REGULATORY ASSETS AND LIABILITIES

Our regulatory assets and liabilities result from our application of the provisions of Topic 980 and are reflected on our balance sheet. Current regulatory assets are included in Exchange gas offset and Prepayments and other. Current regulatory liabilities are included in Exchange gas offset. These balances are presented on our balance sheet on a gross basis and are recoverable or refundable over various periods. Below are the details of our regulatory assets and liabilities as of December 31, 2015 and 2014:



	2015			2014
	(Thousands of Dollars)
Current regulatory assets:
Environmental costs	$	1,300		$	1,300
Levelized depreciation	2,731			1,999
Fuel recovery	178			—
Total current regulatory assets	4,209			3,299
Noncurrent regulatory assets:
Environmental costs	(1,068		)	2,109
Grossed-up deferred taxes on equity funds used during construction	13,809			14,567
Levelized depreciation	26,493			29,775
Asset retirement obligations, net	1,619			3,472
Total noncurrent regulatory assets	40,853			49,923
Total regulatory assets	$	45,062		$	53,222
Current regulatory liabilities:
Fuel recovery	$	—		$	4,004
Noncurrent regulatory liabilities:
Postretirement benefits	26,802			23,375
Total regulatory liabilities	$	26,802		$	27,379

The significant regulatory assets and liabilities include:

Environmental Costs We have accrued liabilities for assessment and remediation activities to bring certain sites up to current environmental standards. The accrual for these liabilities is offset by a regulatory asset. The regulatory asset is being amortized to expense consistent with amounts collected in rates.

Levelized Depreciation Levelized depreciation allows contract revenue streams to remain constant over the primary contract terms by recognizing lower than book depreciation in the early years and higher than book depreciation in later years. The depreciation component of the levelized incremental rates will equal the accumulated book depreciation by the end of the primary contract terms. The difference between levelized depreciation and straight-line book depreciation is recorded as a FERC approved regulatory asset or liability and is eliminated over the levelization period.

Grossed-Up Deferred Taxes on Equity Funds Used During Construction The regulatory asset balance was established to offset the deferred tax for the equity component of the allowance for funds used during the construction of long-lived assets. All amounts were generated during the period that we were a taxable entity. Taxes on capitalized funds used during construction and the offsetting deferred income taxes are included in the rate base and are recovered over the depreciable lives of the long-lived asset to which they relate.

Asset Retirement Obligations This regulatory asset balance is established to offset depreciation of the ARO asset and changes in the ARO liability due to the passage of time. The regulatory asset is expected to be fully recovered through the net negative salvage component of depreciation included in our rates; as such, the negative salvage component of accumulated depreciation has been reclassified and netted against the amount of the ARO regulatory asset.

Fuel Recovery These amounts reflect the value of the cumulative volumetric difference between the gas retained from our customers and the gas consumed in operations. These amounts are not included in the rate base, but are expected to be recovered or refunded by changing the fuel reimbursement factor in subsequent fuel filings.

Postretirement Benefits We seek to recover the actuarially determined cost of postretirement benefits through rates that are set through periodic general rate filings. Any differences between the annual actuarially determined cost and amounts currently being recovered in rates are recorded as regulatory assets or liabilities and collected or refunded through future rate adjustments. These amounts are not included in the rate base, and we are not currently recovering postretirement benefit costs in our rates.