Regulatory Matters:

3 Months Ended

Mar. 31, 2021

Regulatory Assets and Liabilities Disclosure [Abstract]

We had the following regulatory assets and liabilities (in thousands) as of:


	As of		As of
	March 31, 2021		December 31, 2020
Regulatory assets
Winter Storm Uri (a)	$	480,842	$	—
Deferred energy and fuel cost adjustments (a) (b)	68,402		39,035
Deferred gas cost adjustments (a) (b)	17,066		3,200
Gas price derivatives (b)	324		2,226
Deferred taxes on AFUDC (c)	7,469		7,491
Employee benefit plans and related deferred taxes (d)	117,886		116,598
Environmental (b)	1,413		1,413

Loss on reacquired debt (b)	22,386		22,864

Deferred taxes on flow through accounting (d)	51,823		47,515
Decommissioning costs (c)	7,827		8,988
Gas supply contract termination (b)	1,013		2,524
Other regulatory assets (b)	25,806		26,404
Total regulatory assets	802,257		278,258
Less current regulatory assets	(129,951)		(51,676)
Regulatory assets, non-current	$	672,306	$	226,582

Regulatory liabilities
Deferred energy and gas costs (b)	$	426	$	13,253
Employee benefit plan costs and related deferred taxes (d)	40,471		40,256
Cost of removal (b)	177,003		172,902

Excess deferred income taxes (d)	271,492		285,259

Other regulatory liabilities (d)	21,998		21,050
Total regulatory liabilities	511,390		532,720
Less current regulatory liabilities	(13,580)		(25,061)
Regulatory liabilities, non-current	$	497,810	$	507,659

__________

(a) We are in discussions with our regulators regarding the timing of Winter Storm Uri incremental cost recovery. See further information below.

(b) Recovery of costs, but we are not allowed a rate of return.

(d) In addition to recovery or repayment of costs, we are allowed a return on a portion of this amount or a reduction in rate base.

Regulatory Activity

Except as discussed below, there have been no other significant changes to our Regulatory Matters from those previously disclosed in Note 2 of the Notes to the Consolidated Financial Statements in our 2020 Annual Report on Form 10-K.

Winter Storm Uri

In February 2021, a prolonged period of historic cold temperatures across the central United States, which covered all of our Utilities’ service territories, caused a significant increase in heating and energy demand and contributed to unforeseeable and unprecedented market prices for natural gas and electricity. As a result of Winter Storm Uri, our net pre-tax incremental fuel, purchased power and natural gas costs during the three months ended March 31, 2021 were approximately $571 million. This amount does not include potential pipeline transportation charges for certain suppliers who have requested and received approval from FERC to delay billings.

Our Utilities have regulatory mechanisms to recover approximately $559 million of incremental costs from Winter Storm Uri. However, given the extraordinary impact of these higher costs to our customers, our regulators are performing a heightened review. We are engaged with our regulators to identify appropriate periods over which to recover incremental costs with consideration of the impacts to our customers’ bills. We expect to recover most of the Winter Storm Uri incremental costs through a separately tracked regulatory mechanism but we also anticipate recovery of a portion of the costs through existing mechanisms.

For the three months ended March 31, 2021, we expensed $12.5 million of Winter Storm Uri net incremental costs as a result of negative impacts to our Utilities and financing costs partially offset by favorable impacts to our Power Generation segment. Our Electric Utilities incurred a $3.2 million negative impact to our regulated wholesale power margins due to higher fuel costs and $2.1 million of incremental fuel costs that are not recoverable through our fuel cost recovery mechanisms. Black Hills Energy Services offers fixed contract pricing for non-regulated gas supply services to our regulated natural gas customers and the $8.2 million increase in cost of natural gas sold during Winter Storm Uri is not recoverable through the regulatory construct. Additionally, we incurred $0.7 million of interest expense for the three months ended March 31, 2021, related to our $800 million term loan which is discussed in Note 5. Our non-regulated Power Generation segment benefited from a $1.7 million favorable impact to operating income from Winter Storm Uri.

Winter Storm Uri Costs by Jurisdiction

As of March 31, 2021, our estimate of incremental costs from Winter Storm Uri which was recorded to a regulatory asset is shown below by jurisdiction. This information is based on anticipated filings that we expect to complete in the second quarter of 2021 and is subject to adjustments as applications are submitted and final decisions are issued.


Costs by Jurisdiction	(in thousands)
Gas Utilities:
Arkansas Gas	$	137,500
Colorado Gas	77,850
Iowa Gas	95,450
Kansas Gas	87,900
Nebraska Gas	79,750
Wyoming Gas	29,409
Gas Utilities Total	$	507,859

Electric Utilities:
Colorado Electric	$	25,500
South Dakota Electric	22,200
Wyoming Electric	3,266
Electric Utilities Total	$	50,966

Total Winter Storm Uri Incremental Costs Recorded to Regulatory Asset	$	558,825

Costs by Regulatory Asset
Winter Storm Uri (a)	$	480,842
Deferred energy and fuel cost adjustments	27,166
Deferred gas cost adjustments (b)	50,817
	$	558,825

__________

(a) We expect to recover most of the Winter Storm Uri incremental costs through a separately tracked regulatory mechanism but also expect to recover a portion through our existing mechanisms.

(b) Incremental natural gas costs from Winter Storm Uri are reflected as an increase in the Deferred gas cost adjustments regulatory asset, net of existing Deferred energy and gas cost regulatory liabilities, for the three months ended March 31, 2021.

TCJA

On December 30, 2020, an administrative law judge approved a settlement of Colorado Electric’s plan to provide $9.3 million of TCJA-related bill credits to its customers. The bill credits, which represent a disposition of excess deferred income tax benefits resulting from the TCJA, were delivered to customers in February 2021. These bill credits, which resulted in a reduction in revenue, were offset by a reduction in income tax expense and resulted in a minimal impact to Net Income for the three months ended March 31, 2021.

On January 26, 2021, the NPSC approved Nebraska Gas’s plan to provide $2.9 million of TCJA-related bill credits to its customers. The bill credits, which represent a disposition of excess deferred income tax benefits resulting from the TCJA, are expected to be delivered to customers in the second quarter of 2021. These bill credits, which will result in a reduction in revenue, will be offset by a reduction in income tax expense and will result in a minimal impact to Net income.

Colorado Gas

Rate Review

On September 11, 2020, Colorado Gas filed a rate review with the CPUC seeking recovery on significant infrastructure investments in its 7,000-mile natural gas pipeline system. On January 6, 2021, the CPUC issued an Order dismissing the rate review. Colorado Gas plans to file a rate review in the second quarter of 2021.

On September 11, 2020, in accordance with the final order from the earlier rate review filed February 1, 2019, Colorado Gas filed a SSIR proposal with the CPUC that would recover safety and integrity focused investments in its system for five years. A decision from the CPUC is expected by mid-2021.

Nebraska Gas

Jurisdictional Consolidation and Rate Review

On January 26, 2021, Nebraska Gas received approval from the NPSC to consolidate rate schedules into a new, single statewide structure and recover infrastructure investments in its 13,000-mile natural gas pipeline system. Final rates were enacted on March 1, 2021, which replaced interim rates effective September 1, 2020. The approval shifted $4.6 million of SSIR revenue to base rates and is expected to generate $6.5 million in new annual revenue with a capital structure of 50% equity and 50% debt and an authorized return on equity of 9.5%. The approval also includes an extension of the SSIR for five years and an expansion of this mechanism across the consolidated jurisdictions.