Regulatory Matters

3 Months Ended

Mar. 31, 2020

Regulated Operations [Abstract]

Public Utilities Disclosure [Text Block]

Regulatory Matters

Montana General Electric Rate Case

In September 2018, we filed an electric rate case with the Montana Public Service Commission (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 a Final 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% return on equity (ROE) and rate base and capital structure as filed) and an annual decrease in depreciation expense of approximately $9.3 million. In addition to approving the settlement, the MPSC approved a pilot decoupling mechanism with no adjustment to ROE.

The Montana Consumer Counsel (MCC) filed a motion for reconsideration of several aspects of the Final Order. In particular, the MCC opposed the pilot decoupling mechanism and our methodology for determining the amount of revenue credited to Montana retail customers from our Federal Energy Regulatory Commission (FERC) transmission service rates. The MCC argued in the alternative that, if the MPSC does not eliminate the pilot decoupling mechanism, the MPSC should reduce ROE by 0.25%. We expect the MPSC to issue an Order on Reconsideration during the second quarter of 2020.

We implemented final rates, consistent with the Final Order, and began refunding interim rate revenue collected in excess of the stipulated revenue requirement effective March 1, 2020. As of March 31, 2020, and December 31, 2019, we had deferred revenue of approximately $6.5 million and $2.9 million, respectively, in the Condensed Consolidated Balance Sheets.

FERC Filing - Montana Transmission Service Rates

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

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.

The MPSC approved a new design for our electric tracker 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 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 our annual PCCAM filing in September 2019, requesting recovery of approximately $23.8 million in costs 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 MCC and the Montana Environmental Information Center (MEIC) submitted testimony advocating for a disallowance of approximately $6.0 million of replacement power costs incurred during a 2018 third quarter intermittent outage at our Colstrip generating facility due to an exceedance of air permit limits. In addition, the MCC advocated for a prorated application of the May 2019 statutory change eliminating the deadband and removing QF costs from the sharing calculation, which would result in an additional under recovery of costs of approximately $4.0 million. The MPSC scheduled a hearing in this matter for June 2020. We began collecting costs for the July 2018 - June 2019 PCCAM period on October 1, 2019. As of March 31, 2020, the remaining under collection of approximately $13.2 million was reflected in regulatory assets in the Condensed 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 February 2020, we amended our December 2019 filing in order to make corrections. We and the MCC agreed to a briefing schedule in this docket concluding in May 2020. We expect the MPSC to issue an order on the rate adjustment in the second quarter of 2020.

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 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 MEIC, 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 held oral argument in the case on February 26, 2020. We are awaiting the Montana Supreme Court’s decision.

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 (CREPs)

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 related 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 calculated the energy that a CREP would have produced.