Regulatory Matters

9 Months Ended

Sep. 30, 2020

Regulated Operations [Abstract]

Public Utilities Disclosure [Text Block]

Regulatory Matters

COVID-19 Accounting Order Filings

In the second and third quarters of 2020, we experienced lower revenues and an increase in certain operating expenses as a result of the COVID-19 pandemic. In March we voluntarily informed both our retail customers and state regulators that disconnections for non-payment would be temporarily suspended. During August we advised customers that we would resume the disconnection process for customers whose accounts are in arrears.

South Dakota - On May 1, 2020, we submitted a joint filing with four other investor owned utilities to the South Dakota Public Utilities Commission (SDPUC) seeking approval for an accounting order to defer certain costs related to the COVID-19 pandemic as a regulatory asset, subject to future review for recovery from customers. We limited our specific request to uncollectible accounts expense in excess of amounts included in the latest electric and natural gas test periods. In August, the SDPUC issued an order granting deferral of our excess uncollectible accounts expense. As of September 30, 2020 we have deferred $0.4 million of uncollectible accounts expense into a regulatory asset in the Condensed Consolidated Balance Sheet.

Montana - On May 29, 2020, we filed a petition for an accounting order with the Montana Public Service Commission (MPSC) seeking approval of an accounting order to (i) defer uncollectible accounts expense in excess of amounts included in the latest electric and natural gas test periods; and (ii) requesting approval of a proposed pension contribution up to $40 million in 2020 to be recognized over a five-year period. The MPSC held a work session in October 2020 voting to allow tracking of uncollectible accounts expense and amortization of incremental pension contributions. We expect a final order on our request during the fourth quarter of 2020, and cannot determine the impact, if any, of the MPSC's decision until a final order is issued.

Pension costs in Montana are included in expense on a pay as you go (cash funding) basis. We contributed $10.2 million to the Montana pension plan during the nine months ended September 30, 2020. We have not yet determined whether we will contribute incremental amounts during the fourth quarter of 2020.

FERC Filing - Montana Transmission Service Rates

In May 2019, we submitted a filing with the Federal Energy Regulatory Commission (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 will 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 was appointed and settlement negotiations are ongoing.

Cost Recovery Mechanisms - Montana

Montana Electric and Natural Gas Supply Cost Trackers - Each year we submit electric and natural gas tracker filings 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 associated base rate revenues. Rates are adjusted annually for variances between actual costs and associated revenues with the variances allocated 90% to customers and 10% to shareholders. The initial design of the PCCAM also included a “deadband” which required us to absorb the variances within +/- $4.1 million from the base revenues. In 2019, the Montana legislature made two statutory changes which affected the PCCAM by prohibiting a deadband and allowing 100% recovery of QF purchases. The 90%/10% sharing ratio for other costs remains in place.

In September 2019, we submitted our annual PCCAM filing for the period July 1, 2018 to June 30, 2019, requesting recovery of approximately $23.8 million in electric supply costs. The Montana Consumer Counsel (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 necessary to ensure compliance with air permit limits. In addition, the MCC advocated for an application of the deadband and QF cost sharing from July 2018 to the May 2019 statutory change, which would result in an additional under recovery of costs of approximately $4.0 million. The MPSC held a hearing on this matter in June 2020 and we expect a decision in the fourth quarter of 2020. We began collecting costs for the July 2018 - June 2019 tracker period on October 1, 2019, and as of September 30, 2020, the remaining under collection of approximately $2.1 million was reflected in regulatory assets in the Condensed Consolidated Balance Sheets.

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, which also granted our request to stay the District Court's decision. The MPSC did not appeal the District Court’s Symmetry Finding. On August 24, 2020, the Montana Supreme Court found that the MPSC's order on rates and contract length was arbitrary, left the stay in place, and remanded to the MPSC for consideration when setting rates and contract lengths for small QF's in future regulatory proceedings.

The MPSC adopted the Symmetry Finding in another order 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. On September 22, 2020, the Montana Supreme Court found the MPSC's order on rates and contract length was arbitrary and that MTSun is entitled to the rates and contract term determined by the District Court. We are authorized through our PCCAM tariff to recover 100% of our QF purchased power costs.

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 we are waiting on a final decision from the Montana Supreme Court. We expect to file waiver requests for 2017, 2018, and 2019 after resolution of that litigation. If the Montana Supreme Court rules that the 2015 and 2016 waivers were invalid or if the requested waivers for 2017 through 2019 are not

granted, we are likely to be liable for penalties. 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. However, we do not believe any such penalty would be material.