CNIGP Corning Natural Gas Holding Corporation (QX)

Notes to Consolidated Financial Statements

(Unaudited)

Note 1 – Basis of Presentation

Corning Natural Gas Holding Corporation (“Holding Company”) was incorporated in New York in July 2013 to serve as a holding company for Corning Natural Gas Corporation (“Corning Gas” or the “Gas Company”) and its dormant subsidiary Corning Natural Gas Appliance Corporation (the “Appliance Company”), Pike County Light & Power Company (“Pike”), Leatherstocking Gas Company, LLC (“Leatherstocking Gas”), and Leatherstocking Pipeline Company, LLC (“Leatherstocking Pipeline”). The Holding Company also owns 50% of Leatherstocking Gas of New York, Inc. (“Leatherstocking NY”). As used in this document, the term “the Company” refers to the consolidated operations of the Holding Company, Gas Company, Pike and (from July 1, 2020) Leatherstocking Gas and Leatherstocking Pipeline.

The Holding Company’s primary business, through its subsidiaries, is natural gas and electric distribution. Corning Gas serves approximately 15,000 residential, commercial, industrial and municipal customers in the Corning, Hammondsport and Virgil, New York, areas and two other gas utilities which serve the Elmira and Bath, New York, areas. It is franchised to supply gas service in all of the political subdivisions in which it operates. The Gas Company is under the jurisdiction of the New York Public Service Commission (“NYPSC”) which oversees and sets rates for New York gas distribution companies. In addition, the Gas Company has contracts with Corning Incorporated and Woodhull Municipal Gas Company, a small local utility, to provide maintenance service on their gas lines. Pike is an electric and gas utility regulated by the Pennsylvania Public Utility Commission (“PAPUC”). Pike provides electric service to approximately 4,800 customers in the Townships of Westfall, Milford and the northern part of Dingman and in the Boroughs of Milford and Matamoras. Pike provides natural gas service to 1,200 customers in Westfall Township and the Borough of Matamoras. All of these communities are located in Pike County, Pennsylvania. Additionally, Leatherstocking Gas is also regulated by the PAPUC and distributes gas in Susquehanna and Bradford Counties, Pennsylvania. Leatherstocking Pipeline, an unregulated company, previously served one customer in Lawton, Pennsylvania and has had no revenues since 2018. Leatherstocking NY has an application pending before the NYPSC for authority to provide gas distribution services in Broome County, New York.

The information furnished herewith reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the period. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to SEC rules and regulations, although the Holding Company believes the disclosures which are made are adequate to make the information presented not misleading.

On July 1, 2020, the Holding Company purchased the remaining 50% interest in Leatherstocking Gas and Leatherstocking Pipeline (collectively, the “Leatherstocking Companies”), and items of income or loss and the balance sheets of these subsidiaries are now included in the Company’s consolidated financial statements. For the first six months of fiscal 2020, the Company accounted for its investments in the Leatherstocking Companies using the equity method of accounting. Components of our financial statements reflect these differences. The following unaudited proforma information presents the Company’s results of operations as if the Company owned 100% of the Leatherstocking Companies at the beginning of the fiscal year ended September 30, 2020. The proforma results do not purport to represent what the Company’s results of operations actually would have been if the transaction had occurred at the beginning of the period presented or what the Company’s results of operations will be in future periods.

The consolidated financial statements contained herein should be read in conjunction with the consolidated financial statements and notes thereto included in the Holding Company’s latest annual report on Form 10-K for the fiscal year ended September 30, 2020 (“Annual Report”), filed on December 21, 2020. These interim consolidated financial statements are unaudited.

Our significant accounting policies are described in the notes to the Consolidated Financial Statements in the Holding Company’s Annual Report. It is important to understand that the application of generally accepted accounting principles in the United States of America involves certain assumptions, judgments and estimates that affect reported amounts of assets, liabilities, revenues and expenses. Thus, the application of these principles can have varying results from company to company.

Because our business is highly seasonal in nature, sales for each quarter of the year vary and are not comparable. Sales vary depending on seasonal variations in temperature, although the Gas Company’s weather normalization and revenue decoupling clauses approved by the NYPSC serve to stabilize net revenue by insulating the Gas Company, to an extent, from the effects of unusual temperature variations and conservation. Certain larger customer classes are not covered by weather normalization or revenue decoupling and weather will impact revenue from these classes. Neither Pike nor Leatherstocking Gas have weather normalization or revenue decoupling clauses.

It is the Holding Company’s policy to reclassify amounts in the prior year financial statements to conform to the current year presentation.

On January 12, 2021, Holding Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among Holding Company, ACP Crotona Corp. (“Parent”), and ACP Crotona Merger Sub Corp. (“Merger Sub”), pursuant to which Merger Sub will merge with and into Holding Company, and Holding Company will continue as the surviving corporation and a wholly owned subsidiary of Parent (the “Merger”). As a result of the Merger, shareholders of Holding Company will receive consideration for their shares in the following amounts: (i) $24.75 in cash, per share of common stock (the “Merger Consideration”); (ii) $25 per share of Series A preferred stock; (iii) $29.70 per share of Series B preferred stock; and (iv) $25 per share of Series C preferred stock. Amounts payable to all shareholders will include cash for any unpaid dividends. Parent and Merger Sub are affiliates of Argo Infrastructure Partners LP (“Argo”) and were formed by Argo in order to complete the Merger.

The Merger is subject to, among other customary closing conditions, the approvals of the NYPSC and the PAPUC. In addition, the Merger requires the approval of the Company’s shareholders and the expiration of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvement Act. The Merger Agreement also includes certain termination rights for both the Company and Parent and provides that, in connection with the termination of the Merger Agreement under specified circumstances, termination fees may be owed by the Company to Parent, depending on the circumstances surrounding a termination.

The Merger Agreement provided for a 45-day “Go Shop” period which expired on February 26, 2021. During the “Go Shop” period, the Company received no competing offers or alternative acquisition proposals. The Company is now subject to a customary “No Shop” provision that restricts the Company’s ability to solicit acquisition proposals from third parties and to provide non-public information and to negotiate with third parties regarding unsolicited acquisition proposals that is reasonably expected to lead to a superior proposal. On April 30, 2021, the Company and Argo filed with the NYPSC and PAPUC joint petitions requesting approval to conclude the merger. Decisions from the commissions on the merger petitions are not expected until late 2021 or the first half of 2022. The Merger will be voted on by the Company’s shareholders at its annual shareholder meeting which is scheduled for May 27, 2021. In addition, in connection with the execution of the Merger Agreement, the Company’s directors, who in the aggregate beneficially own approximately 30% of the Company’s outstanding shares, have entered into a voting agreement (the “Voting Agreement”) with Parent pursuant to which each director agrees to vote in favor of the Merger and the approval of the Merger Agreement as a shareholder of the Company. The Voting Agreement will terminate if, among other reasons, the Merger Agreement is terminated in accordance with its terms.

In connection with the execution of the Merger Agreement, the Company has suspended its dividend reinvestment plan.

Upon consummation of the Merger, the Company’s common stock will be delisted from the OTCQX and deregistered under the Exchange Act as soon as practicable.

New Accounting Pronouncements Not Yet Adopted

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (Topic 326), which provides a model, known as the current expected credit loss model, to estimate the expected lifetime credit loss on financial assets, including trade and other receivables, rather than incurred losses over the remaining life of most financial assets measured at amortized cost. The guidance also requires use of an allowance to record estimated credit losses on available-for-sale debt securities. The new standard is effective for annual and interim periods beginning after December 15, 2022. The Company is currently evaluating the impact of the guidance on their consolidated financial statements and related disclosures.

In August 2020, the FASB issued ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The new standard is effective for annual and interim periods beginning after December 15, 2021. The Company is currently evaluating the impact of the guidance on their consolidated financial statements and related disclosures.

Note 2 – Revenue From Contracts With Customers

The following tables present, for the three and six months ended March 31, 2021 and 2020, revenue from contracts with customers as defined in Accounting Standards Codification (“ASC 606”) (Revenue From Contracts With Customers), as well as additional revenue from sources other than contracts with customers, disaggregated by major source.

(a) Other revenues include revenue from alternative revenue programs, such as revenue decoupling mechanisms under New York gas rate plans and weather normalization clauses. This also reflects reductions in revenues resulting from the deferral as regulatory liabilities of the net benefits of the federal Tax Cuts and Jobs Act of 2017. See “Regulatory Matters” in Note 9.

(a) Other revenues include revenue from alternative revenue programs, such as revenue decoupling mechanisms under New York gas rate plans and weather normalization clauses. Other revenues also includes reductions in revenues resulting from the deferral as regulatory liabilities of the net benefits of the federal Tax Cuts and Jobs Act of 2017. See “Regulatory Matters” in Note 9.

(a) Other revenues include revenue from alternative revenue programs, such as revenue decoupling mechanisms and weather normalization provisions under a New York gas rate plan. This also reflects reductions in revenues resulting from the deferral as regulatory liabilities of the net benefits of the federal Tax Cuts and Jobs Act of 2017. See “Regulatory Matters” in Note 9.

(a) Other revenues include revenue from alternative revenue programs, such as revenue decoupling mechanisms under New York gas rate plans and weather normalization clauses. This also reflects reductions in revenues resulting from the deferral as regulatory liabilities of the net benefits of the federal Tax Cuts and Jobs Act of 2017. See “Regulatory Matters” in Note 9.

The Gas Company records revenues from residential and commercial customers based on meters read on a cyclical basis throughout each month, while certain large industrial and utility customers’ meters are read at the end of each month. Several meters are read at the end of each month to calculate local production revenues. The Gas Company does not accrue revenue for gas delivered but not yet billed, as the NYPSC requires that such accounting must be adopted during a rate proceeding, which the Gas Company has not done. The Gas Company, as part of its currently effective rate plan, has a weather normalization clause as protection against severe weather fluctuations. This affects space heating customers and is activated when degree days are 2.2% greater or less than the 30-year average. As a result, the effect on revenue fluctuations of weather related gas sales is somewhat moderated.

Pike recognizes revenues for electric and gas service on a monthly billing cycle basis. Pike does not accrue for gas and electricity delivered. Pike does not have a weather normalization clause as protection against severe weather.

Leatherstocking Gas recognizes revenues for gas service on a monthly billing cycle basis. Leatherstocking Gas does not record unbilled revenues. Leatherstocking Gas does not have a weather normalization clause as protection against severe weather.

In addition to weather normalization, the Gas Company has implemented a revenue decoupling mechanism (RDM). The RDM reconciles actual delivery service revenues to allowed delivery service revenues (which are based on the annual customer and volume forecasts in the last rate case) for residential customers. The Gas Company will refund or surcharge customers for differences between actual and allowed revenues. The shortfall or excess after the annual reconciliation will be surcharged or refunded to customers over a twelve-month period starting September 1st each year. Pike and Leatherstocking Gas do not have a revenue decoupling mechanism as part of their rate structures.

Revenues are recorded as energy is delivered, generated, or services are provided and billed to customers. Amounts billed are recorded in customer accounts receivable, with payment generally due the following month.

For ratemaking and financial statement purposes, pension expense represents the amount approved by the NYPSC in the Gas Company’s most recently approved rate case. Pension expense for ratemaking and financial statement purposes was $218,683 for the three months ended March 31, 2021 and $218,683 for the three months ended March 31, 2020. Pension expense for ratemaking and financial statement purposes was $437,366 for the six months ended March 31, 2021 and $437,366 for the six months ended March 31, 2020. Total pension costs are recorded in accordance with accounting prescribed by the NYPSC in 1993. The cumulative net difference between the pension expense for ratemaking and financial statement purposes, since 1993, has been deferred as a regulatory asset and amounted to $1,432,750 and $1,158,204 at March 31, 2021 and March 31, 2020, respectively.

The NYPSC has allowed the Gas Company to recover incremental costs associated with other post-retirement benefits through rates on a current basis. Other post-retirement benefit expense (benefit) (OPEB) for ratemaking and financial statement purposes was $14,680 for the three months ended March 31, 2021 and $14,680 for the three months ended March 31, 2020. Other post-retirement benefit expense (benefit) for ratemaking and financial statement purposes was $29,360 for the six months ended March 31, 2021 and $29,360 for the six months ended March 31, 2020. The difference between the other post-retirement benefit expense (benefit) for ratemaking and financial statement purposes, and the amount computed above has been deferred as a regulatory liability and amounted to $353,545 and $358,670 at March 31, 2021 and March 31, 2020, respectively.

The Gas Company will apply the provisions of the recently enacted American Rescue Plan Act of 2021 (“ARPA”) for purposes of funding its pension plan. ARPA allows a plan sponsor to apply more favorable interest rate assumptions for purposes of determining its required cash contributions, and it allows plan sponsors to fund a shortfall over 15 years, rather than over 7 years under prior law. Additionally, ARPA permits a plan sponsor to elect to redetermine its required contribution for 2020 under the provisions of ARPA, as if the law had been in effect for all of 2020. The Company has elected to apply ARPA to its 2020 plan year, resulting is a deemed credit in the amount of $450,000, that, when applied to its 2021 contribution requirement, reduces the required 2021 cash contribution to $260,000.

The Gas Company expects to contribute $575,000 to its Pension Plan during the year ending September 30, 2021. A total of $511,266 was paid to the Pension Plan during the six months ending March 31, 2021 and $255,633 during the three months ended March 31, 2021. A total of $375,098 was paid to the Pension Plan during the six months ended March 31, 2020 and $187,549 during the three months ended March 31, 2020.

Note 4 – Financing Activities

On August 31, 2020, Corning Gas entered into a $3.718 million multiple disbursement term note with M&T Bank which permitted draws from time to time to pay down $250,000 of existing M&T debt and for capital expenditures in accordance with its terms until October 31, 2020 at which time amounts outstanding under the note totaling $3.718 million converted to a ten year term loan, payable in 119 equal monthly installments with an additional final installment of unpaid principal and interest due on November 30, 2030.  Before converting to a term loan, borrowings on the note had a variable interest rate of 3.0% plus the greater of one-month LIBOR or 0.5%.  After October 31, 2020, the interest rate was fixed at 3.5%.  This term note is subject to the terms of the August 2020 Credit Agreement with M&T. 

On October 13, 2020, Pike’s multiple disbursement term note with M&T Bank, dated June 24, 2020, was converted into a ten year term loan, payable in 119 monthly installments with an additional final installment of unpaid principal and interest due on November 30, 2030. The note is in the amount of $1.315 million and the interest rate was fixed at 3.5%. This term note is subject to the terms of a credit agreement and general security agreement with M&T and is guaranteed by the Holding Company.

On January 14, 2021, Corning Gas borrowed $850,000 from M&T for a three-month period ending on April 15, 2021. The loan was used primarily to pay for transaction costs incurred in connection with our planned merger with Argo (see Note 1), and to pay pension and other operating expenses. The note bears an interest rate of 2.6% plus the one-month LIBOR rate with a floor of 3.1%. The Company and M&T Bank agreed to extend this note and add it to the construction loan that the Company is currently negotiating with M&T Bank. The new construction loan is expected to conclude in May of 2021. The Company continues to pay interest on this loan.

The Company, in the second quarter of fiscal 2021, applied for, and received forgiveness of its Leatherstocking Payroll Protection Program (“PPP”) loan of $65,491. The gain on forgiveness of debt of $65,491 is included as one of the net items making up Other (expense) in the consolidated statements of income. On April 15, 2021, the Company received forgiveness of its Pike PPP loan of $137,200. This amount is reflected on the Company’s consolidated balance sheets in long-term debt. The gain on forgiveness of this debt will be included in the Company’s consolidated statements of income. In the third quarter of fiscal 2021, The Company has filed for loan forgiveness for the Gas Company’s PPP loan in the amount of $970,900. The application is pending approval by the U.S. Small Business Administration. This amount is reflected on the Company’s consolidated balance sheets in long-term debt. If forgiven, the gain on forgiveness of this debt will be included in the Company’s consolidated statement of income. The gains on forgiveness of PPP loans is not subject to federal income tax. The regulatory consequence of PPP loan forgiveness for Corning Gas Company’s PPP loan remains uncertain.

In March of 2021, the Company applied for a $1 million loan from the U.S. Department of Agriculture under the Rural Energy Services Program (RESP). The RESP program is designed to provide low cost loans to rural customers who will use borrowed funds to purchase energy efficient gas furnaces, hot water heaters, and gas services. The loan, if approved by the Department of Agriculture, would be interest free to the Company, and must be repaid over a period not to exceed 20 years. Customers who borrow funds from Corning would pay a nominal rate of interest to the Company, which funds will be used to administer the program. Customer loans must be repaid over a period not to exceed 10 years. The Company’s loan application is pending approval with the U.S. Department of Agriculture.

We are in compliance with our financial covenant calculations as of March 31, 2021.

Note 5 – Fair Value of Financial Instruments

The Holding Company has determined the fair value of debt and other financial instruments using a valuation hierarchy. The hierarchy, which prioritizes the inputs used in measuring fair value, consists of three levels. Level 1 uses observable inputs such as quoted prices in active markets; Level 2 uses inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, which is defined as unobservable inputs in which little or no market data exists, requires the Holding Company to develop its own assumptions. The carrying amount of debt on the Consolidated Balance Sheets approximates fair value as a result of instruments bearing interest rates that approximate current market rates for similar instruments, and the carrying amounts for cash, accounts receivable and accounts payable approximate fair value due to their short-term nature. Investment assets, which fund the Holding Company’s deferred compensation plan, are valued based on Level 1 inputs.

The Holding Company has determined the fair value of certain assets through application of FASB ASC 820 “Fair Value Measurements and Disclosures”.

Fair value of assets and liabilities measured on a recurring basis at March 31, 2021 and September 30, 2020 are as follows:

A summary of the marketable securities at March 31, 2021 and September 30, 2020 is as follows:

Realized gains included in earnings for the periods reported in investment income are as follows:

Unrealized (losses)/gains on equity securities included in investment income for the three and six months ended March 31, 2021 were ($34,092) and $80,166, respectively.  Unrealized gains (losses) on equity securities included in investment income for the three and six months ended March 31, 2020 were $164,031 and ($86,055), respectively.

Financial assets and liabilities valued using level 1 inputs are based on unadjusted quoted market prices as of the close of business on the days noted within active markets.

Shares issued to Leatherstocking Gas were used to compensate its independent director, Carl Hayden.

For the three months ended September 30, 2020, dividends were paid on October 15, 2020 to stockholders of record on September 30, 2020 in the amount of $468,235, less DRIP shares valued at $51,749. As of March 31, 2021, $469,898 was accrued for dividends paid on April 15, 2021 to stockholders of record on March 31, 2021.

Stock options outstanding as of March 31, 2021 were issued in August 2020. There was no stock option activity during the three or six months ended March 31, 2021 and there were no outstanding stock options or stock option activity during the three or six months ended March 31, 2020.

Series A Cumulative Preferred Stock accrues cumulative dividends at a rate of 6.0% of the liquidation preference per share ($25.00) and are expected to be paid on or about the 14th day of April, July, October and January of each year. The dividends for the three months ended March 31, 2021 and 2020 were $78,975 and $78,975, respectively. The dividends for the six months ended March 31, 2021 and 2020 were $195,450 and $157,950, respectively. These dividends are recorded as interest expense. The amortization of the Series A Preferred Stock debt issuance costs for the six months ended March 31, 2021 and 2020 was $10,365 and $10,365, respectively. The amortization of the Series A Preferred Stock debt issuance costs for the three months ended March 31, 2021 and 2020 was $5,182 and $5,182, respectively.

Series B Convertible Preferred Stock accrues cumulative dividends at a rate of 4.8% of the liquidation preference per share ($20.75) and are expected to be paid on or about the 14th day of April, July, October and January of each year and began October 14, 2016. At September 30, 2020 there was $61,066 accrued for Series B dividends paid on October 15, 2020. As of March 31, 2021, $61,066 was accrued for dividends paid on April 15, 2021.

Series C Cumulative Preferred Stock accrues cumulative dividends at a rate of 6.0% of the liquidation preference per share ($25.00) and are expected to be paid on or about the 14th day of April, July, October and January of each year. The dividends for the three months ended March 31, 2021 and 2020 were $67,500 and $-, respectively. The dividends for the six months ended March 31, 2021 and 2020 were $135,000 and $-, respectively. These dividends are recorded as interest expense. The amortization of the Series C Preferred Stock debt issuance costs for the six months ended March 31, 2021 and 2020 was $124 and $-, respectively. The amortization of the Series C Preferred Stock debt issuance costs for the three months ended March 31, 2021 and 2020 was $62 and $-, respectively.

Basic earnings (loss) per share are computed by dividing income (loss) available for common stock (net income less dividends declared on Series B Preferred Stock) by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.

Note 7 – Investment in Joint Ventures

The Holding Company had an interest in Leatherstocking Gas and Leatherstocking Pipeline, each of which was a joint venture with Mirabito Regulated Industries, LLC (“Mirabito”), accounted for by the equity method. On July 1, 2020, Leatherstocking Gas distributed to its members franchises, engineering and gas pipeline assets located in New York having a book value of $532,000. These assets were then contributed to the equity of Leatherstocking Gas Company of New York, Inc. The Company owns 50% of the common shares of the newly formed Leatherstocking NY and accounts for this investment using the equity method of accounting. Mirabito has the option to acquire the Company’s interests in Leatherstocking NY, for a purchase price of $100,000, beginning on the earlier of a change in control of the Company, or July 1, 2021, and ending on June 30, 2023. If this option remains unexercised on June 30, 2023, the Company has the option for sixty days to acquire Mirabito’s shares for a purchase price of $100,000.

The following table represents the Holding Company’s investment activity in the Leatherstocking joint ventures for the six months ended March 31, 2021 and 2020:

As of and for the six months ended March 31, 2021 and 2020, the Joint Ventures financial summary is as follows:

Actual income tax expense for the three and six months ended March 31, 2021 and 2020 is greater than tax calculated at the statutory rate (21%) due to state income taxes and non-tax deductible dividends on Class A and Class C preferred stock that are recorded as interest expense and included in pre-tax income, net of income on the forgiveness of the PPP loan.

On November 18, 2020, the Internal Revenue Service issued Revenue Ruling 2020-27, disallowing an income tax deduction for expenses paid with the proceeds of Paycheck Protection Program (“PPP”) loans. The ruling disallowed tax deductions for PPP loan funded expenses, even if the borrower has not received forgiveness of their PPP loans, if the borrower reasonably believes that loan forgiveness will occur.

On December 27, 2020, the President signed into law the Consolidated Appropriations Act, 2021 (the “Act”) that, among other provisions, allows an income tax deduction for expenses that are otherwise tax deductible, where those expenses are funded by proceeds of a PPP loan which has been forgiven. The Act reverses the holding in Revenue Ruling 2020-27.

Note 9 – Regulatory Matters

On February 27, 2020, Corning Gas filed with the NYPSC for increases in revenues of $6,255,926, $845,142, and $680,913 for the years ending January 31, 2022, 2023, and 2024, respectively (Case 20-G-0101). These standalone rate year increases would impact customer bills by 23.4%, 2.56%, and 2.01%, respectively. The base period (test year) for this filing is the 12-month period ended September 30, 2019. The levelized amount would be $3,523,167 in each of the years ending January 31, 2022, 2023 and 2024. The levelized increases would impact customer bills by 10.93% per year. We have requested a levelized approach.

The filing with the NYPSC reflects a return on equity of 10.2% and pro-forma equity ratios of 50.67%, 52.95% and 55.26% for the 12-month periods ending January 31, 2022, 2023, and 2024, respectively. The primary reasons for the rate increase are NYPSC mandated initiatives, including replacement of distribution pipe, and new safety, training, and cyber security requirements; and shorter depreciation lives for gas pipeline infrastructure to reflect recent state decarbonization legislation. These two items comprise approximately 50% of the rate case increase request. The balance of the request is to recover increases in health insurance, wages and other inflationary costs.

On June 26, 2020, the New York Department of Public Service Staff (“Staff”) filed its direct testimony in Case 20-G-0101. Staff recommends a one year revenue requirement of $517,063, compared to the Gas Company’s request of $6,223,603. The primary differences between Staff and the Gas Company’s revenue requirements is Staff’s equity return recommendation of 8.45% vs. 10.20%, disallowance of the Gas Company’s request for shorter depreciation lives, difference in health insurance cost escalators, extension of the recovery period of regulatory costs from three years to five years, and disallowance of leak repair amortization. The Gas Company disagrees with Staff’s proposals. In November of 2020, the parties requested that the Administrative Law Judges grant a four-month extension of time until May 31, 2021 to rule on the filing, with new rates being retroactively enacted as of February 1, 2021. The NYPSC approved the extension of the suspend period on January 22, 2021. In March of 2021, the parties to this case could not reach a settlement and the case proceeded to a hearing before two administrative law judges. The rate case is now a one-year case. Testimony in this case has concluded and the parties filed briefs and reply briefs. No decision has been made by the administrative law judges. The case must be concluded on or before May 31, 2021. The outcome of this case will be retroactive back to the original effective date of January 31, 2021. The Company has not recorded any impact of this rate case in its consolidated financial statements. The Company cannot predict the outcome of this case. The Company expects to file a new rate case in July of 2021.

In March of 2021, the New York Public Service Commission issued a “Show Cause” order instructing Corning Gas to show cause why its PPP loan in the amount of $970,900 should not be refunded to its customers if and when the loan is forgiven. The Company requested, and the Commission granted, an extension of time until May 19, 2021 to file its response to the “Show Cause” order.

By petition dated September 3, 2020 in Case 20-G-0442, Corning Gas requested authority under Public Service Law Sec. 69 to issue approximately $29.5 million of long term debt through December 31, 2024. The proceeds are to be used principally to fund Commission mandated system safety and reliability measures, including replacement of older pipe and regulator stations; and purchase equipment, computer software and other supplies as necessary to maintain the distribution system. The New York Commission issued a financing order in April of 2021, permitting the Company to issue long term debt in the amount of $19.1 million. The Company has agreed to this financing order.

Total Regulatory Assets on the accompanying Consolidated Balance Sheets as of March 31, 2021 amounts to $14,643,343 compared to $14,213,457 at September 30, 2020. The Regulatory Assets include $1,363,372 at March 31, 2021 and $1,435,762 at September 30, 2020 that is subject to Deferred Accounting Petitions with the NYPSC and PAPUC. The remaining items in regulatory assets are either approved in rates, part of annual reconciliations approved by the NYSPSC and PAPUC or approved through various commission directives.

On October 24, 2020, Pike filed separate rate cases with the PAPUC for an increase in revenues for its electric services in the amount of $1,933,600 (Case R-2020-302235) and for an increase in revenues for its gas services in the amount of $262,200 (Case R-2020-3022134). Pike’s current rates have been in effect since 2014. In March of 2021, the parties to the rate cases agreed to settlements in both the electric case and the gas case, resulting in a rate increase of $1.4 million for electric, and $225,000 for gas. The parties to the case have not agreed on the new rate design for electric, but they have agreed on the rate design for gas. The administrative law judge will resolve the rate design dispute. The settlements must be approved by the administrative law judge, as well as by the full Pennsylvania Commission. New rates are scheduled to go into effect on July 28, 2021.

Note 10 – Segment Reporting

The Company’s reportable segments have been determined based upon the nature of the products and services offered, customer base, availability of discrete internal financial information, homogeneity of products, delivery channel and other factors.

The Gas Company is a gas distribution company providing gas on a commodity and transportation basis to its customers in the Southern Tier of New York State. Pike provides electricity and natural gas services to Pike County, Pennsylvania. Leatherstocking Gas and Leatherstocking Pipeline are presented together as the Leatherstocking Companies in the table below. Leatherstocking Gas provided natural gas service to customers in northeast Pennsylvania. Leatherstocking Pipeline has had no revenues since 2018. The Holding Company is the parent company of all subsidiaries and has a 50% ownership in Leatherstocking NY. The Appliance Company’s information is presented with the Holding Company as it has little activity.

The following table reflects the results of the segments consistent with the Holding Company’s internal financial reporting process. The following results are used in part, by management, both in evaluating the performance of, and in allocating resources to, each of the segments.

As of and for the three months ended March 31, 2021

As of and for the three months ended March 31, 2020