N.H. utilities to file proposals by April 1 to address effects of changes in tax laws

The New Hampshire Public Utilities Commission is calling for utilities to file proposals by April 1 to address the effects of the changes in tax laws, including financial information that is sufficient to establish a revenue requirement that reflects prospectively the impacts of those changes.

The filing is to include a calculation of any deferred liability accrued by report date and any liability projected to be accrued until the time when final rates are next issued in accordance with a general rate case. The commission said that the filing is to also include a plan for providing periodic reports on the accrual and extinguishment of the deferred liability, including an outline of the financial information the utility would expect to file that would be sufficient to establish a revenue requirement that reflects the impact of the tax law changes.

As noted in the order, at the end of December 2017, Congress voted, and the president signed into law, major federal tax law changes (referred to in the order as the 2017 Tax Act), effective for tax year 2018.

Among other things, the 2017 Tax Act substantially reduces the corporate income tax rate from 35% to 21%, effective this year, and affects the deferred tax reserve that must be normalized for the benefit of customers, the commission said.

In addition, in 2018, the New Hampshire Business Enterprise Tax (BET) rate will fall from 0.72% to 0.675%, and the Business Profits Tax (BPT) will decline from 8.2% to 7.9%, the commission said.

Investor-owned public utilities regulated in New Hampshire recover the costs of the applicable federal and state taxes from utility customers through rates established by the commission in periodic rate cases specific to each utility, the commission said, noting that those rate cases allow it to fully investigate the costs and revenues required for the prudent operation of each utility.

The commission noted that the revenue impacts of the 2017 Tax Act and the changes in New Hampshire’s business taxes, in general, occur outside of a normal rate case, are likely material, and constitute an event outside the utility’s control.

The commission said that it determines that it is necessary to investigate how the 2017 Tax Act and the reductions to the BPT and BET will affect the expenses of each of the New Hampshire public utilities. If the changes in the tax laws will reduce the tax obligations and increase the net incomes of those utilities, then it will be necessary to determine how those reduced obligations should be reflected in rates, the commission said.

To that end, the commission said that it requires all regulated electric, gas, sewer, and water utilities in New Hampshire to record on their books as a deferred liability, in an appropriate account, the estimated reduction in federal income tax resulting from the 2017 Tax Act, as well as the estimated reduction in the state BET and BPT.

The commission said that the entries for the deferral are to be calculated using the methodology it uses in setting revenue requirements as such: each utility is to take the equity currently invested in rate base, multiplied by the last-approved return on equity, to derive an equity return; and then calculate relative to that return the difference between the gross-up for a federal income tax of 35% and for a federal income tax of 21%, as well as for the reductions in BET and BPT.

The difference is to be entered as a deferred liability until final rates are established for the utility in a general rate case, or until otherwise ordered by the commission. The commission added that each public utility subject to this notice is to calculate the excess deferred tax reserve caused by the reduction in the corporate federal income tax rate, and recognize as a deferred liability the estimated reduction of the utility’s revenue requirement.

The commission noted that it is investigating rate cases of several utilities, which are to consider whether a rate reduction associated with the reduced tax obligations of the 2017 Tax Act, BET, and BPT, can be effected within the schedule for those rate cases and are to also comply with the filing requirements described in the order.

Liberty Utilities (Granite State Electric) d/b/a Liberty Utilities and Unitil Energy Systems (UES) concluded rate cases within the last year, the commission said, adding that their respective rate agreements contain a provision on the method by which they are to manage exogenous events. While changes in tax law are typically treated as exogenous events, the commission declines to make that finding under the two approved rate case settlements at this time, and requires Granite State Electric and UES to comply by April 1 with the reporting requirements.

Among other things, the commission also said that it intends to open a separate docket for each of the filings received and will consider appropriate rate impacts in those company-specific dockets.

About Corina Rivera-Linares 3233 Articles
Corina Rivera-Linares, chief editor for TransmissionHub, has covered the U.S. power industry for the past 15 years. Before joining TransmissionHub, Corina covered renewable energy and environmental issues, as well as transmission, generation, regulation, legislation and ISO/RTO matters at SNL Financial. She has also covered such topics as health, politics, and education for weekly newspapers and national magazines. She can be reached at clinares@endeavorb2b.com.