SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

12 Months Ended

Dec. 31, 2017

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Schedule of regulatory assets and liabilities

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


	2017		2016
Regulatory assets
Deferred income tax expense (1)	$	17,205	$	30,517
Deferred prepaid lease expense – Craig Unit 3 Lease (2)		3,237		9,710
Deferred prepaid lease expense – Springerville Unit 3 Lease (3)		88,296		90,587
Goodwill – J.M. Shafer (4)		54,843		57,692
Goodwill – Colowyo Coal (5)		39,261		40,294
Deferred debt prepayment transaction costs (6)		158,187		166,815
Deferred Holcomb expansion impairment loss (7)		93,494		—
Total regulatory assets		454,523		395,615

Regulatory liabilities
Interest rate swap - unrealized gain (8)		4,311		12,140
Interest rate swap - realized gain (9)		4,614		—
Deferred revenues (10)		30,327		35,800
Membership withdrawal (11)		42,572		47,572
Total regulatory liabilities		81,824		95,512
Net regulatory asset	$	372,699	$	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. See Note 8 – Income Taxes.

(2)

Represents deferral of the loss on acquisition related to the Craig Generating Station (“Craig Station”) 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 December 31, 2017, and $3.2 million for the six month period ending June 30, 2018, and recovered from our Members in rates.

(3)

Represents deferral of the 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 the expansion of the Holcomb Generating Station. 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.

(8)

Represents deferral of an unrealized gain related to the change in fair value of a forward starting interest rate swap that was entered into in June 2016 in order to hedge interest rates on anticipated future borrowings. Upon settlement of this interest rate swap, the realized gain or loss will be deferred and subsequently recognized as interest expense when amortized over the term of the associated long-term debt borrowing. See Note 5 – Long-Term Debt and Note 7 – Fair Value.

(9)

Represents deferral of a realized gain of $4.6 million related to the October 2017 settlement of a forward starting interest rate swap that was entered into in April 2016. This realized gain was deferred as a regulatory liability and is being amortized to interest expense over the 12-year term of the First Mortgage Obligations, Series 2017A. See Note 5 – Long-Term Debt.

(10)

Represents deferral of the recognition of non-member electric sales revenue. $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. $9.5 million of fourth quarter 2017 non-member electric sales revenue was deferred. The balance of deferred non-member electric sales revenues of $30.3 million at December 31, 2017 will be refunded to Members through reduced rates when recognized in non-member electric sales revenue in future periods.

Represents 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. No deferred membership withdrawal income was recognized during the six month period ended December 30, 2017. The remaining deferred membership withdrawal income will be refunded to Members through reduced rates when recognized in other income in future periods.

Schedule of investments in other associations

Investments in other associations are as follows (dollars in thousands):


	2017		2016
Basin Electric Power Cooperative	$	101,820	$	99,301
National Rural Utilities Cooperative Finance Corporation		27,317		26,933
CoBank, ACB		8,174		7,217
Western Fuels Association, Inc.		2,346		2,245
Other		3,951		3,654
Investments in other associations	$	143,608	$	139,350

Schedule of investments in and advances to coal mines

Investments in and advances to coal mines are as follows (dollars in thousands):


	2017		2016
Investment in Trapper Mine	$	14,998	$	14,503
Advances to Dry Fork Mine		3,276		3,673
Investments in and advances to coal mines	$	18,274	$	18,176

Schedule of cash, cash equivalents and restricted cash and investments

The following table provides a reconciliation of cash, cash equivalents and restricted cash and investments reported within our consolidated statements of financial position that sum to the total of the same such amount shown in our consolidated statements of cash flows (dollars in thousands):


	2017		2016
Cash and cash equivalents	$	143,694	$	165,893
Restricted cash and investments - current		1,292		997
Restricted cash and investments - noncurrent		5,979		1,000
Cash, cash equivalents and restricted cash and investments	$	150,965	$	167,890

Schedule of effect of retrospective effect of adoption of ASU 2016-18

The following consolidated statements of cash flows reporting lines for the year end December 31, 2016 were affected by the adoption of this amendment:


	As		As Originally			Effect of
For the year ended December 31, 2016	Adjusted		Reported			Change
Operating activities
Adjustments to reconcile net margins to net cash provided by operating activities:
Change in restricted cash and investments	$	—	$	(137)	$	137
Other	$	(288)	$	(175)	$	(113)
Net cash provided by operating activities	$	250,812	$	250,788	$	24
Financing activities
Proceeds from investment in securities pledged as collateral	$	—	$	7,426	$	(7,426)
Other	$	(854)	$	277	$	(1,131)
Net cash used in financing activities	$	(18,283)	$	(9,726)	$	(8,557)

Net increase in cash, cash equivalents and restricted cash and investments	$	12,773	$	21,306	$	(8,533)
Cash, cash equivalents and restricted cash and investments – beginning	$	155,117	$	144,587	$	10,530
Cash, cash equivalents and restricted cash and investments – ending	$	167,890	$	165,893	$	1,997

The following consolidated statements of cash flows reporting lines for the year end December 31, 2015 were affected by the adoption of this amendment:


		As		As Originally		Effect of
For the year ended December 31, 2015		Adjusted		Reported		Change
Operating activities
Adjustments to reconcile net margins to net cash provided by operating activities:
Change in restricted cash and investments	$	—	$	29,113	$	(29,113)
Other	$	21,065	$	21,324	$	(259)
Net cash provided by operating activities	$	182,772	$	212,144	$	(29,372)
Financing activities
Proceeds from investment in securities pledged as collateral	$	—	$	8,931	$	(8,931)
Other	$	—	$	327	$	(327)
Net cash provided by financing activities	$	111,793	$	121,051	$	(9,258)

Net increase in cash, cash equivalents and restricted cash and investments	$	13,489	$	52,119	$	(38,630)
Cash, cash equivalents and restricted cash and investments – beginning	$	141,628	$	92,468	$	49,160
Cash, cash equivalents and restricted cash and investments – ending	$	155,117	$	144,587	$	10,530

Schedule of other deferred charges

Other deferred charges are as follows (dollars in thousands):


	December 31,		December 31,
	2017		2016
Preliminary surveys and investigations	$	19,737	$	111,592
Advances to operating agents of jointly owned facilities		10,740		11,871
Interest rate swaps		4,311		12,140
Other		3,704		3,775
Total other deferred charges	$	38,492	$	139,378

Schedule of change in aggregate carrying amount of asset retirement obligations

Aggregate carrying amounts of asset retirement obligations are as follows (dollars in thousands):


	2017		2016
Asset retirement obligations at beginning of period	$	58,583	$	55,215
Liabilities incurred		4,294		5,844
Liabilities settled		(4,935)		(1,298)
Accretion expense		2,623		3,751
Change in cash flow estimate		(3,710)		(4,929)
Total Asset retirement obligations at end of period	$	56,855	$	58,583
Less current asset retirement obligations at end of period		(3,087)		(6,237)
Long-term asset retirement obligations at end of period	$	53,768	$	52,346

Schedule of other deferred credits and other liabilities

The following other deferred credits and other liabilities are reflected on our consolidated statements of financial position (dollars in thousands):


	December 31,		December 31,
	2017		2016
Transmission easements	$	21,337	$	20,562
TEP transmission refund		—		15,521
Unearned revenue		3,735		4,000
Customer deposits		2,898		3,338
Other		25,426		22,743
Total other deferred credits and other liabilities	$	53,396	$	66,164