REGULATORY ASSETS AND LIABILITIES (Notes)

9 Months Ended

Sep. 30, 2020

SCHEDULE OF REGULATED ASSETS AND LIABILITIES [Line Items]

Schedule of Regulatory Assets and Liabilities

REGULATORY ASSETS AND LIABILITIES

The tables below present a summary of regulatory assets and liabilities, net of amortization, for the periods indicated:

	September 30, 2020
	Current		Noncurrent		Total
	(Thousands of dollars)
Under-recovered purchased-gas costs	$	22,485	$	—	$	22,485
Pension and postemployment benefit costs	21,132		345,006		366,138
Reacquired debt costs	812		5,068		5,880
MGP remediation costs	98		11,636		11,734
Ad-valorem tax	5,260		—		5,260
Weather normalization	4,289		—		4,289
Customer credit deferrals	14,899		—		14,899
Other	2,773		2,407		5,180
Total regulatory assets, net of amortization	71,748		364,117		435,865
Income tax rate changes (a)	—		(555,258)		(555,258)
Over-recovered purchased-gas costs	(20,454)		—		(20,454)
Total regulatory liabilities, net of amortization	(20,454)		(555,258)		(575,712)
Net regulatory assets and liabilities	$	51,294	$	(191,141)	$	(139,847)

(a) Includes the reclassification of $81.5 million of deferred taxes related to the elimination of state income tax for utilities in Kansas.

	December 31, 2019
	Current		Noncurrent		Total
	(Thousands of dollars)
Under-recovered purchased-gas costs	$	17,172	$	—	$	17,172
Pension and postemployment benefit costs	21,213		373,266		394,479
Reacquired debt costs	812		5,677		6,489
MGP remediation costs	98		9,709		9,807
Ad-valorem tax	2,921		—		2,921
Other	5,224		2,384		7,608
Total regulatory assets, net of amortization	47,440		391,036		438,476
Income tax rate changes	(10,297)		(503,518)		(513,815)
Over-recovered purchased-gas costs	(27,623)		—		(27,623)
Weather normalization	(7,281)		—		(7,281)
Total regulatory liabilities	(45,201)		(503,518)		(548,719)
Net regulatory assets and liabilities	$	2,239	$	(112,482)	$	(110,243)

Regulatory assets in our consolidated balance sheets, as authorized by various regulatory authorities, are probable of recovery. Base rates and certain riders are designed to provide a recovery of costs during the period such rates are in effect, but do not generally provide for a return on investment for amounts we have deferred as regulatory assets. All of our regulatory assets are subject to review by the respective regulatory authorities during future regulatory proceedings. We are not aware of any evidence that these costs will not be recoverable through either riders or base rates, and we believe that we will be able to recover such costs consistent with our historical recoveries.

The regulatory liability for income tax rate changes represents deferral of the effects of enacted federal and state income tax rate changes on our ADIT and other regulatory liabilities resulting from the effect of the changes in income taxes on our rates. In May 2020, a bill amending the Kansas state income tax code was signed into law that exempts public utilities regulated by the KCC from paying Kansas state income taxes beginning January 1, 2021. As a result of the enactment of this legislation, we remeasured our ADIT. As a regulated entity, the reduction in ADIT of $81.5 million was recorded as an EDIT regulatory liability and will be refunded to our customers. The bill stipulates, if requested by the utility, this EDIT will be returned to Kansas customers over a period of no less than 30 years, with the exact timing to be determined in our next general rate proceeding.

In response to the Tax Cuts and Jobs Act of 2017, we received accounting orders requiring us to establish a regulatory liability for the difference in taxes included in our rates that have been calculated based on a 35 percent federal corporate income tax rate and the new 21 percent federal corporate income tax rate effective in January 2018 and to refund the reduction in ADIT due to the remeasurement resulting from the change in the effective tax rate. The regulatory liability for income tax rate changes reflects the credit resulting from the 2018 Oklahoma Natural Gas PBRC that was accrued in 2018 and credited to Oklahoma Natural Gas customers over a 12-month period that began in August 2019.

In addition, the income tax rate changes regulatory liability reflects EDIT associated with the remeasurement of our ADIT as a result of the Tax Cuts and Jobs Act of 2017. Our customers began receiving credit for this liability as determined by our regulators in 2019. Our customers receive credit annually based upon amortization periods in compliance with the tax normalization rules for the portions of EDIT stipulated by the Code and varying periods of five to ten years for all other components of EDIT. During the three months ended September 30, 2020 and 2019, income tax expense reflects credits of $2.2 million and $1.4 million, respectively, for the amortization of the regulatory liability associated with EDIT that was returned to customers. During the nine months ended September 30, 2020 and 2019, income tax expense reflects credits of $11.6 million and $10.3 million, respectively.

We have received accounting orders in each of our jurisdictions authorizing us to accumulate and defer for regulatory purposes certain incremental costs incurred, including bad debt expenses, and certain lost revenues, net of offsetting expense reductions associated with COVID-19. Pursuant to these orders, the recovery of any net incremental costs and lost revenues will be determined in future rate cases or alternative rate recovery filings in each jurisdiction. For financial reporting purposes, any amounts deferred as a regulatory asset for future recovery under these accounting orders must be probable of recovery. At September 30, 2020, no regulatory assets have been recorded. We continue to evaluate the impacts of COVID-19 on our business and will record regulatory assets for financial reporting purposes at such time as recovery is deemed probable.