On April 16, 2020, FERC addressed the American Public Power Association (“APPA”) and Exelon Corporation and its public utility subsidiaries (collectively, “Exelon Companies”) requests for rehearing and clarification of Order No. 864.  Specifically, FERC:

  • granted in part APPA’s request, clarifying that public utilities with stated transmission rates are required to use some ratemaking method to appropriately account for excess or deficient accumulated deferred income taxes (“ADIT”) resulting from the Tax Cuts and Jobs Act (“TCJA”), which will be subject to review in the utility’s next rate case;
  • confirmed that, consistent with prior precedent, any excess or deficient ADIT will not result in a windfall to either shareholders or ratepayers of public utilities with stated transmission rates; and
  • denied Exelon Companies’ request for rehearing, reaffirming Order No. 864’s requirement that public utilities with transmission formula rates return to customers the full amount of excess ADIT resulting from TCJA.

Following TCJA’s reduction to the federal corporate income tax from 35 percent to 21 percent, effective January 1, 2018,  FERC issued Order No. 864, requiring public utilities with transmission formula rates to make certain revisions to their formula rates to account for excess ADIT, as well as deficient ADIT resulting from any future tax rate changes (see November 25, 2019 edition of the WER).  Regarding public utilities with stated transmission rates, Order No. 864 determined that the treatment of excess and deficient ADIT would be addressed in the public utility’s next rate case. Order No. 864 also provided guidance on how excess and deficient ADIT should be treated in the meantime before a utility’s next rate case.

On December 23, 2019, APPA and Exelon Companies filed a request for clarification, or in the alternative, rehearing and a request for rehearing of Order No. 864, respectively. Specifically, APPA asked FERC to confirm Order No. 864’s requirement that public utilities with transmission stated rates return the full amount of excess ADIT resulting from TCJA to customers. Pointing to language in Order No. 864 stating that FERC “will generally apply a policy that public utilities begin reducing excess ADIT immediately upon a tax rate change and not at a later date, such as at the time of a future rate case,” APPA argued that FERC’s guidance potentially raises a concern that the portion of excess ADIT amortized between January 1, 2018 and a public utility’s next rate case might not be returned to customers. APPA asserted that, to the extent FERC’s guidance in Order No. 864 results in any portion of excess ADIT not being returned to customers, such guidance would conflict with FERC’s prior finding in Order No. 144 that excess ADIT should not result in a windfall to public utilities.

In response, FERC clarified that public utilities with stated transmission rates that already include a FERC-approved ratemaking method for addressing excess and deficient ADIT are required to begin returning excess ADIT resulting from the TCJA to customers through their transmission stated rates immediately following the tax rate change. For public utilities with stated transmission rates that do not include a FERC-approved ratemaking methodology to address excess and deficient ADIT, FERC clarified that such public utilities must employ some ratemaking method to provide for excess and deficient ADIT during the period before its next rate case, when the appropriateness of the public utility’s method will be subject to review by FERC. FERC was unpersuaded by APPA’s argument that a public utility with a transmission stated rate might seek to adopt a brief amortization period for unprotected excess ADIT to fully amortize that balance before its next rate case. FERC noted that public utilities with transmission stated rates will be required to support and justify all its proposed amortization periods for excess and deficient ADIT in its next rate proceeding. Finally, FERC confirmed that its prior determination in Order No. 144—that excess ADIT should not result in a windfall to public utilities—still applies.

FERC also denied Exelon Companies’ request for rehearing challenging Order No. 864’s requirement that the full regulatory liability for excess ADIT resulting from TCJA should be captured in a public utility’s transmission formula rate. FERC specifically rejected Exelon Companies’ argument that Order No. 864 was inconsistent with prior FERC orders denying Exelon Companies ability to recover the full amount of deficient ADIT balances resulting from past tax rate changes. FERC explained that it disagreed with Exelon Companies’ central argument—that FERC is treating the return of excess ADIT (a regulatory liability) resulting from TCJA differently than how FERC treated deficient ADIT (a regulatory asset) resulting from past tax rate increases in the Exelon Orders—noting that it rejected Exelon Companies’ attempt to recover the full amount of past deficient ADIT because Exelon Companies failed to meet the next rate case requirement of Order No. 144.

Click here to read the Order.