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Note 4 - Regulatory Assets and Liabilities

3 Months Ended

Mar. 31, 2020

Schedule of Regulatory Assets and Liabilities [Text Block]

4. Regulatory Assets and Liabilities

As a regulated entity, OTP accounts for the financial effects of regulation in accordance with ASC 980. This accounting standard allows for the recording of a regulatory asset or liability for costs that will be collected or refunded in the future as required under regulation. Additionally, ASC 980-605-25 provides for the recognition of revenues authorized for recovery outside of a general rate case under alternative revenue programs which provide for recovery of costs and incentives or returns on investment in such items as transmission infrastructure, renewable energy resources or conservation initiatives. The following tables indicate the amount of regulatory assets and liabilities recorded on the Company’s consolidated balance sheets:

	March 31, 2020								Remaining Recovery/
(in thousands)	Current		Long-Term			Total			Refund Period (months)
Regulatory Assets:
Prior Service Costs and Actuarial Losses on Pensions and Other Postretirement Benefits¹	$	9,018	$	127,038		$	136,056			see below
Accumulated Asset Retirement Obligation (ARO) Accretion/Depreciation Adjustment¹		-		8,007			8,007			asset lives
Minnesota Transmission Cost Recovery Rider Accrued Revenues²		5,965		-			5,965			12
Conservation Improvement Program Costs and Incentives²		1,288		3,511			4,799			18
MISO Schedule 26/26A Transmission Cost Recovery Rider True-ups¹		1,767		928			2,695			21
Nonservice Costs Components of Postretirement Benefits Capitalized for Ratemaking Purposes and Subject to Deferred Recovery¹		-		1,826			1,826			asset lives
Big Stone II Unrecovered Project Costs – Minnesota¹		724		38			762			13
Debt Reacquisition Premiums¹		204		482			686			150
Deferred Marked-to-Market Losses¹		557		-			557			9
Big Stone II Unrecovered Project Costs – South Dakota¹		144		217			361			30
Minnesota Renewable Resource Rider Accrued Revenues²		354		-			354			12
South Dakota Deferred Rate Case Expenses Subject to Recovery¹		138		211			349			31
North Dakota Deferred Rate Case Expenses Subject to Recovery¹		122		213			335			33
Minnesota SPP Transmission Cost Recovery Tracker¹		-		206			206			see below
South Dakota Phase-In Rate Plan Rider Accrued Revenues²		73		-			73			12
Deferred Lease Expenses¹		-		57			57			36
Minnesota Environmental Cost Recovery Rider Accrued Revenues²		4		-			4			12
Total Regulatory Assets	$	20,358	$	142,734		$	163,092
Regulatory Liabilities:
Deferred Income Taxes	$	-	$	140,112		$	140,112			asset lives
Accumulated Reserve for Estimated Removal Costs – Net of Salvage		-		98,465			98,465			asset lives
Refundable Fuel Clause Adjustment Revenues		8,078		-			8,078			12
North Dakota Transmission Cost Recovery Rider Accrued Refund		662		-			662			12
Prior Service Costs and Actuarial Gains on Postretirement Benefits		471		-			471			12
Revenue for Rate Case Expenses Subject to Refund – Minnesota		-		460			460			see below
North Dakota Renewable Resource Recovery Rider Accrued Refund		325		-			325			12
Minnesota Energy Intensive Trade Exposed Rider Accrued Refund		201		-			201			11
South Dakota Transmission Cost Recovery Rider Accrued Refund		33		-			33			11
North Dakota Generation Cost Recovery Rider Accrued Refund		28		-			28			12
Other		6		71			77			165
Total Regulatory Liabilities	$	9,804	$	239,108		$	248,912
Net Regulatory Asset/(Liability) Position	$	10,554	$	(96,374	)	$	(85,820	)

¹Costs subject to recovery without a rate of return.

²Amount eligible for recovery under an alternative revenue program which includes an incentive or rate of return.

December 31, 2019

Remaining Recovery/

(in thousands)

Current

Long-Term

Total
Refund Period (months)

Regulatory Assets:

Prior Service Costs and Actuarial Losses on Pensions and Other Postretirement Benefits¹
$ 9,090 $ 129,102 $ 138,192

see below

Accumulated Asset Retirement Obligation (ARO) Accretion/Depreciation Adjustment¹
- 7,772 7,772

asset lives

Minnesota Transmission Cost Recovery Rider Accrued Revenues²
4,208 - 4,208 12

Conservation Improvement Program Costs and Incentives²
4,024 2,844 6,868 21

MISO Schedule 26/26A Transmission Cost Recovery Rider True-ups¹
2,033 968 3,001 24

Nonservice Costs Components of Postretirement Benefits Capitalized for Ratemaking Purposes and Subject to Deferred Recovery¹
- 1,681 1,681

asset lives

Big Stone II Unrecovered Project Costs – Minnesota¹
715 225 940 16

Debt Reacquisition Premiums¹
201 548 749 153

Deferred Marked-to-Market Losses¹
743 - 743 12

Big Stone II Unrecovered Project Costs – South Dakota¹
144 253 397 33

Minnesota Renewable Resource Rider Accrued Revenues²
131 - 131 12

South Dakota Deferred Rate Case Expenses Subject to Recovery¹
138 245 383 34

North Dakota Deferred Rate Case Expenses Subject to Recovery¹
122 244 366 36

Minnesota SPP Transmission Cost Recovery Tracker¹
- 202 202

see below

Deferred Lease Expenses¹
- 54 54 39

Minnesota Environmental Cost Recovery Rider Accrued Revenues²
4 - 4 12

South Dakota Transmission Cost Recovery Rider Accrued Revenues²
97 - 97 2

Total Regulatory Assets
$ 21,650 $ 144,138 $ 165,788

Regulatory Liabilities:

Deferred Income Taxes
$ - $ 141,707 $ 141,707

asset lives

Accumulated Reserve for Estimated Removal Costs – Net of Salvage
- 97,726 97,726

asset lives

Refundable Fuel Clause Adjustment Revenues
3,982 - 3,982 12

North Dakota Transmission Cost Recovery Rider Accrued Refund
700 - 700 12

Prior Service Costs and Actuarial Gains on Postretirement Benefits
471 - 471 12

Revenue for Rate Case Expenses Subject to Refund – Minnesota
- 401 401

see below

North Dakota Renewable Resource Recovery Rider Accrued Refund
1,515 - 1,515 12

Minnesota Energy Intensive Trade Exposed Rider Accrued Refund
164 - 164 12

North Dakota Generation Cost Recovery Rider Accrued Refund
287 - 287 6

Other
6 72 78 168

South Dakota Phase-In Rate Plan Rider Accrued Refund
355 - 355 9

Total Regulatory Liabilities
$ 7,480 $ 239,906 $ 247,386

Net Regulatory Asset/(Liability) Position
$ 14,170 $ (95,768 ) $ (81,598 )

¹Costs subject to recovery without a rate of return.

²Amount eligible for recovery under an alternative revenue program which includes an incentive or rate of return.

The regulatory asset and liability related to prior service costs and actuarial losses on pensions and other postretirement benefits represents benefit costs and actuarial losses and gains subject to recovery or refund through rates as they are expensed. These unrecognized benefit costs and actuarial losses and gains are required to be recognized as components of Accumulated Other Comprehensive Income in equity under ASC Topic 715, Compensation—Retirement Benefits, but are eligible for treatment as regulatory assets or liabilities based on their probable inclusion in future retail electric rates.

The Accumulated ARO Accretion/Depreciation Adjustment will accrete and be amortized over the lives of property with asset retirement obligations.

The Minnesota Transmission Cost Recovery Rider Accrued Revenues relate to revenues earned on qualifying transmission system facilities and operating costs incurred to serve Minnesota customers that were recoverable from Minnesota customers as of the balance sheet date.

Conservation Improvement Program Costs and Incentives represent mandated conservation expenditures and incentives recoverable through retail electric rates.

MISO Schedule 26/26A Transmission Cost Recovery Rider True-ups relate to the over/under collection of revenue based on comparison of the expected versus actual construction on eligible projects in the period. The true-ups also include the state jurisdictional portion of MISO Schedule 26/26A for regional transmission cost recovery that was included in the calculation of the state transmission riders and subsequently adjusted to reflect actual billing amounts in the schedule.

The Nonservice Costs Components of Postretirement Benefits Capitalized for Ratemaking Purposes and Subject to Deferred Recovery are employee benefit-related costs that are required to be capitalized for ratemaking purposes and are recovered over the depreciable lives of the assets to which the related labor costs were applied.

Big Stone II Unrecovered Project Costs – Minnesota are the Minnesota share of generation and transmission plant-related costs incurred by OTP related to its participation in the abandoned Big Stone II project.

Debt Reacquisition Premiums are being recovered from OTP customers over the remaining original lives of the reacquired debt issues, the longest of which is 150 months.

All Deferred Marked-to-Market Losses recorded as of the balance sheet date relate to forward purchases of energy scheduled for delivery through December 2020.

Big Stone II Unrecovered Project Costs – South Dakota are the South Dakota share of generation and transmission plant-related costs incurred by OTP related to its participation in the abandoned Big Stone II project.

The Minnesota Renewable Resource Recovery Rider Accrued Revenues relate to revenues earned on qualifying renewable resource costs incurred to serve Minnesota customers that were recoverable from Minnesota customers as of the balance sheet date.

South Dakota Deferred Rate Case Expenses Subject to Recovery relate to costs incurred in conjunction with OTP’s most recent rate case in South Dakota and are currently being recovered beginning with the establishment of interim rates in October 2018.

North Dakota Deferred Rate Case Expenses Subject to Recovery relate to costs incurred in conjunction with OTP’s most recent rate case in North Dakota currently being recovered beginning with the establishment of interim rates in January 2018.

The Minnesota SPP Transmission Cost Recovery Tracker regulatory asset relates to costs incurred to serve Minnesota customers that are subject to recovery but that had not been billed to Minnesota customers as of the balance sheet date.

The South Dakota Phase-In Rate Plan Rider Accrued Revenues relate to revenues earned for actual and forecasted costs for Astoria Station, Merricourt, and additional load growth that were recoverable from South Dakota customers as of the balance sheet date.

Deferred Lease Expenses: Under ASC 842 accounting rules for leases with scheduled escalating payments, rent expense is required to be recognized on a straight-line basis over the life of the lease based on the sum of those payments. Rate-regulated entities are generally only allowed to recover the amount of actual cash payments on leases and FERC accounting rules require that rent expense be recognized on the basis of cash payments. The balance in the deferred lease expense regulatory asset account represents operating lease right of use asset cumulative amortization and interest costs in excess of cumulative lease payments that are subject to recovery in future periods under regulatory accounting treatment as cash payments are rendered.

The Minnesota Environmental Cost Recovery Rider Accrued Revenues relate to revenues earned on the Minnesota share of OTP’s investment in the Big Stone Plant AQCS project that were recoverable from Minnesota customers as of the balance sheet date.

The South Dakota Transmission Cost Recovery Rider Accrued Revenues relate to revenues earned on qualifying transmission system facilities and operating costs incurred to serve South Dakota customers that were recoverable from South Dakota customers as of the balance sheet date.

The regulatory liability related to Deferred Income Taxes results from changes in statutory tax rates accounted for in accordance with ASC Topic 740, Income Taxes.

The Accumulated Reserve for Estimated Removal Costs – Net of Salvage is reduced as actual removal costs, net of salvage revenues, are incurred.

The North Dakota Transmission Cost Recovery Rider Accrued Refund relates to amounts collected for qualifying transmission system facilities and operating costs incurred to serve North Dakota customers that were refundable to North Dakota customers as of the balance sheet date.

Revenue for Rate Case Expenses Subject to Refund – Minnesota relates to revenues collected under general rates to recover costs related to prior rate case proceedings in excess of the actual costs incurred.

The North Dakota Renewable Resource Recovery Rider Accrued Refund relates to amounts collected for qualifying renewable resource costs incurred to serve North Dakota customers that were refundable to North Dakota customers as of the balance sheet date.

The Minnesota Energy Intensive Trade Exposed Rider Accrued Refund relates to over-collected amounts from Minnesota retail customers for fuel and purchased power costs reductions provided to customers in energy intensive trade exposed industries that were subject to refund to Minnesota customers as of the balance sheet date.

The South Dakota Transmission Cost Recovery Rider Accrued Refund relates to amounts collected for qualifying transmission system facilities and operating costs incurred to serve South Dakota customers that were refundable to South Dakota customers as of the balance sheet date.

The North Dakota Generation Cost Recovery Rider Accrued Refund relates to revenues collected under the rider in excess of returns allowed on recoverable costs incurred for the North Dakota share of OTP’s investment in Astoria Station, a natural gas-fired combustion turbine generation facility under construction near Astoria, South Dakota. The balance represents amounts subject to refund to North Dakota customers that had been billed to North Dakota customers as of the balance sheet date.

The South Dakota Phase-In Rate Plan Rider Accrued Refund relates to amounts collected for actual and forecasted costs for Astoria Station, Merricourt, and additional load growth that were refundable to South Dakota customers as of the balance sheet date.

If for any reason OTP ceases to meet the criteria for application of guidance under ASC 980 for all or part of its operations, the regulatory assets and liabilities that no longer meet such criteria would be removed from the consolidated balance sheet and included in the consolidated statement of income as an expense or income item in the period in which the application of guidance under ASC 980 ceases.