By Amanda Durish Cook

FERC last week dismissed a Louisiana city’s complaint that Cleco Power collected $6.7 million in excess revenue last year because its rates did not immediately reflect the 2018 federal corporate income tax cut (EL19-6).

The city of Alexandria’s October complaint asked FERC to require Cleco to flow back to transmission customers excess accumulated deferred income tax (ADIT) collected from January to May 2018.

But FERC on Thursday said the city filed its complaint too late and in the wrong docket. But even without the procedural deficiencies, the commission said, it would not have granted Alexandria’s request because Cleco’s rates use historical test year costs as a “reasonable proxy” for rate collections and there is no true-up mechanism to ensure recovery of actual costs.

Cleco’s annual transmission revenue requirement (ATRR) is based on a rate year of June 1 through May 31. Cleco used the 35% federal income tax rate in its May 31, 2017, ATRR update for its 2017 rate year and replaced it with the 21% in its filing for the 2018 rate year.

Alexandria contended that because the lower tax rates took effect Jan. 1, 2018, Cleco over-collected its transmission rates by $6.7 million for the last five months of the 2017 rate year, with the city overpaying by $271,000. It called the amount “a permanent windfall” to Cleco.

The company responded that it “would be a violation of the approved historical test year approach” if it included cost increases or decreases that occurred outside the test year.

Cleco also said Alexandria was seeking to “cherry-pick” a single declining cost in its transmission formula rate, while ignoring other costs that increased. For example, Cleco said its transmission wages increased by 13% in 2017 because of additional hires but that it did not attempt to recover the increased costs in the ATRR until the 2018 rate year.

FERC agreed: “Due to this nature of Cleco’s transmission formula rate, Cleco may under-collect or over-collect various costs during a given rate year.”

MISO requires all transmission owners’ rates return or recover excess or deficient ADIT from customers as a result of tax law changes. But FERC said that requirement doesn’t speak to the precise timing of when the new rates must take effect.

“Cleco’s template calculates a single ATRR for the entire rate year. There is no provision in Cleco’s template for a partial year ATRR calculation, nor is there a provision to calculate the ATRR for a given rate year using two different federal corporate income tax rates,” FERC said. “The change in the federal corporate income tax rate that took effect on Jan. 1, 2018, was unknown when Cleco prepared the annual update for the 2017 rate year.”

Additionally, FERC pointed out that there is no provision in Cleco’s rate rules that it must recalculate ATRR if a tax change takes place during a rate year.

The commission also said Alexandria failed to file its challenge in time under Cleco’s rate rules. Alexandria submitted its informal challenge with Cleco after the Jan. 31, 2018, deadline and its formal challenge with FERC after the April 15, 2018, deadline. “Further, Alexandria did not file the formal challenge in the same docket as Cleco’s informational filing of its 2017 annual update” (ER18-999), FERC said.