Regulatory Matters

6 Months Ended

Jun. 30, 2019

Regulated Operations [Abstract]

Public Utilities Disclosure [Text Block]

Regulatory Matters

Montana General Electric Rate Case

In May 2019, we reached a settlement with all parties who filed comprehensive revenue requirement, cost allocation, and rate design testimony in our Montana electric rate case. If the Montana Public Service Commission (MPSC) approves the settlement, it will result in an annual increase to electric revenue of approximately $6.5 million (based upon a 9.65% return on equity (ROE) and rate base and capital structure as filed) and an annual decrease in depreciation expense of approximately $9 million.

The MPSC issued an order approving an interim increase in rates of approximately $10.5 million effective April 1, 2019. These interim rates remain in effect until the MPSC issues a final order. Any difference between interim and final approved rates will be refunded to customers. During the three months ended June 30, 2019, we recognized revenue of approximately $1.2 million and reduced depreciation expense by approximately $4.5 million in the Condensed Consolidated Statement of Income, and as of June 30, 2019, have deferred revenue of approximately $0.8 million consistent with the proposed settlement.

A hearing was held in May 2019, and final briefs are due in late August 2019. We expect a final order from the MPSC during the fourth quarter of 2019.

Federal Energy Regulatory Commission (FERC) Filing

In May 2019, we submitted a filing with the FERC for our Montana transmission assets. The revenue requirement associated with our Montana FERC assets is reflected in our Montana MPSC-jurisdictional rates as a credit to retail customers. In June 2019, the FERC issued an order accepting our filing, granting interim rates (subject to refund) effective July 1, 2019, establishing settlement procedures and terminating our related Tax Cuts and Jobs Act filing. A settlement judge has been appointed and we expect settlement discussions to begin in August 2019.

Cost Recovery Mechanisms - Montana

Each year we submit an electric and natural gas tracker filing for recovery of supply costs for the 12-month period ended June 30. The MPSC reviews such filings and makes its cost recovery determination based on whether or not our supply procurement activities were prudent. The MPSC approved our electric tracker filings for the 12-month periods ended June 30, 2016 and 2017, on an interim basis. We have requested the MPSC establish a procedural schedule for final adjudication of these dockets.

Montana Electric Tracker - In 2017, the Montana legislature revised the statute regarding our recovery of electric supply costs. In response, the MPSC approved a new design for our electric tracker in 2018, effective July 1, 2017. The revised electric tracker, or Power Costs and Credits Adjustment Mechanism (PCCAM), established a baseline of power supply costs and tracks the differences between the actual costs and revenues. Variances in supply costs above or below the baseline are allocated 90% to customers and 10% to shareholders, with an annual adjustment. From July 2017 to May 2019, the PCCAM also included a "deadband" which required us to absorb the variances within +/- $4.1 million from the base, with 90% of the variance above or below the deadband collected from or refunded to customers. In 2019, the Montana legislature revised the statute effective May 7, 2019, prohibiting a deadband, allowing 100% recovery of QF purchases, and maintaining the 90% / 10% sharing ratio for other purchases.

The Condensed Consolidated Statements of Income during the three months ended June 30, 2019, include an increase in the recovery of electric supply costs of approximately $4.6 million, which reflects the change in statute. Our cumulative under collection of electric supply costs is approximately $22.6 million as of June 30, 2019, and is reflected in regulatory assets in the Condensed Consolidated Balance Sheets. We expect to submit a filing in September 2019, requesting recovery of costs above the base for the period July 1, 2018 to June 30, 2019, with the under recovery collected over the next 12-month period.

Montana QF Power Purchase Cases

Under the Public Utility Regulatory Policies Act (PURPA), electric utilities are required, with certain exceptions, to purchase energy and capacity from independent power producers that are QFs. We track the costs of these purchases through our PCCAM. These purchases are also the subject of proceedings before the MPSC, whose orders are subject to judicial review by Montana state courts.

In May 2016, we filed an application for approval of a revised tariff for standard rates for small QFs (3 MW or less). In November 2017, the MPSC issued an order (QF Order) approving new rates that were substantially lower than the previous rates and reducing the maximum contract term from 25 to 15 years. The MPSC also ordered that it would apply the same 15-year contract term to our future owned and contracted electric supply resources. We, as well as Cypress Creek Renewables, LLC, Vote Solar, and Montana Environmental Information Center (collectively, Vote Solar), sought judicial review of the QF Order before the Montana State District Court (District Court).

The District Court reversed and modified the MPSC’s decisions to reduce the contract term to 15 years and apply that term to our supply resources. In addition, the Court found that the MPSC-approved rates were too low to reflect avoided cost and ordered the MPSC to issue an order reflecting its decision, which effectively increased the rates. The MPSC subsequently ordered us to make a compliance filing by August 7, 2019, updating the rates in our tariff to reflect the District Court’s decision. The MPSC also ordered us to include language in our future contracts with QFs pursuant to the tariff that the contract is terminated or void if the District Court’s order is overturned or altered in any manner by the Montana Supreme Court.

We appealed the District Court’s order to the Montana Supreme Court and the MPSC filed a cross-appeal. In August 2019, we expect to file our initial brief on the merits of the appeal. Our request for a stay of the District Court’s decision to reduce the contract term and increase the rates during appeal is pending before the Montana Supreme Court.

In another case filed by a large QF that did not qualify for the standard rate tariff, the MPSC issued an order setting the rates and a 15-year contract term for MTSun, LLC (MTSun). In that order, the MPSC stated that the 15-year contract term

applied symmetrically to our supply resources. We, as well as MTSun, sought judicial review of the MPSC’s order. The District Court reversed and modified the MPSC’s order regarding rates, contract length, and symmetry. The Court ordered the MPSC to issue an order reflecting its decision, which the MPSC issued on July 17, 2019. We appealed the District Court’s order to the Montana Supreme Court on the issues of rates and contract length. We have requested a stay of the District Court’s decision from both the District Court and the Montana Supreme Court.