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 guidance.

Operating lease payments for the years ended October 31, 2013, 2012 and 2011 are as follows.

In thousands	2013		2012		2011

Operating lease payments ⁽¹⁾	$	4,729	$	3,712	$	4,496

⁽¹⁾ Operating lease payments do not include payments for common area maintenance, utilities or tax payments.

Future minimum lease obligations for the next five years ending October 31 and thereafter are as follows.

In thousands

2014	$	4,543
2015		4,592
2016		4,491
2017		4,297
2018		4,225
Thereafter		31,496
Total	$	53,644

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 and prudence reviews in North Carolina and South Carolina and under the TIP in Tennessee. The time periods for pipeline and storage capacity contracts are up to twenty-two years. The time periods for gas supply contracts are up to one year. 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 are up 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 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.”

As of October 31, 2013, future unconditional purchase obligations for the next five years ending October 31 and thereafter are as follows.

	Pipeline and				Telecommunications
	Storage				and Information
In thousands	Capacity		Gas Supply		Technology		Other		Total

2014	$	170,430	$	6,356	$	11,045	$	24,951	$	212,782
2015		157,407		-		4,676		-		162,083
2016		150,544		-		760		-		151,304
2017		145,494		-		-		-		145,494
2018		142,983		-		-		-		142,983
Thereafter		781,549		-		-		-		781,549
Total	$	1,548,407	$	6,356	$	16,481	$	24,951	$	1,596,195

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.

We use letters of credit to guarantee claims from self-insurance under our general and automobile liability policies. We had $2.1 million in letters of credit that were issued and outstanding at October 31, 2013. Additional information concerning letters of credit is included in Note 5 to the consolidated financial statements.

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.

In 1997, we entered into a settlement with a third-party with respect to nine manufactured gas plant (MGP) sites that we have owned, leased or operated that released us from any investigation and remediation liability. Although no such claims are pending or, to our knowledge, threatened, the settlement did not cover any third-party claims for personal injury, death, property damage and diminution of property value or natural resources.

In connection with the 2003 North Carolina Natural Gas Corporation (NCNG) acquisition, several MGP sites owned by NCNG were transferred to a wholly owned subsidiary of Progress Energy, Inc. (Progress), now a subsidiary of Duke Energy Corporation (DEC), prior to closing. Progress has complete responsibility for performing all of NCNG's remediation obligations to conduct testing and clean-up at these sites, including both the costs of such testing and clean-up and the implementation of any affirmative remediation obligations that NCNG has related to the sites. Progress' responsibility does not include any third-party claims for personal injury, death, property damage, and diminution of property value or natural resources. We know of no such pending or threatened claims.

There are four other MGP sites located in Reidsville and Hickory, 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 performed soil remediation work at our Reidsville site. In July 2012, the North Carolina Department of Environment and Natural Resources (NCDENR) approved our proposed groundwater investigation work plan, which included installing five monitoring wells in September 2012. The NCDENR is no longer requiring the groundwater remedial action plan. We filed land use restrictions on the property with the NCDENR in the fourth quarter of our fiscal year 2013. Upon NCDENR's completed review, we will file land use restrictions with the Register of Deeds for Reidsville, North Carolina. We have incurred $.6 million of remediation costs at the Reidsville site through October 31, 2013.

As part of a voluntary agreement with the NCDENR, we conducted and completed soil remediation for the Hickory, North Carolina MGP site in 2010. A Phase II groundwater investigation was conducted in 2011. A groundwater remedial action plan was submitted and approved by NCDENR in 2012. We continue to conduct quarterly groundwater monitoring at this site in accordance with our site remediation plan. NCDENR has approved land use restrictions on this site. Once we obtain the property owner's signature, we will then file land use restrictions with the Register of Deeds for Hickory, North Carolina. We have incurred $1.5 million of remediation costs at this site through October 31, 2013.

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 final consent order imposing land usage restrictions on the property was approved and signed by the TDEC in June 2010. The final consent order required two years of semi-annual groundwater monitoring, which has been completed. We have incurred $1.5 million of remediation costs at this site through October 31, 2013.

During 2008, we became aware of and began investigating soil and groundwater molecular sieve contamination concerns at our Huntersville 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 investigative and administrative costs of $1,860. As part of the ACO, we are 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. A site assessment plan was accepted by the NCDENR, and we began groundwater sampling in July 2012. We performed an initial round of sampling in November and December 2012 which was inconclusive as to migration, and thus additional groundwater monitoring wells were installed during March 2013 to aid in determining the extent of the groundwater contamination. The groundwater sampling results were submitted to the NCDENR in October 2013, and based on their response, we may be required to submit additional plan(s) to remediate and/or monitor the groundwater.

The Huntersville LNG facility was originally coated with lead-based paint. To avoid lead-based paint exposure or ground contamination, removal of lead-based paint from the site was initiated in spring 2010. The last phase of the lead-based paint removal began in July 2012 on the LNG tank, and the remediation of rafters in a nearby building began in the fourth quarter of our fiscal year 2013 with completion anticipated for both projects by the end of fiscal 2014. We have incurred $4.6 million of remediation costs through October 31, 2013 for all issues at the Huntersville LNG plant site.

Our Nashville LNG facility was also originally coated with lead-based paint. We completed the remediation of the facility in May 2012 and incurred $.5 million of remediation costs.

We have transitioned away from owning and maintaining our own petroleum underground storage tanks (USTs) with the exception of our Charlotte, North Carolina resource center which continues to operate two 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 those removals. The South Carolina Department of Health and Environmental Control (SCDHEC) requested that we conduct an initial groundwater assessment at our Greenville, South Carolina site to determine its current groundwater quality condition. This assessment was conducted in August 2012, and in November 2012, we received a determination letter from the SCDHEC that no further groundwater remediation would be required at the site for this issue.

In July 2005, we were notified by the NCDENR that we were named as a potentially responsible party for alleged environmental issues associated with a propane UST site in Clemmons, North Carolina. We owned and operated this site from March 1986 until June 1988 in connection with a non-utility venture. There have been at least four owners of the site. We contend that we contractually transferred any and all clean-up costs to the new owner of the site when we sold this venture in June 1988. However, the owners that purchased the property contend that we only transferred the clean-up costs associated with the gasoline pumps and not the USTs. It is unclear of the outcome of this case and how many of the former owners may ultimately be responsible for this site. Based on the uncertainty of the ultimate liability, we established an immaterial non-regulated environmental liability for one-fourth of the estimated cost to remediate the site.

One of our resource centers has coatings containing asbestos on some of their pipelines. We have educated our employees on the hazards of asbestos and implemented procedures for removing these coatings from our pipelines when we must excavate and expose portions of the pipeline, which generally occur only in small increments.

For all the matters discussed above, as of October 31, 2013, our estimated undiscounted environmental liability totaled $1.3 million, and consisted of $1.1 million for the MGP sites for which we retain remediation responsibility, $.1 million for the groundwater remediation at the Huntersville LNG site, and $.1 million for the LNG facilities and 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.

As of October 31, 2013, our regulatory assets for unamortized environmental costs in our three-state territory totaled $9.4 million. We received approval from the TRA to recover $2 million of our deferred Tennessee environmental costs over an eight-year period beginning March 2012, pursuant to the 2012 general rate case proceeding in Tennessee. We will seek recovery of the remaining Tennessee balance in future rate proceedings. The approval by the NCUC in December 2013 of the settlement of the general rate proceeding approves recovery of $6.3 million of our deferred North Carolina environmental costs over a five-year period beginning January 2014. We received approval from the PSCSC to recover $.2 million of our deferred South Carolina environmental costs over a one-year period beginning November 2013, pursuant to the annual rate stabilization order dated October 2013. For further information on regulatory matters, see Note 2 to the consolidated financial statements.

Further evaluation of the MGP, LNG and UST sites and removal of lead-based paint at our LNG site 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.