Inquiry Regarding the Effect of the Tax Cuts and Jobs Act on Commission-Jurisdictional Rates, 12371-12376 [2018-05670]
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Federal Register / Vol. 83, No. 55 / Wednesday, March 21, 2018 / Notices
Dated: March 15, 2018.
Nathaniel J. Davis, Sr.,
Deputy Secretary.
[FR Doc. 2018–05678 Filed 3–20–18; 8:45 am]
BILLING CODE 6717–01–P
DEPARTMENT OF ENERGY
Federal Energy Regulatory
Commission
Combined Notice of Filings
Take notice that the Commission has
received the following Natural Gas
Pipeline Rate and Refund Report filings:
Filings Instituting Proceedings
Docket Numbers: RP17–363–006.
Applicants: Eastern Shore Natural Gas
Company.
Description: Compliance filing
Settlement Compliance Filing to be
effective 4/1/2018.
Filed Date: 3/1/18.
Accession Number: 20180301–5260.
Comments Due: 5 p.m. ET 3/13/18.
Docket Numbers: RP18–558–000.
Applicants: Midcontinent Express
Pipeline LLC.
Description: Compliance filing 2018
Annual Penalty Revenue Crediting
Report.
Filed Date: 3/13/18.
Accession Number: 20180313–5064.
Comments Due: 5 p.m. ET 3/26/18.
Docket Numbers: RP18–560–000.
Applicants: Texas Eastern
Transmission, LP.
Description: § 4(d) Rate Filing:
Negotiated Rates—Colonial Energy
K911486 eff 4–1–2018 to be effective
4/1/2018.
Filed Date: 3/15/18.
Accession Number: 20180315–5003.
Comments Due: 5 p.m. ET 3/27/18.
The filings are accessible in the
Commission’s eLibrary system by
clicking on the links or querying the
docket number.
Any person desiring to intervene or
protest in any of the above proceedings
must file in accordance with Rules 211
and 214 of the Commission’s
Regulations (18 CFR 385.211 and
385.214) on or before 5:00 p.m. Eastern
time on the specified comment date.
Protests may be considered, but
intervention is necessary to become a
party to the proceeding.
eFiling is encouraged. More detailed
information relating to filing
requirements, interventions, protests,
service, and qualifying facilities filings
can be found at: https://www.ferc.gov/
docs-filing/efiling/filing-req.pdf. For
other information, call (866) 208–3676
(toll free). For TTY, call (202) 502–8659.
Dated: March 15, 2018.
Nathaniel J. Davis, Sr.,
Deputy Secretary.
[FR Doc. 2018–05673 Filed 3–20–18; 8:45 am]
BILLING CODE 6717–01–P
DEPARTMENT OF ENERGY
Federal Energy Regulatory
Commission
Notice of Institution of Section 206
Proceeding and Refund Effective Date
Docket No.
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AEP Appalachian Transmission Company, Inc .........................................................................................................................
AEP Indiana Michigan Transmission Company, Inc .................................................................................................................
AEP Kentucky Transmission Company, Inc ..............................................................................................................................
AEP Ohio Transmission Company, Inc .....................................................................................................................................
AEP West Virginia Transmission Company, Inc .......................................................................................................................
AEP Oklahoma Transmission Company, Inc ............................................................................................................................
AEP Southwestern Transmission Company, Inc .......................................................................................................................
Baltimore Gas and Electric Company .......................................................................................................................................
Black Hills Power, Inc ................................................................................................................................................................
Citizens Sunrise Transmission LLC ...........................................................................................................................................
San Diego Gas & Electric Company .........................................................................................................................................
Transource Maryland, LLC ........................................................................................................................................................
Transource Pennsylvania, LLC ..................................................................................................................................................
Transource West Virginia, LLC ..................................................................................................................................................
UNS Electric, Inc ........................................................................................................................................................................
On March 15, 2018, the Commission
issued an order in Docket Nos. EL18–
62–000, EL18–63–000, EL18–64–000,
EL18–65–000, EL18–66–000, EL18–67–
000, EL18–68–000, EL18–69–000, EL18–
70–000, and EL18–71–000 pursuant to
section 206 of the Federal Power Act
(FPA), 16 U.S.C. 824e (2012), instituting
an investigation into the justness and
reasonableness of each of the abovecaptioned public utilities’ transmission
formula rates under its open access
transmission tariff or transmission
owner tariff on file with the
Commission. AEP Appalachian
Transmission Company, Inc., et al., 162
FERC 61,225 (2018).
The refund effective date in Docket
Nos. EL18–62–000, EL18–63–000,
EL18–64–000, EL18–65–000, EL18–66–
000, EL18–67–000, EL18–68–000, EL18–
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69–000, EL18–70–000, and EL18–71–
000, established pursuant to section
206(b) of the FPA, will be the date of
publication of this notice in the Federal
Register.
Any interested person desiring to be
heard in Docket Nos. EL18–62–000,
EL18–63–000, EL18–64–000, EL18–65–
000, EL18–66–000, EL18–67–000, EL18–
68–000, EL18–69–000, EL18–70–000,
and EL18–71–000 must file a notice of
intervention or motion to intervene, as
appropriate, with the Federal Energy
Regulatory Commission, 888 First Street
NE, Washington, DC 20426, in
accordance with Rule 214 of the
Commission’s Rules of Practice and
Procedure, 18 CFR 385.214, within 21
days of the date of issuance of the order.
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EL18–62–000
EL18–63–000
EL18–64–000
EL18–65–000
EL18–66–000
EL18–67–000
EL18–68–000
EL18–69–000
EL18–70–000
EL18–71–000, (not
consolidated)
Dated: March 15, 2018.
Nathaniel J. Davis, Sr.,
Deputy Secretary.
[FR Doc. 2018–05674 Filed 3–20–18; 8:45 am]
BILLING CODE 6717–01–P
DEPARTMENT OF ENERGY
Federal Energy Regulatory
Commission
[Docket No. RM18–12–000]
Inquiry Regarding the Effect of the Tax
Cuts and Jobs Act on CommissionJurisdictional Rates
Federal Energy Regulatory
Commission, Department of Energy.
ACTION: Notice of inquiry.
AGENCY:
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Federal Register / Vol. 83, No. 55 / Wednesday, March 21, 2018 / Notices
The Federal Energy
Regulatory Commission (Commission) is
seeking comment on the effect of the
Tax Cuts and Jobs Act of 2017 on
Commission-jurisdictional rates. Of
particular interest is whether, and if so
how, the Commission should address
changes relating to accumulated
deferred income taxes and bonus
depreciation.
SUMMARY:
Comments are due May 21, 2018.
Comments, identified by
docket number, may be filed
electronically at https://www.ferc.gov in
acceptable native applications and
print-to-PDF, but not in scanned or
picture format. For those unable to file
electronically, comments may be filed
by mail or hand-delivery to: Federal
Energy Regulatory Commission,
Secretary of the Commission, 888 First
Street NE, Washington, DC 20426. The
Comment Procedures section of this
document contains more detailed filing
procedures.
FOR FURTHER INFORMATION CONTACT:
Natalie Tingle-Stewart (Technical
Information), Office of Energy Market
Regulation, 888 First Street NE,
Washington, DC 20426, (202) 502–
8267, Natalie.Tingle-Stewart@ferc.gov
Kristen Fleet (Technical Information
(Electric)), Office of Energy Market
Regulation, 888 First Street NE,
Washington, DC 20426, (202) 502–
8063, Kristen.Fleet@ferc.gov
Monil Patel (Technical Information
(Oil)), Office of Energy Market
Regulation, 888 First Street NE,
Washington, DC 20426, (202) 502–
8296, Monil.Patel@ferc.gov
James Sarikas (Technical Information
(Natural Gas)), Office of Energy
Market Regulation, 888 First Street
NE, Washington, DC 20426, (202)
502–6831, James.Sarikas@ferc.gov
Steven Hunt (Accounting Information),
Office of Enforcement, 888 First Street
NE, Washington, DC 20426, (202)
502–6084, Steven.Hunt@ferc.gov
Jonathan Taylor (Legal Information),
Office of the General Counsel, 888
First Street NE, Washington, DC
20426, (202) 502–6649,
Jonathan.Taylor@ferc.gov
SUPPLEMENTARY INFORMATION:
1. In this Notice of Inquiry (NOI), the
Commission seeks comment on the
effect of the Tax Cuts and Jobs Act of
2017 (Tax Cuts and Jobs Act) on
Commission-jurisdictional rates. Of
particular interest is whether, and if so
how, the Commission should address
changes relating to accumulated
deferred income taxes (ADIT) and bonus
depreciation.
DATES:
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ADDRESSES:
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I. Background
jurisdictional entities to prevent
customers from overpaying for service.
A. Tax Cuts and Jobs Act
2. On December 22, 2017, the
President signed into law the Tax Cuts
and Jobs Act,1 which provides a number
of changes to the federal tax system.2
One of the significant changes with
widespread effects on Commissionjurisdictional rates is the reduction of
the federal corporate income tax rate
from a maximum 35 percent to a flat 21
percent rate, effective January 1, 2018.3
Because of the reduced federal corporate
income tax rate, the current balance of
ADIT, that is, the dollar amounts of
taxes that public utilities, interstate
natural gas pipelines, and oil pipelines
collected from customers in anticipation
of paying the Internal Revenue Service
(IRS), does not accurately reflect the
current income tax liability.
Additionally, the Tax Cuts and Jobs Act
prohibits the use of bonus depreciation
for assets acquired in the trade or
business of the furnishing or sale of
electrical energy or transportation of
natural gas by pipeline.
B. Requests for Commission Action
3. In light of the Tax Cuts and Jobs
Act, the Commission received letters
from several entities requesting that the
Commission act to ensure that the
economic benefits related to the
reduction in the federal corporate
income tax rate are passed through to
customers.4 These entities request,
among other things, that the
Commission investigate the continued
justness and reasonableness of
applicable Commission-jurisdictional
rates and explore ways to adjust the
transmission or transportation revenue
requirements of Commission1 Tax Cuts and Jobs Act, Public Law 115–97, 131
Stat. 2054 (2017).
2 The Commission has previously addressed a
major change in the tax law when Congress passed
the Tax Reform Act of 1986. See Rate Changes
Related to the Federal Corporate Income Tax Rate
for Public Utilities, Order No. 475, FERC Stats. &
Regs. ¶ 30,752, order on reh’g, 41 FERC ¶ 61,029
(1987).
3 Section 13001 of the Tax Cuts and Jobs Act.
4 These entities include State Advocates (States,
state agencies, and state consumer advocates),
Organization of PJM States, Inc., Organization of
MISO States, American Public Gas Association,
Process Gas Consumers Group, Natural Gas Supply
Association, Natural Gas Indicated Shippers,
Liquids Shippers Group, Oklahoma Attorney
General, Gordon Gooch (pro se consumer),
Advanced Energy Buyers Group, National
Association of State Energy Officials, The R-Street
Institute, Office of the Ohio Consumers’ Counsel,
and the Governor of Delaware. The Interstate
Natural Gas Association of America, Edison Electric
Institute and the Industrial Energy Consumers of
America also sent letters to the Commission in
reference to the effects of the Tax Cuts and Jobs Act.
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C. Commission’s Actions
4. Because the Tax Cuts and Jobs Act,
among other things, reduces the federal
corporate income tax rate from a
maximum 35 percent to a flat 21 percent
rate, beginning January 1, 2018, all
public utilities, interstate natural gas
pipelines, and oil pipelines subject to
the federal corporate income tax will
compute income taxes owed to the IRS
based on a 21 percent tax rate. Most
Commission-jurisdictional electric
transmission and some nontransmission rates, most interstate
natural gas transportation rates, and
some oil pipeline rates (and Form No.
6, page 700) 5 are based on cost of
service, which comprises all expenses
incurred, including income taxes, plus a
reasonable return on capital.6 When the
tax expense decreases, so does the cost
of service. The Commission must ensure
that the rates, terms, and conditions of
jurisdictional services under the Federal
Power Act (FPA),7 the Natural Gas Act
(NGA),8 and the Interstate Commerce
Act 9 are just, reasonable, and not
unduly discriminatory or preferential.
5. Because the federal corporate
income tax rate has been reduced to 21
percent, the electric transmission rates
of entities with stated rates or formula
rates with fixed line items for the
income tax rate will not accurately
reflect their cost of service. Similarly,
the transportation rates of interstate
natural gas pipelines will not accurately
reflect their cost of service.
6. As such, in order to provide more
immediate relief to customers of public
utilities, pursuant to section 206 of the
FPA,10 the Commission is concurrently
issuing orders to show cause directing
certain entities to propose revisions to
the transmission rates in their open
access transmission tariffs or
transmission owner tariffs to reflect the
change in the federal corporate income
tax rate, or show cause why they should
not be required to do so.11
5 Most oil pipeline rates are indexed. However,
these indexed rates can be challenged on a cost-ofservice basis and oil pipelines can also file to set
their rates on a cost-of-service basis. When this
document refers to cost-of-service ratemaking for oil
pipelines, it also refers to the reporting practices oil
pipelines use in the cost-of-service summary on
Form No. 6, page 700.
6 Pub. Sys. v. FERC, 709 F.2d 73, 75 (DC Cir.
1983).
7 16 U.S.C. 824d–e.
8 15 U.S.C. 717–717w (2012).
9 49 app. U.S.C. 1 et seq (1988).
10 16 U.S.C. 824e.
11 AEP Appalachian Transmission Company,
Inc., 162 FERC ¶ 61,225 (2018); Alcoa Power
Generating Inc.—Long Sault Division, 162 FERC ¶
61,224 (2018).
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7. The Commission also is
concurrently issuing a Notice of
Proposed Rulemaking (NOPR) 12
regarding natural gas pipelines. In the
NOPR, the Commission proposes to
require interstate natural gas pipelines
to make an informational filing with the
Commission regarding the effect on
their revenue requirements of the (a)
Tax Cuts and Jobs Act and (b) the
Revised Policy Statement on Treatment
of Income Taxes.13 The Revised Policy
Statement establishes a policy that
master limited partnerships (MLP) are
not permitted to recover an income tax
allowance in their cost of service. The
NOPR proposes to collect financial
information to evaluate the impact of
the Tax Cuts and Jobs Act and the
Revised Policy Statement on interstate
natural gas pipelines’ revenue
requirement, and to permit such
pipelines to voluntarily file rate
reductions to reflect the decrease in the
federal corporate income tax pursuant to
the Tax Cuts and Jobs Act or the
elimination of the MLP tax allowance,
explain why no action is needed, or take
no action other than filing the
informational filing.
8. Unlike public utilities and
interstate natural gas pipelines, the
majority of oil pipelines set their rates
using indexing, not cost-of-service
ratemaking using an oil pipeline’s
particular costs. Under indexing, oil
pipelines may adjust their rates
annually, so long as those rates remain
at or below the applicable ceiling levels.
The ceiling levels change every July 1
based on an index that tracks industrywide cost changes.14 Under currently
effective requirements governing the
schedule for indexing changes, the
index will be re-assessed in 2020 based
upon industry-wide oil pipeline cost
changes between 2014 and 2019.15
While the Commission is not taking
similar industry-wide action regarding
oil pipeline rates, when oil pipelines
file Form No. 6, page 700, they must
report an income tax allowance and cost
of service consistent with the Revised
Policy Statement 16 and the Tax Cuts
and Jobs Act.
12 Interstate and Intrastate Natural Gas Pipelines;
Rate Changes Relating to Federal Income Tax Rate,
162 FERC ¶ 61,226 (2018).
13 Inquiry Regarding the Commission’s Policy for
Recovery of Income Tax Costs, 162 FERC ¶ 61,227
(2018) (Revised Policy Statement).
14 18 CFR 342.3 (2017). Currently, the index level
is based upon the Producer’s Price Index for
Finished Goods plus 1.23.
15 See, e.g., Five-Year Review of the Oil Pipeline
Index, 153 FERC ¶ 61,312 (2015), aff’d, Assoc. of
Oil Pipe Lines v. FERC, 876 F.3d 336 (DC Cir. 2017).
16 See Revised Policy Statement, 162 FERC ¶
61,227.
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II. Request for Comments
A. Accumulated Deferred Income Taxes
9. ADIT balances are accumulated on
the regulated books and records of
public utilities, interstate natural gas
pipelines, and oil pipelines based on the
requirements of the Uniform System of
Accounts. ADIT arises from differences
between the method of computing
taxable income for reporting to the IRS
and the method of computing income
for regulatory accounting and
ratemaking purposes.
10. There are numerous items that are
treated differently for IRS purposes and
regulatory accounting and ratemaking
purposes, the most familiar of which is
depreciation expense. The following
example uses depreciation expense to
illustrate the accumulation of ADIT
balances.
11. Under Commission ratemaking
policies, income taxes included in rates
are determined based on the return on
net rate base, with the accumulated
depreciation offset to rate base
calculated using straight-line
depreciation.17 However, in calculating
the amount of income taxes due to the
IRS, public utilities, interstate natural
gas pipelines, and oil pipelines
generally are able to take advantage of
accelerated depreciation. Accelerated
depreciation usually lowers income
taxes payable during the early years of
an asset’s life followed by
corresponding increases in income taxes
payable during the later years of an
asset’s life. This means that a public
utility’s, interstate natural gas
pipeline’s, and oil pipeline’s income
taxes payable to the IRS during any
period differ from its income tax
allowance for ratemaking purposes
during the same period. The difference
between the income taxes based on
straight-line depreciation and the actual
income taxes paid by a public utility
and interstate natural gas pipeline
generally are reflected in the Uniform
System of Accounts, Account 282
(Accumulated Deferred Income Taxes—
Other Property) 18 and for oil pipelines
in the Uniform System of Accounts,
Account 64 (Accumulated Deferred
Income Tax Liabilities).19
12. Generally, ADIT liabilities are
reductions to rate base, while ADIT
assets may be additions to rate base,
depending on the nature of the items
that gave rise to the ADIT asset. In the
example above, because the resulting
17 See, e.g., Pub. Serv. Co. of Colo., 155 FERC ¶
61,028, at P 2 (2016); PJM Interconnection, L.L.C.,
147 FERC ¶ 61,254 (2014), order on compliance,
154 FERC ¶ 61,126, at P 2 (2016).
18 See 18 CFR parts 101 and 201.
19 See id. part 352.
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12373
ADIT effectively provides the public
utility, interstate natural gas pipeline,
and oil pipeline with cost-free capital,
the Commission subtracts the ADIT
from the rate base of the public utility,
interstate natural gas pipeline, and oil
pipeline, thereby reducing customer
charges. This method of passing the
benefits from accelerated depreciation
on to customers throughout the asset’s
life is referred to as tax normalization.20
13. As a result of the Tax Cuts and
Jobs Act reducing the federal corporate
income tax rate from 35 percent to 21
percent, a portion of an ADIT liability
that was collected from customers will
no longer be due from public utilities,
interstate natural gas pipelines, and oil
pipelines to the IRS and is considered
excess ADIT, which must be returned to
customers in a cost-of-service
ratemaking context. The Commission
expects that a similar effect would be
reflected in the cost-of-service summary
in oil pipeline Form No. 6, page 700.
For public utilities, interstate natural
gas pipelines, and oil pipelines that
have an ADIT asset, the Tax Cuts and
Jobs Act will result in a reduction to the
ADIT asset, and public utilities,
interstate natural gas pipelines, and oil
pipelines may seek to reflect in rates a
portion of such reductions. Public
utilities, interstate natural gas pipelines,
and oil pipelines are required to adjust
their ADIT assets and ADIT liabilities
for the effect of the change in tax rates
in the period that the change is
enacted.21 That is, public utilities and
interstate natural gas pipelines are
required to re-measure their ADIT
balances at the 21 percent rate and
record a regulatory asset (Account
182.3) associated with deficient ADIT
that is probable of future rate recovery
and/or a regulatory liability (Account
254) associated with excess ADIT that is
probable of future refund to
customers.22 For oil pipelines, the
relevant accounts are Account 44 (Other
Deferred Charges) and Account 63
(Other Noncurrent Liabilities),
respectively.
1. Effect on Rate Base
14. As a result of the federal corporate
income tax rate change, public utilities,
interstate natural gas pipelines, and oil
pipelines will re-measure their ADIT
20 See Midcontinent Indep. Sys. Operator, Inc.,
157 FERC ¶ 61,250, at P 2 (2016).
21 See 18 CFR 35.24 and 154.305; see also Tax
Normalization for Certain Items Reflecting Timing
Differences in the Recognition of Expenses or
Revenues for Ratemaking and Income Tax
Purposes, Order No. 144, FERC Stats. & Regs. ¶
30,254 (1981), order on reh’g, Order No. 144–A,
FERC Stats. & Regs. ¶ 30,340 (1982).
22 See Accounting for Income Taxes, Docket No.
AI93–5–000, at 8 (1993).
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liabilities and assets, and establish
regulatory liabilities and assets, as
appropriate. Public utilities’ stated and
formula rates and interstate natural gas
pipelines’ stated rates may not include
comparable provisions allowing rate
base to be reduced for regulatory
liabilities and increased for regulatory
assets. Similar issues may affect
individual oil pipeline cost-of-service
rate proceedings or the summary cost of
service filed by oil pipelines on Form
No. 6, page 700. Therefore, the
Commission seeks comment on how to
ensure that rate base continues to be
treated in a manner similar to that prior
to the Tax Cuts and Jobs Act (i.e., how
to preserve rate base neutrality), until
excess and deficient ADIT have been
fully settled in a just and reasonable
manner.
15. The Commission seeks comment
on whether, and if so how, public
utilities, interstate natural gas pipelines,
and oil pipelines should make
adjustments so that rate base may be
appropriately adjusted by excess ADIT
and deficient ADIT. Commenters should
address whether public utilities with
formula rates could add a line item to
their adjustments to rate base such that
rate base would be decreased by any
excess ADIT placed in Account 254 and
increased by any deficient ADIT placed
in Account 182.3. With regard to stated
rates, commenters should address
whether, and if so how, public utilities
and interstate natural gas pipelines
could make adjustments to ensure that
regulatory liabilities and regulatory
assets are treated comparably to the
ADIT liability and asset accounts. Oil
pipelines should discuss how these
issues pertain to Form No. 6, page 700
reporting practices and, as relevant, to
cost-of-service ratemaking.
16. Given that the Tax Cuts and Jobs
Act took effect on January 1, 2018, there
may be a lag in implementing any
adjustments to rate base to reflect excess
and deficient ADIT. The Commission
believes that it may be appropriate for
public utilities and interstate natural gas
pipelines to include interest on excess
and deficient ADIT, for the time period
from January 1, 2018 until any
adjustments to rate base are
implemented, and seeks comment on
this topic.
2. Flow-Back or Recovery of Plant-Based
ADIT
17. Under the Tax Cuts and Jobs Act,
public utilities and interstate natural gas
pipelines may flow back the excess
ADIT associated with utility plant assets
(excess plant-based ADIT) no more
rapidly than over the life of the
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underlying assets.23 Specifically, public
utilities and interstate natural gas
pipelines are generally not permitted, in
computing costs of service for
ratemaking purposes and reflecting
operating results in their regulated
books of account, to flow-back excess
plant-based ADIT more rapidly or
greater than the reductions permitted by
the Average Rate Assumption Method,
which requires amortization of the
excess tax reserve over the remaining
regulatory lives of the property that gave
rise to the ADIT. Alternatively, if the
books and records of public utilities and
interstate pipelines do not contain the
vintage data necessary to apply the
Average Rate Assumption Method, they
are required to use an alternative
method, e.g., the Reverse South Georgia
Method,24 to flow back excess plantbased ADIT over the remaining
regulatory life of the property.25 The
Commission seeks comment on how the
Average Rate Assumption Method, and
alternatively, the Reverse South Georgia
Method or South Georgia Method, as
appropriate, will be implemented and
used to adjust the tax allowance or
expense included in cost-of-service rates
to reflect the amortization of excess and
deficient plant-based ADIT.
18. While the Commission’s
understanding is that the Internal
Revenue Code does not apply the same
standard to oil pipelines,26 the
amortization of excess plant-based ADIT
also may affect oil pipeline cost-ofservice ratemaking. Accordingly, the
Commission also seeks comment on this
issue as to oil pipelines.
address whether a regulatory asset or
regulatory liability recorded by a public
utility or interstate natural gas pipeline
associated with non-plant based excess
or deficient ADIT should be amortized
over a shorter (e.g., five-year) period. Oil
pipeline commenters should also
address how quickly any excess nonplant based ADIT should be flowed back
in the data reported on Form No. 6, page
700 and in any cost-of-service
proceeding as the issue arises.
3. Flow-Back or Recovery of Non-Plant
Based ADIT
19. Because the normalization
requirement under the Tax Cuts and
Jobs Act applies only to plant-based
ADIT, the Commission seeks comment
on how quickly excess or deficient nonplant based ADIT should be flowed back
to or recovered from customers.
Specifically, commenters should
5. Amortization of Excess and Deficient
ADIT
21. Commenters should address how
public utilities with stated or formula
rates and interstate natural gas pipelines
with stated rates should adjust their
income tax allowance such that the
allowance would be decreased or
increased by the amortization of excess
and deficient ADIT. Likewise,
commenters should address for oil
pipelines how these issues should be
applied in cost-of-service ratemaking
and in the cost-of-service summary on
Form No. 6, page 700.
22. The Commission also seeks
comment on whether a public utility or
interstate natural gas pipeline should
record the amortization by recording a
reduction to the regulatory asset or
regulatory liability account and
recording an offsetting entry to Account
407.3 (Regulatory Debits) or Account
407.4 (Regulatory Credits). For oil
pipelines, the Commission seeks
comment whether this information
should be recorded in Account 665
23 Section
1561(d) of the Tax Cuts and Jobs Act.
the South Georgia method, a calculation
is taken of the difference between the amount
actually in the deferred account and the amount
that would have been in the account had
normalization continuously been followed. Any
deficiency is collected from ratepayers (i.e., South
Georgia Method), and any excess is returned to
ratepayers (i.e., Reverse South Georgia Method),
over the remaining depreciable life of the plant that
caused the difference. Memphis Light, Gas and
Water Div. v. FERC, 707 F.2d 565, 569 (DC Cir.
1983).
25 Section 1561(d) of the Tax Cuts and Jobs Act.
26 See id.; 26 U.S.C. 168(i)(9) & (10) (not including
oil pipelines among the list of public utilities
subject to the normalization requirement and the
prohibition against flowing through to ratepayers
accelerated depreciation in cost-of-service rates).
24 Under
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4. Assets Sold or Retired After
December 31, 2017
20. Under the Commission’s
accounting requirements, when assets
are sold or retired, the original cost and
accumulated depreciation of those
assets are removed from the books of a
public utility, interstate natural gas
pipeline, or oil pipeline. Additionally,
any associated ADIT is concurrently
removed from a public utility’s,
interstate natural gas pipeline’s, or oil
pipeline’s books because any previously
deferred tax effects related to the assets
are now triggered as part of the
computation of gains or losses
associated with the sale or retirement
(i.e., the deferred taxes are now payable
to the IRS). The excess ADIT resulting
from the tax rate change of the Tax Cuts
and Jobs Act is also removed from the
books. The Commission seeks comment
on whether, and if so how, it should
address excess ADIT that is removed
from the books of public utilities, oil
pipelines and interstate natural gas
pipelines after December 31, 2017, as a
result of assets being sold or retired.
E:\FR\FM\21MRN1.SGM
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Federal Register / Vol. 83, No. 55 / Wednesday, March 21, 2018 / Notices
(Unusual or Infrequent Items (Debit)) or
Account 645 (Unusual or Infrequent
Items (Credit)).
sradovich on DSK3GMQ082PROD with NOTICES
6. Supporting Worksheets
23. The Commission seeks comment
on whether it should require public
utilities, interstate natural gas pipelines,
and oil pipelines to provide to the
Commission, on a one-time basis,
additional information, such as
supporting worksheets, to show the
computation of excess or deficient ADIT
and the corresponding flow-back of
excess ADIT to customers or recovery of
deficient ADIT from customers.
Commenters should address what types
of information public utilities, interstate
natural gas pipelines, and oil pipelines
already record for ADIT-related
accounting and whether balances and
amortization of regulatory liability and
asset accounts, computation of excess
and deficient ADIT, delineation
between plant assets and non-plant
assets, and a description of the
allocation method used to determine the
transmission-related portion of excess or
deficient ADIT would be appropriate to
include in a supporting worksheet.
7. Treatment of ADIT for Partnerships
24. In the Revised Policy Statement,
the Commission determined that MLPs
will no longer be permitted to recover
an income tax allowance. Following the
United Airlines decision,27 the
Commission concluded that MLP
investors’ tax costs were already
reflected in the return on equity, and
thus, permitting an income tax
allowance for MLPs would lead to a
double recovery of such tax costs. The
Commission also stated that other passthrough entities would need to address
the double recovery concern.
25. The Commission seeks comment
on the effect of the elimination of the
income tax allowance for MLPs on
ADIT. Likewise, the Commission seeks
comment regarding the treatment of
ADIT to the extent the income tax
allowance is eliminated for other nonMLP pass-through entities. For such
MLPs and pass-through entities,
commenters should address whether
previously accumulated sums in ADIT
should be eliminated altogether from
cost of service or whether those
previously accumulated sums should be
placed in a regulatory liability account
and returned to ratepayers. Commenters
should address specifically how their
approach would be applied in the
MLP’s or other pass-through entity’s
cost of service.
27 United Airlines, Inc. v. FERC, 827 F.3d 122
(2016).
VerDate Sep<11>2014
18:34 Mar 20, 2018
Jkt 244001
B. Bonus Depreciation
26. Generally, bonus depreciation is a
tax incentive given to companies to
encourage certain types of investment.
Bonus depreciation allows companies to
deduct a percentage of the cost of a
qualified property in the year the
property is placed into service, in
addition to other depreciation
deductions. That is, a company that
purchases a qualified business property
and places it into service within a
taxable year can take a first year
deduction in addition to any
depreciation deduction available.
27. The Tax Cuts and Jobs Act
increases the 50 percent bonus
depreciation allowance to 100 percent
for qualified property placed in service
after September 1, 2017, and before
January 1, 2023. Full bonus depreciation
is phased down by 20 percent each year
for property placed in service after
December 31, 2022, and before January
1, 2027. Bonus depreciation applies to
new and used property, and must be
acquired in an arm’s length transaction.
It is not available for assets acquired in
the trade or business of the furnishing
or sale of electrical energy, water, or
sewage disposal services; gas or steam
through a local distribution system; or
transportation of gas or steam by
pipeline.28
28. The Commission seeks comment
on the effect of the bonus depreciation
change under the Tax Cuts and Jobs Act.
The Commission also seeks comment on
whether, and if so how, the Commission
should take action to address bonus
depreciation-related issues. Commenters
should address the practical application
of their proposals, including, among
other things, what type of action the
Commission should take and whom the
Commission should target with its
action.
C. Additional Inquiries
29. In addition, the Commission seeks
comment on whether, and if so how, it
should take further action to address the
change in the federal corporate income
tax rate. With respect to public utilities,
the Commission seeks comment on
whether, in addition to the transmission
rates addressed in the orders to show
cause being issued concurrently, other
jurisdictional transmission rates or nontransmission rates should be revised to
address the change in the federal
income tax rate, and identify the types
of these other rates to the extent
possible. The Commission also seeks
comment on effects of the Tax Cuts and
Jobs Act on Commission-jurisdictional
28 Section
PO 00000
13301 of the Tax Cuts and Jobs Act.
Frm 00043
Fmt 4703
Sfmt 4703
12375
rates of non-public utilities. Finally, the
Commission seeks comment on any
other effects of the Tax Cuts and Jobs
Act, and whether, and if so how, the
Commission should address them.
III. Comment Procedures
30. The Commission invites interested
persons to submit comments on the
matters and issues proposed in this NOI,
including any related matters or
alternative proposals that commenters
may wish to discuss. Comments are due
May 21, 2018. Comments must refer to
Docket No. RM18–12–000, and must
include the commenter’s name, the
organization they represent, if
applicable, and their address in their
comments. To facilitate the
Commission’s review of the comments,
commenters are requested to provide an
executive summary of their position.
Additional issues the commenters wish
to raise should be identified separately.
The commenters should double space
their comments.
31. The Commission encourages
comments to be filed electronically via
the eFiling link on the Commission’s
website at https://www.ferc.gov. The
Commission accepts most standard
word processing formats. Documents
created electronically using word
processing software should be filed in
native applications or print-to-PDF
format and not in a scanned format.
Commenters filing electronically do not
need to make a paper filing.
32. Commenters that are not able to
file comments electronically must send
an original of their comments to:
Federal Energy Regulatory Commission,
Secretary of the Commission, 888 First
Street NE, Washington, DC 20426.
33. All comments will be placed in
the Commission’s public files and may
be viewed, printed, or downloaded
remotely as described in the Document
Availability section below. Commenters
on this proposal are not required to
serve copies of their comments on other
commenters.
IV. Document Availability
34. In addition to publishing the full
text of this document in the Federal
Register, the Commission provides all
interested persons an opportunity to
view and/or print the contents of this
document via the internet through the
Commission’s Home Page (https://
www.ferc.gov) and in the Commission’s
Public Reference Room during normal
business hours (8:30 a.m. to 5:00 p.m.
Eastern time) at 888 First Street NE,
Room 2A, Washington, DC 20426.
35. From the Commission’s Home
Page on the internet, this information is
available on eLibrary. The full text of
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Federal Register / Vol. 83, No. 55 / Wednesday, March 21, 2018 / Notices
this document is available on eLibrary
in PDF and Microsoft Word format for
viewing, printing, and/or downloading.
To access this document in eLibrary,
type the docket number excluding the
last three digits of this document in the
docket number field.
36. User assistance is available for
eLibrary and the Commission’s website
during normal business hours from the
Commission’s Online Support at 202–
502–6652 (toll free at 1–866–208–3676)
or email at ferconlinesupport@ferc.gov,
or the Public Reference Room at (202)
502–8371, TTY (202) 502–8659. Email
the Public Reference Room at
public.referenceroom@ferc.gov.
By direction of the Commission.
Issued: March 15, 2018.
Nathaniel J. Davis, Sr.,
Deputy Secretary.
[FR Doc. 2018–05670 Filed 3–20–18; 8:45 am]
BILLING CODE 6717–01–P
DEPARTMENT OF ENERGY
Federal Energy Regulatory
Commission
sradovich on DSK3GMQ082PROD with NOTICES
Combined Notice of Filings #2
Take notice that the Commission
received the following electric corporate
filings:
Docket Numbers: EC18–70–000.
Applicants: NRG Wholesale
Generation LP, Kestrel Acquisition,
LLC.
Description: Application for
Authorization under Section 203 of the
Federal Power Act of NRG Wholesale
Generation LP, et al.
Filed Date: 3/15/18.
Accession Number: 20180315–5109.
Comments Due: 5 p.m. ET 4/5/18.
Take notice that the Commission
received the following exempt
wholesale generator filings:
Docket Numbers: EG18–56–000.
Applicants: Kestrel Acquisition, LLC.
Description: Self-Certification of
Exempt Wholesale Generator Status of
Kestrel Acquisition, LLC.
Filed Date: 3/15/18.
Accession Number: 20180315–5078.
Comments Due: 5 p.m. ET 4/5/18.
Take notice that the Commission
received the following electric rate
filings:
Docket Numbers: ER13–1966–002.
Applicants: NRG Wholesale
Generation LP.
Description: Compliance filing:
Informational Filing Regarding
Upstream Change in Control and
Request for Waiver to be effective N/A.
Filed Date: 3/15/18.
VerDate Sep<11>2014
18:34 Mar 20, 2018
Jkt 244001
Accession Number: 20180315–5127.
Comments Due: 5 p.m. ET 4/5/18.
Docket Numbers: ER18–839–001.
Applicants: Arizona Public Service
Company.
Description: Tariff Amendment: Refile
Rate Schedule No. 290 to be effective 4/
11/2018.
Filed Date: 3/15/18.
Accession Number: 20180315–5001.
Comments Due: 5 p.m. ET 4/5/18.
Docket Numbers: ER18–1091–000.
Applicants: Southwest Power Pool,
Inc.
Description: Notice of Cancellation of
Southwest Power Pool, Inc. of Non-Firm
Point-To-Point Transmission Service
Agreement (No. 496).
Filed Date: 3/15/18.
Accession Number: 20180315–5038.
Comments Due: 5 p.m. ET 4/5/18.
Docket Numbers: ER18–1092–000.
Applicants: Midcontinent
Independent System Operator, Inc.
Description: § 205(d) Rate Filing:
2018–03–15 SA 3104 ENO–ENO GIA
(J481) to be effective 3/1/2018.
Filed Date: 3/15/18.
Accession Number: 20180315–5045.
Comments Due: 5 p.m. ET 4/5/18.
Docket Numbers: ER18–1093–000.
Applicants: Southwest Power Pool,
Inc.
Description: § 205(d) Rate Filing:
1266R10 Kansas Municipal Energy
Agency NITSA and NOA to be effective
3/1/2018.
Filed Date: 3/15/18.
Accession Number: 20180315–5046.
Comments Due: 5 p.m. ET 4/5/18.
Docket Numbers: ER18–1094–000.
Applicants: Florida Power & Light
Company.
Description: § 205(d) Rate Filing: FPL
Revisions to LCEC Rate Schedule No.
317 to be effective 1/1/2016.
Filed Date: 3/15/18.
Accession Number: 20180315–5048.
Comments Due: 5 p.m. ET 4/5/18.
Docket Numbers: ER18–1095–000.
Applicants: Florida Power & Light
Company.
Description: § 205(d) Rate Filing: FPL
Revisions to FKEC Rate Schedule No.
322 to be effective 1/1/2016.
Filed Date: 3/15/18.
Accession Number: 20180315–5049.
Comments Due: 5 p.m. ET 4/5/18.
Docket Numbers: ER18–1098–000.
Applicants: California Independent
System Operator Corporation.
Description: § 205(d) Rate Filing:
2018–03–15 Second Amendment to
ABAOA with Arizona Public Service to
be effective 5/15/2018.
Filed Date: 3/15/18.
Accession Number: 20180315–5069.
PO 00000
Frm 00044
Fmt 4703
Sfmt 4703
Comments Due: 5 p.m. ET 4/5/18.
Docket Numbers: ER18–1102–000.
Applicants: Pacific Gas and Electric
Company.
Description: § 205(d) Rate Filing: 3–
15–18 Unexecuted Agreement, City and
County of San Francisco WDT SA (SA
275) to be effective 5/14/2018.
Filed Date: 3/15/18.
Accession Number: 20180315–5075.
Comments Due: 5 p.m. ET 4/5/18.
Docket Numbers: ER18–1106–000.
Applicants: Kestrel Acquisition, LLC.
Description: Baseline eTariff Filing:
Baseline new to be effective 5/15/2018.
Filed Date: 3/15/18.
Accession Number: 20180315–5086.
Comments Due: 5 p.m. ET 4/5/18.
Docket Numbers: ER18–1110–000.
Applicants: Southwest Power Pool,
Inc.
Description: § 205(d) Rate Filing: 1795
Oklahoma Gas and Electric Company
PTP Notice of Cancellation to be
effective 6/1/2014.
Filed Date: 3/15/18.
Accession Number: 20180315–5105.
Comments Due: 5 p.m. ET 4/5/18.
Docket Numbers: ER18–1116–000.
Applicants: PJM Interconnection,
L.L.C.
Description: § 205(d) Rate Filing:
Original ISA, SA No. 4958; Queue No.
AC1–035 to be effective 2/13/2018.
Filed Date: 3/15/18.
Accession Number: 20180315–5126.
Comments Due: 5 p.m. ET 4/5/18.
Take notice that the Commission
received the following electric
reliability filings
Docket Numbers: RD18–3–000.
Applicants: North American Electric
Reliability Corporation, Western
Electricity Coordinating Council.
Description: Joint Petition of the
North American Electric Reliability
Corporation and Western Electricity
Coordinating Council for Approval of
Retirement of Regional Reliability
Standard PRC–004–WECC–2.
Filed Date: 3/9/18.
Accession Number: 20180309–5269.
Comments Due: 5 p.m. ET 4/16/18.
The filings are accessible in the
Commission’s eLibrary system by
clicking on the links or querying the
docket number.
Any person desiring to intervene or
protest in any of the above proceedings
must file in accordance with Rules 211
and 214 of the Commission’s
Regulations (18 CFR 385.211 and
385.214) on or before 5:00 p.m. Eastern
time on the specified comment date.
Protests may be considered, but
intervention is necessary to become a
party to the proceeding.
E:\FR\FM\21MRN1.SGM
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]]>Agencies
[Federal Register Volume 83, Number 55 (Wednesday, March 21, 2018)]
[Notices]
[Pages 12371-12376]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-05670]
-----------------------------------------------------------------------
DEPARTMENT OF ENERGY
Federal Energy Regulatory Commission
[Docket No. RM18-12-000]
Inquiry Regarding the Effect of the Tax Cuts and Jobs Act on
Commission-Jurisdictional Rates
AGENCY: Federal Energy Regulatory Commission, Department of Energy.
ACTION: Notice of inquiry.
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[[Page 12372]]
SUMMARY: The Federal Energy Regulatory Commission (Commission) is
seeking comment on the effect of the Tax Cuts and Jobs Act of 2017 on
Commission-jurisdictional rates. Of particular interest is whether, and
if so how, the Commission should address changes relating to
accumulated deferred income taxes and bonus depreciation.
DATES: Comments are due May 21, 2018.
ADDRESSES: Comments, identified by docket number, may be filed
electronically at https://www.ferc.gov in acceptable native applications
and print-to-PDF, but not in scanned or picture format. For those
unable to file electronically, comments may be filed by mail or hand-
delivery to: Federal Energy Regulatory Commission, Secretary of the
Commission, 888 First Street NE, Washington, DC 20426. The Comment
Procedures section of this document contains more detailed filing
procedures.
FOR FURTHER INFORMATION CONTACT:
Natalie Tingle-Stewart (Technical Information), Office of Energy Market
Regulation, 888 First Street NE, Washington, DC 20426, (202) 502-8267,
[email protected]
Kristen Fleet (Technical Information (Electric)), Office of Energy
Market Regulation, 888 First Street NE, Washington, DC 20426, (202)
502-8063, [email protected]
Monil Patel (Technical Information (Oil)), Office of Energy Market
Regulation, 888 First Street NE, Washington, DC 20426, (202) 502-8296,
[email protected]
James Sarikas (Technical Information (Natural Gas)), Office of Energy
Market Regulation, 888 First Street NE, Washington, DC 20426, (202)
502-6831, [email protected]
Steven Hunt (Accounting Information), Office of Enforcement, 888 First
Street NE, Washington, DC 20426, (202) 502-6084, [email protected]
Jonathan Taylor (Legal Information), Office of the General Counsel, 888
First Street NE, Washington, DC 20426, (202) 502-6649,
[email protected]
SUPPLEMENTARY INFORMATION:
1. In this Notice of Inquiry (NOI), the Commission seeks comment on
the effect of the Tax Cuts and Jobs Act of 2017 (Tax Cuts and Jobs Act)
on Commission-jurisdictional rates. Of particular interest is whether,
and if so how, the Commission should address changes relating to
accumulated deferred income taxes (ADIT) and bonus depreciation.
I. Background
A. Tax Cuts and Jobs Act
2. On December 22, 2017, the President signed into law the Tax Cuts
and Jobs Act,\1\ which provides a number of changes to the federal tax
system.\2\ One of the significant changes with widespread effects on
Commission-jurisdictional rates is the reduction of the federal
corporate income tax rate from a maximum 35 percent to a flat 21
percent rate, effective January 1, 2018.\3\ Because of the reduced
federal corporate income tax rate, the current balance of ADIT, that
is, the dollar amounts of taxes that public utilities, interstate
natural gas pipelines, and oil pipelines collected from customers in
anticipation of paying the Internal Revenue Service (IRS), does not
accurately reflect the current income tax liability. Additionally, the
Tax Cuts and Jobs Act prohibits the use of bonus depreciation for
assets acquired in the trade or business of the furnishing or sale of
electrical energy or transportation of natural gas by pipeline.
---------------------------------------------------------------------------
\1\ Tax Cuts and Jobs Act, Public Law 115-97, 131 Stat. 2054
(2017).
\2\ The Commission has previously addressed a major change in
the tax law when Congress passed the Tax Reform Act of 1986. See
Rate Changes Related to the Federal Corporate Income Tax Rate for
Public Utilities, Order No. 475, FERC Stats. & Regs. ] 30,752, order
on reh'g, 41 FERC ] 61,029 (1987).
\3\ Section 13001 of the Tax Cuts and Jobs Act.
---------------------------------------------------------------------------
B. Requests for Commission Action
3. In light of the Tax Cuts and Jobs Act, the Commission received
letters from several entities requesting that the Commission act to
ensure that the economic benefits related to the reduction in the
federal corporate income tax rate are passed through to customers.\4\
These entities request, among other things, that the Commission
investigate the continued justness and reasonableness of applicable
Commission-jurisdictional rates and explore ways to adjust the
transmission or transportation revenue requirements of Commission-
jurisdictional entities to prevent customers from overpaying for
service.
---------------------------------------------------------------------------
\4\ These entities include State Advocates (States, state
agencies, and state consumer advocates), Organization of PJM States,
Inc., Organization of MISO States, American Public Gas Association,
Process Gas Consumers Group, Natural Gas Supply Association, Natural
Gas Indicated Shippers, Liquids Shippers Group, Oklahoma Attorney
General, Gordon Gooch (pro se consumer), Advanced Energy Buyers
Group, National Association of State Energy Officials, The R-Street
Institute, Office of the Ohio Consumers' Counsel, and the Governor
of Delaware. The Interstate Natural Gas Association of America,
Edison Electric Institute and the Industrial Energy Consumers of
America also sent letters to the Commission in reference to the
effects of the Tax Cuts and Jobs Act.
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C. Commission's Actions
4. Because the Tax Cuts and Jobs Act, among other things, reduces
the federal corporate income tax rate from a maximum 35 percent to a
flat 21 percent rate, beginning January 1, 2018, all public utilities,
interstate natural gas pipelines, and oil pipelines subject to the
federal corporate income tax will compute income taxes owed to the IRS
based on a 21 percent tax rate. Most Commission-jurisdictional electric
transmission and some non-transmission rates, most interstate natural
gas transportation rates, and some oil pipeline rates (and Form No. 6,
page 700) \5\ are based on cost of service, which comprises all
expenses incurred, including income taxes, plus a reasonable return on
capital.\6\ When the tax expense decreases, so does the cost of
service. The Commission must ensure that the rates, terms, and
conditions of jurisdictional services under the Federal Power Act
(FPA),\7\ the Natural Gas Act (NGA),\8\ and the Interstate Commerce Act
\9\ are just, reasonable, and not unduly discriminatory or
preferential.
---------------------------------------------------------------------------
\5\ Most oil pipeline rates are indexed. However, these indexed
rates can be challenged on a cost-of-service basis and oil pipelines
can also file to set their rates on a cost-of-service basis. When
this document refers to cost-of-service ratemaking for oil
pipelines, it also refers to the reporting practices oil pipelines
use in the cost-of-service summary on Form No. 6, page 700.
\6\ Pub. Sys. v. FERC, 709 F.2d 73, 75 (DC Cir. 1983).
\7\ 16 U.S.C. 824d-e.
\8\ 15 U.S.C. 717-717w (2012).
\9\ 49 app. U.S.C. 1 et seq (1988).
---------------------------------------------------------------------------
5. Because the federal corporate income tax rate has been reduced
to 21 percent, the electric transmission rates of entities with stated
rates or formula rates with fixed line items for the income tax rate
will not accurately reflect their cost of service. Similarly, the
transportation rates of interstate natural gas pipelines will not
accurately reflect their cost of service.
6. As such, in order to provide more immediate relief to customers
of public utilities, pursuant to section 206 of the FPA,\10\ the
Commission is concurrently issuing orders to show cause directing
certain entities to propose revisions to the transmission rates in
their open access transmission tariffs or transmission owner tariffs to
reflect the change in the federal corporate income tax rate, or show
cause why they should not be required to do so.\11\
---------------------------------------------------------------------------
\10\ 16 U.S.C. 824e.
\11\ AEP Appalachian Transmission Company, Inc., 162 FERC ]
61,225 (2018); Alcoa Power Generating Inc.--Long Sault Division, 162
FERC ] 61,224 (2018).
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[[Page 12373]]
7. The Commission also is concurrently issuing a Notice of Proposed
Rulemaking (NOPR) \12\ regarding natural gas pipelines. In the NOPR,
the Commission proposes to require interstate natural gas pipelines to
make an informational filing with the Commission regarding the effect
on their revenue requirements of the (a) Tax Cuts and Jobs Act and (b)
the Revised Policy Statement on Treatment of Income Taxes.\13\ The
Revised Policy Statement establishes a policy that master limited
partnerships (MLP) are not permitted to recover an income tax allowance
in their cost of service. The NOPR proposes to collect financial
information to evaluate the impact of the Tax Cuts and Jobs Act and the
Revised Policy Statement on interstate natural gas pipelines' revenue
requirement, and to permit such pipelines to voluntarily file rate
reductions to reflect the decrease in the federal corporate income tax
pursuant to the Tax Cuts and Jobs Act or the elimination of the MLP tax
allowance, explain why no action is needed, or take no action other
than filing the informational filing.
---------------------------------------------------------------------------
\12\ Interstate and Intrastate Natural Gas Pipelines; Rate
Changes Relating to Federal Income Tax Rate, 162 FERC ] 61,226
(2018).
\13\ Inquiry Regarding the Commission's Policy for Recovery of
Income Tax Costs, 162 FERC ] 61,227 (2018) (Revised Policy
Statement).
---------------------------------------------------------------------------
8. Unlike public utilities and interstate natural gas pipelines,
the majority of oil pipelines set their rates using indexing, not cost-
of-service ratemaking using an oil pipeline's particular costs. Under
indexing, oil pipelines may adjust their rates annually, so long as
those rates remain at or below the applicable ceiling levels. The
ceiling levels change every July 1 based on an index that tracks
industry-wide cost changes.\14\ Under currently effective requirements
governing the schedule for indexing changes, the index will be re-
assessed in 2020 based upon industry-wide oil pipeline cost changes
between 2014 and 2019.\15\ While the Commission is not taking similar
industry-wide action regarding oil pipeline rates, when oil pipelines
file Form No. 6, page 700, they must report an income tax allowance and
cost of service consistent with the Revised Policy Statement \16\ and
the Tax Cuts and Jobs Act.
---------------------------------------------------------------------------
\14\ 18 CFR 342.3 (2017). Currently, the index level is based
upon the Producer's Price Index for Finished Goods plus 1.23.
\15\ See, e.g., Five-Year Review of the Oil Pipeline Index, 153
FERC ] 61,312 (2015), aff'd, Assoc. of Oil Pipe Lines v. FERC, 876
F.3d 336 (DC Cir. 2017).
\16\ See Revised Policy Statement, 162 FERC ] 61,227.
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II. Request for Comments
A. Accumulated Deferred Income Taxes
9. ADIT balances are accumulated on the regulated books and records
of public utilities, interstate natural gas pipelines, and oil
pipelines based on the requirements of the Uniform System of Accounts.
ADIT arises from differences between the method of computing taxable
income for reporting to the IRS and the method of computing income for
regulatory accounting and ratemaking purposes.
10. There are numerous items that are treated differently for IRS
purposes and regulatory accounting and ratemaking purposes, the most
familiar of which is depreciation expense. The following example uses
depreciation expense to illustrate the accumulation of ADIT balances.
11. Under Commission ratemaking policies, income taxes included in
rates are determined based on the return on net rate base, with the
accumulated depreciation offset to rate base calculated using straight-
line depreciation.\17\ However, in calculating the amount of income
taxes due to the IRS, public utilities, interstate natural gas
pipelines, and oil pipelines generally are able to take advantage of
accelerated depreciation. Accelerated depreciation usually lowers
income taxes payable during the early years of an asset's life followed
by corresponding increases in income taxes payable during the later
years of an asset's life. This means that a public utility's,
interstate natural gas pipeline's, and oil pipeline's income taxes
payable to the IRS during any period differ from its income tax
allowance for ratemaking purposes during the same period. The
difference between the income taxes based on straight-line depreciation
and the actual income taxes paid by a public utility and interstate
natural gas pipeline generally are reflected in the Uniform System of
Accounts, Account 282 (Accumulated Deferred Income Taxes--Other
Property) \18\ and for oil pipelines in the Uniform System of Accounts,
Account 64 (Accumulated Deferred Income Tax Liabilities).\19\
---------------------------------------------------------------------------
\17\ See, e.g., Pub. Serv. Co. of Colo., 155 FERC ] 61,028, at P
2 (2016); PJM Interconnection, L.L.C., 147 FERC ] 61,254 (2014),
order on compliance, 154 FERC ] 61,126, at P 2 (2016).
\18\ See 18 CFR parts 101 and 201.
\19\ See id. part 352.
---------------------------------------------------------------------------
12. Generally, ADIT liabilities are reductions to rate base, while
ADIT assets may be additions to rate base, depending on the nature of
the items that gave rise to the ADIT asset. In the example above,
because the resulting ADIT effectively provides the public utility,
interstate natural gas pipeline, and oil pipeline with cost-free
capital, the Commission subtracts the ADIT from the rate base of the
public utility, interstate natural gas pipeline, and oil pipeline,
thereby reducing customer charges. This method of passing the benefits
from accelerated depreciation on to customers throughout the asset's
life is referred to as tax normalization.\20\
---------------------------------------------------------------------------
\20\ See Midcontinent Indep. Sys. Operator, Inc., 157 FERC ]
61,250, at P 2 (2016).
---------------------------------------------------------------------------
13. As a result of the Tax Cuts and Jobs Act reducing the federal
corporate income tax rate from 35 percent to 21 percent, a portion of
an ADIT liability that was collected from customers will no longer be
due from public utilities, interstate natural gas pipelines, and oil
pipelines to the IRS and is considered excess ADIT, which must be
returned to customers in a cost-of-service ratemaking context. The
Commission expects that a similar effect would be reflected in the
cost-of-service summary in oil pipeline Form No. 6, page 700. For
public utilities, interstate natural gas pipelines, and oil pipelines
that have an ADIT asset, the Tax Cuts and Jobs Act will result in a
reduction to the ADIT asset, and public utilities, interstate natural
gas pipelines, and oil pipelines may seek to reflect in rates a portion
of such reductions. Public utilities, interstate natural gas pipelines,
and oil pipelines are required to adjust their ADIT assets and ADIT
liabilities for the effect of the change in tax rates in the period
that the change is enacted.\21\ That is, public utilities and
interstate natural gas pipelines are required to re-measure their ADIT
balances at the 21 percent rate and record a regulatory asset (Account
182.3) associated with deficient ADIT that is probable of future rate
recovery and/or a regulatory liability (Account 254) associated with
excess ADIT that is probable of future refund to customers.\22\ For oil
pipelines, the relevant accounts are Account 44 (Other Deferred
Charges) and Account 63 (Other Noncurrent Liabilities), respectively.
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\21\ See 18 CFR 35.24 and 154.305; see also Tax Normalization
for Certain Items Reflecting Timing Differences in the Recognition
of Expenses or Revenues for Ratemaking and Income Tax Purposes,
Order No. 144, FERC Stats. & Regs. ] 30,254 (1981), order on reh'g,
Order No. 144-A, FERC Stats. & Regs. ] 30,340 (1982).
\22\ See Accounting for Income Taxes, Docket No. AI93-5-000, at
8 (1993).
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1. Effect on Rate Base
14. As a result of the federal corporate income tax rate change,
public utilities, interstate natural gas pipelines, and oil pipelines
will re-measure their ADIT
[[Page 12374]]
liabilities and assets, and establish regulatory liabilities and
assets, as appropriate. Public utilities' stated and formula rates and
interstate natural gas pipelines' stated rates may not include
comparable provisions allowing rate base to be reduced for regulatory
liabilities and increased for regulatory assets. Similar issues may
affect individual oil pipeline cost-of-service rate proceedings or the
summary cost of service filed by oil pipelines on Form No. 6, page 700.
Therefore, the Commission seeks comment on how to ensure that rate base
continues to be treated in a manner similar to that prior to the Tax
Cuts and Jobs Act (i.e., how to preserve rate base neutrality), until
excess and deficient ADIT have been fully settled in a just and
reasonable manner.
15. The Commission seeks comment on whether, and if so how, public
utilities, interstate natural gas pipelines, and oil pipelines should
make adjustments so that rate base may be appropriately adjusted by
excess ADIT and deficient ADIT. Commenters should address whether
public utilities with formula rates could add a line item to their
adjustments to rate base such that rate base would be decreased by any
excess ADIT placed in Account 254 and increased by any deficient ADIT
placed in Account 182.3. With regard to stated rates, commenters should
address whether, and if so how, public utilities and interstate natural
gas pipelines could make adjustments to ensure that regulatory
liabilities and regulatory assets are treated comparably to the ADIT
liability and asset accounts. Oil pipelines should discuss how these
issues pertain to Form No. 6, page 700 reporting practices and, as
relevant, to cost-of-service ratemaking.
16. Given that the Tax Cuts and Jobs Act took effect on January 1,
2018, there may be a lag in implementing any adjustments to rate base
to reflect excess and deficient ADIT. The Commission believes that it
may be appropriate for public utilities and interstate natural gas
pipelines to include interest on excess and deficient ADIT, for the
time period from January 1, 2018 until any adjustments to rate base are
implemented, and seeks comment on this topic.
2. Flow-Back or Recovery of Plant-Based ADIT
17. Under the Tax Cuts and Jobs Act, public utilities and
interstate natural gas pipelines may flow back the excess ADIT
associated with utility plant assets (excess plant-based ADIT) no more
rapidly than over the life of the underlying assets.\23\ Specifically,
public utilities and interstate natural gas pipelines are generally not
permitted, in computing costs of service for ratemaking purposes and
reflecting operating results in their regulated books of account, to
flow-back excess plant-based ADIT more rapidly or greater than the
reductions permitted by the Average Rate Assumption Method, which
requires amortization of the excess tax reserve over the remaining
regulatory lives of the property that gave rise to the ADIT.
Alternatively, if the books and records of public utilities and
interstate pipelines do not contain the vintage data necessary to apply
the Average Rate Assumption Method, they are required to use an
alternative method, e.g., the Reverse South Georgia Method,\24\ to flow
back excess plant-based ADIT over the remaining regulatory life of the
property.\25\ The Commission seeks comment on how the Average Rate
Assumption Method, and alternatively, the Reverse South Georgia Method
or South Georgia Method, as appropriate, will be implemented and used
to adjust the tax allowance or expense included in cost-of-service
rates to reflect the amortization of excess and deficient plant-based
ADIT.
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\23\ Section 1561(d) of the Tax Cuts and Jobs Act.
\24\ Under the South Georgia method, a calculation is taken of
the difference between the amount actually in the deferred account
and the amount that would have been in the account had normalization
continuously been followed. Any deficiency is collected from
ratepayers (i.e., South Georgia Method), and any excess is returned
to ratepayers (i.e., Reverse South Georgia Method), over the
remaining depreciable life of the plant that caused the difference.
Memphis Light, Gas and Water Div. v. FERC, 707 F.2d 565, 569 (DC
Cir. 1983).
\25\ Section 1561(d) of the Tax Cuts and Jobs Act.
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18. While the Commission's understanding is that the Internal
Revenue Code does not apply the same standard to oil pipelines,\26\ the
amortization of excess plant-based ADIT also may affect oil pipeline
cost-of-service ratemaking. Accordingly, the Commission also seeks
comment on this issue as to oil pipelines.
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\26\ See id.; 26 U.S.C. 168(i)(9) & (10) (not including oil
pipelines among the list of public utilities subject to the
normalization requirement and the prohibition against flowing
through to ratepayers accelerated depreciation in cost-of-service
rates).
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3. Flow-Back or Recovery of Non-Plant Based ADIT
19. Because the normalization requirement under the Tax Cuts and
Jobs Act applies only to plant-based ADIT, the Commission seeks comment
on how quickly excess or deficient non-plant based ADIT should be
flowed back to or recovered from customers. Specifically, commenters
should address whether a regulatory asset or regulatory liability
recorded by a public utility or interstate natural gas pipeline
associated with non-plant based excess or deficient ADIT should be
amortized over a shorter (e.g., five-year) period. Oil pipeline
commenters should also address how quickly any excess non-plant based
ADIT should be flowed back in the data reported on Form No. 6, page 700
and in any cost-of-service proceeding as the issue arises.
4. Assets Sold or Retired After December 31, 2017
20. Under the Commission's accounting requirements, when assets are
sold or retired, the original cost and accumulated depreciation of
those assets are removed from the books of a public utility, interstate
natural gas pipeline, or oil pipeline. Additionally, any associated
ADIT is concurrently removed from a public utility's, interstate
natural gas pipeline's, or oil pipeline's books because any previously
deferred tax effects related to the assets are now triggered as part of
the computation of gains or losses associated with the sale or
retirement (i.e., the deferred taxes are now payable to the IRS). The
excess ADIT resulting from the tax rate change of the Tax Cuts and Jobs
Act is also removed from the books. The Commission seeks comment on
whether, and if so how, it should address excess ADIT that is removed
from the books of public utilities, oil pipelines and interstate
natural gas pipelines after December 31, 2017, as a result of assets
being sold or retired.
5. Amortization of Excess and Deficient ADIT
21. Commenters should address how public utilities with stated or
formula rates and interstate natural gas pipelines with stated rates
should adjust their income tax allowance such that the allowance would
be decreased or increased by the amortization of excess and deficient
ADIT. Likewise, commenters should address for oil pipelines how these
issues should be applied in cost-of-service ratemaking and in the cost-
of-service summary on Form No. 6, page 700.
22. The Commission also seeks comment on whether a public utility
or interstate natural gas pipeline should record the amortization by
recording a reduction to the regulatory asset or regulatory liability
account and recording an offsetting entry to Account 407.3 (Regulatory
Debits) or Account 407.4 (Regulatory Credits). For oil pipelines, the
Commission seeks comment whether this information should be recorded in
Account 665
[[Page 12375]]
(Unusual or Infrequent Items (Debit)) or Account 645 (Unusual or
Infrequent Items (Credit)).
6. Supporting Worksheets
23. The Commission seeks comment on whether it should require
public utilities, interstate natural gas pipelines, and oil pipelines
to provide to the Commission, on a one-time basis, additional
information, such as supporting worksheets, to show the computation of
excess or deficient ADIT and the corresponding flow-back of excess ADIT
to customers or recovery of deficient ADIT from customers. Commenters
should address what types of information public utilities, interstate
natural gas pipelines, and oil pipelines already record for ADIT-
related accounting and whether balances and amortization of regulatory
liability and asset accounts, computation of excess and deficient ADIT,
delineation between plant assets and non-plant assets, and a
description of the allocation method used to determine the
transmission-related portion of excess or deficient ADIT would be
appropriate to include in a supporting worksheet.
7. Treatment of ADIT for Partnerships
24. In the Revised Policy Statement, the Commission determined that
MLPs will no longer be permitted to recover an income tax allowance.
Following the United Airlines decision,\27\ the Commission concluded
that MLP investors' tax costs were already reflected in the return on
equity, and thus, permitting an income tax allowance for MLPs would
lead to a double recovery of such tax costs. The Commission also stated
that other pass-through entities would need to address the double
recovery concern.
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\27\ United Airlines, Inc. v. FERC, 827 F.3d 122 (2016).
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25. The Commission seeks comment on the effect of the elimination
of the income tax allowance for MLPs on ADIT. Likewise, the Commission
seeks comment regarding the treatment of ADIT to the extent the income
tax allowance is eliminated for other non-MLP pass-through entities.
For such MLPs and pass-through entities, commenters should address
whether previously accumulated sums in ADIT should be eliminated
altogether from cost of service or whether those previously accumulated
sums should be placed in a regulatory liability account and returned to
ratepayers. Commenters should address specifically how their approach
would be applied in the MLP's or other pass-through entity's cost of
service.
B. Bonus Depreciation
26. Generally, bonus depreciation is a tax incentive given to
companies to encourage certain types of investment. Bonus depreciation
allows companies to deduct a percentage of the cost of a qualified
property in the year the property is placed into service, in addition
to other depreciation deductions. That is, a company that purchases a
qualified business property and places it into service within a taxable
year can take a first year deduction in addition to any depreciation
deduction available.
27. The Tax Cuts and Jobs Act increases the 50 percent bonus
depreciation allowance to 100 percent for qualified property placed in
service after September 1, 2017, and before January 1, 2023. Full bonus
depreciation is phased down by 20 percent each year for property placed
in service after December 31, 2022, and before January 1, 2027. Bonus
depreciation applies to new and used property, and must be acquired in
an arm's length transaction. It is not available for assets acquired in
the trade or business of the furnishing or sale of electrical energy,
water, or sewage disposal services; gas or steam through a local
distribution system; or transportation of gas or steam by pipeline.\28\
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\28\ Section 13301 of the Tax Cuts and Jobs Act.
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28. The Commission seeks comment on the effect of the bonus
depreciation change under the Tax Cuts and Jobs Act. The Commission
also seeks comment on whether, and if so how, the Commission should
take action to address bonus depreciation-related issues. Commenters
should address the practical application of their proposals, including,
among other things, what type of action the Commission should take and
whom the Commission should target with its action.
C. Additional Inquiries
29. In addition, the Commission seeks comment on whether, and if so
how, it should take further action to address the change in the federal
corporate income tax rate. With respect to public utilities, the
Commission seeks comment on whether, in addition to the transmission
rates addressed in the orders to show cause being issued concurrently,
other jurisdictional transmission rates or non-transmission rates
should be revised to address the change in the federal income tax rate,
and identify the types of these other rates to the extent possible. The
Commission also seeks comment on effects of the Tax Cuts and Jobs Act
on Commission-jurisdictional rates of non-public utilities. Finally,
the Commission seeks comment on any other effects of the Tax Cuts and
Jobs Act, and whether, and if so how, the Commission should address
them.
III. Comment Procedures
30. The Commission invites interested persons to submit comments on
the matters and issues proposed in this NOI, including any related
matters or alternative proposals that commenters may wish to discuss.
Comments are due May 21, 2018. Comments must refer to Docket No. RM18-
12-000, and must include the commenter's name, the organization they
represent, if applicable, and their address in their comments. To
facilitate the Commission's review of the comments, commenters are
requested to provide an executive summary of their position. Additional
issues the commenters wish to raise should be identified separately.
The commenters should double space their comments.
31. The Commission encourages comments to be filed electronically
via the eFiling link on the Commission's website at https://www.ferc.gov. The Commission accepts most standard word processing
formats. Documents created electronically using word processing
software should be filed in native applications or print-to-PDF format
and not in a scanned format. Commenters filing electronically do not
need to make a paper filing.
32. Commenters that are not able to file comments electronically
must send an original of their comments to: Federal Energy Regulatory
Commission, Secretary of the Commission, 888 First Street NE,
Washington, DC 20426.
33. All comments will be placed in the Commission's public files
and may be viewed, printed, or downloaded remotely as described in the
Document Availability section below. Commenters on this proposal are
not required to serve copies of their comments on other commenters.
IV. Document Availability
34. In addition to publishing the full text of this document in the
Federal Register, the Commission provides all interested persons an
opportunity to view and/or print the contents of this document via the
internet through the Commission's Home Page (https://www.ferc.gov) and
in the Commission's Public Reference Room during normal business hours
(8:30 a.m. to 5:00 p.m. Eastern time) at 888 First Street NE, Room 2A,
Washington, DC 20426.
35. From the Commission's Home Page on the internet, this
information is available on eLibrary. The full text of
[[Page 12376]]
this document is available on eLibrary in PDF and Microsoft Word format
for viewing, printing, and/or downloading. To access this document in
eLibrary, type the docket number excluding the last three digits of
this document in the docket number field.
36. User assistance is available for eLibrary and the Commission's
website during normal business hours from the Commission's Online
Support at 202-502-6652 (toll free at 1-866-208-3676) or email at
[email protected], or the Public Reference Room at (202) 502-
8371, TTY (202) 502-8659. Email the Public Reference Room at
[email protected].
By direction of the Commission.
Issued: March 15, 2018.
Nathaniel J. Davis, Sr.,
Deputy Secretary.
[FR Doc. 2018-05670 Filed 3-20-18; 8:45 am]
BILLING CODE 6717-01-P
