Corning Natural Gas Holding Corp - FORM 10-Q

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EX-32 - Corning Natural Gas Holding Corp	exh321.htm
EX-31 - Corning Natural Gas Holding Corp	exh312.htm
EX-31 - Corning Natural Gas Holding Corp	exh311.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 000-00643

CORNING NATURAL GAS HOLDING CORPORATION

(Exact name of Registrant as specified in its charter)

New York	46-3235589
(State of incorporation)	(I.R.S. Employer Identification No.)

330 West William Street, Corning, New York 14830

(Address of principal executive offices) (Zip Code)

(607) 936-3755

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None	N/A	N/A

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes ☑ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “non-accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer ☐ Accelerated Filer ☐ Non-accelerated Filer ☐ Smaller Reporting Company ☑ Emerging Growth Filer ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Shares outstanding as of August 14, 2020
Common Stock, $.01 par value	3,069,247

PART I.	FINANCIAL INFORMATION		Page

	Item 1.	Financial Statements	3

	Item 2.	Management’s Discussion and Analysis of Financial	26
		Condition and Results of Operations

	Item 4.	Controls and Procedures	31


PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings	31

	Item 1A.	Risk Factors	31

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32

	Item 3.	Defaults Upon Senior Securities	32

	Item 4.	Mine Safety Disclosures	32

	Item 5.	Other Information	32

	Item 6.	Exhibits	32


	SIGNATURES		33

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements

CORNING NATURAL GAS HOLDING CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
	Unaudited
Assets	June 30, 2020		September 30, 2019

Plant:
Utility property, plant and equipment	$125,921,798		$121,041,738
Less: accumulated depreciation	(30,151,290	)	(29,263,612	)
Total plant, net	95,770,508		91,778,126

Investments:
Marketable securities at fair value	2,111,120		2,184,170
Investment in joint ventures	2,547,477		2,597,919
	4,658,597		4,782,089

Current assets:
Cash and cash equivalents	1,400,150		314,341
Customer accounts receivable, (net of allowance for
uncollectible accounts of $61,238 and $66,470, respectively)	2,470,771		2,436,221
Other accounts receivable	396,935		335,481
Related party receivables	7,406		5,818
Gas stored underground, at average cost	709,051		1,238,826
Materials and supplies inventories	3,232,078		2,747,194
Prepaid expenses	2,348,625		1,726,353
Total current assets	10,565,016		8,804,234

Regulatory and other assets:
Regulatory assets:
Unrecovered gas and electric costs	1,375,902		985,556
Deferred regulatory costs	4,596,264		4,401,299
Deferred pension	7,483,864		7,294,641
Other	547,153		562,703
Total regulatory and other assets	14,003,183		13,244,199

Total assets	$124,997,304		$118,608,648

See accompanying notes to consolidated financial statements.

CORNING NATURAL GAS HOLDING CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets

	Unaudited
Liabilities and capitalization	June 30, 2020		September 30, 2019

Long-term debt, less current installments	$37,721,925		$37,939,785
Less: debt issuance costs	(252,750	)	(276,885	)
Total long-term debt	37,469,175		37,662,900

Redeemable preferred stock - Series A	5,202,360		5,186,812
(Authorized 261,500 shares. Issued and outstanding:
210,600 shares at June 30, 2020 and September 30, 2019,
less issuance costs of $62,640 and $78,188, respectively)

Redeemable preferred stock - Series C	4,498,414		—
(Authorized 180,000 shares. Issued and outstanding:
180,000 shares at June 30, 2020 and 0 shares at
September 30, 2019, less issuance costs of $1,586 and $0,
respectively)

Current liabilities:
Current portion of long-term debt	4,650,626		4,260,846
Borrowings under lines-of-credit and short-term debt	4,421,519		6,875,752
Accounts payable	2,494,467		1,826,604
Accrued expenses	388,321		422,557
Customer deposits and accrued interest	1,131,388		1,403,139
Dividends declared	528,275		502,559
Total current liabilities	13,614,596		15,291,457

Deferred credits and other liabilities:
Deferred income taxes	7,304,668		6,209,336
Regulatory liabilities	3,413,937		3,557,481
Deferred compensation	1,347,024		1,391,924
Pension costs and post-retirement benefits	10,103,404		9,683,393
Other	198,967		240,747
Total deferred credits and other liabilities	22,368,000		21,082,881

Commitments and contingencies	—		—

Temporary equity:
Redeemable convertible preferred stock - Series B
(Authorized 244,500 shares. Issued and outstanding:
244,263 shares at June 30, 2020 and September 30, 2019)	4,978,178		4,966,893

Common stockholders' equity:
Common stock ($.01 par value per share.	30,660		30,470
Authorized 4,500,000 shares. Issued and
outstanding: 3,065,949 shares at June 30, 2020
and 3,047,060 at September 30, 2019)
Additional paid-in capital	28,032,247		27,745,837
Retained earnings	8,791,883		6,634,085
Accumulated other comprehensive income	11,791		7,313
Total common stockholders' equity	36,866,581		34,417,705

Total liabilities and capitalization	$124,997,304		$118,608,648

See accompanying notes to consolidated financial statements.

CORNING NATURAL GAS HOLDING CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)	Three Months Ended					Nine Months Ended
		June 30, 2020		June 30, 2019			June 30, 2020		June 30, 2019
Utility operating revenues:
Gas operating revenues		$5,540,296		$5,475,533			$22,321,855		$23,877,524
Electric operating revenues		1,448,456		1,467,575			4,774,273		6,252,018
Total utility operating revenues		6,988,752		6,943,108			27,096,128		30,129,542

Costs of sales:
Gas purchased		939,406		1,266,954			5,226,582		7,499,254
Electricity purchased		264,220		426,859			926,888		2,303,479
Total cost of sales		1,203,626		1,693,813			6,153,470		9,802,733

Gross margin		5,785,126		5,249,295			20,942,658		20,326,809

Cost and expense:
Operating and maintenance expense		2,913,808		2,816,156			8,709,529		8,444,362
Taxes other than income taxes		875,621		839,146			2,755,284		2,763,673
Depreciation		648,647		626,074			1,948,180		1,866,728
Other deductions, net		131,895		123,221			391,443		369,799
Total costs and expenses		4,569,971		4,404,597			13,804,436		13,444,562

Utility operating income		1,215,155		844,698			7,138,222		6,882,247

Other income and (expense):
Interest expense		(625,281	)	(559,292	)		(1,844,268	)	(1,776,491	)
Other expense		(158,770	)	(173,366	)		(488,023	)	(449,068	)
Investment income		165,130		34,454			96,404		94,352
Loss from joint ventures		(53,912	)	(56,877	)		(50,442	)	(15,324	)
Rental income		7,638		7,638			22,914		27,414

Income from utility operations, before income taxes		549,960		97,255			4,874,807		4,763,130

Income tax benefit (expense)		7,645		(58,875	)		(1,158,045	)	(1,326,628	)

Net income		557,605		38,380			3,716,762		3,436,502
Less: Series B Preferred Stock Dividends		61,065		61,065			183,197		183,197
Net income (loss) attributable to common stockholders		$496,540		($22,685	)		$3,533,565		$3,253,305

Weighted average earnings (loss) per share:
	basic	$0.16	($0.01	)	$1.16	$1.07
	diluted	$0.16	($0.01	)	$1.11	$1.03

Average shares outstanding - basic		3,062,789	3,038,864		3,056,806	3,032,342
Average shares outstanding - diluted		3,062,789	3,038,864		3,349,921	3,325,458

See accompanying notes to consolidated financial statements.

CORNING NATURAL GAS HOLDING CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(Unaudited)	Three Months Ended			Nine Months Ended
		June 30, 2020	June 30, 2019		June 30, 2020	June 30, 2019
Net income		$557,605	$38,380		$3,716,762	$3,436,502
Other comprehensive income (loss):
Net unrealized gain (loss) on debt securities available for sale
net of tax of $1,430, ($2,364), $1,553 and $820, respectively		3,769	(6,233)		4,478	2,162

Total comprehensive income		$561,374	$32,147		$3,721,240	$3,438,664

See accompanying notes to consolidated financial statements

CORNING NATURAL GAS HOLDING CORPORATION AND SUBSIDIARIES
Consolidated Statement of Changes in Common Stockholders' Equity For the Three and Nine Months ended June 30, 2020 and 2019
(Unaudited)
						Accumulated
	Number of	Common	Additional Paid In	Retained		Other Comprehensive
	Shares	Stock	Capital	Earnings		Income	Total

Balances at March 31, 2020	3,059,079	$30,591	$27,943,126	$8,762,553		$8,022	$36,744,292

Issuance of common stock	6,870	69	89,121	—		—	89,190
Dividends declared on common ($0.1525 per share)	—	—	—	(467,210	)	—	(467,210	)
Dividends declared on Preferred B shares ($0.25 per share)	—	—	—	(61,065	)	—	(61,065	)
Comprehensive income (loss):
Change in unrealized gain on
debt securities available for sale, net of income taxes	—	—	—	—		3,769	3,769
Net income	—	—	—	557,605		—	557,605
Balances at June 30, 2020	3,065,949	$30,660	$28,032,247	$8,791,883		$11,791	$36,866,581


						Accumulated
	Number of	Common	Additional Paid In	Retained		Other Comprehensive
	Shares	Stock	Capital	Earnings		Income	Total

Balances at September 30, 2019	3,047,060	$30,470	$27,745,837	$6,634,085		$7,313	$34,417,705

Issuance of common stock	18,889	190	286,410	—		—	286,600
Dividends declared on common ($0.45 per share)	—	—	—	(1,375,767	)	—	(1,375,767	)
Dividends declared on Preferred B shares ($0.75 per share)	—	—	—	(183,197	)	—	(183,197	)
Comprehensive income:
Change in unrealized gain on
debt securities available for sale, net of income taxes	—	—	—	—		4,478	4,478
Net income	—	—	—	3,716,762		—	3,716,762
Balances at June 30, 2020	3,065,949	$30,660	$28,032,247	$8,791,883		$11,791	$36,866,581


						Accumulated
	Number of	Common	Additional Paid In	Retained		Other Comprehensive
	Shares	Stock	Capital	Earnings		Income (Loss)		Total

Balances at March 31, 2019	3,035,482	$30,355	$27,543,011	$7,912,222		($1,143	)	$35,484,445

Issuance of common stock	5,569	55	95,811	—		—		95,866
Dividends declared on common ($0.145 per share)	—	—	—	(440,622	)	—		(440,622	)
Dividends declared on Preferred B shares ($0.25 per share)	—	—	—	(61,065	)	—		(61,065	)
Comprehensive income (loss):
Change in unrealized loss on debt securities available for sale, net of income taxes	—	—	—	—		(6,233	)	(6,233	)
Net income	—	—	—	38,380		—		38,380
Balances at June 30, 2019	3,041,051	$30,410	$27,638,822	$7,448,915		($7,376	)	$35,110,771


						Accumulated
	Number of	Common	Additional Paid In	Retained		Other Comprehensive
	Shares	Stock	Capital	Earnings		Income (Loss)		Total

Balances at September 30, 2018	3,021,851	$30,218	$27,320,162	$5,399,751		$90,593		$32,840,724

Adoption of accounting standard (See Note 1)	—	—	—	100,131		(100,131	)	—
Issuance of common stock	19,200	192	318,660	—		—		318,852
Dividends declared on common ($0.43 per share)	—	—	—	(1,304,272	)	—		(1,304,272	)
Dividends declared on Preferred B shares ($0.75 per share)	—	—	—	(183,197	)	—		(183,197	)
Comprehensive income:
Change in unrealized loss on securities available for sale, net of income taxes	—	—	—	—		2,162		2,162
Net income	—	—	—	3,436,502		—		3,436,502
Balances at June 30, 2019	3,041,051	$30,410	$27,638,822	$7,448,915		($7,376	)	$35,110,771

See accompanying notes to consolidated financial statements

CORNING NATURAL GAS HOLDING CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
	Nine Months Ended
		June 30, 2020		June 30, 2019
Cash flows from operating activities:
Net income		$3,716,762		$3,436,502
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation		1,948,180		1,866,728
Amortization of debt issuance cost		80,164		83,063
Non-cash pension expenses		706,071		706,071
Regulatory asset amortizations		481,084		465,921
Stock issued for services		135,589		185,429
Realized (gain) loss		(31,801	)	2,378
Unrealized gain on investments		(73,996	)	(76,947	)
Deferred income taxes		1,158,045		1,326,628
Bad debt expense		83,000		212,000
Loss from joint ventures		50,442		15,324

Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable		(179,004	)	460,166
Gas stored underground		529,775		830,466
Materials and supplies inventories		(484,884	)	(849,093	)
Prepaid expenses		(622,272	)	(762,053	)
Unrecovered gas and electric costs		(390,346	)	558,274
Deferred regulatory costs		(705,225	)	209,818
Other		15,550		15,549
Increase (decrease) in:
Accounts payable		667,863		(1,063,686	)
Accrued expenses		(34,236	)	88,899
Customer deposits and accrued interest		(271,751	)	(283,482	)
Deferred compensation		(44,900	)	(26,258	)
Deferred pension costs & post-retirement benefits		(475,283	)	(366,483	)
Other liabilities and deferred credits		(248,037	)	(139,647	)
Net cash provided by operating activities		6,010,790		6,895,567

Cash flows from investing activities:
Sale of securities, net of purchases		183,325		102,433
Amount (paid to) received from related parties		(1,588	)	10,911
Capital expenditures		(5,940,562	)	(4,447,201	)
Net cash used in investing activities		(5,758,825	)	(4,333,857	)

Cash flows from financing activities:
Net repayments on lines-of-credit and short-term debt		(2,454,233	)	(68,061	)
Cash received from sale of Series C preferred stock, net
of issuance costs		4,498,394		—
Dividends paid		(1,382,237	)	(1,336,164	)
Debt issuance costs paid		—		(32,128	)
Proceeds under long-term debt		3,436,711		1,669,120
Repayment of long-term debt		(3,264,791	)	(2,787,996	)
Net cash provided by (used in) financing activities		833,844		(2,555,229	)
Net increase in cash and cash equivalents		1,085,809		6,481

Cash and cash equivalents at beginning of period		314,341		219,962

Cash and cash equivalents at end of period		$1,400,150		$226,443

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest		$1,764,103		$1,686,621
Income taxes		$—		$—
Non-cash financing activities:
Dividends paid with shares		$151,011		$133,423
Number of shares issued for dividends		8,989		7,300

See accompanying notes to consolidated financial statements

CORNING NATURAL GAS HOLDING CORPORATION AND SUBSIDIARIES

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 (the “Gas Company” or “Corning Gas”) and its dormant subsidiary Corning Natural Gas Appliance Corporation (“Appliance Company”). Pike County Light & Power Company (“Pike”) and 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. As used in this document, the term “the Company” refers to the consolidated operations of the Holding Company, Gas Company and Pike. See Note 12 – Subsequent Events for details on the Company’s purchase of its previously unowned interests in Leatherstocking’s Pennsylvania assets.

The Holding Company’s primary business, through its subsidiaries Corning Gas and Pike, is natural gas and electricity 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. It also transports for a gas producer from the producer’s gathering networks. Corning Gas 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, Corning Gas has a contract with Woodhull Municipal Gas Company, a small local utility, to provide maintenance service on their gas lines. Pike is an electricity 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 approximately 1,200 customers in Westfall Township and the Borough of Matamoras. All of these communities are located in Pike County, Pennsylvania. Additionally, Leatherstocking Gas distributes gas in Susquehanna and Bradford Counties, Pennsylvania. Leatherstocking Pipeline, an unregulated company, serves one customer in Lawton, Pennsylvania.

The market for natural gas in the Gas Company’s traditional service territories is relatively saturated with limited growth potential. However, growth opportunities do exist in extending our mains to areas adjacent or reasonably close to areas we currently serve. In addition, the Gas Company continues to see expansion opportunities in the commercial and industrial markets. We completed a pipeline to Marcellus Shale gas in Pennsylvania in 2009 and are transporting that gas throughout our pipeline infrastructure. The Holding Company also owns Leatherstocking Gas and Leatherstocking Pipeline that provide gas to sections of northeast Pennsylvania. Leatherstocking Gas is expanding gas service to communities that currently have no gas service. Our electric and gas service territory in Pike County, Pennsylvania has seen economic growth.

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.

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, 2019 (“Annual Report”), filed on December 23, 2019. 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.

Adoption of New Accounting Guidance

On October 1, 2019, we adopted Accounting Standards Update (“ASU”) 2016-02 “Leases” (Accounting Standards Codification (“ASC”) Topic 842), including the amendments thereto, using a modified retrospective transition method of adoption that required no prior period adjustments or charges to retained earnings for cumulative impact. From a lessee standpoint, on December 13, 2019 the Company purchased the only material item for $280,000, which had been previously leased, a section of 10” gas main. Prior to purchase, the Company paid a nominal fee annually for the use of this 10“ gas main. The Company did not change how this lease was accounted for prior to purchase. From a lessor standpoint, the only material lease is the lease of space in the Company’s headquarters to a local appliance company. This lease is an operating lease for which the Company receives less than $50,000 annually. The accounting for the lease did not change upon adoption of the new standard and there was no significant impact on these consolidated financial statements as a result of adoption of the new standard.

On October 1, 2018 we adopted ASU 2016-01 “Financial Instruments—Recognition and Measurement of Financial Assets and Financial Liabilities” resulting in a reclassification of net after-tax unrealized gains on equity securities of $100,131 as of October 1, 2018 from accumulated other comprehensive income (loss) to retained earnings. We continue to carry our investments in equity securities at fair value and there is no change to the asset values or total stockholders’ equity that we would have otherwise recorded. Beginning in fiscal 2019, we are including unrealized gains and losses arising from the changes in the fair values of our equity securities as a component of investment income in the Consolidated Statements of Income.

New Accounting Pronouncements Not Yet Adopted

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 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, 2019. The Company is currently evaluating the impact of the guidance on our consolidated financial statements and related disclosures.

COVID-19

In light of the current COVID-19 crisis, government mandates have resulted in the shut-down of a significant number of businesses in the Company’s service territories and many individuals are currently unemployed. The economic slow down is having a negative effect on sales and margins. In addition, the financial strains on businesses and individuals could have an impact on their ability to pay their bills, which could lead to a significant increase in uncollectible expense for customer receivables. This bad debt issue will be compounded by regulatory restrictions on shutting off non-paying customers and an inability to charge late payment fees. While the combination of the current low cost of natural gas service and the steps taken by the federal government to alleviate the financial burden on companies and individuals should act as an offset to the overall economic situation, the Company is anticipating that there will be some level of increase in uncollectible expense depending on the extent and duration of the pandemic crisis. Bad debt expense attributable to the COVID-19 crisis has not had a material impact on the Company through the quarter ended June 30, 2020. For the quarter ended June 30, 2020 operation and maintenance expenses have increased by $93,000 and capital expenditures have increased by $35,000 due the COVID-19 pandemic. The increase in O&M results from purchase of incremental sanitation supplies and payroll charged to expense during the “stay at home” period mandated by New York and Pennsylvania. The capital expenditures are primarily computer purchases to enable employees to work from home.

Note 2 – Revenue From Contracts With Customers

The following tables present, for the three and nine months ended June 30, 2020 and 2019, revenue from contracts with customers as defined in ASC 606 (Revenue From Contracts With Customers), as well as additional revenue from sources other than contracts with customers, disaggregated by major source.

	For the three months ended June 30, 2020

		Revenues from contracts with customers	Other revenues (a)		Total utility operating revenues
Corning Gas:
Residential gas		$3,533,175	($189,420	)	$3,343,755
Commercial gas		369,957	—		369,957
Transportation		937,403	102,086		1,039,489
Street lights gas		94	—		94
Wholesale		339,688	—		339,688
Local production		170,495	—		170,495
Total Corning Gas		$5,350,812	($87,334	)	$5,263,478

Pike:
Residential gas		$219,939	($351	)	$219,588
Commercial gas		57,230	—		57,230
Total Pike retail gas		277,169	(351	)	276,818

Residential electric		746,204	(8,335	)	737,869
Commercial electric		680,267	—		680,267
Electric – street lights		30,320	—		30,320
Total Pike retail electric		1,456,791	(8,335	)	1,448,456

Total Pike		$1,733,960	($8,686	)	$1,725,274

Total consolidated utility operating revenue		$7,084,772	($96,020	)	$6,988,752

(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 10.

	For the nine months ended June 30, 2020

		Revenues from contracts with customers	Other revenues (a)		Total utility operating revenues
Corning Gas:
Residential gas		$13,280,227	($5,502	)	$13,274,725
Commercial gas		1,922,877	—		1,922,877
Transportation		3,679,551	92,661		3,772,212
Street lights gas		301	—		301
Wholesale		1,506,837	—		1,506,837
Local production		533,743	—		533,743
Total Corning Gas		$20,923,536	$87,159		$21,010,695

Pike:
Residential gas		$1,047,829	$1,290		$1,049,119
Commercial gas		262,041	—		262,041
Total Pike retail gas		1,309,870	1,290		1,311,160

Residential electric		2,364,886	88,940		2,453,826
Commercial electric		2,228,534	—		2,228,534
Electric – street lights		91,913	—		91,913
Total Pike retail electric		4,685,333	88,940		4,774,273

Total Pike		$5,995,203	$90,230		$6,085,433

Total consolidated utility operating revenue		$26,918,739	$177,389		$27,096,128

	For the three months ended June 30, 2019

		Revenues from contracts with customers	Other revenues (a)		Total utility operating revenues
Corning Gas:
Residential gas		$3,289,092	$3,432		$3,292,524
Commercial gas		481,535	(27,031	)	454,504
Transportation		945,835	—		945,835
Street lights gas		108	—		108
Wholesale		357,364	—		357,364
Local production		162,708	—		162,708
Total Corning Gas		$5,236,642	($23,599	)	$5,213,043

Pike:
Residential gas		$195,908	$6,121		$202,029
Commercial gas		60,461	—		60,461
Total Pike retail gas		256,369	6,121		262,490

Residential electric		603,535	(6,943	)	596,592
Commercial electric		841,150	—		841,150
Electric – street lights		29,833	—		29,833
Total Pike retail electric		1,474,518	(6,943	)	1,467,575

Total Pike		$1,730,887	($822	)	$1,730,065

Total consolidated utility operating revenue		$6,967,529	($24,421)		$6,943,108

	For the nine months ended June 30, 2019

		Revenues from contracts with customers	Other revenues (a)		Total utility operating revenues
Corning Gas:
Residential gas		$13,913,428	$156,987		$14,070,415
Commercial gas		2,228,169	(96,514	)	2,131,655
Transportation		3,587,388	—		3,587,388
Street lights gas		363	—		363
Wholesale		2,008,337	—		2,008,337
Local production		525,857	—		525,857
Total Corning Gas		$22,263,542	$60,473		$22,324,015

Pike:
Residential gas		$1,232,125	$15,511		$1,247,636
Commercial gas		305,873	—		305,873
Total Pike retail gas		1,537,998	15,511		1,553,509

Residential electric		2,984,694	58,398		3,043,092
Commercial electric		3,112,054	—		3,112,054
Electric – street lights		96,872	—		96,872
Total Pike retail electric		6,193,620	58,398		6,252,018

Total Pike		$7,731,618	$73,909		$7,805,527

Total consolidated utility operating revenue		$29,995,160	$134,382		$30,129,542

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 for residential and small commercial customers 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.

In addition to weather normalization, the Gas Company has implemented a revenue decoupling mechanism (RDM). The RDM reconciles actual delivery service revenues to allowed residential delivery service revenues (which are based on the annual customer revenue 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 on September 1 each year. Pike does not have a revenue decoupling mechanism as part of its rate structure.

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

Note 3 - Pension and Other Post-Retirement Benefit Plans

Components of Net Periodic Benefit Cost:

Pension Benefits
	Three Months Ended June 30,					Nine Months Ended June 30,
		2020		2019			2020		2019
Service Cost		$186,111		$116,453			$558,333		$349,360
Interest Cost		246,324		258,774			738,972		776,323
Expected return on plan assets		(325,249	)	(319,966	)		(975,748	)	(959,898	)
Amortization of net gain		224,321		212,665			672,965		637,996
Net periodic benefit cost		$331,507		$267,926			$994,522		$803,781

Other Benefits
	Three Months Ended June 30,				Nine Months Ended June 30,
		2020	2019			2020	2019
Service Cost		$4,633	$4,123			$13,900	$12,369
Interest Cost		9,255	11,939			27,766	35,817
Amortization of prior service cost		3,494	888			10,484	2,664
Amortization of net (gain) loss		654	(1,677	)		1,963	(5,032	)
Net periodic benefit cost		$18,036	$15,273			$54,113	$45,818

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 June 30, 2020 and $221,152 for the three months ended June 30, 2019. Pension expense for ratemaking and financial statement purposes was $656,049 for the nine months ended June 30, 2020 and $663,457 for the nine months ended June 30, 2019. 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 $1,225,004 and $792,492 at June 30, 2020 and June 30, 2019, 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 June 30, 2020 and $16,408 for the three months ended June 30, 2019. OPEB for ratemaking and financial statement purposes was $44,040 for the nine months ended June 30, 2020 and $42,614 for the nine months ended June 30, 2019. The difference between OPEB for ratemaking and financial statement purposes, and the amount computed above has been deferred as a regulatory asset.

Contributions

The Gas Company expects to contribute $952,404 to its Pension Plan during the year ending September 30, 2020. A total of $663,750 was paid to the Pension Plan during the nine months ending June 30, 2020 and $577,045 was paid to the Pension Plan during the nine months ended June 30, 2019.

Note 4 – Financing Activities

On June 27, 2019, the Gas Company entered into a $3.127 million multiple disbursement term note with Manufactures and Traders Trust Company Bank (“M&T”) which permitted draws from time to time for capital expenditures in accordance with its terms until October 31, 2019 at which time amounts outstanding under the note totaling $3.127 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, 2029. Before converting to a term loan, borrowings on the note had a variable interest rate of the one-month LIBOR rate plus 3%. After October 31, 2019, the interest rate was fixed at 3.51%.

On June 27, 2019, Pike entered into a $2.072 million multiple disbursement term note with M&T which permitted draws from time to time for capital expenditures in accordance with its terms until October 31, 2019 at which time amounts outstanding under the note totaling $2.072 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, 2029. Before converting to a term loan, borrowings on the note had a variable interest rate of the one-month LIBOR rate plus 3%. After October 31, 2019, the interest rate was fixed at 3.51%.

On May 6, 2020, Corning Gas received a $970,900 loan under the U.S. Small Business Administration’s Payroll Protection Program. All or a portion of this loan may be forgiven as part of the program. Payments on any amount not forgiven are expected to be deferred for six months, then paid back over an eighteen month amortization period. Interest accrues at 1.0%. The proceeds from this loan are restricted as to use and cannot be used to retire existing debt.

On April 28, 2020, Pike received a $137,200 loan under the U.S. Small Business Administration’s Payroll Protection Program. All or a portion of this loan may be forgiven as part of the program. Payments on any amount not forgiven are expected to be deferred for six months, then paid back over an eighteen month amortization period. Interest accrues at 1.0%. The proceeds from this loan are restricted as to use and cannot be used to retire existing debt.

We are in compliance with our financial covenant calculations as of June 30, 2020.

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 June 30, 2020 and September 30, 2019 are as follows:

Fair Value Measurements at Reporting Date

	Fair Value		Quoted Prices In Active Markets for Identical Assets/Liabilities (Level 1)		Level 2		Level 3
June 30, 2020
Available-for-sale securities		$2,111,120		$2,111,120		$—		$—
September 30, 2019
Available-for-sale securities		$2,184,170		$2,184,170		$—		$—

A summary of the marketable securities at June 30, 2020 and September 30, 2019 is as follows:

	Cost Basis		Unrealized Gain		Unrealized Loss		Market Value
June 30, 2020
Cash and equivalents		$60,922		$—		$—		$60,922
Metlife stock value		29,303		—		—		29,303
Government and agency bonds		144,039		9,278		—		153,317
Corporate bonds		158,249		4,708		—		162,957
Mutual funds		42,667		1,980		—		44,647
Holding Company Preferred A Stock		572,875		56,142		—		629,017
Equity securities		837,537		193,420		—		1,030,957
Total securities		$1,845,592		$265,528		$—		$2,111,120

September 30, 2019
Cash and equivalents		64,457		$—		$—		$64,457
Metlife stock value		39,810		—		—		39,810
Government and agency bonds		229,850		8,024		—		237,874
Corporate bonds		190,113		2,477		—		192,590
Mutual funds		22,359		486		—		22,845
Holding Company Preferred A Stock		572,875		41,247		—		614,122
Equity securities		866,600		145,872		—		1,012,472
Total securities		$1,986,064		$198,106		$—		$2,184,170

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

Investment Income
	Three Months Ended June 30,		Nine Months Ended June 30,
	2020	2019	2020	2019
Net realized gains and (losses) recognized during the period on investments	$13,208	$7,042	($9,344)	($2,378)

Unrealized gains on equity securities included in investment income for the three and nine months ended June 30, 2020 were $160,051 and $73,996, respectively. Unrealized gains on equity securities included in investment income for the three and nine months ended June 30, 2019 were $18,014 and $76,947, 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.

Note 6 – Stockholders’ Equity

For the three months ended June 30, 2020, there were a total of 6,870 shares of common stock issued for $89,190. For the three months ended June 30, 2019, there were a total of 5,569 shares of common stock issued for $95,866. For the nine months ended June 30, 2020 there were a total of 18,889 shares of common stock issued for $286,600. For the nine months ended June 30, 2019 there were a total of 19,200 shares of common stock issued for $318,852. The amounts issued were for the following:

	Three months ended June 30, 2020			Nine months ended June 30, 2020
		Shares	Amount		Shares	Amount
Dividend reinvestment program (DRIP)		3,570	$50,244		8,989	$151,011
Directors		3,150	36,619		9,450	127,469
Leatherstocking Gas Company		150	2,327		450	8,120
Officers		—	—		—	—
Total		6,870	$89,190		18,889	$286,600

	Three months ended June 30, 2019			Nine months ended June 30, 2019
		Shares	Amount		Shares	Amount
Dividend reinvestment program (DRIP)		2,269	$45,992		7,300	$133,423
Directors		3,150	46,589		9,450	138,651
Leatherstocking Gas Company		150	3,285		450	8,778
Officers		—	—		2,000	38,000
Total		5,569	$95,866		19,200	$318,852

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

For the three months ended September 30, 2019, dividends were paid on October 15, 2019 to stockholders of record on September 30, 2019 in the amount of $441,494, less DRIP shares valued at $53,503. For the three months ended December 31, 2019, dividends were paid on January 14, 2020 in the amount of $442,396 less DRIP shares valued at $47,264. For the three months ended March 31, 2020, dividends were paid on April 14, 2020 in the amount of $466,161 less DRIP shares valued at $50,244. For the quarter ended June 30, 2020, $467,210 was accrued for dividends paid on July 15, 2020 to stockholders of record on June 30, 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 and began October 14, 2016. For the three months ended September 30, 2019, dividends were paid on October 15, 2019 in the amount of $78,975. For the three months ended December 31, 2019, $78,975 was paid on January 15, 2020. For the three months ended March 31, 2020, $78,975 was paid on April 14, 2020. For the three months ended June 30, 2020, $78,975 was paid on July 15, 2020. Dividends on the Series A Cumulative Preferred Stock are reported as interest expense.

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, 2019 there was $61,065 accrued for Series B dividends paid on October 15, 2019. For the three months ended December 31, 2019, $61,066 was accrued for dividends paid on January 15, 2020. For the three months ended March 31, 2020, $61,066 was accrued for dividends paid on April 14, 2020. For the three months ended June 30, 2020, $61,065 was accrued for dividends paid on July 15, 2020. See Note 9 for additional information on the preferred stock, including its mandatory redemption provisions.

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 and began July 15, 2020. For the three months ended June 30, 2020, $74,250 was paid on July 15, 2020. Dividends on the Series C Cumulative Preferred Stock are reported as interest expense.

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.

293,116 shares of common stock issuable upon conversion of Series B Convertible Preferred Stock were excluded from the calculation of diluted earnings per share for the three months ended June 30, 2020 and 2019 because their inclusion would have been anti-dilutive.

Note 7 – Investment in Joint Ventures

The Holding Company has an interest in Leatherstocking Gas and Leatherstocking Pipeline (the Joint Ventures), each of which is a joint venture with Mirabito Regulated Industries, LLC, accounted for by the equity method.

The following table represents the Holding Company’s investment activity in the Joint Ventures for the nine months ended June 30, 2020 and 2019:

	2020		2019
Beginning balance in investment in joint ventures	$2,597,919		$2,740,575
Loss from joint ventures	(50,442	)	(15,324	)
Ending balance in joint ventures	$2,547,477		$2,725,251

As of and for the nine months ended June 30, 2020 and 2019, the Joint Ventures financial summary is as follows:

	2020	2019
Total assets	$12,066,000	$13,000,000
Total liabilities	$6,971,000	$7,600,000
Net loss	$101,000	$31,000

On July 1, 2020 the Company completed the purchase of the interest in the 50% of Leatherstocking’s Pennsylvania assets the Company did not previously own, resulting the in Company owning 100% of Leatherstocking’s Pennsylvania assets. A new joint venture with Mirabito Regulated Industries, LLC owns Leatherstocking’s New York assets. The Company and Mirabito Regulated Industries, LLC each own 50% of this new joint venture. See Note 12 – Subsequent Events.

Note 8 – Income Taxes

Income tax (benefit) expense for the periods ended June 30 are as follows:
	Three Months Ended		Three Months Ended	Nine Months Ended	Nine Months Ended
	June 30, 2020		June 30, 2019	June 30, 2020	June 30, 2019
Current	$—		$—	$—	$—
Deferred	(7,645	)	58,875	1,158,045	1,326,628
Total	($7,645	)	$58,875	$1,158,045	$1,326,628

Actual income tax (benefit) expense differs from the expected tax expense (computed by applying the federal corporate tax rate of 21% before income tax expense) as follows:

	Three Months Ended		Three Months Ended	Nine Months Ended		Nine Months Ended
	June 30, 2020		June 30, 2019	June 30, 2020		June 30, 2019
Expected federal tax expense	$115,491		$20,423	$1,023,709		$1,000,257
State tax expense (net of federal)	26,528		2,480	253,415		263,120
Federal income sur credit amortization	11,761		11,761	46,016		46,046
AMT credit refund	(272,079	)	—	(272,079	)	—
Tax accrual true up	88,027		—	88,027		(11,405	)
Other, net	22,627		24,211	18,957		28,610
Actual tax (benefit) expense	($7,645	)	$58,875	$1,158,045		$1,326,628

On December 22, 2017, the Federal Tax Cuts and Jobs Act (“Tax Act”) was signed into law. The Tax Act makes significant changes to the federal tax structure, which will impact the tax liabilities of utility companies. On August 9, 2018 the NYSPSC issued an order in Case 17-M-0815 that required the Company to return to customers the difference between the federal income tax allowance in base rates and the new statutory rate of 21%. The refund to customers began on October 1, 2018. Impacted customers experienced a decrease of 5.20% on their overall bill in the year starting October 1, 2018 and experienced a decrease of 7.83% in the year starting October 1, 2019. The amounts returned to customers were $1,317,719 during the year ended September 30, 2019 and will be $2,112,540 during the year ending September 30, 2020. These refunds will not impact the Company’s earnings. The impact of the change in the Tax Act on deferred regulatory balances will be deferred until the Company’s next base rate case. The Company has recorded those amounts as Regulatory Liabilities on the accompanying consolidated balance sheets.

The PAPUC issued an order in Case M-2018-2641242 that requires the Company to return to customers the difference between the federal income tax allowance in base rates and the new statutory rate of 21%. Pike’s electric customers began receiving a total refund of $73,923 or decrease of 0.67% on their overall bill beginning October 1, 2018. This refund is subject to reconciliation and will remain in effect until Pike’s next base rate case. No refunds were ordered for Pike’s gas operation because amounts were not material. The impact of the change in the Tax Act on deferred regulatory balances will be deferred until the Company’s next base rate case. The Company has recorded those amounts as Regulatory Liabilities on the accompanying consolidated balance sheets.

In June of 2020, the Company filed its 2019 Consolidated Federal Income Tax return, and it utilized $272,079 of alternative minimum tax (AMT) credits. The Company recorded as an expense the AMT in the years it was paid. Accordingly, the Company recorded its anticipated tax refund as income in the quarter.

Note 9 – Preferred Stock

Effective March 27, 2020, the Holding Company issued 180,000 shares of newly authorized 6% Series C Cumulative Preferred Stock at $25.00 per share, for gross proceeds of $4,500,000. 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 starting July 14, 2020. The dates of record for the dividends, if any, will be March 31, June 30, September 30 and December 31, immediately preceding the relevant dividend payment date. On September 30, 2026, outstanding shares of Series C Cumulative Preferred Stock will mature and be redeemed solely in cash at a redemption price equal to the liquidation preference per share plus an amount equal to all accrued but unpaid dividends subject to our having funds legally available for redemption under New York law. In the event of a fundamental change as defined on the Certificate of Amendment to the Certificate of Incorporation, holders of Series C Cumulative Preferred Stock have the right to redeem their shares at a redemption price equal to the liquidation preference per share plus an amount equal to all accrued but unpaid dividends prior to the effective date of the fundamental change subject to our having funds legally available for such redemption under New York law. A fundamental change is generally defined as a change of control of the Holding Company. The holders of Series C Cumulative Preferred Stock will have no voting rights except as specifically required by New York laws or by the Charter, as amended by the Certificate of Amendment, which allows voting rights under specific circumstances. The proceeds of this issuance will be used to buy Leatherstocking’s Pennsylvania assets not owned by the Company and finance capital improvement projects at Pike and Corning.

The Series C Cumulative Preferred Stock will, with respect to both dividend rights and rights upon liquidation, winding-up or dissolution of the Corporation, rank: (i) senior to all classes or series of the Corporation’s Common Stock; (ii) senior to any other class or series of the Corporation’s capital stock issued in the future, unless the terms of that capital stock expressly provide that it ranks senior to, or on parity with, the Series C Cumulative Preferred Stock; (iii) on parity with any class or series of the Corporation’s capital stock, the terms of which expressly provide that it will rank on parity with the Series C Cumulative Preferred Stock, including without limitation, the Series A Cumulative Preferred Stock and the Series B Convertible Preferred Stock; and (iv) junior to any other class of series of the Corporation’s capital stock, the terms of which expressly provide that it will rank senior to the Series C Cumulative Preferred Stock, none of which exists on the date hereof, and the issue of which would be subject to the approval of a majority of the outstanding shares of Preferred Stock voting as a class; and (v) subject to funds legally available and payment of or provision for the Corporation’s debts and other liabilities.

In accordance with ASC 480 (Distinguishing Liabilities from Equity), because of the mandatory redemption feature, Series C Cumulative Preferred Stock is treated as debt. The issuance costs are treated as debt issuance costs and will be amortized over the life of the instrument. The debt issuance costs reduce the carrying value of the liability. The amortization of the Series C Preferred Stock debt issuance costs was $20 for the three and nine month periods ended June 30, 2020. The amortization of the Series C Preferred Stock debt issuance costs was $0 for the three and nine month periods ended June 30, 2019. Dividends are recorded as interest expense. The dividends for the three and nine month periods ended June 30, 2020 were $74,250. The dividends for the three and nine month periods ended June 30, 2019 were $0.

Series A 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 14^th day of April, July, October and January of each year. The dates of record for the dividends, are March 31, June 30, September 30 and December 31, immediately preceding the relevant dividend payment date. On September 30, 2023, outstanding shares of Series A Preferred Stock will mature and be redeemed solely in cash at a redemption price equal to the liquidation preference per share plus an amount equal to all accrued but unpaid dividends subject to our having funds legally available for redemption under New York law. The dividends for each of the three month periods ended June 30, 2020 and 2019 were $78,975. The dividends for each of the nine month periods ended June 30, 2020 and 2019 were $236,925. Dividends on Series A Preferred Stock are recorded as interest expense.

In accordance with ASC 480, because of the mandatory redemption feature Series A Preferred Stock is treated as debt. The issuance costs are treated as debt issuance costs and will be amortized over the life of the instrument. The debt issuance costs reduce the carrying value of the liability. The amortization of the Series A Preferred Stock debt issuance costs was $5,183 for each of the three month periods ended June 30, 2020 and 2019. The amortization of the Series A Preferred Stock debt issuance costs was $15,548 for each of the nine month periods ended June 30, 2020 and 2019.

On July 1, 2020, 50,000 shares of the Company’s Series A Preferred Stock were issued as part of the consideration for the purchase of the interest in the 50% of Leatherstocking’s Pennsylvania assets the Company did not previously own. See Note 12 – Subsequent Events.

Series B 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. The dates of record for the dividends, if any, will be March 31, June 30, September 30 and December 31, immediately preceding the relevant dividend payment date.

Although by its terms the Series B Preferred Stock is mandatorily redeemable on September 30, 2026, in accordance with ASC 480 it is not considered mandatorily redeemable for accounting purposes as a result of the conversion feature presenting a contingency related to the redemption dates. Accordingly, this is not considered a liability. However, as a result of the decision related to conversion and not reaching redemption resting with the holder, this instrument has been classified as temporary equity in accordance with ASC 480. Upon conversion, the instrument would be reclassified as permanent equity. Dividends were $183,197 for each of the three month periods ended June 30, 2020 and 2019. Dividends were $61,065 for each of the three month periods ended June 30, 2020 and 2019. The issuance costs of approximately $120,000 reduced the initial proceeds and will be accreted until redemption or conversion. During each of the three month periods ended June 30, 2020 and 2019 there was accretion of $3,762. During each of the nine month periods ended June 30, 2020 and 2019 there was accretion of $11,285.

Note 10 – Regulatory Matters

On February 27, 2020, Corning Natural Gas Corporation (the “Gas Company”), a regulated utility subsidiary of Corning Natural Gas Holding Corporation (the “Holding Company”), filed with the NYSPSC 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 total bills by 23.4%, 2.56% and 2.01%, respectively. The base period (i.e., test year) for this filing is the 12 months 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 total bills by 10.93% per year. We are requesting a levelized approach.

The filing with the NYSPSC reflects a return on equity of 10.20% 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 two most important reasons for the increase are: first, NYSPSC-mandated initiatives, including investment in replacing older distribution pipe, and new safety, training and cyber security requirements; and second, the Gas Company is proposing shorter depreciation lives for its pipeline infrastructure to reflect new decarbonization legislation. These two cost items comprise approximately 50% of the rate increase request. The balance of the request is to recover increases in health insurance, wages and other inflationary costs.

On June 26, 2020 the Department of Public Service Staff (“Staff”) filed its direct testimony in the rate case. The Staff recommended a one year revenue requirement of $517,063 compared to the Company’s request of $6,223,603. The primary difference between the Staff and Company revenue requirements is the Staff’s equity return recommendation of 8.45% compared to 10.20%, disallowance of the Company’s request for shorter depreciation lives, differences in health insurance escalators, extension of the recovery period of regulatory costs from 3 years to 5 years and disallowance of leak repair amortization. The Company does not agree with the Staff’s proposals. The Company expects to enter into settlement negotiations with the Staff in the fourth quarter of fiscal 2020.

By statute, the NYSPSC may take up to 11 months to rule on the filing. Accordingly, the Gas Company does not anticipate that new rates will be effective before February 1, 2021. The NYSPSC may adopt rates for a multi-year period, as proposed in the filing, or for a shorter period, such as a single year.

The Joint Proposal (“JP”) in Case 16-G-0369 included the normalization of the revenue requirement over a three year period. The normalization procedure allowed recovery of the rate increase granted by the Commission equally over the three rate years. The twelve months ended May 31, 2020 (Rate Year 3) delivery base rates if left unchanged would permit the Company to recover revenues in excess of the amount granted by the Commission. Accordingly, the JP provided that if the Company did not file for new rates to become effective at the end of Rate Year 3, it would reduce rates to take effect on June 1, 2020 to eliminate the amount of over-recovery created by normalization. The Company has made the tariff compliance filing with the NYSPSC Commission to reduce rates on June 1, 2020. The Company estimates that delivery rates will be reduced by approximately $481,000 net of tax until new rate become effective on February 1, 2021.

Total Regulatory Assets on the accompanying Consolidated Balance Sheets at June 30, 2020 amount to $13,456,030 compared to $12,681,496 at September 30, 2019. The Regulatory Assets include $1,471,957 at June 30, 2020 and $1,544,347 at September 30, 2019 that is subject to Deferred Accounting Petitions with the NYPSC and PAPUC. The PAPUC commission approved the storm cost petition in docket number P-2018-3001395 on June 14, 2018. The Company was permitted to defer the cost for storm Riley for subsequent recovery in the Pike’s next base rate case. 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.

The Gas Company, in accordance with the rate order in Case 16-G-0369, was required to make capital expenditures to reach a net plant target of $50,427,717, $53,930,803 and $56,959,911 at May 31, 2018, 2019 and 2020 respectively. The annual net plant target is developed by taking the forecast Rate Year average of the monthly averages of: (1) plant in service, (2) construction work in process, (3) deferred taxes associated with tax depreciation, accelerated recovery of plant and contributions in aid of construction (“CIAC”), and (4) depreciation reserve including accelerated recovery of plant. If the actual net plant in service falls short of the target net plant in service for a particular Rate Year, Corning Gas will defer carrying costs for customers’ benefit equal to the shortfall multiplied by the authorized pre-tax rate of return, as well as depreciation expense associated with the shortfall. If the actual net plant in service exceeds the target net plant in service for a particular Rate Year, no adjustment (i.e., no surcharge to customers) will be made. The determination of any shortfall or excess will be made on a cumulative basis at the end of the three year period. For the period ended May 31, 2018, the Company exceeded the target by $318,396. For the period ended May 31, 2019, the Company exceeded the target by $269,090. The Company, at this time, believes that it will meet the 2020 target.

Pike’s current rates for electric and gas services have been in effect since 2014. The Company expects to file new Pike rate cases for both electric and gas services by the end of fiscal 2020.

Note 11 – 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 provides gas utility service in northeastern Pennsylvania. See Note 12 – Subsequent Events for details on the Company’s purchase of its previously unowned interests in Leatherstocking’s Pennsylvania assets.

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 for the three months and nine months ended June 30, 2020 and 2019.

As of and for the three months ended June 30, 2020

	Gas Company		Pike			Holding Company			Total Consolidated
Total electric utility revenue		$0		$1,448,456			$0			$1,448,456
Total gas utility revenue		$5,263,478		$276,818			$0			$5,540,296
Investment income		$173,752		$0			($8,622	)		$165,130
Equity earnings from joint ventures		$0		$0			($53,912	)		($53,912	)
Net income (loss)		$542,944		($50,740	)		$65,401			$557,605
Income tax expense (benefit)		$293,408		($13,023	)		($288,030	)		($7,645	)
Interest expense		$326,616		$162,552			$136,113			$625,281
Depreciation expense		$466,658		$181,074			$915			$648,647
Amortization expense		$68,190		$97,431			$11,965			$177,586
Total assets		$92,719,009		$28,938,796			$3,339,499			$124,997,304
Capital expenditures		$1,231,859		$551,212			$0			$1,783,071

As of and for the three months ended June 30, 2019

	Gas Company		Pike			Holding Company			Total Consolidated
Total electric utility revenue		$0		$1,467,575			$0			$1,467,575
Total gas utility revenue		$5,213,043		$262,490			$0			$5,475,533
Investment income		$34,454		$0			$0			$34,454
Equity earnings from joint ventures		$0		$0			($56,877	)		($56,877	)
Net income (loss)		$254,705		($96,466	)		($119,859	)		$38,380
Income tax expense (benefit)		$67,402		$2,844			($11,371	)		$58,875
Interest expense		$323,052		$157,264			$78,976			$559,292
Depreciation expense		$460,400		$164,759			$915			$626,074
Amortization expense		$125,864		$111,457			$16,174			$253,495
Total assets		$83,042,452		$26,851,360			$3,216,038			$113,109,850
Capital expenditures		$879,754		$580,981			$0			$1,460,735

As of and for the nine months ended June 30, 2020

	Gas Company		Pike		Holding Company			Total Consolidated
Total electric utility revenue		$0		$4,774,273		$0			$4,774,273
Total gas utility revenue		$21,010,695		$1,311,160		$0			$22,321,855
Investment income		$96,290		$0		$114			$96,404
Loss from joint ventures		$0		$0		($50,442	)		($50,442	)
Net income (loss)		$3,725,463		$65,949		($74,650	)		$3,716,762
Income tax expense		$1,387,459		$49,220		($278,634	)		$1,158,045
Interest expense		$1,018,235		$508,082		$317,951			$1,844,268
Depreciation expense		$1,402,213		$543,222		$2,745			$1,948,180
Amortization expense		$221,629		$303,767		$35,853			$561,249
Total assets		$92,719,009		$28,938,796		$3,339,499			$124,997,304
Capital expenditures		$4,329,908		$1,610,654		$0			$5,940,562

As of and for the nine months ended June 30, 2019

	Gas Company		Pike		Holding Company			Total Consolidated
Total electric utility revenue		$0		$6,252,018		$0			$6,252,018
Total gas utility revenue		$22,324,015		$1,553,509		$0			$23,877,524
Investment income		$94,352		$0		$0			$94,352
Loss from joint ventures		$0		$0		($15,324	)		($15,324	)
Net income (loss)		$3,196,579		$491,894		($251,971	)		$3,436,502
Income tax expense (benefit)		$1,124,665		$198,083		$3,880			$1,326,628
Interest expense		$1,048,523		$476,377		$251,591			$1,776,491
Depreciation expense		$1,369,717		$494,266		$2,745			$1,866,728
Amortization expense		$230,322		$282,830		$34,986			$548,138
Total assets		$83,042,452		$26,851,360		$3,216,038			$113,109,850
Capital expenditures		$2,939,110		$1,508,091		$0			$4,447,201

Note 12 – Subsequent Events

On July 1, 2020, the Company completed the acquisition of its partner’s 50% interests in Leatherstocking Gas Company, LLC, and Leatherstocking Pipeline Company, LLC (“The Leatherstocking Companies”). The purchase price of $6.69 million was paid in preferred stock of the Holding Company ($1.250 million), cash ($1.950 million), and assumption of debt and other liabilities ($3.49 million). The acquisition will result in the recording of goodwill in the amount of $0.918 million. Immediately before the acquisition, on July 1, 2020, Leatherstocking Gas Company, LLC distributed to its members franchises, engineering and gas pipeline assets located in New York having a book value of $0.532 million. These assets were then contributed to the equity of Leatherstocking Gas Company of New York, Inc. The Company owns 50% of the common shares of the newly formed Leatherstocking Gas Company of New York, Inc. and will account for this investment using the equity method of accounting.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 the U.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 ended September 30, 2019, in addition to:

*	the effect of any 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 any action by the NYPSC, with respect to Corning Gas or PAPUC, with respect to Pike and our joint venture interest in Leatherstocking Gas,
*	the effect of any 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 produced and directed through our pipeline by producers,
*	our ability to obtain additional equity or debt financing to fund our capital expenditure plans and for general corporate purposes,
*	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, including as a result of the impact of the COVID-19 pandemic,
*	the effect of any leaks in our transportation and delivery pipelines,
*	competition to our gas transportation business from other pipelines,
*	the effects of state and federal climate legislation and regulations (existing and prospective) on our gas and electric businesses, and
*	the impact of possible cyber or malware attacks on company operations

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.

Overview

The States of New York and Pennsylvania, in response to COVID-19 pandemic, have imposed restrictions on social activities, closed schools and placed operating restrictions on commercial operations in our franchise areas beginning in March of 2020. Many businesses remain closed or have limited services or product offerings. As a result, numerous residential customers are unemployed. The timing of a return to pre-pandemic conditions remains uncertain.

The Company has already experienced loss of gas and electric load and believes that it will experience lower revenues primarily from the commercial customers on a go forward basis. In addition, with higher levels of unemployment, cash receipts will likely decrease and arrears and uncollectible accounts increase. The Company has enacted plans to ensure safe and reliable operation of the gas and electric system, safe work environment for its employees and to maintain a high level of customer service. It has taken steps to delay capital expenditures and operating expenses and has petitioned the NYSPSC for waivers from some mandated regulatory goals as appropriate.

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 nine months of fiscal 2020 the Gas Company repaired 147 leaks, replaced 119 bare steel services and replaced or remediated 5.11 miles of older steel main. In fiscal 2019 the Gas Company repaired 187 leaks and replaced or remediated 9.5 miles of bare steel main and 282 bare steel services. In the first nine months of fiscal 2020 Pike replaced approximately 133 poles. In fiscal 2019 Pike replaced approximately 116 poles and did extensive tree trimming to maintain our electric infrastructure. On January 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 on June 13, 2019.

We believe our key performance indicators are net income, stockholders’ equity and the safety and reliability of our systems. Net income increased by $519,225 for the three months and $280,260 for the nine months ended June 30, 2020 compared to the three months and nine months ended June 30, 2019. Because the Holding Company’s principal operations are conducted through Corning Gas and Pike, both regulated utility companies, stockholders’ equity is an important performance indicator. The NYPSC and PAPUC allow Corning Gas, Pike and Leatherstocking 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 of June 30, 2020, compared to June 30, 2019, stockholders’ equity increased from $35,110,771 to $36,866,581. 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. Key performance indicators:

	Three Months Ended June 30,			Nine Months Ended June 30,
		2020	2019		2020	2019
Net income		$557,605	$38,380		$3,716,762	$3,436,502
Stockholders' equity		$36,866,581	$35,110,771		$36,866,581	$35,110,771
Stockholders' equity per outstanding common share		$12.02	$11.55		$12.02	$11.55

Revenue and Margin

Gross margin increased $535,831 for the three months and $615,849 for the nine months ended June 30, 2020 compared to the same periods last year. The margin for the three and nine months ended June 30, 2020 was positively impacted by the rate increase at Corning Gas. The margin increase for the nine months ended June 30, 2020 was negatively impacted by regulatory reconciliations and a warmer than normal winter, which partly offset the rate increase at Corning Gas.

Retail electric revenue decreased by $17,727 for the three months and $1,508,287 for the nine months ended June 30, 2020 compared to the same periods last year. The three month decrease primarily resulted from lower purchased power costs (a pass through to customers) of $158,189 partially offset by an increase in sales over the prior year. The nine month decrease was caused by lower purchased power costs (a pass through to customers) of $1,465,554 and a decrease in sales related to weather and the COVID-19 pandemic.

In addition, gross receipts tax billed in revenues decreased by approximately $1,690 for the three months ended June 30, 2020 and decreased $124,220 for the nine months ended June 30, 2020 compared to the same periods last year. A corresponding decrease for the three and nine month periods occurred in tax expense.

Other electric revenues decreased $1,392 for the three months and increased $30,542 for the nine months ended June 30, 2020 compared to the same periods last year. The drivers for the three month period were primarily an increase in third party billing of $12,281 offset by a decrease in customer discounts forfeited of $13,188. The drivers for the nine month period were primarily an increase in third party billing of $86,987 and decrease in customer discounts forfeited of $54,547.

Retail gas revenue increased $127,181 for the three months and decreased $1,576,021 for the nine months ended June 30, 2020 compared to the same periods last year. The three month increase results from lower gas costs (a pass through to customers) of $446,397 due to lower commodity gas prices, and an increase sales revenues of $573,578 due primarily to the rate increase at the Gas Company. The nine month decrease results from lower gas costs (a pass through to customers) of $2,721,402 due to lower commodity gas prices, and warmer weather than 2019. This was partially offset by an increase in sale related revenue of approximately $1,145,381 due primarily to the rate increase at the Gas Company.

Actual degree days compared to expected norms for the three and nine month periods ended June 30, 2020 and 2019 were as follows:

	Three Months Ended June 30,					Nine Months Ended June 30,
		2020		2019			2020	2019
Normal		987		992			6,886	6,856
Actual		1,226		999			6,862	7,138
Warmer/ (Colder) than normal		(239	)	(7	)		24	(282	)

Other gas revenues decreased $62,418 for the three months and increased $20,352 for the nine months ended June 30, 2020 compared to the same periods last year. The driver for the three month period was primarily a decrease in Revenue Decoupling Mechanism (RDM) amortizations of $88,657 and a decrease in customer discounts forfeited of $50,777, offset by an increase in reconciliation amounts related to the 2017 Jobs Act of $71,167. The drivers for the nine month period were primarily an increase in reconciliation amounts related to the 2017 Jobs Act of $155,815, offset by decreases in customer discounts forfeited of $55,160 and RDM amortizations of $58,247.

The following table summarizes our utility operating revenue:

	Three months ended June 30,					Nine months ended June 30,
		2020		2019			2020		2019
Retail electric revenue:
Residential		$746,204		$603,535			$2,364,886		$2,984,694
Commercial		680,267		841,150			2,228,534		3,112,054
Street lights		30,320		29,833			91,913		96,872
Total retail electric revenue		$1,456,791		$1,474,518			$4,685,333		$6,193,620

Other electric revenue:
Customer discounts forfeited		($240	)	$12,948			$2,761		$57,308
Third party billings		3,511		(8,770	)		104,710		17,723
Other		(11,606	)	(11,121	)		(18,531	)	(16,633	)
Total other electric revenue		($8,335	)	($6,943	)		$88,940		58,398

Total electric revenue		$1,448,456		$1,467,575			$4,774,273		$6,252,018

Retail gas revenue:
Residential		$3,753,207		$3,485,108			$14,328,356		$15,145,916
Commercial		427,187		541,997			2,184,918		2,534,042
Transportation		937,403		945,835			3,679,551		3,587,388
Wholesale		339,688		357,364			1,506,837		2,008,337
Total retail gas revenue		$5,457,485		$5,330,304			$21,699,662		$23,275,683

Other gas revenue:
Local production		$170,495		$162,708			$533,743		$525,857
Customer discounts forfeited		(246	)	50,531			39,731		94,891
Reconnect fees		22		1,810			1,374		2,929
Surcharges		173		1,681			1,226		2,271
Other (see detail below)		(87,633	)	(71,501	)		46,119		(24,107	)
Total other gas revenue		$82,811		$145,229			$622,193		601,841

Total gas revenue		5,540,296		5,475,533			22,321,855		23,877,524

Total revenue		$6,988,752		6,943,108			$27,096,128		30,129,542

The following table details amounts making up the Other line in the schedule of Other gas revenue above:

	Three months ended June 30,					Nine months ended June 30,
		2020		2019			2020		2019
Other gas revenues:
Delivery Rate Adjustment (DRA) carrying costs		$829		$1,348			$4,617		$5,410
Contract customer reconciliation		21,275		(27,031	)		(113,780	)	(96,514	)
Monthly RDM amortizations		(250,641	)	(161,984	)		(483,712	)	(425,465	)
Local production revenues		17,377		23,290			37,200		43,320
2017 Jobs Act federal income tax reconciliation		89,039		17,872			540,789		384,974
Regulatory liability reserve		—		(50,000	)		—		(50,000	)
Customer performance incentive		32,000		32,000			32,000		32,000
Leak backlog performance incentive		—		—			—		(24,147	)
Capacity release revenues		7,190		27,804			33,249		27,804
All other		(4,702	)	65,200			(4,244	)	78,511
Total other gas revenues		($87,633	)	($71,501	)		$46,119		($24,107	)

Gas purchases are our largest expenses. Purchased gas expense decreased $327,548 for the three months and $2,272,672 for the nine months ended June 30, 2020 compared to the same periods last year. The decrease in costs for the three months ended June 30, 2020 is due primarily to a lower purchase price for natural gas. The decrease in costs for the nine months ended June 30, 2020 is due primarily to a lower purchase price for natural gas of $2,466,672. The costs were also impacted by the previously mentioned regulatory reconciliation of $194,000 which is not recoverable. The regulatory reconciliation was not billed to customers thereby impacting margin by $194,000.

Electricity costs decreased by $162,639 for the three months and $1,376,591 for the nine months ended June 30, 2020 compared to the same periods last year. The decrease in costs is due primarily to lower cost of purchased electricity.

	Three Months Ended June 30,			Nine Months Ended June 30,
		2020	2019		2020	2019
Utility Gas Revenues		$5,540,296	$5,475,533		$22,321,855	$23,877,524
Natural Gas Purchased		939,406	1,266,954		5,226,582	7,499,254
Margin		$4,600,890	$4,208,579		$17,095,273	$16,378,270
Margin %		83.04%	76.86%		76.59%	68.59%

Utility Electric Revenues		$1,448,456	$1,467,575		$4,774,273	$6,252,018
Electricity Purchased		264,220	426,859		926,888	2,303,479
Margin		$1,184,236	$1,040,716		$3,847,385	$3,948,539
Margin %		81.76%	70.91%		80.59%	63.16%

Operating and Interest Expenses

Operating and maintenance expense increased by $97,652 for the three months and $265,167 for the nine months ended June 30, 2020 compared to the same periods last year. The increase for the three months primarily results from COVID related expenses of $93,000. The increase for the nine months primarily results from an accelerated leak repair effort at Corning Gas ($90,000), the timing of underground inspections at Pike ($70,000), and COVID related impacts ($93,000).

Taxes other than income taxes increased by $36,475 for the three months and decreased by $8,389 for the nine months ended June 30, 2020 compared to the same periods last year. The increase for the three months primarily results from an increase in property taxes of $39,986. The decrease for the nine months primarily results from a $121,290 decrease in gross receipt taxes, increase payroll taxes capitalized of $26,626 offset by an increase in property taxes of $141,285.

Depreciation expense increased by $22,573 for the three months and by $81,452 for the nine months ended June 30, 2020 compared to the same periods last year. The increases result from additional utility plant placed in service.

Interest expense increased by $65,989 for the three months and by $67,777 for the nine months ended June 30, 2020 compared to the same periods last year. The increases were due to higher levels of debt being offset by lower interest rates.

Net Income

As a result of the foregoing, net income increased by $519,225 for the three months and increased by $280,260 for the nine months ended June 30, 2020 compared to the same periods last year. The increase for the three months was mainly due to higher margins, a $130,676 increase in investment income and a $66,520 decrease in deferred income tax expense, offset by increased operating expenses as described above. The increase for the nine months was mainly due to higher margins and a $168,583 decrease in deferred income tax expense, offset by increased operating expenses as described above.

Liquidity and Capital Resources

The Holding Company does not have any borrowings (excluding Series A and Series C Preferred Stock that is classified as debt) 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 the Leatherstocking Joint Ventures to permit those companies to make the capital expenditures required to provide services to their customers and for dividend payments to the Holding Company’s stockholders.

Under the orders of the NYPSC, the Gas Company’s cost of capital is based on an equity-to-debt ratio of 48%/52%. If additional equity (beyond retained earnings) is required for the Gas Company to maintain that ratio when issuing new debt, the Holding Company, as the sole stockholder of the Gas Company, is the only source of such equity. The Gas Company and Pike generally rely on internally generated cash and incremental debt to finance capital expenditures.

The Gas Company’s and Pike’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 and/or electric 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 and Pike’s cash flow is seasonal. At Corning 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. At Pike 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 the Gas Company.

On April 13, 2016, the Gas Company filed a petition in Case 16-G-0204 with the NYPSC, to defer leak repair and survey costs over and above the amounts permitted to be recovered in rates for 2015. See “Corning Gas Company” under “Regulatory Matters” herein for additional information. We expect this petition to be addressed in Case 20-G-0101.

Capital expenditures are the principal use of internally generated cash flow. To fund capital expenditures, the Gas Company and Pike need to draw on both operating cash and new debt. In fiscal year 2020 to date, the Gas Company has spent approximately $4.3 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 Holding Company to raise new debt and/or equity.

Cash flows from financing activities of the Company consist of repayment of long-term debt, new long-term borrowings, proceeds from stock issuances, borrowings and repayments under our lines-of-credit, and quarterly dividend payments. For the Gas Company’s operations, it has an $8.0 million revolving line of credit with Manufactures and Traders Trust Company Bank (“M&T Bank”). Interest is a variable rate determined by the Gas 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 of June 30, 2020 was $2.8 million with an interest rate of 2.79%. The Gas Company was in compliance with all of its loan covenants as of June 30, 2020.

For Pike’s operations, it has a $2.0 million revolving line of credit with M&T Bank. Interest is a variable rate determined by Pike’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 on June 30, 2020 was approximately $1.6 million with an interest rate of 2.94%. Pike was in compliance with all of its loan covenants as of June 30, 2020.

During this quarter, we mainly injected gas into storage and as of June 30, 2020 had a balance of $709,051 worth of gas in storage. The volume in storage at June 30, 2020 was 380,805 Mcf at an average price of $1.88 per Mcf. At June 30, 2019, the Gas Company had a balance of $790,450 worth of gas in storage. The volume in storage at June 30, 2019 was 311,712 Mcf at an average price of $2.54 per Mcf. During the next quarter, the Gas Company expects to be injecting gas into storage to have sufficient gas to supply customers for the winter season.

As of June 30, 2020, we believed that cash flow from operating activities and borrowings under our lines of credit and Paycheck Protection Program loans would be sufficient to satisfy our working capital and debt service requirements over the next twelve months. We believe new financing will be required to satisfy our mandated capital expenditures requirements for the next twelve months. We are uncertain how the downturn in economic activity due to COVID-19 will impact our cash flow.

Off Balance Sheet Arrangements

We have no off balance sheet arrangements.

Cybersecurity Matters

The Company has fully recovered from the ransomware December 2019 attacks at Pike and Corning. The ransomware attacks appear to be related. The review of internal data indicates the threat actor infiltrated Corning Gas’s network via a malicious attachment to an e-mail, then scanned Corning Gas and Pike’s networks launching a variant of the Phobos ransomware on the Pike network.

The Company recovered from the Pike attack without the loss of customer or employee data and without paying a ransom. When the threat actor could no longer access the Pike network and was not contacted by the Company that it would pay a ransom to have its data decrypted the threat actor launched a Sodinokibi ransomware attack on Corning Gas. The attack on Corning Gas effected the same systems as it did at Pike and the Company was able to recover in a similar fashion without loss of customer or employee data and without paying a ransom.

Third party analysis of the incidents by cyber security experts at Kroll, a division of Duff & Phelps, indicate that no data was stolen from either company. Both attacks appear automated in nature due to the identified communication patterns.

Since the attacks, all corporate IT endpoints have had the Carbon Black agent installed along with other remote monitoring agents that allow 24/7 real time monitoring of corporate IT assets. The Company has revised its VPN and RDP access policy and IT configuration to ensure that threat actors cannot impact the IT environment to the same degree in the future if successful in gaining access.

Two factor authentication has been implemented for all devices and all applications requiring password access. The process for data backup and recovery has been enhanced with additional verification of successful data backups and the enhanced bandwidth capabilities to decrease recovery times allow for multiple disaster recovery points. The Company continues to enhance its IT capabilities.

Due to the COVID-19 pandemic the Company now provides remote access to the workplace to approximately 50% of its work force (30 employees) which consists mainly of employees with management, administrative and technical responsibilities. Since the ransomware attacks the Company has not experienced any additional cyber-attacks. We believe the remote work capability is operating securely and efficiently.

Regulatory Matters

Holding Company

The Holding Company’s primary business, through its subsidiaries Corning Gas, Pike and Leatherstocking Gas Company, is regulated by the NYPSC and PAPUC, respectively, among other agencies.

Corning Gas Company

On April 13, 2016, Corning Gas filed a petition in Case 16-G-0204 with the NYPSC, to defer leak repair and survey costs over and above the amounts permitted to be recovered in rates for 2015. In this petition we requested that the incremental cost of $349,547 together with the associated income tax effect, be deferred and recovered in a manner to be established in future rate proceedings. The Company recognized this deferral in the quarter ended March 31, 2016. The petition is expected to be decided in Case 20-G-0101.

On February 27, 2020, Corning Gas filed with the NYSPSC 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 (i.e., test year) for this filing is the 12 months 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 are requesting a levelized approach.

The filing with the NYSPSC 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. Primary reasons for the increase are: NYSPSC-mandated initiatives, including investment in replacing older distribution pipe, and new safety, training and cyber security requirements; and shorter depreciation lives for gas pipeline infrastructure to reflect new decarbonization legislation. These two items comprise approximately 50% of the rate increase request. The balance of the request is to recover increases in health insurance, wages and other inflationary costs.

On June 26, 2020 the Department of Public Service Staff (“Staff”) filed its direct testimony in Case 20-G-0101. The Staff recommends a one year revenue requirement of $517,063 compared to the Company’s request of $6,223,603. The primary difference between the Staff and Company revenue requirements is the Staff’s equity return recommendation of 8.45% vs, 10.20%, disallowance of the Company’s request for shorter depreciation lives, differences in health insurance escalators, extension of the recovery period of regulatory costs from 3 years to 5 years and disallowance of leak repair amortization. The Company does not agree with the Staff’s proposals. The Company expects to enter into settlement negotiations with the Staff in the fourth quarter of fiscal 2020.

The NYSPSC has designated Case 20-G-0101, to consider the Gas Company’s rate filing. By statute, the NYSPSC may take up to 11 months to rule on the filing. Accordingly, the Gas Company does not anticipate that new rates will be effective before February 1, 2021. The NYSPSC may adopt rates for a multi-year period, as proposed in the filing, or for a shorter period, such as a single year.

The Joint Proposal (“JP”) in Case 16-G-0369 included the levelization of the revenue requirement over a three year period. The levelization procedure allowed recovery of the rate increase equally over the three rate years. The twelve months ended May 31, 2020 (Rate Year 3) delivery base rates if left unchanged would permit the Gas Company to earn revenues in excess of the amount granted by the Commission. Accordingly, the JP provided that if the Gas Company did not file for new rates to become effective at the end of Rate Year 3, it would reduce rates beginning on June 1, 2020 to eliminate the amount of over recovery created by levelization. The Gas Company made the tariff compliance filing with NYSPSC Commission to reduce rates on June 1, 2020. The Gas Company estimates that delivery rates will be reduced by approximately $481,000 net of tax until new rates become effective on February 1, 2021.

By petition dated June 13, 2017, in Case 17-G-0346, Corning Gas requested authority under Public Service Law §69 to issue approximately $44 million of long-term debt through December 31, 2020. In its petition, Corning Gas requested permission to refinance all or a portion of its existing loans with a ten-year fixed rate loan (“Refunding Debt”). In addition, Corning Gas requested authority to issue new debt through December 31, 2020 to fund its future construction expenditures, repay short-term debt incurred to finance previous years’ construction expenditures, and to refinance its maturing debt obligations (“New Debt”). The NYSPSC, in an order issued November 17, 2017, authorized Corning Gas to issue up to $26 million for Refunding Debt and up to $18 million for New Debt. The Commission authorization to issue debt granted in Case 17-G-0346 expires on December 31, 2020.

Pike

On March 3, 2018 Pike experienced a major storm. Winter Storm Riley resulted in high winds and wet heavy snow, causing trees to fall to the ground, taking down numerous poles, spans of primary, secondary and service conductors, and damaging numerous pole top transformers. The cost of restoration was approximately $1.4 million. The $1.4 million is comprised of approximately $0.2 million of capital expenditures and $1.2 million of operation and maintenance repairs.

On April 20, 2018 Pike filed a petition with PAPUC for permission to defer losses, for accounting and financial reporting purposes, resulting from the operation and maintenance expenses arising from severe storm damage, and to amortize such losses commencing on the date when rates are changed pursuant to the Commission's final order in Pike’s next general rate case. On June 14, 2018 in Docket P-2018-3001395 the PAPUC granted Pike’s deferral petition. On January 14, 2019 Pike filed a petition with the PAPUC requesting a Securities Certificate for issuance of additional debt in the amount of $2,732,154.

The PAPUC issued an order on February 7, 2019 in Docket S-2019-3007089 and S-2019-3007332 authorizing Pike to issue debt in the amount of $2,732,154. The Company has issued the total amount authorized by the Commission. The authorization expired on December 31, 2019.

On July 16, 2020 Pike filed a petition with the PAPUC requesting a Securities Certificate for issuance of additional debt in the amount of $3,070,080. The authorization request is for the financing of construction expenditures for the period FY 2020-2022.

Pike’s current rates for electric and gas services have been in effect since 2014. The Company expects to file new Pike rate cases for both electric and gas services in the fourth quarter of fiscal 2020.

Leatherstocking Gas

On January 15, 2019 Leatherstocking Gas filed a petition with the PAPUC requesting a Securities Certificate for issuance of additional debt refinance in the amount of $8,748,742. The authorization request was to refinance approximately $7 million of debt and the remaining balance was for construction expenditures. The petition was approved on February 28, 2019. The Commission authorization to issue debt granted in Securities Certificate S-2019-3007316 expired on February 28, 2020.

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 ended September 30, 2019, filed on December 23, 2019. There have been no significant changes in our accounting policies during the three months ended June 30, 2020. The adoption of ASU 2016-02 “Leases” did not impact the amount or timing of the Company’s revenues and expenses.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of June 30, 2020, the Company’s management, with the participation of the Company’s chief executive officer and chief financial officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended. Based upon the Company’s evaluation, the Company’s chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures are effective as of June 30, 2020.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that was conducted during the last fiscal quarter for the Company, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings.

The Holding Company and its subsidiaries has lawsuits pending of the type incurred in the normal course of business. The Company expects that any potential losses will be covered by insurance, subject to deductibles, and will not have a material adverse impact on the Company.

Item 1A.

Risk Factors.

Please refer to risk factors listed under Item 1A – “Risk Factors” of the Holding Company’s Form 10-K for the fiscal year ended September 30, 2019, for disclosure relating to certain risk factors applicable to the Company.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

None

Item 3.

Defaults Upon Senior Securities.

None

Item 4.

Mine Safety Disclosures.

Not applicable

Item 5.

Other Information.

None

Item 6.

Exhibits.

31.1**	Certification of the Chief Executive Officer and President pursuant to 17 CFR Section 240.13a-14
31.2**	Certification of the Chief Financial Officer and Treasurer pursuant to 17 CFR Section 240.13a-14
32.1**	Certification of the Chief Executive Officer and the Chief Financial Officer pursuant to
	18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101**	The following materials from the Corning Natural Gas Holding Corporation Quarterly Report on Form
	10Q for the period ended June 30, 2020, formatted in XBRL (eXtensible Business Reporting Language):
	(i) the Consolidated Balance Sheets at June 30, 2020 and September 30, 2019,
	(ii) the Consolidated Statements of Income and Comprehensive Income for the three months and nine months
	ended June 30, 2020 and June 30, 2019.
	(iii) the Consolidated Statements of Cash Flows for the nine months ended June 30, 2020 and June 30, 2019.
	(iv) related notes to the Consolidated Financial Statements


Filed herewith * Furnished herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

CORNING NATURAL GAS HOLDING CORPORATION

Date: August 14, 2020 By: /s/ Michael I. German

Michael I. German, Chief Executive Officer and President

(Principal Executive Officer)

Date: August 14, 2020 By: /s/ Charles Lenns

Charles Lenns, Vice President and Chief Financial Officer

(Principal Financial and Accounting Officer)

Corning Natural Gas Holding Corp - FORM 10-Q - August 14, 2020

Attached files

Corning Natural Gas Holding Corp Reports