Bills and Rates

FERC should ensure tax law public power rate benefits: Kelly

The Federal Energy Regulatory Commission should take prompt action to ensure that public power utilities, and the 49 million retail customers that those utilities serve, receive the rate benefits that will result from the Tax Cuts and Jobs Act of 2017, Sue Kelly, the president and CEO of the American Public Power Association, said in a recent letter to the Commission.

In her Feb. 23 letter to FERC Chairman Kevin McIntyre and Commissioners Neil Chatterjee, Rickard Glick, Cheryl LaFleur and Robert Powelson, Kelly noted that public power utilities across the U.S. purchase transmission, ancillary, and other services from public utilities under FERC-regulated cost-based rates that include an allowance for both current and deferred federal income tax expenses. 

“The sharp escalation in wholesale transmission rates in recent years has been a matter of profound concern for public power utilities, and the reduction in federal income tax expenses that public utilities will enjoy” under the Tax Cuts and Jobs Act of 2017 should be used “to provide a welcome measure of rate relief to these customers,” wrote Kelly.

In particular, the Tax Cuts and Jobs Act of 2017’s reduction of the corporate income tax rate from 35 percent to 21 percent will significantly reduce public utilities’ tax-related expenses, the president and CEO of the Association noted.

“That reduction, in turn, should be reflected through cuts in the income tax allowances included in public utilities’ cost-based rates. Indeed, it is difficult to see how cost-based rates reflecting a 35 percent tax rate remain just and reasonable,” Kelly wrote.

Moreover, as a result of the lower corporate income tax rate, the accumulated deferred income tax reserves funded by consumers while the 35 percent rate was in effect now greatly exceed the deferred taxes utilities actually will pay in the future under the 21 percent rate, she pointed out. “These excess deferred tax reserves should be returned to customers as quickly as is practicable and permissible,” Kelly told the FERC Commissioners.

In that regard, the Association is urging FERC “to recognize the great unfairness of suggestions that utilities be permitted to divert their excess deferred tax reserves toward rate base projects that would eventually increase rates and produce additional utility profits. Refunds of the excess deferred tax reserves consumers have funded through rates must not be delayed or diverted in this manner,” Kelly said.

In January, a coalition of states, state agencies, and state consumer advocates asked FERC to act generically under the Federal Power Act, the Natural Gas Act, and other federal statutes to adjust the revenue requirements of FERC-jurisdictional utilities to reflect the tax law changes made in the Tax Cuts and Jobs Act of 2017.

Kelly highlighted the fact that the groups urged the Commission to revise current formula rates immediately to reflect Tax Cuts and Jobs Act of 2017-related rate benefits, rather than waiting for benefits to flow through a formula rate true-up process. 

Numerous other entities have also urged the Commission to act to ensure that consumers receive the full measure of rate benefits resulting from the tax law.  

 Kelly noted that FERC has not yet acted on the January request made by the coalition, nor has it announced any other generally-applicable policy or procedure aimed at passing tax savings through to the customers of regulated public utilities.

But McIntyre recently assured attendees at the National Association of Regulatory Utility Commissioners’ Winter Policy Summit in Washington, D.C., that the Commission is reviewing these issues and trying to determine the most effective and efficient way to move forward to provide relief to consumers. 

“Accordingly, the Association is hopeful that the Commission will act to ensure that the rate benefits resulting from the TCJA [Tax Cuts and Jobs Act of 2017] are appropriately passed along to wholesale transmission and power service customers,” Kelly said.

“We urge the Commission to do so promptly, so consumers are not unfairly deprived of the benefits resulting from this significant change in federal law,” she said.