Regulatory Assets and Liabilities
The Company is subject to the provisions of generally accepted accounting principles regarding rate-regulated entities. The accounting standards provide for the recognition of regulatory assets and liabilities as allowed by regulators for costs or credits that are reflected in current customer rates or are considered probable of being included in future rates. The regulatory assets or liabilities are then relieved as the cost or credit is reflected in rates. Regulatory assets represent costs that are expected to be fully recovered from customers in future rates while regulatory liabilities represent amounts that are expected to be refunded to customers in future rates. These deferred costs have been excluded from the Company's rate base and, therefore, no return is being earned on the unamortized balances.
Regulatory assets and liabilities are comprised of the following:
| | December 31, | | Remaining Recovery |
| | 2013 | | | 2012 | | Periods |
Assets | | | | | | | |
Income taxes | | $ | 5,653 | | | $ | 5,459 | | Various |
Postretirement benefits | | | 7,136 | | | | 14,244 | | 5 – 10 years |
Unrealized swap losses | | | 1,611 | | | | 2,807 | | 1 – 16 years |
Utility plant retirement costs | | | 1,408 | | | | 1,313 | | 5 years |
Service life study expenses | | | 7 | | | | 10 | | 4 years |
Rate case filing expenses | | | 308 | | | | 2 | | 2 years |
| | $ | 16,123 | | | $ | 23,835 | | |
Liabilities | | | | | | | | | |
Income taxes | | $ | 809 | | | $ | 836 | | 1 – 50 years |
Certain items giving rise to deferred state income taxes related primarily to differences between book and tax depreciation expense, as well as a portion of deferred federal income taxes associated with the gross-up of revenues related to the differences, are recognized for ratemaking purposes on a cash or flow-through basis and will be recovered in rates as they reverse.
Postretirement benefits include (a) deferred pension expense in excess of contributions made to the plans, and (b) the underfunded status of the pension plans. The underfunded status represents the excess of the projected benefit obligation over the fair market value of the assets. Both are expected to be recovered in future years as additional contributions are made or market conditions improve. The recovery period is dependent on contributions made to the plans, plan asset performance and the discount rate used to value the obligations. The period is estimated at between 5 and 10 years.
The Company uses regulatory accounting treatment to defer the mark-to-market unrealized gains and losses on its interest rate swap to reflect that the gain or loss is included in the ratemaking formula when the transaction actually settles. The value of the swap as of the balance sheet date is recorded as part of other deferred credits. Realized gains or losses on the swap will be recorded as interest expense in the statement of income over its remaining life of 16 years.
The regulatory asset for utility plant retirement costs, including cost of removal, represents costs already incurred which are expected to be recovered over a five-year period in rates, through depreciation expense. Service life study and rate case filing expenses are deferred and amortized over their remaining lives of four and two years, respectively.
Regulatory liabilities relate mainly to deferred investment tax credits, and additionally to deferred taxes related to postretirement death benefits and bad debts. These liabilities will be given back to customers in rates as tax deductions occur over the next 1-50 years. Regulatory liabilities are part of other accrued expenses and other deferred credits on the balance sheets.
