PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS

9 Months Ended

Jun. 30, 2011

Notes to Financial Statements [Abstract]

PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS

2. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS

Pension Plans

Laclede Gas has non-contributory, defined benefit, trusteed forms of pension plans covering substantially all employees. Plan assets consist primarily of corporate and U.S. government obligations and equity market exposure achieved through derivative investments.

Similar to modifications made to Laclede Gas’ primary plan in 2009, effective January 1, 2010, the Utility modified the calculation of future benefits under its Missouri Natural Gas division plan from a career average formula to a cash balance formula, which accrues benefits based on a percentage of compensation, provides interest credits on the balance, and provides certain transition credits. Benefits attributable to plan participation prior to January 1, 2010, will be based on career average compensation earned as a participant prior to January 1, 2010.

Pension costs for all of Laclede Gas’ defined-benefit pension plans for the quarters ended June 30, 2011 and 2010 were $4.2 million and $1.6 million, respectively, including amounts charged to construction. Pension costs for the nine months ended June 30, 2011 and 2010 were $10.0 million and $4.7 million, respectively, including amounts charged to construction.

The net periodic pension costs include the following components:

	Three Months Ended						Nine Months Ended
	June 30,						June 30,
(Thousands)	2011			2010			2011			2010
Service cost – benefits earned during the period	$	2,388		$	2,189		$	7,164		$	6,652
Interest cost on projected benefit obligation		4,705			4,924			14,115			14,805
Expected return on plan assets		(4,712	)		(5,074	)		(14,136	)		(15,181	)
Amortization of prior service cost		161			172			481			583
Amortization of actuarial loss		2,557			2,024			7,671			6,083
Sub-total		5,099			4,235			15,295			12,942
Regulatory adjustment		(864	)		(2,656	)		(5,259	)		(8,206	)
Net pension cost	$	4,235		$	1,579		$	10,036		$	4,736

Pursuant to the provisions of the Laclede Gas pension plans, pension obligations may be satisfied by lump-sum cash payments. Pursuant to a Missouri Public Service Commission (MoPSC or Commission) Order, lump-sum payments are recognized as settlements (which can result in gains or losses) only if the total of such payments exceeds 100% of the sum of service and interest costs. No lump-sum payments were recognized as settlements during the nine months ended June 30, 2011 and June 30, 2010.

Pursuant to a MoPSC Order, the return on plan assets is based on the market-related value of plan assets implemented prospectively over a four-year period. Gains or losses not yet includible in pension cost are amortized only to the extent that such gain or loss exceeds 10% of the greater of the projected benefit obligation or the market-related value of plan assets. Such excess is amortized over the average remaining service life of active participants. The recovery in rates for the Utility’s qualified pension plans is based on an allowance of $4.8 million annually effective August 1, 2007 and $15.5 million annually effective January 1, 2011. The difference between these amounts and pension expense as calculated pursuant to the above and that otherwise would be included in the Statements of Income and Statements of Comprehensive Income is deferred as a regulatory asset or regulatory liability.

The funding policy of Laclede Gas is to contribute an amount not less than the minimum required by government funding standards, nor more than the maximum deductible amount for federal income tax purposes. Fiscal year 2011 contributions to the pension plans through June 30, 2011 were $16.8 million to the qualified trusts and approximately $3.0 million to the non-qualified plans. Laclede Gas does not expect to make contributions to its qualified, trusteed pension plans during the remaining three months of fiscal year 2011. Contributions to the pension plans for the non-qualified plans for the remaining three months of fiscal year 2011 are anticipated to be approximately $0.1 million.

Postretirement Benefits

Laclede Gas provides certain life insurance benefits at retirement. Medical insurance is available after early retirement until age 65. The transition obligation not yet includible in postretirement benefit cost is being amortized over 20 years. Postretirement benefit costs for the quarters ended June 30, 2011 and 2010 were $2.4 million and $1.9 million, respectively, including amounts charged to construction. Postretirement benefit costs for the nine months ended June 30, 2011 and 2010 were $6.7 million and $5.7 million, respectively, including amounts charged to construction.

Net periodic postretirement benefit costs consisted of the following components:

	Three Months Ended						Nine Months Ended
	June 30,						June 30,
(Thousands)	2011			2010			2011			2010
Service cost – benefits earned during the period	$	1,919		$	1,610		$	5,757		$	4,831
Interest cost on accumulated
postretirement benefit obligation		1,210			1,129			3,632			3,387
Expected return on plan assets		(911	)		(758	)		(2,734	)		(2,274	)
Amortization of transition obligation		34			34			102			102
Amortization of prior service credit		(582	)		(582	)		(1,746	)		(1,746	)
Amortization of actuarial loss		1,111			995			3,332			2,985
Sub-total		2,781			2,428			8,343			7,285
Regulatory adjustment		(400	)		(518	)		(1,671	)		(1,554	)
Net postretirement benefit cost	$	2,381		$	1,910		$	6,672		$	5,731

Missouri state law provides for the recovery in rates of costs accrued pursuant to generally accepted accounting principles (GAAP) provided that such costs are funded through an independent, external funding mechanism. Laclede Gas established Voluntary Employees’ Beneficiary Association (VEBA) and Rabbi trusts as its external funding mechanisms. VEBA and Rabbi trusts’ assets consist primarily of money market securities and mutual funds invested in stocks and bonds.

Pursuant to a MoPSC Order, the return on plan assets is based on the market-related value of plan assets implemented prospectively over a four-year period. Gains and losses not yet includible in postretirement benefit cost are amortized only to the extent that such gain or loss exceeds 10% of the greater of the accumulated postretirement benefit obligation or the market-related value of plan assets. Such excess is amortized over the average remaining service life of active participants. The Commission ordered that the recovery in rates be based on an annual allowance of $7.6 million effective August 1, 2007 and $9.5 million effective January 1, 2011. The difference between these amounts and postretirement benefit cost based on the above and that otherwise would be included in the Statements of Income and Statements of Comprehensive Income is deferred as a regulatory asset or regulatory liability.

Laclede Gas’ funding policy is to contribute amounts to the trusts equal to the periodic benefit cost calculated pursuant to GAAP as recovered in rates. Fiscal year 2011 contributions to the postretirement plans through June 30, 2011 were $5.6 million to the qualified trusts and approximately $0.2 million paid directly to participants from Laclede Gas’ funds. Contributions to the postretirement plans for the remaining three months of fiscal year 2011 are anticipated to be $5.6 million to the qualified trusts and $0.1 million paid directly to participants from Laclede Gas’ funds.