See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 – Basis of Presentation
Corning Natural Gas Holding Corporation (“Holding Company”) was incorporated in New York in July 2013 to serve as a holding company for Corning Natural Gas Corporation (“Corning Gas” or the “Gas Company”) and its dormant subsidiary Corning Natural Gas Appliance Corporation (the “Appliance Company”), Pike County Light & Power Company (“Pike”), Leatherstocking Gas Company, LLC (“Leatherstocking Gas”), and Leatherstocking Pipeline Company, LLC (“Leatherstocking Pipeline”). Until December 31, 2021, the Holding Company also owned 50% of Leatherstocking Gas of New York, Inc. (“Leatherstocking NY”). As used in this document, the term “the Company” refers to the consolidated operations of the Holding Company, Gas Company, Pike, and Leatherstocking Gas and Leatherstocking Pipeline.
The Holding Company’s primary business, through its subsidiaries, is natural gas and electric distribution. Corning Gas serves approximately 15,000 residential, commercial, industrial and municipal customers in the Corning, Hammondsport and Virgil, New York, areas and two other gas utilities which serve the Elmira and Bath, New York, areas. It is franchised to supply gas service in all of the political subdivisions in which it operates. The Gas Company is under the jurisdiction of the New York Public Service Commission (“NYPSC”) which oversees and sets rates for New York gas distribution companies. In addition, the Gas Company has contracts with Corning Incorporated and Woodhull Municipal Gas Company, a small local utility, to provide maintenance service on their gas lines. Pike is an electric and gas utility regulated by the Pennsylvania Public Utility Commission (“PAPUC”). Pike provides electric service to approximately 4,900 customers in the Townships of Westfall, Milford, the northern part of Dingman, and in the Boroughs of Milford and Matamoras. Pike provides natural gas service to 1,300 customers in Westfall Township and the Borough of Matamoras. All of these communities are located in Pike County, Pennsylvania. Additionally, Leatherstocking Gas is also regulated by the PAPUC and distributes gas in Susquehanna and Bradford Counties, Pennsylvania. Leatherstocking Pipeline, an unregulated company, previously served one customer in Lawton, Pennsylvania and has had no revenues since 2018.
On January 12, 2021, Holding Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among Holding Company, ACP Crotona Corp. (“Parent”), and ACP Crotona Merger Sub Corp. (“Merger Sub”), pursuant to which Merger Sub will merge with and into Holding Company, and Holding Company will continue as the surviving corporation and a wholly owned subsidiary of Parent (the “Merger”). As a result of the Merger, shareholders of Holding Company will receive consideration for their shares in the following amounts: (i) $24.75 in cash, per share of common stock; (ii) $25 per share of Series A preferred stock; (iii) $29.70 per share of Series B preferred stock; and (iv) $25 per share of Series C preferred stock. Amounts payable to all shareholders will include cash for any unpaid dividends. Parent and Merger Sub are affiliates of Argo Infrastructure Partners LP (“Argo”) and were formed by Argo in order to complete the Merger.
The Merger is subject to, among other customary closing conditions, the approvals of the NYPSC and the PAPUC. The Merger Agreement also includes certain termination rights for both the Company and Parent and provides that, in connection with the termination of the Merger Agreement under specified circumstances, termination fees may be owed by the Company to Parent, depending on the circumstances surrounding a termination.
The Merger Agreement provided for a 45-day “Go Shop” period which expired on February 26, 2021. During the “Go Shop” period, the Company received no competing offers or alternative acquisition proposals. The Company is now subject to a customary “No Shop” provision that restricts the Company’s ability to solicit acquisition proposals from third parties and to provide non-public information and to negotiate with third parties regarding unsolicited acquisition proposals that is reasonably expected to lead to a superior proposal. On April 30, 2021, the Company and Argo filed with the NYPSC and PAPUC joint petitions requesting approval to conclude the merger. The Merger was voted on and approved by the Company’s shareholders at its annual shareholder meeting on May 27, 2021. On February 3, 2022, the PAPUC approved the Merger. A decision on the Merger from the NYPSC is expected by the end of the Company’s third quarter (See Note 9 - Regulatory Matters).
In connection with the execution of the Merger Agreement, the Company has suspended its dividend reinvestment plan.
Upon consummation of the Merger, the Company’s common stock will be delisted from the OTCQX and deregistered under the Exchange Act as soon as practicable.
The information furnished herewith reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the period. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to Securities and Exchange Commission rules and regulations, although the Holding Company believes the disclosures which are made are adequate to make the information presented not misleading.
The consolidated financial statements contained herein should be read in conjunction with the consolidated financial statements and notes thereto included in the Holding Company’s latest annual report on Form 10-K for the fiscal year ended September 30, 2021 (“Annual Report”), filed on December 17, 2021. These interim consolidated financial statements are unaudited.
Our significant accounting policies are described in the notes to the Consolidated Financial Statements in the Holding Company’s Annual Report. It is important to understand that the application of generally accepted accounting principles in the United States of America involves certain assumptions, judgments and estimates that affect reported amounts of assets, liabilities, revenues and expenses. Thus, the application of these principles can have varying results from company to company.
Because our business is highly seasonal in nature, sales for each quarter of the year vary and are not comparable. Sales vary depending on seasonal variations in temperature, although the Gas Company’s weather normalization and revenue decoupling clauses approved by the NYPSC serve to stabilize net revenue, by insulating the Gas Company, to an extent, from the effects of unusual temperature variations and conservation. Certain larger customer classes are not covered by weather normalization or revenue decoupling and weather will impact revenue from these classes. Neither Pike nor Leatherstocking Gas have weather normalization or revenue decoupling clauses.
It is the Holding Company’s policy to reclassify amounts in the prior year financial statements to conform to the current year or period presentation.
New Accounting Pronouncements Not Yet Adopted
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (Topic 326), which provides a model, known as the current expected credit loss model, to estimate the expected lifetime credit loss on financial assets, including trade and other receivables, rather than incurred losses over the remaining life of most financial assets measured at amortized cost. The guidance also requires use of an allowance to record estimated credit losses on available-for-sale debt securities. The new standard is effective for annual and interim periods beginning after December 15, 2022. The Company is currently evaluating the impact of the guidance on its consolidated financial statements and related disclosures.
In August 2020, the FASB issued ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The new standard is effective for annual and interim periods beginning after December 15, 2021. The Company is currently evaluating the impact of the guidance on its consolidated financial statements and related disclosures.
Note 2 – Revenue From Contracts With Customers
The following tables present, for the three and six months ended March 31, 2022 and 2021, revenue from contracts with customers as defined in Accounting Standards Codification (“ASC 606”) (Revenue From Contracts With Customers), as well as additional revenue from sources other than contracts with customers, disaggregated by major source.
|
|
|
For the three months ended March 31, 2022 |
|
|
|
Revenues from |
|
|
|
|
|
|
|
|
|
|
contracts with |
|
|
Other revenues |
|
|
Total utility |
|
|
|
|
customers |
|
|
(a) |
|
|
operating revenues |
|
|
Corning Gas: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential gas |
|
$ |
7,830,728 |
|
|
$ |
225,527 |
|
|
$ |
8,056,255 |
|
|
Commercial gas |
|
|
1,213,670 |
|
|
|
— |
|
|
|
1,213,670 |
|
|
Transportation |
|
|
1,577,449 |
|
|
|
(26,373 |
) |
|
|
1,551,076 |
|
|
Street lights gas |
|
|
188 |
|
|
|
— |
|
|
|
188 |
|
|
Wholesale |
|
|
1,074,174 |
|
|
|
— |
|
|
|
1,074,174 |
|
|
Local production |
|
|
73,279 |
|
|
|
— |
|
|
|
73,279 |
|
|
Total Corning Gas |
|
|
11,769,488 |
|
|
|
199,154 |
|
|
|
11,968,642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pike: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential gas |
|
|
826,364 |
|
|
|
1,444 |
|
|
|
827,808 |
|
|
Commercial gas |
|
|
207,140 |
|
|
|
— |
|
|
|
207,140 |
|
|
Total Pike retail gas |
|
|
1,033,504 |
|
|
|
1,444 |
|
|
|
1,034,948 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential electric |
|
|
1,720,572 |
|
|
|
(110,435 |
) |
|
|
1,610,137 |
|
|
Commercial electric |
|
|
1,644,976 |
|
|
|
— |
|
|
|
1,644,976 |
|
|
Electric – street lights |
|
|
44,791 |
|
|
|
— |
|
|
|
44,791 |
|
|
Total Pike retail electric |
|
|
3,410,339 |
|
|
|
(110,435 |
) |
|
|
3,299,904 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Pike |
|
|
4,443,843 |
|
|
|
(108,991 |
) |
|
|
4,334,852 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leatherstocking Gas |
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential gas |
|
|
219,510 |
|
|
|
— |
|
|
|
219,510 |
|
|
Commercial gas |
|
|
218,554 |
|
|
|
— |
|
|
|
218,554 |
|
|
Industrial sales |
|
|
223,176 |
|
|
|
— |
|
|
|
223,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Leatherstocking Gas |
|
|
661,240 |
|
|
|
— |
|
|
|
661,240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated utility operating revenue |
|
$ |
16,874,571 |
|
|
$ |
90,163 |
|
|
$ |
16,964,734 |
|
(a) Other revenues include revenue from alternative revenue programs, such as revenue decoupling mechanisms under New York gas rate plans and weather normalization clauses.
|
|
|
For the six months ended March 31, 2022 |
|
|
|
Revenues from |
|
|
|
|
|
|
|
|
|
|
contracts with |
|
|
Other revenues |
|
|
Total utility |
|
|
|
|
customers |
|
|
(a) |
|
|
operating revenues |
|
|
Corning Gas: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential gas |
|
$ |
11,944,852 |
|
|
$ |
285,510 |
|
|
$ |
12,230,362 |
|
|
Commercial gas |
|
|
1,821,213 |
|
|
|
— |
|
|
|
1,821,213 |
|
|
Transportation |
|
|
2,757,842 |
|
|
|
(3,233 |
) |
|
|
2,754,609 |
|
|
Street lights gas |
|
|
324 |
|
|
|
— |
|
|
|
324 |
|
|
Wholesale |
|
|
1,778,374 |
|
|
|
— |
|
|
|
1,778,374 |
|
|
Local production |
|
|
142,344 |
|
|
|
— |
|
|
|
142,344 |
|
|
Total Corning Gas |
|
|
18,444,949 |
|
|
|
282,277 |
|
|
|
18,727,226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pike: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential gas |
|
|
1,280,852 |
|
|
|
1,448 |
|
|
|
1,282,300 |
|
|
Commercial gas |
|
|
333,762 |
|
|
|
— |
|
|
|
333,762 |
|
|
Total Pike retail gas |
|
|
1,614,614 |
|
|
|
1,448 |
|
|
|
1,616,062 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential electric |
|
|
2,995,340 |
|
|
|
8,391 |
|
|
|
3,003,731 |
|
|
Commercial electric |
|
|
2,976,152 |
|
|
|
— |
|
|
|
2,976,152 |
|
|
Electric – street lights |
|
|
85,644 |
|
|
|
— |
|
|
|
85,644 |
|
|
Total Pike retail electric |
|
|
6,057,136 |
|
|
|
8,391 |
|
|
|
6,065,527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Pike |
|
|
7,671,750 |
|
|
|
9,839 |
|
|
|
7,681,589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leatherstocking Gas |
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential gas |
|
|
338,653 |
|
|
|
— |
|
|
|
338,653 |
|
|
Commercial gas |
|
|
334,547 |
|
|
|
— |
|
|
|
334,547 |
|
|
Industrial sales |
|
|
360,992 |
|
|
|
— |
|
|
|
360,992 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Leatherstocking Gas |
|
|
1,034,192 |
|
|
|
— |
|
|
|
1,034,192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated utility operating revenue |
|
$ |
27,150,891 |
|
|
$ |
292,116 |
|
|
$ |
27,443,007 |
|
(a) Other revenues include revenue from alternative revenue programs, such as revenue decoupling mechanisms under New York gas rate plans and weather normalization clauses. Other revenues also includes reductions in revenues resulting from the deferral as regulatory liabilities of the net benefits of the federal Tax Cuts and Jobs Act of 2017. See “Regulatory Matters” in Note 9.
|
|
|
For the three months ended March 31, 2021 |
|
|
|
Revenues from |
|
|
|
|
|
|
|
|
|
|
contracts with |
|
|
Other revenues |
|
|
Total utility |
|
|
|
|
customers |
|
|
(a) |
|
|
operating revenues |
|
|
Corning Gas: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential gas |
|
$ |
6,415,249 |
|
|
$ |
403,626 |
|
|
$ |
6,818,875 |
|
|
Commercial gas |
|
|
909,624 |
|
|
|
— |
|
|
|
909,624 |
|
|
Transportation |
|
|
1,540,820 |
|
|
|
(159,888 |
) |
|
|
1,380,932 |
|
|
Street lights gas |
|
|
98 |
|
|
|
— |
|
|
|
98 |
|
|
Wholesale |
|
|
753,953 |
|
|
|
— |
|
|
|
753,953 |
|
|
Local production |
|
|
178,881 |
|
|
|
— |
|
|
|
178,881 |
|
|
Total Corning Gas |
|
|
9,798,625 |
|
|
|
243,738 |
|
|
|
10,042,363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pike: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential gas |
|
|
695,057 |
|
|
|
2,276 |
|
|
|
697,333 |
|
|
Commercial gas |
|
|
184,193 |
|
|
|
— |
|
|
|
184,193 |
|
|
Total Pike retail gas |
|
|
879,250 |
|
|
|
2,276 |
|
|
|
881,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential electric |
|
|
944,659 |
|
|
|
54,693 |
|
|
|
999,352 |
|
|
Commercial electric |
|
|
736,310 |
|
|
|
— |
|
|
|
736,310 |
|
|
Electric – street lights |
|
|
30,855 |
|
|
|
— |
|
|
|
30,855 |
|
|
Total Pike retail electric |
|
|
1,711,824 |
|
|
|
54,693 |
|
|
|
1,766,517 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Pike |
|
|
2,591,074 |
|
|
|
56,969 |
|
|
|
2,648,043 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leatherstocking Gas |
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential gas |
|
|
175,502 |
|
|
|
— |
|
|
|
175,502 |
|
|
Commercial gas |
|
|
167,642 |
|
|
|
— |
|
|
|
167,642 |
|
|
Industrial sales |
|
|
189,489 |
|
|
|
— |
|
|
|
189,489 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Leatherstocking Gas |
|
|
532,633 |
|
|
|
— |
|
|
|
532,633 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated utility operating revenue |
|
$ |
12,922,332 |
|
|
$ |
300,707 |
|
|
$ |
13,223,039 |
|
(a) Other revenues include revenue from alternative revenue programs, such as revenue decoupling mechanisms under New York gas rate plans and weather normalization clauses. This also reflects reductions in revenues resulting from the deferral as regulatory liabilities of the net benefits of the federal Tax Cuts and Jobs Act of 2017. See “Regulatory Matters” in Note 9.
|
|
|
For the six months ended March 31, 2021 |
|
|
|
Revenues from |
|
|
|
|
|
|
|
|
|
|
contracts with |
|
|
Other revenues |
|
|
Total utility |
|
|
|
|
customers |
|
|
(a) |
|
|
operating revenues |
|
|
Corning Gas: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential gas |
|
$ |
9,808,972 |
|
|
$ |
290,594 |
|
|
$ |
10,099,566 |
|
|
Commercial gas |
|
|
1,288,591 |
|
|
|
— |
|
|
|
1,288,591 |
|
|
Transportation |
|
|
2,668,794 |
|
|
|
(108,460 |
) |
|
|
2,560,334 |
|
|
Street lights gas |
|
|
191 |
|
|
|
— |
|
|
|
191 |
|
|
Wholesale |
|
|
1,236,822 |
|
|
|
— |
|
|
|
1,236,822 |
|
|
Local production |
|
|
354,486 |
|
|
|
— |
|
|
|
354,486 |
|
|
Total Corning Gas |
|
|
15,357,856 |
|
|
|
182,134 |
|
|
|
15,539,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pike: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential gas |
|
|
1,108,931 |
|
|
|
(2,870 |
) |
|
|
1,106,061 |
|
|
Commercial gas |
|
|
295,643 |
|
|
|
— |
|
|
|
295,643 |
|
|
Total Pike retail gas |
|
|
1,404,574 |
|
|
|
(2,870 |
) |
|
|
1,401,704 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential electric |
|
|
1,922,578 |
|
|
|
53,483 |
|
|
|
1,976,061 |
|
|
Commercial electric |
|
|
1,624,244 |
|
|
|
— |
|
|
|
1,624,244 |
|
|
Electric – street lights |
|
|
63,461 |
|
|
|
— |
|
|
|
63,461 |
|
|
Total Pike retail electric |
|
|
3,610,283 |
|
|
|
53,483 |
|
|
|
3,663,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Pike |
|
|
5,014,857 |
|
|
|
50,613 |
|
|
|
5,065,470 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leatherstocking Gas |
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential gas |
|
|
314,334 |
|
|
|
— |
|
|
|
314,334 |
|
|
Commercial gas |
|
|
284,670 |
|
|
|
— |
|
|
|
284,670 |
|
|
Industrial sales |
|
|
337,973 |
|
|
|
— |
|
|
|
337,973 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Leatherstocking Gas |
|
|
936,977 |
|
|
|
— |
|
|
|
936,977 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated utility operating revenue |
|
$ |
21,309,690 |
|
|
$ |
232,747 |
|
|
$ |
21,542,437 |
|
(a) Other revenues include revenue from alternative revenue programs, such as revenue decoupling mechanisms under New York gas rate plans and weather normalization clauses. Other revenues also includes reductions in revenues resulting from the deferral as regulatory liabilities of the net benefits of the federal Tax Cuts and Jobs Act of 2017. See “Regulatory Matters” in Note 9.
The Gas Company records revenues from residential and commercial customers based on meters read on a cyclical basis throughout each month, while certain large industrial and utility customers’ meters are read at the end of each month. Several meters are read at the end of each month to calculate local production revenues. The Gas Company does not accrue revenue for gas delivered but not yet billed, as the NYPSC requires that such accounting must be adopted during a rate proceeding, which the Gas Company has not done. The Gas Company, as part of its currently effective rate plan, has a weather normalization clause as protection against severe weather fluctuations. This affects space heating customers and is activated when degree days are 2.2% greater or less than the 30-year average. As a result, the effect on revenue fluctuations of weather related gas sales is somewhat moderated.
Pike recognizes revenues for electric and gas service on a monthly billing cycle basis. Pike does not accrue for gas and electricity delivered. Pike does not have a weather normalization clause as protection against severe weather.
Leatherstocking Gas recognizes revenues for gas service on a monthly billing cycle basis. Leatherstocking Gas does not record unbilled revenues. Leatherstocking Gas does not have a weather normalization clause as protection against severe weather.
In addition to weather normalization, the Gas Company has implemented a revenue decoupling mechanism (RDM). The RDM reconciles actual delivery service revenues to allowed delivery service revenues (which are based on the annual customer and volume forecasts in the last rate case) for residential customers. The Gas Company will refund or surcharge customers for differences between actual and allowed revenues. The shortfall or excess after the annual reconciliation will be surcharged or refunded to customers over a twelve-month period starting September 1st each year. Pike and Leatherstocking Gas do not have a revenue decoupling mechanism as part of their rate structures.
Revenues are recorded as energy is delivered, generated, or services are provided and billed to customers. Amounts billed are recorded in customer accounts receivable, with payment generally due the following month.
Note 3 - Pension and Other Post-Retirement Benefit Plans
Components of Net Periodic Benefit Cost:
|
Pension Benefits |
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
Six Months Ended March 31, |
|
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
Service Cost |
|
$ |
220,073 |
|
|
$ |
198,622 |
|
|
$ |
440,146 |
|
|
$ |
397,245 |
|
|
Interest Cost |
|
|
241,252 |
|
|
|
240,958 |
|
|
|
482,503 |
|
|
|
481,917 |
|
|
Expected return on plan assets |
|
|
(339,249 |
) |
|
|
(361,415 |
) |
|
|
(678,498 |
) |
|
|
(722,829 |
) |
|
Amortization of net actuarial gain |
|
|
174,863 |
|
|
|
244,157 |
|
|
|
349,726 |
|
|
|
488,313 |
|
|
Net periodic benefit cost |
|
$ |
296,939 |
|
|
$ |
322,322 |
|
|
$ |
593,877 |
|
|
$ |
644,646 |
|
Other Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
Six Months Ended March 31, |
|
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
Service Cost |
|
$ |
5,807 |
|
|
$ |
4,740 |
|
|
$ |
11,614 |
|
|
$ |
9,479 |
|
|
Interest Cost |
|
|
8,012 |
|
|
|
6,973 |
|
|
|
16,024 |
|
|
|
13,946 |
|
|
Amortization of prior service cost |
|
|
3,809 |
|
|
|
3,809 |
|
|
|
7,619 |
|
|
|
7,619 |
|
|
Amortization of net actuarial gain |
|
|
994 |
|
|
|
420 |
|
|
|
1,987 |
|
|
|
841 |
|
|
Net periodic benefit cost |
|
$ |
18,622 |
|
|
$ |
15,942 |
|
|
$ |
37,244 |
|
|
$ |
31,885 |
|
For ratemaking and financial statement purposes, pension expense represents the amount approved by the NYPSC in the Gas Company’s most recently approved rate case. Pension expense for ratemaking and financial statement purposes was $124,517 for the three months ended March 31, 2022 and $218,683 for the three months ended March 31, 2021. Pension expense for ratemaking and financial statement purposes was $310,570 for the six months ended March 31, 2022 and $437,366 for the six months ended March 31, 2021. Total pension costs are recorded in accordance with accounting prescribed by the NYPSC in 1993. The cumulative net difference between the pension expense for ratemaking and financial statement purposes, since 1993, has been deferred as a regulatory asset and amounted to $579,191 and $1,432,750 at March 31, 2022 and September 30, 2021, respectively.
The NYPSC has allowed the Gas Company to recover incremental costs associated with other post-retirement benefits through rates on a current basis. Other post-retirement benefit expense (benefit) (OPEB) for ratemaking and financial statement purposes was $12,185 for the three months ended March 31, 2022 and $14,680 for the three months ended March 31, 2021. Other post-retirement benefit expense (benefit) for ratemaking and financial statement purposes was $25,360 for the six months ended March 31, 2022 and $29,360 for the six months ended March 31, 2021. The difference between the other post-retirement benefit expense (benefit) for ratemaking and financial statement purposes, and the amount computed above has been deferred as a regulatory asset.
Contributions
The Gas Company expects to contribute $610,968 to its Pension Plan during the fiscal year ending September 30, 2022. A total of $0 was paid to the Pension Plan during the six months ending March 31, 2022 and $0 during the three months ended March 31, 2022. A total of $511,266 was paid to the Pension Plan during the six months ending March 31, 2021 and $255,633 during the three months ended March 31, 2021.
Note 4 – Financing Activities
On December 17, 2021, Corning Gas increased from $8.0 million to $8.5 million its revolving line of credit from M&T Bank. Corning Gas will use its increased line of credit for working capital purposes. The line of credit bears interest at a variable rate equal to (a) the applicable daily simple secured overnight financing rate (“SOFR”) or (b) 0.50% plus an interest rate spread ranging from 1.7% to 2.6% depending on the Company’s funded debt to leveraged EBITDA ratio. The line of credit is due and payable upon demand by M&T Bank. The loan balance at March 31, 2022 and September 30, 2021 was $6,114,346 and $4,657,812 respectively.
On October 5, 2021, Leatherstocking Gas renegotiated two long term loans with Wayne Bank that were issued in 2019 in the amount of $6 million and $650,000 respectively. The original loans had a fixed interest rate of 4.75% with an interest rate redetermination to occur on March 11, 2024. The new interest rate was scheduled to be equal to 2.25% in excess of the 5-year Treasury Yield Curve Rate. The renegotiated loans have a fixed interest rate of 4.75% for the remaining terms of the loans. The principal balances of the loans on the date of renegotiation were $4,751,146, and $501,565 respectively. The Holding Company guarantees these loans. The loan balance at March 31, 2022 and September 30, 2021 was $4,956,185 and $5,252,712 respectively.
On December 13, 2021, Leatherstocking Gas converted its multiple draw construction loan with Wayne Bank into a ten-year term loan in the amount of $800,000, at a fixed interest rate of 4.75%. The note matures on December 13, 2031. The balance at March 31, 2022 and September 30, 2021 was $779,030 and $653,934 respectively.
On June 25, 2021, Corning Gas entered into a $4.665 million multiple disbursement term note with M&T Bank to retire $850,000 of existing short term debt and which permitted draws from time to time for capital expenditures in accordance with its terms until October 31, 2021 at which time amounts outstanding under the note converted to a ten-year term loan, with the final installment of unpaid principal and interest due on October 31, 2031. Interest on the note is a variable rate of 2.9% plus the one-month LIBOR rate. In connection with the loan, Corning Gas entered into a fifth amended replacement and restated credit agreement with M&T Bank. The balance at March 31, 2022 and September 30, 2021 was $4,498,765 and $4,665,000 respectively.
On August 19, 2021, Pike entered into a $2.21 million multiple disbursement term loan with M&T Bank for capital expenditures and pipeline repairs which permitted draws from time to time until October 31, 2021, at which time amounts outstanding under the loan converted to a ten-year term, loan with the final installment of unpaid principal and interest due on October 31, 2031. The Note bears interest at a variable rate equal to 2.9% plus the one-month LIBOR rate. In connection with the loan, Pike entered into a fifth amended replacement and restated credit agreement with M&T Bank (the “Credit Agreement”). The Credit Agreement contains various affirmative and negative covenants including, among others: (i) Pike must maintain a “Total Funded Debt to Tangible Net Worth” ratio of not greater than 1.40 to 1.0, a “Total Funded Debt to EBITDA” ratio of not greater than 3.75 to 1.0, and a minimum “Minimum Debt Service Coverage Ratio” of not less than 1.10 to 1.0, in each case measured quarterly based on Pike’s trailing twelve month operating performance; (ii) Pike must deliver to M&T Bank quarterly and annual financial statements, compliance and other documents; and (iii) Pike may not sell all or substantially all of its assets, acquire substantially all of the asset of any other entity, do business under any assumed name, materially change its business, purposes, structure or operations which could materially adversely affect Pike, or engage in any merger, consolidation or other similar transaction. The balance at March 31, 2022 and September 30, 2021 was $2,118,875 and $1,966,823 respectively.
We are in compliance with our financial covenant calculations as of March 31, 2022.
Note 5 – Fair Value of Financial Instruments
The Holding Company has determined the fair value of debt and other financial instruments using a valuation hierarchy. The hierarchy, which prioritizes the inputs used in measuring fair value, consists of three levels. Level 1 uses observable inputs such as quoted prices in active markets; Level 2 uses inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, which is defined as unobservable inputs in which little or no market data exists, requires the Holding Company to develop its own assumptions. The carrying amount of debt on the Consolidated Balance Sheets approximates fair value as a result of instruments bearing interest rates that approximate current market rates for similar instruments, and the carrying amounts for cash, accounts receivable and accounts payable approximate fair value due to their short-term nature. Investment assets, which fund the Holding Company’s deferred compensation plan, are valued based on Level 1 inputs.
The Holding Company has determined the fair value of certain assets through application of FASB ASC 820 “Fair Value Measurements and Disclosures”.
Fair value of assets and liabilities measured on a recurring basis at March 31, 2022 and September 30, 2021 are as follows:
Fair Value Measurements at Reporting Date Using:
|
|
|
Fair Value |
|
|
Quoted Prices In
Active Markets
for Identical
Assets/Liabilities
(Level 1) |
|
|
Level 2 |
|
|
Level 3 |
|
|
March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities |
|
$ |
2,184,478 |
|
|
$ |
2,184,478 |
|
|
$ |
— |
|
|
$ |
— |
|
|
September 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities |
|
$ |
2,337,330 |
|
|
$ |
2,337,330 |
|
|
$ |
— |
|
|
$ |
— |
|
A summary of the marketable securities at March 31, 2022 and September 30, 2021 is as follows:
|
|
|
Cost Basis |
|
|
Unrealized Gain |
|
|
Unrealized Loss |
|
|
Market Value |
|
|
March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents |
|
$ |
25,059 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
25,059 |
|
|
Metlife stock value |
|
|
52,391 |
|
|
|
6,124 |
|
|
|
— |
|
|
|
58,515 |
|
|
Holding Company Preferred A Stock |
|
|
572,875 |
|
|
|
22,915 |
|
|
|
— |
|
|
|
595,790 |
|
|
Equity and debt securities |
|
|
1,367,308 |
|
|
|
137,806 |
|
|
|
— |
|
|
|
1,505,114 |
|
|
Total securities |
|
$ |
2,107,633 |
|
|
$ |
166,845 |
|
|
$ |
— |
|
|
$ |
2,184,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents |
|
$ |
148,327 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
148,327 |
|
|
Metlife stock value |
|
|
53,855 |
|
|
|
— |
|
|
|
(2,496 |
) |
|
|
51,359 |
|
|
Government and agency bonds |
|
|
15,072 |
|
|
|
1,243 |
|
|
|
— |
|
|
|
16,315 |
|
|
Holding Company Preferred A Stock |
|
|
572,875 |
|
|
|
25,207 |
|
|
|
— |
|
|
|
598,082 |
|
|
Equity and debt securities |
|
|
1,122,826 |
|
|
|
367,741 |
|
|
|
— |
|
|
|
1,490,567 |
|
|
Commodities |
|
|
33,420 |
|
|
|
— |
|
|
|
(740 |
) |
|
|
32,680 |
|
|
Total securities |
|
$ |
1,946,375 |
|
|
$ |
394,191 |
|
|
$ |
(3,236 |
) |
|
$ |
2,337,330 |
|
Financial assets and liabilities valued using level 1 inputs are based on unadjusted quoted market prices as of the close of business on the days noted within active markets.
Realized gains included in earnings for the periods reported in investment income are as follows:
|
Investment Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
Six Months Ended March 31, |
|
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
Net realized gains recognized during the period on investments |
|
$ |
222,358 |
|
|
$ |
148,758 |
|
|
$ |
244,122 |
|
|
$ |
175,222 |
|
Unrealized (losses) on equity securities included in investment income for the three and six months ended March 31, 2022 were ($307,237) and ($235,085), respectively. Unrealized (losses)/gains on equity securities included in investment income for the three and six months ended March 31, 2021 were ($34,092) and $80,166, respectively.
In January of 2022, $180,420 of cash was paid as non-qualified deferred compensation to retired employees.
Financial assets and liabilities valued using level 1 inputs are based on unadjusted quoted market prices as of the close of business on the days noted within active markets.
Note 6 – Stockholders’ Equity and Preferred Stock
There were no shares issued during the three and six months ended March 31, 2022. Shares issued during the three and six month ended March 31, 2021 were for the following:
|
|
|
Three months ended March 31, 2021 |
|
|
Six months ended March 31, 2021 |
|
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Dividend reinvestment program (DRIP) |
|
|
— |
|
|
|
— |
|
|
|
3,380 |
|
|
$ |
51,749 |
|
|
Directors |
|
|
— |
|
|
|
— |
|
|
|
3,150 |
|
|
|
40,163 |
|
|
Leatherstocking Gas Company |
|
|
— |
|
|
|
— |
|
|
|
4,500 |
|
|
|
34,984 |
|
|
Total |
|
|
— |
|
|
|
— |
|
|
|
11,030 |
|
|
$ |
126,896 |
|
Shares issued to Leatherstocking Gas were used to compensate its independent director, Carl Hayden.
For the three months ended September 30, 2021, dividends were paid on October 15, 2021 to stockholders of record on September 30, 2021 in the amount of $469,898. As of March 31, 2022, $469,898 was accrued for dividends paid on April 15, 2022 to stockholders of record on March 31, 2022.
There was no stock option activity during the three and six months ended March 31, 2022. The following table details options outstanding as of March 31, 2022.
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
|
|
Number of |
|
|
Average |
|
|
Remaining Life |
|
|
|
|
Options |
|
|
Exercise Price |
|
|
(years) |
|
|
Outstanding at September 30, 2021 |
|
|
20,000 |
|
|
$ |
19.75 |
|
|
|
9.45 |
|
|
Granted |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Exercised |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Expired or forfeited |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Outstanding at March 31, 2022 |
|
|
20,000 |
|
|
$ |
19.75 |
|
|
|
8.95 |
|
Series A Cumulative Preferred Stock accrues cumulative dividends at a rate of 6.0% of the liquidation preference per share ($25.00) and are expected to be paid on or about the 14th day of April, July, October and January of each year. The dividends for the three months ended March 31, 2022 and 2021 were $97,725 and $78,975, respectively. The dividends for the six months ended March 31, 2022 and 2021 were $195,450 and $195,450, respectively. These dividends are recorded as interest expense. The amortization of the Series A Preferred Stock debt issuance costs for the six months ended March 31, 2022 and 2021 was $5,075 and $10,365, respectively. The amortization of the Series A Preferred Stock debt issuance costs for the three months ended March 31, 2022 and 2021 was $2,538 and $5,182, respectively.
Series B Convertible Preferred Stock accrues cumulative dividends at a rate of 4.8% of the liquidation preference per share ($20.75) and are expected to be paid on or about the 14th day of April, July, October and January of each year and began October 14, 2016. At September 30, 2021 there was $61,066 accrued for Series B dividends paid on October 15, 2021. As of March 31, 2022, $61,066 was accrued for dividends paid on April 15, 2022.
Series C Cumulative Preferred Stock accrues cumulative dividends at a rate of 6.0% of the liquidation preference per share ($25.00) and are expected to be paid on or about the 14th day of April, July, October and January of each year. The dividends for the three months ended March 31, 2022 and 2021 were $67,500 and $67,500, respectively. The dividends for the six months ended March 31, 2022 and 2021 were $135,000 and $135,000, respectively. These dividends are recorded as interest expense. The amortization of the Series C Preferred Stock debt issuance costs for the six months ended March 31, 2022 and 2021 was $124 and $124, respectively. The amortization of the Series C Preferred Stock debt issuance costs for the three months ended March 31, 2022 and 2021 was $62 and $62, respectively.
On December 3, 2021, the Holding Company amended its certificate of incorporation (“Certificate of Amendment”) to authorize the issuance of 5,000 shares of 1.5% Series D Cumulative redeemable Preferred Stock, par value of $0.01 per share (“Series D Preferred Stock”). The Certificate of Amendment provides for certain redemption requirements and rights. On December 8, 2026, Holding Company must redeem all of the outstanding shares of Series D Preferred Stock at a redemption price equal to $1,000 per share, plus an amount equal to all accrued but unpaid dividends, if any, whether or not declared.
Upon the earlier to occur of (i) the termination of the Company’s merger agreement with Argo, and December 31, 2022, for one year thereafter, any holder of Series D Preferred Stock may elect to require the Holding Company to redeem all of the Series D Preferred Shares held by that holder for an amount equal to $1,000 per share, plus an amount equal to all accrued but unpaid dividends, if any, whether or not declared.
On December 8, 2021, Holding Company issued 5,000 shares of its newly authorized Series D Preferred Stock to ACP Crotona Corp., for $1,000 per share, or $5 million. The dividends for the three months ended March 31, 2022 and 2021 were $18,750 and $-, respectively. The dividends for the six months ended March 31, 2022 and 2021 were $23,641 and $-, respectively. These dividends are recorded as interest expense. As previously disclosed, on January 12, 2021, the Company entered into an agreement and plan or merger by and among the Company and, among others, ACP Crotona Corp., an Argo affiliate.
The Company used the funds raised for general working capital and to fund service expansion projects and capital replacement projects at each of its utilities.
The issuance of the Series D Preferred Stock was a private placement to an accredited investor exempt from registration under Section 4(a)(2) of the Securities Act of 1933.
Basic earnings (loss) per share are computed by dividing income (loss) available for common stock (net income less dividends declared on Series B Preferred Stock) by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.
Note 7 – Investment in Joint Ventures
The Holding Company had an interest in Leatherstocking Gas and Leatherstocking Pipeline, each of which was a joint venture with Mirabito Regulated Industries, LLC (“Mirabito”), accounted for by the equity method. On July 1, 2020, Leatherstocking Gas distributed to its members franchises, engineering and gas pipeline assets located in New York having a book value of $0.532 million. These assets were then contributed to the equity of Leatherstocking Gas Company of New York, Inc. (“Leatherstocking NY”). The Company owned 50% of the common shares of the newly formed Leatherstocking NY and accounted for this investment using the equity method of accounting. Mirabito had the option to acquire the Company’s interests in Leatherstocking NY, for a purchase price of $100,000, beginning on the earlier of a change in control of the Company, or July 1, 2021, and ending on June 30, 2023. On October 5, 2021, Mirabito notified the Company that it exercised its option to acquire the Company’s interest in Leatherstocking NY, and on December 31, 2021, the Company completed the sale of Leatherstocking NY for the $100,000 option price, plus Mirabito’s share of accounts payable. The Company recorded a pre-tax loss of $164,003 on the sale transaction.
The following table represents the Holding Company’s investment activity in the Leatherstocking joint ventures for the six months ended March 31, 2022 and 2021:
|
|
|
2022 |
|
2021 |
|
Beginning balance in investment in joint ventures |
|
$ |
261,180 |
|
|
$ |
264,640 |
|
|
Proceeds from sale of interest in joint ventures |
|
|
(100,000 |
) |
|
|
— |
|
|
Loss on sale of interest in joint ventures |
|
|
(164,003 |
) |
|
|
— |
|
|
Accounts payable due |
|
|
2,823 |
|
|
|
— |
|
|
Cost adjustment |
|
|
— |
|
|
|
4,214 |
|
|
Loss from joint ventures |
|
|
— |
|
|
|
(7,513 |
) |
|
Ending balance in joint ventures |
|
$ |
— |
|
|
$ |
261,341 |
|
As of and for the six months ended March 31, 2022 and 2021, the Joint Ventures financial summary is as follows:
|
|
|
2022 |
|
2021 |
|
Total assets |
|
$ |
— |
|
|
$ |
528,000 |
|
|
Total liabilities |
|
$ |
— |
|
|
$ |
5,000 |
|
|
Net (loss) income |
|
$ |
— |
|
|
$ |
(8,000 |
) |
Note 8 – Income Taxes
Income tax expense for the periods ended March 31 are as follows:
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
Six Months Ended |
|
|
|
|
March 31, 2022 |
|
|
March 31, 2021 |
|
|
March 31, 2022 |
|
|
March 31, 2021 |
|
|
Current |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Deferred |
|
|
704,701 |
|
|
|
988,418 |
|
|
|
957,011 |
|
|
|
1,144,105 |
|
|
Total |
|
$ |
704,701 |
|
|
$ |
988,418 |
|
|
$ |
957,011 |
|
|
$ |
1,144,105 |
|
Actual income tax expense for the three and six months ended March 31, 2022 and 2021 is greater than tax calculated at the statutory rate (21%) due to state income taxes and non-tax deductible dividends on Class A, Class C, and during the three and six months ending March 31, 2022, Class D preferred stock that are recorded as interest expense and included in pre-tax income, reduced in fiscal year 2021 by non-taxable PPP loan forgiveness at Leatherstocking.
Note 9 – Regulatory Matters
On May 19, 2021, the NYPSC issued a rate order in Case 21-G-0101, establishing rates and a rate plan for the Gas Company for a one-year period ending on January 31,2022 (“Rate Year”). The rate order disallowed the Company’s request for an increase in required revenue of $6,223,603, and instead ordered a reduction of $766,000 from current rates. In the current rate order, the existing $1.3 million tax sur-credit (an adjustment to rates to refund to customers an amount owing them due to income tax rate reductions in the 2017 Tax Cuts and Jobs Act) expired, along with a $30,000 reduction to the annual Delivery Rate Adjustment. In addition, the NYPSC denied recovery of the Gas Company’s approximately $350,000 leak repair and survey cost reserve established in FY 2016. The denial of recovery of this reserve resulted in a FY 2021 charge of approximately $180,000 (pre-tax), as the Company had previously established a reserve for this matter in the amount of $170,000 (pre-tax). The net impact on the Gas Company’s customers was an increase of $505,000 for the Rate Year, retroactive to February 1, 2021.
The Gas Company, on July 15, 2021, filed a petition with the State of New York Supreme Court in Albany County pursuant to Article 78 of the Civil Practice Law and Rules to review and set aside the NYPSC May 19, 2021 order that was issued in PSC cases 20-G-0101 and 16-G-0204 involving the Gas Company’s rates for gas service. The Gas Company’s petition claims that the NYPSC’s decision was arbitrary and capricious and an abuse of discretion, affected by errors of law, and in violation of established regulatory procedure. The Gas Company’s petition requests a judgment: (1) annulling and setting aside the Order as arbitrary and capricious and an abuse of discretion, affected by errors of law, in violation of lawful regulatory procedure, and unsupported by substantial evidence in the record, insofar as the Order implements four areas of “austerity” adjustments and denies recovery of leak survey and repair costs; (2) remanding this matter to the NYPSC for further proceedings consistent with the Court’s judgment; and (3) granting such other and further relief as may be just and proper. The resolution of this matter is pending judicial review.
On July 16, 2021, the Gas Company filed a three-year rate plan (Case 21-G-0394) with the NYPSC for rate years ending on June 30, 2023, 2024, and 2025. The rate increases requested for the three-year rate plan (as amended) are $6,555,000, $1,030,000, and $843,000, respectively. In its filing, the Gas Company proposes a rate plan with levelized increases over three years in the amount of $3,761,000 per year. These rates, if implemented, would impact customer bills by 11.14% in each year.
In March of 2021, the NYPSC issued a “Show Cause” order instructing Corning Gas to show cause why its Paycheck Protection Program loan in the amount of $970,000 should not be refunded to its customers if and when the loan is forgiven. On May 13, 2021, the Gas Company responded to the “Show Cause” order supporting its position that it will use the PPP loan proceeds to fund COVID operating costs, lost commercial revenues, and customer bad debt increases. On May 21, 2021, the Corning Gas PPP loan was forgiven. This matter is pending with the NYPSC. The Gas Company and Staff, in its joint proposal to settle its 2021 Rate Case and its Merger Case, propose to resolve this issue by requiring the Company to refund approximately $480,000 of the PPP loan forgiveness to customers over a five-year period starting in the Rate Year beginning on July 1, 2022. If approved by the NYPSC this refund will have no impact on earnings.
By petition dated September 3, 2020 in Case 20-G-0442, Corning Gas requested authority under Public Service Law Section 69 to issue approximately $29.5 million of long term debt through December 31, 2024. The proceeds are to be used principally to fund NYPSC mandated system safety and reliability measures, including replacement of older pipe and regulator stations; and purchase equipment, computer software and other supplies as necessary to maintain the distribution system. The NYPSC issued a financing order in April of 2021 permitting the Gas Company to issue long term debt in the amount of $19.1 million, along with certain reporting requirements.
On March 14, 2022, the Company, Argo, and Staff entered into a Joint Proposal (“Joint Proposal”) which was filed with the NYPSC on that date and subsequently revised and filed on March 17, 2022. In addition, four other parties also participated in the settlement negotiations. Two of the four parties oppose certain Rate Case provisions. If adopted by the NYPSC, the Joint Proposal would resolve all of the issues presented in both Case 21-G-0394 (“Rate Case”), and Case 21-G-0260 (“Merger Case”).
At the core of the Joint Proposal is a comprehensive settlement commencing July 1, 2022 and extending for three consecutive Rate Years (the 12 months ending June 30, 2023, 2024, and 2025). If approved, the Joint Proposal would permit the Company to increase gas revenues by levelized amounts of $1,706,870 for Rate Year 1, $1,798,620 for Rate Year 2, and $1,740,870 for Rate Year 3. These increases equate to revenue increases of 5.5%, 5.5%, and 5.1%, respectively. The rate of return on common equity (“ROE”) endorsed by the Joint Proposal is 9.25%. The Joint Proposal includes an updated Earnings Sharing Mechanism that provides for the Company to retain all earnings up to and including a ROE of 9.75%, and a sharing with customers of earnings in excess of 9.75%.
The Joint Proposal contains several performance targets and requirements to develop new programs, including customer service programs, a Strategic Plan for Decarbonization, and a Low Income Program that uses a three-tiered approach to providing credits based on NYPSC recognition of varying levels of need that correlate with Home Energy Assistance Program (“HEAP”) benefits.
The Joint Proposal recommends that the NYPSC approve the Argo Merger as being in the public interest. Among the most significant features of the Joint Proposal as it pertains to the Merger are the following provisions. The Joint Proposal requires the Company’s Board of Directors to have at least one independent local board member who resides within the Company’s gas service territory or has substantial ties to the service territory. The Company’s headquarters must remain within the gas service territory for a minimum of five years following closing of the Merger. The Company must maintain pre-merger employment levels, and to provide pre-merger employee compensation and benefits for at least 12 months.
The Joint Proposal prohibits the pass-through to customers of goodwill and costs of the transaction. The Joint Proposal further proposes several financial metrics designed to maintain financial integrity of the Company. The Joint Proposal recognizes the substantial quantifiable benefits that the Company’s customers will receive as a result of the Merger. These benefits, in the form of the elimination of certain public company expenses, total approximately $300,000 per year. In addition, the Joint Proposal incorporates a Public Benefit Adjustment (“PBA”) in the amount of $1.2 million. Customers will receive the PBA in the amount of $400,000 in each of the three Rate Years covered by the Rate Case, of which $70,000 will be used to enhance the Company’s Low-Income Program.
The Joint Proposal is currently under review by the Administrative Law Judge assigned to this case, after which it will be referred to the NYPSC for a final determination. The Company expects a decision by the NYPSC in June of 2022.
Also on April 30, 2021, the Company and Argo filed with the PAPUC a Joint Application requesting certificates of public convenience from the PAPUC, and seeking all other PAPUC approvals necessary for the merger. On February 3, 2022, the PAPUC approved the Merger Agreement with Argo and the accompanying Settlement Agreement. In the Settlement Agreement, the Company agreed not to seek a general base rate increase prior to October 1, 2023. Further, the Company agreed to maintain current staffing levels for at least one year after the merger date, and to maintain its community involvement and charitable contributions at pre acquisition levels for at least three post-closing years. The Company also agreed to a one-time bill credit to customers at varying amounts, depending on customer class. The total amount of customer credits is approximately $50,000. Pike agreed to undertake a study of the feasibility of interconnecting with PJM Interconnection LLC, and the Company agreed to seek alternate natural gas suppliers.
Note 10 – Segment Reporting
The Company’s reportable segments have been determined based upon the nature of the products and services offered, customer base, availability of discrete internal financial information, homogeneity of products, delivery channel and other factors.
The Gas Company is a gas distribution company providing gas on a commodity and transportation basis to its customers in the Southern Tier of New York State. Pike provides electricity and natural gas services to Pike County, Pennsylvania. Leatherstocking Gas and Leatherstocking Pipeline are presented together as the Leatherstocking Companies in the table below. Leatherstocking Gas provided natural gas service to customers in northeast Pennsylvania. Leatherstocking Pipeline has had no revenues since 2018. The Holding Company is the parent company of all subsidiaries and, until December 31, 2021, had a 50% ownership in Leatherstocking NY. The Appliance Company’s information is presented with the Holding Company as it has little activity.
The following table reflects the results of the segments consistent with the Holding Company’s internal financial reporting process. The following results are used in part, by management, both in evaluating the performance of, and in allocating resources to, each of the segments.
As of and for the three months ended March 31, 2022
|
|
|
|
|
|
|
|
|
Leatherstocking |
|
|
Holding |
|
|
Total |
|
|
|
|
Gas Company |
|
|
Pike |
|
|
Companies |
|
|
Company |
|
|
Consolidated |
|
|
Total electric utility revenue |
|
$ |
— |
|
|
$ |
3,299,904 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
3,299,904 |
|
|
Total gas utility revenue |
|
$ |
11,968,642 |
|
|
$ |
1,034,948 |
|
|
$ |
661,240 |
|
|
$ |
— |
|
|
$ |
13,664,830 |
|
|
Investment expense |
|
$ |
(80,206 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(80,206 |
) |
|
Net income (loss) |
|
$ |
2,291,206 |
|
|
$ |
493,986 |
|
|
$ |
3,483 |
|
|
$ |
(320,129 |
) |
|
$ |
2,468,546 |
|
|
Income tax expense (benefit) |
|
$ |
729,436 |
|
|
$ |
(10,916 |
) |
|
$ |
(2,790 |
) |
|
$ |
(11,029 |
) |
|
$ |
704,701 |
|
|
Interest expense |
|
$ |
429,635 |
|
|
$ |
159,767 |
|
|
$ |
77,958 |
|
|
$ |
195,981 |
|
|
$ |
863,341 |
|
|
Depreciation expense |
|
$ |
556,986 |
|
|
$ |
200,624 |
|
|
$ |
188,382 |
|
|
$ |
915 |
|
|
$ |
946,907 |
|
|
Amortization expense |
|
$ |
58,800 |
|
|
$ |
108,781 |
|
|
$ |
3,042 |
|
|
$ |
12,006 |
|
|
$ |
182,629 |
|
|
Total assets |
|
$ |
104,518,457 |
|
|
$ |
34,755,445 |
|
|
$ |
13,120,009 |
|
|
$ |
519,272 |
|
|
$ |
152,913,183 |
|
|
Capital expenditures |
|
$ |
2,003,105 |
|
|
$ |
1,115,639 |
|
|
$ |
227,128 |
|
|
$ |
— |
|
|
$ |
3,345,872 |
|
As of and for the three months ended March 31, 2021
|
|
|
|
|
|
|
|
|
Leatherstocking |
|
|
Holding |
|
|
Total |
|
|
|
|
Gas Company |
|
|
Pike |
|
|
Companies |
|
|
Company |
|
|
Consolidated |
|
|
Total electric utility revenue |
|
$ |
— |
|
|
$ |
1,766,517 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,766,517 |
|
|
Total gas utility revenue |
|
$ |
10,042,363 |
|
|
$ |
881,526 |
|
|
$ |
532,633 |
|
|
$ |
— |
|
|
$ |
11,456,522 |
|
|
Investment income |
|
$ |
125,786 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
27 |
|
|
$ |
125,813 |
|
|
Loss associated with joint venture |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(5,812 |
) |
|
$ |
(5,812 |
) |
|
Net income (loss) |
|
$ |
2,525,227 |
|
|
$ |
203,341 |
|
|
$ |
85,653 |
|
|
$ |
(484,154 |
) |
|
$ |
2,330,067 |
|
|
Income tax expense (benefit) |
|
$ |
958,237 |
|
|
$ |
93,975 |
|
|
$ |
11,445 |
|
|
$ |
(75,239 |
) |
|
$ |
988,418 |
|
|
Interest expense |
|
$ |
331,551 |
|
|
$ |
155,676 |
|
|
$ |
80,744 |
|
|
$ |
177,231 |
|
|
$ |
745,202 |
|
|
Depreciation expense |
|
$ |
497,773 |
|
|
$ |
242,506 |
|
|
$ |
117,575 |
|
|
$ |
915 |
|
|
$ |
858,769 |
|
|
Amortization expense |
|
$ |
72,631 |
|
|
$ |
76,923 |
|
|
$ |
3,042 |
|
|
$ |
12,006 |
|
|
$ |
164,602 |
|
|
Total assets |
|
$ |
97,597,465 |
|
|
$ |
30,470,901 |
|
|
$ |
12,687,482 |
|
|
$ |
725,434 |
|
|
$ |
141,481,282 |
|
|
Capital expenditures |
|
$ |
1,160,738 |
|
|
$ |
594,825 |
|
|
$ |
261,437 |
|
|
$ |
— |
|
|
$ |
2,017,000 |
|
As of and for the six months ended March 31, 2022
|
|
|
|
|
|
|
|
|
Leatherstocking |
|
|
Holding |
|
|
Total |
|
|
|
|
Gas Company |
|
|
Pike |
|
|
Companies |
|
|
Company |
|
|
Consolidated |
|
|
Total electric utility revenue |
|
$ |
— |
|
|
$ |
6,065,527 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
6,065,527 |
|
|
Total gas utility revenue |
|
$ |
18,727,226 |
|
|
$ |
1,616,062 |
|
|
$ |
1,034,192 |
|
|
$ |
— |
|
|
$ |
21,377,480 |
|
|
Investment income |
|
$ |
28,293 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
28,293 |
|
|
Loss associated with joint venture |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(164,003 |
) |
|
$ |
(164,003 |
) |
|
Net income (loss) |
|
$ |
2,847,812 |
|
|
$ |
912,999 |
|
|
$ |
(63,953 |
) |
|
$ |
(764,019 |
) |
|
$ |
2,932,839 |
|
|
Income tax expense (benefit) |
|
$ |
921,529 |
|
|
$ |
164,831 |
|
|
$ |
(24,784 |
) |
|
$ |
(104,565 |
) |
|
$ |
957,011 |
|
|
Interest expense |
|
$ |
854,137 |
|
|
$ |
325,948 |
|
|
$ |
162,208 |
|
|
$ |
378,103 |
|
|
$ |
1,720,396 |
|
|
Depreciation expense |
|
$ |
1,057,937 |
|
|
$ |
414,736 |
|
|
$ |
318,244 |
|
|
$ |
1,830 |
|
|
$ |
1,792,747 |
|
|
Amortization expense |
|
$ |
117,600 |
|
|
$ |
217,562 |
|
|
$ |
6,084 |
|
|
$ |
24,012 |
|
|
$ |
365,258 |
|
|
Total assets |
|
$ |
104,518,457 |
|
|
$ |
34,755,445 |
|
|
$ |
13,120,009 |
|
|
$ |
519,272 |
|
|
$ |
152,913,183 |
|
|
Capital expenditures |
|
$ |
4,201,863 |
|
|
$ |
1,686,538 |
|
|
$ |
386,263 |
|
|
$ |
— |
|
|
$ |
6,274,664 |
|
As of and for the six months ended March 31, 2021
|
|
|
|
|
|
|
|
|
Leatherstocking |
|
|
Holding |
|
|
Total |
|
|
|
|
Gas Company |
|
|
Pike |
|
|
Companies |
|
|
Company |
|
|
Consolidated |
|
|
Total electric utility revenue |
|
$ |
— |
|
|
$ |
3,663,766 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
3,663,766 |
|
|
Total gas utility revenue |
|
$ |
15,539,990 |
|
|
$ |
1,401,704 |
|
|
$ |
936,977 |
|
|
$ |
— |
|
|
$ |
17,878,671 |
|
|
Investment income |
|
$ |
269,495 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
44 |
|
|
$ |
269,539 |
|
|
Loss associated with joint venture |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(7,513 |
) |
|
$ |
(7,513 |
) |
|
Net income (loss) |
|
$ |
3,083,867 |
|
|
$ |
96,751 |
|
|
$ |
48,013 |
|
|
$ |
(715,390 |
) |
|
$ |
2,513,241 |
|
|
Income tax expense (benefit) |
|
$ |
1,201,132 |
|
|
$ |
52,837 |
|
|
$ |
(12,653 |
) |
|
$ |
(97,211 |
) |
|
$ |
1,144,105 |
|
|
Interest expense |
|
$ |
667,336 |
|
|
$ |
313,195 |
|
|
$ |
155,654 |
|
|
$ |
354,462 |
|
|
$ |
1,490,647 |
|
|
Depreciation expense |
|
$ |
990,335 |
|
|
$ |
471,283 |
|
|
$ |
264,761 |
|
|
$ |
1,830 |
|
|
$ |
1,728,209 |
|
|
Amortization expense |
|
$ |
131,431 |
|
|
$ |
185,704 |
|
|
$ |
6,084 |
|
|
$ |
24,012 |
|
|
$ |
347,231 |
|
|
Total assets |
|
$ |
97,597,465 |
|
|
$ |
30,470,901 |
|
|
$ |
12,687,482 |
|
|
$ |
725,434 |
|
|
$ |
141,481,282 |
|
|
Capital expenditures |
|
$ |
2,508,577 |
|
|
$ |
1,524,684 |
|
|
$ |
362,245 |
|
|
$ |
— |
|
|
$ |
4,395,506 |
|
Note 11 – Subsequent Events
On May 11, 2022, Corning Gas and Pike entered into separate loan agreements with M & T Bank. Corning Gas increased its demand line of credit with M & T Bank from $8.5 million to $10 million. The line of credit has a variable interest rate of 1-Month SOFR with a .50% interest rate floor, plus a variable interest rate based on the ratio of funded debt to EBITDA. The current variable rate is 3.10%. The loan proceeds will be used to fund working capital. M & T Bank holds a first security interest in all of Corning Gas’ non real estate and non liquid assets.
Also on May 11, 2022, Pike increased its demand line of credit with M & T Bank from $2 million to $2.5 million. The line of credit has a variable interest rate of 1-Month SOFR with a .50% interest rate floor, plus a variable interest rate based on the ratio of funded debt to EBITDA. The current variable rate is 3.10%. The loan proceeds will be used to fund working capital. M & T Bank holds a first security interest in all of Pike’s non real estate assets.
The Holding Company guarantees these loans.