1. Impact on Utilities Rate
Tax Cuts and Jobs Act of 2017
Impact on Utilities Rate
NASUCA Mid-Year Meeting
June 26, 2018 BY
JAY KUMAR
economics accounting engineering
ECONOMIC & TECHNICAL CONSULTANTS, INC. etc
PUBLIC UTILITY AND ENERGY CONSULTANTS Executive Boulevard
Rockville, MD 20852
Office: (301) Fax: (301)

2. SUMMARY OF THE IMPACT OF TAX CUT AND JOB TAX ACT (“TCJA”) ON UTILITIES
Following Provisions Of TCJA implemented on December 22, 2017 would have enormous impact on utility rates.
Federal Income Tax (“FIT”) Rate Reduction: The FIT is reduced from 35% to 21%.
Excess Accumulated Deferred Income Taxes (“ADIT”)
New 21% FIT rate will result in a huge excess ADIT Accounts 190, 282 and 283 balances.
TCJA requires that the excess “Protected” ADIT Accounts 282 and 283 can be flowed through using Average Rate Assumption Method (“ARAM”) or only over the remaining life of assets.

3. SUMMARY OF PROVISIONS IMPACTING UTILITIES (Continued)
Period for the unprotected excess ADIT amount is up to the regulators.
Reduced amount of Account 190 ADIT should be used as a rate base addition.
Limits the interest deducted to 30% of the taxable income.
Sets the Alternate Minimum Tax (“AMT”) to zero.
Limits Net Operating Loss (“NOL”) to zero and the carryback amount is also limited to zero. This should eliminate Account 190 ADIT related to NOL.

4. SUMMARY OF PROVISIONS IMPACTING UTILITIES (Continued)
Repealed the tax credit carryover which should result in reducing the Account 190 ADIT balance related to tax credit carryover resulting in reduced rate base.
Repealed tax credit bonds.

5. SUMMARY OF PROVISIONS IMPACTING UTILITIES (Continued)
TCJA Limited or eliminated some deductions used for computing income taxes.
Employee Related Deductions
No deductions for entertainment, amusement, recreation, uses of a facility or property by employees. (Section 13304)
Limits food/meals deductions to 50% of the amount spent near the business location. (Section 13304)
No deduction for employee’s transportation for personal use and commuting expenses except commuting by bicycles. (Section 13304)
Limits the expenses for paid family and medical leave based on the wages. Also limits sick leave to 12 weeks per taxable year. (Section 13403)

6. SUMMARY OF PROVISIONS IMPACTING UTILITIES (Continued)
Other Deductions
Expenses paid for investigations and other activities related to the compliance with the law or government order. (Section 13306)
Disallows amounts paid to settle sexual harassment claims. (Section 13307)
Disallows all lobbying expenses irrespective to which such expenses are booked to. (Section 13308)
Reduces the current 50% credit to 25% for Orphan Drug credit. (Section 13401)

7. A. Accumulated Deferred income Taxes (ADIT)
FEDERAL ENERGY REGULATORY COMMISSION NOTICE OF INQUIRY ISSUED MARCH 15, 2018 DOCKET NO. RM18-12 COMMENTS SOUGHT ON THE FOLLOWING ISSUES
A. Accumulated Deferred income Taxes (ADIT)
Effect on Rate Base (Pages 9-10)
Booking of Excess ADIT (Page 9)
Interest excess rates since January 1, 2018 (Page 10)
Flow Back or Recovery of Plant Based ADIT
Use of ARAM or Remaining Life (PP10 and 11)
Reverse South Georgia related (P11)
Flow Back or Recovery of Non-Plant Based ADIT
Over a Shorter Period (e.g. Five Year) (P12)
ADIT Associated with Assets Sold or Retired After December 31, 2017 (PP12 and 13)

8. B. Bonus depreciation (P15) C. Additional Inquires (P16)
FEDERAL ENERGY REGULATORY COMMISSION NOTICE OF INQUIRY ISSUED MARCH 15, 2018 DOCKET NO. RM18-12 COMMENTS SOUGHT ON THE FOLLOWING ISSUES
A. Accumulated Deferred income Taxes (ADIT) (con’t)
Amortization of Excess and Deficient ADIT (P13)
How Income Tax Allowance should be adjusted (P13)
How to book the amortization amount (13)
Supporting Workpapers (P14)
Treatment of ADIT for Partnerships (P14)
B. Bonus depreciation (P15)
C. Additional Inquires (P16)

9. UTILITIES EFFORTS TO REDUCE BENEFITS
Reduce Excess ADIT by….
Adding ADIT to Rate Base such as Associated with….
Permanent Tax Differences
Equity AFUDC
Recovery of Past Flow Through Amounts
Using Account Regulatory Assets as Offset to ADIT

10. UTILITIES EFFORTS TO REDUCE BENEFITS (con’t)
EEI Efforts (FERC Docket No. AC18-59)
Started Booking of A Part of Excess ADIT To Account 219 Accumulated Other Comprehensive Income
Requested FERC to Transfer to Account 439 Adjustment to Retained Earnings
Will Not Only Reduce Excess ADIT will also Result in Increased Equity, Return and Associated Income Taxes

11. How To Protect Customers Interest Rates
Focus On All Utilities
Retail Electric, Gas and Water
Wholesale Electric Transmission and Interstate Gas Pipelines
Major Focus on….
Excess ADIT
Utilities Attempts to Reduce Excess ADIT
Account 190 Balance Reduction
Preferable to Develop General Guidelines for all Utilities