Summary of Significant Accounting Policies

Significant Accounting Policies

These financial statements should be read in conjunction with the Consolidated Financial Statements and Notes included in our Form 10-K for the year ended October 31, 2015. Our accounting policies are described in Note 1 to the consolidated financial statements in our Form 10-K for the year ended October 31, 2015. There were no significant changes to those accounting policies during the three months ended January 31, 2016.

Unaudited Interim Financial Information

The condensed consolidated financial statements have not been audited. We have prepared the unaudited condensed consolidated financial statements under the rules of the Securities and Exchange Commission (SEC). Therefore, certain financial information and note disclosures normally included in annual financial statements prepared in conformity with generally accepted accounting principles (GAAP) in the United States of America are omitted in this interim report under these SEC rules and regulations. The unaudited condensed consolidated financial statements include all normal recurring adjustments necessary for a fair presentation of the statement of financial position as of January 31, 2016 and October 31, 2015, the results of operations for three months ended January 31, 2016 and 2015, and cash flows and stockholders’ equity for the three months ended January 31, 2016 and 2015.

Seasonality and Use of Estimates

Our business is seasonal in nature. The results of operations for the three months ended January 31, 2016 do not necessarily reflect the results to be expected for the full year.

In accordance with GAAP, we make certain estimates and assumptions regarding reported amounts of assets, liabilities, revenues and expenses and the related disclosures, using historical experience and other assumptions that we believe are reasonable at the time. Our estimates may involve complex situations requiring a high degree of judgment in the application and interpretation of existing literature or in the development of estimates that impact our financial statements. These estimates and assumptions affect the reported amounts of assets and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates and assumptions, which are evaluated on a continual basis.

Rate-Regulated Basis of Accounting

Our utility operations are subject to regulation with respect to rates, service area, accounting and various other matters by the regulatory commissions in the states in which we operate. The accounting regulations provide that rate-regulated public utilities account for and report assets and liabilities consistent with the economic effect of the manner in which independent third-party regulators establish rates. In applying these regulations, we capitalize certain costs and benefits as regulatory assets and liabilities, respectively, in order to provide for recovery from or refund to utility customers in future periods. Generally, regulatory assets are amortized to expense and regulatory liabilities are amortized to income over the period authorized by our regulators.

Our regulatory assets are recoverable through either base rates or rate riders specifically authorized by a state regulatory commission. Base rates are designed to provide both a recovery of cost and a return on investment during the period the rates are in effect. As such, all of our regulatory assets are subject to review by the respective state regulatory commissions during any future rate proceedings. In the event that accounting for the effects of regulation were no longer applicable, we would recognize a write-off of the regulatory assets and regulatory liabilities that would result in an adjustment to net income or accumulated other comprehensive income (loss) (OCIL). Our utility operations continue to recover their costs through cost-based rates established by the state regulatory commissions. As a result, we believe that the accounting prescribed under rate-based regulation remains appropriate. It is our opinion that all regulatory assets are recoverable in current rates or in future rate proceedings. Our regulatory assets and liabilities are detailed in Note 3 to the condensed consolidated financial statements in this Form 10-Q.

Fair Value Measurements

We have financial and nonfinancial assets and liabilities subject to fair value measurement. The financial assets and liabilities measured and carried at fair value in the Condensed Consolidated Balance Sheets are cash and cash equivalents, marketable securities held in rabbi trusts established for our deferred compensation plans and purchased call option derivative assets and liabilities, if any, that are held for our utility operations. The carrying values of receivables, short-term debt, accounts payable, accrued interest and other current assets and liabilities approximate fair value as all amounts reported are to be collected or paid within one year. Our nonfinancial assets and liabilities include our qualified pension and postretirement plan assets and liabilities that are recorded at fair value in the Condensed Consolidated Balance Sheets in accordance with employers’ accounting and related disclosures of postretirement plans. As discussed below, effective in our first quarter 2016, we have certain forward gas supply derivative contracts that are nonfinancial assets and liabilities requiring fair value treatment.

Fair value is 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, or exit date. We utilize market data or assumptions that market participants would use in valuing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable. We primarily apply the market approach for fair value measurements and endeavor to utilize the best available information for the specific instrument, location or commodity being valued. Accordingly, we use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value of our financial assets and liabilities are subject to potentially significant volatility based on changes in market prices, the maturity and settlement of our contracts, and subsequent newly originated transactions, each of which directly affects the estimated fair value of our financial instruments. We are able to classify fair value balances based on the observance of those inputs at the lowest level that is significant to the fair value measurement, in its entirety, in the fair value hierarchy levels as set forth in the fair value guidance.

For the fair value measurements of our derivatives and marketable securities, see Note 9 to the condensed consolidated financial statements in this Form 10-Q. For the fair value measurements of our benefit plan assets, see Note 10 to the consolidated financial statements in our Form 10-K for the year ended October 31, 2015. For further information on our fair value methodologies, see “Fair Value Measurements” in Note 1 to the consolidated financial statements in our Form 10-K for the year ended October 31, 2015. Effective in our first quarter 2016, we have long-dated, fixed quantity natural gas supply contracts for our utility operations which are accounted for as derivatives. We classified these contracts as Level 3 in the fair value hierarchy, as the inputs are generally unobservable due to the tenure of the contracts and the absence of market quoted observable data. In the absence of actively quoted prices or if we believe that observable pricing is not indicative of fair value, judgment is required to develop the estimates of fair value. In determining the fair value, we used a discounted cash flow technique to calculate our valuation. We incorporated the following inputs and assumptions in our model: contract volume, forward market prices from third party pricing services with an evaluation of pricing information on active and inactive markets, price correlations, pricing projections, time value, fuel assumptions and credit adjusted risk free rate of return. There were no other significant changes to these fair value methodologies during the three months ended January 31, 2016.

Recently Issued Accounting Standards Update (ASU)



Guidance	Description	Effective date	Effect on the financial statements or other significant matters
ASU 2014-09, May 2014, Revenue from Contracts with Customers (Topic 606)	Under the new standard, entities will recognize revenue to depict the transfer of goods and services to customers in amounts that reflect the payment to which the entity expects to be entitled in exchange for those goods or services. The disclosure requirements will provide information about the nature, amount, timing and uncertainty of revenue and cash flows from an entity’s contracts with customers. An entity may choose to adopt the new standard on either a full retrospective basis (practical expedients available) or through a cumulative effect adjustment to retained earnings as of the start of the first period of adoption.	Annual periods beginning after December 15, 2017 (beginning November 1, 2018 for us) and interim periods within that period, with early adoption permitted for annual periods beginning after December 15, 2016.	We are currently evaluating the effect on our financial position, results of operations and cash flows, as well as the transition approach we will take. The evaluation includes identifying revenue streams by like contracts to allow for ease of implementation. In our evaluation, we are following the development of guidance from our industry.



Guidance	Description	Effective date	Effect on the financial statements or other significant matters
ASU 2015-05, April 2015, Intangibles -Goodwill and Other - Internal-Use Software: Customer's Accounting for Fees Paid in a Cloud Computing Arrangement (Subtopic 350-40)	The amendment provides customers with guidance on determining whether a cloud computing arrangement contains a software license that should be accounted for as internal-use software. The guidance applies only to hosting arrangements if both of the following criteria are met: (a) the customer has the contractual right to take possession of the software at any time during the hosting period without significant penalty and (b) it is feasible for the customer to run the software on its own hardware or contract with another party to host the software.	Annual periods (and interim periods therein) beginning after December 15, 2015 (November 1, 2016 for us), with early adoption permitted. Entities may adopt the guidance retrospectively or prospectively to arrangements entered into, or materially modified, after the effective date.	We are analyzing our cloud computing arrangements to identify any internal-use software and are currently evaluating the effect on our financial position, results of operations and cash flows.
ASU 2016-01, January 2016, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities	The amendment addresses aspects of recognition, measurement, presentation and disclosure of financial instruments. It affects investments in equity securities and the presentation of certain fair value changes for financial liabilities measured at fair value. It simplifies the impairment assessment of equity investments without a readily determinable fair value by requiring a qualitative assessment.	Annual periods (and interim periods within those periods) beginning after December 15, 2017 (November 1, 2018 for us).	We are currently evaluating the effect on our financial position, results of operations and cash flows.
ASU 2016-02, February 2016, Leases (Topic 842)	Under the new standard, entities will recognize right-of-use (ROU) assets and related liabilities on the balance sheet for leases with a term greater than one year. Amortization of the ROU asset will be accounted for using: (1) the finance lease approach, or (2) the operating lease approach. Under the finance lease approach, the ROU asset will be amortized on a straight-line basis with the amortization and the interest on the lease liability presented separately in the income statement. Under the operating lease approach, a single straight-line expense will be presented in the income statement. Qualitative and quantitative disclosures are required to enable a user to assess the amount, timing and uncertainty of cash flows arising from leasing activities. A modified retrospective transition approach, including the option to elect practical expedients, is required for existing capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements at the date of initial application.	Annual periods (and interim periods within those periods) beginning after December 15, 2018 (November 1, 2019 for us), with early adoption permitted.	We are currently evaluating the effect on our financial position, results of operations and cash flows.

Reclassifications and Changes in Presentation

A reclassification has been made to the prior year Condensed Consolidated Balance Sheets to conform with the current year presentation. In this fiscal quarter, we early adopted ASU 2015-17 Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. This ASU eliminated the current requirement to present deferred tax assets and liabilities as current and noncurrent amounts in a classified balance sheet and replaced it with a noncurrent classification of deferred tax assets and liabilities. While the guidance would have been effective for us beginning November 1, 2017, we elected to adopt this guidance effective November 1, 2015 to simplify our presentation of deferred tax assets and liabilities.

With the adoption of the new pronouncement retrospectively, the fiscal year 2015 Condensed Consolidated Balance Sheets line item "Deferred income taxes" of $32.4 million previously included within "Current Assets" has been reclassified to net with the noncurrent line item "Deferred income taxes" as $829.2 million within "Noncurrent Liabilities." Line item "Total current assets" has been reduced by $32.4 million to $223.5 million, line item "Total noncurrent liabilities" has been reduced to $1,492.8 million, resulting in total assets and total capitalization and liabilities totaling $5,078.4 million.