Quarterly report pursuant to Section 13 or 15(d)

Transportation and Distribution Revenue

v3.10.0.1
Transportation and Distribution Revenue
 9 Months Ended
Sep. 30, 2018
Revenue from Contract with Customer [Abstract]  
Transportation and Distribution Revenue
TRANSPORTATION AND DISTRIBUTION REVENUE
The Company's contracts related to transportation and distribution revenue are primarily comprised of a mix of natural gas supply, transportation and distribution performance obligations, as well as limited performance obligations related to system maintenance and expansion. Under the Company's natural gas supply, transportation and distribution performance obligations, the customer simultaneously receives and consumes the benefit of the services as natural gas is delivered. Therefore, the transaction price is allocated proportionally over the series of identical performance obligations with each contract. The transaction price is calculated based on (i) index price, plus a contractual markup in the case of natural gas supply agreements (considered variable due to fluctuations in the index), (ii) FERC regulated rates or negotiated rates in the case of transportation agreements and (iii) contracted amounts (with annual CPI escalators) in the case of the Company's distribution agreement. Based on the nature of the agreements, revenue for all but one of the Company's natural gas supply, transportation and distribution performance obligations is recognized on a right to invoice basis as the performance obligations are met, which represents what the Company expects to receive in consideration and is representative of value delivered to the customer. The Company has a contract with Spire that has fixed pricing which varies over the contract term. For this specific contract, the transaction price has been allocated ratably over the contractual performance obligation, as discussed further below. All invoicing is done in the month following service, with payment typically due a month from invoice date.
Based on a downward revision of the rate during the Company's long-term natural gas transportation contract with Spire, ASC 606 requires the Company to record the contractual transaction price, and therefore aggregate revenue, from the contract ratably over the term of the contract. Accordingly, on January 1, 2018, the Company recorded a cumulative adjustment to recognize a contract liability of approximately $3.3 million, and a corresponding reduction to beginning equity (net of deferred tax impact). The adjustment reflects the difference in amounts previously recognized as invoiced, versus cumulative revenues earned under the contract on a straight-line basis in accordance with ASC 606, as of the date of adoption. The contract liability will continue to accumulate additional unrecognized performance obligations at a rate of approximately $992 thousand per quarter until the contractual rate decrease takes effect in November 2018. Following the rate decline, recognized performance obligations will exceed amounts invoiced and the contract liability is expected to decline at a rate of approximately $138 thousand per quarter through the end of the contract in October 2030. As of September 30, 2018, the revenue allocated to the remaining performance obligation under this contract is approximately $64.8 million.
The Company's contracts also contain performance obligations related to system maintenance and expansion, which are completed on an as-needed basis. The work performed is specific and tailored to the customer's needs and there are no alternative uses for the services provided. Therefore, as the work is being completed, control is transferring to the customer. These services are billed at the Company's cost, plus an agreed upon margin, and the Company has an enforceable right to payment for services provided. The Company invoices for this service on a monthly basis according to an agreed upon billing schedule. Revenue is recognized on an input method, based on the actual cost of a service as a measure of performance obligations satisfaction, which the Company determined to be the method which faithfully depicts the transfer of services. Differences between the amounts invoiced and revenue recognized under the input method are reflected as an asset or liability on the Consolidated Balance Sheet. Any differences are generally expected to be recognized within a year.
The table below summarizes the Company's contract asset and contract liability balances related to its transportation and distribution revenue contracts as of September 30, 2018:
 
Contract Asset(1)
 
Contract Liability(2)
Beginning Balance January 1, 2018
$
328,033

 
$
—

Cumulative Transition Adjustment Upon Adoption of ASC 606
—

 
3,307,109

Unrecognized Performance Obligations
(627,471
)
 
2,976,399

Recognized Performance Obligations
559,571

 
—

Ending Balance September 30, 2018
$
260,133

 
$
6,283,508

(1) The contract asset balance is included in prepaid expenses and other assets in the Consolidated Balance Sheets.
(2) The contract liability balance is included in unearned revenue in the Consolidated Balance Sheets.
The following is a breakout of the Company's transportation and distribution revenue for the three and nine months ended September 30, 2018 and 2017:
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30, 2018
 
September 30, 2017
 
September 30, 2018
 
September 30, 2017
Natural gas transportation contracts
60.3
%
 
67.2
%
 
64.2
%
 
70.9
%
Natural gas distribution contracts
24.8
%
 
19.3
%
 
26.1
%
 
20.2
%

In accordance with ASC 606 transition disclosure requirements, the cumulative effect of changes made to the Consolidated Balance Sheet as of January 1, 2018 for the adoption of ASC 606 were as follows:
Balance Sheet
 
Balance at December 31, 2017
 
Adjustments Due to ASC 606
 
Balance at
January 1, 2018
Assets
 
 
 
 
 
 
Deferred Tax Asset
 
$
2,244,629

 
$
857,864

 
$
3,102,493

Liabilities
 
 
 
 
 
 
Unearned revenue
 
3,397,717

 
3,307,109

 
6,704,826

Equity
 
 
 
 
 
 
Additional paid in capital
 
331,773,716

 
(2,449,245
)
 
329,324,471

The tables below disclose the impact of adoption on the Consolidated Balance Sheet and Consolidated Statement of Income as of and for the three and nine months ended September 30, 2018:
 
 
As of September 30, 2018
Balance Sheet
 
As Reported
 
Balances Without Adoption of ASC 606
 
Effect of Change Higher/(Lower)
Assets
 
 
 
 
 
 
Deferred Tax Asset
 
$
4,854,108

 
$
3,224,166

 
$
1,629,942

Liabilities
 
 
 
 
 
 
Unearned revenue
 
6,826,557

 
543,049

 
6,283,508

Equity
 
 
 
 
 
 
Additional paid in capital
 
319,741,659

 
324,395,224

 
(4,653,565
)
 
 
For the Three Months Ended September 30, 2018
 
For the Nine Months Ended September 30, 2018
Statement of Income
 
As Reported
 
Balances Without Adoption of ASC 606
 
Effect of Change Higher/(Lower)
 
As Reported
 
Balances Without Adoption of ASC 606
 
Effect of Change Higher/(Lower)
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
Transportation and distribution revenue
 
$
4,244,722

 
$
5,236,855

 
$
(992,133
)
 
$
12,071,858

 
$
15,048,256

 
$
(2,976,398
)
Taxes
 
 
 
 
 
 
 
 
 
 
 
 
Deferred tax benefit
 
(738,274
)
 
(480,915
)
 
(257,359
)
 
(1,751,615
)
 
(979,537
)
 
(772,078
)