Regulatory Assets and Liabilities

6 Months Ended

Jun. 30, 2014

Regulatory Assets and Liabilities Disclosure [Abstract]

Regulatory Assets and Liabilities

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:

	June 30, 2014							Remaining Recovery/
(in thousands)	Current		Long-Term			Total		Refund Period
Regulatory Assets:
Prior Service Costs and Actuarial Losses on Pensions and Other Postretirement Benefits1	$	3,992	$	53,063		$	57,055	see note
Conservation Improvement Program Costs and Incentives2		2,668		5,134			7,802	24 months
Deferred Marked-to-Market Losses1		2,615		2,898			5,513	54 months
Accumulated ARO Accretion/Depreciation Adjustment1		--		4,915			4,915	asset lives
Big Stone II Unrecovered Project Costs – Minnesota1		575		3,443			4,018	102 months
MISO Schedule 26/26A Transmission Cost Recovery Rider True-up1		1,986		1,555			3,541	24 months
Debt Reacquisition Premiums1		358		2,066			2,424	219 months
Deferred Income Taxes1		--		2,221			2,221	asset lives
North Dakota Environmental Cost Recovery Rider Accrued Revenues2		2,173		--			2,173	12 months
Minnesota Transmission Rider Accrued Revenues2		1,076		1,012			2,088	24 months
Recoverable Fuel and Purchased Power Costs1		1,849		--			1,849	12 months
Big Stone II Unrecovered Project Costs – South Dakota2		100		793			893	107 months
North Dakota Renewable Resource Rider Accrued Revenues2		392		--			392	12 months
North Dakota Transmission Rider Accrued Revenues2		368		--			368	12 months
Minnesota Environmental Cost Recovery Rider Accrued Revenues2		178		--			178	12 months
South Dakota Transmission Rider Accrued Revenues2		93		--			93	12 months
Minnesota Renewable Resource Rider Accrued Revenues2		--		68			68	see note
Total Regulatory Assets	$	18,423	$	77,168		$	95,591
Regulatory Liabilities:
Accumulated Reserve for Estimated Removal Costs – Net of Salvage	$	--	$	72,497		$	72,497	asset lives
Deferred Marked-to-Market Gains		614		2,119			2,733	50 months
Deferred Income Taxes		--		1,778			1,778	asset lives
North Dakota Renewable Resource Rider Accrued Refund		--		1,662			1,662	21 months
Revenue for Rate Case Expenses Subject to Refund – Minnesota		--		536			536	see note
Big Stone II Over Recovered Project Costs – North Dakota		144		--			144	2 months
Deferred Gain on Sale of Utility Property – Minnesota Portion		6		103			109	234 months
South Dakota – Nonasset-Based Margin Sharing Excess		26		--			26	12 months
Total Regulatory Liabilities	$	790	$	78,695		$	79,485
Net Regulatory Asset (Liability) Position	$	17,633	$	(1,527	)	$	16,106
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, 2013						Remaining Recovery/
(in thousands)	Current		Long-Term		Total		Refund Period
Regulatory Assets:
Prior Service Costs and Actuarial Losses on Pensions and Other Postretirement Benefits1	$	4,095	$	55,012	$	59,107	see note
Deferred Marked-to-Market Losses1		3,008		8,674		11,682	60 months
Conservation Improvement Program Costs and Incentives2		4,945		3,959		8,904	18 months
Accumulated ARO Accretion/Depreciation Adjustment1		--		4,646		4,646	asset lives
Big Stone II Unrecovered Project Costs – Minnesota1		558		3,967		4,525	81 months
MISO Schedule 26/26A Transmission Cost Recovery Rider True-up1		1,351		1,753		3,104	24 months
Debt Reacquisition Premiums1		351		2,241		2,592	225 months
North Dakota Environmental Cost Recovery Rider Accrued Revenues2		2,331		--		2,331	12 months
Deferred Income Taxes1		--		1,805		1,805	asset lives
Big Stone II Unrecovered Project Costs – South Dakota2		101		843		944	113 months
North Dakota Renewable Resource Rider Accrued Revenues2		--		762		762	15 months
Recoverable Fuel and Purchased Power Costs1		760		--		760	12 months
Big Stone II Unrecovered Project Costs – North Dakota1		375		--		375	3 months
Minnesota Renewable Resource Rider Accrued Revenues2		--		68		68	see note
South Dakota Transmission Rider Accrued Revenues2		32		--		32	12 months
Deferred Holding Company Formation Costs1		27		--		27	6 months
General Rate Case Recoverable Expenses – South Dakota1		6		--		6	1 month
Total Regulatory Assets	$	17,940	$	83,730	$	101,670
Regulatory Liabilities:
Accumulated Reserve for Estimated Removal Costs – Net of Salvage	$	--	$	71,454	$	71,454	asset lives
Deferred Income Taxes		--		1,960		1,960	asset lives
Minnesota Transmission Rider Accrued Refund		670		--		670	12 months
Revenue for Rate Case Expenses Subject to Refund – Minnesota		--		289		289	see note
North Dakota Renewable Resource Rider Accrued Refund		261		--		261	12 months
North Dakota Transmission Rider Accrued Refund		215		--		215	12 months
Deferred Marked-to-Market Gains		6		117		123	56 months
Deferred Gain on Sale of Utility Property – Minnesota Portion		5		106		111	240 months
South Dakota – Nonasset-Based Margin Sharing Excess		38		--		38	12 months
Total Regulatory Liabilities	$	1,195	$	73,926	$	75,121
Net Regulatory Asset Position	$	16,745	$	9,804	$	26,549
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 related to prior service costs and actuarial losses on pensions and other postretirement benefits represents benefit costs and actuarial losses subject to recovery through rates as they are expensed over the remaining service lives of active employees included in the plans. These unrecognized benefit costs and actuarial losses 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 based on their probable recovery in future retail electric rates.

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

All Deferred Marked-to-Market Gains and Losses recorded as of June 30, 2014 are related to forward purchases of energy scheduled for delivery through December 2018.

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

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 generation project.

MISO Schedule 26/26A Transmission Cost Recovery Rider True-up relates to the over/under collection of revenue based on comparison of the expected versus actual construction on eligible projects in the period. The true-up also includes 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 June 30, 2014 balance is being amortized on a straight-line basis over two consecutive 12-month periods that began in January 2014.

Debt Reacquisition Premiums are being recovered from OTP customers over the remaining original lives of the reacquired debt issues, the longest of which is 219 months.

The regulatory assets and liabilities related to Deferred Income Taxes result from changes in statutory tax rates accounted for in accordance with ASC 740, Income Taxes.

North Dakota Environmental Cost Recovery Rider Accrued Revenues relate to a return granted on the North Dakota share of amounts invested in the construction of the Big Stone Plant AQCS project, net of amounts billed under the rider.

Minnesota Transmission Rider Accrued Revenues relate to revenues earned on qualifying transmission system facilities that have not been billed to Minnesota customers as of June 30, 2014.

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 generation project.

North Dakota Renewable Resource Rider Accrued Revenues relate to revenues earned on qualifying renewable resource costs incurred to serve North Dakota customers that have not been billed to North Dakota customers as of June 30, 2014.

North Dakota Transmission Rider Accrued Revenues relate to revenues earned on qualifying transmission system facilities that have not been billed to North Dakota customers as of June 30, 2014.

Minnesota Environmental Cost Recovery Rider Accrued Revenues relate to a return granted on the Minnesota share of amounts invested in the construction of the Big Stone Plant AQCS project, net of amounts billed under the rider.

South Dakota Transmission Rider Accrued Revenues relate to revenues earned for qualifying transmission system facilities and operating costs incurred to serve South Dakota customers net of transmission revenues that have not been billed to South Dakota customers as of June 30, 2014.

Minnesota Renewable Resource Rider Accrued Revenues relate to revenues earned on qualifying renewable resource costs incurred to serve Minnesota customers that have not been billed to Minnesota customers. On April 4, 2013 the MPUC approved OTP’s request to set the MNRRA rate to zero effective May 1, 2013 and authorized that any unrecovered balance be retained as a regulatory asset to be recovered in OTP’s next general rate case.

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 Renewable Resource Rider Accrued Refund relates to amounts collected for qualifying renewable resource costs incurred to serve North Dakota customers that are refundable to North Dakota customers as of June 30, 2014.

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

Big Stone II Over Recovered Project Costs – North Dakota represent amounts collected from North Dakota customers in excess of the North Dakota share of generation and transmission plant-related costs incurred by OTP related to its participation in the abandoned Big Stone II generation project. The June 30, 2014 liability will be refunded to North Dakota customers through an adjustment to revenue requirements under the North Dakota TCR rider.

South Dakota – Nonasset-Based Margin Sharing Excess represents 25% of OTP’s South Dakota share of actual profit margins on nonasset-based wholesale sales of electricity. The excess margins accumulated annually will be subject to refund through future retail rate adjustments in South Dakota in the following year.

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 extraordinary expense or income item in the period in which the application of guidance under ASC 980 ceases.