Accounting for Excess ADIT for Energy Companies with Negotiated and recourse rates
In its Order on Rehearing issued on December 4, 2020, in Docket No. AC19-95, FERC reaffirmed its requirement that Alliance Pipeline L.P. should disclose in the Notes to its Financial Statements the full excess ADIT that would be recorded absent its determination that it is not probable that all the amounts would be returned to customers. As stated in an Order dated October 2020, FERC’s regulations and the 1993 Accounting Guidance do not specifically address the application of FERC’s policies in the context of a pipeline with both negotiated rates and recourse rates. Notwithstanding, FERC found that its regulations require pipelines to record on their books excess ADIT balances in Account 254 if such excess ADIT balances are probable of being returned to customers.
A natural gas pipeline charging negotiated rates is also required to develop, and authorized to charge, a recourse rate, which includes excess ADIT balances as a cost component. Considering this, FERC directed Alliance to, at the minimum, disclose its excess ADIT balances in the Notes to Financial Statements to provide information that is useful for the development of its future rates to fulfill a separate, regulatory need. FERC found that its Form No. 2 provides cost and revenue data that aids in evaluating the justness and reasonableness of rates in a ratemaking proceeding. FERC Form No. 2 also serves as a ready source of public information to assess on an ongoing basis the justness and reasonableness of a pipeline’s rates. FERC found that by directing Alliance to provide the full excess ADIT in its Notes to Financial Statements, shippers will benefit from the improved transparency, which will help them to assess whether to pursue a rate challenge.
12/28/2022 10:53:38 am
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Dr. Paul Dumais
CEO of Dumais Consulting with expertise in FERC regulatory matters, including transmission formula rates, reactive power and more.