FERC denied a formal challenge to the Westar full requirements service formula rate (FR) in a March 21, 2019 decision in ER19-17. The Westar FR is based upon historical amounts. As such, Westar continued to use the 35% federal income tax rate in its June 2018 FR update, which was based upon 2017 data. The Kansas Electric Coop challenged Westar, claiming that Westar should have used the 21% federal tax rate in its June 2018 update and additionally adjusted the revenue requirement to a 21% federal tax rate for the period January 2018 through May 2018.
FERC disagreed with Kansas as the Westar FR uses a historical test year without a true-up based on actual costs. Accordingly, Westar correctly applied a 35 percent federal corporate income tax rate in the calculation for the period from January 1, 2018 through May 31, 2018, and for the period from June 1, 2018 through May 31, 2019. The 2018 Annual Update was properly based on 2017 costs, including the 35 percent federal corporate income tax rate in effect in 2017; the reduction in the federal corporate income tax rate did not take effect until January 1, 2018. In a prior Duke Energy Progress case, FERC stated that it generally requires that formula rate inputs be calculated on a synchronized basis over the same test period, such that the use of a historical formula rate methodology generally dictates the use of the federal corporate income tax rate in effect during the historical test year period, absent a contrary statement in the filed rate.
Dr. Paul Dumais
CEO of Dumais Consulting with expertise in FERC regulatory matters, including transmission formula rates.