Avista (NYSE:AVA) on April 27 said that the Washington Utilities and Transportation Commission has issued an order that approves electric rates designed to increase the company’s annual billed revenues by $10.8m, or 2.1%, as well as natural gas rates designed to decrease annual billed revenues by $2.1m, or 1.6%.
Those revenues include the return to customers through base rates of about $26.9m for electric service, and $5.5m for natural gas service, as a result of the federal Tax Cuts and Jobs Act (TCJA), which went into effect on Jan. 1, Avista said.
The commission’s decision reflects a 9.5% return on equity (ROE), and a 48.5% equity layer, Avista said, adding that the rate of return is 7.5%.
Overall, as a result of the commission’s order, customers will see these changes to their bills beginning May 1, Avista said:
- A residential electric customer using an average of 938 kWh per month will see a bill increase of $1.87, or 2.2%, for a revised monthly bill of $88.45
- A residential natural gas customer using an average of 65 therms per month will see a bill decrease of 77 cents, or 1.5%, for a revised monthly bill of $52.03
“The commission’s order allows us the opportunity to earn a fair return in 2018 and provides cost recovery for a portion of the capital projects in our request that are now serving our customers,” Avista Chairman and CEO Scott Morris said in the statement. “We’re also pleased to be able to return to our customers benefits resulting from the federal Tax Cuts and Jobs Act through their rates.”
Morris added: “As we look ahead, we will consider the appropriate approach for future cost recovery. Right now we will stay focused on the current matters before the commission. As these are resolved, we will engage with the commission, staff and other parties in an effort to better align expectations regarding Avista’s ongoing capital investments prior to filing future general rate cases.”
In its order, the commission noted that its staff, Avista, The Energy Project, and the Northwest Industrial Gas Users (NWIGU) last November filed a multi-party partial settlement stipulation, reaching agreement on the issues of rate spread, rate design, expansion of the company’s natural gas transportation service, and reservation of all issues and agreements of the cost-of-service methodology to be utilized in future proceedings.
Last December, the TCJA was signed into law, reducing the federal corporate income tax rate from a maximum 35% to a flat 21% rate, the commission said.
Investor-owned public utilities regulated in the State of Washington recover the costs of the applicable federal taxes from utility customers through rates established by the commission in periodic rate cases, the commission noted.
The tax rate reduction, which took effect Jan. 1, requires utilities to revalue deferred income taxes at the lower rate, thus creating excess deferred income taxes, the commission said, adding that some of those excess deferred income taxes – referred to as “protected” excess deferred taxes – relate to depreciable property and must be returned to customers over a specified time period under provisions in federal law governing the flow back of the excess under principles of normalization.
The remainder of the excess deferred income taxes – referred to as “unprotected” – are not subject to the same normalization provisions, and the commission retains authority in determining the disposition of those monies, the commission said. As a result, the commission must determine the fate of those excess deferred income tax monies, and on a permanent, going-forward basis, the commission must lower the company’s revenue requirement to reflect the reduced tax rate for the protected excess deferred income tax monies, the commission said.
Staff and Avista agree that the commission should lower its revenue requirement increase by the going-forward corporate tax reduction and should authorize the company to amortize the protected excess deferred income tax as of Dec. 31, 2017, over 36 years in accordance with the TCJA’s Average Rate Assumption Method (ARAM) methodology, the commission said.
“None of the parties voiced disagreement over this approach, and in the interest of returning these monies back to ratepayers as soon as practicable, we agree,” the commission added. “We find that the revenue requirement approved in this order shall be decreased by the going-forward corporate tax reduction amount and the protected plant-related excess deferred income tax as of December 31, 2017, the latter being amortized over a period of 36 years.”
With regard to the unprotected excess deferred income tax as of Dec. 31, 2017, and the deferral from Jan. 1 to April 30 for electric operations, the parties have proposed that those balances continue to be deferred, rather than returned to customers over a single year, with the resolution of any issues associated with those monies and their distribution to be determined in the merger proceeding in Docket U-170970, the commission said, referencing the proposed merger involving Avista and Hydro One.
The commission said that while it finds that approach reasonable for the unprotected excess deferred income tax, it does not agree with a continued deferral of the January to April excess deferred income tax. The commission noted that it has previously indicated its expectation that customers should realize the benefits of the reduced tax rate following the enactment of the federal tax legislation. Therefore, the commission said that it orders the continued deferral of the unprotected excess deferred income taxes of about $10.4m for resolution and distribution in Docket U-170970, utilizing the accounting petitions consolidated with this instant proceeding.
The commission said that it further directs Avista to amortize the January to April excess deferred income tax through its previously proposed Schedule 74 – Temporary Federal Income Tax Rate Credit over a one year amortization period. Since the company withdrew its electric tariff filing in Docket UE-180176, the commission said that it directs Avista to refile that request before May 1.
Among other things, the commission said that staff and Avista also agree on the unprotected excess deferred income tax as of Dec. 31, 2017, and the deferral from Jan. 1 to April 30 for gas operations. The parties have proposed that those balances are returned to customers over a one-year amortization period through Schedule 174 – Temporary Federal Income Tax Rate Credit, the commission said, adding that it finds that approach reasonable and orders those funds returned to ratepayers as proposed by the parties.