##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2011
 OR
 o
    
    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 1-1398
 UGI UTILITIES, INC.
  Pennsylvania
    
    23-1174060(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 
 
 
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o
 o þ




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##### 



UGI UTILITIES, INC. AND SUBSIDIARIES
 TABLE OF CONTENTS
 PAGESPart I Financial InformationItem 1. Financial Statements (unaudited)Condensed Consolidated Balance Sheets as of March 31, 2011, September 30, 2010 and March 31, 2010
    
    
    1Condensed Consolidated Statements of Income for the three and six months ended March 31, 2011 and 2010
    
    
    2Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 2011 and 2010
    
    
    3Notes to Condensed Consolidated Financial Statements
    
    
    4 - 22Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    23 - 29Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    30Item 4T. Controls and Procedures
    
    
    31Part II Other InformationItem 1. Legal Proceedings
    
    
    32Item 1A. Risk Factors
    
    
    32Item 6. Exhibits
    
    
    33Signatures
    
    
    34Exhibit 10.1Exhibit 10.2Exhibit 10.3Exhibit 12.1Exhibit 31.1Exhibit 31.2Exhibit 32
   - i -




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March 31,
    
    
    September 30,
    
    
    March 31,2011
    
    
    2010
    
    
    2010ASSETSCurrent assets:Cash and cash equivalents
    
    $
    75,472
    
    
    $
    4,318
    
    
    $
    7,492Restricted cash
    
    
    3,996
    
    
    
    4,698
    
    
    
    12,573Accounts receivable (less allowances for doubtful accounts of $13,558,
$7,072 and $18,051, respectively)
    
    
    154,398
    
    
    
    64,844
    
    
    
    162,152Accounts receivable  related parties
    
    
    13,181
    
    
    
    6,313
    
    
    
    11,371Accrued utility revenues
    
    
    43,163
    
    
    
    13,988
    
    
    
    33,294Inventories
    
    
    16,674
    
    
    
    118,858
    
    
    
    38,865Deferred income taxes
    
    
    33,201
    
    
    
    19,431
    
    
    
    24,671Regulatory assets
    
    
    1,762
    
    
    
    26,100
    
    
    
    6,662Derivative financial instruments
    
    
    1,920
    
    
    
    486
    
    
    
    525Prepaid expenses & other current assets
    
    
    19,794
    
    
    
    21,117
    
    
    
    16,131Total current assets
    
    
    363,561
    
    
    
    280,153
    
    
    
    313,736Property, plant and equipment, at cost (less accumulated depreciation and
amortization of $759,102, $734,739 and
$715,234, respectively)
    
    
    1,405,793
    
    
    
    1,394,585
    
    
    
    1,364,622Goodwill
    
    
    180,145
    
    
    
    180,145
    
    
    
    180,145Regulatory assets
    
    
    242,892
    
    
    
    280,602
    
    
    
    123,199Other assets
    
    
    11,060
    
    
    
    4,091
    
    
    
    6,405Total assets
    
    $
    2,203,451
    
    
    $
    2,139,576
    
    
    $
    1,988,107LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Bank loans
    
    $
    
    
    
    $
    17,000
    
    
    $
    37,000Accounts payable
    
    
    49,203
    
    
    
    61,297
    
    
    
    46,726Accounts payable  related parties
    
    
    10,742
    
    
    
    8,144
    
    
    
    10,482Deferred fuel refunds
    
    
    33,955
    
    
    
    8,295
    
    
    
    16,789Derivative financial instruments
    
    
    4,291
    
    
    
    10,564
    
    
    
    7,616Other current liabilities
    
    
    163,355
    
    
    
    133,935
    
    
    
    121,845Total current liabilities
    
    
    261,546
    
    
    
    239,235
    
    
    
    240,458Long-term debt
    
    
    640,000
    
    
    
    640,000
    
    
    
    640,000Deferred income taxes
    
    
    305,371
    
    
    
    281,101
    
    
    
    197,872Deferred investment tax credits
    
    
    5,134
    
    
    
    5,311
    
    
    
    5,489Pension and postretirement benefit obligations
    
    
    115,628
    
    
    
    161,338
    
    
    
    146,137Other noncurrent liabilities
    
    
    71,531
    
    
    
    78,137
    
    
    
    60,428Total liabilities
    
    
    1,399,210
    
    
    
    1,405,122
    
    
    
    1,290,384Commitments and contingencies (note 7)Common stockholders equity:Common Stock, $2.25 par value (authorized  40,000,000 shares;
issued and outstanding  26,781,785 shares)
    
    
    60,259
    
    
    
    60,259
    
    
    
    60,259Additional paid-in capital
    
    
    468,302
    
    
    
    467,631
    
    
    
    467,258Retained earnings
    
    
    279,856
    
    
    
    217,960
    
    
    
    251,226Accumulated other comprehensive loss
    
    
    (4,176
    )
    
    
    (11,396
    )
    
    
    (81,020
    )Total common stockholders equity
    
    
    804,241
    
    
    
    734,454
    
    
    
    697,723Total liabilities and stockholders equity
    
    $
    2,203,451
    
    
    $
    2,139,576
    
    
    $
    1,988,107
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Three Months Ended
    
    
    Six Months EndedMarch 31,
    
    
    March 31,2011
    
    
    2010
    
    
    2011
    
    
    2010Revenues
    
    $
    484,465
    
    
    $
    477,273
    
    
    $
    834,981
    
    
    $
    839,476Costs and expenses:Cost of sales  gas, fuel and purchased power
(excluding depreciation shown below)
    
    
    308,778
    
    
    
    312,171
    
    
    
    522,262
    
    
    
    543,388Operating and administrative expenses
    
    
    51,299
    
    
    
    48,632
    
    
    
    91,193
    
    
    
    92,854Operating and administrative expenses  related parties
    
    
    5,923
    
    
    
    6,565
    
    
    
    8,848
    
    
    
    7,757Taxes other than income taxes
    
    
    5,469
    
    
    
    4,894
    
    
    
    9,827
    
    
    
    9,422Depreciation
    
    
    12,683
    
    
    
    12,438
    
    
    
    25,289
    
    
    
    25,119Amortization
    
    
    633
    
    
    
    771
    
    
    
    1,265
    
    
    
    1,378Other income, net
    
    
    (4,429
    )
    
    
    (2,535
    )
    
    
    (6,692
    )
    
    
    (4,052
    )380,356
    
    
    
    382,936
    
    
    
    651,992
    
    
    
    675,866Operating income
    
    
    104,109
    
    
    
    94,337
    
    
    
    182,989
    
    
    
    163,610Interest expense
    
    
    10,809
    
    
    
    10,724
    
    
    
    21,442
    
    
    
    21,361Income before income taxes
    
    
    93,300
    
    
    
    83,613
    
    
    
    161,547
    
    
    
    142,249Income taxes
    
    
    33,137
    
    
    
    33,001
    
    
    
    60,310
    
    
    
    56,474Net income
    
    $
    60,163
    
    
    $
    50,612
    
    
    $
    101,237
    
    
    $
    85,775
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Six Months EndedMarch 31,2011
    
    
    2010CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    101,237
    
    
    $
    85,775Adjustments to reconcile net income to net cash from
operating activities:Depreciation and amortization
    
    
    26,554
    
    
    
    26,497Deferred income taxes, net
    
    
    (1,627
    )
    
    
    25,614Provision for uncollectible accounts
    
    
    8,626
    
    
    
    12,176Other, net
    
    
    3,524
    
    
    
    4,747Net change in:Accounts receivable and accrued utility revenues
    
    
    (137,223
    )
    
    
    (120,350
    )Inventories
    
    
    102,184
    
    
    
    157,734Deferred fuel and power costs
    
    
    43,281
    
    
    
    (1,135
    )Accounts payable
    
    
    5,510
    
    
    
    (4,804
    )Other current assets
    
    
    3,277
    
    
    
    (10,407
    )Other current liabilities
    
    
    9,665
    
    
    
    11,380Net cash provided by operating activities
    
    
    165,008
    
    
    
    187,227CASH FLOWS FROM INVESTING ACTIVITIES:Expenditures for property, plant and equipment
    
    
    (37,658
    )
    
    
    (26,170
    )Net costs of property, plant and equipment disposals
    
    
    (1,220
    )
    
    
    (1,255
    )Decrease (increase) in restricted cash
    
    
    702
    
    
    
    (12,573
    )Net cash used by investing activities
    
    
    (38,176
    )
    
    
    (39,998
    )CASH FLOWS FROM FINANCING ACTIVITIES:Payment of dividends
    
    
    (39,348
    )
    
    
    (36,260
    )Decrease in bank loans
    
    
    (17,000
    )
    
    
    (117,000
    )Other
    
    
    670
    
    
    
    Net cash used by financing activities
    
    
    (55,678
    )
    
    
    (153,260
    )Cash and cash equivalents increase (decrease)
    
    $
    71,154
    
    
    $
    (6,031
    )CASH AND CASH EQUIVALENTS:End of period
    
    $
    75,472
    
    
    $
    7,492Beginning of period
    
    
    4,318
    
    
    
    13,523Increase (decrease)
    
    $
    71,154
    
    
    $
    (6,031
    )
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UGI UTILITIES, INC. AND SUBSIDIARIES
 
 Notes to Condensed Consolidated Financial Statements
   1.
    
    Nature of Operations
   2.
    
    Significant Accounting Policies
 Basis of Presentation.
   - 4 -




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UGI UTILITIES, INC. AND SUBSIDIARIES
 Notes to Condensed Consolidated Financial Statements
   Comprehensive Income.
 Three Months Ended
    
    
    Six Months EndedMarch 31,
    
    
    March 31,2011
    
    
    2010
    
    
    2011
    
    
    2010Net income
    
    $
    60,163
    
    
    $
    50,612
    
    
    $
    101,237
    
    
    $
    85,775Other comprehensive income
    
    
    638
    
    
    
    1,033
    
    
    
    7,220
    
    
    
    2,066Comprehensive income
    
    $
    60,801
    
    
    $
    51,645
    
    
    $
    108,457
    
    
    $
    87,841
   Restricted Cash.
 Use of Estimates.
 3.
    
    Segment Information
    - 5 -




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UGI UTILITIES, INC. AND SUBSIDIARIES
 Notes to Condensed Consolidated Financial Statements
     Three Months Ended March 31, 2011:
 Reportable SegmentsGas
    
    
    ElectricTotal
    
    
    Utility
    
    
    Utility
    
    
    OtherRevenues
    
    $
    484,465
    
    
    $
    452,437
    
    
    $
    31,711
    
    
    $
    317Cost of sales
    
    $
    308,778
    
    
    $
    288,527
    
    
    $
    20,251
    
    
    $
    Depreciation and amortization
    
    $
    13,316
    
    
    $
    12,305
    
    
    $
    1,011
    
    
    $
    Operating income
    
    $
    104,109
    
    
    $
    100,968
    
    
    $
    2,990
    
    
    $
    151Interest expense
    
    $
    10,809
    
    
    $
    10,242
    
    
    $
    567
    
    
    $
    Income before income taxes
    
    $
    93,300
    
    
    $
    90,726
    
    
    $
    2,423
    
    
    $
    151Total assets (at period end)
    
    $
    2,203,451
    
    
    $
    2,045,178
    
    
    $
    158,273
    
    
    $
    Goodwill (at period end)
    
    $
    180,145
    
    
    $
    180,145
    
    
    $
    
    
    
    $
    Capital expenditures
    
    $
    20,071
    
    
    $
    17,465
    
    
    $
    2,606
    
    
    $
    
 Three Months Ended March 31, 2010:
 Reportable SegmentsGas
    
    
    ElectricTotal
    
    
    Utility
    
    
    Utility
    
    
    OtherRevenues
    
    $
    477,273
    
    
    $
    445,395
    
    
    $
    31,553
    
    
    $
    325Cost of sales
    
    $
    312,171
    
    
    $
    291,433
    
    
    $
    20,738
    
    
    $
    Depreciation and amortization
    
    $
    13,209
    
    
    $
    12,216
    
    
    $
    993
    
    
    $
    Operating income
    
    $
    94,337
    
    
    $
    91,112
    
    
    $
    3,093
    
    
    $
    132Interest expense
    
    $
    10,724
    
    
    $
    10,258
    
    
    $
    466
    
    
    $
    Income before income taxes
    
    $
    83,613
    
    
    $
    80,854
    
    
    $
    2,627
    
    
    $
    132Total assets (at period end)
    
    $
    1,988,107
    
    
    $
    1,862,489
    
    
    $
    125,618
    
    
    $
    Goodwill (at period end)
    
    $
    180,145
    
    
    $
    180,145
    
    
    $
    
    
    
    $
    Capital expenditures
    
    $
    12,360
    
    
    $
    11,499
    
    
    $
    861
    
    
    $
    
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UGI UTILITIES, INC. AND SUBSIDIARIES
 Notes to Condensed Consolidated Financial Statements
   Six Months Ended March 31, 2011:
 Reportable SegmentsGas
    
    
    ElectricTotal
    
    
    Utility
    
    
    Utility
    
    
    OtherRevenues
    
    $
    834,981
    
    
    $
    773,551
    
    
    $
    60,651
    
    
    $
    779Cost of sales
    
    $
    522,262
    
    
    $
    483,440
    
    
    $
    38,822
    
    
    $
    Depreciation and amortization
    
    $
    26,554
    
    
    $
    24,530
    
    
    $
    2,024
    
    
    $
    Operating income
    
    $
    182,989
    
    
    $
    176,035
    
    
    $
    6,593
    
    
    $
    361Interest expense
    
    $
    21,442
    
    
    $
    20,350
    
    
    $
    1,092
    
    
    $
    Income before income taxes
    
    $
    161,547
    
    
    $
    155,685
    
    
    $
    5,501
    
    
    $
    361Total assets (at period end)
    
    $
    2,203,451
    
    
    $
    2,045,178
    
    
    $
    158,273
    
    
    $
    Goodwill (at period end)
    
    $
    180,145
    
    
    $
    180,145
    
    
    $
    
    
    
    $
    Capital expenditures
    
    $
    37,658
    
    
    $
    33,551
    
    
    $
    4,107
    
    
    $
    
 Six Months Ended March 31, 2010:
 Reportable SegmentsGas
    
    
    ElectricTotal
    
    
    Utility
    
    
    Utility
    
    
    OtherRevenues
    
    $
    839,476
    
    
    $
    773,204
    
    
    $
    65,552
    
    
    $
    720Cost of sales
    
    $
    543,388
    
    
    $
    501,193
    
    
    $
    42,195
    
    
    $
    Depreciation and amortization
    
    $
    26,497
    
    
    $
    24,515
    
    
    $
    1,982
    
    
    $
    Operating income
    
    $
    163,610
    
    
    $
    154,840
    
    
    $
    8,452
    
    
    $
    318Interest expense
    
    $
    21,361
    
    
    $
    20,504
    
    
    $
    857
    
    
    $
    Income before income taxes
    
    $
    142,249
    
    
    $
    134,336
    
    
    $
    7,595
    
    
    $
    318Total assets (at period end)
    
    $
    1,988,107
    
    
    $
    1,862,489
    
    
    $
    125,618
    
    
    $
    Goodwill (at period end)
    
    $
    180,145
    
    
    $
    180,145
    
    
    $
    
    
    
    $
    Capital expenditures
    
    $
    26,170
    
    
    $
    24,539
    
    
    $
    1,631
    
    
    $
    
 4.
    
    Inventories
  March 31,
    
    
    September 30,
    
    
    March 31,2011
    
    
    2010
    
    
    2010Gas Utility natural gas
    
    $
    7,927
    
    
    $
    111,531
    
    
    $
    31,693Materials, supplies and
other
    
    
    8,747
    
    
    
    7,327
    
    
    
    7,172Total inventories
    
    $
    16,674
    
    
    $
    118,858
    
    
    $
    38,865
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UGI UTILITIES, INC. AND SUBSIDIARIES
 Notes to Condensed Consolidated Financial Statements
    5.
    
    Regulatory Assets and Liabilities and Regulatory Matters
  March 31,
    
    
    September 30,
    
    
    March 31,2011
    
    
    2010
    
    
    2010Regulatory assets:Income taxes recoverable
    
    $
    89,875
    
    
    $
    82,525
    
    
    $
    81,561Underfunded pension and postretirement plans
    
    
    116,003
    
    
    
    159,154
    
    
    
    10,405Environmental costs
    
    
    22,014
    
    
    
    22,587
    
    
    
    25,301Deferred fuel and power costs
    
    
    8,153
    
    
    
    36,597
    
    
    
    6,662Other
    
    
    8,609
    
    
    
    5,839
    
    
    
    5,932Total regulatory assets
    
    $
    244,654
    
    
    $
    306,702
    
    
    $
    129,861Regulatory liabilities:Postretirement benefits
    
    $
    11,196
    
    
    $
    10,472
    
    
    $
    9,899Environmental overcollections
    
    
    6,811
    
    
    
    7,211
    
    
    
    8,398Deferred fuel and power refunds
    
    
    33,955
    
    
    
    8,298
    
    
    
    16,789State tax benefits  distribution system repairs
    
    
    6,339
    
    
    
    6,685
    
    
    
    Total regulatory liabilities
    
    $
    58,301
    
    
    $
    32,666
    
    
    $
    35,086
 Underfunded pension and postretirement plans
  - 8 -




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UGI UTILITIES, INC. AND SUBSIDIARIES
 Notes to Condensed Consolidated Financial Statements
    Deferred fuel and power  costs and refunds.
     - 9 -




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UGI UTILITIES, INC. AND SUBSIDIARIES
 Notes to Condensed Consolidated Financial Statements
   Other Regulatory Matters
 Transfer of CPG Storage Assets.
 CPG Base Rate Filing.
 6.
    
    Defined Benefit Pension and Other Postretirement Plans
   - 10 -




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UGI UTILITIES, INC. AND SUBSIDIARIES
 Notes to Condensed Consolidated Financial Statements
    Pension Benefits
    
    
    Other Postretirement BenefitsThree Months Ended
    
    
    Three Months EndedMarch 31,
    
    
    March 31,2011
    
    
    2010
    
    
    2011
    
    
    2010Service cost
    
    $
    1,750
    
    
    $
    1,745
    
    
    $
    54
    
    
    $
    40Interest cost
    
    
    5,564
    
    
    
    5,284
    
    
    
    183
    
    
    
    212Expected return on assets
    
    
    (5,971
    )
    
    
    (5,858
    )
    
    
    (131
    )
    
    
    (126
    )Amortization of:Prior service cost (benefit)
    
    
    80
    
    
    
    9
    
    
    
    (174
    )
    
    
    (102
    )Actuarial loss
    
    
    1,570
    
    
    
    1,333
    
    
    
    121
    
    
    
    89Net benefit cost
    
    
    2,993
    
    
    
    2,513
    
    
    
    53
    
    
    
    113Change in associated
regulatory liabilities
    
    
    
    
    
    
    
    
    
    
    785
    
    
    
    736Net expense
    
    $
    2,993
    
    
    $
    2,513
    
    
    $
    838
    
    
    $
    849
 Pension Benefits
    
    
    Other Postretirement BenefitsSix Months Ended
    
    
    Six Months EndedMarch 31,
    
    
    March 31,2011
    
    
    2010
    
    
    2011
    
    
    2010Service cost
    
    $
    3,675
    
    
    $
    3,490
    
    
    $
    107
    
    
    $
    81Interest cost
    
    
    10,919
    
    
    
    10,568
    
    
    
    365
    
    
    
    423Expected return on assets
    
    
    (11,993
    )
    
    
    (11,717
    )
    
    
    (261
    )
    
    
    (252
    )Amortization of:Prior service cost (benefit)
    
    
    142
    
    
    
    18
    
    
    
    (348
    )
    
    
    (203
    )Actuarial loss
    
    
    3,698
    
    
    
    2,666
    
    
    
    243
    
    
    
    179Net benefit cost
    
    
    6,441
    
    
    
    5,025
    
    
    
    106
    
    
    
    228Change in associated
regulatory liabilities
    
    
    
    
    
    
    
    
    
    
    1,570
    
    
    
    1,472Net expense
    
    $
    6,441
    
    
    $
    5,025
    
    
    $
    1,676
    
    
    $
    1,700
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UGI UTILITIES, INC. AND SUBSIDIARIES
 Notes to Condensed Consolidated Financial Statements
     Three MonthsEndedDecember 31, 
2010Change in benefit obligations:Benefit obligations  October 1, 2010
    
    $
    464,976Service cost
    
    
    2,188Interest cost
    
    
    5,805Actuarial gain
    
    
    (30,639
    )Benefits paid
    
    
    (4,664
    )Benefit obligations  December 31, 2010
    
    $
    437,666Change in plan assets:Fair value of plan assets  October 1, 2010
    
    $
    287,902Actual gain on assets
    
    
    19,285Employer contribution
    
    
    1,788Benefits paid
    
    
    (4,664
    )Fair value of plan assets  December 31, 2010
    
    $
    304,311Funded status of the merged plan  December 31, 2010
    
    $
    (133,355
    )Liabilities recorded in the balance sheet:Unfunded liabilities  included in other current liabilities
    
    $
    (20,303
    )Unfunded liabilities  included in other noncurrent liabilities
    
    
    (113,052
    )Net amount recognized
    
    $
    (133,355
    )Amounts recorded in regulatory assets and liabilities:Prior service cost
    
    $
    257Net actuarial loss
    
    
    112,733Total
    
    $
    112,990Amounts recorded in stockholders equity:Prior service cost
    
    $
    29Net actuarial loss
    
    
    9,925Total
    
    $
    9,954
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##### Table of Contents



UGI UTILITIES, INC. AND SUBSIDIARIES
 Notes to Condensed Consolidated Financial Statements
   7.
    
    Commitments and Contingencies
     South Carolina Electric & Gas Company v. UGI Utilities, Inc.
  - 13 -




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##### Table of Contents



UGI UTILITIES, INC. AND SUBSIDIARIES
 Notes to Condensed Consolidated Financial Statements
   Frontier Communications Company v. UGI Utilities, Inc. et al.
 Sag Harbor, New York Matter
 Yankee Gas Services Company and Connecticut Light and Power Company v. UGI Utilities,
Inc.
  - 14 -




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##### Table of Contents



UGI UTILITIES, INC. AND SUBSIDIARIES
 Notes to Condensed Consolidated Financial Statements
    Allentown, Pennsylvania Natural Gas Explosion.
    - 15 -




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##### Table of Contents



UGI UTILITIES, INC. AND SUBSIDIARIES
 Notes to Condensed Consolidated Financial Statements
   8.
    
    Related Party Transactions
     - 16 -




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UGI UTILITIES, INC. AND SUBSIDIARIES
 Notes to Condensed Consolidated Financial Statements
      - 17 -




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##### Table of Contents



UGI UTILITIES, INC. AND SUBSIDIARIES
 Notes to Condensed Consolidated Financial Statements
   9.
    
    Fair Value Measurements
   Asset (Liability)Quoted Pricesin Active
    
    
    SignificantMarkets for
    
    
    OtherIdentical Assets
    
    
    Observable
    
    
    Unobservableand Liabilities
    
    
    Inputs
    
    
    Inputs(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    TotalMarch 31, 2011:Assets:Derivative financial
instruments:Commodity contracts
    
    $
    1,806
    
    
    $
    114
    
    
    $
    
    
    
    $
    1,920Interest rate contracts
    
    $
    
    
    
    $
    7,827
    
    
    $
    
    
    
    $
    7,827Liabilities:Derivative financial
instruments:Commodity contracts
    
    $
    (1,371
    )
    
    $
    (9,311
    )
    
    $
    
    
    
    $
    (10,682
    )September 30, 2010:Assets:Derivative financial
instruments:Commodity contracts
    
    $
    61
    
    
    $
    425
    
    
    $
    
    
    
    $
    486Liabilities:Derivative financial
instruments:Commodity contracts
    
    $
    (3,263
    )
    
    $
    (17,798
    )
    
    $
    
    
    
    $
    (21,061
    )March 31, 2010:Assets:Derivative financial
instruments:Commodity contracts
    
    $
    226
    
    
    $
    299
    
    
    $
    
    
    
    $
    525Liabilities:Derivative financial
instruments:Commodity contracts
    
    $
    (7,616
    )
    
    $
    
    
    
    $
    
    
    
    $
    (7,616
    )
     - 18 -




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##### Table of Contents



UGI UTILITIES, INC. AND SUBSIDIARIES
 Notes to Condensed Consolidated Financial Statements
   10.
    
    Disclosures About Derivative Instruments and Hedging Activities
  Commodity Price Risk
    - 19 -




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##### Table of Contents



UGI UTILITIES, INC. AND SUBSIDIARIES
 Notes to Condensed Consolidated Financial Statements
      Interest Rate Risk
   - 20 -




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##### Table of Contents



UGI UTILITIES, INC. AND SUBSIDIARIES
 Notes to Condensed Consolidated Financial Statements
    Derivative Financial Instrument Credit Risk
   As of March 31:
 Derivative Assets
    
    
    Derivative (Liabilities)Balance Sheet
    
    Fair Value
    
    
    Balance Sheet
    
    Fair ValueLocation
    
    2011
    
    
    2010
    
    
    Location
    
    2011
    
    
    2010Derivatives Designated
as
Hedging Instruments:Interest rate contracts
    
    Other assets
    
    $
    7,827
    
    
    $
    Derivatives Accounted
for
Under ASC 980:Commodity contracts
    
    Derivative financial instruments
    
    
    1,617
    
    
    
    226
    
    
    Derivative financial instruments and 
Other noncurrent liabilities
    
    $
    (10,682
    )
    
    $
    (7,616
    )Derivatives Not
Designated as
Hedging Instruments:Commodity contracts
    
    Derivative financial instruments
    
    
    303
    
    
    
    299Total Derivatives
    
    
    
    $
    9,747
    
    
    $
    525
    
    
    
    
    $
    (10,682
    )
    
    $
    (7,616
    )
  - 21 -




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UGI UTILITIES, INC. AND SUBSIDIARIES
 Notes to Condensed Consolidated Financial Statements
      - 22 -




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##### Table of Contents



UGI UTILITIES, INC. AND SUBSIDIARIES
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL 
CONDITION AND
RESULTS OF OPERATIONS
 Forward-Looking Statements
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UGI UTILITIES, INC. AND SUBSIDIARIES
 ANALYSIS OF RESULTS OF OPERATIONS
  2011 three-month period compared with 2010 three-month period
 IncreaseThree Months Ended March 31,
    
    2011
    
    
    2010
    
    
    (Decrease)(Millions of dollars)Gas Utility:Revenues
    
    $
    452.4
    
    
    $
    445.4
    
    
    $
    7.0
    
    
    
    1.6
    %Total margin (a)
    
    $
    163.9
    
    
    $
    154.0
    
    
    $
    9.9
    
    
    
    6.4
    %Operating income
    
    $
    101.0
    
    
    $
    91.1
    
    
    $
    9.9
    
    
    
    10.9
    %Income before income taxes
    
    $
    90.7
    
    
    $
    80.9
    
    
    $
    9.8
    
    
    
    12.1
    %System throughput  bcf
    
    
    61.3
    
    
    
    54.6
    
    
    
    6.7
    
    
    
    12.3
    %Heating degree days  % colder (warmer) than normal (b)
    
    
    6.6
    %
    
    
    (2.0
    )%
    
    
    
    
    
    
    Electric Utility:Revenues
    
    $
    31.7
    
    
    $
    31.6
    
    
    $
    0.1
    
    
    
    0.3
    %Total margin (a)
    
    $
    9.7
    
    
    $
    9.1
    
    
    $
    0.6
    
    
    
    6.6
    %Operating income
    
    $
    3.0
    
    
    $
    3.1
    
    
    $
    (0.1
    )
    
    
    (3.2
    )%Income before income taxes
    
    $
    2.4
    
    
    $
    2.6
    
    
    $
    (0.2
    )
    
    
    (7.7
    )%Distribution sales  gwh
    
    
    279.0
    
    
    
    262.8
    
    
    
    16.2
    
    
    
    6.2
    %
 bcf  billions of cubic feet. gwh  millions of kilowatt-hours.(a)
    
    Gas Utilitys total margin represents total revenues less total cost of sales. Electric
Utilitys total margin represents total revenues less total cost of sales and revenue-related
taxes, i.e. Electric Utility gross receipts taxes, of $1.8 million and $1.7 million during the
three-month periods ended March 31, 2011 and 2010, respectively. For financial statement
purposes, revenue-related taxes are included in Taxes other than income taxes in the
Condensed Consolidated Statements of Income.(b)
    
    Deviation from average heating degree days for the 15-year period 1995-2009 based upon
weather statistics provided by the National Oceanic and Atmospheric Administration (NOAA)
for airports located within Gas Utilitys service territory. Gas Utility
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UGI UTILITIES, INC. AND SUBSIDIARIES
    Electric Utility
   Interest Expense and Income Taxes.
  - 25 -




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##### Table of Contents



UGI UTILITIES, INC. AND SUBSIDIARIES
 2011 six-month period compared with 2010 six-month period
 IncreaseSix Months Ended March 31,
    
    2011
    
    
    2010
    
    
    (Decrease)(Millions of dollars)Gas Utility:Revenues
    
    $
    773.6
    
    
    $
    773.2
    
    
    $
    0.4
    
    
    
    0.1
    %Total margin (a)
    
    $
    290.1
    
    
    $
    272.0
    
    
    $
    18.1
    
    
    
    6.7
    %Operating income
    
    $
    176.0
    
    
    $
    154.8
    
    
    $
    21.2
    
    
    
    13.7
    %Income before income taxes
    
    $
    155.7
    
    
    $
    134.3
    
    
    $
    21.4
    
    
    
    15.9
    %System throughput  bcf
    
    
    110.2
    
    
    
    96.9
    
    
    
    13.3
    
    
    
    13.7
    %Heating degree days  % colder (warmer) than normal (b)
    
    
    7.2
    %
    
    
    (0.9
    )%
    
    
    
    
    
    
    Electric Utility:Revenues
    
    $
    60.7
    
    
    $
    65.6
    
    
    $
    (4.9
    )
    
    
    (7.5
    )%Total margin (a)
    
    $
    18.4
    
    
    $
    19.7
    
    
    $
    (1.3
    )
    
    
    (6.6
    )%Operating income
    
    $
    6.6
    
    
    $
    8.5
    
    
    $
    (1.9
    )
    
    
    (22.4
    )%Income before income taxes
    
    $
    5.5
    
    
    $
    7.6
    
    
    $
    (2.1
    )
    
    
    (27.6
    )%Distribution sales  gwh
    
    
    529.5
    
    
    
    505.2
    
    
    
    24.3
    
    
    
    4.8
    %
 bcf  billions of cubic feet. gwh  millions of kilowatt-hours.(a)
    
    Gas Utilitys total margin represents total revenues less total cost of sales. Electric
Utilitys total margin represents total revenues less total cost of sales and revenue-related
taxes, i.e. Electric Utility gross receipts taxes, of $3.4 million and $3.6 million during the
six-month periods ended March 31, 2011 and 2010, respectively. For financial statement
purposes, revenue-related taxes are included in Taxes other than income taxes in the
Condensed Consolidated Statements of Income.(b)
    
    Deviation from average heating degree days for the 15-year period 1995-2009 based upon
weather statistics provided by the National Oceanic and Atmospheric Administration (NOAA)
for airports located within Gas Utilitys service territory. Gas Utility
    - 26 -




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##### Table of Contents



UGI UTILITIES, INC. AND SUBSIDIARIES
  Electric Utility.
   Interest Expense and Income Taxes.
 FINANCIAL CONDITION AND LIQUIDITY
 Financial Condition
    - 27 -




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##### Table of Contents



UGI UTILITIES, INC. AND SUBSIDIARIES
   Cash Flows
 Operating activities.
  Investing activities
  - 28 -




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##### Table of Contents



UGI UTILITIES, INC. AND SUBSIDIARIES
 Financing activities.
 Merger of Pension Plans
  Transfer of CPG Storage Assets
  CPG Base Rate Filing
   - 29 -




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##### Table of Contents



UGI UTILITIES, INC. AND SUBSIDIARIES
 
 ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
       - 30 -




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##### Table of Contents



UGI UTILITIES, INC. AND SUBSIDIARIES
 
 ITEM 4.
    
    CONTROLS AND PROCEDURES
 (a)
    
    Evaluation of Disclosure Controls and Procedures
 The Companys disclosure controls and procedures are designed to provide reasonable
assurance that the information required to be disclosed by the Company in reports filed
under the Securities Exchange Act of 1934, as amended, is (i) recorded, processed,
summarized, and reported within the time periods specified in the SECs rules and forms, and
(ii) accumulated and communicated to our management, including the Chief Executive Officer
and Chief Financial Officer, as appropriate to allow timely decisions regarding required
disclosure. The Companys management, with the participation of the Companys Chief
Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Companys
disclosure controls and procedures as of the end of the period covered by this Report. Based
on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that
the Companys disclosure controls and procedures, as of the end of the period covered by
this Report, were effective at the reasonable assurance level.
 (b)
    
    Change in Internal Control over Financial Reporting
 No change in the Companys internal control over financial reporting occurred during the
Companys most recent fiscal quarter that has materially affected, or is reasonably likely
to materially affect, the Companys internal control over financial reporting.
  - 31 -




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##### Table of Contents



UGI UTILITIES, INC. AND SUBSIDIARIES
 
 PART II OTHER INFORMATION
 
 ITEM 1.
    
    LEGAL PROCEEDINGS
 Yankee Gas Services Company and Connecticut Light and Power Company v. UGI Utilities, Inc.
 
 ITEM 1A.
    
    RISK FACTORS
  As a result of recent natural gas explosions in the United States, including the Companys
February 9, 2011 natural gas explosion in Allentown, Pennsylvania, regulators may adopt new laws
or reinterpret existing laws and regulations relating to the replacement of cast iron and bare
steel natural gas pipelines which may adversely affect our results of operations and cash flows.
    - 32 -




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##### Table of Contents



UGI UTILITIES, INC. AND SUBSIDIARIES
 
 ITEM 6.
    
    EXHIBITS
 Exhibit No.
    
    Exhibit
    
    Registrant
    
    Filing
    
    Exhibit10.1
    
    
    FTS-1 Service
Agreement No. 46283
dated November 1,
1993, as amended by
that certain letter
agreement dated May
5, 2004 between
Columbia Gulf
Transmission Company
and UGI Utilities,
Inc.10.2
    
    
    FTS Service Agreement
No. 46284 dated
November 1, 1993, as
amended by that
certain letter
agreement dated May
5, 2004, between
Columbia Transmission
Corporation and UGI
Utilities, Inc.10.3
    
    
    Amendment to FTS-1
Service Agreement No.
46283 and FTS Service
Agreement No. 46284
each dated November
1, 1993, as amended
by that certain
letter agreement
dated May 5, 2004
dated November 1,
199312.1
    
    
    Computation of
ratio of earnings to
fixed charges31.1
    
    
    Certification by the
Chief Executive
Officer relating to
the Registrants
Report on Form 10-Q
for the quarter ended
March 31, 2011,
pursuant to Section
302 of the
Sarbanes-Oxley Act of
200231.2
    
    
    Certification by the
Chief Financial
Officer relating to
the Registrants
Report on Form 10-Q
for the quarter ended
March 31, 2011,
pursuant to Section
302 of the
Sarbanes-Oxley Act of
200232
    
    
    Certification by the
Chief Executive
Officer and the Chief
Financial Officer
relating to the
Registrants Report
on Form 10-Q for the
quarter ended March
31, 2011, pursuant to
Section 906 of the
Sarbanes-Oxley Act of
2002
  - 33 -




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##### Table of Contents



UGI UTILITIES, INC. AND SUBSIDIARIES
 
   UGI Utilities, Inc.
(Registrant)Date:  May 6, 2011
    By:
    /s/ Donald E. BrownDonald E. BrownVice President  Finance and
Chief Financial OfficerDate:  May 6, 2011
    By:
    /s/ Matthew J. NolanMatthew J. NolanController  - 34 -




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UGI UTILITIES, INC. AND SUBSIDIARIES
 
 EXHIBIT INDEX
 10.1
    
    
    FTS Service Agreement No. 46284 dated November 1, 1993, as amended by that
certain letter agreement dated May 5, 2004, between Columbia Transmission Corporation
and UGI Utilities, Inc.10.2
    
    
    FTS-1 Service Agreement No. 46283 dated November 1, 1993, as amended by that
certain letter agreement dated May 5, 2004 between Columbia Gulf Transmission Company
and UGI Utilities, Inc.10.3
    
    
    Amendment to FTS-1 Service Agreement No. 46283 and FTS Service Agreement No.
46284 each dated November 1, 1993, as amended by that certain letter agreement dated May
5, 2004 dated November 1, 199312.1
    
    
    Computation of ratio of earnings to fixed charges31.1
    
    
    Certification by the Chief Executive Officer relating to the Registrants Report
on Form 10-Q for the quarter ended March 31, 2011, pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2
    
    
    Certification by the Chief Financial Officer relating to the Registrants Report
on Form 10-Q for the quarter ended March 31, 2011, pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232
    
    
    Certification by the Chief Executive Officer and the Chief Financial Officer
relating to the Registrants Report on Form 10-Q for the quarter ended March 31, 2011,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
  - 35 -