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Commitment & Contingencies (Disclosure)
 3 Months Ended
Apr. 30, 2012
Commitments And Contingencies Disclosure [Abstract]  
Commitments And Contingencies Disclosure Text Block

9.       Commitments and Contingent Liabilities

 

Long-term contracts

 

We routinely enter into long-term gas supply commodity and capacity commitments and other agreements that commit future cash flows to acquire services we need in our business. These commitments include pipeline and storage capacity contracts and gas supply contracts to provide service to our customers and telecommunication and information technology contracts and other purchase obligations. Costs arising from the gas supply commodity and capacity commitments, while significant, are pass-through costs to our customers and are generally fully recoverable through our PGA procedures. The time periods for pipeline and storage capacity contracts range from one to twenty years. The time periods for gas supply contracts are up to 18 months. The time periods for the telecommunications and technology outsourcing contracts, maintenance fees for hardware and software applications, usage fees, local and long-distance costs and wireless service range from one to three years. Other purchase obligations consist primarily of commitments for pipeline products, vehicles, equipment and contractors.

 

Certain storage and pipeline capacity contracts require the payment of demand charges that are based on rates approved by the Federal Energy Regulatory Commission (FERC) in order to maintain our right to access the natural gas storage or the pipeline capacity on a firm basis during the contract term. The demand charges that are incurred in each period are recognized in the consolidated statements of comprehensive income as part of gas purchases and included in cost of gas.

Leases

 

We lease certain buildings, land and equipment for use in our operations under noncancelable operating leases. We account for these leases by recognizing the future minimum lease payments as expense on a straight-line basis over the respective minimum lease terms under current accounting practice.

Legal

 

We have only routine litigation in the normal course of business. We do not expect any of these routine litigation matters to have a material effect on our financial position, results of operations or cash flows.

Letters of Credit

 

We use letters of credit to guarantee claims from self-insurance under our general and automobile liability policies. We had $2.9 million in letters of credit that were issued and outstanding at April 30, 2012. Additional information concerning letters of credit is included in Note 5 to the consolidated financial statements in this Form 10-Q.

Environmental Matters

 

Our three regulatory commissions have authorized us to utilize deferral accounting in connection with environmental costs. Accordingly, we have established regulatory assets for actual environmental costs incurred and for estimated environmental liabilities recorded.

We are responsible for any third-party claims for personal injury, death, property damage and diminution of property value or natural resources regarding nine manufactured gas plant (MGP) sites that were a part of a 1997 settlement with a third party and several MGP sites retained by Progress Energy, Inc. in connection with our 2003 North Carolina Natural Gas Corporation acquisition. We know of no such pending or threatened claims.

 

There are four MGP sites located in Hickory and Reidsville, North Carolina, Nashville, Tennessee and Anderson, South Carolina that we have owned, leased or operated and for which we have an investigation and remediation liability. In fiscal year 2012, we have performed soil remediation work at our Reidsville site, and we will be performing a groundwater remediation assessment under our North Carolina Department of Environment and Natural Resources (NCDENR) approved plan. Remediation at this site is scheduled to be completed in our fiscal year 2012, and we have incurred $.6 million of remediation costs through April 30, 2012.

 

As part of a voluntary agreement with the NCDENR, we conducted and completed soil remediation for the Hickory, North Carolina MGP site. The soil remediation report was filed with the NCDENR in October 2010. We continue to conduct periodic groundwater monitoring at this site in accordance with our site remediation plan. We have incurred $1.4 million of remediation costs on this site through April 30, 2012.

 

In November 2008, we submitted our final report of the remediation of the Nashville MGP holding tank site to the Tennessee Department of Environment and Conservation (TDEC). Remediation has been completed, and a consent order imposing usage restrictions on the property was approved and signed by the TDEC in June 2010. The public comment period has ended, and we continue to conduct semi-annual groundwater monitoring at the site per the final consent order. We have incurred $1.5 million of remediation costs through April 30, 2012.

 

During 2008, we became aware of and began investigating soil and groundwater molecular sieve contamination concerns at our Huntersville liquefied natural gas (LNG) facility. The molecular sieve and the related contaminated soil were removed and properly disposed, and in June 2010, we received a determination letter from the NCDENR that no further soil remediation would be required at the site for this issue. In September 2011, we received a letter from the NCDENR indicating their desire to enter into an Administrative Consent Order (ACO) addressing the remaining groundwater issues at the site. On April 11, 2012, we entered into a no admit/no deny ACO that imposed a fine of $40,000, unpaid annual fees totaling $18,000 and $1,860 for investigative and administrative costs. As part of the ACO, we will be required to develop a site assessment plan to determine the extent of the groundwater contamination related to the sieve burial, a groundwater remediation strategy and a groundwater and surface water site wide monitoring program. Upon acceptance by the NCDENR of the groundwater remediation strategy, we will then be required to develop a program for implementation of the strategy within thirty days.

 

The Huntersville LNG facility also was originally coated with lead-based paint. As a precautionary measure to ensure that no lead contamination occurs, removal of lead-based paint from the site was initiated in spring 2010. We have incurred $3.2 million through April 30, 2012 to remediate the Huntersville LNG site. The LNG tank is scheduled for lead-based paint removal in our fiscal year 2012. Additional facilities at our Huntersville LNG plant site are being evaluated for lead-based paint removal with work scheduled for our fiscal year 2012.

 

Our Nashville LNG facility was also originally coated with lead-based paint. We have incurred $.5 million of remediation costs through April 30, 2012. This work is scheduled to be completed in our fiscal year 2012.

 

We are transitioning away from owning and maintaining our own petroleum underground storage tanks (USTs). Our Charlotte, North Carolina resource center continues to operate USTs. During 2011, our Greenville, South Carolina and Greensboro and Salisbury, North Carolina resource centers had their tanks removed, and we do not anticipate significant environmental remediation with respect to the removal process. The South Carolina Department of Health and Environmental Control requested that we conduct an initial groundwater assessment at our Greenville, South Carolina site to determine its current groundwater quality condition. This assessment is scheduled to be completed in our fiscal year 2012. As of April 30, 2012, our estimated undiscounted environmental liability for USTs for which we retain remediation responsibility is $.3 million.

As of April 30, 2012, our estimated undiscounted environmental liability totaled $2.4 million consisting of $1.1 million for the MGP sites for which we retain remediation responsibility, $1 million for the LNG facilities and $.3 million for the USTs not yet remediated. The costs we reasonably expect to incur are estimated using assumptions based on actual costs incurred, the timing of future payments and inflation factors, among others.

 

Further evaluation of the MGP, LNG and UST sites and removal of lead-based paint could significantly affect recorded amounts; however, we believe that the ultimate resolution of these matters will not have a material effect on our financial position, results of operations or cash flows.

 

Additional information concerning commitments and contingencies is set forth in Note 8 to the consolidated financial statements of our Form 10-K for the year ended October 31, 2011.