XML 46 R23.htm IDEA: XBRL DOCUMENT
v3.19.1

Derivative Instruments and Hedging Activities | 6 Months Ended
--- | ---
Mar. 31, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Instruments and Hedging Activities | Note 14 — Derivative Instruments and Hedging Activities We are exposed to certain market risks related to our ongoing business operations. Management uses derivative financial and commodity instruments, among other things, to manage these risks. The primary risks managed by derivative instruments are (1) commodity price risk; (2) interest rate risk; and (3) foreign currency exchange rate risk. Although we use derivative financial and commodity instruments to reduce market risk associated with forecasted transactions, we do not use derivative financial and commodity instruments for speculative or trading purposes. The use of derivative instruments is controlled by our risk management and credit policies, which govern, among other things, the derivative instruments we can use, counterparty credit limits and contract authorization limits. Although our commodity derivative instruments extend over a number of years, a significant portion of our commodity derivative instruments economically hedge commodity price risk during the next twelve months. For more information on the accounting for our derivative instruments, see Note 2. Commodity Price Risk Regulated Utility Operations Natural Gas Gas Utility’s tariffs contain clauses that permit recovery of all prudently incurred costs of natural gas it sells to retail core-market customers, including the cost of financial instruments used to hedge purchased gas costs. As permitted and agreed to by the PAPUC pursuant to Gas Utility’s annual PGC filings, Gas Utility currently uses NYMEX natural gas futures and option contracts to reduce commodity price volatility associated with a portion of the natural gas it purchases for its retail core-market customers. Gains and losses on Gas Utility’s natural gas futures contracts and natural gas option contracts are recorded in regulatory assets or liabilities on the Condensed Consolidated Balance Sheets because it is probable such gains or losses will be recoverable from, or refundable to, customers through the PGC recovery mechanism (see Note 8). Electricity Electric Utility’s DS tariffs permit the recovery of all prudently incurred costs of electricity it sells to DS customers, including the cost of financial instruments used to hedge electricity costs. Electric Utility enters into forward electricity purchase contracts to meet a substantial portion of its electricity supply needs. At March 31, 2019, September 30, 2018 and March 31, 2018, all Electric Utility forward electricity purchase contracts were subject to the NPNS exception. Non-utility Operations LPG In order to manage market price risk associated with the Partnership’s fixed-price programs, the Partnership uses over-the-counter derivative commodity instruments, principally price swap contracts. In addition, the Partnership, certain other domestic businesses and our UGI International operations also use over-the-counter price swap contracts to reduce commodity price volatility associated with a portion of their forecasted LPG purchases. The Partnership, from time to time, enters into price swap agreements to reduce the effects of short-term commodity price volatility. Also, Midstream & Marketing, from time to time, uses NYMEX futures contracts to economically hedge the gross margin associated with the purchase and anticipated later near-term sale of propane. Natural Gas In order to manage market price risk relating to fixed-price sales contracts for natural gas, Midstream & Marketing enters into NYMEX and over-the-counter natural gas futures and forward contracts and ICE natural gas basis swap contracts. In addition, Midstream & Marketing uses NYMEX futures contracts to economically hedge the gross margin associated with the purchase and anticipated later near-term sale of natural gas. UGI International also uses natural gas futures and forward contracts to economically hedge market price risk associated with fixed-price sales contracts with its customers. Electricity In order to manage market price risk relating to fixed-price sales contracts for electricity, Midstream & Marketing enters into electricity futures and forward contracts. Midstream & Marketing also uses NYMEX and over-the-counter electricity futures contracts to economically hedge the price of a portion of its anticipated future sales of electricity from its electric generation facilities. From time to time, Midstream & Marketing purchases FTRs to economically hedge electricity transmission congestion costs associated with its fixed-price electricity sales contracts and from time to time also enters into NYISO capacity swap contracts to economically hedge the locational basis differences for customers it serves on the NYISO electricity grid. UGI International also uses electricity futures and forward contracts to economically hedge market price risk associated with fixed-price sales and purchase contracts for electricity. Interest Rate Risk Prior to their repayment on October 25, 2018 (see Note 10), UGI France’s and Flaga’s long-term debt agreements had interest rates that were generally indexed to short-term market interest rates. UGI France and Flaga entered into pay-fixed, receive-variable interest rate swap agreements to hedge the underlying euribor and LIBOR rates of interest on these variable-rate debt agreements. We designated these interest rate swaps as cash flow hedges. These interest rate swaps were settled concurrent with the repayment of the UGI France and Flaga long-term debt. In November 2018, UGI International, LLC entered into pay-fixed, receive-variable interest rate swaps through October 18, 2022, to fix the underlying euribor rate on the 2018 UGI International Credit Facilities Agreement term loan borrowings at 0.34%. We designated these interest rate swaps as cash flow hedges. UGI Utilities has a variable-rate term loan with an interest rate that is indexed to short-term market interest rates. UGI Utilities has entered into a forward starting, amortizing, pay-fixed, receive-variable interest rate swap agreement commencing September 30, 2019, that generally fixes the underlying variable interest rate on borrowings at 3.00% through July 2022. We have designated this interest rate swap as a cash flow hedge. The remainder of our businesses’ long-term debt is typically issued at fixed rates of interest. As these long-term debt issues mature, we typically refinance such debt with new debt having interest rates reflecting then-current market conditions. In order to reduce market rate risk on the underlying benchmark rate of interest associated with near- to medium-term forecasted issuances of fixed-rate debt, from time to time we enter into IRPAs. We account for IRPAs as cash flow hedges. At March 31, 2019, September 30, 2018 and March 31, 2018, we had no unsettled IRPAs. At March 31, 2019, the amount of net losses associated with interest rate hedges (excluding pay-fixed, receive-variable interest rate swaps) expected to be reclassified into earnings during the next twelve months is $3.5. Foreign Currency Exchange Rate Risk Forward Foreign Currency Exchange Contracts In order to reduce exposure to foreign exchange rate volatility related to our foreign LPG operations, through September 30, 2016, we entered into forward foreign currency exchange contracts to hedge a portion of anticipated U.S. dollar-denominated LPG product purchases primarily during the heating-season months of October through March. We account for these foreign currency exchange contracts associated with anticipated purchases of U.S. dollar-denominated LPG as cash flow hedges. At March 31, 2019, the amount of net gains associated with these contracts expected to be reclassified into earnings during the next twelve months based upon current fair values is no t material. In order to reduce the volatility in net income associated with our foreign operations, principally as a result of changes in the U.S. dollar exchange rate to the euro and British pound sterling, we enter into forward foreign currency exchange contracts. Because these contracts do not qualify for hedge accounting treatment, realized and unrealized gains and losses on these contracts are recorded in “Other non-operating income (expense), net,” on the Condensed Consolidated Statements of Income. From time to time, we also enter into forward foreign currency exchange contracts to reduce the volatility of the U.S. dollar value of a portion of our UGI International euro-denominated net investments. We account for these foreign currency exchange contracts as net investment hedges. We use the forward rate method for measuring ineffectiveness for these net investment hedges and all changes in the fair value of the forward foreign currency contracts are reported in the cumulative translation adjustment component of AOCI. Concurrent with the issuance of euro-denominated long-term debt under the 2018 UGI International Credit Facilities Agreement and the UGI International 3.25% Senior Notes in October 2018, we designated this euro-denominated debt as net investment hedges of a portion of our euro-denominated UGI International net investment (see Note 10). Cross-currency Contracts Prior to its repayment on October 25, 2018 (see Note 10), Flaga entered into cross-currency swaps to hedge its exposure to the variability in expected future cash flows associated with the foreign currency and interest rate risk of its U.S. dollar denominated variable-rate term loan. These cross-currency hedges included initial and final exchanges of principal from a fixed euro denomination to a fixed U.S. dollar-denominated amount, to be exchanged at a specified rate, which was determined by the market spot rate on the date of issuance. These cross-currency swaps also included interest rate swaps of a floating U.S. dollar-denominated interest rate to a fixed euro-denominated interest rate. We designated these cross-currency swaps as cash flow hedges. These cross-currency swaps were settled concurrent with the repayment of Flaga’s U.S. dollar variable rate term loan in October 2018. Quantitative Disclosures Related to Derivative Instruments The following table summarizes by derivative type the gross notional amounts related to open derivative contracts at March 31, 2019, September 30, 2018 and March 31, 2018, and the final settlement date of the Company's open derivative transactions as of March 31, 2019, excluding those derivatives that qualified for the NPNS exception:
|  |  |  |  |  | Notional Amounts (in millions)
Type |  | Units |  | Settlements Extending Through |  | March 31, 2019 |  | September 30, 2018 |  | March 31, 2018
Commodity Price Risk: |  |  |  |  |  |  |  |  |  |
Regulated Utility Operations |  |  |  |  |  |  |  |  |  |
Gas Utility NYMEX natural gas futures and option contracts |  | Dekatherms |  | March 2020 |  | 11.6 |  |  | 23.2 |  |  | 12.7 |
FTRs contracts |  | Kilowatt hours |  | N/A |  | — |  |  | — |  |  | 25.5 |
Non-utility Operations |  |  |  |  |  |  |  |  |  |
LPG swaps |  | Gallons |  | March 2021 |  | 369.2 |  |  | 394.3 |  |  | 229.2 |
Natural gas futures, forward and pipeline contracts |  | Dekatherms |  | January 2024 |  | 213.7 |  |  | 159.7 |  |  | 128.9 |
Natural gas basis swap contracts |  | Dekatherms |  | March 2023 |  | 84.0 |  |  | 54.4 |  |  | 74.1 |
NYMEX natural gas storage |  | Dekatherms |  | March 2020 |  | 0.3 |  |  | 1.8 |  |  | 0.9 |
NYMEX propane storage |  | Gallons |  | April 2019 |  | 0.1 |  |  | 0.6 |  |  | — |
Electricity long forward and futures contracts |  | Kilowatt hours |  | May 2022 |  | 3,685.0 |  |  | 4,307.6 |  |  | 4,184.1 |
Electricity short forward and futures contracts |  | Kilowatt hours |  | May 2022 |  | 265.0 |  |  | 359.3 |  |  | 490.9 |
Interest Rate Risk: |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | Euro |  | October 2022 |  | € | 300.0 |  |  | € | 585.8 |  |  | € | 645.8 |
Interest rate swaps |  | USD |  | July 2022 |  | $ | 114.1 |  |  | $ | 114.1 |  |  | $ | — |
Foreign Currency Exchange Rate Risk: |  |  |  |  |  |  |  |  |  |
Forward foreign currency exchange contracts |  | USD |  | September 2021 |  | $ | 299.1 |  |  | $ | 512.2 |  |  | $ | 496.2 |
Forward foreign currency exchange contracts |  | Euro |  | October 2024 |  | € | 172.8 |  |  | € | — |  |  | € | — |
Cross-currency contracts |  | USD |  | N/A |  | $ | — |  |  | $ | 49.9 |  |  | $ | 49.9 |
Derivative Instrument Credit Risk We are exposed to risk of loss in the event of nonperformance by our derivative instrument counterparties. Our derivative instrument counterparties principally comprise large energy companies and major U.S. and international financial institutions. We maintain credit policies with regard to our counterparties that we believe reduce overall credit risk. These policies include evaluating and monitoring our counterparties’ financial condition, including their credit ratings, and entering into agreements with counterparties that govern credit limits or entering into netting agreements that allow for offsetting counterparty receivable and payable balances for certain financial transactions, as deemed appropriate. Certain of these agreements call for the posting of collateral by the counterparty or by the Company in the forms of letters of credit, parental guarantees or cash. Additionally, our commodity exchange-traded futures contracts generally require cash deposits in margin accounts. At March 31, 2019, September 30, 2018 and March 31, 2018, restricted cash in brokerage accounts totaled $26.3, $9.6 and $10.6, respectively. Although we have concentrations of credit risk associated with derivative instruments, the maximum amount of loss we would incur if these counterparties failed to perform according to the terms of their contracts, based upon the gross fair values of the derivative instruments, was not material at March 31, 2019. Certain of the Partnership’s derivative contracts have credit-risk-related contingent features that may require the posting of additional collateral in the event of a downgrade of the Partnership’s debt rating. At March 31, 2019, if the credit-risk-related contingent features were triggered, the amount of collateral required to be posted would not be material. Offsetting Derivative Assets and Liabilities Derivative assets and liabilities are presented net by counterparty on the Condensed Consolidated Balance Sheets if the right of offset exists. We offset amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral against amounts recognized for derivative instruments executed with the same counterparty. Our derivative instruments include both those that are executed on an exchange through brokers and centrally cleared and over-the-counter transactions. Exchange contracts utilize a financial intermediary, exchange or clearinghouse to enter, execute or clear the transactions. Over-the-counter contracts are bilateral contracts that are transacted directly with a third party. Certain over-the-counter and exchange contracts contain contractual rights of offset through master netting arrangements, derivative clearing agreements and contract default provisions. In addition, the contracts are subject to conditional rights of offset through counterparty nonperformance, insolvency or other conditions. In general, most of our over-the-counter transactions and all exchange contracts are subject to collateral requirements. Types of collateral generally include cash or letters of credit. Cash collateral paid by us to our over-the-counter derivative counterparties, if any, is reflected in the table below to offset derivative liabilities. Cash collateral received by us from our over-the-counter derivative counterparties, if any, is reflected in the table below to offset derivative assets. Certain other accounts receivable and accounts payable balances recognized on the Condensed Consolidated Balance Sheets with our derivative counterparties are not included in the table below but could reduce our net exposure to such counterparties because such balances are subject to master netting or similar arrangements. Fair Value of Derivative Instruments The following table presents the Company’s derivative assets and liabilities by type, as well as the effects of offsetting:
|  | March 31, 2019 |  | September 30, 2018 |  | March 31, 2018
Derivative assets: |  |  |  |  |  |
Derivatives designated as hedging instruments: |  |  |  |  |  |
Foreign currency contracts |  | $ | 7.1 |  |  | $ | 1.5 |  |  | $ | 0.3 |
Cross-currency contracts |  | — |  |  | 0.9 |  |  | — |
|  | 7.1 |  |  | 2.4 |  |  | 0.3 |
Derivatives subject to PGC and DS mechanisms: |  |  |  |  |  |
Commodity contracts |  | 1.3 |  |  | 3.0 |  |  | 0.9 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |
Commodity contracts |  | 59.7 |  |  | 208.0 |  |  | 65.7 |
Foreign currency contracts |  | 22.7 |  |  | 19.1 |  |  | 13.6 |
|  | 82.4 |  |  | 227.1 |  |  | 79.3 |
Total derivative assets — gross |  | 90.8 |  |  | 232.5 |  |  | 80.5 |
Gross amounts offset in the balance sheet |  | (35.8 | ) |  | (34.3 | ) |  | (31.5 | )
Cash collateral received |  | — |  |  | (12.2 | ) |  | (0.4 | )
Total derivative assets — net |  | $ | 55.0 |  |  | $ | 186.0 |  |  | $ | 48.6 |
Derivative liabilities: |  |  |  |  |  |
Derivatives designated as hedging instruments: |  |  |  |  |  |
Foreign currency contracts |  | $ | — |  |  | $ | (0.4 | ) |  | $ | (4.0 | )
Cross-currency contracts |  | — |  |  | — |  |  | (2.2 | )
Interest rate contracts |  | (5.7 | ) |  | (1.0 | ) |  | (1.9 | )
|  | (5.7 | ) |  | (1.4 | ) |  | (8.1 | )
Derivatives subject to PGC and DS mechanisms: |  |  |  |  |  |
Commodity contracts |  | (0.2 | ) |  | (0.1 | ) |  | (0.6 | )
Derivatives not designated as hedging instruments: |  |  |  |  |  |
Commodity contracts |  | (72.5 | ) |  | (43.3 | ) |  | (37.2 | )
Foreign currency contracts |  | (4.9 | ) |  | (14.0 | ) |  | (39.5 | )
|  | (77.4 | ) |  | (57.3 | ) |  | (76.7 | )
Total derivative liabilities — gross |  | (83.3 | ) |  | (58.8 | ) |  | (85.4 | )
Gross amounts offset in the balance sheet |  | 35.8 |  |  | 34.3 |  |  | 31.5 |
Total derivative liabilities — net |  | $ | (47.5 | ) |  | $ | (24.5 | ) |  | $ | (53.9 | )
Effects of Derivative Instruments The following tables provide information on the effects of derivative instruments on the Condensed Consolidated Statements of Income and changes in AOCI for the three and six months ended March 31, 2019 and 2018:
Three Months Ended March 31,: |  |  |  |  |  |  |  |  |  |
|  | Gain (Loss) Recognized in AOCI |  | Gain (Loss) Reclassified from AOCI into Income |  | Location of Gain (Loss) Reclassified from AOCI into Income
Cash Flow Hedges: |  | 2019 |  | 2018 |  | 2019 |  | 2018 |
Foreign currency contracts |  | $ | 0.2 |  |  | $ | (3.1 | ) |  | $ | 1.3 |  |  | $ | (3.9 | ) |  | Cost of sales
Cross-currency contracts |  | — |  |  | 0.3 |  |  | — |  |  | 0.3 |  |  | Interest expense/other operating income, net
Interest rate contracts |  | (2.4 | ) |  | 0.5 |  |  | (1.3 | ) |  | (0.7 | ) |  | Interest expense
Total |  | $ | (2.2 | ) |  | $ | (2.3 | ) |  | $ | — |  |  | $ | (4.3 | ) |  |
Net Investment Hedges: |  |  |  |  |  |  |  |  |  |
Foreign currency contracts |  | $ | 5.9 |  |  | $ | — |  |  |  |  |  |  |
|  | Gain (Loss) Recognized in Income |  | Location of Gain (Loss) Recognized in Income |  |
Derivatives Not Designated as Hedging Instruments: |  | 2019 |  | 2018 |  |  |
Commodity contracts |  | $ | (26.2 | ) |  | $ | (41.8 | ) |  | Cost of sales |  |
Commodity contracts |  | 4.6 |  |  | (0.2 | ) |  | Revenues |  |
Commodity contracts |  | 0.1 |  |  | 0.1 |  |  | Operating and administrative expenses |  |
Foreign currency contracts |  | 7.8 |  |  | (11.0 | ) |  | Other non-operating income (expense), net |  |
Total |  | $ | (13.7 | ) |  | $ | (52.9 | ) |  |  |  |  |  |
Six Months Ended March 31,: |  |  |  |  |  |  |  |  |  |
|  | Gain (Loss) Recognized in AOCI |  | Gain (Loss) Reclassified from AOCI into Income |  | Location of Gain (Loss) Reclassified from AOCI into Income
Cash Flow Hedges: |  | 2019 |  | 2018 |  | 2019 |  | 2018 |
Foreign currency contracts |  | $ | 1.2 |  |  | $ | (4.5 | ) |  | $ | 2.1 |  |  | $ | (3.1 | ) |  | Cost of sales
Cross-currency contracts |  | (0.1 | ) |  | 0.4 |  |  | (0.3 | ) |  | 0.5 |  |  | Interest expense/other operating income, net
Interest rate contracts |  | (5.2 | ) |  | 1.2 |  |  | (2.8 | ) |  | (1.2 | ) |  | Interest expense
Total |  | $ | (4.1 | ) |  | $ | (2.9 | ) |  | $ | (1.0 | ) |  | $ | (3.8 | ) |  |
Net Investment Hedges: |  |  |  |  |  |  |  |  |  |
Foreign currency contracts |  | $ | 6.8 |  |  | $ | — |  |  |  |  |  |  |
|  | Gain (Loss) Recognized in Income |  | Location of Gain (Loss) Recognized in Income |  |
Derivatives Not Designated as Hedging Instruments: |  | 2019 |  | 2018 |  |  |
Commodity contracts |  | $ | (185.9 | ) |  | $ | (17.4 | ) |  | Cost of sales |  |
Commodity contracts |  | 1.8 |  |  | (1.5 | ) |  | Revenues |  |
Commodity contracts |  | (0.3 | ) |  | 0.2 |  |  | Operating and administrative expenses |  |
Foreign currency contracts |  | 16.7 |  |  | (15.8 | ) |  | Other non-operating income (expense), net |  |
Total |  | $ | (167.7 | ) |  | $ | (34.5 | ) |  |  |  |  |  |
For the three and six months ended March 31, 2019 and 2018, the amounts of derivative gains or losses representing ineffectiveness and the amounts of gains or losses recognized in income as a result of excluding derivatives from ineffectiveness testing were not material. We are also a party to a number of other contracts that have elements of a derivative instrument. These contracts include, among others, binding purchase orders, contracts that provide for the purchase and delivery, or sale, of energy products, and service contracts that require the counterparty to provide commodity storage, transportation or capacity service to meet our normal sales commitments. Although certain of these contracts have the requisite elements of a derivative instrument, these contracts qualify for NPNS exception accounting because they provide for the delivery of products or services in quantities that are expected to be used in the normal course of operating our business and the price in the contract is based on an underlying that is directly associated with the price of the product or service being purchased or sold.

X
- References No definition available. + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration