Regulatory Matters

12 Months Ended

Dec. 31, 2022

Regulatory Assets and Liabilities Disclosure [Abstract]

Regulatory Assets and Liabilities

The following presents our current and long-term regulatory assets and liabilities as of December 31, 2022 and 2021 and the period we expect to recover or refund such amounts:


	Period of	2022				2021
(in thousands)	Recovery/Refund	Current		Long-Term		Current		Long-Term

Regulatory Assets
Pension and Other Postretirement Benefit Plans1	See below	$	—	$	88,354	$	7,791	$	114,961
Alternative Revenue Program Riders2	Up to 2 years	5,679		2,508		11,889		5,564
Asset Retirement Obligations1	Asset lives	—		1,467		—		742

ISO Cost Recovery Trackers1	Up to 2 years	575		314		—		1,342
Unrecovered Project Costs1	Up to 5 years	320		990		2,136		1,455
Deferred Rate Case Expenses1	Up to 2 years	377		754		607		1,131
Debt Reacquisition Premiums1	Up to 10 years	25		216		100		240
Fuel Clause Adjustments1	Up to 1 year	10,893		—		4,819		—
Derivative Instruments1	Up to 1 year	7,130		—		—		—
Other1	Various	—		52		—		73
Total Regulatory Assets		24,999		94,655		27,342		125,508
Regulatory Liabilities
Deferred Income Taxes	Asset lives	—		131,480		—		129,437
Plant Removal Obligations	Asset lives	8,509		105,733		8,306		101,595
Fuel Clause Adjustments	Up to 1 year	365		—		1,554		—
Alternative Revenue Program Riders	Various	2,504		7,136		5,772		3,336
Pension and Other Postretirement Benefit Plans	Up to 1 year	5,589		—		2,603		—

Derivative Instruments	Up to 1 year	—		—		6,214		—

Other	Various	333		148		395		62
Total Regulatory Liabilities		$	17,300	$	244,497	$	24,844	$	234,430

1Costs subject to recovery without a rate of return.
2Amount eligible for recovery includes an incentive or rate of return.

Pension and Other Postretirement Benefit Plans represent benefit costs and actuarial losses and gains subject to recovery or refund through rates as they are expensed or amortized. These unrecognized benefit costs and actuarial losses and gains are eligible for treatment as regulatory assets or liabilities based on their probable inclusion in future electric rates.

Alternative Revenue Program Riders regulatory assets and liabilities are revenues not yet collected from customers or amounts subject to refund, respectively, primarily due to investments in qualifying transmission, conservation, renewable resource, environmental and other generation assets, and the impact of decoupling.

Asset Retirement Obligations represent the difference in timing of recognition of expense arising from these obligations and the amount recovered from customers.

Independent System Operator (ISO) Cost Recovery Trackers represent costs incurred to serve Minnesota customers for the under-collection of revenue based on expected versus actual construction costs on eligible projects.

Unrecovered Project Costs reflect costs incurred for abandoned generation and transmission assets and accelerated depreciation expense on a retired generation asset being recovered from customers.

Deferred Rate Case Expenses relate to costs incurred in conjunction with recent rate cases that are currently being recovered, or are expected to be recovered, from customers.

Debt Reacquisition Premiums represent costs to retire debt which are being recovered from customers over the remaining original lives of the reacquired debt.

Fuel Clause Adjustments represent the under- or over-collection of fuel costs to be collected from or returned to customers.

Deferred Income Taxes represent the revaluation of accumulated deferred income taxes arising from the change in the federal income tax rate in 2017. This amount is being refunded to customers over the estimated lives of the property assets from which the deferred income taxes originated.

Plant Removal Obligations represent amounts collected from customers to be used to cover actual removal costs as incurred.

Derivative Instruments represent unrealized gains and losses recognized on derivative instruments. On final settlement of such instruments, any realized gains or losses are paid to or recovered from customers.

Minnesota Rate Case

On November 2, 2020, OTP filed an initial request with the MPUC for an increase in revenue recoverable through base rates in Minnesota, and on December 3, 2020, the MPUC approved an interim annual rate increase of $6.9 million, or 3.2%, effective January 1, 2021.

On February 1, 2022, the MPUC issued its written order on final rates. The key provisions of the order included a revenue requirement of $209.0 million, based on a return on rate base of 7.18% and an allowed ROE of 9.48% on an equity ratio of 52.5%. The order also authorized recovery of our remaining Hoot Lake Plant net asset over a five-year period and approved the requested decoupling mechanism for most residential and commercial customer rate groups with a cap of 4% of annual base revenues.

On May 12, 2022, OTP's final rate case compliance filing was approved by the MPUC. The filing included final revenue calculations, rate design and resulting tariff revisions, along with a determination of the interim rate refund, which resulted in an increase in revenues during 2022 of $4.1 million. Final rates took effect on July 1, 2022, and interim rate refunds of $15.3 million were applied to customer accounts.

MISO Resource Planning Auction

In 2022, we offered excess capacity into the annual MISO planning resource auction for the period June 2022 through May 2023. As a result of a capacity shortage in the MISO region, capacity prices cleared the auction at maximum pricing. During the year ended December 31, 2022, OTP recorded approximately $5.3 million of excess capacity auction revenues. We anticipate the Minnesota allocated portion of net capacity auction revenues will be returned to customers through the FCA mechanism in the state, and a portion of the net capacity auction revenues allocated to our other jurisdictions will be used to mitigate customer rate increases or returned to customers through various mechanisms. At December 31, 2022, we recognized a reduction of a regulatory asset of $2.6 million and a refund liability of $1.8 million for net capacity auction revenues we anticipate will be refunded to customers.