CORNING NATURAL GAS HOLDING CORPORATION Cautionary Statement Regarding Forward-Looking Statements
This report contains statements which, to the extent they are not recitations of historical facts, constitute "forward-looking statements" within the meaning of theU.S. Private Securities Litigation Reform Act of 1995 (Reform Act). The words "estimate", "project", "anticipate", "expect", "intend", "believe", "could" and similar expressions are intended to identify forward-looking statements. All such forward-looking statements are intended to be subject to the safe harbor protection provided by the Reform Act. Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be achieved. As forward-looking statements, these statements involve risks, uncertainties and other factors that could cause actual results to differ materially from the expected results. Accordingly, actual results may differ materially from those expressed in any forward-looking statements. Factors that could cause results to differ materially from our management's expectations include, but are not limited to, those listed under Item 1A - "Risk Factors" of our Annual Report on Form 10-K for the fiscal year endedSeptember 30, 2021 , in addition to:
* the impact of the COVID-19 pandemic, * completion of the pending merger with Argo, * the effect of an interruption in our supply of natural gas or electricity
or a substantial increase in the price of natural gas or electricity, * our ability to successfully negotiate new supply agreements for natural
gas and electricity as they expire, on terms favorable to us, or at all,
* the effect on our operations of actions by the NYPSC or PAPUC,
* the effect of litigation,
* the effect on our operations of unexpected changes in legal or regulatory
requirements, including environmental and energy consumption regulations
and laws, * the amount of natural gas and electricity directed through our pipeline
and wires,
* our successful completion of various capital projects and the use of
pipelines, compressor stations and storage by customers and counterparties
at levels consistent with our expectations, * The effect of weather on our utility infrastructure, * our ability to retain the services of our senior executives and other key
employees,
* our vulnerability to adverse economic and industry conditions generally
and particularly the effect of those conditions on our major customers,
* the impact of
Act legislation on the Company's sales and its ability to recover in cost
of service through depreciation expense its investment in utility plant,
* the effect of any leaks in our transportation and delivery pipelines,
* competition to our gas transportation business from other pipelines, and
* the possibility of cyber and malware attacks.
Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update any forward-looking statement in light of new information or future events.
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Overview
In fiscal 2021, the Company pursued rate cases inNew York andPennsylvania , and its Argo merger case inNew York andPennsylvania . We completed our twoPennsylvania rate cases in the summer of 2021 with new electric and gas rates taking effect onJuly 28, 2021 . OurNew York rate case, which we filed in July of 2021, is under consideration by theNew York Public Service Commission , and we expect new rates to take effect in July of 2022 (see Note 9 Regulatory Matters of the notes accompanying our consolidated financial statements).The Pennsylvania Public Utility Commission approved our merger with Argo onFebruary 3, 2022 . Our regulatory investments have improved our business outlook. Our results atPike for our second quarter, and for our fiscal year to date, are significantly better than in prior years in terms of higher revenues and margins. We expect similar financial improvements resulting from ourNew York rate case. We look forward to completing our merger with Argo in the third quarter of fiscal 2022. The merger will result in reduced operating costs and will provide us the financial backing to continue to expand our customer base and to invest in capital that will promote safe and reliable energy service to our customers. We believe our key performance indicators are net income, stockholders' equity and the safety and reliability of our systems. Net income increased by$138,479 for the three months and increased$419,598 for the six months endedMarch 31, 2022 compared to the three months and six months endedMarch 31, 2021 , respectively. Basic earnings per share increased from$0.74 per share to$0.78 per share for the second quarter of fiscal 2022 compared to the second quarter of fiscal 2021, and from$0.78 per share to$0.91 per share for year to date 2022 versus year to date 2021. Our earnings increase is primarily related to colder weather in 2022 than in 2021, and the increase inPike's earnings resulting from its July of 2021 rate order, offset by a decline in investment income, and for year to date, the loss on the sale of Leatherstocking ofNew York . Because the Holding Company's principal operations are conducted throughCorning Gas andPike , both regulated utility companies, stockholders' equity is an important performance indicator. The NYPSC and PAPUC allow the Company the opportunities to earn a just and reasonable return on stockholders' equity as determined under applicable regulations. Stockholders' equity is, therefore, a precursor of future earnings potential. As ofMarch 31, 2022 , compared toMarch 31, 2021 , stockholders' equity decreased slightly from$37,501,650 to$37,342,544 . We plan to continue our focus on building stockholders' equity. Safety and efficiency indicators include leak repair, main and service replacements and customer service metrics. We continue to focus on improving the efficiency of our operations and making capital investments to improve our infrastructure.Corning Gas's infrastructure improvement program concentrates on the replacement of older distribution mains and customer service lines. In the first six months of fiscal 2022 theGas Company repaired 38 leaks, replaced 100 bare steel services and replaced or remediated 4.87 miles of older steel main. In fiscal 2021 theGas Company repaired 110 leaks and replaced 9.0 miles of bare steel main and 176 bare steel services. In the first six months of fiscal 2022 Pike replaced approximately 49 poles. In fiscal 2021 Pike replaced approximately 82 poles and did extensive tree trimming to maintain our electric infrastructure. OnJanuary 18, 2019 ,Pike filed a gas Long Term Infrastructure Improvement Plan ("LTIIP") to accelerate replacement of cast iron, wrought iron and bare steel pipe over 11 years. The PAPUC approved the LTIIP plan onJune 13, 2019 .
Key financial performance indicators:
Three Months Ended March 31 ,
Six Months Ended
2022 2021 2022 2021
Net income $ 2,468,546 $ 2,330,067 $ 2,932,839 $ 2,513,241
Stockholders' equity $ 37,342,544 $ 37,501,650 $ 37,342,544 $ 37,501,650
Stockholders' equity per
outstanding common share $ 12.11 $ 12.16 $ 12.11 $ 12.16
Gas Revenue and Margin
Retail gas revenue increased $2,359,325 for the three months and increased
$3,606,490 for the six months ended March 31, 2022 compared to the same periods
last year. Gas revenues were bolstered by higher purchased gas costs, new rates
at Pike , and colder weather in fiscal 2022. Purchased gas costs are subject to a
NYPSC and PAPUC approved reconciliation that permits recovery of all prudently
incurred costs. Higher gas cost revenues do not impact net income.
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Other gas revenue decreased$151,017 for the three months and decreased$107,681 for the six months endedMarch 31, 2022 compared to the same periods last year. The components of this decrease are detailed in the tables below. Three months ended March 31, Six months ended March 31, 2022 2021 2022 2021 Retail gas revenue: Residential$ 8,876,788 $ 7,285,905 $ 13,564,681 $ 11,232,427 Commercial 1,738,758 1,332,395 2,646,654 1,986,092 Transportation 1,701,231 1,659,373 2,961,702 2,889,580 Wholesale 1,074,174 753,953 1,778,374 1,236,822 Total retail gas revenue$ 13,390,951 $
11,031,626
Other gas revenue: Local production $ 73,279$ 178,881 $ 142,344 $ 354,486 Customer discounts forfeited 1,538 20 1,544 (8 ) Reconnect fees - (5 ) 541 60 Surcharges 346 2,762 753 (1,915 ) Other (see detail below) 198,716 243,238 280,887 181,127 Total other gas revenue$ 273,879 $ 424,896 $ 426,069 $ 533,750 Total gas operating revenue$ 13,664,830 $
11,456,522
The following table details amounts making up the Other line in the schedule of Other gas revenue above:
Three months ended March 31 ,
Six months ended
2022 2021 2022 2021
Other gas revenues:
Delivery Rate Adjustment (DRA)
carrying costs $ 702 $ 822 $ 2,070 $ 3,047
Contract customer reconciliation (10,174 ) (61,395 ) (7,053 ) (72,474 )
Monthly RDM amortizations 215,933 97,396 266,417 (85,701 )
Local production revenues (2,665 ) 12,044 (2,765 ) 26,004
2017 Jobs Act federal Income tax
reconciliation - 353,082 - 456,764
Regulatory liability reserve - (171,910 ) - (171,910 )
Capacity release revenues 8,453 12,073 15,633 20,827
All other (13,533 ) 1,126 6,585 4,570
Total other gas revenues $ 198,716 $ 243,238
Gas purchases are our largest expenses. Purchased gas expense increased
We anticipate that the cost of purchased natural gas will increase in the near term due to the post pandemic demand for energy and current economic conditions. Increases in the cost of gas should be tempered by our access to lower-cost local production gas. Gas margin (the excess of utility gas revenue over the cost of natural gas purchased) increased$405,098 for the three months and increased$380,531 for the six months endedMarch 31, 2022 compared to the same periods last year due to increased rates and colder weather. The gas margin percentages were negatively impacted by higher purchased gas costs. 30
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Three Months Ended March 31, Six Months Ended March 31,
2022 2021 2022 2021
Gas Margin:
Utility Gas Revenues $ 13,664,830 $ 11,456,522 $ 21,377,480 $ 17,878,671
Natural Gas Purchased 5,282,955 3,479,745 7,867,705 4,749,427
Margin $ 8,381,875 $ 7,976,777 $ 13,509,775 $ 13,129,244
Margin % 61.34 % 69.63 % 63.20 % 73.44 %
Electric Revenue and Margin
Retail electric revenue increased $1,698,516 for the three months and increased
$2,446,853 for the six months ended March 31, 2022 compared to the same periods
last year. These increases were mainly attributable to increased purchased power
costs and increased customer usage. Our customer usage increase reflects new
electric rates at Pike that took effect in July of 2021 and increased
deliveries. Purchased electricity costs are subject to a PAPUC approved
reconciliation that permits recovery of all prudently incurred costs. Higher
purchased electricity costs do not impact net income.
Other electric revenues decreased $165,129 for the three months and decreased
$45,092 for the six months ended March 31, 2022 compared to the same periods
last year. The components of these decreases are detailed in the tables below.
Three months ended March 31,
Six months ended
2022 2021 2022 2021
Retail electric revenue:
Residential $ 1,720,573 $ 944,659 $ 2,995,340 $ 1,922,578
Commercial 1,644,976 736,310 2,976,152 1,624,244
Street lights 44,791 30,855 85,644 63,461
Total retail electric revenue $ 3,410,340 $ 1,711,824 Other electric revenue: Customer discounts forfeited $ 3,733 $ - $ 3,733 $ - Third party billings (43,316 ) 59,090 4,658 59,343 Other (70,853 ) (4,397 ) - (5,860 ) Total other electric revenue$ (110,436 ) $ 54,693 $ 8,391$ 53,483
Total electric operating revenue
Electricity costs increased$1,203,229 for the three months and increased$1,463,900 for the six months endedMarch 31, 2022 compared to the same periods last year. The increase in costs for fiscal year 2022 is due primarily to an increase in the price of purchased electricity. 31
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Electric margin (the excess of utility electric revenue over the cost of purchased power costs) increased$330,158 for the three months and increased$937,861 for the six months endedMarch 31, 2022 compared to the same periods last year. The electric margin percentage was negatively impacted by the higher purchased power costs in fiscal year 2022. The increase in electric margin resulted from new rates which took effect in July of 2021. Three Months EndedMarch 31 ,
Six Months Ended
2022 2021 2022 2021
Electric Margin:
Utility Electric Revenues $ 3,299,904 $ 1,766,517 $ 6,065,527 $ 3,663,766
Electricity Purchased 1,564,315 361,086 2,618,067 1,154,167
Margin $ 1,735,589 $ 1,405,431 $ 3,447,460 $ 2,509,599
Margin % 52.60 % 79.56 % 56.84 % 68.50 %
Operating and Interest Expenses
Operating and maintenance expense increased$294,361 for the three months and increased$172,088 for the six months endedMarch 31, 2022 compared to the same periods last year. The increase for the three-month period primarily results from timing of payroll costs offset by merger related costs and lower regulatory amortizations. The increase for the six-month period primarily results from timing of payroll costs offset by merger related costs, expenses related to the COVID pandemic and lower regulatory amortization. Taxes other than income taxes increased$166,366 for the three months and increased$251,268 for the six months endedMarch 31, 2022 compared to the same periods last year. The increase for the three-month period primarily results from increase gross receipts tax increase of$210,337 net of lower property and other taxes of$43,972 . The increase for the six-month period primarily results from increase gross receipts tax increase of$268,385 net of lower property and other taxes of$17,117 .
Depreciation expense increased
Interest expense increased$118,139 for the three months and increased$229,749 for the six months endedMarch 31, 2022 compared to the same periods last year. The increases were due to higher levels of debt to support our mandated infrastructure improvement program, and additional dividends associated with outstanding Preferred Series D shares which is recorded as interest expense.
Liquidity and Capital Resources
The Holding Company does not have any borrowings (excluding Series A, Series C and Series D Preferred Stock that is classified as debt) at the corporate level and has no access to liquidity except through dividends and distributions from its subsidiaries as well as equity issuances. Its principal liquidity requirements are for investments in all three companies to enhance their ability to make the capital expenditures required to provide services to the utilities' customers.The Gas Company's internally generated cash from operating activities consists of net income, adjusted for non-cash expenses, and changes in operating assets and liabilities. Non-cash items include depreciation and amortization; investment gains and losses, and deferred income taxes. Over or under-recovered gas costs significantly impact cash flow. In addition, there are significant year-to-year changes in regulatory assets that impact cash flow.The Gas Company's cash flow is seasonal. Cash expenditures are the highest in the summer and fall months when we refill gas storage and conduct our construction programs. Our cash receipts are highest during the heating season. AtPike cash flow is strongest in the winter and summer when customer demand for natural gas and electricity are highest. Given year-round electric sales,Pike is less seasonal than theGas Company . Capital expenditures are funded by both operating cash and new debt. In fiscal year 2022 to date, the Company has spent approximately$6.3 million on projects and safety-related infrastructure improvements. This, in conjunction with our growth projects, creates liquidity pressure on the Holding Company. We anticipate that our aggressive capital construction program will continue to require the Company to raise new debt and/or equity. Cash flows from financing activities of the Company consist of new long-term borrowings, repayment of long-term debt, net borrowings and repayments under our lines-of-credit, and quarterly dividend payments. For theGas Company's operations, it has an$8.5 million revolving line of credit with M&T Bank. Interest is a variable rate determined by theGas Company's funded debt to EBITDA ratio calculated ninety days after the end of each quarter added to the daily LIBOR rate with no additional collateral or covenants beyond those included in the M&T Bank term notes. The amount outstanding under this line as ofMarch 31, 2022 was$6.1 million with an interest rate of 3.4%. 32
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ForPike's operations, it has a$2.0 million revolving line of credit with M&T Bank. Interest is a variable rate determined byPike's funded debt to EBITDA ratio calculated ninety days after the end of each quarter added to the daily LIBOR rate with no additional collateral or covenants beyond those included in the M&T Bank term notes. The amount outstanding under this line as ofMarch 31, 2022 was approximately$1.9 million with an interest rate of 3.25%. For Leatherstocking's operations, it has a$1.5 million revolving line of credit withWayne Bank . Interest on the line of credit is the prime rate (3.50% atMarch 31, 2022 ). The line of credit is for an indefinite period, is guaranteed by Leatherstocking Pipeline, and is secured byLeatherstocking Gas and Leatherstocking Pipeline assets. The amount outstanding under this line as ofMarch 31, 2022 was approximately$1.2 million .
The Company was in compliance with all of its loan covenants as of
During the three months endedMarch 31, 2022 , theGas Company mainly withdrew gas from storage, and as ofMarch 31, 2022 had a balance of$478,812 worth of gas in storage. The volume in storage atMarch 31, 2022 was 166,665 1,000 cubic feet ("Mcf") at an average price of$3.19 per Mcf. As ofMarch 31, 2021 , the Company had a balance of$493,612 worth of gas in storage. The volume in storage atMarch 31, 2021 was 269,973 Mcf at an average price of$1.73 per Mcf. During the next quarter, theGas Company expects to begin injecting gas into storage to have sufficient gas to supply customers for the winter season. As ofMarch 31, 2022 , we believe that cash flow from operating activities and borrowings under our lines of credit will be sufficient to satisfy our working capital and debt service requirements over the next twelve months. We believe new debt will be required to satisfy our capital expenditures and to finance our internal growth needs for the next twelve months. We are confident we can finance them with our current lender.
Off Balance Sheet Arrangements
We have no off balance sheet arrangements.
Critical Accounting Policies
Our significant accounting policies are described in the notes to the Consolidated Financial Statements in the Holding Company's Form 10-K for the year endedSeptember 30, 2021 , filed onDecember 17, 2021 . There have been no significant changes in our accounting policies during the six months endedMarch 31, 2022 .
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