Regulatory assets and liabilities are as follows (dollars in thousands):


	September 30,		December 31,
	2017		2016
Regulatory assets
Deferred income tax expense (1)	$	30,522	$	30,517
Deferred prepaid lease expense – Craig Unit 3 Lease (2)		4,855		9,710
Deferred prepaid lease expense – Springerville Unit 3 Lease (3)		88,869		90,587
Goodwill – J.M. Shafer (4)		55,555		57,692
Goodwill – Colowyo Coal (5)		39,518		40,294
Deferred debt prepayment transaction costs (6)		160,345		166,815
Deferred Holcomb Expansion impairment loss (7)		93,494		—
Total regulatory assets		473,158		395,615

Regulatory liabilities
Interest rate swaps (8)		9,056		12,140
Deferred revenues (9)		20,800		35,800
Membership withdrawal (10)		42,572		47,572
Total regulatory liabilities		72,428		95,512
Net regulatory asset	$	400,730	$	300,103

(1)

A regulatory asset or liability associated with deferred income taxes generally represents the future increase or decrease in income taxes payable that will be received or settled through future rate revenues.

(2)

Deferral of loss on acquisition related to the Craig Generating Station Unit 3 (“Craig Unit 3”) prepaid lease expense upon acquisitions of equity interests in 2002 and 2006. The regulatory asset for the deferred prepaid lease expense is being amortized to depreciation, amortization and depletion expense in the amount of $6.5 million annually through the remaining original life of the lease ending June 30, 2018 and recovered from our Members in rates.

(3)

Deferral of loss on acquisition related to the Springerville Generating Station Unit 3 (“Springerville Unit 3”) prepaid lease expense upon acquiring a controlling interest in the Springerville Unit 3 Partnership LP (“Springerville Partnership”) in 2009. The regulatory asset for the deferred prepaid lease expense is being amortized to depreciation, amortization and depletion expense in the amount of $2.3 million annually through the 47-year period ending in 2056 and recovered from our Members in rates.

(4)

Represents goodwill related to our acquisition of Thermo Cogeneration Partnership, LP (“TCP”) in December 2011. Goodwill is being amortized to depreciation, amortization and depletion expense in the amount of $2.8 million annually through the 25-year period ending in 2036 and recovered from our Members in rates.

(5)

Represents goodwill related to our acquisition of Colowyo Coal Company LP (“Colowyo Coal”) in December 2011. Goodwill is being amortized to depreciation, amortization and depletion expense in the amount of $1.0 million annually through the 44-year period ending in 2056 and recovered from our Members in rates.

(6)

Represents transaction costs that we incurred related to the prepayment of our long-term debt in 2014. These costs are being amortized to depreciation, amortization and depletion expense in the amount of $8.6 million annually over the 21.4-year average life of the new debt issued and recovered from our Members in rates.

(7)

Represents deferral of the impairment loss related to development costs, including costs for the option to purchase development rights, for a new coal-fired generating unit or units at Holcomb Generating Station (“Holcomb Expansion”). On March 17, 2017, the Kansas Supreme Court issued a decision upholding the air permit for one unit at Holcomb Generating Station of 895 megawatts. The air permit expires if construction of the Holcomb Expansion does not commence within 18 months. Although a final decision has not been made by our Board on whether to proceed with the construction of the Holcomb Expansion, we have assessed the probability of us entering into construction for the Holcomb Expansion as remote. Based on this assessment, we have determined that the costs incurred for the Holcomb Expansion are impaired and not recoverable. At the discretion of our Board, the impaired loss has been deferred as a regulatory asset and will be recovered from our Members in rates. The plan for the recovery has not been determined by our Board. Once the plan for recovery is determined, the deferred impairment loss will be recognized in other operating expenses. See Note 5 – Other Deferred Charges.

(8)

Represents deferral of the unrealized gain related to the change in fair value of forward starting interest rate swaps that were entered into in order to hedge interest rates on anticipated future borrowings. Upon settlement of these interest rate swaps, the realized gain or loss will be amortized to interest expense over the term of the associated long-term debt borrowing. See Note 6 – Long-Term Debt and Note 11 – Fair Value.

(9)

Represents deferral of the recognition of non-member electric sales revenue received in 2008 and 2011 of $10.0 million and $35.0 million, respectively. $9.2 million of this deferred revenue was recognized in non-member electric sales revenue in 2016 and $15.0 million of this deferred revenue was recognized in non-member electric sales revenue during the six months ended June 30, 2017. Pursuant to the direction of our Board, no deferred revenue was recognized during the three month period ended September 30, 2017. The remaining deferred non-member electric sales revenues will be refunded to Members through reduced rates when recognized in non-member electric sales revenue in future periods.

Represents the deferral of the recognition of other income of $47.6 million recorded in connection with the June 30, 2016 withdrawal of Kit Carson Electric Cooperative, Inc. from membership in us. $5.0 million of this deferred membership withdrawal income was recognized in other income during the six months ended June 30, 2017. Pursuant to the direction of our Board, no deferred membership withdrawal income was recognized during the three month period ended September 30, 2017. The remaining deferred membership withdrawal income will be refunded to Members through reduced rates when recognized in other income in future periods.