of long-lived assets, and certain identifiable intangibles. Under FASB ASC 360-10-15, the Gas Company reviews assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. FASB ASC 360-10-15 also requires that a rate regulated enterprise recognize an impairment when regulatory assets are no longer probable of recovery. No impairment losses were incurred for the years ended September 30, 2015 and 2014. (e) Marketable Securities Marketable securities, which are intended to fund the Gas Company's deferred compensation plan obligations, are classified as available for sale. Such securities are reported at fair value based on quoted market prices, with unrealized gains and losses, net of the related income tax effect, excluded from income, and reported as a component of accumulated other comprehensive income in stockholders' equity until realized. The cost of securities sold was determined using the specific identification method. For all investments in the unrealized loss position, none have been in an unrealized loss position for more than 12 months. None are other than temporary impairments based on management's analysis of available market research. In 2015 and 2014, the Gas Company sold equity securities for realized gains (losses) included in earnings of $88,028 and $11,812, respectively. (f) Fair Value of Financial Instruments The Gas Company has determined the fair value of debt and other financial instruments using a valuation hierarchy. The hierarchy, which prioritizes the inputs used in measuring fair value, consists of three levels. Level 1 uses observable inputs such as quoted prices in active markets; Level 2 uses inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, which is defined as unobservable inputs in which little or no market data exists, requires the Company to develop its own assumptions. The carrying amount of debt on the Consolidated Balance Sheets approximates fair value as a result of instruments bearing interest rates that approximate current market rates for similar instruments, and the carrying amounts for cash, accounts receivable and accounts payable approximate fair value due to their short-term nature. The assets used to fund the pension plan and marketable securities, which fund the Gas Company's deferred compensation plan, are valued based on Level 1 inputs. The Gas Company has determined the fair value of certain assets through application of FASB ASC 820 “Fair Value Measurements and Disclosures”. Fair value of assets and liabilities measured on a recurring basis at September 30, 2015 and 2014 are as follows:
Financial assets and liabilities valued using level 1 inputs are based on unadjusted quoted market prices within active markets. The pension assets in Note 11 are valued using level 1 inputs. (g) Cash and Cash Equivalents Cash and cash equivalents include time deposits, certificates of deposit, and all highly liquid debt instruments with original maturities of three months or less. Cash and cash equivalents at financial institutions may periodically exceed federally insured limits. (h) Accounts Receivable Accounts receivable are stated net of an allowance for doubtful accounts. The Gas Company estimates the allowance based on its analysis of specific balances, taking into consideration the age of past due accounts and relying on rules and guidelines established by the NYPSC regarding customer disconnects. Related party receivables are expenditures paid on behalf of the Holding Company's Joint Venture investments. We expect repayment on these amounts during the year ended September 30, 2016. (l) Gas Stored Underground Gas stored underground is carried at an average unit cost method as prescribed by the NYPSC. (j) Materials and Supplies Inventories Materials and supplies inventories are stated at the lower of cost or market, cost being determined on an average unit price basis. (k) Debt Issuance Costs Costs associated with the issuance of debt by the Gas Company are deferred and amortized over the lives of the related debt. (l) Regulatory Matters Certain costs of the Gas Company are deferred and recognized as expenses when they are reflected in rates and recovered from customers as permitted by FASB ASC 980. These costs are shown as regulatory assets. Such costs arise from the traditional cost-of-service rate setting approach whereby all prudently incurred costs are generally recoverable through rates. Deferral of these costs is appropriate while the Company's rates are regulated under a cost-of-service approach of NYPSC for utilities. As a regulated utility, the Gas Company deferred certain costs for future recovery. In a purely competitive environment, such costs might have been currently expensed. Accordingly, if the Gas Company's rate setting were changed from a cost-of-service approach and the Gas Company were no longer allowed to defer these costs under FASB ASC 980, certain of these assets might not be fully recoverable. However, the Gas Company cannot predict the impact, if any, of competition and continues to operate in a cost-of-service based regulatory environment. Accordingly, the Gas Company believes that accounting under FASB ASC 980 is appropriate. (m) Revenue and Natural Gas Purchased The Gas Company records revenues from residential and commercial customers based on meters read on a cyclical basis throughout each month, while certain large industrial and utility customers' meters are read at the end of each month. Several meters are read at the end of each month to calculate local production revenues. The Gas Company does not accrue revenue for gas delivered but not yet billed, as the NYPSC requires that such accounting must be adopted during a rate proceeding, which the Gas Company has not done. The Gas Company, as part of its currently effective rate plan, has a weather normalization clause as protection against severe weather fluctuations. This affects space heating customers and is activated when degree days are 2.2% greater or less than the 30-year average. As a result, the effect on revenue fluctuations of weather related gas sales is somewhat moderated. In addition to weather normalization, starting in September 2009, the Gas Company implemented a revenue decoupling mechanism (RDM). The RDM reconciles actual delivery service revenues to allowed delivery service revenues (which are based on the annual customer and volume forecasts in the last rate case) for certain residential customers. The Gas Company will refund or surcharge customers for differences between actual and allowed revenues. The shortfall or excess after the annual reconciliation will be surcharged or refunded to customers over a twelve month period starting September 1st each year. Gas purchases are recorded on readings of suppliers' meters as of the end of each month. The Gas Company's rate tariffs include a Gas Adjustment Clause (GAC) which adjusts rates to reflect changes in gas costs from levels established in the rate setting process. In order to match such costs and revenue, the NYPSC has provided for an annual reconciliation of recoverable GAC costs with applicable revenue billed. Any excess or deficiency in GAC revenue billed is deferred and the balance at the reconciliation date is either refunded to or recovered from customers over a subsequent twelve-month period. (n) Federal Income Tax The Holding Company uses the asset and liability method to establish deferred tax assets and liabilities for the temporary differences between the financial reporting basis and the tax basis of the Holding Company's assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. In addition, such deferred tax assets and liabilities will be adjusted for the effects of enacted changes in tax laws and rates. (o) Revenue Taxes The Gas Company collects state revenue taxes on residential delivery rates. The amount included in Utility Operating Revenue and Taxes other than Federal Income Taxes was $175,294 and $168,900 in 2015 and 2014, respectively. (p) Stock Based Compensation The Holding Company accounts for stock based awards in accordance with FASB ASC 718. The Holding Company awards restricted shares as compensation to our directors. The shares awarded become unrestricted upon a director leaving the board. Directors who also serve as officers of Corning Gas are not compensated for their service as directors. Since these shares are restricted, in recording compensation expense, the expense incurred is 25% less than the closing price of the stock on the day the stock was awarded. Each director is awarded 375 shares for each quarter served. Seven directors received a total of 9,000 shares during fiscal 2014 and 10,442 shares during fiscal 2015. On November 13, 2014, shares were issued for the quarter ended September 30, 2014 with the new director, Robert Johnston receiving 317 shares (accrued for his service during the quarter). On December 1, 2015, 2,625 shares were issued for the quarter ended September 30, 2015. The Board of Directors authorized the issuance on December 12, 2012, of 600 shares of the Holding Company's common stock to Carl T. Hayden in compensation for his past service as a director of the Holding Company's joint venture affiliate, Leatherstocking Gas Company, LLC and 75 shares each quarter thereafter until Leatherstocking Gas Company started serving customers at which point quarterly compensation increased to 112 shares for the quarter ended December 31, 2013. Quarterly compensation increased to 150 shares for the quarter ended March 31, 2015. Mr. Hayden has received a total of 937 shares for his service. These shares are sold to Leatherstocking Gas Company from time to time at the fair market value determined as the closing price of the Holding Company's common stock on the 20th business day after quarter end. (q) Earnings Per Share Basic earnings per share are computed by dividing income available for common stock by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. The only potentially dilutive securities the Holding Company has outstanding are stock options. The diluted weighted average shares outstanding shown on the Consolidated Statements of Income reflects the potential dilution as a result of these stock options as determined using the Treasury Stock Method. Stock options that are antidilutive are excluded from the calculation of diluted earnings per common share. (r) 311 Transportation Agreement /Compressor Station On January 11, 2010, the Gas Company entered into a contract (311 Transportation Agreement) with a local gas producer that provided for the building of a compressor station as well as the transfer of a 6” pipeline owned by the gas producer to the Company for nominal consideration. The contract also sets forth the terms, rates and condition of the transport of the local producer gas to the interstate pipeline system. On May 21, 2010, the 311 Transportation Agreement was revised to reflect a change in the projected gas delivery schedule and delivery volumes. The previously agreed to transportation rates did not change. The contract's maximum daily delivery quantity remained the same. The schedule for attaining the maximum daily delivery quantity was altered to accommodate the project's construction schedule. The Gas Company bought the $11 million compressor station and $2.1 million pipeline from the local producer for two dollars. The local producer has the right to repurchase these facilities for two dollars in ten years. This transaction became effective on May 12, 2011, when the station began operations. Although the Gas Company has a plant available for use that had an original cost of $13.1 million, only two dollars was recognized in accordance with the Uniform System of Accounts (313.2) which states that in the case of gas plant contributed to the utility, gas plant accounts shall be charged only with such expenses, if any, incurred by the utility. (s) Collective Bargaining Agreement The Gas Company had 58 employees as of September 30, 2015, and 57 as of September 30, 2014. Of this total, nearly half are members of the International Brotherhood of Electrical Workers Local 139 labor union working under an agreement effective until April 2, 2018. (t) Leatherstocking Companies The Holding Company has a 50% investment in Leatherstocking Gas Company, LLC (“Leatherstocking Gas”) and Leatherstocking Pipeline Company, LLC (“Leatherstocking Pipeline”). The investment and equity in both companies (collectively, “Joint Ventures”) has been recognized in the consolidated financial statements. The Holding Company has accounted for its equity investment using the equity method of accounting based on the guidelines established in FASB ASC 323. In applying the guidance of FASB ASC 323, the Holding Company recognized the investment in the Joint Ventures as an asset at cost. The investment will fluctuate in future periods based on the Holding Company's allocable share of earnings or losses from the Joint Ventures which is recognized through earnings. (u) New Accounting Pronouncements Not Yet Adopted In May 2014, the FASB issued new accounting guidance on revenue from contracts with customers. The new guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods and services to customers. The updated guidance will replace most existing revenue recognition guidance in GAAP when it becomes effective. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. We are currently evaluating the effect the updated standard will have on our consolidated financial statements and related disclosures. In April 2015, the FASB issued new accounting guidance on the presentation of debt issuance costs. The new guidance requires that debt issuance costs related to a note be presented as a direct deduction from that note. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years. We do not believe this guidance will have a material effect on our consolidated financial statements when adopted. In July 2015, the FASB issued new accounting guidance simplifying inventory measurement by requiring companies to value inventory at the lower of cost and net realizable value. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. We do not believe this guidance will have a material effect on our consolidated financial statements when adopted. In September 2015, the FASB issued new accounting guidance on the recognition by the acquiring entity of adjustment to provisional amounts during the measurement period. The new guidance requires that the adjustments that are identified to be recognized in the same period's financial statements in which the adjustment amounts are determined. The entity must also present separately on the face of the income statement, or disclose separately in the notes, the portion of the amount recorded in the current-period earnings by line item that would have been recorded in previous periods if the adjustment had been identified as of the acquisition date. We are still evaluating whether this guidance will have a material effect on our consolidated financial statements when adopted. In November 2015, the FASB issued new accounting guidance on the classification of deferred taxes. The new guidance requires that all deferred tax asset and liabilities be classified as noncurrent in a classified statement of financial position. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. Early application is permitted. When the guidance is effective all deferred tax assets and liabilities will be presented as noncurrent. We do not believe this guidance will have a material effect on our consolidated financial statements when adopted. |
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Major Customers |
12 Months Ended |
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Sep. 30, 2015 | |
| Major Customers[Abstract] | |
| Major Customers | (2) Major Customers
The Gas Company has three major customers to which the Gas Company delivers gas: Corning Incorporated, New York State Electric & Gas (NYSEG) and Bath Electric Gas & Water Systems (BEGWS). Although no customer represents at least 10% of our total revenue, the loss of any of these customers could have a significant impact on the Company's financial results. |
Property, Plant and Equipment |
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| Property, Plant and Equipment | (3) Property, Plant and Equipment The following table summarizes fixed assets included in utility plant on the Holding Company's Consolidated Balance Sheet at September 30, 2015 and 2014:
Useful life for the above assets range from 35 to 52 years for utility plant, 66 years for pipeline, from 45 to 47 years for structures, 65 years for land rights and 8 to 25 years for all other and corporate fixed assets. |
Marketable Securities |
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| Marketable Securities | (4) Marketable Securities A summary of the marketable securities at September 30, 2015 and 2014 is as follows:
The government and agency bonds have contractual maturity dates between August 31, 2017 and November 21, 2024. The contractual maturity dates for the corporate bonds are from September 15, 2016 to December 1, 2022.
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Regulatory Matters |
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| Regulatory Matters [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Regulatory Matters | (5) Regulatory Matters Below is a summary of the Gas Company's regulatory assets as of September 30, 2015 and 2014:
Unrecovered gas costs arise from an annual reconciliation of certain gas revenue and costs (as described in Note 1) and are recoverable in customer rates in the year following the reconciliation.
The following table summarizes regulatory costs at September 30, 2015 and 2014:
Deferred rate case costs are costs that were incurred in prior rate cases that are amortized over a period determined by the NYPSC in the current rate case and are recoverable over that period. Deferred rate case reconciliations result from target reconciliations set up in the current rate case and recovery will be determined by the NYPSC either through Delivery Rate Adjustment or the next rate case.
In fiscal year 2015 the Gas Company determined that it meets the criteria to record the minimum pension liability as a regulatory asset in accordance with ASC 980-715-25-5. As a result of this change in estimate, amounts previously recorded as Accumulated OCI, net of tax have been recorded as regulatory assets in the current year in accordance with ASC 980-715-25-8, as well as a related deferred tax liability. The amount of the regulatory asset was $3,665,926. The increase to OCI was $2,748,238. Factors considered include: (1) consistent recovery of the pension costs on an accrual basis historically and in the current rate case, (2) no indication of expected changes to recovery, and (3) the existence of a reconciliation process to track the recovery of these costs. For these reasons management determined the Gas Company meets the criteria as set forth in ASC 980-725-25-5. Also included in pension costs and post-retirement benefits is approximately ($35,000) and $131,000 for 2015 and 2014, respectively, for regulatory assets and (liabilities) related to pension and post-retirement costs. These amounts include both amounts approved to be amortized in the previous rate case and amounts being accumulated for the next rate case. Included in other in deferred credits and other is $1,338,048 and $1,041,345 for the periods ended September 30, 2015 and 2014 for deferred rate case reconciliations.
Although the Gas Company expects to recover the cost of its regulatory assets, it does not earn a return on them. The Gas Company expects that regulatory assets other than deferred unrecovered gas costs and deferred pension costs related to minimum pension liability will be fully recoverable from customers by the end of its next rate case expected during the year ended September 30, 2018. |
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Long-term Debt |
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| Long-term Debt [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Long-term Debt | (6) Long-term Debt
Long-term debt, including the current portion, was as follows at September 30, 2015 and 2014:
The aggregate maturities of long-term debt for each of the five years subsequent to September 30, 2015 are as follows:
On May 10, 2010, the Gas Company entered into a credit agreement with Community Bank N.A. for a $1.05 million Promissory Note at a fixed interest rate of 6.25% for the purpose of paying for the construction projects of our new franchise located in the town of Virgil, New York. This agreement gives our lender a security interest in all fixtures, equipment and inventory related to the Gas Company's franchise in the town of Virgil as well as marketable securities. The note also required an equity contribution of $350,000 which was accomplished by the exercise of 24,000 stock options by Michael I. German, President and CEO, at $15.00 per share or $360,000. The agreement included the following covenants to be measured at each fiscal year end starting with the September 30, 2009 financial statement: (i) maintain a tangible net worth of not less than $11.0 million, (ii) maintain a debt to tangible net worth of less than 3.0 to 1.0, and (iii) maintain a debt service coverage ratio of 1.10 to 1. On March 7, 2011, the interest rate on this loan was modified from a fixed interest rate to a floating rate of 30-day LIBOR plus 2.75% with a floor rate of 4.5% and a ceiling rate of 6.25%. The rate was 4.5% as of September 30, 2015. On May 8, 2015, this loan was extended until May 10, 2020 with the same terms and monthly payment amount.
In September 2010, the Gas Company entered into an agreement with Five Star Bank to provide $750,000 to fund construction of an upgrade to existing natural gas piping to serve increased gas demands on one of our main supply lines, including three Corning Incorporated plants. The Gas Company gave the bank a security interest in all funds, deposits and other property, now or hereafter in the possession of the bank as collateral for this agreement. Interest is payable monthly at a fixed rate of 4.25% per annum and, unless sooner accelerated or demanded, the note was to mature on September 25, 2011. This note was refinanced with Five Star Bank on September 1, 2011 with no change in terms. On August 13, 2012 the note was refinanced at a variable interest rate of prime rate plus 1.00% until July 30, 2013. Commencing July 30, 2013 and continuing until August 1, 2018, the Gas Company will pay principal and interest at a fixed rate equal to the prevailing Federal Home Loan Bank of New York Fixed Advance Rate as published five days prior to July 30, 2013, plus 3.75%. The interest rate at September 30, 2015 was 5.79%.
On July 14, 2011, the Gas Company entered into a Multiple Disbursement Term Note and Credit Agreement in the amount of $2 million with M&T Bank to fund construction projects in our NYPSC-mandated repair/replacement program for calendar year 2011. No additional collateral was required for this note. Until October 31, 2011, the note was payable as interest only at a rate of the greater of 3.50 percentage points above 30-day LIBOR or 4.25%. On November 1, 2011 the note converted to a permanent loan payable monthly for five years calculated on a ten-year amortization schedule with a variable rate, adjusting daily, based on the greater of 3.25 basis points above 30-day LIBOR or 4.25%.
On July 27, 2012, the Gas Company entered into a Line of Credit Agreement and Term Loan Agreement in the amount of $2.45 million with Community Bank, N.A. to fund construction projects in our NYPSC mandated repair/replacement program for 2012. This agreement gives our lender security interest in all fixtures, equipment and inventory related to the Gas Company's investment from these construction projects as well as marketable securities. From July 27, 2012 to November 30, 2012 (“Draw Period”), the note was payable as interest only at a rate of the greater of 3.00 percentage points above 30-day LIBOR or 3.75%. On December 1, 2012, the note converted to a permanent loan payable monthly for five years with the same interest rate calculated on a ten-year amortization schedule. A final payment will be due on the maturity date equal to the outstanding principal and interest.
On August 13, 2012, the Gas Company entered into agreements with Five Star Bank pursuant to two Promissory Notes in the amount of $250,000 each. Each Note is payable monthly for five years at the fixed interest rate of 4.46% per annum. At that time, the Notes will have the option to be paid-in-full, refinanced or remain in place for an additional five years with a new effective rate established at that time. The purpose of these Notes was to fund construction of two major projects. Collateral for these notes is a first priority lien on all underground piping associated with one project and a first priority lien on the contract between the Gas Company and the customer for the other project.
On September 3, 2013, the Gas Company refinanced approximately $7.8 million of its existing indebtedness with M&T Bank and obtained $4.0 million in new financing from M&T Bank. The Gas Company entered into the following two notes in favor of M&T, which are in replacement of and in substitution for (a) a $6 million loan agreement and note with M&T, dated as of March 4, 2010, that had an interest rate to 6.5%, and (b) a note, dated as of October 27, 2010, executed by the Gas Company in favor of M&T in the original principal amount of approximately $1.8 million that had an interest rate of 5.76%.
Also on September 3, 2013, the Gas Company entered into a Multiple Disbursement Term Note with M&T Bank, dated as of September 3, 2013, in the original principal amount of $4.0 million, the proceeds of which were used to fund construction projects related to furnishing natural gas within the Gas Company's service area. As collateral, the Gas Company granted M&T Bank security interest in all fixed assets and equipment, contract rights, easements, right of ways, etc. of the Gas Company. Until November 30, 2013, the note was payable as interest only at an interest rate equal to the rate in effect each day as announced by M&T Bank as its prime rate of interest. On November 30, 2013, the note converted to a permanent loan payable over five years in equal monthly installments of principal and interest of $23,438 calculated on a ten-year amortization schedule. The interest rate on this note during the permanent loan period is 4.18% and the loan will mature on December 3, 2018. The Gas Company borrowed $2,329,223 before the note converted to a permanent loan.
On July 3, 2014, the Gas Company entered into a Multiple Disbursement Term Note and Credit Agreement in the amount of $3,796,000 with M&T. As collateral, the Gas Company granted M&T a security interest in all fixed assets and equipment, contract rights, easements, right of ways, etc. of the Gas Company. From July 3, 2014 to November 29, 2014 (“Draw Period”), the Note will be payable as interest only at the prime interest rate in effect at time of draw. On November 30, 2014 the Note converted to a permanent loan payable monthly for five years at an interest rate of 2.75 percentage points above the sum of the yield on United States Treasury Obligations to a constant maturity of five years plus the “ask” side of the five-year LIBOR swap. The monthly repayment amount will be calculated on a ten year amortization schedule. A final payment equal to the outstanding principal and interest will be due on the maturity date. The purpose of this Note is to fund construction projects in our NYPSC mandated repair/replacement program for 2014. As of the loan conversion on November 30, 2014, the Gas Company had drawn the total amount of the note, with $943,451 drawn during the quarter ended December 31, 2014. The interest rate for this loan is 4.39% with monthly payments of $39,257.
Also on July 3, 2014, the Gas Company entered into a Term Note and Credit Agreement with M&T in the amount of $615,000. As collateral, the Gas Company granted M&T a security interest in all fixed assets and equipment, contract rights, easements, right of ways, etc. of the Gas Company. Interest on this note will be a fixed rate of 4.49%. The monthly payments will be $6,371 with a final balloon payment due at loan maturity in July 2019. The purpose of this note is to refinance costs associated with 2013 mandated repair/replacement projects.
The Gas Company is in compliance with all of its loan covenants as of September 30, 2015. |
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Lines of Credit and Short Term Debt |
12 Months Ended |
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Sep. 30, 2015 | |
| Lines of Credit and Short Term Debt [Abstract] | |
| Lines of Credit and Short Term Debt | (7) Lines of Credit and Short Term Debt
On October 27, 2015, the Gas Company extended its line of credit agreement with Community Bank N.A. (“Community Bank”) in the amount of $8.5 million that will expire on April 1, 2016. Borrowings outstanding on this line were $7,003,599 and $4,614,541 at September 30, 2015 and 2014, respectively. The maximum amount outstanding during the years ended September 30, 2015 and 2014 were $7,581,344 and $7,140,511, respectively. The interest rate is calculated as the 30-day Libor Rate plus 2.5%. As security for the Gas Company's line of credit, Community Bank has a purchase money interest in all of our natural gas purchases utilizing funds advanced by Community Bank under the line-of-credit agreement and all proceeds of sale of the gas to customers and related accounts receivable. Under the terms of this line the Gas Company is required to maintain a debt to tangible net worth ratio of less than 2.5 to 1 and a debt service coverage ratio of 1.1 to 1. The Gas Company is in compliance with the loan covenants as of September 30, 2015. On September 30, 2015, the interest rate was 2.9905%. The weighted average interest rates on outstanding borrowings during fiscal years 2015 and 2014 were 2.90% and 3.17%, respectively.
On August 17, 2015, the Gas Company entered into a Term Note and Agreement with M&T in the amount of $2,000,000 with an interest rate of 2.30 percentage points above LIBOR for the purpose of short term financing of mandated construction projects. The maturity date of this note was November 17, 2015. On October 14, 2015, the Gas Company entered into a Term Note and Agreement with M&T in the amount of $1,000,000 with an interest rate of 2.75 percentage points above LIBOR for the purpose of short term financing of mandated construction projects. The maturity date of this note was January 14, 2016. On November 6, 2015, the Gas Company entered into a Term Note and Agreement with M&T in the amount of $3,000,000 that consolidated the notes for $2,000,000 and $1,000,000 into a new note with a maturity date of February 6, 2016. This note has an interest rate of 2.75 percentage points above LIBOR. This note will either be refinanced or extended at maturity.
As of September 30, 2015, we believe that cash flow from operating activities and borrowings under our lines of credit will not be sufficient to satisfy our working capital and debt service requirements over the next twelve months. We believe modifications and or refinancing of current debt amounts, as well as new debt instruments and proceeds from equity will be required to satisfy our capital expenditures to finance our internal growth needs for the next twelve months. Also see Note 15 to the Notes to the Consolidated Financial Statements for additional borrowings to finance a potential acquisition. |
Stockholders Equity |
12 Months Ended |
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Sep. 30, 2015 | |
| Stockholders Equity [Abstract] | |
| Stockholders Equity | (8) Stockholders Equity
For the fiscal year ended September 30, 2015 there were a total of 19,463 shares of common stock issued for $29,785 of cash, $162,414 of services and $132,761 of the DRIP (dividend reinvestment program). There were 10,442 shares issued to directors, 526 shares sold to Leatherstocking Gas, which used the shares to compensate its independent director, Carl Hayden, 6,995 of DRIP shares and 1,500 options exercised. On October 21, 2015 an additional 9,000 options were exercised for proceeds of $115,470.
On May 28, 2009, the Gas Company registered with the Securities and Exchange Commission (“SEC”) 100,000 shares of common stock with a par value of $.01 per share for the DRIP. On January 10, 2014, the Holding Company filed with the SEC a registration statement with respect to the then remaining 129,000 shares of the Holding Company's common stock issuable under the dividend reinvestment plan. As part of this program 761 shares were issued in fiscal year 2009, 2,319 shares were issued in fiscal year 2010, 3,976 shares in fiscal year 2011, 5,689 shares in fiscal year 2012, 7,433 shares in fiscal year 2013, 7,219 shares in fiscal year 2014, and 6,995 shares in fiscal year 2015. A total of 34,392 shares have been issued since the program started.
The Holding Company entered into a series of stock purchase agreements selling to six investors an aggregate of 150,000 shares of common stock at a price of $16.40 per share. This private placement of common stock resulted in gross proceeds to the Holding Company of $2,460,000. A stock purchase agreement for 75,000 shares dated April 7, 2014, was entered into with the Article 6 Marital Trust under the First Amended and Restated Jerry Zucker Revocable Trust dated April 2, 2007 (the "Zucker Trust"). Closing was funded on or about April 9, 2014. Prior to this purchase, Anita G. Zucker, as trustee of the Zucker Trust, reported holding 214,451 shares of the Holding Company's common stock on a Schedule 13D dated September 24, 2012. On April 15, 2014, the Holding Company entered into four separate Stock Purchase Agreements with QCI Asset Management LLC (“QCI”) and four of its advisees for an aggregate of 70,000 shares of common stock held for the benefit of the accounts of those advisees managed by QCI. QCI also manages certain funds of the Holding Company and subsidiaries. On April 16, 2014, the Holding Company entered into a stock purchase agreement with Robert B. Johnston for 5,000 shares. Mr. Johnston is or may be deemed an affiliate of the Zucker Trust and as of July 15, 2014, become a member the Holding Company's Board of Directors. The price of $16.40 per share was the same under each of the stock purchase agreements. Closing on these remaining 75,000 shares occurred on April 16, 2014. The proceeds were used initially to reduce the outstanding balance on the Company's line of credit and in the long term to help fund the Company's capital projects.
Dividends are accrued when declared by the board of directors. A dividend of $.125 a share was paid on October 15, 2013 to shareholders of record on September 30, 2013 and on January 15, 2014 to shareholders of record on December 3, 2013. At its regular meeting on February 20, 2014, the board of directors approved an increase in the quarterly dividend to $.135 a share. This dividend was paid on April 15, 2014 to shareholders of record on March 31, 2014 and on July 15, 2014 for shareholders of record on June 30, 2104. For the quarter ended September 30, 2014, $327,819 was accrued for dividends paid on October 15, 2014 to shareholders of record on September 30, 2014. At its regular meeting on December 19, 2014, the board of directors approved a quarterly dividend of $.135 a share. This dividend was paid on January 15, 2015 to shareholders of record on December 31, 2014. At its regular meeting on January 20, 2015, the board of directors approved an increase in the quarterly dividend to $.145 a share. This dividend was paid on April 15, 2015 to shareholders of record on March 31, 2015, and on July 15, 2015 to shareholders of record on June 30, 2015. For the quarter ended September 30, 2015, $354,924 was accrued for dividends paid on October 15, 2015 to shareholders of record on September 30, 2015. |
Investment in Joint Ventures |
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Sep. 30, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||
| Investment in Joint Ventures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Investment in Joint Ventures | (9) Investment in Joint Ventures
The Holding Company has an interest in Leatherstocking Gas, a joint venture with Mirabito Regulated Industries, LLC, accounted for by the equity method. This joint venture is currently moving forward on expansions to several areas in the northeast. The Holding Company and Mirabito Regulated Industries, LLC each own 50% of the joint venture and each appoints three managers to operate Leatherstocking Gas. The seventh manager is a neutral manager agreed to by the Holding Company and Mirabito Regulated Industries, LLC who is not an officer, director, or employee of either company, currently Carl T. Hayden. The current managers are Joseph P. Mirabito, John J. Mirabito and William Mirabito from Mirabito Regulated Industries, LLC; Matthew J. Cook, Michael I. German and Russell S. Miller from the Holding Company; and Carl T. Hayden as the neutral manager. Michael I. German is the Chief Executive Officer and President of the Holding Company and is also a stockholder and current board member of the Holding Company. Joseph P. Mirabito and William Mirabito are stockholders and current board members of the Holding Company. Leatherstocking Gas has received franchises from the Village and Town of Sidney, Village and Town of Bainbridge, Village and Town of Windsor, Village and Town of Unadilla, and Village and Town of Delhi in New York. Leatherstocking Gas' petition for authority to exercise its franchises in the Town and Village of Winsor is currently pending before the NYPSC. In addition, Leatherstocking Gas has acquired sixteen franchises in Susquehanna and Bradford Counties, Pennsylvania. Leatherstocking Gas has met with potential customers and public officials, as well as attended public hearings, and believes there is interest in acquiring gas service. On July 25, 2013, Leatherstocking Gas signed a loan agreement with Five Star Bank for $1.5 million to finance the construction in Bridgewater, Pennsylvania. This agreement increased to $1.8 million before converting to a long-term note. Construction in the Township of Bridgewater began in July 2013 and Leatherstocking Gas began serving customers in October 2013. Construction of the Borough of Montrose system started in the spring of 2014 and construction started in the Township of Dimock in November 2014. Leatherstocking Gas currently serves 240 customers in these boroughs and townships as of September 30, 2015. On August 28, 2014, Leatherstocking Gas, as borrower, and Leatherstocking Pipeline as guarantor, entered into a loan agreement with Five Star Bank for up to $4 million over two years to finance the work and services required for the infrastructure costs and ongoing costs of underground piping construction projects in Montrose, Bridgewater and Dimock, Pennsylvania. This agreement required equity investments from the Holding Company and Mirabito Regulated Industries for a total of 66% of all amounts borrowed. During fiscal year 2014, $1,500,000 was borrowed and both the Holding Company and Mirabito Regulated Industries invested $500,000. During fiscal year 2015, $2,500,000 was borrowed and both the Holding Company and Mirabito Regulated Industries invested $850,000. As of September 30, 2015, Leatherstocking Gas has drawn the $4 million available over the two year period on this loan. Both of these agreements have a loan covenant related to debt service coverage being at least 1.15 to 1 at September 30, 2015. Leatherstocking Gas was in violation of this covenant. Leatherstocking Gas received a waiver from Five Star Bank as of September 30, 2015. In February 2015, Leatherstocking Gas purchased a 1.5 mile high pressure gas main along with a meter, heater and regulator station for $900,000. This purchase was funded with a new loan agreement with Five Star Bank for $540,000 and investment from the Holding Company and Mirabito Regulated Industries of $180,000 each. Another $100,000 was invested by both companies for total investments of $1,130,000 by each for the year ended September 30, 2015. The new note matures on March 1, 2020 with an interest rate of 4.58%. With this purchase, Leatherstocking Gas began service to a large industrial customer. On October 19, 2015, Leatherstocking Gas and Five Star Bank entered into an agreement which allows Leatherstocking Gas to borrow up to $500,000 as a line-of-credit note with interest only payments to finance the continued and additional infrastructure cost of the construction project in Northern Pennsylvania. This requires an investment of approximately $166,667 from both the Holding Company and Mirabito Regulated Industries. Leatherstocking Pipeline is a guarantor of this loan.
The interests in Leatherstocking Pipeline, which was formed with the same structure and managers as Leatherstocking Gas, are also held by the Holding Company. Leatherstocking Pipeline is an unregulated company whose purpose is to serve one customer in Lawton, Pennsylvania. In the spring and summer of 2012, Leatherstocking Pipeline built and placed in service facilities to serve that customer.
The investment and equity in both Leatherstocking companies (collectively, “Joint Ventures”) has been recognized in the consolidated financial statements. The Holding Company has accounted for its equity investment using the equity method of accounting based on the guidelines established in FASB ASC 323. In applying the guidance of FASB ASC 323, the Holding Company recognized the investment in the Joint Ventures as an asset at cost. The investment will fluctuate in future periods based on the Holding Company's allocable share of earnings or losses from the Joint Ventures which is recognized through earnings.
The following table represents the Holding Company's investment activity in the Joint Ventures at September 30, 2015 and September 30, 2014:
At September 30, 2015, the Joint Ventures had combined assets of $11.9 million, combined liabilities of $7.3 million and combined net losses of approximately $235,000. |
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Income Taxes |
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| Income Taxes [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Taxes | (10) Income Taxes
Income tax expense for the years ended September 30 is as follows:
Actual income tax expense differs from the expected tax expense (computed by applying the federal corporate tax rate of 34% and state tax rate of 7.1% to income before income tax expense) as follows:
The tax effects of temporary differences that result in deferred income tax assets and liabilities at September 30 are as follows:
The Holding Company has federal and New York State tax net operating loss carry forwards available of approximately $6.4 million as of September 30, 2015 that begin to expire at the end of the Holding Company's fiscal 2025 tax year. The accounting rules for uncertain taxes provide for the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recognized in the financial statements. The Holding Company has evaluated its tax positions and accordingly has not identified any significant uncertain tax positions. The Holding Company's policy is to classify interest associated with uncertain tax positions as interest expense in the financial statements. Penalties are classified under other expense. The Holding Company will file a consolidated federal income tax return and state income tax returns in New York and Pennsylvania. The federal returns for the tax years ended September 30, 2012 and prior to September 30, 2011 are no longer subject to examination. The state returns for the tax years ended prior to September 30, 2012 are no longer subject to examination. The Gas Company's federal return is currently being examined for the tax year ended September 30, 2011. At this time, the Holding Company and Gas Company do not know of any material financial impact as a result of the examination. |
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Pension and Other Post-retirement Benefit Plans |
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| Pension and Other Post-retirement Benefit Plans [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pension and Other Post-retirement Benefit Plans | (11) Pension and Other Post-retirement Benefit Plans
There are currently three covered participants related to the deferred compensation obligation that are all former officers. The liability on the consolidated balance sheet represents the present value of the future obligation. In 1997, the Gas Company established a trust (the Rabbi Trust) to fund a deferred compensation plan for certain officers. The fair market value of assets in the trust was $2,102,600 (plus $51,185 in additional stock) and $2,256,953 (plus $51,185 in additional stock) at September 30, 2015 and 2014, respectively, and the plan liability, which is labeled as deferred compensation on the balance sheet, was $1,492,488 and $1,666,415 at September 30, 2015 and 2014, respectively. The assets of the trust are available to general creditors in the event of insolvency. In 2015, the mortality assumption was changed from the RP-2000 annuitant/non-annuitant mortality table with generational improvements using scale BB to the 2008 VBT Primary Male Smoker tables with generational improvements for two of the covered participants which resulted in a decrease to the pension obligation of approximately $171,000. In 2014, the mortality assumption was changed from the 1994 Group Annuity Mortality Table for Males and Females without generational improvements to the RP-2000 annuitant/non-annuitant Mortality Table for Males and Females with generational improvements projected using scale BB. This change resulted in an increase to the pension benefit obligation of approximately $131,200 in fiscal 2014.
The Gas Company has defined benefit pension plans covering substantially all of its employees. The benefits are based on years of service and the employee's highest average compensation during a specified period. The Gas Company makes annual contributions to the plans equal to amounts determined in accordance with the funding requirements of the Employee Retirement Security Act of 1974. Contributions are intended to provide for benefits attributed for service to date, and those expected to be earned in the future.
In addition to the Gas Company's defined benefit pension plans, the Gas Company offers post-retirement benefits comprised of medical and life coverage to its employees who meet certain age and service criteria. For union participants who retire on or after September 2, 1992, the Gas Company cost for post-retirement benefits is contractually limited and will not exceed $150 per month. This contract is in effect until April 2, 2018. The monthly benefit for all non-union employees, who retire between the ages of 62 and 65, will be the lesser of 40% of the retiree's plan premium or $150. After age 65, the Gas Company pays up to $150 a month for the cost of the retiree's supplemental plan. In addition, the Gas Company offers limited life insurance coverage to active employees and retirees. The post-retirement benefit plan is not funded. The Gas Company accrues the cost of providing post-retirement benefits during the active service period of the employee.
The following table shows reconciliations of the Gas Company's pension and post-retirement plan benefits as of September 30:
The funded status of both plans totaling a deficiency of approximately $6,800,000 and $6,200,000 at September 30, 2015 and 2014, respectively, are included in deferred pension & post-retirement benefits on the consolidated balance sheets which are offset by a pension regulatory liability of approximately $35,000 at September 2015 and a pension regulatory asset of approximately $131,000 at September 30, 2014. In accordance with ASC 715, the net actuarial loss/(gain) and unrecognized prior service cost are collectively adjusted through other comprehensive income (loss)-minimum pension liability and included in accumulated other comprehensive income in the consolidated financial statements, which are presented net of tax for fiscal 2014. In the fourth quarter of fiscal 2015 the Gas Company determined that it meets the criteria to record these items as a regulatory asset in accordance with ASC 980-715-25-5. See Note 5 to the financial statements.
During the year ended September 30, 2015, the pre-tax accumulated net actuarial loss/(gain) and unrecognized prior service cost increased by $851,547 from $3,666,126 to $4,517,673. Historically, the change in these items had been recorded net of tax in the consolidated statements of changes in stockholders' equity. During first three quarters of the year ended September 30, 2015, the Gas Company recorded $222,363 ($377,526, net of tax) through OCI for the estimated change in these items based on estimates prepared by the actuary during the year ended September 30, 2014. After removing these items from OCI and establishing the regulated asset in the fourth quarter of the year ended September 30, 2015, the remaining change of $474,021 was recorded directly as an increase to this asset. Beginning with the year ended September 30, 2016 the change in pre-tax net actuarial loss/(gain) and unrecognized prior service will be recorded directly to the regulatory asset related to pension.
Amortization of unrecognized net (gain)/loss for the Retirement Plan for fiscal year ending September 30, 2015:
Amortization of unrecognized net (gain)/loss for the Post-Retirement Plan for the fiscal year ended September 30, 2015:
For ratemaking and financial statement purposes, pension expense represents the amount approved by the NYPSC in the Gas Company's most recently approved rate case. Pension expense (benefit) for ratemaking and financial statement purposes was approximately $970,000 for the years ended September 30, 2015 and 2014. The difference between the pension expense (benefit) for ratemaking and financial statement purposes, and the amount computed above has been deferred as regulatory assets and are not included in the prepaid pension cost noted above. The cumulative amounts deferred equal $89,746 and $227,024 as of September 30, 2015 and 2014, respectively.
The NYPSC has allowed the Gas Company to recover incremental cost associated with post-retirement benefits through rates on a current basis. Due to the timing differences between the Company's rate case filings and financial reporting period, a regulatory receivable of $123,174 and $147,168 has been recognized at September 30, 2015 and 2014, respectively.
For the period ended September 30, 2014, the discount rate was prepared by utilizing an analysis of the plan's expected future cash flows and high-quality fixed-income investments currently available and expected to be available during the period to maturity of the pension benefits. The discount rate used is an estimate of the rate at which a defined benefit pension plan could settle its obligations. Rather than using a rate and curve developed using a bond portfolio, this method selects individual bonds to match to the expected cash flows of the Plan. Management feels this provides a more accurate depiction of the true cost to the plan to settle the obligations as the Plan could theoretically go into the marketplace and purchase the specific bonds used in the analysis in order to settle the obligations of the Plan. In 2014, the mortality assumption has changed from the 1994 Group Annuity Mortality Table for Males and Females without generational improvements to the RP-200 annuitant/non-annuitant Mortality Table for Males and Females with generational improvements projected using scale BB. This change resulted in an increase to the pension benefit obligation of approximately $1,394,000. The net effect of these two changes to the assumptions is a decrease of approximately $759,000 to the pension benefit obligation. In fiscal 2015, the same methodology was used as in 2014. The change in discount rate from 5.07% to 5.22% did not have a significant effect on the benefit obligation. The expected returns on plan assets of the Retirement Plan and Post-Retirement Plan are applied to the market-related value of plan assets of the respective plans. For the Retirement Plan, the market-related value of assets recognizes the performance of its portfolio over five years and reduces the effects of short-term market fluctuations. The Gas Company's Retirement Plan assets are invested by a manager that reports at least annually to the Gas Company's Investment Committee for review and evaluation. The manager has been given the objective to achieve modest capital appreciation with a secondary objective of achieving a relatively high level of current income using a mix of cash equivalents, fixed income securities and equities to structure a balanced investment portfolio. The Investment Committee does not reserve control over investment decisions, with the exception of certain limitations and holds the manager responsible and accountable to achieve the stated objectives. The market-related value of Post-Retirement Plan assets is set equal to market value. For measurement purposes, a 6% annual rate of increase in the per capita cost of covered benefits (health care cost trend rate) was assumed for 2015. The rate is assumed to increase by 6% each year thereafter. A 1% increase in the actual health care cost trend would result in approximately a 3.9% increase in the service and interest cost components of the annual net periodic post-retirement benefit cost and a 5.7% increase in the accumulated post-retirement benefit obligation. A 1% decrease in the actual health care cost trend would result in approximately a 3.2% decrease in the service and interest cost components of the annual net periodic post-retirement benefit cost and a 4.8% decrease in the accumulated post-retirement benefit obligation.
The Gas Company expects to contribute $960,819 to the Retirement Plan during the year ended September 30, 2016.
The estimated pension plan benefit payments are as follows:
The Gas Company also maintains the Corning Natural Gas Corporation Employee Savings Plan (the “Savings Plan”). All employees of the Gas Company who work for more than 1,000 hours per year and who have completed one year of service may enroll in the Savings Plan at the beginning of each calendar quarter. Under the Savings Plan, participants may contribute up to 50% of their wages. For all employees, the Gas Company will match one-half of the participant's contribution up to a total of 50% of the participant's contribution up to a total of 6% of the participant's wages. The plan is subject to the federal limitation. The Gas Company contribution to the plan was $87,456 in 2015 and $87,712 in 2014. |
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Stock Options |
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| Stock Options [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock Options | (12) Stock Options
A summary of all stock option activity and information related to all options outstanding follows:
There is no unrecognized cost related to options at September 30, 2015 because all options are vested. On October 21, 2015, an additional 9,000 options were exercised. |
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Commitments |
12 Months Ended |
|---|---|
Sep. 30, 2015 | |
| Commitments [Abstract] | |
| Commitments | (13) Commitments The Gas Company is a local distribution company and has contracted for gas supply from various sources to provide the commodity to the city gates. The city gate is the transfer point at which we take ownership of the gas supply from local producers and interstate pipelines and billing metering starts. The Gas Company maintains storage capacity of approximately 736,000 Dekatherms. Prior to April 2014, the Gas Company contracted with a third-party to manage its gas supply and storage. Starting in April 2014, the Gas Company assumed responsibility for managing its gas supply assets. At September 30, 2015, we had 654,040 dekatherms at $1.2 million in storage. As the result of these actions, we anticipate that we will have sufficient gas to supply our customers for the 2015-2016 winter heating season.
The Gas Company has secured the NYPSC required fixed price and storage gas supply for the winter season and is managing its gas storage and gas contracts to assure that the Gas Company follows its gas supply and acquisition plan. The gas supply plan is a formal document that defines how we acquire natural gas to supply our customers. The plan is submitted to the NYPSC every year and adherence to the plan is a regulatory mandate. Assuming no extraordinary conditions for the winter season, gas supply, both flowing and storage, will be adequate to serve our, approximately 14,800 customers.
On September 9, 2015, the Holding Company and M&T Bank signed a Commitment Letter for up to a $12 million term loan and a $2 million line of credit loan for partially financing the stock purchase of Pike County Light & Power Company from Orange & Rockland Utilities. The term loan will mature five years from the date of closing with interest only payments for the first six months, then monthly payment of principal and interest based on an amortization not to exceed ten years. This loan will have a variable interest rate based on one month LIBOR plus 300 basis points. The line of credit note will be a demand facility billed interest only monthly at a variable rate equal to one month LIBOR plus 275 basis points.
Environmental Considerations: The Gas Company is subject to various federal, state and local environments laws and regulations. The Gas Company has established procedures for the ongoing evaluation of its operations to identify potential environmental exposures and assure compliance with regulatory policies and procedures. Management believes the Gas Company is in compliance with all applicable regulations. |
Related Party Transactions |
12 Months Ended |
|---|---|
Sep. 30, 2015 | |
| Related Party Transactions [Abstract] | |
| Related Party Transactions | (14) Related Party Transactions A director performed legal services for the Gas Company of approximately $174,000 in 2015 which resulted in some property tax savings but the legal service cost was reimbursed by the customer responsible for payment of the property tax. No amounts have been recorded in the consolidated financial statements.
Related party receivables are expenditures paid on behalf of the Holding Company's joint venture investments. There were costs incurred in fiscal 2015 of $118,108 with approximately $10,500 due for shares sold to Leatherstocking Gas for director services. There were no payments made in fiscal 2015 but we expect repayment on these amounts during the year ended September 30, 2016. |
Subsequent Events |
12 Months Ended |
|---|---|
Sep. 30, 2015 | |
| Subsequent Events [Abstract] | |
| Subsequent Events | (15) Subsequent Events
On October 13, 2015, the Holding Company entered into a Stock Purchase Agreement with Orange and Rockland Utilities, Inc. (“O&R”) for the purchase of all of the outstanding capital stock of Pike County Light & Power Company (“PCL&P”), a Pennsylvania corporation operating as a regulated electric and gas utility serving approximately 5,800 customers in Pike County, Pennsylvania. The purchase price for the stock of PCL&P is $13.117 million, with a closing date working capital adjustment of no more than $3 million and assumption of $3.2 million in PCL&P's outstanding bonds. The Holding Company expects to cause these bonds to be redeemed soon after closing of the stock purchase. The consummation of the transactions contemplated by the Stock Purchase Agreement is subject to various closing conditions including: regulatory filings with, and/or approvals by the NYPSC, Pennsylvania Public Utility Commission and the Federal Energy Regulatory Commission. The Stock Purchase Agreement may be terminated by mutual consent of the Holding Company and O&R, if a condition to closing becomes incapable of fulfillment and by either party if closing has not occurred on or before April 13, 2017.
On October 14, 2015, the Gas Company entered into a Term Note and Agreement with M&T in the amount of $1,000,000 with an interest rate of 2.75 percentage points above LIBOR for the purpose of short term financing of mandated construction projects. The maturity date of this note was January 14, 2016. On November 6, 2015, the Gas Company entered into a Term Note and Agreement with M&T in the amount of $3,000,000 that consolidated the notes for $2,000,000 and $1,000,000 into a new note with a maturity date of February 6, 2016. This note has an interest rate of 2.75 percentage points above LIBOR. This note is expected to be either refinanced or extended at maturity.
On October 19, 2015, the NYPSC adopted the terms of the Extension Joint Proposal, including the Safety and Reliability Charge which permits the Gas Company to collect approximately $466,000 in the first twelve months (May 1, 2015 through April 30, 2016), and approximately $575,000 in the second twelve months (May 1, 2016 through April 30, 2017), of the extended Gas Rate Plan, for a total of approximately $1,041,000 with collection condensed and starting November 1, 2015 and ending April 30, 2017. The return of the Gas System Benefit Charge over-collection and elimination of its prospective collection (a regulatory liability) partially offset the collections on the Safety and Reliability Charge, resulting in a total cash flow increase expected over the two—year term of the Extension Joint Proposal of approximately $426,000.
On October 19, 2015, Leatherstocking Gas and Five Star Bank entered into an agreement which allows Leatherstocking Gas to borrow up to $500,000 as a line-of-credit note with interest only payments due at a variable rate equal to the prime rate announced in the Wall Street Journal on a monthly basis. The note will then convert to a permanent loan payable over five years on a ten year amortization schedule. When the loan converts, Leatherstocking Gas will decide on either a fixed rate or variable rate. This requires an investment of approximately $166,667 by each equity holder. Leatherstocking Pipeline is a guarantor of this loan. The interests of the Holding Company and Mirabito Regulated Industries, LLC have been pledged as additional collateral. The purpose of this credit note is to finance the continued and additional infrastructure costs of the construction projects in Northern Pennsylvania.
On October 21, 2015, 9,000 stock options were exercised for proceeds of $115,470.
On December 1, 2015, 2,625 shares were issued to our Board for the quarter ended September 30, 2015 for services provided to the Company. |
Summary of Significant Accounting Policies (Policies) |
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| Summary of Significant Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Principles of Consolidation and Presentation | (a) Principles of Consolidation and Presentation On July 19, 2013, the Holding Company was incorporated under the laws of the State of New York to serve as the parent holding company of the Gas Company, Corning Natural Gas Appliance Corporation (Appliance Company) and, directly or indirectly, the interests in the Leatherstocking Joint Venture Companies, see Note 1(t). The NYPSC approved the formation of the Holding Company and the reorganization of the Gas Company into a holding company structure on May 17, 2013. The reorganization into the holding company structure was approved by more than two-thirds of the shareholders at a special meeting of the Gas Company's shareholders on November 6, 2013. The reorganization was effective on November 12, 2013, when each issued and outstanding share of Corning Gas' common stock, par value $5.00 per share, was converted into one share of the Holding Company's common stock, par value $0.01 per share. The consolidated financial statements include the Holding Company and its wholly owned subsidiaries, Corning Gas and Appliance Company. All intercompany accounts and balances have been eliminated. It is the Holding Company's policy to reclassify amounts in the prior year financial statements to conform to the current year presentation. |
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| Property, Plant and Equipment | (b) Property, Plant and Equipment Property, plant and equipment are stated at the historical cost of construction or acquisition. These costs include payroll, fringe benefits, materials and supplies and transportation costs. The Gas Company charges normal repairs to maintenance expense. |
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| Depreciation | (c) Depreciation The Gas Company provides for depreciation for accounting purposes using a straight-line method based on the estimated economic lives of property and equipment as determined by the current rate plan based on the latest depreciation study. The depreciation rate used for utility plant, expressed as an annual percentage of depreciable property was 2.2% for both of the years ended September 30, 2015 and 2014. The NYPSC allows the Gas Company recovery in revenues to offset costs of building certain projects. At the time utility properties are retired, the original cost plus costs of removal less any salvage are charged to accumulated depreciation. |
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| Accounting for Impairment | (d) Accounting for Impairment The Financial Accounting Standards Board (FASB) ASC 360-10-15, “Accounting for the Impairment or Disposal of Long-Lived Assets” establishes accounting standards to account for the impairment of long-lived assets, and certain identifiable intangibles. Under FASB ASC 360-10-15, the Gas Company reviews assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. FASB ASC 360-10-15 also requires that a rate regulated enterprise recognize an impairment when regulatory assets are no longer probable of recovery. No impairment losses were incurred for the years ended September 30, 2015 and 2014. |
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| Marketable Securities | (e) Marketable Securities Marketable securities, which are intended to fund the Gas Company's deferred compensation plan obligations, are classified as available for sale. Such securities are reported at fair value based on quoted market prices, with unrealized gains and losses, net of the related income tax effect, excluded from income, and reported as a component of accumulated other comprehensive income in stockholders' equity until realized. The cost of securities sold was determined using the specific identification method. For all investments in the unrealized loss position, none have been in an unrealized loss position for more than 12 months. None are other than temporary impairments based on management's analysis of available market research. In 2015 and 2014, the Gas Company sold equity securities for realized gains (losses) included in earnings of $88,028 and $11,812, respectively. |
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| Fair Value of Financial Instruments | (f) Fair Value of Financial Instruments The Gas Company has determined the fair value of debt and other financial instruments using a valuation hierarchy. The hierarchy, which prioritizes the inputs used in measuring fair value, consists of three levels. Level 1 uses observable inputs such as quoted prices in active markets; Level 2 uses inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, which is defined as unobservable inputs in which little or no market data exists, requires the Company to develop its own assumptions. The carrying amount of debt on the Consolidated Balance Sheets approximates fair value as a result of instruments bearing interest rates that approximate current market rates for similar instruments, and the carrying amounts for cash, accounts receivable and accounts payable approximate fair value due to their short-term nature. The assets used to fund the pension plan and marketable securities, which fund the Gas Company's deferred compensation plan, are valued based on Level 1 inputs. The Gas Company has determined the fair value of certain assets through application of FASB ASC 820 “Fair Value Measurements and Disclosures”. Fair value of assets and liabilities measured on a recurring basis at September 30, 2015 and 2014 are as follows:
Financial assets and liabilities valued using level 1 inputs are based on unadjusted quoted market prices within active markets. The pension assets in Note 11 are valued using level 1 inputs. |
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| Cash and Cash Equivalents | (g) Cash and Cash Equivalents Cash and cash equivalents include time deposits, certificates of deposit, and all highly liquid debt instruments with original maturities of three months or less. Cash and cash equivalents at financial institutions may periodically exceed federally insured limits. |
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| Accounts Receivable | (h) Accounts Receivable Accounts receivable are stated net of an allowance for doubtful accounts. The Gas Company estimates the allowance based on its analysis of specific balances, taking into consideration the age of past due accounts and relying on rules and guidelines established by the NYPSC regarding customer disconnects. Related party receivables are expenditures paid on behalf of the Holding Company's Joint Venture investments. We expect repayment on these amounts during the year ended September 30, 2016. |
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| Gas Stored Underground | (l) Gas Stored Underground Gas stored underground is carried at an average unit cost method as prescribed by the NYPSC. |
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| Materials and Supplies Inventories | (j) Materials and Supplies Inventories Materials and supplies inventories are stated at the lower of cost or market, cost being determined on an average unit price basis. |
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| Debt Issuance Costs | (k) Debt Issuance Costs Costs associated with the issuance of debt by the Gas Company are deferred and amortized over the lives of the related debt. |
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| Regulatory Matters | (l) Regulatory Matters Certain costs of the Gas Company are deferred and recognized as expenses when they are reflected in rates and recovered from customers as permitted by FASB ASC 980. These costs are shown as regulatory assets. Such costs arise from the traditional cost-of-service rate setting approach whereby all prudently incurred costs are generally recoverable through rates. Deferral of these costs is appropriate while the Company's rates are regulated under a cost-of-service approach of NYPSC for utilities. As a regulated utility, the Gas Company deferred certain costs for future recovery. In a purely competitive environment, such costs might have been currently expensed. Accordingly, if the Gas Company's rate setting were changed from a cost-of-service approach and the Gas Company were no longer allowed to defer these costs under FASB ASC 980, certain of these assets might not be fully recoverable. However, the Gas Company cannot predict the impact, if any, of competition and continues to operate in a cost-of-service based regulatory environment. Accordingly, the Gas Company believes that accounting under FASB ASC 980 is appropriate. |
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| Revenue and Natural Gas Purchased | (m) Revenue and Natural Gas Purchased The Gas Company records revenues from residential and commercial customers based on meters read on a cyclical basis throughout each month, while certain large industrial and utility customers' meters are read at the end of each month. Several meters are read at the end of each month to calculate local production revenues. The Gas Company does not accrue revenue for gas delivered but not yet billed, as the NYPSC requires that such accounting must be adopted during a rate proceeding, which the Gas Company has not done. The Gas Company, as part of its currently effective rate plan, has a weather normalization clause as protection against severe weather fluctuations. This affects space heating customers and is activated when degree days are 2.2% greater or less than the 30-year average. As a result, the effect on revenue fluctuations of weather related gas sales is somewhat moderated. In addition to weather normalization, starting in September 2009, the Gas Company implemented a revenue decoupling mechanism (RDM). The RDM reconciles actual delivery service revenues to allowed delivery service revenues (which are based on the annual customer and volume forecasts in the last rate case) for certain residential customers. The Gas Company will refund or surcharge customers for differences between actual and allowed revenues. The shortfall or excess after the annual reconciliation will be surcharged or refunded to customers over a twelve month period starting September 1st each year. Gas purchases are recorded on readings of suppliers' meters as of the end of each month. The Gas Company's rate tariffs include a Gas Adjustment Clause (GAC) which adjusts rates to reflect changes in gas costs from levels established in the rate setting process. In order to match such costs and revenue, the NYPSC has provided for an annual reconciliation of recoverable GAC costs with applicable revenue billed. Any excess or deficiency in GAC revenue billed is deferred and the balance at the reconciliation date is either refunded to or recovered from customers over a subsequent twelve-month period. |
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| Federal Income Tax | (n) Federal Income Tax The Holding Company uses the asset and liability method to establish deferred tax assets and liabilities for the temporary differences between the financial reporting basis and the tax basis of the Holding Company's assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. In addition, such deferred tax assets and liabilities will be adjusted for the effects of enacted changes in tax laws and rates. |
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| Revenue Taxes | (o) Revenue Taxes The Gas Company collects state revenue taxes on residential delivery rates. The amount included in Utility Operating Revenue and Taxes other than Federal Income Taxes was $175,294 and $168,900 in 2015 and 2014, respectively. |
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| Stock Based Compensation | (p) Stock Based Compensation The Holding Company accounts for stock based awards in accordance with FASB ASC 718. The Holding Company awards restricted shares as compensation to our directors. The shares awarded become unrestricted upon a director leaving the board. Directors who also serve as officers of Corning Gas are not compensated for their service as directors. Since these shares are restricted, in recording compensation expense, the expense incurred is 25% less than the closing price of the stock on the day the stock was awarded. Each director is awarded 375 shares for each quarter served. Seven directors received a total of 9,000 shares during fiscal 2014 and 10,442 shares during fiscal 2015. On November 13, 2014, shares were issued for the quarter ended September 30, 2014 with the new director, Robert Johnston receiving 317 shares (accrued for his service during the quarter). On December 1, 2015, 2,625 shares were issued for the quarter ended September 30, 2015. The Board of Directors authorized the issuance on December 12, 2012, of 600 shares of the Holding Company's common stock to Carl T. Hayden in compensation for his past service as a director of the Holding Company's joint venture affiliate, Leatherstocking Gas Company, LLC and 75 shares each quarter thereafter until Leatherstocking Gas Company started serving customers at which point quarterly compensation increased to 112 shares for the quarter ended December 31, 2013. Quarterly compensation increased to 150 shares for the quarter ended March 31, 2015. Mr. Hayden has received a total of 937 shares for his service. These shares are sold to Leatherstocking Gas Company from time to time at the fair market value determined as the closing price of the Holding Company's common stock on the 20th business day after quarter end. |
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| Earnings Per Share | (q) Earnings Per Share Basic earnings per share are computed by dividing income available for common stock by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. The only potentially dilutive securities the Holding Company has outstanding are stock options. The diluted weighted average shares outstanding shown on the Consolidated Statements of Income reflects the potential dilution as a result of these stock options as determined using the Treasury Stock Method. Stock options that are antidilutive are excluded from the calculation of diluted earnings per common share. |
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| 311 Transportation Agreement/Compressor Station | (r) 311 Transportation Agreement /Compressor Station On January 11, 2010, the Gas Company entered into a contract (311 Transportation Agreement) with a local gas producer that provided for the building of a compressor station as well as the transfer of a 6” pipeline owned by the gas producer to the Company for nominal consideration. The contract also sets forth the terms, rates and condition of the transport of the local producer gas to the interstate pipeline system. On May 21, 2010, the 311 Transportation Agreement was revised to reflect a change in the projected gas delivery schedule and delivery volumes. The previously agreed to transportation rates did not change. The contract's maximum daily delivery quantity remained the same. The schedule for attaining the maximum daily delivery quantity was altered to accommodate the project's construction schedule. The Gas Company bought the $11 million compressor station and $2.1 million pipeline from the local producer for two dollars. The local producer has the right to repurchase these facilities for two dollars in ten years. This transaction became effective on May 12, 2011, when the station began operations. Although the Gas Company has a plant available for use that had an original cost of $13.1 million, only two dollars was recognized in accordance with the Uniform System of Accounts (313.2) which states that in the case of gas plant contributed to the utility, gas plant accounts shall be charged only with such expenses, if any, incurred by the utility. |
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| Collective Bargaining Agreement | (s) Collective Bargaining Agreement The Gas Company had 58 employees as of September 30, 2015, and 57 as of September 30, 2014. Of this total, nearly half are members of the International Brotherhood of Electrical Workers Local 139 labor union working under an agreement effective until April 2, 2018. |
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| Leatherstocking Companies | (t) Leatherstocking Companies The Holding Company has a 50% investment in Leatherstocking Gas Company, LLC (“Leatherstocking Gas”) and Leatherstocking Pipeline Company, LLC (“Leatherstocking Pipeline”). The investment and equity in both companies (collectively, “Joint Ventures”) has been recognized in the consolidated financial statements. The Holding Company has accounted for its equity investment using the equity method of accounting based on the guidelines established in FASB ASC 323. In applying the guidance of FASB ASC 323, the Holding Company recognized the investment in the Joint Ventures as an asset at cost. The investment will fluctuate in future periods based on the Holding Company's allocable share of earnings or losses from the Joint Ventures which is recognized through earnings. |
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| New Accounting Pronouncements Not Yet Adopted | (u) New Accounting Pronouncements Not Yet Adopted In May 2014, the FASB issued new accounting guidance on revenue from contracts with customers. The new guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods and services to customers. The updated guidance will replace most existing revenue recognition guidance in GAAP when it becomes effective. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. We are currently evaluating the effect the updated standard will have on our consolidated financial statements and related disclosures. In April 2015, the FASB issued new accounting guidance on the presentation of debt issuance costs. The new guidance requires that debt issuance costs related to a note be presented as a direct deduction from that note. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years. We do not believe this guidance will have a material effect on our consolidated financial statements when adopted. In July 2015, the FASB issued new accounting guidance simplifying inventory measurement by requiring companies to value inventory at the lower of cost and net realizable value. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. We do not believe this guidance will have a material effect on our consolidated financial statements when adopted. In September 2015, the FASB issued new accounting guidance on the recognition by the acquiring entity of adjustment to provisional amounts during the measurement period. The new guidance requires that the adjustments that are identified to be recognized in the same period's financial statements in which the adjustment amounts are determined. The entity must also present separately on the face of the income statement, or disclose separately in the notes, the portion of the amount recorded in the current-period earnings by line item that would have been recorded in previous periods if the adjustment had been identified as of the acquisition date. We are still evaluating whether this guidance will have a material effect on our consolidated financial statements when adopted. In November 2015, the FASB issued new accounting guidance on the classification of deferred taxes. The new guidance requires that all deferred tax asset and liabilities be classified as noncurrent in a classified statement of financial position. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. Early application is permitted. When the guidance is effective all deferred tax assets and liabilities will be presented as noncurrent. We do not believe this guidance will have a material effect on our consolidated financial statements when adopted. |
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Summary of Significant Accounting Policies (Tables) |
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| Schedule of Fair Value of Assets and Liabilities Measured on a Recurring Basis |
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Property, Plant and Equipment (Tables) |
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| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||
| Schedule of Fixed Assets Included in Utility Plant |
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Marketable Securities (Tables) |
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| Marketable Securities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Marketable Securities |
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Regulatory Matters (Tables) |
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| Regulatory Matters [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Regulatory Assets |
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Long-term Debt (Tables) |
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| Long-term Debt [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Long Term Debt |
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| Schedule of Long-Term Debt Maturities |
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Investment in Joint Ventures (Tables) |
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| Investment in Joint Ventures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of investment in joint ventures |
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Income Taxes (Tables) |
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Sep. 30, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Taxes [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Income Tax Expense |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Reconciliation of Income Tax |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Deferred Income Tax Assets and Liabilities |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pension and Other Post-retirement Benefit Plans (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pension and Other Post-retirement Benefit Plans [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of reconciliation of pension and post-retirement benefit plans |
|
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| Schedule of amortization of unrecognized net (gain)/loss |
|
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| Schedule of components of net periodic benefit cost |
|
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| Schedule of weighted average assumptions used to determine net period cost |
|
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| Schedule of estimated pension plan payments |
|
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Stock Options (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock Options [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Stock Option Activity |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Regulatory Matters (Schedule of Regulatory Assets) (Details) - USD ($) |
Sep. 30, 2015 |
Sep. 30, 2014 |
|---|---|---|
| Regulatory Assets [Line Items] | ||
| Regulatory assets | $ 7,306,203 | $ 2,764,150 |
| Unrecovered Gas Costs [Member] | ||
| Regulatory Assets [Line Items] | ||
| Regulatory assets | 37,191 | 110,372 |
| Deferred Regulatory Costs [Member] | ||
| Regulatory Assets [Line Items] | ||
| Regulatory assets | 2,751,339 | $ 2,653,778 |
| Deferred Pension Costs [Member] | ||
| Regulatory Assets [Line Items] | ||
| Regulatory assets | $ 4,517,673 |
Regulatory Matters (Schedule of Regulatory Costs) (Details) - USD ($) |
Sep. 30, 2015 |
Sep. 30, 2014 |
|---|---|---|
| Regulatory Assets [Line Items] | ||
| Regulatory assets | $ 7,306,203 | $ 2,764,150 |
| Deferred Rate Case Costs [Member] | ||
| Regulatory Assets [Line Items] | ||
| Regulatory assets | 897,942 | 971,364 |
| Deferred Rate Case Reconciliations [Member] | ||
| Regulatory Assets [Line Items] | ||
| Regulatory assets | 1,853,397 | 1,682,413 |
| Deferred Regulatory Costs [Member] | ||
| Regulatory Assets [Line Items] | ||
| Regulatory assets | $ 2,751,339 | $ 2,653,778 |
Regulatory Matters (Narrative) (Details) - USD ($) |
12 Months Ended | |
|---|---|---|
Sep. 30, 2015 |
Sep. 30, 2014 |
|
| Regulatory Assets [Line Items] | ||
| Regulatory assets | $ 7,306,203 | $ 2,764,150 |
| Accumulated OCI reduction for regulatory asset established, net of income taxes | 2,748,238 | |
| Regulatory asset amortizations | 219,042 | $ 274,135 |
| Pension Costs [Member] | ||
| Regulatory Assets [Line Items] | ||
| Regulatory assets | 3,665,926 | |
| Pension and Other Postretirement Plans Costs [Member] | ||
| Regulatory Assets [Line Items] | ||
| Regulatory assets | 4,517,673 | |
| Regulatory asset amortizations | (35,000) | 131,000 |
| Deferred Rate Case Reconciliations [Member] | ||
| Regulatory Assets [Line Items] | ||
| Regulatory assets | 1,853,397 | 1,682,413 |
| Regulatory asset amortizations | $ 1,338,048 | $ 1,041,345 |
Long-term Debt (Schedule of Aggregates of Long-term Debt) (Details) |
Sep. 30, 2015
USD ($)
|
|---|---|
| Aggregate maturity of debt in fiscal year: | |
| 2016 | $ 2,923,133 |
| 2017 | 3,020,343 |
| 2018 | 4,206,271 |
| 2019 | 2,548,616 |
| 2020 | 668,009 |
| 2021+ | $ 2,111,158 |
Investment in Joint Ventures (Schedule of Investment Activity) (Details) - USD ($) |
12 Months Ended | |
|---|---|---|
Sep. 30, 2015 |
Sep. 30, 2014 |
|
| Investment in Joint Ventures [Abstract] | ||
| Beginning balance in investment in joint ventures | $ 1,280,757 | $ 587,678 |
| Investment in joint ventures during year | 1,130,000 | 800,000 |
| Income (loss) in joint ventures during year | (117,505) | (106,921) |
| Ending balance in joint ventures | $ 2,293,252 | $ 1,280,757 |
Income Taxes (Narrative) (Details) $ in Millions |
Sep. 30, 2015
USD ($)
|
|---|---|
| Operating Loss Carryforwards [Line Items] | |
| Operating loss carry forwards | $ 6.4 |
Income Taxes (Schedule of Deferred and Current Income Tax Expense) (Details) - USD ($) |
12 Months Ended | |
|---|---|---|
Sep. 30, 2015 |
Sep. 30, 2014 |
|
| Income Taxes [Abstract] | ||
| Current | $ 78,000 | $ 70,000 |
| Deferred | 991,631 | 1,240,705 |
| Total actual tax expense | $ 1,069,631 | $ 1,310,705 |
Income Taxes (Schedule of Income Tax Reconciliation) (Details) - USD ($) |
12 Months Ended | |
|---|---|---|
Sep. 30, 2015 |
Sep. 30, 2014 |
|
| Income Taxes [Abstract] | ||
| Expected federal tax expense | $ 969,582 | $ 1,148,692 |
| Regulatory adjustment | (55,600) | (80,054) |
| Dividends received deduction | (11,433) | (12,665) |
| State tax expense (net of federal) | 175,331 | 223,157 |
| Other, net | (8,249) | 31,575 |
| Total actual tax expense | $ 1,069,631 | $ 1,310,705 |
| Federal corporate tax rate | 34.00% | |
| State tax rate | 7.10% | |
Income Taxes (Schedule of Income Tax Assets and Liabilities) (Details) - USD ($) |
Sep. 30, 2015 |
Sep. 30, 2014 |
|---|---|---|
| Deferred income tax assets: | ||
| Unbilled revenue | $ 57,521 | $ 15,510 |
| Deferred compensation reserve | 604,458 | 684,897 |
| Post-retirement benefit obligations | $ 2,246,383 | 551,579 |
| Comprehensive income | 1,563,865 | |
| Inventories | $ 27,788 | 54,629 |
| Deficiency of gas adjustment clause revenues billed | 85,262 | 121,316 |
| NOL carryforwards | 2,597,946 | 3,146,186 |
| Other | 1,285,010 | 407,984 |
| Total deferred income tax assets | 6,904,368 | 6,545,966 |
| Deferred income tax liabilities: | ||
| Property, plant and equipment, principally due to differences in depreciation | 7,759,860 | 7,197,083 |
| Pension benefit obligations | 1,298,794 | $ 238,880 |
| Comprehensive income | 19,892 | |
| Deferred rate expense and allocations | 365,091 | $ 438,469 |
| Other | 1,054,445 | 111,166 |
| Total deferred income tax liabilities | 10,498,082 | 7,985,598 |
| Net deferred income tax liabilities | $ 3,593,714 | $ 1,439,632 |
Pension and Other Post-retirement Benefit Plans (Schedule of Net Period Benefit Cost (Benefit)) (Details) - USD ($) |
12 Months Ended | |
|---|---|---|
Sep. 30, 2015 |
Sep. 30, 2014 |
|
| Pension Benefits [Member] | ||
| Components of net period benefit cost (benefit): | ||
| Service cost | $ 343,039 | $ 311,274 |
| Interest cost | 919,156 | 806,489 |
| Expected return on plan assets | (1,027,565) | (926,361) |
| Amortization of prior service | 9,406 | 10,749 |
| Amortization of unrecognized actuarial loss (gain) | 493,958 | 435,327 |
| Net periodic benefit cost (benefit) | 737,994 | 637,478 |
| Post-retirement Benefits [Member] | ||
| Components of net period benefit cost (benefit): | ||
| Service cost | 20,979 | 16,096 |
| Interest cost | 48,673 | 52,682 |
| Amortization of prior service | 3,547 | 3,547 |
| Amortization of unrecognized actuarial loss (gain) | (7,901) | (23,977) |
| Net periodic benefit cost (benefit) | $ 65,298 | $ 48,348 |
Pension and Other Post-retirement Benefit Plans (Schedule of Weighted Average Assumptions) (Details) |
12 Months Ended | |
|---|---|---|
Sep. 30, 2015 |
Sep. 30, 2014 |
|
| Pension Benefits [Member] | ||
| Weighted average assumptions used to determine period cost at September 30: | ||
| Discount rate | 5.22% | 5.07% |
| Salary increases | 2.00% | 2.00% |
| Expected return on assets | 7.50% | 7.50% |
| Post-retirement Benefits [Member] | ||
| Weighted average assumptions used to determine period cost at September 30: | ||
| Discount rate | 4.00% | 3.95% |
| Salary increases | ||
| Expected return on assets | ||
Pension and Other Post-retirement Benefit Plans (Schedule of Estimated Plan Benefit Payments) (Details) |
Sep. 30, 2015
USD ($)
|
|---|---|
| Estimated pension plan benefit payments in fiscal year; | |
| 2016 | $ 1,103,000 |
| 2017 | 1,141,000 |
| 2018 | 1,161,000 |
| 2019 | 1,226,000 |
| 2020 | 1,337,000 |
| 2021+ | $ 7,057,000 |
Stock Options (Details) - $ / shares |
12 Months Ended | ||
|---|---|---|---|
Oct. 21, 2015 |
Sep. 30, 2015 |
Sep. 30, 2014 |
|
| Number of Shares Remaining Options | |||
| Outstanding | 13,500 | 13,500 | |
| Options granted | |||
| Options exercised | 1,500 | ||
| Options expired | |||
| Outstanding | 12,000 | 13,500 | |
| Exercisable | 12,000 | 13,500 | |
| Weighted Average Exercise Price | |||
| Outstanding | $ 12.83 | $ 12.83 | |
| Options exercised | 12.83 | ||
| Outstanding | 12.83 | $ 12.83 | |
| Exercisable | $ 12.83 | $ 12.83 | |
| Average Remaining Contractual Term | |||
| Outstanding | 3 months | 1 year 3 months | |
| Exercisable | 3 months | 1 year 3 months | |
| Subsequent Event [Member] | |||
| Number of Shares Remaining Options | |||
| Options exercised | 9,000 | ||
Commitments (Details) |
12 Months Ended | |
|---|---|---|
|
Sep. 30, 2015
USD ($)
Dekatherms
item
|
Sep. 30, 2014
USD ($)
|
|
| Commitments [Line Items] | ||
| Storage Capacity Maintained | Dekatherms | 736,000 | |
| Energy in storage | Dekatherms | 654,040 | |
| Gas stored underground | $ 1,182,955 | $ 2,291,665 |
| Customers | item | 14,800 | |
| M&T Term Loan [Member] | ||
| Commitments [Line Items] | ||
| Debt term | 5 years | |
| Borrowing amount | $ 12,000,000 | |
| Interest rate, spread on basis | 3.00% | |
| M&T Line of Credit [Member] | ||
| Commitments [Line Items] | ||
| Borrowing amount | $ 2,000,000 | |
| Interest rate, spread on basis | 2.75% |
Related Party Transactions (Details) |
12 Months Ended |
|---|---|
|
Sep. 30, 2015
USD ($)
| |
| Expenditures Paid on Behalf of Corning [Member] | |
| Related Party Transaction [Line Items] | |
| Amount of transaction | $ 118,108 |
| Shares Sold for Director Services [Member] | |
| Related Party Transaction [Line Items] | |
| Amount of transaction | 10,500 |
| Director [Member] | |
| Related Party Transaction [Line Items] | |
| Legal services | $ 174,000 |