Regulatory Matters

12 Months Ended

Dec. 31, 2019



(3) 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. The MPSC issued an order approving an interim increase in revenue of approximately $10.5 million effective April 1, 2019. 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. The MPSC issued an order in December 2019, accepting the settlement, resulting in an annual increase to electric revenue of approximately $6.5 million (based upon a 9.65% ROE and rate base and capital structure as filed) and an annual decrease in depreciation expense of approximately $9.3 million. Various parties have filed petitions for reconsideration of parts of that December 2019 order, and we expect the MPSC to issue an order on these requests during the first quarter of 2020.

During the year ended December 31, 2019, we recognized revenue of approximately $4.4 million and reduced depreciation expense by approximately $8.9 million in the Consolidated Statements of Income consistent with the proposed settlement above. As of December 31, 2019, we have deferred approximately $2.9 million of the interim revenues. This difference between interim and final approved rates will be refunded to customers.

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. We expect to submit a compliance filing with the MPSC upon resolution of our Montana FERC case adjusting the proposed credit in our Montana retail rates. 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 settlement negotiations are ongoing.

Cost Recovery Mechanisms

Montana Electric and Natural Gas Supply Cost Trackers - 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.

Our electric tracker filings for the 12-month periods ended June 30, 2016 and 2017 were approved in February 2020.

The MPSC approved a new design for our electric tracker effective July 1, 2017. The revised electric tracker, or 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. The initial design of 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.

We submitted 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 being collected over the 12-month period October 1, 2019 through September 30, 2020. The MPSC established a procedural schedule with a hearing scheduled for May 2020. The Consolidated Statements of Income during the twelve months ended December 31, 2019, include recovery of approximately $4.6 million of electric supply costs consistent with the change in statute removing the deadband and removing QF costs from the 90% / 10% sharing calculation. Our cumulative under collection of electric supply costs reflected in the filing was approximately $23.8 million. As of December 31, 2019, approximately $19.4 million was reflected in regulatory assets in the Consolidated Balance Sheets.

Montana Property Tax Tracker - Under Montana law, we are allowed to track the changes in the actual level of state and local taxes and fees and recover the increase in taxes and fees, net of the associated income tax benefit. We submit an annual property tax tracker filing with the MPSC for an automatic rate adjustment, with rates typically effective January 1st of each year. In January 2020, we filed a motion with the MPSC to suspend the procedural schedule and vacate the hearing established to consider our December 2019 filing, due to the need to make a correction requiring an amended filing. We expect to amend the filing in February 2020. The MPSC has 45 days from the date of our amended filing to review the rate adjustment.

Montana QF Power Purchase Cases

Under 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 our biennial update of standard rates for small QFs (3 MW or less). In November 2017, the MPSC approved new, lower rates, reduced the maximum contract term from 25 to 15 years, and ordered that it would apply the same 15-year contract term to our future owned and contracted electric supply resources (Symmetry Finding). We sought judicial review with the Montana State District Court (District Court) of the Symmetry Finding. Cypress Creek Renewables, LLC, Vote Solar, and Montana Environmental Information Center, sought judicial review with the District Court of the rates and contract term.

The District Court reversed and modified the MPSC’s decisions on rates, contract term, and the Symmetry Finding. We appealed the District Court’s order regarding rates and contract term to the Montana Supreme Court. The MPSC did not appeal the District Court’s Symmetry Finding. The Montana Supreme Court granted our motion to stay the District Court’s decisions regarding rates and contract term. The matter is fully briefed and the Montana Supreme Court has scheduled oral argument in the case for February 26, 2020.

The MPSC also issued the same Symmetry Finding in another docket when setting the rates and contract term for a large QF - MT Sun, LLC (MTSun). 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 the Symmetry Finding. We appealed the District Court’s order to the Montana Supreme Court on the issues of rates and contract length, and the MPSC did not appeal the District Court’s reversal of the Symmetry Finding. Briefing on the matter is complete and we are awaiting a decision from the Montana Supreme Court.

Montana Community Renewable Energy Projects (CREP)

We were required to acquire, as of December 31, 2019, approximately 66 MW of CREPs. While we have made progress towards meeting this obligation by acquiring approximately 36 MW of CREPs, we have been unable to acquire the remaining MWs required for various reasons, including the fact that proposed projects fail to qualify as CREPS or do not meet the statutory cost cap. The MPSC granted us waivers for 2012 through 2016. The validity of the MPSC's action as it relates to waivers granted for 2015 and 2016 has been challenged legally and briefing is currently taking place before the Montana Supreme Court. We expect to file waiver requests for 2017, 2018, and 2019 as well, after resolution of that litigation. If the Court rules that the 2015 and 2016 waivers were invalid or if the requested waivers for 2017 through 2019 are not granted, we may be liable for penalties, although we believe the statutory penalty for failure to acquire sufficient energy does not apply to the acquisition of CREP resources. If the MPSC imposes a penalty, the amount of the penalty would depend on how the MPSC calculates the energy that a CREP would have produced.