FERC Questions why Utilities haven't noted tax cuts in Rate Plans

FERC is asking the utilities to explain why they are still showing a maximum 35 percent corporate tax rates in their formulas which ultimately factor in costs for customers.

Mar 16th, 2018
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Nearly 50 public utilities have yet to account for the recent corporate income tax cut in their transmission rate formulas, and the Federal Energy Regulatory Commission wants to know why.

FERC is asking the utilities to explain why they are still showing a maximum 35 percent corporate tax rates in their formulas which ultimately factor in costs for customers. The corporate income tax rate was cut to a flat 21 percent as part of the Tax Cuts and Jobs Act signed by President Trump into law late last year.

One of FERC’s show-cause orders identified 34 generation and/or integrated utilities still including the higher rates in their costs when it should have been reduced beginning January 1. Those companies include Avista, El Paso Electric, Florida Power & Light, Potomac Edison, Portland General Electric, Dayton Power & Light and Tucson Electric, among others. (See the complete order here).

“When tax expense decreases, so does the cost of service,” FERC’s show-cause order reads. “The commission must ensure that the rates, terms and conditions of jurisdictional services under the FPA (Federal Power Act) are just, reasonable and not unduly discriminatory or preferential.”

The second show-cause order focused on transmission rate formulas with 12 utility units of larger holding companies. Those include AEP’s transmission units Appalachia, Indian Michigan, Kentucky, Ohio, West Virginia, Oklahoma and Southwestern. (See order here).

Other utilities named in that order included Baltimore Gas & Electric, Black Hills Power, San Diego Gas & Electric, Transource and UNS. The parties named in the orders have two months to respond once the notice is published in the Federal Register.

The FERC notice also questioned the same issue with interstate natural gas pipeline companies. The cost of fuel transport and expense also are reflected in utility’s customer rate formulas filed with state regulators, many of which have expressed a desire for those cuts.

Two entities got waivers, according to FERC’s fact sheet on the orders. Xcel Energy Services filed a successful request on behalf of its Public Service Co. of Colorado unit for a waiver of certain parts of the tariff for the 2018 rate year, while some MISO (Midcontinent Independent System Operators) transmission owners were also granted waivers on provisions within their formula rate protocols. The FERC release did not explain the reason for those waivers.

The federal inquiry is not requiring that utilities or pipeline firms automatically reduce their rates, according to the FERC release. However, if the rate is not reduced the entities are asked to file a statement “explaining why an adjustment is not needed.”

Many utilities have not announced plans to cut customer rates due to the benefits of the new tax law. Baltimore Gas & Electric, ComEd and are among those who have indicated plans to cut customer rates, although it’s not known when those reductions will happen.

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