UGI UTILITIES INC, 10-K filed on 21 Nov 17
v3.8.0.1
Document and Entity Information - USD ($)
12 Months Ended
Sep. 30, 2017
Nov. 14, 2017
Mar. 31, 2017
Document and Entity Information [Abstract]      
Entity Registrant Name UGI UTILITIES INC    
Entity Central Index Key 0000100548    
Document Type 10-K    
Document Period End Date Sep. 30, 2017    
Amendment Flag false    
Document Fiscal Year Focus 2017    
Document Fiscal Period Focus FY    
Current Fiscal Year End Date --09-30    
Entity Well-known Seasoned Issuer No    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Filer Category Non-accelerated Filer    
Entity Common Stock, Shares Outstanding   26,781,785  
Entity Public Float     $ 0
v3.8.0.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Sep. 30, 2017
Sep. 30, 2016
Current assets:    
Cash and cash equivalents $ 5,203 $ 2,819
Restricted cash 3,046 583
Accounts receivable (less allowances for doubtful accounts of $4,052 and $3,946, respectively) 53,720 44,692
Accounts receivable — related parties 2,807 398
Accrued utility revenues 13,296 12,753
Inventories 53,309 42,340
Prepaid income taxes 7,711 1,956
Regulatory assets 8,338 3,208
Derivative instruments 1,354 4,263
Prepaid expenses 8,450 10,499
Other current assets 7,956 11,510
Total current assets 165,190 135,021
Property, plant and equipment 3,285,329 2,998,915
Less accumulated depreciation and amortization (1,010,781) (975,374)
Net property, plant and equipment 2,274,548 2,023,541
Goodwill 182,145 182,145
Regulatory assets 360,591 391,933
Other assets 11,541 10,451
Total assets 2,994,015 2,743,091
Current liabilities:    
Current maturities of long-term debt 39,996 19,986
Short-term borrowings 170,000 112,500
Accounts payable — trade 71,559 65,180
Accounts payable — related parties 6,890 3,995
Employee compensation and benefits accrued 21,851 16,323
Interest accrued 16,200 7,605
Customer deposits and advances 35,278 41,391
Derivative instruments 1,071 310
Regulatory liability — deferred fuel and power refunds 10,621 22,299
Other current liabilities 40,016 44,321
Total current liabilities 413,482 333,910
Long-term debt 711,105 651,455
Deferred income taxes 635,465 550,229
Deferred investment tax credits 2,950 3,268
Pension and other postretirement benefit obligations 143,674 184,516
Other noncurrent liabilities 99,434 94,976
Total liabilities 2,006,110 1,818,354
Commitments and contingencies (Note 12)
Common stockholder’s equity:    
Common Stock, $2.25 par value (authorized — 40,000,000 shares; issued and outstanding — 26,781,785 shares) 60,259 60,259
Additional paid-in capital 473,580 473,580
Retained earnings 480,857 422,516
Accumulated other comprehensive loss (26,791) (31,618)
Total common stockholder’s equity 987,905 924,737
Total liabilities and stockholder’s equity $ 2,994,015 $ 2,743,091
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Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Sep. 30, 2017
Sep. 30, 2016
Current assets:    
Allowance for doubtful accounts $ 4,052 $ 3,946
Common stockholder’s equity:    
Common stock, par value (in usd per share) $ 2.25 $ 2.25
Common stock, shares authorized (in shares) 40,000,000 40,000,000
Common stock, shares issued (in shares) 26,781,785 26,781,785
Common stock, shares outstanding (in shares) 26,781,785 26,781,785
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Consolidated Statements of Income - USD ($)
$ in Thousands
12 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Sep. 30, 2015
Income Statement [Abstract]      
Revenues $ 887,588 $ 768,484 $ 1,041,581
Costs and expenses:      
Cost of sales — gas, fuel and purchased power (excluding depreciation shown below) 367,279 289,786 510,784
Operating and administrative expenses 199,997 180,842 206,319
Operating and administrative expenses — related parties 12,354 11,863 11,956
Taxes other than income taxes 15,648 15,789 16,134
Depreciation 69,778 64,260 59,841
Amortization 2,554 3,043 3,749
Other operating (income) expense, net (8,329) 2,000 (8,869)
Costs and expenses 659,281 567,583 799,914
Operating income 228,307 200,901 241,667
Interest expense 40,212 37,630 41,128
Income before income taxes 188,095 163,271 200,539
Income taxes 72,054 65,898 79,484
Net income $ 116,041 $ 97,373 $ 121,055
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Consolidated Statements of Comprehensive Income - USD ($)
$ in Thousands
12 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Sep. 30, 2015
Comprehensive Income (Loss), Net of Tax, Attributable to Parent [Abstract]      
Net income $ 116,041 $ 97,373 $ 121,055
Net losses on derivative instruments (net of tax of $0, $12,016 and $2,911, respectively) 0 (16,942) (4,105)
Reclassifications of net losses on derivative instruments (net of tax of $(1,409), $(1,112) and $(1,109), respectively) 1,988 1,568 1,565
Benefit plans, principally actuarial gains (losses) (net of tax of $(1,336), $2,267 and $2,469, respectively) 1,883 (3,197) (3,482)
Reclassifications of benefit plans actuarial losses and net prior service credits (net of tax of $(678), $(454) and $(367), respectively) 956 639 517
Other comprehensive income (loss) 4,827 (17,932) (5,505)
Comprehensive income $ 120,868 $ 79,441 $ 115,550
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Consolidated Statements of Comprehensive Income (Parenthetical) - USD ($)
$ in Thousands
12 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Sep. 30, 2015
Comprehensive Income (Loss), Net of Tax, Attributable to Parent [Abstract]      
Tax on (loss) gain on derivative instruments $ 0 $ 12,016 $ 2,911
Tax on reclassifications of net losses (gains) on derivative instruments (1,409) (1,112) (1,109)
Tax on benefit plans (1,336) 2,267 2,469
Tax on reclassification of benefits plans actuarial losses and prior service cost $ (678) $ (454) $ (367)
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Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Sep. 30, 2015
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net income $ 116,041 $ 97,373 $ 121,055
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization 72,332 67,303 63,590
Deferred income taxes, net 78,568 76,938 29,356
Pension contributions, net of pension cost 4,017 1,580 (1,415)
Settlement of interest rate protection agreements 0 (35,975) 0
Provision for uncollectible accounts 8,030 7,760 13,498
Other, net 9,664 (10,112) 3,228
Net change in:      
Accounts receivable and accrued utility revenues (25,253) 1,120 7,297
Inventories (10,969) 9,376 43,503
Deferred fuel costs, net of changes in unsettled derivatives (15,385) (22,740) 51,778
Accounts payable 2,107 (3,053) (7,649)
Other current assets (2,108) (70) (9,723)
Other current liabilities 6,550 15,870 (7,808)
Net cash provided by operating activities 243,594 205,370 306,710
CASH FLOWS FROM INVESTING ACTIVITIES:      
Expenditures for property, plant and equipment (305,311) (250,584) (203,192)
Net costs of property, plant and equipment disposals (12,735) (7,940) (10,443)
(Increase) decrease in restricted cash (2,463) 6,019 (3,010)
Net cash used by investing activities (320,509) (252,505) (216,645)
CASH FLOWS FROM FINANCING ACTIVITIES:      
Payment of dividends (57,700) (47,000) (65,600)
Increase (decrease) in short-term borrowings 57,500 40,800 (14,600)
Issuances of long-term debt, net of issuance costs 99,499 298,379 0
Repayments of long-term debt (20,000) (247,000) (20,000)
Excess tax benefits from equity-based payment arrangements 0 1,676 833
Net cash provided (used) by financing activities 79,299 46,855 (99,367)
Cash and cash equivalents increase (decrease) 2,384 (280) (9,302)
CASH AND CASH EQUIVALENTS:      
End of year 5,203 2,819 3,099
Beginning of year 2,819 3,099 12,401
Increase (decrease) 2,384 (280) (9,302)
Cash paid (received) for:      
Interest 29,449 36,155 38,405
Income taxes $ 2,080 $ (19,758) $ 54,427
v3.8.0.1
Consolidated Statements of Stockholder's Equity - USD ($)
$ in Thousands
Total
Common stock, without par value
Retained earnings
Additional paid-in capital
Accumulated other comprehensive income (loss)
Balance, beginning of year at Sep. 30, 2014   $ 60,259 $ 316,688 $ 471,071 $ (8,181)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net income $ 121,055   121,055    
Cash dividends — Common Stock     (65,600)    
Excess tax benefits on equity-based compensation       833  
Net losses on derivative instruments (4,105)       (4,105)
Reclassifications of net losses on derivative instruments 1,565       1,565
Benefit plans, principally actuarial gains (losses)         (3,482)
Reclassifications of benefit plans actuarial losses and net prior service credits 517       517
Balance, end of year at Sep. 30, 2015 890,620 60,259 372,143 471,904 (13,686)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net income 97,373   97,373    
Cash dividends — Common Stock     (47,000)    
Excess tax benefits on equity-based compensation       1,676  
Net losses on derivative instruments (16,942)       (16,942)
Reclassifications of net losses on derivative instruments 1,568       1,568
Benefit plans, principally actuarial gains (losses)         (3,197)
Reclassifications of benefit plans actuarial losses and net prior service credits 639       639
Balance, end of year at Sep. 30, 2016 924,737 60,259 422,516 473,580 (31,618)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net income 116,041   116,041    
Cash dividends — Common Stock     (57,700)    
Excess tax benefits on equity-based compensation       0  
Net losses on derivative instruments 0       0
Reclassifications of net losses on derivative instruments 1,988       1,988
Benefit plans, principally actuarial gains (losses)         1,883
Reclassifications of benefit plans actuarial losses and net prior service credits 956       956
Balance, end of year at Sep. 30, 2017 $ 987,905 $ 60,259 $ 480,857 $ 473,580 $ (26,791)
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Nature of Operations
12 Months Ended
Sep. 30, 2017
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Nature of Operations
NATURE OF OPERATIONS
UGI Utilities, Inc. (“UGI Utilities”), a wholly owned subsidiary of UGI Corporation (“UGI”), and UGI Utilities’ wholly owned subsidiaries UGI Penn Natural Gas, Inc. (“PNG”) and UGI Central Penn Gas, Inc. (“CPG”), own and operate natural gas distribution utilities in eastern and central Pennsylvania and in a portion of one Maryland county. UGI Utilities also owns and operates an electric distribution utility in northeastern Pennsylvania (“Electric Utility”). UGI Utilities’ natural gas distribution utility is referred to as “UGI Gas.” UGI Gas, PNG and CPG are collectively referred to as “Gas Utility.” Gas Utility is subject to regulation by the Pennsylvania Public Utility Commission (“PUC”) and, with respect to a small service territory in one Maryland county, the Maryland Public Service Commission, and Electric Utility is subject to regulation by the PUC. Gas Utility and Electric Utility are collectively referred to as “Utilities.” Prior to June 1, 2015, PNG also had a heating, ventilation and air-conditioning service business which operated principally in the PNG service territory (“PNG HVAC Business”). The assets of the PNG HVAC Business principally comprising customer contracts were sold on June 1, 2015.
The term “UGI Utilities” is used herein as an abbreviated reference to UGI Utilities, Inc., or collectively to UGI Utilities, Inc. and its subsidiaries, including PNG and CPG.
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Summary of Significant Accounting Policies
12 Months Ended
Sep. 30, 2017
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and costs. These estimates are based on management’s knowledge of current events, historical experience and various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results may be different from these estimates and assumptions.
Certain prior-year amounts have been reclassified to conform to the current-year presentation.
Principles of Consolidation
Our consolidated financial statements include the accounts of UGI Utilities and its subsidiaries (collectively, “we” or “the Company”). We eliminate intercompany accounts when we consolidate.
Effects of Regulation
UGI Utilities accounts for the financial effects of regulation in accordance with the Financial Accounting Standards Board’s (“FASB’s”) guidance in Accounting Standards Codification (“ASC”) 980, “Regulated Operations.” In accordance with this guidance, incurred costs and estimated future expenditures that would otherwise be charged to expense are capitalized and recorded as regulatory assets when it is probable that the incurred costs or estimated future expenditures will be recovered in rates in the future. Similarly, we recognize regulatory liabilities when it is probable that regulators will require customer refunds through future rates or when revenue is collected from customers for expenditures that have not yet been incurred. Regulatory assets and liabilities are classified as current if, upon initial recognition, the entire amount related to that item will be recovered or refunded within a year of the balance sheet date. Generally, regulatory assets and regulatory liabilities are amortized into expense and income over the periods authorized by the regulator. For additional information regarding the effects of rate regulation on our utility operations, see Note 4.
Fair Value Measurements
The Company applies fair value measurements on a recurring and, as otherwise required under GAAP, on a nonrecurring basis. Fair value in GAAP is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. Fair value measurements performed on a recurring basis principally relate to derivative instruments.
GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels. The hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). A level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
We use the following fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels:

Level 1 — Quoted prices (unadjusted) in active markets for identical assets and liabilities that we have the ability to access at the measurement date.

Level 2 — Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable for the asset or liability, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, and inputs that are derived from observable market data by correlation or other means.

Level 3 — Unobservable inputs for the asset or liability including situations where there is little, if any, market activity for the asset or liability.
Fair value is based upon assumptions that market participants would use when pricing an asset or liability, including assumptions about risk and risks inherent in valuation techniques and inputs to valuations. This includes not only the credit standing of counterparties and credit enhancements but also the impact of our own nonperformance risk on our liabilities. We evaluate the need for credit adjustments to our derivative instrument fair values. These credit adjustments were not material to the fair values of our derivative instruments.
Derivative Instruments
Derivative instruments are reported on the Consolidated Balance Sheets at their fair values, unless the derivative instruments qualify for the normal purchase and normal sale (“NPNS”) exception under GAAP. The accounting for changes in fair value depends upon the purpose of the derivative instrument and whether it is subject to regulatory ratemaking mechanisms or is designated and qualifies for hedge accounting.
Gains and losses on substantially all of the derivative instruments used by UGI Utilities (for which NPNS has not been elected) to hedge commodity prices are included in regulatory assets and liabilities in accordance with GAAP regarding accounting for rate-regulated entities. Certain of our derivative instruments are designated and qualify as cash flow hedges. For cash flow hedges, changes in the fair values of the derivative financial instruments are recorded in accumulated other comprehensive income (loss) (“AOCI”), to the extent effective at offsetting changes in the hedged item, until earnings are affected by the hedged item. We discontinue cash flow hedge accounting if occurrence of the forecasted transaction is determined to be no longer probable. Hedge accounting is also discontinued for derivatives that cease to be highly effective. Certain other commodity derivative financial instruments, although generally effective as hedges, do not qualify for hedge accounting treatment. Changes in the fair values of these derivative instruments are reflected in net income. Cash flows from derivative financial instruments are included in cash flows from operating activities.
For a more detailed description of the derivative instruments we use, our accounting for derivatives, our objectives for using them and other information, see Note 14.
Revenue Recognition
UGI Utilities’ regulated revenues are recognized as natural gas and electricity are delivered and include estimated amounts for distribution service rendered and commodities delivered but not billed at the end of each month. We reflect the impact of Gas Utility and Electric Utility rate increases or decreases at the time they become effective. Nonregulated revenues are recognized as services are performed or products are delivered.
We present revenue-related taxes collected on behalf of customers and remitted to taxing authorities, principally sales and use taxes, on a net basis. Electric Utility gross receipts taxes are included in total revenues in accordance with regulatory practice.
Accounts Receivable
Accounts receivable are reported on the Consolidated Balance Sheets at the gross outstanding amount adjusted for an allowance for doubtful accounts. Accounts receivable that are acquired are initially recorded at fair value on the date of acquisition. Provisions for uncollectible accounts are established based upon our collection experience and the assessment of the collectability of specific amounts. Accounts receivable are written off in the period in which the receivable is deemed uncollectible.
Income Taxes
We record deferred income taxes in the Consolidated Statements of Income resulting from the use of accelerated depreciation methods based upon amounts recognized for ratemaking purposes. We also record a deferred tax liability for tax benefits, principally the result of accelerated tax depreciation for state income tax purposes, that are flowed through to ratepayers when temporary differences originate and record a regulatory income tax asset for the probable increase in future revenues that will result when the temporary differences reverse.
We are amortizing deferred investment tax credits related to UGI Utilities’ plant additions over the service lives of the related property. UGI Utilities reduces its deferred income tax liability for the future tax benefits that will occur when the deferred investment tax credits, which are not taxable, are amortized. We also reduce the regulatory income tax asset for the probable reduction in future revenues that will result when such deferred investment tax credits amortize.
We join with UGI and its subsidiaries in filing a consolidated federal income tax return. We are charged or credited for our share of current taxes resulting from the effects of our transactions in the UGI consolidated federal income tax return including giving effect to intercompany transactions. The result of this allocation is consistent with income taxes calculated on a separate return basis. We record interest on tax deficiencies and income tax penalties in income taxes on the Consolidated Statements of Income.
Cash and Cash Equivalents
For cash flow purposes, cash and cash equivalents include cash on hand, cash in banks and highly liquid investments with maturities of three months or less when purchased.
Restricted Cash
Restricted cash represents those cash balances in our commodity futures brokerage accounts that are restricted from withdrawal.
Inventories
Our inventories are stated at the lower of cost or net realizable value. We determine cost using an average cost method for substantially all of our inventory.
Property, Plant and Equipment and Related Depreciation
We record property, plant and equipment at original cost. Capitalized costs include labor, materials and other direct and indirect costs, and allowance for funds used during construction (“AFUDC”). The amounts assigned to property, plant and equipment of acquired businesses are based upon estimated fair value at date of acquisition.
We record depreciation expense for Utilities’ plant and equipment on a straight-line basis based upon projected service lives of the various classes of its depreciable property. The estimated useful lives of the classes of depreciable property are reviewed by a third party and adjusted, if necessary, as part of periodic service life studies required by the PUC. The average composite depreciation rates at our Gas Utility and Electric Utility for Fiscal 2017, 2016 and 2015 were as follows:
 
2017
 
2016
 
2015
Gas Utility
2.2
%
 
2.2
%
 
2.2
%
Electric Utility
2.4
%
 
2.5
%
 
2.5
%
When Utilities retires depreciable utility plant and equipment, we charge the original cost to accumulated depreciation for financial accounting purposes. Costs incurred to retire utility plant and equipment, net of salvage, are recorded in regulatory assets and amortized over five years, consistent with prior ratemaking treatment (See Note 4).
We include in property, plant and equipment costs associated with computer software we develop or obtain for use in our businesses. Information technology costs associated with major system installations, conversions and improvements, such as software training, data conversion, business process reengineering costs and preliminary project stage costs are deferred as a regulatory asset if the Company expects to recover these costs in future rates, and the deferral is reported as a component of property, plant and equipment. We amortize computer software costs on a straight-line basis over expected periods of benefit not exceeding fifteen years once the installed software is ready for its intended use.
No depreciation expense is included in cost of sales in the Consolidated Statements of Income.
Goodwill
Our goodwill is the result of Gas Utility business acquisitions. We do not amortize goodwill, but test it at least annually for impairment at the reporting unit level. A reporting unit is the operating segment, or a business one level below the operating segment (a component) if discrete financial information is prepared and regularly reviewed by segment management. Components are aggregated as a single reporting unit if they have similar economic characteristics. A reporting unit with goodwill is required to perform an impairment test annually or whenever events or circumstances indicate that the value of goodwill may be impaired. During the fourth quarter of Fiscal 2017, the Company adopted new accounting guidance simplifying the test for goodwill impairment. The adoption of the new guidance did not impact the consolidated financial statements (see Note 3).
We are required to recognize an impairment charge under GAAP if the carrying amount of a reporting unit exceeds its fair value. From time to time, we may assess qualitative factors to determine whether it is more likely than not that the fair value of such reporting unit is less than its carrying amount. From time to time, we may bypass the qualitative assessment and perform the quantitative assessment by comparing the fair values of the reporting units with their carrying amounts, including goodwill. We determine fair values generally based on a weighting of income and market approaches. For purposes of the income approach, fair values are determined based upon the present value of the reporting unit’s estimated future cash flows, including an estimate of the reporting unit’s terminal value based upon these cash flows, discounted at appropriate risk-adjusted rates. We use our internal forecasts to estimate future cash flows which may include estimates of long-term future growth rates based upon our most recent reviews of the long-term outlook for each reporting unit. Cash flow estimates used to establish fair values under our income approach involve management judgments based on a broad range of information and historical results. In addition, external economic and competitive conditions can influence future performance. For purposes of the market approach, we use valuation multiples for companies comparable to our reporting units. The market approach requires judgment to determine the appropriate valuation multiples. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to such excess but not to exceed the total amount of the goodwill of the reporting unit.
No provisions for goodwill impairments were recorded during Fiscal 2017, Fiscal 2016 or Fiscal 2015.
Impairment of Long-Lived Assets
We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. We evaluate recoverability based upon undiscounted future cash flows expected to be generated by such assets. No provisions for impairments were recorded during Fiscal 2017, Fiscal 2016 or Fiscal 2015.
Employee Retirement Plans
We use a market-related value of plan assets and an expected long-term rate of return to determine the expected return on assets of our pension and other postretirement plans. The market-related value of plan assets, other than equity investments, is based upon fair values. The market-related value of equity investments is calculated by rolling forward the prior-year’s market-related value with contributions, disbursements and the expected return on plan assets. One third of the difference between the expected and the actual value is then added to or subtracted from the expected value to determine the new market-related value (see Note 9).
Equity-Based Compensation
All of our equity-based compensation, principally comprising UGI stock options and grants of UGI stock-based equity instruments (“UGI Units”), is measured at fair value on the grant date, date of modification or end of the period, as applicable. Compensation expense is recognized on a straight-line basis over the requisite service period. Depending upon the settlement terms of the awards, equity-based compensation costs are measured based upon the fair value of the award on the date of grant or the fair value of the award as of the end of each reporting period. In Fiscal 2017, the Company adopted new accounting guidance issued to simplify several aspects of accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. (see Note 3).
For additional information on our equity-based compensation plans and related disclosures, see Note 11.
Environmental Matters
We are subject to environmental laws and regulations intended to mitigate or remove the effects of past operations and improve or maintain the quality of the environment. These laws and regulations require the removal or remedy of the effect on the environment of the disposal or release of certain specified hazardous substances at current or former operating sites.
Environmental reserves are accrued when assessments indicate that it is probable that a liability has been incurred and an amount can be reasonably estimated. Amounts recorded as environmental liabilities on the balance sheets represent our best estimate of costs expected to be incurred or, if no best estimate can be made, the minimum liability associated with a range of expected environmental investigation and remediation costs. Our estimated liability for environmental contamination is reduced to reflect anticipated participation of other responsible parties but is not reduced for possible recovery from insurance carriers. In those instances for which the amount and timing of cash payments associated with environmental investigation and cleanup are reliably determinable, we discount such liabilities to reflect the time value of money. We intend to pursue recovery of incurred costs through all appropriate means, including regulatory relief. UGI Gas, CPG and PNG receive ratemaking recognition of environmental investigation and remediation costs associated with their environmental sites.  This ratemaking recognition balances the accumulated difference between historical costs and rate recoveries with an estimate of future costs associated with the sites. For further information, see Note 12.
v3.8.0.1
Accounting Changes
12 Months Ended
Sep. 30, 2017
Accounting Changes and Error Corrections [Abstract]  
Accounting Changes
ACCOUNTING CHANGES

Adoption of New Accounting Standard

Cash Flow Classification. During the fourth quarter of Fiscal 2017, the Company adopted new accounting guidance on the classification of certain cash receipts and payments in the statement of cash flows. The guidance is generally required to be applied retrospectively. The adoption of the new guidance did not impact our consolidated financial statements.

Goodwill Impairment. During the fourth quarter of Fiscal 2017, the Company adopted new accounting guidance regarding the test for goodwill impairment. Under the new accounting guidance, an entity will perform its goodwill impairment tests by comparing the fair value of a reporting unit with its carrying amount. An entity will recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value but not to exceed the total amount of the goodwill of the reporting unit. The guidance is required to be applied prospectively. The adoption of the new guidance did not impact our consolidated financial statements.

Employee Share-based Payments. Effective October 1, 2016, the Company adopted new accounting guidance issued to simplify several aspects of accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. Among other things, excess tax benefits and tax deficiencies associated with employee share-based awards that vest or are exercised are recognized as income tax benefit or expense and treated as discrete items in the reporting period in which they occur. The adoption of the new accounting guidance did not have a material impact on our financial statements.
Accounting Standards Not Yet Adopted

Pension and Other Postretirement Benefit Costs. In March 2017, the FASB issued Accounting Standards Update ("ASU") No. 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” This ASU requires entities to disaggregate the service cost component from the other components of net periodic benefit costs and present it with compensation costs for related employees in the income statement. The other components are required to be presented elsewhere in the income statement and outside of operating income. The amendments in this ASU permit only the service cost component to be eligible for capitalization when applicable. The amendments in this ASU are effective for interim and annual periods beginning after December 15, 2017 (Fiscal 2019). Early adoption is permitted. The amendments in the ASU should generally be adopted on a retrospective basis. The Company is in the process of assessing the impact on its financial statements from the adoption of the new guidance and determining the period in which the new guidance will be adopted.

Restricted Cash. In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows: Restricted Cash.” This ASU provides guidance on the classification of restricted cash in the statement of cash flows. The amendments in this ASU are effective for interim and annual periods beginning after December 15, 2017 (Fiscal 2019). Early adoption is permitted. The amendments in the ASU are required to be adopted on a retrospective basis. The Company is in the process of assessing the impact on its financial statements from the adoption of the new guidance and determining the period in which the new guidance will be adopted.

Leases. In February 2016, the FASB issued ASU No. 2016-02, "Leases." This ASU amends existing guidance to require entities that lease assets to recognize the assets and liabilities for the rights and obligations created by those leases on the balance sheet. The new guidance also requires additional disclosures about the amount, timing and uncertainty of cash flows from leases. The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2018 (Fiscal 2020). Early adoption is permitted. Lessees must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company is in the process of assessing the impact on its financial statements from the adoption of the new guidance and determining the period in which the new guidance will be adopted but anticipates an increase in the recognition of right-of-use assets and lease liabilities.

Revenue Recognition. In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”). The guidance provided under ASU 2014-09, as amended, supersedes the revenue recognition requirements in ASC No. 605, “Revenue Recognition,” and most industry-specific guidance included in the ASC. ASU 2014-09 requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance is effective for the Company for interim and annual periods beginning after December 15, 2017 (Fiscal 2019) and allows for either full retrospective adoption or modified retrospective adoption.

The Company is in the process of analyzing the impact of the new guidance using an integrated approach which includes evaluating differences in the amount and timing of revenue recognition from applying the requirements of the new guidance, reviewing its accounting policies and practices, and assessing the need for changes to its processes, accounting systems and design of internal controls. The Company has completed the assessment of a significant number of its contracts with customers under the new guidance to determine the effect of the adoption of the new guidance. Although the Company has not completed its assessment of the impact of the new guidance, the Company does not expect its adoption will have a material impact on its consolidated financial statements. The Company continues to monitor developments associated with certain utility industry specific guidance for possible impacts on the recognition of revenue.

The Company currently anticipates that it will adopt the new standard using the modified retrospective transition method effective October 1, 2018. The ultimate decision with respect to the transition method that it will use will depend upon the completion of the Company’s analysis including confirming its preliminary conclusion that the adoption of the new guidance will not have a material impact on its consolidated financial statements.
v3.8.0.1
Regulatory Assets and Liabilities and Regulatory Matters
12 Months Ended
Sep. 30, 2017
Regulated Operations [Abstract]  
Regulatory Assets and Liabilities and Regulatory Matters
REGULATORY ASSETS AND LIABILITIES AND REGULATORY MATTERS
The following regulatory assets and liabilities are included in our Consolidated Balance Sheets at September 30:
 
 
2017
 
2016
Regulatory assets:
 
 
 
 
Income taxes recoverable
 
$
121,421

 
$
115,643

Underfunded pension and postretirement plans
 
141,310

 
183,129

Environmental costs
 
61,566

 
59,397

Deferred fuel and power costs
 
7,685

 
151

Removal costs, net
 
30,996

 
27,956

Other
 
5,951

 
8,865

Total regulatory assets
 
$
368,929

 
$
395,141

Regulatory liabilities (a):
 
 
 
 
Postretirement benefits overcollections
 
$
17,493

 
$
17,519

Deferred fuel and power refunds
 
10,621

 
22,299

State income tax benefits — distribution system repairs
 
18,430

 
15,086

Other
 
2,686

 
665

Total regulatory liabilities
 
$
49,230

 
$
55,569


(a)
Regulatory liabilities, other than deferred fuel and power refunds, are recorded in “Other current liabilities” and “Other noncurrent liabilities” on the Consolidated Balance Sheets.
Other than removal costs, UGI Utilities currently does not recover a rate of return on the regulatory assets included in the table above.
Income taxes recoverable. This regulatory asset is the result of recording deferred tax liabilities pertaining to temporary tax differences principally as a result of the pass through to ratepayers of the tax benefit on accelerated tax depreciation for state income tax purposes, and the flow through of accelerated tax depreciation for federal income tax purposes for certain years prior to 1981. These deferred taxes have been reduced by deferred tax assets pertaining to utility deferred investment tax credits. UGI Utilities has recorded regulatory income tax assets related to these deferred tax liabilities representing future revenues recoverable through the ratemaking process over the average remaining depreciable lives of the associated property ranging from 1 to approximately 65 years.
Underfunded pension and other postretirement plans. This regulatory asset represents the portion of net actuarial losses and prior service costs (credits) associated with pension and other postretirement benefits which are probable of being recovered through future rates based upon established regulatory practices. These regulatory assets are adjusted annually or more frequently under certain circumstances when the funded status of the plans is recorded in accordance with GAAP. These costs are amortized over the average remaining future service lives of plan participants.
Environmental costs. Environmental costs principally represent estimated probable future environmental remediation and investigation costs that UGI Gas, CPG and PNG expect to incur, primarily at Manufactured Gas Plant (“MGP”) sites in Pennsylvania, in conjunction with remediation consent orders and agreements with the Pennsylvania Department of Environmental Protection (“DEP”). Pursuant to base rate orders, UGI Gas, PNG and CPG receive ratemaking recognition of estimated environmental investigation and remediation costs associated with their environmental sites. This ratemaking recognition balances the accumulated difference between historical costs and rate recoveries with an estimate of future costs associated with the sites. At September 30, 2017, the period over which UGI Gas, PNG and CPG expect to recover these costs will depend upon future remediation activity. For additional information on environmental costs, see Note 12.

Removal costs, net. This regulatory asset represents costs incurred, net of salvage, associated with the retirement of depreciable utility plant. As required by PUC ratemaking, removal costs include actual costs incurred associated with asset retirement obligations. Consistent with prior ratemaking treatment, UGI Utilities expects to recover these costs over five years.
Postretirement benefit overcollections. This regulatory liability represents the difference between amounts recovered through rates by UGI Gas and Electric Utility and actual costs incurred in accordance with accounting for postretirement benefits. With respect to UGI Gas, postretirement benefit overcollections are generally being refunded to customers over a ten-year period beginning October 19, 2016, the date UGI Gas’ Joint Petition pursuant to its January 19, 2016 base rate filing became effective (see “Base Rate Filings” below). With respect to Electric Utility, the excess of the amounts recovered through rates and the actual costs incurred in accordance with accounting for postretirement benefits is being deferred for future rate refund to customers.
Deferred fuel and power refunds. Gas Utility’s and Electric Utility’s tariffs contain clauses that permit recovery of all prudently incurred purchased gas and power costs through the application of purchased gas cost (“PGC”) rates in the case of Gas Utility and default service (“DS”) tariffs in the case of Electric Utility. The clauses provide for periodic adjustments to PGC and DS rates for differences between the total amount of purchased gas and electric generation supply costs collected from customers and recoverable costs incurred. Net undercollected costs are classified as a regulatory asset and net overcollections are classified as a regulatory liability.
Gas Utility uses derivative instruments to reduce volatility in the cost of gas it purchases for firm- residential, commercial and industrial (“retail core-market”) customers. Realized and unrealized gains or losses on natural gas derivative instruments are included in deferred fuel costs or refunds. Net unrealized gains on such contracts at September 30, 2017 and 2016, were $146 and $4,263, respectively.

In order to reduce volatility associated with a substantial portion of its electric transmission congestion costs, Electric Utility obtains financial transmission rights (“FTRs”). FTRs are derivative instruments that entitle the holder to receive compensation for electricity transmission congestion charges when there is insufficient electricity transmission capacity on the electric transmission grid. Because Electric Utility is entitled to fully recover its DS costs, realized and unrealized gains or losses on FTRs are included in deferred fuel and power costs or deferred fuel and power refunds. Unrealized gains or losses on FTRs at September 30, 2017 and 2016, were not material.
State income tax benefits — distribution system repairs. This regulatory liability represents Pennsylvania state income tax benefits, net of federal benefit, resulting from the deduction for income tax purposes of repair and maintenance costs associated with Gas Utility or Electric Utility assets which are capitalized for regulatory and GAAP reporting. The tax benefits associated with these repair and maintenance deductions will be reflected as a reduction to income tax expense over the remaining tax lives of the related book assets.
Other. Other regulatory assets and liabilities comprise a number of deferred items including, among others, a portion of preliminary stage information technology costs, energy efficiency conservation costs and rate case expenses.
Other Regulatory Matters

Base Rate Filings. On January 19, 2017, PNG filed a rate request with the PUC to increase PNG’s annual base operating revenues for residential, commercial and industrial customers by $21,700 annually. The increased revenues would fund ongoing system improvements and operations necessary to maintain safe and reliable natural gas service. On June 30, 2017, all active parties supported the filing of a Joint Petition for Approval of Settlement of all issues with the PUC providing for an $11,250 PNG annual base distribution rate increase. On August 31, 2017, the PUC approved the Joint Petition and the increase became effective October 20, 2017.

On January 19, 2016, UGI Utilities filed a rate request with the PUC to increase UGI Gas’s annual base operating revenues for residential, commercial and industrial customers by $58,600. The increased revenues would fund ongoing system improvements and operations necessary to maintain safe and reliable natural gas service. On June 30, 2016, a Joint Petition for Approval of Settlement of all issues providing for a $27,000 UGI Gas annual base distribution rate increase, to be effective October 19, 2016, was filed with the PUC (“Joint Petition”). On October 14, 2016, the PUC approved the Joint Petition with a minor modification which had no effect on the $27,000 base distribution rate increase. The increase became effective on October 19, 2016.

Distribution System Improvement Charge. On April 14, 2012, legislation became effective enabling gas and electric utilities in Pennsylvania, under certain circumstances, to recover the cost of eligible capital investment in distribution system infrastructure improvement projects between base rate cases. The charge enabled by the legislation is known as a distribution system improvement charge (“DSIC”). The primary benefit to a company from a DSIC charge is the elimination of regulatory lag, or delayed rate recognition, that occurs under traditional ratemaking relating to qualifying capital expenditures. To be eligible for a DSIC, a utility must have filed a general rate filing within five years of its petition seeking permission to include a DSIC in its tariff, and not exceed certain earnings tests. Absent PUC permission, the DSIC is capped at 5% of distribution charges billed to customers.

PNG and CPG received PUC approval on a DSIC tariff, initially set at zero, in 2014. PNG and CPG began charging a DSIC at a rate other than zero, beginning on April 1, 2015 and April 1, 2016, respectively. In March 2016, PNG and CPG filed petitions, seeking approval to increase the maximum allowable DSIC from 5% to 10% of billed distribution revenues. On May 10, 2017, the PUC issued a final Order to approve an increase of the maximum allowable DSIC to 7.5% of billed distribution revenues effective July 1, 2017, for PNG and CPG, pending reconsideration at each company’s Long-term Infrastructure Improvement Plan filing in 2018.

On November 9, 2016, UGI Gas received PUC approval to establish a DSIC tariff mechanism, capped at 5% of distribution charges billed to customers, effective January 1, 2017. UGI Gas will be permitted to recover revenue under the mechanism for the amount of DSIC-eligible plant placed into service in excess of the threshold amount of DSIC-eligible plant agreed upon in the settlement of its recent base rate case.

Preliminary Stage Information Technology Costs. During Fiscal 2016, we determined that certain preliminary project stage costs associated with an ongoing information technology project at UGI Utilities were probable of future recovery in rates in accordance with GAAP related to regulated entities. As a result, during Fiscal 2016, we capitalized $5,830 of such project costs ($5,375 of which had been expensed prior to Fiscal 2016) and recorded associated increases to utility property, plant and equipment ($2,755) and regulatory assets ($3,075). Subsequent to this determination, we continue to capitalize such preliminary stage project costs in accordance with GAAP related to regulated entities.
v3.8.0.1
Inventories
12 Months Ended
Sep. 30, 2017
Inventory Disclosure [Abstract]  
Inventories
INVENTORIES
Inventories comprise the following at September 30:
 
2017
 
2016
Gas Utility natural gas
$
39,486

 
$
29,223

Materials, supplies and other
13,823

 
13,117

Total inventories
$
53,309

 
$
42,340


At September 30, 2017, UGI Utilities was a party to five principal storage contract administrative agreements (“SCAAs”) having terms ranging from one to three years. Four of the SCAAs were with UGI Energy Services, LLC (“Energy Services”), a second-tier, wholly owned subsidiary of UGI (see Note 18), and one of the SCAAs was with a non-affiliate. Pursuant to SCAAs, UGI Utilities has, among other things, released certain storage and transportation contracts for the terms of the SCAAs. UGI Utilities also transferred certain associated storage inventories upon commencement of the SCAAs, will receive a transfer of storage inventories at the end of the SCAAs, and makes payments associated with refilling storage inventories during the terms of the SCAAs. The historical cost of natural gas storage inventories released under the SCAAs, which represents a portion of Gas Utility’s total natural gas storage inventories, and any exchange receivable (representing amounts of natural gas inventories used by the other parties to the agreement but not yet replenished for which UGI Utilities has the rights), are included in the caption “Gas Utility natural gas” in the table above.
The carrying values of gas storage inventories released under the SCAAs at September 30, 2017 and 2016, comprising 9.1 billion cubic feet (“bcf”) and 8.1 bcf of natural gas, were $26,064 and $18,773, respectively. At September 30, 2017 and 2016, UGI Utilities held a total of $15,040 and $19,100, respectively, of security deposits received from its SCAA counterparties. These amounts are included in “Other current liabilities” on the Consolidated Balance Sheets.
For additional information related to the SCAAs with Energy Services, see Note 18.
v3.8.0.1
Property, Plant and Equipment
12 Months Ended
Sep. 30, 2017
Property, Plant and Equipment [Abstract]  
Property, Plant and Equipment
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment comprise the following categories at September 30:
 
2017
 
2016
Distribution
$
2,835,339

 
$
2,634,191

Transmission
96,430

 
93,454

Construction in process
112,563

 
103,929

General and other
240,997

 
167,341

Total property, plant and equipment
$
3,285,329

 
$
2,998,915

v3.8.0.1
Debt
12 Months Ended
Sep. 30, 2017
Debt Disclosure [Abstract]  
Debt
DEBT
Long-term debt comprises the following at September 30:
 
2017
 
2016
Senior Notes:
 
 
 
4.12%, due September 2046
$
200,000

 
$
200,000

4.98%, due March 2044
175,000

 
175,000

4.12%, due October 2046
100,000

 

6.21%, due September 2036
100,000

 
100,000

2.95%, due June 2026
100,000

 
100,000

Medium-Term Notes:
 
 
 
6.17%, due June 2017

 
20,000

7.25%, due November 2017
20,000

 
20,000

5.67%, due January 2018
20,000

 
20,000

6.50%, due August 2033
20,000

 
20,000

6.13%, due October 2034
20,000

 
20,000

Total long-term debt
755,000

 
675,000

Less: unamortized debt issuance costs
(3,899
)
 
(3,559
)
Less: current maturities
(39,996
)
 
(19,986
)
Total long-term debt due after one year
$
711,105

 
$
651,455


Principal payments on long-term debt during the next five fiscal years is as follows: $40,000 is due in Fiscal 2018; $0 is due in Fiscal 2019 through Fiscal 2022.
Pursuant to a note purchase agreement, in October 2016, UGI Utilities issued $100,000 aggregate principal amount of 4.12% Senior Notes due October 2046 (the “4.12% Senior Notes”). The net proceeds of the issuance of the 4.12% Senior Notes were used (1) to provide additional financing for UGI Utilities’ infrastructure replacement and betterment capital program and information technology initiatives and (2) for general corporate purposes. The 4.12% Senior Notes are unsecured and rank equally with UGI Utilities’ existing outstanding senior debt.

On October 31, 2017, UGI Utilities entered into a $125,000 unsecured term loan (the “Term Loan”) with a group of banks which initially matures on October 30, 2018.  Such maturity will be automatically extended to October 30, 2022 once UGI Utilities delivers to the agent a copy of the securities certificate registered with the PUC authorizing UGI Utilities’ incurring indebtedness with such maturity date.  Proceeds from the Term Loan were used to repay revolving credit balances and for general corporate purposes. The outstanding principal amount of the Term Loan is payable in equal quarterly installments of $1,563 with the balance of the principal being due and payable in full on the maturity date.  Under the term loan, UGI Utilities may borrow at various prevailing market interest rates, including LIBOR and the banks’ prime rate, plus a margin.  The margin on such borrowings ranges from 0.0% to 1.875% and is based upon the credit ratings of certain indebtedness of UGI Utilities.  The Term Loan requires UGI Utilities to not exceed a ratio of Consolidated Debt to Consolidated Total Capital, as defined.
UGI Utilities has an unsecured credit agreement (the “Credit Agreement”) with a group of banks providing for borrowings of up to $300,000 (including a $100,000 sublimit for letters of credit) which expires in March 2020. Under the Credit Agreement, UGI Utilities may borrow at various prevailing market interest rates, including LIBOR and the banks’ prime rate, plus a margin. The margin on such borrowings ranges from 0.0% to 1.75% and is based upon the credit ratings of certain indebtedness of UGI Utilities. UGI Utilities had borrowings outstanding under the credit agreements, which we classify as “Short-term borrowings” on the Consolidated Balance Sheets, totaling $170,000 and $112,500 at September 30, 2017 and 2016, respectively. The weighted-average interest rates on the credit agreement borrowings at September 30, 2017 and 2016 were 2.11% and 1.42%, respectively. Issued and outstanding letters of credit, which reduce available borrowings under the credit agreements, totaled $2,009 and $2,009 at September 30, 2017 and 2016, respectively.

Restrictive Covenants. Certain of UGI Utilities Senior Notes include the usual and customary covenants for similar type notes including, among others, maintenance of existence, payment of taxes when due, compliance with laws and maintenance of insurance. These Senior Notes also contain restrictive and financial covenants including a requirement that UGI Utilities not exceed a ratio of Consolidated Debt to Consolidated Total Capital, as defined, of 0.65 to 1.00.

The UGI Utilities Credit Agreement requires UGI Utilities not to exceed a ratio of Consolidated Debt to Consolidated Total Capital, as defined.
v3.8.0.1
Income Taxes
12 Months Ended
Sep. 30, 2017
Income Tax Disclosure [Abstract]  
Income Taxes
INCOME TAXES
The provisions for income taxes consist of the following:
 
2017
 
2016
 
2015
Current expense (benefit):
 
 
 
 
 
Federal
$
(12,253
)
 
$
(17,845
)
 
$
34,990

State
5,739

 
6,805

 
15,138

Total current (benefit) expense
(6,514
)
 
(11,040
)
 
50,128

Deferred expense (benefit):
 
 
 
 
 
Federal
70,293

 
71,005

 
28,877

State
8,593

 
6,262

 
815

Investment tax credit amortization
(318
)
 
(329
)
 
(336
)
Total income tax expense
$
72,054

 
$
65,898

 
$
79,484


A reconciliation from the U.S. federal statutory tax rate to our effective tax rate is as follows:
 
2017
 
2016
 
2015
U.S. federal statutory tax rate
35.0
 %
 
35.0
%
 
35.0
 %
Difference in tax rate due to:
 
 
 
 
 
State income taxes, net of federal benefit
5.0

 
5.2

 
5.1

Excess tax benefits on share-based payments
(0.9
)
 

 

Other, net
(0.8
)
 
0.2

 
(0.5
)
Effective tax rate
38.3
 %
 
40.4
%
 
39.6
 %


Pennsylvania utility ratemaking practice permits the flow through to ratepayers of state tax benefits resulting from accelerated tax depreciation. For Fiscal 2017, Fiscal 2016 and Fiscal 2015, the beneficial effects of state tax flow through of accelerated depreciation reduced tax expense by $2,537, $1,344 and $1,539, respectively.
Deferred tax liabilities (assets) comprise the following at September 30:
 
2017
 
2016
Excess book basis over tax basis of property, plant and equipment
$
564,327

 
$
491,038

Goodwill
49,588

 
45,070

Derivative financial instruments

 
948

Regulatory assets
136,093

 
149,660

Other
3,140

 
2,910

Gross deferred tax liabilities
753,148

 
689,626

Pension plan liabilities
(57,011
)
 
(74,129
)
Allowance for doubtful accounts
(1,681
)
 
(1,637
)
Deferred investment tax credits
(1,224
)
 
(1,356
)
Employee-related expenses
(6,793
)
 
(5,247
)
Regulatory liabilities
(12,780
)
 
(16,798
)
Environmental liabilities
(22,224
)
 
(22,757
)
Derivative financial instruments
(354
)
 

Other
(15,616
)
 
(17,473
)
Gross deferred tax assets
(117,683
)
 
(139,397
)
Net deferred tax liabilities
$
635,465

 
$
550,229


We join with UGI and its subsidiaries in filing a consolidated federal income tax return. We are charged or credited for our share of current taxes resulting from the effects of our transactions in the UGI consolidated federal income tax return including giving effect to intercompany transactions. UGI’s federal income tax returns are settled through the tax year 2013.
We file separate company income tax returns in various other states but are subject to state income tax principally in Pennsylvania. Pennsylvania income tax returns are generally subject to examination for a period of three years after the filing of the respective returns.
During Fiscal 2017, Fiscal 2016 and Fiscal 2015, interest (income) expense of $(73), $204 and $0, respectively, was recognized in income taxes in the Consolidated Statements of Income.
As of September 30, 2017, we have unrecognized income tax benefits totaling $1,829 including related accrued interest of $132. If these unrecognized tax benefits were subsequently recognized, $940 would be recorded as a benefit to income taxes on the Consolidated Statement of Income and, therefore, would impact the reported effective tax rate. Generally, a net reduction in unrecognized tax benefits could occur because of the expiration of the statute of limitations in certain jurisdictions or as a result of settlements with tax authorities. There is no material change expected in unrecognized tax benefits and related interest in the next twelve months.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
 
2017
 
2016
 
2015
Unrecognized tax benefits – beginning of year
$
2,055

 
$

 
$

Additions for tax positions taken in prior years
604

 
2,055

 

Additions for tax positions of the current year

 

 

Settlements with tax authorities/statute lapses
(830
)
 

 

Unrecognized tax benefits – end of year
$
1,829

 
$
2,055

 
$

v3.8.0.1
Employee Retirement Plans
12 Months Ended
Sep. 30, 2017
Defined Benefit Plan [Abstract]  
Employee Retirement Plans
EMPLOYEE RETIREMENT PLANS
Defined Benefit Pension and Other Postretirement Plans. We sponsor a defined benefit pension plan for employees hired prior to January 1, 2009, of UGI, UGI Utilities, PNG, CPG and certain of UGI’s other domestic wholly owned subsidiaries (“Pension Plan”). Pension Plan benefits are based on years of service, age and employee compensation. We also provide postretirement health care benefits to certain retirees and postretirement life insurance benefits to nearly all active and retired employees (“Other Postretirement Plans”).

The following table provides a reconciliation of the projected benefit obligations (“PBOs”) of the Pension Plan, the accumulated benefit obligations (“ABOs”) of the Other Postretirement Plans, plan assets and the funded status of the Pension Plan and Other Postretirement Plans as of September 30, 2017 and 2016. ABO is the present value of benefits earned to date with benefits based upon current compensation levels. PBO is ABO increased to reflect future compensation.
 
Pension
Benefits
 
Other Postretirement
Benefits
 
2017
 
2016
 
2017
 
2016
Change in benefit obligations:
 
 
 
 
 
 
 
Benefit obligations — beginning of year
$
645,444

 
$
563,621

 
$
12,075

 
$
10,676

Service cost
9,038

 
7,772

 
303

 
198

Interest cost
24,394

 
25,733

 
460

 
483

Actuarial (gain) loss
(14,575
)
 
72,418

 
(512
)
 
1,117

Benefits paid
(25,056
)
 
(24,100
)
 
(422
)
 
(399
)
Benefit obligations — end of year
$
639,245

 
$
645,444

 
$
11,904

 
$
12,075

Change in plan assets:
 
 
 
 
 
 
 
Fair value of plan assets — beginning of year
$
463,432

 
$
430,789

 
$
13,715

 
$
12,523

Actual gain on assets
48,309

 
46,874

 
1,333

 
1,347

Employer contributions
11,395

 
9,869

 
85

 
98

Benefits paid
(25,056
)
 
(24,100
)
 
(362
)
 
(253
)
Fair value of plan assets — end of year
$
498,080

 
$
463,432

 
$
14,771

 
$
13,715

Funded status of the plans — end of year
$
(141,165
)
 
$
(182,012
)
 
$
2,867

 
$
1,640

Assets (liabilities) recorded in the balance sheet:
 
 
 
 
 
 
 
Assets in excess of liabilities – included in other noncurrent assets
$

 
$

 
$
5,382

 
$
4,139

Unfunded liabilities – included in other noncurrent liabilities
(141,165
)
 
(182,012
)
 
(2,514
)
 
(2,499
)
Net amount recognized
$
(141,165
)
 
$
(182,012
)
 
$
2,868

 
$
1,640

Amounts recorded in stockholder’s equity (pre-tax):
 
 
 
 
 
 
 
Prior service cost (credit)
$
105

 
$
138

 
$
(23
)
 
$
(35
)
Net actuarial loss (gain)
15,106

 
19,866

 
(46
)
 
(1
)
Total
$
15,211

 
$
20,004

 
$
(69
)
 
$
(36
)
Amounts recorded in regulatory assets and liabilities (pre-tax):
 
 
 
 
 
 
 
Prior service cost (credit)
$
970

 
$
1,262

 
$
(1,605
)
 
$
(2,247
)
Net actuarial loss
139,505

 
180,964

 
1,192

 
2,425

Total
$
140,475

 
$
182,226

 
$
(413
)
 
$
178


In Fiscal 2018, we estimate that we will amortize approximately $12,000 of net actuarial losses, primarily associated with Pension Plan, and $250 of prior service credits from stockholder’s equity and regulatory assets.
Actuarial assumptions are described below. The discount rate assumption was determined by selecting a hypothetical portfolio of high quality corporate bonds appropriate to provide for the projected benefit payments of the Company’s postretirement plans. The discount rate was then developed as the single rate that equates the market value of the bonds purchased to the discounted value of the benefit payments. The expected rate of return on assets assumption is based on current and expected asset allocations as well as historical and expected returns on various categories of plan assets (as further described below).
 
Pension Benefits
 
Other Postretirement Benefits
Weighted-average assumptions:
2017
 
2016
 
2015
 
2017
 
2016
 
2015
Discount rate – benefit obligations
4.00
%
 
3.80
%
 
4.60
%
 
4.00
%
 
3.80
%
 
4.70
%
Discount rate – benefit cost
3.80
%
 
4.60
%
 
4.60
%
 
3.80
%
 
4.70
%
 
4.60
%
Expected return on plan assets
7.50
%
 
7.55
%
 
7.75
%
 
5.00
%
 
5.00
%
 
5.00
%
Rate of increase in salary levels
3.25
%
 
3.25
%
 
3.25
%
 
3.25
%
 
3.25
%
 
3.25
%
The ABOs for the Pension Plan were $605,237 and $601,255 as of September 30, 2017 and 2016, respectively. Included in the end of year Pension Plan PBOs above are $62,458 at September 30, 2017, and $63,847 at September 30, 2016, relating to employees of UGI and certain of its other subsidiaries. Included in the end of year Other Postretirement Plans ABOs above are $996 at September 30, 2017, and $951 at September 30, 2016, relating to employees of UGI and certain of its other subsidiaries.
Net periodic pension and other postretirement benefit costs relating to the Company’s employees include the following components:
 
Pension Benefits
 
Other Postretirement Benefits
 
2017
 
2016
 
2015
 
2017
 
2016
 
2015
Service cost
$
8,091

 
$
6,927

 
$
6,962

 
$
273

 
$
183

 
$
202

Interest cost
22,157

 
23,270

 
22,511

 
431

 
465

 
479

Expected return on assets
(29,986
)
 
(28,668
)
 
(28,898
)
 
(656
)
 
(596
)
 
(612
)
Amortization of:
 
 
 
 
 
 
 
 
 
 
 
Prior service cost (benefit)
325

 
348

 
348

 
(641
)
 
(641
)
 
(641
)
Actuarial loss
14,825

 
9,571

 
8,793

 
108

 
98

 
122

Net benefit cost (income)
15,412

 
11,448

 
9,716

 
(485
)
 
(491
)
 
(450
)
Change in associated regulatory liabilities

 

 

 
(490
)
 
971

 
3,740

Net benefit cost after change in regulatory liabilities
$
15,412

 
$
11,448

 
$
9,716

 
$
(975
)
 
$
480

 
$
3,290


Pension Plan assets are held in trust and consist principally of publicly traded, diversified equity and fixed income mutual funds and, to a much lesser extent, UGI Corporation Common Stock and smallcap common stocks (prior to their liquidation during Fiscal 2017). It is our general policy to fund amounts for Pension Plan benefits equal to at least the minimum contribution required by ERISA. From time to time we may, at our discretion, contribute additional amounts. During Fiscal 2017, Fiscal 2016 and Fiscal 2015, we made contributions to the Pension Plan of $11,395, $9,869 and $11,131, respectively. The minimum required contributions in Fiscal 2018 are not expected to be material.
UGI Utilities has established a Voluntary Employees’ Beneficiary Association (“VEBA”) trust to pay retiree health care and life insurance benefits by depositing into the VEBA the annual amount of postretirement benefits costs, if any, determined under GAAP. The difference between such amount and the amounts included in UGI Gas’ and Electric Utility’s rates, if any, is deferred for future recovery from, or refund to, ratepayers. The required contributions to the VEBA during Fiscal 2018, if any, are not expected to be material.
Expected payments for pension and other postretirement welfare benefits are as follows:
 
Pension
Benefits
 
Other Postretirement
Benefits
Fiscal 2018
$
27,176

 
$
566

Fiscal 2019
28,471

 
566

Fiscal 2020
29,812

 
552

Fiscal 2021
31,084

 
537

Fiscal 2022
32,323

 
540

Fiscal 2023 - 2027
179,945

 
2,710


The assumed health care cost trend rates at September 30 are as follows:
 
2017
 
2016
Health care cost trend rate assumed for next year
7.00
%
 
7.25
%
Rate to which the cost trend rate is assumed to decline (ultimate trend rate)
5.0
%
 
5.0
%
Fiscal year that the rate reaches the ultimate trend rate
2026

 
2026


A one percentage point change in these assumed health care cost trend rates would not have had a material impact on Fiscal 2017 other postretirement benefit cost or the September 30, 2017, other postretirement benefit ABO.
We also sponsor unfunded and non-qualified supplemental executive defined benefit retirement income plans. At September 30, 2017 and 2016, the PBOs of these plans were $4,222 and $3,628, respectively. We recorded expense for these plans of $605 in Fiscal 2017, $353 in Fiscal 2016 and $445 in Fiscal 2015.
Pension Plan and VEBA Assets. The assets of the Pension Plan and the VEBA are held in trust. The investment policies and asset allocation strategies for the assets in these trusts are determined by an investment committee comprising officers of UGI and UGI Utilities. The overall investment objective of the Pension Plan and the VEBA is to achieve the best long-term rates of return within prudent and reasonable levels of risk. To achieve the stated objective, investments are made principally in publicly traded, diversified equity and fixed income mutual funds and, to a much lesser extent, smallcap common stocks (prior to their liquidation in Fiscal 2017) and UGI Common Stock.
The targets, target ranges and actual allocations for the Pension Plan and VEBA trust assets at September 30 are as follows:
 
 
Actual
 
Target Asset
 
Permitted
Pension Plan:
 
2017
 
2016
 
Allocation
 
Range
Equity investments:
 
 
 
 
 
 
 
 
Domestic
 
55.2
%
 
54.1
%
 
52.5%
 
40.0% – 65.0%
International
 
12.4
%
 
10.2
%
 
12.5%
 
7.5% – 17.5%
Total
 
67.6
%
 
64.3
%
 
65.0%
 
60.0% – 70.0%
Fixed income funds & cash equivalents
 
32.4
%
 
35.7
%
 
35.0%
 
30.0% – 40.0%
Total
 
100.0
%
 
100.0
%
 
100.0%
 
 
 
 
Actual
 
Target Asset
 
Permitted
VEBA:
 
2017
 
2016
 
Allocation
 
Range
Domestic equity investments
 
63.1
%
 
69.9
%
 
65.0%
 
60.0% – 70.0%
Fixed income funds & cash equivalents
 
36.9
%
 
30.1
%
 
35.0%
 
30.0% – 40.0%
Total
 
100.0
%
 
100.0
%
 
100.0%
 
 

Domestic equity investments include investments in large-cap mutual funds indexed to the S&P 500 and actively managed mid- and small-cap mutual funds, and a separately managed account comprising small-cap common stocks (prior to their liquidation in Fiscal 2017). Investments in international equity mutual funds seek to track performance of companies primarily in developed markets. The fixed income investments comprise investments designed to match the performance and duration of the Barclays U.S. Aggregate Index. According to statute, the aggregate holdings of all qualifying employer securities may not exceed 10% of the fair value of trust assets at the time of purchase. UGI Common Stock represented 7.7% and 8.0% of Pension Plan assets at September 30, 2017 and 2016, respectively.
The fair values of the Pension Plan and VEBA trust assets are derived from quoted market prices as substantially all of these instruments have active markets. Cash equivalents are valued at the fund’s unit net asset value as reported by the trustee. The fair values of the Pension Plan and VEBA trust assets by asset class and level within the fair value hierarchy, as described in Note 2, as of September 30, 2017 and 2016 are as follows:
 
Pension Plan
 
Level 1
 
Level 2
 
Level 3
 
Other(a)
 
Total
September 30, 2017:
 
 
 
 
 
 
 
 
 
Domestic equity investments:
 
 
 
 
 
 
 
 
 
S&P 500 Index equity mutual funds
$
171,600

 
$

 
$

 
$

 
$
171,600

Small and midcap equity mutual funds
65,167

 

 

 

 
65,167

   UGI Corporation Common Stock
38,137

 

 

 

 
38,137

     Total domestic equity investments
274,904

 

 

 

 
274,904

International index equity mutual funds
61,613

 

 

 

 
61,613

Fixed income investments:
 
 
 
 
 
 
 
 


   Bond index mutual funds
156,228

 

 

 

 
156,228

   Cash equivalents

 

 

 
5,332

 
5,332

      Total fixed income investments
156,228

 

 

 
5,332

 
161,560

Total
$
492,745

 
$

 
$

 
$
5,332

 
$
498,077

September 30, 2016:
 
 
 
 
 
 
 
 
 
Equity investments:
 
 
 
 
 
 
 
 
 
S&P 500 Index equity mutual funds
$
158,906

 
$

 
$

 
$

 
$
158,906

Small and midcap equity mutual funds
43,170

 

 

 

 
43,170

Smallcap common stocks
11,414

 

 

 

 
11,414

   UGI Corporation Common Stock
37,013

 

 

 

 
37,013

     Total domestic equity investments
250,503

 

 

 

 
250,503

International index equity mutual funds
47,324

 

 

 

 
47,324

Fixed income investments:
 
 
 
 
 
 
 
 
 
   Bond index mutual funds
147,794

 

 

 

 
147,794

   Cash equivalents

 

 

 
17,811

 
17,811

      Total fixed income investments
147,794

 

 

 
17,811

 
165,605

Total
$
445,621

 
$

 
$

 
$
17,811

 
$
463,432


 
VEBA
 
Level 1
 
Level 2
 
Level 3
 
Other(a)
 
Total
September 30, 2017:
 
 
 
 
 
 
 
 
 
S&P 500 Index equity mutual fund
$
9,318

 
$

 
$

 
$

 
$
9,318

Bond index mutual fund
5,044

 

 

 

 
5,044

Cash equivalents

 

 

 
409

 
409

Total
$
14,362

 
$

 
$

 
$
409

 
$
14,771

September 30, 2016:
 
 
 
 
 
 
 
 
 
S&P 500 Index equity mutual fund
$
9,583

 
$

 
$

 
$

 
$
9,583

Bond index mutual fund
4,019

 

 

 

 
4,019

Cash equivalents

 

 

 
113

 
113

Total
$
13,602

 
$

 
$

 
$
113

 
$
13,715


(a)
Assets measured at net asset value (“NAV”) and therefore excluded from the fair value hierarchy.

The expected long-term rates of return on Pension Plan and VEBA trust assets have been developed using a best estimate of expected returns, volatilities and correlations for each asset class. The estimates are based on historical capital market performance data and future expectations provided by independent consultants. Future expectations are determined by using simulations that provide a wide range of scenarios of future market performance. The market conditions in these simulations consider the long-term relationships between equities and fixed income as well as current market conditions at the start of the simulation. The expected rate begins with a risk-free rate of return with other factors being added such as inflation, duration, credit spreads and equity risk premiums. The rates of return derived from this process are applied to our target asset allocation to develop a reasonable return assumption.
Defined Contribution Plan. We sponsor a 401(k) savings plan for eligible employees (“Utilities Savings Plan”). Generally, participants in the Utilities Savings Plan may contribute a portion of their compensation on a before-tax and after-tax basis. The Utilities Savings Plan provides for employer matching contributions. Those employees hired after December 31, 2008, who are not eligible to participate in the Pension Plan, receive employer matching contributions at a higher rate. The cost of benefits under the Utilities Savings Plan totaled $2,829 in Fiscal 2017, $2,409 in Fiscal 2016 and $2,162 in Fiscal 2015. We also sponsor a nonqualified supplemental defined contribution executive retirement plan. This plan generally provides supplemental benefits to certain executives that would otherwise be provided under retirement plans but are prohibited due to limitations imposed by the Internal Revenue Code. Costs associated with this plan were not material in Fiscal 2017, Fiscal 2016 and Fiscal 2015.
v3.8.0.1
Series Preferred Stock
12 Months Ended
Sep. 30, 2017
Equity [Abstract]  
Series Preferred Stock
SERIES PREFERRED STOCK
We have 2,000,000 shares of Series Preferred Stock authorized for issuance, including both series subject to and series not subject to mandatory redemption. We had no shares of Series Preferred Stock outstanding at September 30, 2017 or 2016.
v3.8.0.1
Equity-Based Compensation
12 Months Ended
Sep. 30, 2017
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Equity-Based Compensation
EQUITY-BASED COMPENSATION
Under UGI Corporation’s 2013 Omnibus Incentive Compensation Plan (the “2013 OICP”) and prior UGI equity compensation plans, certain key employees of UGI Utilities may be granted stock options to acquire shares of UGI Common Stock, stock appreciation rights (“SARs”), UGI Units (comprising “Stock Units” and “UGI Performance Units”) and other equity-based awards. The exercise price for UGI stock options may not be less than the fair market value on the grant date. Awards granted under the 2013 OICP and the prior plans may vest immediately or ratably over a period of years (generally three-year periods), and stock options for UGI Common Stock can be exercised no later than ten years from the grant date. In addition, the 2013 OICP and the prior UGI equity compensation plans provide that awards of UGI Units may also provide for the crediting of dividend equivalents to participants’ accounts. Except in the event of retirement, death or disability, each grant, unless paid, will terminate when the participant ceases to be employed. There are certain change of control and retirement eligibility conditions that, if met, generally result in accelerated vesting or elimination of further service requirements.
UGI Stock Unit and UGI Performance Unit awards entitle the grantee to shares of UGI Common Stock or cash once the service condition is met and, with respect to UGI Performance Unit awards, subject to market performance conditions. UGI Performance Unit grant recipients are awarded a target number of Performance Units. With respect to UGI Performance Units awards, the actual number of UGI shares actually issued (or their cash equivalent) at the end of the performance period and the actual amount of dividend equivalents paid, may range from 0% to 200% of the target award based on UGI’s Total Shareholder Return (“TSR”) percentile rank relative to the Russell Midcap Utility Index, excluding telecommunication companies (“UGI comparator group”). Dividend equivalents are paid in cash only on UGI Performance Units that eventually vest.
We use a Black-Scholes option-pricing model to estimate the fair value of UGI stock options. We use a Monte Carlo valuation approach to estimate the fair value of UGI Performance Unit awards. We recorded total net pre-tax equity-based compensation expense associated with both UGI Units and UGI stock options of $1,461 ($855 after-tax) during Fiscal 2017; $1,924 ($1,126 after-tax) during Fiscal 2016; and $1,847 ($1,081 after-tax) during Fiscal 2015.
As of September 30, 2017, there was $1,167 of unrecognized compensation cost related to non-vested UGI stock options that is expected to be recognized over a weighted-average period of 1.9 years. As of September 30, 2017, there was a total of $1,029 of unrecognized compensation expense associated with 45,588 UGI Unit awards that is expected to be recognized over a weighted average period of 1.8 years. At September 30, 2017 and 2016, total liabilities of $533 and $1,304, respectively, associated with UGI Unit awards are reflected in other current liabilities and other noncurrent liabilities on the Consolidated Balance Sheets.
The following table summarizes UGI Unit award activity for Fiscal 2017:
 
Total
 
Vested
 
Non-Vested
 
Number of
UGI
Units
 
Weighted
Average
Grant Date
Fair Value
(per Unit)
 
Number of
UGI
Units
 
Weighted
Average
Grant Date
Fair Value
(per Unit)
 
Number of
UGI
Units
 
Weighted
Average
Grant Date
Fair Value
(per Unit)
September 30, 2016
57,783

 
$
34.66

 
10,316

 
$
34.31

 
47,467

 
$
34.74

Granted
16,425

 
$
51.42

 
367

 
$
51.42

 
16,058

 
$
51.42

Vested

 
$

 
16,003

 
$
33.10

 
(16,003
)
 
$
33.10

Forfeitures & transfers
(1,934
)
 
$
34.74

 

 
$

 
(1,934
)
 
$