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FERC Follows Up on Tax Rate Changes With NOPR, Policy Statement

In an effort to ensure that ratepayers receive the benefit of tax reductions from reform legislation adopted by the Trump administration last year, FERC on Thursday issued a notice of proposed rulemaking (NOPR) and associated policy statement.

The NOPR (RM19-5) would require public utility transmission providers with transmission rates under an open access transmission tariff, a transmission owner tariff or a rate schedule to revise those rates to account for changes caused by the $1.5 trillion Tax Cuts and Jobs Acts bill, which was signed by President Trump in December 2017.

"These proposed reforms are designed to address the tax law's effects on the accumulated deferred income taxes (ADIT) reflected in their transmission rates," according to the Federal Energy Regulatory Commission.

Under the reforms, all public utilities with transmission formula rates would:

  • Include mechanisms to deduct any excess ADIT from or add any deficient ADIT to their rate bases;
  • Include mechanisms in those rates that would raise or lower their income tax allowances by any amortized excess or deficient ADIT; and
  • Incorporate a new permanent worksheet into their rates that would annually track information related to excess or deficient ADIT.

All public utilities with transmission stated rates would determine the amount of excess and deferred income tax caused by the reduced federal corporate income tax rate, and return or recover that amount to or from customers, FERC said.

The policy statement (PL19-2-000) provides accounting and ratemaking guidance for treatment of ADIT for all FERC-jurisdictional public utilities, natural gas pipelines and oil pipelines. It also addresses the accounting and ratemaking treatment of ADIT following the sale or retirement of assets after December 31, 2017.

"Among other things, the policy statement states that for a public utility or natural gas pipeline that continues to have an income tax allowance, any excess of deficient ADIT associated with an asset must continue to be amortized in rates even after the sale or retirement of that asset," FERC said.

Also on Thursday, FERC accepted three interstate natural gas pipeline rate reduction filings and one settlement stemming from implementation of Order No. 849. The order, which was approved in July, requires pipelines to provide through a one-time report an estimate of returns on equity (ROE) before and after the new tax law and changes to FERC's tax allowance policies. FERC accepted filings for Millennium Pipeline Company LLC [RP19-65], North Baja Pipeline LLC [RP19-71] and Vector Pipeline LP [RP19-60], and accepted a settlement for Kern River Gas Transmission Co. [RP19-55]. The Commission also approved an accounting request from the Edison Electric Institute [AC18-59-000] related to recording a reclassification of any stranded tax effects from last year’s tax reform.

Lastly, FERC acted on 46 Federal Power Act section 206 show-cause investigations initiated in March, in which the Commission directed certain public utilities whose transmission tariffs specifically reference tax rates of 35%  to reduce their tax rates to 21% or show why they did not need to do so.

FERC intends to consider whether it should make additional changes to both its calculation of base ROE and transmission incentives, according to Chairman Neil Chatterjee.

"I think we all agree that our policies are overdue for a fresh look with input from all interested stakeholders, not just those that happen to be parties to a pending complaint proceeding," Chatterjee said. "Further, with 13 years having passed since congress established Section 219 of the Federal Power Act, I think it's high time we look at whether these two sets of policies are producing the level and type of transmission investment that the nation needs."

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