The Federal Energy Regulatory Commission (FERC) issued Order 864-A on Public Utility Transmission Rate Changes to Address Accumulated Deferred Income Taxes (ADIT). Order No. 864-A addresses requests for clarification and rehearing concerning the obligation of public utilities with either transmission formula rates or transmission stated rates to return excess ADIT arising from the reduction in the federal corporate income tax rate under the Tax Cuts and Jobs Act of 2017 (TCJA).

FERC reaffirmed its determination in Order No. 864 that public utilities with transmission formula rates must, inter alia, return the full amount of excess ADIT resulting from the TCJA to customers.  The Commission also affirmed that utilities with transmission stated rates must return excess ADIT to customers, but clarified how such utilities should treat excess and deficient ADIT between rate cases.  To the extent a public utility with a transmission stated rate has a FERC-approved ratemaking method for addressing excess and deficient ADIT, the utility should return excess ADIT (or recover deficient ADIT) according to that FERC-approved method. Public utilities with transmission stated rates that lack a FERC-approved ratemaking method must use some ratemaking method to make provision for excess and deficient ADIT.  Importantly, the Commission clarified that such utilities could begin amortizing excess and deficient ADIT balances immediately upon the tax rate change, subject to Commission review in its next rate case.

Read the full GT Alert here.