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FERC Addresses Impact of Lowered Corporate Tax Rates on Accumulated Deferred Income Taxes

By Dave Schryver posted 11-21-2018 09:34 AM

  
At its November 15 Annual Meeting, the Federal Energy Regulatory Commission (FERC) approved the release of a Notice of Proposed Rulemaking, a policy statement, and several orders intended to ensure that ratepayers receive the benefit of the lowering of the corporate tax rate (from 35 percent to 21 percent) as provided in the Tax Cuts and Jobs Act signed into law last December. Specifically, these proposed reforms are designed to address the tax law’s effects on the Accumulated Deferred Income Taxes (ADIT) reflected in their transmission rates. ADIT represents the accumulation of amounts collected through rates for income taxes but not yet needed to pay income taxes. While Congress has lowered the corporate tax rate, pipelines have collected, and in most if not all cases continue to collect, rates from their customers based on a 35 percent tax rate. As a result, a portion of an ADIT liability that was collected from ratepayers will no longer be due from interstate natural gas pipelines and is considered excess ADIT.

As communicated by FERC, 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.

APGA retained Ken Sosnick, a former FERC staffer now with Concentric Energy Advisors, Inc., to prepare a white paper on the ADIT issue, which accompanied comments APGA submitted FERC on May 22. Ken also provided a webinar on May 31 on the ADIT issue.

The May 31 webinar, as well as the comments APGA filed on May 22, are available on the APGA website. For questions on this article, please contact Dave Schryver of APGA staff by phone at 202-464-2742 or by email at dschryver@apga.org.

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