SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 30, 2014

Accounting Policies [Abstract]

Use of Estimates

Use of Estimates - The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Utility Plant and Depreciation

Utility Plant and Depreciation - Utility plant is stated at original cost. The cost of additions to utility plant includes contracted work, direct labor and materials, allocable overheads, and an allowance for funds used during construction. The costs of units of property retired, replaced, or renewed are removed from utility plant and are charged to accumulated depreciation. Maintenance and repairs of property and replacement and renewal of items determined to be less than units of property are charged to maintenance expenses. Gains and losses on all dispositions of land are recognized at time of disposal.

Depreciation is provided using the composite method of depreciation on a straight-line basis over the estimated useful lives of property at rates approved by the Alabama Public Service Commission (APSC). On June 28, 2010, the APSC approved a reduction in depreciation rates, effective June 1, 2010, with the revised prospective composite depreciation rate approximating 3.1%. The Company anticipates refunding approximately $13.4 of refundable negative salvage costs through lower tariff rates over the next twelve months related to the lower depreciation rates.

Asset Retirement Obligations

Asset Retirement Obligations - The Company records legal obligations associated with the retirement of long-lived assets in the period in which the obligations are incurred, if sufficient information exists to reasonably estimate the fair value of the obligations. Obligations are recorded as both a cost of the related long-lived asset and as a corresponding liability. Subsequently, the asset retirement costs are depreciated over the life of the asset and the asset retirement obligations are accreted to the expected settlement amounts. The Company records asset retirement obligations associated with certain safety requirements to purge and seal gas distribution mains upon retirement, the plugging and abandonment of storage wells and other storage facilities, specific service line obligations, and certain removal and disposal obligations related to components of the Company’s distribution system and general plant. Such accruals are provided for through depreciation expense and are recorded with corresponding credits to regulatory liabilities. The costs associated with asset retirement obligations are either currently being recovered in rates or are probable of recovery in future rates.

Regulated Operations

Regulated Operations - The Company accounts for its regulated operations in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 980, “Regulated Operations.” This Topic sets forth the application of GAAP for those companies whose rates are established by or are subject to approval by an independent third party regulator. The provisions of this accounting guidance require, among other things, that financial statements of a regulated enterprise reflect the actions of regulators, where appropriate. These actions may result in the recognition of revenues and expenses in time periods that are different than non-regulated enterprises. When this occurs, costs are deferred as assets in the balance sheet (regulatory assets) and recorded as expenses when those amounts are reflected in rates. Also, regulators can impose liabilities upon a regulated company for amounts previously collected from customers and for recovery of costs that are expected to be incurred in the future (regulatory liabilities). Management believes that the current regulatory environment supports the continued use of these regulatory accounting principles and that all regulatory assets and regulatory liabilities are recoverable or refundable through the regulatory process.

Inventories

Natural Gas Stored Underground - Inventory of natural gas in storage is stated at average cost.

Revenue Recognition and Gas Costs

Revenue Recognition and Gas Costs - The Company records natural gas distribution revenues in accordance with the tariff established by the APSC. The margin and gas costs on service delivered to cycle customers but not yet billed are recorded in current assets as accounts receivable with a corresponding regulatory liability. Gas imbalances are settled on a monthly basis. Alagasco had no material imbalances at September 30, 2014 and December 31, 2013.

Gas Supply Adjustment - The Company’s rate schedules for natural gas distribution charges contain a Gas Supply Adjustment (GSA) rider, established in 1993, which permits the pass-through to customers of changes in the cost of gas supply. The Company’s tariff provides a temperature adjustment mechanism, also included in the GSA that is designed to moderate the impact of departures from normal temperatures on the Company’s earnings. The temperature adjustment applies primarily to residential, small commercial and small industrial customers. Other non-temperature weather related conditions that may affect customer usage are not included in the temperature adjustment. In prior years, Alagasco entered into cash flow derivative commodity instruments to hedge its exposure to price fluctuations on its gas supply. Alagasco recognizes all derivatives at fair value as either assets or liabilities on the balance sheet. Any realized gains or losses are passed through to customers using the mechanisms of the GSA rider in accordance with Alagasco’s APSC approved tariff and are recognized as a regulatory asset or regulatory liability.

Income Taxes

Income Taxes - The Company uses the asset and liability method of accounting for income taxes. Under this method, a deferred tax asset or liability is recognized for the estimated future tax effects attributable to temporary differences between the financial statement basis and the tax basis of assets and liabilities, as well as tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period of the change.

Gross Receipts Taxes, Franchise Fees and Sales Taxes

Gross Receipts Taxes, Franchise Fees and Sales Taxes - Gross receipts taxes and franchise fees associated with the Company’s natural gas utility services are imposed on the Company and billed to its customers. These amounts are recorded gross in the Company’s Statements of Income. Amounts recorded in the Company’s Operating Revenues were $20.6, $25.9 and $21.5 for the transition period ended September 30, 2014 and the calendar years ended December 31, 2013 and 2012, respectively. Gross receipts taxes and franchise fees are expensed and included in the Taxes, other than income taxes line. Sales taxes imposed on applicable sales are billed to customers. These amounts are not recorded in the Statements of Income, but are recorded as tax collections payable and included in other current liabilities on the balance sheets.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts Receivable and Allowance for Doubtful Accounts - Trade accounts receivable are recorded at the amounts due from customers, including unbilled amounts. Estimates of the collectability of trade accounts receivable are based on historical trends, age of receivables, economic conditions, credit risk of specific customers, and other factors. Accounts receivable are written off against the allowance for doubtful accounts when they are deemed to be uncollectible.

Group Medical, General Liability and Workers' Compensation Reserves

Group Medical, General Liability and Workers’ Compensation Reserves - The Company self-insures its group medical, general liability and workers’ compensation costs and carries stop-loss coverage in relation to medical claims, general liability and workers’ compensation claims. Reserves for amounts incurred but not reported are established based on historical cost levels and lags between occurrences and reporting.

Fair Value Measurements

Fair Value Measurements - Certain assets and liabilities are recognized or disclosed at fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). GAAP establishes a fair value hierarchy that prioritizes the inputs used to measure fair value.

The levels of the hierarchy are described below:

• Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities.

• Level 2 - Pricing inputs other than quoted prices included within Level 1, which are either directly or indirectly observable for the asset or liability as of the reporting date. These inputs are derived principally from, or corroborated by, observable market data.

• Level 3 - Pricing that is based upon inputs that are generally unobservable that are based on the best information available and reflect management’s assumptions about how market participants would price the asset or liability.

Assessment of the significance of a particular input to the fair value measurements may require judgment and may affect the valuation of the asset or liability and its placement within the fair value hierarchy.

New Accounting Standard

New Accounting Standard - In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. This standard is intended to improve the financial reporting requirements for revenue from contracts with customers by providing a principles-based approach to the recognition of revenue. The core principle of the standard is when an entity transfers goods or services to customers it will recognize revenue in an amount that reflects the consideration the entity expects to be entitled to for those goods or services. The standard outlines a five-step model and related application guidance, which replaces most existing revenue recognition guidance. ASU 2014-09 also requires disclosures that will enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, with early adoption not permitted. The Company has not yet selected a transition method nor has it determined the impact, if any, of the standard on its ongoing financial condition and results of operations.