Regulatory Matters

Regulatory Assets and Liabilities

The Company has recorded the following regulatory assets and liabilities:



	At September 30
	2017			2016
	(Thousands)
Regulatory Assets(1):
Pension Costs(2) (Note H)	$	125,175		$	203,755
Post-Retirement Benefit Costs(2) (Note H)	13,886			74,802
Recoverable Future Taxes (Note D)	181,363			177,261
Environmental Site Remediation Costs(2) (Note I)	19,665			23,392
Asset Retirement Obligations(2) (Note B)	12,764			12,490
Unamortized Debt Expense (Note A)	1,159			1,688
Other(3)	18,827			21,927
Total Regulatory Assets	372,839			515,315
Less: Amounts Included in Other Current Assets	(15,884		)	(15,616		)
Total Long-Term Regulatory Assets	$	356,955		$	499,699



	At September 30
	2017			2016
	(Thousands)
Regulatory Liabilities:
Cost of Removal Regulatory Liability	$	204,630		$	193,424
Taxes Refundable to Customers (Note D)	95,739			93,318
Post-Retirement Benefit Costs (Note H)	102,891			67,204
Amounts Payable to Customers (See Regulatory Mechanisms in Note A)	—			19,537
Other(4)	44,884			47,310
Total Regulatory Liabilities	448,144			420,793
Less: Amounts included in Current and Accrued Liabilities	(34,059		)	(34,262		)
Total Long-Term Regulatory Liabilities	$	414,085		$	386,531

(1)

The Company recovers the cost of its regulatory assets but generally does not earn a return on them. There are a few exceptions to this rule. For example, the Company does earn a return on Unrecovered Purchased Gas Costs and, in the New York jurisdiction of its Utility segment, earns a return, within certain parameters, on the excess of cumulative funding to the pension plan over the cumulative amount collected in rates.


(2)	Included in Other Regulatory Assets on the Consolidated Balance Sheets.


(3)	$15,884 and $15,616 are included in Other Current Assets on the Consolidated Balance Sheets at September 30, 2017 and 2016, respectively, since such amounts are expected to be recovered from ratepayers in the next 12 months. $2,943 and $6,311 are included in Other Regulatory Assets on the Consolidated Balance Sheets at September 30, 2017 and 2016, respectively.


(4)	$34,059 and $14,725 are included in Other Accruals and Current Liabilities on the Consolidated Balance Sheets at September 30, 2017 and 2016, respectively, since such amounts are expected to be recovered from ratepayers in the next 12 months. $10,825 and $32,585 are included in Other Regulatory Liabilities on the Consolidated Balance Sheets at September 30, 2017 and 2016, respectively.

If for any reason the Company ceases to meet the criteria for application of regulatory accounting treatment for all or part of its operations, the regulatory assets and liabilities related to those portions ceasing to meet such criteria would be eliminated from the Consolidated Balance Sheets and included in income of the period in which the discontinuance of regulatory accounting treatment occurs.

Cost of Removal Regulatory Liability

In the Company’s Utility and Pipeline and Storage segments, costs of removing assets (i.e. asset retirement costs) are collected from customers through depreciation expense. These amounts are not a legal retirement obligation as discussed in Note B — Asset Retirement Obligations. Rather, they are classified as a regulatory liability in recognition of the fact that the Company has collected dollars from the customer that will be used in the future to fund asset retirement costs.

NYPSC Rate Proceeding

On April 28, 2016, Distribution Corporation commenced a rate case by filing proposed tariff amendments and supporting testimony requesting approval to increase its annual revenues by approximately $41.7 million. Distribution Corporation explained in the filing that its request for rate relief was necessitated by a revenue requirement driven primarily by rate base growth, higher operating expense and higher depreciation expense, among other things. On January 23, 2017, the administrative law judge assigned to the proceeding issued a recommended decision (RD) in the case. The RD, as revised on January 26, 2017, recommended a rate increase designed to provide additional annual revenues of $8.5 million, an equity ratio, subject to update of 42.3% based on the Company’s equity ratio, and a cost of equity, subject to update of 8.6%. On April 20, 2017, the NYPSC issued an Order adopting some provisions of the RD and modifying or rejecting others. The Order provides for an annual rate increase of $5.9 million. The rate increase became effective May 1, 2017. The Order further provides for a return on equity of 8.7%, and established an equity ratio of 42.9%. The Order also directs the implementation of an earnings sharing mechanism to be in place beginning on April 1, 2018.

On July 28, 2017, Distribution Corporation filed an appeal with New York State Supreme Court, Albany County, seeking review of the Order. The appeal contends that portions of the Order should be invalidated because they fail to meet the applicable legal standard for agency decisions. On October 13, 2017, the NYPSC filed an answer which contained a request that the appeal be transferred to the Appellate Division. The Company cannot predict the outcome of the appeal at this time.

FERC Rate Proceedings

Supply Corporation currently has no active rate case on file. Supply Corporation's current rate settlement requires a rate case filing no later than December 31, 2019.

Empire currently has no active rate case on file. Empire’s current rate settlement requires a rate case filing no later than July 1, 2021.