Comments filed in ferc rulemaking proceeding on electric transmission rate impacts from tax cut and job act
Following is a summary of recent comments provided to FERC in its Notice of Proposed Rulemaking on the impacts to electric transmission rates from the Tax Cut and Jobs Act (TCJA) (RM19-5). The comments are limited since FERC previously addressed the rate impacts of the TCJA in its Notice of Inquiry earlier in 2018 where it received extensive comments. I expect FERC will issues the final rule within two months. Compliance filings from all transmission owners with formula rates, who have not already addressed the TCJA impacts, will be due within 90 days of the final rule. This summary is organized alphabetically by those commenting.
American Municipal Power (AMP) requests that FERC: 1) provide further guidance on rate base neutrality to avoid accepting solutions that erode transparency in transmission formula rates; 2) require TOs to include the amortization of excess and deficient ADIT within the same portion of the formula rate calculation that is currently used to determine income tax expense and the associated tax gross up as this will promote transparency and provide a means to address future changes in federal, state or local income taxes; 3) TOs with transmission formula rates as well as stated rates should include a new worksheet to track information related to excess and deficient ADIT, including information necessary as a TOs excess and deficient ADIT will include a mix of balances that are protected and unprotected and the classification of these balances requires an item-by-item inquiry; 4) require the return of any incremental charges collected after December 31, 2017 that relate to utilizing the pre-TCJA tax rate; and 5) though AMP agrees with the 90-day compliance filing requirement, FERC should take immediate action to address TOs rates that are currently based on the 35% federal income tax rate.
American Public Power (APPA) agrees with FERC’s proposal not to adopt a generic amortization period for unprotected excess or deficient ADIT under formula and stated rates if FERC makes clear that it will scrutinize proposals to adopt lengthy amortization periods for excess unprotected ADIT. APPA recommends the following: 1) where the full amount of TCJA-related excess ADIT for a TO with a stated rate is greater than the amount of excess ADIT calculated based on the ADIT in the utility’s last rate case, the full amount of excess ADIT ultimately must be returned to customers; 2) TOs with stated rates should provide information on actual, current excess or deficient ADIT as well as the that based on the ADIT in the last rate case; 3) not authorize recovery of past period deficient ADIT for which recovery should have been sought earlier under the requirements of Order No. 144; 4) customers should receive the full amount of any excess ADIT balance associated with the TCJA, even though the effective date of new rates may be after January 1, 2018; 5) future proposals to return or recover excess or deficient ADIT will require submission of a FPA section 205 filing, and transmission formula rates should be required to specify this filing requirement; and 6) formula rate compliance filings should include ADIT accounting information, as well as populated formulas showing the operation and effect of the proposed formula rate mechanisms, to allow interested parties to evaluate the effects of the proposed formula rate changes.
Avista states FERC, in its Show Cause Order process, found that Avista need not propose revisions to its stated transmission rates to reflect the recent change in the federal corporate income tax rate. Therefore, FERC should clarify that, where, as with Avista, it has already determined that no revision to stated transmission rates is necessary, a compliance filing is not required and that the treatment of excess or deficient ADIT should be addressed in the TOs next rate case to establish stated transmission rates.
Cities of Anaheim, Azusa, Banning, Colton, Pasadena, and Riverside, California (Six Cities) request that FERC require the following: 1) where a utility with a stated rate has ADIT that is greater than the amount of excess ADIT calculated in its last rate case, the full amount of excess ADIT must be flowed back to customers; 2) public utilities with stated rates should provide information on actual, current excess ADIT and a calculation of excess or deficient ADIT based on the ADIT in the utility’s last rate case; 3) customers should receive the full amount of any excess ADIT resulting from the Tax Act dating back to January 1, 2018, despite any later effective date for new rates; and 4) utilities with rates subject to moratoria should be required to defer amortization of excess ADIT and flow back the full amount, coinciding with the close of the moratorium. Six Cities also states that FERC should require even greater transparency and consistency among public utilities and ensure that utilities with stated rates are required to provide the same level of transparency as utilities with formula rates. To that end, the Commission should: (1) adopt a pro forma worksheet; (2) require additional detail be provided by public utilities; and (3) require all utilities, including those with stated rates, to use the pro forma worksheet to reflect the calculation and amortization of excess and deficient ADIT. Six Cities proposes that the following additional detail be included in the required worksheet: 1) the pro forma worksheet should itemize the unprotected and protected excess and deficient ADIT amounts into more granular categories: i) protected property-related excess and deficient ADIT should be categorized as: (a) Property-Related – Accelerated Tax Depreciation; (b) Net Operating Loss – Related to Accelerated Depreciation; (c) Repairs Deduction – Related to Accelerated Depreciation; (d) Contributions in Aid of Construction – (CIAC); and (e) Cost of Removal; ii) unprotected property-related excess and deficient ADIT should be categorized as: (a) Basis Adjustments – Not Related to Accelerated Depreciation, by individual basis adjustment; (b) NOL – Not Related to Accelerated Depreciation; and (c) Cost of Removal – Not a Component of a Depreciation Rate and not based on a Net Salvage Value; and iii) unprotected non-property related excess and deficient ADIT should be categorized based on whether it is attributable to vacation pay, repairs, pensions, accrued payroll, property tax, capitalized interest, etc.; 2) all specific ADIT items should be listed in the required worksheet - there are certain items, like equity Allowance for Funds Used During Construction (“AFUDC”) that should not be recovered through rates, rendering it inappropriate to recover ADIT related to these items through rates, unless the TO had previously received authorization from FERC to recover them; 3) TOs should be required to specify those items that are either below-the-line or specifically inapplicable to customers and, therefore, are not included in rates; and 4) the worksheet should specify those amounts that are inapplicable to customers, such as ADIT amounts for items such as merger costs due to a hold harmless agreement; FASB 109 ADIT items that are excluded from rates; 5) FASB 106 ADIT items that are excluded from rates; regulatory assets and liabilities that have not been approved to be included in customer rates; and 6) any ADIT items specifically related to transmission, but allocated to other functions such as Gas, Production, Retail, etc.
Delaware Municipal Electric Coop recommends 1) TOs follow the Uniform System of Accounts (“USoA”) and FERC precedent, including with respect to the requirement that TOs must submit section 205 filings reflecting in rates any regulatory assets or liabilities arising from future tax changes, or other types of deferred taxes that are recorded as regulatory assets and which have not been previously approved; 2) TOs with transmission formula rates be directed to provide transparency associated with the regulatory liabilities and assets by booking the excess or deficient ADIT amounts to separate accounts or subaccounts and to provide greater detail in associated formula rate line items and worksheets; 3) describing the correct approach for computing excess or deficient ADIT; 4) customers receive the excess ADIT without unreasonable delay; 5) TOs to include in their worksheets a detailed computation of the excess or deficient ADIT; 6) that, irrespective of the test period used, FERC should ensure that all the TCJA benefits, including the use of the 21% income tax rate, become effective as of January 1, 2018, and that all customer refunds be made with interest; and 7) there are additional TCJA provisions, not discussed in the NOPR, that affect TOs rates, particularly, tax deductions that have been affected by the TCJA as well as the effect of the TCJA on Bonus Depreciation, Net Operating Losses, among other affected areas.
Edison Electric Institute (EEI) (comments supported by Duke, First Energy and Avista) seeks clarification on several items: 1) FERC should allow a case-by-case approach for determining amortization of unprotected ADIT as the amortization period depends on the specific facts and circumstances for each TO and due to the diversity of assets that could underlie unprotected ADIT balances, including state income taxes, employee benefits, repairs, etc.; 2) the annual information presented in Form 1, in conjunction with the support provided in the annual updates, provides the necessary transparency and therefore a new worksheet is unnecessary; 3) compliance filings for formula rates should be due the later of 90 days from issuance of a final rule (as FERC proposed) or at the time of the TOs next informational or true-up filing; 4) TOs with stated rates should have the opportunity to show that their rates are not unjust and unreasonable even after the return of excess ADIT, should not be required to produce a compliance filing if they include the required information in their Form 1, and should be allowed to do single-issue ratemaking to address issues from the TCJA; 5) TOs transitioning from stated to formula rates should be allowed to address all issues related to the potential effects of the TCJA on ADIT balances in the context of the proceeding to transition from stated to formula rates; and 6) FERC should clarify whether the Policy Statement (accounting items related to the TCJA) applies in the case of all ordinary retirements or whether the Policy Statement excludes all ordinary retirements, and whether the Policy Statement applies to all retirements and sales that are closed after November 23, 2018, the Policy Statement’s effective date.
Electricity Consumers Resource Council (“ELCON”), the American Forest & Paper Association (“AF&PA”), and the American Chemistry Council (“ACC”) request that FERC promptly issue the final rule, which already is delayed, and take whatever further actions are needed for full and timely return of customer monies, including interest charges to account for the delays that already have occurred, and to establish an incentive against further delays.
Eversource supports FERC proposals with some clarifications and comments: 1) FERC to make clear that it will permit TOs to propose a mechanism in their formula rates to adjust for excess or deficient ADIT that arises due to future changes in the federal and state income tax rates; 2) supports FERC’s not prescribing a specific method to flow back or recover the excess or deficient ADIT amounts from customers; 3) supports FERC’s proposal to allow for a case-by-case approach with respect to the amortization period for excess or deficient unprotected ADIT and recommends that non-protected ADIT be amortized based on an approximate average life of the assets that gave rise to the ADIT balances; and 4) the proposed ADIT worksheet may be redundant in light of the requirements for disclosure in Form 1 as the categories of ADIT-related information appear to be essentially the same information in both the worksheet and in Form 1.
MISO Transmission Owners (MISO TOs) state that their formula rates already ensure rate base neutrality and provides or will soon provide for amortization of excess and deficient ADIT, so no further adjustments for these items are needed. The MISO TOs request that FERC find that a life of the asset approach (i.e., ARAM or RSGM) is per se just and reasonable in amortizing unprotected ADIT as this approach would not prohibit a TO from using a shorter flow-back period. FERC should clarify that the requirements for TOs with transmission stated rates do not apply to TOs with transmission formula rates that have other stated rates in their OATTs, such as reactive power rates. The MISO TOs agree that it is necessary to provide interested parties adequate transparency but disagree that requiring a permanent ADIT work paper into their formula rate templates is the most efficient or effective means of accomplishing this objective. Creating an ADIT work paper that both contains all the information FERC proposes and accommodates the unique circumstances of each TO will be an extremely time-consuming and tedious process. Rather than mandating the permanent ADIT work paper, FERC should rely upon the existing formula rate protocol processes.
National Rural Electric Coop (NREC) supports FERC’s proposal with the understanding NREC may request further clarifications or request additional measures in the future.
Public Service Electric and Gas recommends that FERC not require TOs with formula rates to incorporate a new permanent worksheet into their annual transmission formula rate filings as such worksheet is unnecessary and burdensome since existing FERC practice already provides that sufficient information regarding ADIT balances be made available to interested third parties, the information is included in FERC Form No. 1 and supporting workpapers and the 2014 Staff Guidance regarding formula rate updates provides that annual update filings shall include support for all inputs.
Transmission Access Policy Study Group (TAPS), an association of transmission-dependent utilities in more than 35 states, requested that FERC explicitly require that a TOs changes to its formula rates related to excess and deficient ADIT be filed pursuant to FPA section 205 to obtain FERC approval prior to including in rates the amortization of excess or deficient ADIT following a tax change.
Xcel Energy requests that FERC provide the flexibility for TOs to address excess and deficient ADIT with stakeholders through settlement processes and that the final rule would not overrule such settlements already effective. One Xcel company has a settlement that provides that excess and deficient ADIT balances begin to be flowed back to customers effective January 1, 2018, the effective date of the Tax Cut and Job Act (TCJA). The settlement provides that excess plant-related, protected ADIT balances, including excess ADIT related to net operating losses, and excess plant-related unprotected ADIT balances will be amortized for accounting purposes and will be flowed back in rates based on the Average Rate Assumption Method (“ARAM”); and excess non-plant unprotected ADIT balances will be amortized for accounting purposes and flowed back in rates over five years. For the Xcel company, the underlying assets and liabilities that gave rise to the non-plant unprotected ADIT have varying lives, and the five-year amortization period considers both the varying lives and inter-generational equity issues. Xcel further believes that excess and deficient ADIT should be amortized in a consistent manner across a TOs various rate jurisdictions (multiple states, FERC), if possible.
Dr. Paul Dumais
CEO of Dumais Consulting with expertise in FERC regulatory matters, including transmission formula rates, reactive power and more.