

(4) Regulatory Matters

Montana General Electric Rate Case

In September 2018, we filed an electric rate case with the MPSC requesting an annual increase to electric rates of approximately $34.9 million, which represents an approximate 6.6% increase in annual base revenues. Our request is based on a return on equity of 10.65% and an overall rate of return of 7.42% (except for Colstrip Unit 4, which the MPSC previously set for the life of the facility at a 10% return on equity and an 8.25% rate of return), based on approximately $2.35 billion of electric rate base and a capital structure of 51% debt and 49% equity.

We also requested that approximately $13.8 million of the proposed rate increase be approved on an interim basis effective November 1, 2018. We expect to receive a decision on our interim request after intervenor testimony is filed. If the MPSC does not issue a final order within nine months of the filing, the new requested rates may be placed into effect on an interim and refundable basis.

Key dates in the procedural schedule are expected to be as follows:


•	Intervenor testimony - February 12, 2019


•	NorthWestern rebuttal testimony and cross-intervenor testimony - April 5, 2019


•	Hearing commences - May 13, 2019

Tax Cuts and Jobs Act

In December 2017, H.R.1 (the Tax Cuts and Jobs Act) was signed into law, which enacts significant changes to U.S. tax and related laws. The primary impact to us is a reduction of the federal corporate income tax rate from 35% to 21% effective January 1, 2018. Dockets were opened in each of our jurisdictions to investigate the customer benefit of this reduction in the federal corporate income tax rate. During 2018, we received approval of settlement agreements regarding the customer benefit of the Tax Cuts and Jobs Act, as described below.


•	In Montana the settlement provides a one-time credit of approximately $20.5 million to customers in early 2019. This includes a $19.2 million credit to electric customers and $1.3 million credit to natural gas customers.


◦	In addition to eligible customers receiving a one-time bill credit, the settlement also reduces rates for all natural gas customers by approximately $1.3 million annually beginning January 1, 2019, and provides funds for low-income energy assistance and weatherization programs.


◦	The settlement also reflects the agreement of the intervening parties not to oppose our request to include up to $3.5 million of costs to address hazard tree removal in our current Montana rate case.


◦	Issues related to the revaluation of deferred income taxes will be addressed in our current Montana rate case.


•	In South Dakota we credited electric and natural gas customers approximately $3 million in the fourth quarter of 2018, and agreed to a two-year rate moratorium until January 1, 2021.

Cost Recovery Mechanisms

Electric Tracker - Effective July 1, 2017, the Montana legislature granted the MPSC discretion whether to approve an electric supply tracking mechanism. After considering our application in a contested case proceeding, the MPSC issued a final order in January 2019 approving a PCCAM with the following provisions:


•	A baseline of power supply costs;


•	Annual adjustment of customer prices to reflect a portion of the difference between the established base revenues and actual costs, to the extent such difference is outside a +/- $4.1 million "deadband" from the base, with 90% of the variance above or below the deadband is collected from or refunded to customers; and


•	Retroactive implementation to the effective date of the new legislation (July 1, 2017).

Our 2018 results include a net reduction in the recovery of supply costs from customers of approximately $1.5 million for the period July 1, 2017 through December 31, 2018 in the Consolidated Statements of Income and a regulatory asset in the Consolidated Balance Sheet of approximately $6.9 million reflecting costs to be recovered from customers in excess of the deadband.

Montana Electric Tracker Open Dockets - 2015/2016 - 2016/2017 (2015-2017 Tracker Filings) - Under the previous statutory tracker mechanism, each year we submitted an electric tracker filing for recovery of supply costs for the 12-month period ended June 30 and for the projected supply costs for the next 12-month period, which were subject to a prudency review. The MPSC has approved interim rates for the 2015-2017 Tracker Filings, but has not established a schedule for adjudication of these filings.