Electricity Markets

FERC takes action on several fronts tied to 2017 tax law

The Federal Energy Regulatory Commission on Nov. 15 took several actions relating to potential accounting and rate impacts associated with the Tax Cuts and Jobs Act of 2017 (TCJA), which President Trump signed into law in December 2017.

FERC’s actions included the issuance of a Notice of Proposed Rulemaking (NOPR), a policy statement and several orders implementing individual rate revisions and reductions. The Commission unveiled the moves at its monthly meeting.

The NOPR (Docket No. RM19-5-000) proposes to require each “public utility” transmission provider 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 Tax Cuts and Jobs Act. FERC said the proposed reforms are designed to address the tax law’s effects on the Accumulated Deferred Income Taxes (ADIT) reflected in their transmission rates.

FERC refers to electric utilities it regulates as “public” utilities; however, these are not municipal utilities, but rather investor-owned utilities.

Under these reforms, all public utilities with transmission formula rates would: (1) Include mechanisms to deduct any excess ADIT from or add any deficient ADIT to their rate bases; (2) Include mechanisms in those rates that would raise or lower their income tax allowances by any amortized excess or deficient ADIT; and (3) incorporate a new permanent worksheet into their rates that will 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 this amount to or from customers.

FERC proposed to require each public utility subject to the rule to submit a compliance filing revising its rates within 90 days of the date any final rule becomes effective.

Policy statement and other actions

The policy statement (Docket No. PL19-2-000) provides accounting and ratemaking guidance for treatment of ADIT for all FERC-jurisdictional public utilities, natural gas pipelines and oil pipelines. The policy statement also addresses the accounting and ratemaking treatment of ADIT following the sale or retirement of an asset after Dec. 31, 2017.

FERC also approved an accounting request from the Edison Electric Institute (AC18-59-000) related to recording a reclassification of any stranded tax effects from the 2017 tax law changes.

FERC also acted on 46 of the 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 percent to reduce their tax rates to 21 percent or show why they did not need to do so.

Earlier this year, FERC took a number of actions to address changes in the income tax rates for the electric transmission and natural gas and oil pipeline companies that it regulates, stemming from the Tax Cuts and Jobs Act of 2017.

FERC took action to address the impact of the tax law’s reduction of the corporate tax rate on electric utility and gas pipeline rates. 

FERC also noted that it was issuing a notice of inquiry (NOI) seeking information regarding whether and how the Commission should address more complex aspects of the tax law, including its effect on accumulated deferred income taxes and bonus depreciation (Docket No. RM18-2). 

The orders issued by the Commission on Nov. 15 reflect the industry input it received in response to the NOI.