Monday, February 18, 2019

FERC Acts on Tax Cuts

By Rich Heidorn Jr.

Transmission owners will be required to reduce their rates to reflect reduced corporate income taxes under a Notice of Proposed Rulemaking approved by FERC Thursday (RM19-5).

The NOPR is a response to the December 2017 Tax Cuts and Jobs Act, which cut maximum corporate income tax rates to 21% from 35%.

Senate Majority Leader Mitch McConnell, House Speaker Paul Ryan and Vice President Mike Pence celebrated the passage of the corporate tax cut with President Trump in November 2017. | The White House

It would require public utility transmission providers with rates under an Open Access Transmission Tariff, a transmission owner tariff or a rate schedule to modify the accumulated deferred income taxes (ADIT) incorporated in their rates. ADIT is used to account for timing differences between the computation of taxable income for reporting to the IRS and that used for regulatory accounting and ratemaking.

TOs with formula rates would be required to deduct excess ADIT from their rate bases and complete a new worksheet annually to track ADIT. Utilities with stated rates would be required to return any excess ADIT to customers.

In related actions, FERC also:

  • Issued a policy statement providing guidance on how other FERC-jurisdictional public utilities, natural gas pipelines and oil pipelines handle the accounting and ratemaking treatment of ADIT (PL19-2).
  • Approved Edison Electric Institute’s request for accounting guidance on recording a reclassification of any stranded tax effects from the law (AC18-59).
  • Acted on 46 of the Federal Power Act Section 206 show-cause investigations initiated in March, when the commission directed utilities whose transmission tariffs reference tax rates of 35% to reduce the rates to 21% or show why they did not need to do so.
  • Accepted three interstate natural gas pipeline rate reductions and one settlement in response to Order 849, which requires pipelines to provide a one-time report estimating their returns on equity before and after the new tax law and changes to the commission’s tax allowance policies. The rate reductions involved Millennium Pipeline Co. (RP19-65), North Baja Pipeline (RP19-71) and Vector Pipeline (RP19-60).

Commissioner Richard Glick said he was troubled by a clause in the settlement with Kern River Gas Transmission (RP19-55) that would undo its rate reduction if FERC initiates a rate proceeding in the future under Section 5 of the Natural Gas Act.

“In my opinion, Kern River in this settlement is essentially holding the commission hostage,” Glick said. “What I think this really highlights is the fact that the Natural Gas Act doesn’t have a refund provision like the Federal Power Act does. So, again, I want to call on Congress to add a refund provision to the Natural Gas Act which mirrors the refund provision in the Federal Power Act so that we can ensure that consumers are protected.”

Comments on the NOPR will be due 30 days after date of publication in the Federal Register.