RATE AND OTHER REGULATORY MATTERS

Rate Matters

Other than the items discussed below, which are pending or have been resolved during the period, there have been no changes to the regulatory matters discussed in Note 2 to the Consolidated Financial Statements in DESC's Annual Report on Form 10-K for the year ended December 31, 2018.

Electric - Cost of Fuel

In April 2019, the South Carolina Commission approved DESC’s proposal to decrease the total fuel cost component of retail electric rates. DESC's proposal included maintaining its base fuel component at the current level to produce a projected under-recovered balance of $35 million at the end of the 12-month period beginning with the first billing cycle of May 2019, and requested carrying costs for any base fuel under-collected balances, should they occur. DESC also proposed reducing its variable environmental component and maintaining or reducing its DER components. Changes in rates became effective beginning with the first billing cycle of May 2019.

Electric - Other

DESC has approval for a DSM rider through which it recovers expenditures related to its DSM programs. In January 2019, DESC filed an application with the South Carolina Commission seeking approval to recover $30 million of costs incurred and net lost future revenues associated with these programs, along with an incentive to invest in such programs. In April 2019, the South Carolina Commission approved the request for the rate year beginning with the first billing cycle of May 2019.

Regulatory Assets and Regulatory Liabilities

Rate-regulated utilities recognize in their financial statements certain revenues and expenses in different periods than do other enterprises. As a result, DESC has recorded regulatory assets and regulatory liabilities which are summarized in the following tables. Except for unrecovered NND Project costs and certain other unrecovered plant costs, substantially all regulatory assets are either explicitly excluded from rate base or are effectively excluded from rate base due to their being offset by related liabilities.



Millions of dollars	March 31, 2019		December 31, 2018
Regulatory Assets:
Unrecovered NND Project costs	$	138	$	127
Deferred employee benefit plan costs	16		16
Other unrecovered plant	14		14
DSM programs	16		14
Other	69		52
Regulatory assets - current	253		223
Unrecovered NND Project costs	2,607		2,641
AROs	335		380
Deferred employee benefit plan costs	252		256
Deferred losses on interest rate derivatives	297		442
Other unrecovered plant	76		79
DSM programs	51		51
Environmental remediation costs	23		24
Deferred storm damage costs	34		35
Deferred transmission operating costs	21		15
Other	114		123
Regulatory assets - noncurrent	3,810		4,046
Total Regulatory Assets	$	4,063	$	4,269



Regulatory Liabilities:
Monetization of guaranty settlement	$	67	$	61
Income taxes refundable through future rates	49		52
Reserve for refunds to electric utility customers	137		—
Other	9		13
Regulatory liabilities - current	262		126
Monetization of guaranty settlement	1,020		1,037
Income taxes refundable through future rates	837		607
Asset removal costs	549		541
Deferred gains on interest rate derivatives	70		75
Reserve for refunds to electric utility customers	846		—
Other	1		4
Regulatory liabilities - noncurrent	3,323		2,264
Total Regulatory Liabilities	$	3,585	$	2,390

Regulatory assets have been recorded based on the probability of their recovery. All regulatory assets represent incurred costs that may be deferred under GAAP for regulated operations. The South Carolina Commission or the FERC has reviewed and approved through specific orders certain of the items shown as regulatory assets. In addition, regulatory assets include, but are not limited to, certain costs which have not been specifically approved for recovery by one of these regulatory agencies, including deferred transmission operating costs that are the subject of regulatory proceedings discussed in Note 10. While such costs are not currently being recovered, management believes they would be allowable under existing rate-making concepts embodied in rate orders or applicable state law and expects to recover these costs through rates in future periods. In the future, as a result of deregulation, changes in state law, other changes in the regulatory environment or changes in accounting requirements or other adverse legislative or regulatory developments, DESC could be required to write off all or a portion of its regulatory assets and liabilities. Such an event could have a material effect on DESC's financial statements in the period the write-off would be recorded.

Unrecovered NND Project costs reflects expenditures associated with the NND Project, which pursuant to the Merger Approval Order, will be recovered from electric service customers over a 20-year period ending in 2039. See Note 10 for more information.

AROs represent deferred depreciation and accretion expense related to legal obligations associated with the future retirement of generation, transmission and distribution properties, excluding amounts related to CCRs. The AROs primarily relate to nuclear decommissioning activities and are expected to be recovered over the related property lives and periods of decommissioning which may range up to approximately 106 years.

Employee benefit plan costs have historically been recovered as they have been recorded under GAAP. Deferred employee benefit plan costs represent amounts of pension and other postretirement benefit costs which were accrued as liabilities and treated as regulatory assets pursuant to FERC guidance, and costs deferred pursuant to specific South Carolina Commission regulatory orders. DESC expects to recover deferred pension costs through utility rates over periods through 2044. DESC expects to recover other deferred benefit costs through utility rates, primarily over average service periods of participating employees up to 11 years.

Deferred losses or gains on interest rate derivatives represent (i) the changes in fair value and payments made or received upon settlement of certain interest rate derivatives designated as cash flow hedges and (ii) the changes in fair value and payments made or received upon settlement of certain other interest rate derivatives not so designated. The amounts recorded with respect to (i) are expected to be amortized to interest expense over the lives of the underlying debt through 2043. The amounts recorded with respect to (ii) are expected to be similarly amortized to interest expense through 2065.

Other unrecovered plant represents the carrying value of coal-fired generating units, including related materials and supplies inventory, retired from service prior to being fully depreciated. DESC is amortizing these amounts through cost of service rates over the units' previous estimated remaining useful lives through 2025. Unamortized amounts are included in rate base and are earning a current return.

DSM programs represent deferred costs associated with electric demand reduction programs, and such deferred costs are currently being recovered over five years through an approved rate rider.

Environmental remediation costs are associated with the assessment and clean-up of sites currently or formerly owned by DESC. Such remediation costs are expected to be recovered over periods of up to 16 years.

Deferred storm damage costs represent storm restoration costs for which DESC expects to receive future recovery through customer rates.

Deferred transmission operating costs includes deferred depreciation and property taxes associated with certain transmission assets for which DESC expects recovery from customers through future rates. See also Note 10.

Various other regulatory assets are expected to be recovered through rates over varying periods through 2047.

Monetization of guaranty settlement represents proceeds related to the monetization of the Toshiba Settlement. In accordance with the Merger Approval Order, this balance, net of amounts that may be required to satisfy certain liens, will be refunded to electric customers over a 20-year period ending in 2039. See Note 10.

Income taxes refundable through future rates includes (i) excess deferred income taxes arising from the remeasurement of deferred income taxes in connection with the enactment of the 2017 Tax Reform Act (certain of which are protected under normalization rules and will be amortized over the remaining lives of related property, and certain of which will be amortized to the benefit of customers over prescribed periods as instructed by regulators) and (ii) deferred income taxes arising from investment tax credits, offset by (iii) deferred income taxes that arise from utility operations that have not been included in customer rates (a portion of which relate to depreciation and are expected to be recovered over the remaining lives of the related property which may range up to 85 years). See also Note 6.

Reserve for refunds to electric utility customers reflects amounts previously collected from retail electric customers of DESC for the NND Project to be credited to customers over an estimated 11-year period in connection with the Merger Approval Order. See Note 10.

Asset removal costs represent estimated net collections through depreciation rates of amounts to be expended for the removal of assets in the future.