What changed in this filing

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Item 1. Financial Statements

2022-08-05 compared with 2022-05-06 · 164 added, 145 removed, 648 unchanged (32% of the section changed)

4 unchanged sentences

Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

(Thousands of U.S.

15 unchanged sentences

334,663 244,327 1,126,915 930,086

Gain on Sale of Timber Properties — — — 51,066

Gain on Sale of Assets 12,736 — 12,736 51,066

Operating Income 180,697 150,070 636,721 507,651

10 unchanged sentences

Dividends on Common Stock ( 43,446 ) ( 41,493 ) ( 126,659 ) ( 122,615 )

Balance at March 31 $ 1,407,683 $ 1,100,718 $ 1,407,683 $ 1,100,718

Balance at June 30 $ 1,472,395 $ 1,145,700 $ 1,472,395 $ 1,145,700

Earnings Per Common Share:

10 unchanged sentences

Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

(Thousands of U.S.

92 unchanged sentences

Consolidated Statements of Cash Flows

Six Months Ended

Nine Months Ended

(Thousands of U.S.

3 unchanged sentences

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:

Gain on Sale of Timber Properties — ( 51,066 )

Gain on Sale of Assets ( 12,736 ) ( 51,066 )

Impairment of Oil and Gas Producing Properties — 76,152

30 unchanged sentences

Net Repurchases of Common Stock ( 9,387 ) ( 3,605 )

Net Cash Used in Financing Activities ( 32,617 ) ( 135,017 )

Net Cash Provided by (Used in) Financing Activities 107,412 ( 175,659 )

Net Increase in Cash, Cash Equivalents, and Restricted Cash 466,908 99,181

Cash, Cash Equivalents, and Restricted Cash at October 1 120,138 20,541

Cash, Cash Equivalents, and Restricted Cash at March 31 $ 154,939 $ 80,467

Cash, Cash Equivalents, and Restricted Cash at June 30 $ 587,046 $ 119,722

Supplemental Disclosure of Cash Flow Information

1 unchanged sentence

Non-Cash Capital Expenditures $ 74,415 $ 81,485

Non-Cash Contingent Consideration for Asset Sale $ 12,571 $ —

See Notes to Condensed Consolidated Financial Statements

12 unchanged sentences

The consolidated financial statements for the year ended September 30, 2022 will be audited by the Company's independent registered public accounting firm after the end of the fiscal year.

The earnings for the six months ended March 31, 2022 should not be taken as a prediction of earnings for the entire fiscal year ending September 30, 2022.

The earnings for the nine months ended June 30, 2022 should not be taken as a prediction of earnings for the entire fiscal year ending September 30, 2022.

Most of the business of the Utility segment is seasonal in nature and is influenced by weather conditions.

3 unchanged sentences

The components, as reported on the Company’s Consolidated Balance Sheets, of the total cash, cash equivalents, and restricted cash presented on the Statement of Cash Flows are as follows (in thousands):

Six Months Ended

March 31, 2022 Six Months Ended

March 31, 2021

Balance at October 1, 2021 Balance at

March 31, 2022 Balance at October 1, 2020 Balance at

March 31, 2021

Nine Months Ended

June 30, 2022 Nine Months Ended

June 30, 2021

June 30, 2022 Balance at October 1, 2021 Balance at

June 30, 2021 Balance at October 1, 2020

Cash and Temporary Cash Investments $ 432,576 $ 31,528 $ 118,012 $ 20,541

7 unchanged sentences

The allowance for uncollectible accounts is the Company’s best estimate of the amount of probable credit losses in the existing accounts receivable.

The allowance is determined based on historical experience, the age of customer accounts, other specific information about customer accounts, and the economic and regulatory environment.

The allowance, the majority of which is in the Utility segment, is determined based on historical experience, the age of customer accounts, other specific information about customer accounts, and the economic and regulatory environment.

Account balances are charged off against the allowance twelve months after the account is final billed or when it is anticipated that the receivable will not be recovered.

Activity in the allowance for uncollectible accounts for the six months ended March 31, 2022 and 2021 are as follows (in thousands):

Activity in the allowance for uncollectible accounts for the nine months ended June 30, 2022 and 2021 are as follows (in thousands):

Balance at Beginning of Period Additions Charged to Costs and Expenses Discounts on Purchased Receivables Net Accounts Receivable Written-Off Balance at End of Period

Six Months Ended March 31, 2022

Nine Months Ended June 30, 2022

Allowance for Uncollectible Accounts $ 31,639 $ 12,024 $ 1,211 $ ( 2,891 ) $ 41,983

Six Months Ended March 31, 2021

Nine Months Ended June 30, 2021

Allowance for Uncollectible Accounts $ 22,810 $ 13,375 $ 1,097 $ ( 4,960 ) $ 32,322

2 unchanged sentences

Gas stored underground normally declines during the first and second quarters of the year and is replenished during the third and fourth quarters.

In the Utility segment, the current cost of replacing gas withdrawn from storage is recorded in the Consolidated Statements of Income and a reserve for gas replacement is recorded in the Consolidated Balance Sheets under the caption “Other Accruals and Current Liabilities.” Such reserve, which amounted to $ 43.8 million at March 31, 2022, is reduced to zero by September 30 of each year as the inventory is replenished.

In the Utility segment, the current cost of replacing gas withdrawn from storage is recorded in the Consolidated Statements of Income and a reserve for gas replacement is recorded in the Consolidated Balance Sheets under the caption “Other Accruals and Current Liabilities.” Such reserve, which amounted to $ 21.8 million at June 30, 2022, is reduced to zero by September 30 of each year as the inventory is replenished.

Materials, Supplies and Emission Allowances.

The components of the Company's materials, supplies and emission allowances are as follows (in thousands):

At March 31, 2022 At September 30, 2021

At June 30, 2022 At September 30, 2021

Materials and Supplies - at average cost $ 39,634 $ 34,880

6 unchanged sentences

The Company does not recognize any gain or loss on the sale or other disposition of oil and gas properties unless the gain or loss would significantly alter the relationship between capitalized costs and proved reserves of oil and gas attributable to a cost center.

The Company's capitalized costs relating to oil and gas producing activities, net of accumulated depreciation, depletion and amortization, were $ 2.0 billion and $ 1.9 billion at March 31, 2022 and September 30, 2021, respectively.

The Company's capitalized costs relating to oil and gas producing activities, net of accumulated depreciation, depletion and amortization, were $ 1.8 billion and $ 1.9 billion at June 30, 2022 and September 30, 2021, respectively.

Capitalized costs include costs related to unproved properties, which are excluded from amortization until proved reserves are found or it is determined that the unproved properties are impaired.

Such costs amounted to $ 124.2 million and $ 103.8 million at March 31, 2022 and September 30, 2021, respectively.

Such costs amounted to $ 105.5 million and $ 103.8 million at June 30, 2022 and September 30, 2021, respectively.

All costs related to unproved properties are reviewed quarterly to determine if impairment has occurred.

5 unchanged sentences

If capitalized costs, net of accumulated depreciation, depletion and amortization and related deferred income taxes, exceed the ceiling at the end of any quarter, a permanent non-cash impairment is required to be charged to earnings in that quarter.

At March 31, 2022, the ceiling exceeded the book value of the oil and gas properties by approximately $ 1.8 billion.

The estimated future net cash flows were decreased by $ 452.5 million for hedging under the ceiling test at March 31, 2022

At June 30, 2022, the ceiling exceeded the book value of the oil and gas properties by approximately $ 2.4 billion.

The estimated future net cash flows were decreased by $ 757.6 million for hedging under the ceiling test at June 30, 2022.

The principal assets of the Utility, Pipeline and Storage and Gathering segments, consisting primarily of gas distribution pipelines, transmission pipelines, storage facilities, gathering lines and compressor stations, are recorded at historical cost.

There were no indications of any impairments to property, plant and equipment in the Utility, Pipeline and Storage and Gathering segments at March 31, 2022.

There were no indications of any impairments to property, plant and equipment in the Utility, Pipeline and Storage and Gathering segments at June 30, 2022.

Accumulated Other Comprehensive Loss.

The components of Accumulated Other Comprehensive Loss and changes for the six months ended March 31, 2022 and 2021, net of related tax effect, are as follows (amounts in parentheses indicate debits) (in thousands):

The components of Accumulated Other Comprehensive Loss and changes for the nine months ended June 30, 2022 and 2021, net of related tax effect, are as follows (amounts in parentheses indicate debits) (in thousands):

Gains and Losses on Derivative Financial Instruments Funded Status of the Pension and Other Post-Retirement Benefit Plans Total

Three Months Ended March 31, 2022

Balance at January 1, 2022 $ ( 213,391 ) $ ( 63,635 ) $ ( 277,026 )

Three Months Ended June 30, 2022

Balance at April 1, 2022 $ ( 584,812 ) $ ( 69,442 ) $ ( 654,254 )

Other Comprehensive Gains and Losses Before Reclassifications

( 145,322 ) — ( 145,322 )

Amounts Reclassified From Other Comprehensive Loss 94,580 — 94,580

Other Post-Retirement Adjustment for Regulatory Proceeding — ( 5,807 ) ( 5,807 )

Balance at March 31, 2022 $ ( 584,812 ) $ ( 69,442 ) $ ( 654,254 )

Six Months Ended March 31, 2022

Amounts Reclassified From Other Comprehensive Income 216,708 — 216,708

Balance at June 30, 2022 $ ( 513,426 ) $ ( 69,442 ) $ ( 582,868 )

Nine Months Ended June 30, 2022

Balance at October 1, 2021 $ ( 449,962 ) $ ( 63,635 ) $ ( 513,597 )

3 unchanged sentences

Other Post-Retirement Adjustment for Regulatory Proceeding — ( 5,807 ) ( 5,807 )

Balance at March 31, 2022 $ ( 584,812 ) $ ( 69,442 ) $ ( 654,254 )

Three Months Ended March 31, 2021

Balance at January 1, 2021 $ 10,151 $ ( 89,892 ) $ ( 79,741 )

Balance at June 30, 2022 $ ( 513,426 ) $ ( 69,442 ) $ ( 582,868 )

Three Months Ended June 30, 2021

Balance at April 1, 2021 $ ( 12,096 ) $ ( 89,892 ) $ ( 101,988 )

Other Comprehensive Gains and Losses Before Reclassifications

1 unchanged sentence

Amounts Reclassified From Other Comprehensive Loss 9,512 — 9,512

Balance at March 31, 2021 $ ( 12,096 ) $ ( 89,892 ) $ ( 101,988 )

Six Months Ended March 31, 2021

Balance at June 30, 2021 $ ( 148,570 ) $ ( 89,892 ) $ ( 238,462 )

Nine Months Ended June 30, 2021

Balance at October 1, 2020 $ ( 24,865 ) $ ( 89,892 ) $ ( 114,757 )

1 unchanged sentence

( 136,098 ) — ( 136,098 )

Amounts Reclassified From Other Comprehensive Income 2,881 — 2,881

Balance at March 31, 2021 $ ( 12,096 ) $ ( 89,892 ) $ ( 101,988 )

Amounts Reclassified From Other Comprehensive Loss 12,393 — 12,393

Balance at June 30, 2021 $ ( 148,570 ) $ ( 89,892 ) $ ( 238,462 )

During the quarter ended March 31, 2022, the PaPUC concluded a regulatory proceeding that addressed the recovery of other post-employment benefit (“OPEB”) expenses in Distribution Corporation's Pennsylvania service territory.

As a result of that proceeding, Distribution Corporation suspended regulatory accounting for OPEB expenses in Pennsylvania and a regulatory deferral of $ 7.4 million ($ 5.8 million after tax) related to the funded status of Distribution Corporation’s other post-

retirement benefit plans in Pennsylvania was reclassified to accumulated other comprehensive loss.

For further discussion of this regulatory proceeding, refer to Note 11 — Regulatory Matters under the heading “Pennsylvania Jurisdiction.”

Reclassifications Out of Accumulated Other Comprehensive Loss.

The details about the reclassification adjustments out of accumulated other comprehensive loss for the six months ended March 31, 2022 and 2021 are as follows (amounts in parentheses indicate debits to the income statement) (in thousands):

The details about the reclassification adjustments out of accumulated other comprehensive loss for the nine months ended June 30, 2022 and 2021 are as follows (amounts in parentheses indicate debits to the income statement) (in thousands):

Details About Accumulated Other Comprehensive Loss Components Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Loss Affected Line Item in the Statement Where Net Income is Presented

Three Months Ended

March 31, Six Months Ended March 31,

June 30, Nine Months Ended June 30,

2022 2021 2022 2021

7 unchanged sentences

The components of the Company’s Other Current Assets are as follows (in thousands):

At March 31, 2022 At September 30, 2021

At June 30, 2022 At September 30, 2021

Prepayments $ 16,419 $ 14,164

5 unchanged sentences

The components of the Company’s Other Accruals and Current Liabilities are as follows (in thousands):

At March 31, 2022 At September 30, 2021

At June 30, 2022 At September 30, 2021

Accrued Capital Expenditures $ 59,849 $ 42,541

10 unchanged sentences

For purposes of determining earnings per common share, the potentially dilutive securities the Company had outstanding were SARs, restricted stock units and performance shares.

For the quarter and six months ended March 31, 2022, the diluted weighted average shares outstanding shown on the Consolidated Statements of Income reflects the potential dilution as a result of these securities as determined using the Treasury Stock Method.

SARs, restricted stock units and performance shares that

are antidilutive are excluded from the calculation of diluted earnings per common share.

There were 13,815 securities and 11,883 securities excluded as being antidilutive for the quarter and six months ended March 31, 2022, respectively.

There were 334,945 securities excluded as being antidilutive for both the quarter and six months ended March 31, 2021.

For the quarter and nine months ended June 30, 2022, the diluted weighted average shares outstanding shown on the Consolidated Statements of Income reflects the potential dilution as a result of these securities as determined using the Treasury Stock Method.

SARs, restricted stock units and performance shares that are antidilutive are excluded from the calculation of diluted earnings per common share.

There were 873 securities and 6,990 securities excluded as being antidilutive for the quarter and nine months ended June 30, 2022, respectively.

There were 334,335 securities and 333,445 securities excluded as being antidilutive for the quarter and nine months ended June 30, 2021, respectively.

Stock-Based Compensation.

The Company granted 195,397 performance shares during the six months ended March 31, 2022.

The weighted average fair value of such performance shares was $ 65.39 per share for the six months ended March 31, 2022.

The Company granted 195,397 performance shares during the nine months ended June 30, 2022.

The weighted average fair value of such performance shares was $ 65.39 per share for the nine months ended June 30, 2022.

Performance shares are an award constituting units denominated in common stock of the Company, the number of which may be adjusted over a performance cycle based upon the extent to which performance goals have been satisfied.

1 unchanged sentence

The performance shares do not entitle the participant to receive dividends during the vesting period.

The performance shares granted during the six months ended March 31, 2022 include awards that must meet a performance goal related to either relative return on capital over a three-year performance cycle ("ROC performance shares"), methane intensity and greenhouse gas emissions reductions over a three-year performance cycle ("ESG performance shares") or relative shareholder return over a three-year performance cycle ("TSR performance shares").

The performance shares granted during the nine months ended June 30, 2022 include awards that must meet a performance goal related to either relative return on capital over a three-year performance cycle ("ROC performance shares"), methane intensity and greenhouse gas emissions reductions over a three-year performance cycle ("ESG performance shares") or relative shareholder return over a three-year performance cycle ("TSR performance shares").

The performance goal related to the ROC performance shares over the three-year performance cycle is the Company’s total return on capital relative to the total return on capital of other companies in a group selected by the Compensation Committee (“Report Group”).

14 unchanged sentences

This price is multiplied by the number of TSR performance shares awarded, the result of which is recorded as compensation expense over the vesting term of the award.

The Company granted 128,050 restricted stock units during the six months ended March 31, 2022.

The weighted average fair value of such restricted stock units was $ 54.06 per share for the six months ended March 31, 2022.

The Company granted 128,950 restricted stock units during the nine months ended June 30, 2022.

The weighted average fair value of such restricted stock units was $ 54.10 per share for the nine months ended June 30, 2022.

Restricted stock units represent the right to receive shares of common stock of the Company (or the equivalent value in cash or a combination of cash and shares of common stock of the Company, as determined by the Company) at the end of a specified time period.

2 unchanged sentences

Note 2 – Asset Acquisitions and Divestitures

On June 30, 2022, the Company completed the sale of Seneca’s California assets, all of which are in the Exploration and Production segment, to Sentinel Peak Resources California LLC for a total sale price of $ 253.5 million, consisting of $ 240.9 million in cash and contingent consideration valued at $ 12.6 million at closing.

Under the terms of the purchase and sale agreement, the Company can receive up to three annual contingent payments between calendar 2023 and 2025, not to exceed $ 10 million per year, with the amount of each annual payment calculated as $ 1.0 million for each $ 1 per barrel that the ICE Brent Average for each calendar year exceeds $ 95 per barrel up to $ 105 per barrel.

The sale price, which reflected an effective date of April 1, 2022, was reduced for production revenues less expenses that were retained by Seneca from the effective date to the closing date.

The Company pursued this sale given the strong commodity price environment and the Company’s strategic focus in the Appalachian Basin.

Under the full cost method of accounting for oil and natural gas properties, $ 220.7 million of the sale price at closing was accounted for as reduction of capitalized costs since the disposition did not alter the relationship between capitalized costs and proved reserves of oil and gas attributable to the cost center.

The remainder of the sale price ($ 32.8 million) was applied against assets that are not subject to the full cost method of accounting, with the Company recognizing a gain of $ 12.7 million on the sale of such assets.

The majority of this gain related to the sale of emission allowances.

The Company also eliminated the asset retirement obligation associated with Seneca’s California oil and gas assets.

This obligation amounted to $ 50.1 million and was accounted for as a reduction of capitalized costs under the full cost method of accounting.

On December 10, 2020, the Company completed the sale of substantially all timber properties in Pennsylvania to Lyme Emporium Highlands III LLC and Lyme Allegheny Land Company II LLC for net proceeds of $ 104.6 million.

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Note 3 – Revenue from Contracts with Customers

The following tables provide a disaggregation of the Company's revenues for the quarter and six months ended March 31, 2022 and 2021, presented by type of service from each reportable segment.

Quarter Ended March 31, 2022 (Thousands)

The following tables provide a disaggregation of the Company's revenues for the quarter and nine months ended June 30, 2022 and 2021, presented by type of service from each reportable segment.

Quarter Ended June 30, 2022 (Thousands)

Revenues By Type of Service Exploration and Production Pipeline and Storage Gathering Utility All Other Corporate and Intersegment Eliminations Total Consolidated

13 unchanged sentences

Total Revenues $ 252,638 $ 95,548 $ 55,931 $ 179,948 $ — $ ( 81,441 ) $ 502,624

Six Months Ended March 31, 2022 (Thousands)

Nine Months Ended June 30, 2022 (Thousands)

Revenues By Type of Service Exploration and Production Pipeline and Storage Gathering Utility All Other Corporate and Intersegment Eliminations Total Consolidated

13 unchanged sentences

Total Revenues $ 758,428 $ 279,295 $ 160,759 $ 785,909 $ 6 $ ( 233,497 ) $ 1,750,900

Quarter Ended March 31, 2021 (Thousands)

Quarter Ended June 30, 2021 (Thousands)

Revenues By Type of Service Exploration and Production Pipeline and Storage Gathering Utility All Other Corporate and Intersegment Eliminations Total Consolidated

14 unchanged sentences

Total Revenues $ 209,535 $ 84,063 $ 48,656 $ 127,008 $ 1 $ ( 74,866 ) $ 394,397

Six Months Ended March 31, 2021 (Thousands)

Nine Months Ended June 30, 2021 (Thousands)

Revenues By Type of Service Exploration and Production Pipeline and Storage Gathering Utility All Other Corporate and Intersegment Eliminations Total Consolidated

31 unchanged sentences

The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.

The following table sets forth, by level within the fair value hierarchy, the Company's financial assets and liabilities (as applicable) that were accounted for at fair value on a recurring basis as of March 31, 2022 and September 30, 2021.

Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

The fair value presentation for over-the-counter swaps combines gas and oil swaps because a significant number of the counterparties enter into both gas and oil swap agreements with the Company.

Recurring Fair Value Measures At fair value as of March 31, 2022

Recurring Fair Value Measures At fair value as of June 30, 2022

(Thousands of Dollars) Level 1 Level 2 Level 3 Netting

3 unchanged sentences

Derivative Financial Instruments:

Over the Counter No Cost Collars – Gas — 893 — ( 893 ) —

Contingent Consideration for Asset Sale — 12,571 — — 12,571

Foreign Currency Contracts — 497 — ( 497 ) —

4 unchanged sentences

Derivative Financial Instruments:

Over the Counter Swaps – Gas and Oil — 684,306 — — 684,306

Over the Counter Swaps – Gas — 537,456 — — 537,456

Over the Counter No Cost Collars – Gas — 167,242 — ( 893 ) 166,349

23 unchanged sentences

Derivative Financial Instruments

The derivative financial instruments reported in Level 2 at March 31, 2022 and September 30, 2021 consist of natural gas price swap agreements, natural gas no cost collars, crude oil price swap agreements, and foreign currency contracts, all of which are used in the Company’s Exploration and Production segment.

Hedging collateral deposits of $ 102.4 million (at March 31, 2022) and $ 88.6 million (at September 30, 2021), which were associated with the price swap agreements, no cost

collars and foreign currency contracts, have been reported in Level 1.

The derivative financial instruments reported in Level 2 at June 30, 2022 include natural gas price swap agreements, natural gas no cost collars, and foreign currency contracts, all of which are used in the Company’s Exploration and Production segment.

The derivative financial instruments reported in Level 2 at September 30, 2021 consist of the same type of instruments in addition to crude oil price swap agreements.

The use of crude oil price swap agreements was discontinued during the quarter ended June 30, 2022 in conjunction with the sale of the Exploration and Production segment's California assets.

Hedging collateral deposits of $ 154.5 million (at June 30, 2022) and $ 88.6 million (at September 30, 2021), which were associated with the price swap agreements, no cost collars and foreign currency contracts, have been reported in Level 1.

The fair value of the Level 2 price swap agreements and no cost collars is based on an internal, discounted cash flow model that uses observable inputs (i.e.

2 unchanged sentences

The authoritative guidance for fair value measurements and disclosures require consideration of the impact of nonperformance risk (including credit risk) from a market participant perspective in the measurement of the fair value of assets and liabilities.

At March 31, 2022, the Company determined that nonperformance risk would have no material impact on its financial position or results of operation.

At June 30, 2022, the Company determined that nonperformance risk associated with the price swap agreements, no cost collars and foreign currency contracts would have no material impact on its financial position or results of operation.

To assess nonperformance risk, the Company considered information such as any applicable collateral posted, master netting arrangements, and applied a market-based method by using the counterparty's (assuming the derivative is in a gain position) or the Company’s (assuming the derivative is in a loss position) credit default swaps rates.

For the quarters ended March 31, 2022 and March 31, 2021, there were no assets or liabilities measured at fair value and classified as Level 3.

Derivative financial instruments reported in Level 2 at June 30, 2022 also includes the contingent consideration associated with the sale of the Exploration and Production segment's California assets on June 30, 2022, which is discussed at Note 2 – Asset Acquisitions and Divestitures and at Note 5 – Financial Instruments.

The fair value of the contingent consideration was calculated using a Monte Carlo simulation model that uses observable inputs, including ICE Brent closing price as of the valuation date, initial and max trigger price, volatility, risk free rate, time of maturity and counterparty risk.

For the quarters ended June 30, 2022 and June 30, 2021, there were no assets or liabilities measured at fair value and classified as Level 3.

Note 5 – Financial Instruments

2 unchanged sentences

Based on these criteria, the fair market value of long-term debt, including current portion, was as follows (in thousands):

March 31, 2022 September 30, 2021

June 30, 2022 September 30, 2021

Amount Fair Value Carrying

11 unchanged sentences

The components of the Company's Other Investments are as follows (in thousands):

At March 31, 2022 At September 30, 2021

At June 30, 2022 At September 30, 2021

Life Insurance Contracts $ 41,930 $ 44,560

8 unchanged sentences

The Company uses derivative financial instruments to manage commodity price risk in the Exploration and Production segment.

The Company enters into over-the-counter no cost collars and over-the-counter swap agreements for natural gas and crude oil to manage the price risk associated with forecasted sales of gas and oil.

The Company enters into over-the-counter no cost collars and over-the-counter swap agreements for natural gas to manage the price risk associated with forecasted sales of natural gas.

In addition, the Company also enters into foreign exchange forward contracts to manage the risk of currency fluctuations associated with transportation costs denominated in Canadian currency in the Exploration and Production segment.

1 unchanged sentence

The duration of the Company’s cash flow hedges does not typically exceed 5 years while the foreign currency forward contracts do not exceed 9 years.

The Company has presented its net derivative assets and liabilities as “Fair Value of Derivative Financial Instruments” on its Consolidated Balance Sheets at March 31, 2022 and September 30, 2021.

Substantially all of the derivative financial instruments reported on those line items relate to commodity contracts and a small portion relates to foreign currency forward contracts.

On June 30, 2022, the Company completed the sale of Seneca’s California assets.

The Company has determined that this contingent consideration meets the definition of a derivative under the authoritative accounting guidance.

The fair value of this contingent consideration was estimated to be $ 12.6 million at June 30, 2022.

Future changes in the fair value of this contingent consideration will be marked-to-market each reporting period, with changes in fair value recognized in Other Income (Deductions) on the Consolidated Statement of Income.

The Company has presented its net derivative assets and liabilities as “Fair Value of Derivative Financial Instruments” on its Consolidated Balance Sheets at June 30, 2022 and September 30, 2021.

Cash Flow Hedges

For derivative financial instruments that are designated and qualify as a cash flow hedge, the gain or loss on the derivative is reported as a component of other comprehensive income (loss) and reclassified into earnings in the period or periods during which the hedged transaction affects earnings.

As of March 31, 2022, the Company had the following commodity derivative contracts (swaps and no cost collars) outstanding:

Commodity Units

Natural Gas 468.4 Bcf

Crude Oil 1,368,000 Bbls

As of March 31, 2022, the Company was hedging a total of $ 57.5 million of forecasted transportation costs denominated in Canadian dollars with foreign currency forward contracts.

As of March 31, 2022, the Company had $ 802.1 million ($ 584.8 million after-tax) of net hedging losses included in the accumulated other comprehensive loss balance.

As of June 30, 2022, the Company had 462.3 Bcf of natural gas commodity derivative contracts (swaps and no cost collars) outstanding.

As of June 30, 2022, the Company was hedging a total of $ 53.4 million of forecasted transportation costs denominated in Canadian dollars with foreign currency forward contracts.

As of June 30, 2022, the Company had $ 703.8 million ($ 513.4 million after-tax) of net hedging losses included in the accumulated other comprehensive loss balance.

It is expected that $ 420.1 million ($ 306.5 million after-tax) of such unrealized losses will be reclassified into the Consolidated Statement of Income within the next 12 months as the underlying hedged transactions are recorded in earnings.

The Effect of Derivative Financial Instruments on the Statement of Financial Performance for the

Three Months Ended March 31, 2022 and 2021 (Thousands of Dollars)

Three Months Ended June 30, 2022 and 2021 (Thousands of Dollars)

Derivatives in Cash Flow Hedging Relationships Amount of Derivative Gain or (Loss) Recognized in Other Comprehensive Income (Loss) on

2 unchanged sentences

Three Months Ended

March 31, Location of Derivative Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) on the Consolidated Balance Sheet into the Consolidated Statement of Income Amount of Derivative Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) on the Consolidated Balance Sheet into the Consolidated Statement of Income for the

June 30, Location of Derivative Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) on the Consolidated Balance Sheet into the Consolidated Statement of Income Amount of Derivative Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) on the Consolidated Balance Sheet into the Consolidated Statement of Income for the

Three Months Ended

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The Effect of Derivative Financial Instruments on the Statement of Financial Performance for the

Six Months Ended March 31, 2022 and 2021 (Thousands of Dollars)

Nine Months Ended June 30, 2022 and 2021 (Thousands of Dollars)

Derivatives in Cash Flow Hedging Relationships Amount of Derivative Gain or

3 unchanged sentences

Comprehensive Income (Loss)

Six Months Ended

Nine Months Ended

(Loss) Reclassified from

4 unchanged sentences

Income for the

Six Months Ended

Nine Months Ended

2022 2021 2022 2021

2 unchanged sentences

Total $ ( 678,558 ) $ ( 187,850 ) $ ( 591,180 ) $ ( 17,106 )

The Company may be exposed to credit risk on any of the derivative financial instruments that are in a gain position.

Credit risk relates to the risk of loss that the Company would incur as a result of nonperformance by counterparties pursuant to the terms of their contractual obligations.

To mitigate such credit risk, management performs a credit check, and then on a quarterly basis monitors counterparty credit exposure.

(1) On June 30, 2022, the Company completed the sale of Seneca's California assets.

Because of this sale, the Company terminated its remaining crude oil derivative contracts and discontinued hedge accounting for such contracts.

A loss of $ 44.6 million was reclassified from Accumulated Other Comprehensive Income (Loss) on the Consolidated Balance Sheet to Operating Revenues on the Consolidated Statement of Income for the three and nine months ended June 30, 2022.

This loss is included in the reported reclassification amounts.

The Company has over-the-counter swap positions, no cost collars and applicable foreign currency forward contracts with eighteen counterparties.

The majority of the Company’s counterparties are financial institutions and energy traders.

The Company has over-the-counter swap positions, no cost collars and applicable foreign currency forward contracts with eighteen counterparties of which one is in a net gain position of less than $ 0.1 million.

As of March 31, 2022, no collateral was received from the counterparties by the Company.

The Company's gain position on such derivative financial instruments had not exceeded the established thresholds at which the counterparties would be required to post collateral, nor had the counterparties' credit ratings declined to levels at which the counterparties were required to post collateral.

As of March 31, 2022, sixteen of the eighteen counterparties to the Company’s outstanding derivative instrument contracts (specifically the over-the-counter swaps, over-the-counter no cost collars and applicable foreign currency forward contracts) had a common credit-risk related contingency feature.

As of June 30, 2022, sixteen of the eighteen counterparties to the Company’s outstanding derivative instrument contracts (specifically the over-the-counter swaps, over-the-counter no cost collars and applicable foreign currency forward contracts) had a common credit-risk related contingency feature.

In the event the Company’s credit rating increases or falls below a certain threshold (applicable debt ratings), the available credit extended to the Company would either increase or decrease.

A decline in the Company’s credit rating, in and of itself, would not cause the Company to be required to increase the level of its hedging collateral deposits (in the form of cash deposits, letters of credit or treasury debt instruments).

If the Company’s outstanding derivative instrument contracts were in a liability position (or if the liability were larger) and/or the Company’s credit rating declined, then additional hedging collateral deposits may be required.

At March 31, 2022, the fair market value of the derivative financial instrument assets with a credit-risk related contingency feature was less than $ 0.1 million according to the Company’s internal model (discussed in Note 4 – Fair Value Measurements).

At March 31, 2022, the fair market value of the derivative financial instrument liabilities with a credit-risk related contingency feature was $ 619.3 million according to the Company's internal model.

For its over-the-counter swap agreements, no cost collars and foreign currency forward contracts, $ 102.4 million of hedging collateral deposits were required to be posted by the Company at March 31, 2022.

A decline in the Company’s credit rating, in and of itself, would not cause the Company to be required to post or increase the level of its hedging collateral deposits (in the form of cash deposits, letters of credit or treasury debt instruments).

If the Company’s outstanding derivative instrument contracts with a credit-risk contingency feature were in a liability position (or if the liability were larger) and/or the Company’s credit rating declined, then hedging collateral deposits or an increase to such deposits could be required.

At June 30, 2022, the fair market value of the derivative financial instrument liabilities with a credit-risk related contingency feature was $ 517.8 million according to the Company’s internal model (discussed in Note 4 – Fair Value Measurements), and the Company posted $ 154.5 million in hedging collateral deposits.

Depending on the movement of commodity prices in the future, it is possible that these liability positions could swing into asset positions, at which point the Company would be exposed to credit risk on its derivative financial instruments.

In that case, the Company's counterparties could be required to post hedging collateral deposits.

The Company’s requirement to post hedging collateral deposits and the Company's right to receive hedging collateral deposits is based on the fair value determined by the Company’s counterparties, which may differ from the Company’s assessment of fair value.

Note 6 – Income Taxes

The effective tax rates for the quarters ended March 31, 2022 and March 31, 2021 were 25.6 % and 26.3 %, respectively.

The effective tax rates for the six months ended March 31, 2022 and March 31, 2021 were 25.5 % and 26.8 %, respectively.

The decrease in the effective tax rate for the quarter ended March 31, 2022 was primarily due to the realization of the Enhanced Oil Recovery credit in fiscal 2022 that was not available during fiscal 2021.

The decrease in the effective tax rate for the six months ended March 31, 2022 was primarily due to differences between the book and tax treatment of equity compensation and the realization of the Enhanced Oil Recovery credit in fiscal 2022, as previously noted.

The effective tax rates for the quarters ended June 30, 2022 and June 30, 2021 were 23.3 % and 26.0 %, respectively.

The effective tax rates for the nine months ended June 30, 2022 and June 30, 2021 were 24.9 % and 26.5 %, respectively.

The decrease in the effective tax rate for both the quarter and nine months ended June 30, 2022 was primarily due to the realization of the Enhanced Oil Recovery credit in fiscal 2022 that was not available during fiscal 2021.

As a result of the sale of the Company's California assets as described in Note 2 – Asset Acquisitions and Divestitures, the remaining deferred tax assets related to the California net operating loss and tax credit carryforwards, which are currently offset with a full valuation allowance, were written off.

The deferred tax assets and valuation allowance were written off as the Company determined that there was a remote possibility for use as the Company no longer has California operations.

See the table below for the impact to the valuation allowance resulting from the sale (in thousands):

Balance at October 1, 2021 $ 57,645

Adjustment Related to Sale of California Assets and Current Year Activity ( 28,747 )

Balance at June 30, 2022 $ 28,898

Subsequent to the end of the third quarter of fiscal 2022, on July 8, 2022, House Bill 1342 was signed into law in Pennsylvania.

The law reduces the corporate income tax rate to 8.99 % for fiscal 2024.

Starting with fiscal 2025, the rate is reduced by 0.5 % annually until it reaches 4.99 % for fiscal 2032.

Due to the reduced state income tax rate, Pennsylvania deferred income taxes will be remeasured using the new rates.

The anticipated income tax benefit resulting from the reduced tax rate of approximately $ 25 million to $ 30 million will be recorded during the fourth quarter of fiscal 2022.

Note 7 – Capitalization

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(Thousands, except per share amounts)

Balance at January 1, 2022 91,437 $ 91,437 $ 1,013,821 $ 1,281,963 $ ( 277,026 )

Balance at April 1, 2022 91,449 $ 91,449 $ 1,018,784 $ 1,407,683 $ ( 654,254 )

Net Income Available for Common Stock 108,158

Dividends Declared on Common Stock ($ 0.475 Per Share) ( 43,446 )

Other Comprehensive Loss, Net of Tax ( 377,228 )

Other Comprehensive Income, Net of Tax 71,386

Share-Based Payment Expense (1)

Common Stock Issued Under Stock and Benefit Plans 17 17 76

Balance at March 31, 2022 91,449 $ 91,449 $ 1,018,784 $ 1,407,683 $ ( 654,254 )

Balance at June 30, 2022 91,466 $ 91,466 $ 1,022,954 $ 1,472,395 $ ( 582,868 )

Balance at October 1, 2021 91,182 $ 91,182 $ 1,017,446 $ 1,191,175 $ ( 513,597 )

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Common Stock Issued (Repurchased) Under Stock and Benefit Plans 284 284 ( 8,318 )

Balance at March 31, 2022 91,449 $ 91,449 $ 1,018,784 $ 1,407,683 $ ( 654,254 )

Balance at January 1, 2021 91,153 $ 91,153 $ 1,004,369 $ 1,028,844 $ ( 79,741 )

Balance at June 30, 2022 91,466 $ 91,466 $ 1,022,954 $ 1,472,395 $ ( 582,868 )

Balance at April 1, 2021 91,164 $ 91,164 $ 1,009,075 $ 1,100,718 $ ( 101,988 )

Net Income Available for Common Stock 86,475

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Common Stock Issued Under Stock and Benefit Plans 9 9 432

Balance at March 31, 2021 91,164 $ 91,164 $ 1,009,075 $ 1,100,718 $ ( 101,988 )

Balance at June 30, 2021 91,173 $ 91,173 $ 1,012,703 $ 1,145,700 $ ( 238,462 )

Balance at October 1, 2020 90,955 $ 90,955 $ 1,004,158 $ 991,630 $ ( 114,757 )

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Dividends Declared on Common Stock ($ 1.345 Per Share) ( 122,615 )

Other Comprehensive Income, Net of Tax 12,769

Other Comprehensive Loss, Net of Tax ( 123,705 )

Share-Based Payment Expense (1)

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218 218 ( 2,430 )

Balance at March 31, 2021 91,164 $ 91,164 $ 1,009,075 $ 1,100,718 $ ( 101,988 )

Balance at June 30, 2021 91,173 $ 91,173 $ 1,012,703 $ 1,145,700 $ ( 238,462 )

(1) Paid in Capital includes compensation costs associated with performance shares and/or restricted stock awards.

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Common Stock.

During the six months ended March 31, 2022, the Company issued 25,251 original issue shares of common stock as a result of SARs exercises, 110,839 original issue shares of common stock for restricted stock units that vested and 265,607 original issue shares of common stock for performance shares that vested.

The Company also issued 15,479 original issue shares of common stock to the non-employee directors of the Company who receive compensation under the Company’s 2009 Non-Employee Director Equity Compensation Plan, including the reinvestment of dividends for certain non-employee directors who elected to defer their shares pursuant to the dividend reinvestment feature of the Company's Deferred Compensation Plan for Directors and Officers during the six months ended March 31, 2022.

During the nine months ended June 30, 2022, the Company issued 27,722 original issue shares of common stock as a result of SARs exercises, 123,589 original issue shares of common stock for restricted stock units that vested and 265,607 original issue shares of common stock for performance shares that vested.

The Company also issued 21,949 original issue shares of common stock to the non-employee directors of the Company who receive compensation under the Company’s 2009 Non-Employee Director Equity Compensation Plan, including the reinvestment of dividends for certain non-employee directors who elected to defer their shares pursuant to the dividend reinvestment feature of the Company's Deferred Compensation Plan for Directors and Officers during the nine months ended June 30, 2022.

Holders of stock-based compensation awards will often tender shares of common stock to the Company for payment of applicable withholding taxes.

During the six months ended March 31, 2022, 149,499 shares of common stock were tendered to the Company for such

During the nine months ended June 30, 2022, 154,847 shares of common stock were tendered to the Company for such

The Company considers all shares tendered as cancelled shares restored to the status of authorized but unissued shares, in accordance with New Jersey law.

Current Portion of Long-Term Debt.

Current Portion of Long-Term Debt at March 31, 2022 consists of $ 500.0 million of 3.75 % notes and $ 49.0 million of 7.395 % notes that mature in March 2023.

Current Portion of Long-Term Debt at June 30, 2022 consists of $ 500.0 million of 3.75 % notes and $ 49.0 million of 7.395 % notes that mature in March 2023.

None of the Company's long-term debt as of September 30, 2021 had a maturity date within the following twelve-month period.

Short-Term Borrowings and Debt Restrictions.

On February 28, 2022, the Company entered into a Credit Agreement (the "Credit Agreement") with a syndicate of twelve banks.

The Credit Agreement replaces the previous Fourth Amended and Restated Credit Agreement and 364-Day Credit Agreement.

On February 28, 2022, the Company entered into a Credit Agreement (as amended from time to time, the "Credit Agreement") with a syndicate of twelve banks.

The Credit Agreement replaced the previous Fourth Amended and Restated Credit Agreement and a previous 364-Day Credit Agreement.

The Credit Agreement provides a $ 1.0 billion unsecured committed revolving credit facility with an initial maturity date of February 26, 2027.

On May 3, 2022, the Company entered into an amendment to the Credit Agreement with the same twelve banks under the initial Credit Agreement.

This amendment modifies the definition of consolidated capitalization, for purposes of calculating the debt to capitalization ratio under the Credit Agreement, to exclude, beginning with the quarter ending June 30, 2022, all unrealized gains or losses on commodity-related derivative financial instruments and up to $ 10 million in unrealized gains or losses on other derivative financial instruments included in Accumulated Other Comprehensive Income (Loss) within Total Comprehensive Shareholders' Equity on the Company’s balance sheet.

On May 3, 2022, the Company entered into Amendment No.

1 to the Credit Agreement with the same twelve banks under the initial Credit Agreement.

The amendment modifies the definition of consolidated capitalization, for purposes of calculating the debt to capitalization ratio under the Credit Agreement, to exclude, beginning with the quarter ending June 30, 2022, all unrealized gains or losses on commodity-related derivative financial instruments and up to $ 10 million in unrealized gains or losses on other derivative financial instruments included in Accumulated Other Comprehensive Income (Loss) within Total Comprehensive Shareholders' Equity on the Company’s balance sheet.

On June 30, 2022, the Company entered into a new 364-Day Credit Agreement (the "364-Day Credit Agreement") with a syndicate of five banks, all of which are also lenders under the Credit Agreement.

The 364-Day Credit Agreement provides an additional $ 250.0 million unsecured committed delayed draw term loan credit facility with a maturity date of June 29, 2023.

Under the delayed draw mechanism of the 364-Day Credit Agreement, the Company may, through September 28, 2022, make up to three elections to borrow funds under the facility, provided that the Company may extend the period to make such elections to October 28, 2022.

Note 8 – Commitments and Contingencies

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It is the Company’s policy to accrue estimated environmental clean-up costs (investigation and remediation) when such amounts can reasonably be estimated and it is probable that the Company will be required to incur such costs.

At March 31, 2022, the Company has estimated its remaining clean-up costs related to former manufactured gas plant sites will be approximately $ 3.8 million.

The Company's liability for such clean-up costs has been recorded in Other Liabilities on the Consolidated Balance Sheet at March 31, 2022.

At June 30, 2022, the Company has estimated its remaining clean-up costs related to former manufactured gas plant sites will be approximately $ 3.8 million.

The Company's liability for such clean-up costs has been recorded in Other Liabilities on the Consolidated Balance Sheet at June 30, 2022.

The Company expects to recover its environmental clean-up costs through rate recovery over a period of approximately one year and is currently not aware of any material additional exposure to environmental liabilities.

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In addition, in the Company's state court litigation challenging the NYDEC's actions with regard to various state permits, the New York State Supreme Court issued a decision finding these permits to be preempted.

The Company remains committed to the project and, on January 28, 2022, filed with FERC a request for an extension of time to construct the project.

As of March 31, 2022, the Company has spent approximately $ 55.8 million on the project, all of which is recorded on the balance sheet.

The Company remains committed to the project and, on June 29, 2022, received an extension of time from FERC, until December 31, 2024, to construct the project.

As of June 30, 2022, the Company has spent approximately $ 55.8 million on the project, all of which is recorded on the balance sheet.

The Company is involved in other litigation and regulatory matters arising in the normal course of business.

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These matters may involve state and federal taxes, safety, compliance with regulations, rate base, cost of service and purchased gas cost issues, among other things.

While these other matters arising in the normal course of business could have a material effect on earnings and cash flows in the period in which they are resolved, an estimate of the possible loss or range of loss, if any, cannot be made at this time.

While these other matters arising in the normal

course of business could have a material effect on earnings and cash flows in the period in which they are resolved, an estimate of the possible loss or range of loss, if any, cannot be made at this time.

Note 9 – Business Segment Information

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There have not been any changes in the basis of segmentation nor in the basis of measuring segment profit or loss from those used in the Company’s 2021 Form 10-K.

A listing of segment assets at March 31, 2022 and September 30, 2021 is shown in the tables below.

Quarter Ended March 31, 2022 (Thousands)

A listing of segment assets at June 30, 2022 and September 30, 2021 is shown in the tables below.

Quarter Ended June 30, 2022 (Thousands)

Exploration and Production Pipeline and Storage Gathering Utility Total Reportable Segments All Other Corporate and Intersegment Eliminations Total Consolidated

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$ 56,497 $ 26,599 $ 24,658 $ 4,622 $ 112,376 $ — $( 4,218 ) $ 108,158

Six Months Ended March 31, 2022 (Thousands)

Nine Months Ended June 30, 2022 (Thousands)

Exploration and Production Pipeline and Storage Gathering Utility Total Reportable Segments All Other Corporate and Intersegment Eliminations Total Consolidated

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Segment Assets:

At March 31, 2022 $ 2,535,426 $ 2,330,802 $ 845,379 $ 2,247,733 $ 7,959,340 $ 235 $( 154,552 ) $ 7,805,023

At June 30, 2022 $ 2,716,219 $ 2,371,621 $ 870,204 $ 2,247,229 $ 8,205,273 $ 235 $( 93,422 ) $ 8,112,086

At September 30, 2021 $ 2,286,058 $ 2,296,030 $ 837,729 $ 2,148,267 $ 7,568,084 $ 4,146 $( 107,405 ) $ 7,464,825

Quarter Ended March 31, 2021 (Thousands)

Quarter Ended June 30, 2021 (Thousands)

Exploration and Production Pipeline and Storage Gathering Utility Total Reportable Segments All Other Corporate and Intersegment Eliminations Total Consolidated

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Net Income (Loss) $ 39,015 $ 21,948 $ 20,427 $ 4,841 $ 86,231 $ 1,039 $( 795 ) $ 86,475

Six Months Ended March 31, 2021 (Thousands)

Nine Months Ended June 30, 2021 (Thousands)

Exploration and Production Pipeline and Storage Gathering Utility Total Reportable Segments All Other Corporate and Intersegment Eliminations Total Consolidated

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Retirement Plan Other Post-Retirement Benefits

Three Months Ended March 31, 2022 2021 2022 2021

Three Months Ended June 30, 2022 2021 2022 2021

Service Cost $ 2,190 $ 2,466 $ 332 $ 400

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Retirement Plan Other Post-Retirement Benefits

Six Months Ended March 31, 2022 2021 2022 2021

Nine Months Ended June 30, 2022 2021 2022 2021

Service Cost $ 6,568 $ 7,399 $ 996 $ 1,202

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Employer Contributions.

During the six months ended March 31, 2022, the Company contributed $ 15.0 million to its tax-qualified, noncontributory defined-benefit retirement plan (Retirement Plan) and $ 1.6 million to its VEBA trusts for its other post-retirement benefits.

In the remainder of 2022, the Company expects its contributions to the Retirement Plan to be in the range of $ 5.0 million to $ 10.0 million.

In the remainder of 2022, the Company expects its contributions to its VEBA trusts to be in the range of $ 1.0 million to $ 1.5 million.

During the nine months ended June 30, 2022, the Company contributed $ 19.3 million to its tax-qualified, noncontributory defined-benefit retirement plan (Retirement Plan) and $ 2.7 million to its VEBA trusts for its other post-retirement benefits.

In the remainder of 2022, the Company expects to contribute approximately $ 1.1 million to the Retirement Plan.

In the remainder of 2022, the Company expects to contribute approximately $ 0.2 million to its VEBA trusts.

Note 11 – Regulatory Matters

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The extension is contingent on the Company not filing a base rate case that would result in new rates becoming effective prior to April 1, 2023.

In response to the COVID-19 pandemic, various legislative actions and NYPSC Staff requests resulted in the Company suspending service terminations and disconnections for a period of time.

In response to the novel coronavirus (COVID-19) pandemic, various legislative actions and NYPSC Staff requests resulted in the Company suspending service terminations and disconnections.

All legislative prohibitions have expired and the Company has agreed to refrain from terminating residential customers (1) with a pending application for arrears payments through the Emergency Rental Assistance Program administered by the Office of Temporary Disability and (2) participating in the Company’s Statewide Low Income Program (EAP) through September 1, 2022.

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Accordingly, the Company suspended regulatory accounting for OPEB expenses at that time and recorded an $ 18.5 million adjustment during the quarter ended March 31, 2022 to reduce its regulatory liability for previously deferred OPEB income amounts through September 30, 2021 and to increase Other Income (Deductions) on the consolidated financial statements by a like amount.

The refunds specified in the tariff supplement will be funded entirely by grantor trust assets held by the Company, most of which are included in a fixed income mutual fund that is a component of Other Investments on the Company’s Consolidated Balance Sheet.

With the elimination of OPEB expenses in base rates, Distribution Corporation will no longer fund the grantor trust or its VEBA trusts in its Pennsylvania jurisdiction.

The refunds specified in the tariff supplement are being funded entirely by grantor trust assets held by the Company, most of which are included in a fixed income mutual fund that is a component of Other Investments on the Company’s Consolidated Balance Sheet.

With the elimination of OPEB expenses in base rates, Distribution Corporation is no longer funding the grantor trust or its VEBA trusts in its Pennsylvania jurisdiction.

FERC Jurisdiction

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The first of the new lease contracts commenced in December 2021 with estimated lease payments of $ 8.4 million over the lease term, and the second commenced in January 2022 with estimated lease payments of $ 11.9 million over the lease term.

Both leases have been recognized on the Consolidated Balance Sheet at March 31, 2022.

Both leases have been recognized on the Consolidated Balance Sheet at June 30, 2022.

A right-of-use operating lease asset of $ 12.6 million is recorded in Deferred Charges for both leases with the current portion of the operating lease liability ($ 12.4 million) recorded in Other Accruals and Current Liabilities and the noncurrent portion of the operating lease liability ($ 0.2 million) recorded in Other Liabilities.

Note 13 – Subsequent Event

On May 1, 2022, the Company entered into a purchase and sale agreement to sell Seneca’s California oil and gas assets to Sentinel Peak Resources California LLC for total consideration between $ 280 million and $ 310 million, depending on oil prices.

This consideration consists of $ 280 million in cash at closing, plus up to three annual contingent payments between calendar 2023 and 2025 that can total $ 30 million in aggregate.

The transaction has an effective date of April 1, 2022 and is expected to close on June 30, 2022, subject to customary closing conditions (including waivers of certain transfer restrictions).

The Company pursued this sale given the strong commodity price environment and the Company’s strategic focus in the Appalachian Basin.

Under the full cost method of accounting for oil and natural gas properties, it is expected that substantially all of the sale proceeds received at closing will be accounted for as a reduction of capitalized costs since the disposition will not significantly alter the relationship between capitalized costs and proved reserves of oil and gas attributable to the cost center.

A portion of the sales proceeds will be applied to assets that are not subject to the full cost method of accounting.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements