REGULATORY ASSETS AND LIABILITIES

Regulatory Assets

The following table summarizes the regulatory asset balances at December 31, 2015 and 2014:



(In thousands)	2015		2014
Regulatory Assets:
Current:
Revenue accruals (including accrued interest of $265 and $120 as of December 31, 2015 and 2014, respectively) (a)	$	14,736	$	5,393
Non-current:
Revenue accruals (including accrued interest of $153 and $75 as of December 31, 2015 and 2014, respectively) (a)	25,670		12,387
ITCTransmission ADIT Deferral (net of accumulated amortization of $38,886 and $35,856 as of December 31, 2015 and 2014, respectively)	21,716		24,746
METC ADIT Deferral (net of accumulated amortization of $21,228 and $18,869 as of December 31, 2015 and 2014, respectively)	21,228		23,587
METC Regulatory Deferrals (net of accumulated amortization of $6,943 and $6,172 as of December 31, 2015 and 2014, respectively)	8,486		9,257
Income taxes recoverable related to AFUDC equity	103,465		87,168
ITC Great Plains start-up, development and pre-construction (b)	12,577		14,054
Pensions and postretirement	18,981		34,151
Income taxes recoverable related to implementation of the Michigan Corporate Income Tax	8,869		8,869
Accrued asset removal costs	12,117		7,337
Other	267		2,156
Total non-current	233,376		223,712

Total	$	248,112	$	229,105

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(a)	Refer to discussion of revenue accruals in Note 4 under “Cost-Based Formula Rates with True-Up Mechanism.” Our Regulated Operating Subsidiaries do not earn a return on the balance of these regulatory assets, but do accrue interest carrying costs, which are subject to rate recovery along with the principal amount of the revenue accrual.


(b)	Refer to discussion of ITC Great Plains start-up, development and pre-construction in Note 4 under “ITC Great Plains Start-Up, Development and Pre-Construction Regulatory Assets.”

ITCTransmission ADIT Deferral

The carrying amount of the ITCTransmission Accumulated Deferred Income Tax (“ADIT”) Deferral is the remaining unamortized balance of the portion of ITCTransmission’s purchase price in excess of the fair value of net assets acquired approved for inclusion in future rates by the FERC. ITCTransmission earns a return on the remaining unamortized balance of this regulatory asset that is included in rate base. The original amount recorded for this regulatory asset of $60.6 million is recognized in rates and amortized on a straight-line basis over 20 years. ITCTransmission recorded amortization expense of $3.0 million annually during 2015, 2014 and 2013, which is included in depreciation and amortization and recovered through ITCTransmission’s cost-based formula rate template.

METC ADIT Deferral

The carrying amount of the METC ADIT Deferral is the remaining unamortized balance of the portion of METC’s purchase price in excess of the fair value of net assets acquired from Consumers Energy approved for inclusion in future rates by the FERC. The original amount recorded for this regulatory asset of $42.5 million is recognized in rates and amortized on a straight-line basis over 18 years beginning January 1, 2007. METC earns a return on the remaining unamortized balance of this regulatory asset that is included in rate base. METC recorded amortization expense of $2.4 million annually during 2015, 2014 and 2013, which is included in depreciation and amortization and recovered through METC’s cost-based formula rate template.

METC Regulatory Deferrals

METC has deferred, as a regulatory asset, depreciation and related interest expense associated with new transmission assets placed in service from January 1, 2001 through December 31, 2005 that were included on METC’s balance sheet at the time Michigan Transco Holdings, LLC (“MTH”) acquired METC from Consumers Energy (the “METC Regulatory Deferrals”). The original amount recorded for this regulatory asset of $15.4 million is recognized in rates and amortized over 20 years beginning January 1, 2007. METC earns a return on the remaining unamortized balance of this regulatory asset that is included in rate base. METC recorded amortization expense of $0.8 million annually during 2015, 2014 and 2013, which is included in depreciation and amortization and recovered through METC’s cost-based formula rate template.

Income Taxes Recoverable Related to AFUDC Equity

Accounting standards for income taxes provide that a regulatory asset be recorded if it is probable that a future increase in taxes payable, relating to the book depreciation of AFUDC equity that has been capitalized to property, plant and equipment, will be recovered from customers through future rates. The regulatory asset for the tax effects of AFUDC equity is recovered over the life of the underlying book asset in a manner that is consistent with the depreciation of the AFUDC equity that has been capitalized to property, plant and equipment. We do not earn a return on this regulatory asset and the related deferred tax liabilities do not reduce rate base.

Pensions and Postretirement

Accounting standards for defined benefit pension and other postretirement plans for rate-regulated entities allow for amounts that otherwise would have been charged and/or credited to AOCI to be recorded as a regulatory asset or liability. As the unrecognized amounts recorded to this regulatory asset are recognized, expenses will be recovered from customers in future rates under our cost based formula rates. Our Regulated Operating Subsidiaries do not earn a return on the balance of this regulatory asset.

Income Taxes Recoverable Related to Implementation of the Michigan Corporate Income Tax

In May 2011, the Michigan Business Tax (“MBT”) was repealed and replaced with the Michigan Corporate Income Tax (“CIT”), effective January 1, 2012. Under the CIT, we are taxed at a rate of 6.0% on federal taxable income attributable to our operations in the state of Michigan, subject to certain adjustments. In addition to the traditional income tax, the MBT had also included a modified gross receipts tax that allowed for deductions and credits for certain activities, none of which are part of the CIT. The change in Michigan tax law required us in 2011 to remove deferred income tax balances recognized under the MBT and establish new deferred income tax balances under the CIT, and the net result was incremental deferred state income tax liabilities at both ITCTransmission and METC. Under our cost-based formula rate, the future taxes receivable as a result of the tax law change has resulted in the recognition of a regulatory asset, which will be collected from customers for the 23-year period and the 32-year period for ITCTransmission and METC, respectively, beginning in 2016. ITCTransmission and METC do not earn a return on the balance of this regulatory asset and the related net deferred tax liabilities do not reduce rate base.

Accrued Asset Removal Costs

The carrying amount of the accrued asset removal costs represents the difference between incurred costs to remove property, plant and equipment and the estimated removal costs included in rates. The portion of depreciation expense included in our depreciation rates related to asset removal costs reduces this regulatory asset and removal costs incurred are added to this regulatory asset. In addition, this regulatory asset has also been adjusted for timing differences between incurred costs to settle legal asset retirement obligations and the recognition of such obligations under the standards set forth by the FASB. Our Regulated Operating Subsidiaries include this item, excluding the cost component related to the recognition of our legal asset retirement obligations under the standards set forth by the FASB, as a reduction to accumulated depreciation for rate-making purposes, which is an increase to rate base.

Regulatory Liabilities

The following table summarizes the regulatory liability balances at December 31, 2015 and 2014:



(In thousands)	2015		2014
Regulatory Liabilities:
Current:
Revenue deferrals (including accrued interest of $1,698 and $1,853 as of December 31, 2015 and 2014, respectively) (a)	$	36,639	$	39,972
Refund related to the formula rate template modifications (including accrued interest of $864 as of December 31, 2015) (b)	8,154		—
Other	171		—
Total current	44,964		39,972
Non-current:
Revenue deferrals (including accrued interest of $101 and $541 as of December 31, 2015 and 2014, respectively) (a)	6,331		33,911
Accrued asset removal costs	70,233		70,705
Refund related to the formula rate template modifications (including accrued interest of $36 as of December 31, 2015) (b)	2,270		—
Estimated potential refund related to return on equity complaints (including accrued interest of $5,979 and $870 as of December 31, 2015 and 2014, respectively) (c)	167,977		47,780
Excess state income tax deductions	7,823		7,504
Other	154		170
Total non-current	254,788		160,070

Total	$	299,752	$	200,042

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(a)	Refer to discussion of revenue deferrals in Note 4 under “Cost-Based Formula Rates with True-Up Mechanism.” Our Regulated Operating Subsidiaries accrue interest on the true-up amounts which will be refunded through rates along with the principal amount of revenue deferrals in future periods.


(b)	Refer to discussion of the refund in Note 4 under “MISO Formula Rate Template Modifications Filing.”


(c)	Refer to discussion of the estimated potential refund in Note 16 under “Rate of Return on Equity and Capital Structure Complaints.”

Accrued Asset Removal Costs

Excess State Income Tax Deductions

We have taken income tax deductions associated with property additions that exceed the tax basis of property, and the unrealized income tax benefits resulting from these deductions are expected to be refunded to customers through future rates when the income tax benefits are realized. This regulatory liability and the related deferred tax assets do not affect rate base.