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, 2017 and 2016:



	2017		2016
	(Thousands of Dollars)
Current regulatory assets:
Levelized depreciation	$	4,707	$	3,864
Total current regulatory assets	4,707		3,864
Noncurrent regulatory assets:
Grossed-up deferred taxes on equity funds used during construction	6,598		13,051
Levelized depreciation	16,149		21,849
Total noncurrent regulatory assets	22,747		34,900
Total regulatory assets	$	27,454	$	38,764
Current regulatory liabilities:
Fuel recovery	$	1,539	$	1,466
Noncurrent regulatory liabilities:
Postretirement benefits	34,089		30,587
Deferred taxes-liability	206,547		—
Asset retirement obligations, net	5,868		130
Total noncurrent regulatory liabilities	246,504		30,717
Total regulatory liabilities	$	248,043	$	32,183

The significant regulatory assets and liabilities include:

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, net This regulatory liability balance reflects the amount that we have recovered in our rates related to our future retirement costs offset by depreciation of the ARO asset and changes in the ARO liability due to the passage of time. ARO’s are expected to be fully recovered through the net negative salvage component of depreciation included in our rates. (See Note 8 for further discussion)

Deferred Taxes-Liability Regulatory liability balance was established as a result of a decrease to rate base deferred taxes due to a decrease to the effective federal income tax rate. The timing of the refund of the regulatory liability to rate payers will be subject to future discussions and negotiations with our customers in our next rate case.(See Note 1). In addition to this amount, as part of our 2017 rate case settlement, which became effective January 1, 2018, we agreed with our customers that if federal income tax rates changed due to subsequent legislation, such as the recently enacted Tax Reform, we would record a regulatory liability. As a result of Tax Reform, the regulatory liability will be $23.6 million annually for the period beginning January 1, 2018 and continuing through the time that our current rates remain effective.

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. (See Note 5)