On November 15, the Federal Energy Regulatory Commission (FERC) took steps to help ensure that their ratepayers will receive beneficial tax deductions from the December 2017 Tax Cuts and Jobs Act. They issued a Note of Proposed Rulemaking, several orders, and a policymaking during this meeting, all related to the Tax Act. The Tax Act cut the corporate tax rate from 35 percent to 21 percent, which came into effect on January 1, 2018.
The Notice of Proposed Rulemaking, RM19-5-000, is proposing to require that each public utility transmission provider with a transmission owner tariff or a rate schedule to revise their rates to account for any changes that fall under the Tax Act. FERC says these proposed rules are intended to address the effects the Tax Act has had on the Accumulated Deferred Income Taxes (ADIT), which is reflected in their transmission rates.
According to the Washington Examiner, “FERC’s proposed tax rule would apply to the interstate transportation of energy only, where it has jurisdiction over the wholesale electricity and natural gas markets.”
The utilities FERC is calling public in this instance are electric utilities, but they are owned by investors, not municipal utilities. Under these reforms the public utilities will:
- “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
- incorporate a new permanent worksheet into their rates that will annually track information related to excess or deficient ADIT”
Every public utility with transmission stated rates will determine the amount of excess and deferred income tax that is due to the reduced federal corporate income tax rate, and they are to recover or return that amount from or to their customers.
FERC did not provide a specific mechanism to adjust the rate bases, nor did they give a specific method to return the excess ADIT.
FERC says “We estimate that the total number of public utility transmission providers with formula rates that would have to develop revisions to their formula rates, including the addition of a new permanent worksheet, and make compliance filings in response to this Proposed Rule is 106.”
During that meeting, they also addressed policy statement PL19-2-000, which provides guidance on accounting and ratemaking for ADIT, for all natural gas and oil pipelines and public utilities that fall under FERC’s jurisdiction.
“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.
FERC will also be considering if it needs to make more changes to its calculation of base returns on equity and to transmission incentives.
“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,” Chairman Neil 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.”
“FERC is the federal agency that regulates and oversees interstate transmission of electricity, natural gas and oil and is composed of five commissioners nominated by the president and confirmed by the U.S. Senate,” according to the Nevada Independent.
FERC will be receiving comments on these proposals 30 days after this proposed rule is published in the Federal Register. FERC will also be putting the full text of the proposal on their website, and it will be available in FERC’s Public Reference Room from 8:30 a.m. to 5:00 p.m. Eastern time at 888 First Street, N.E., Room 2A, Washington D.C. 20426.