FERC Addressing Implication of Tax Reform on formula rates

On November 15, 2018, FERC issued a Notice of Proposed Rulemaking (NOPR), a policy statement, and several orders implementing individual rate revisions and reductions to reflect the impact of Tax Reform in transmission formula rates. The NOPR (RM19-5-000) proposes to require each 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. These proposed reforms are designed to address the tax law’s effects on the Accumulated Deferred Income Taxes (ADIT) reflected in their transmission rates. Under these reforms, all public utilities with transmission formula rates would: 
·      include mechanisms to deduct any excess ADIT from or add any deficient ADIT to their rate bases;
·      include mechanisms in those rates that would raise or lower their income tax allowances by any amortized excess or deficient ADIT; and
·      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. Comments are due 30 days from when the NOPR is published in the Federal Register.  Here is the link to the NOPR: https://www.ferc.gov/whats-new/comm-meet/2018/111518/E-1.pdf?csrt=13550044115908092740.
FERC also issued a policy statement (PL19-2-000) which 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 December 31, 2017.  Here is the link to the Policy Statement: https://www.ferc.gov/whats-new/comm-meet/2018/111518/E-1.pdf?csrt=13550044115908092740.
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 Tax Reform. Lastly, FERC 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.
Dumais Consulting welcomes the opportunity to help entities with comments to FERC on the NOPR and in complying with the eventual requirements both for accounting and electric transmission in formula rates. Please contact Dumais Consulting at www.DumaisConsulting.com.