FERC last week approved NorthWestern Corp.’s (NASDAQ:NWE) compliance filing under a commission order that ensures transmission formula rates properly address excess and deficient accumulated deferred income taxes (ADIT) resulting from current and future tax-rate changes (ER20-1090).

The ruling was one of three FERC issued on Thursday related to Order 864. The 2019 directive required public transmission providers with formula rates under a tariff or rate schedule to make revisions accounting for changes caused by the Tax Cuts and Jobs Act of 2017. The order also directed entities to include a mechanism in their rates that deducts any excess ADIT or add any deficient ADIT to their rate base.

The commission found that NorthWestern partially complied with Order 864’s requirements and directed the company to make a further compliance filing within 60 days.

NorthWestern proposed incorporating two new worksheets addressing Order 864’s requirement for a rate base adjustment mechanism, a summary worksheet and a worksheet specific to each tax change. It also said it would add another worksheet calculating the excess and deficient ADIT.

FERC said NorthWestern’s adjustment mechanism did not fully apply to any future tax rate changes giving rise to excess or deficient ADIT and ordered it to include “deficient ADIT” in the summary worksheet. The commission also directed NorthWestern to include “deficient ADIT” in its tax allowance adjustment mechanism.

That latter mechanism allows a transmission company to decrease or increase its income tax component by any amortized excess or deficient ADIT, respectively. FERC found NorthWestern’s formula description did not accurately reflect the formula in a separate worksheet and ordered it to make revisions.

The commission also ordered the company to include “deficient ADIT” in the notes of its summary worksheets.

PacifiCorp Partially Rejected

FERC also rejected parts of an Order 864 compliance filing by PacifiCorp (NYSE:BRK.A) because of worksheet shortcomings and directed the utility to submit an additional compliance filing in 60 days (ER20-1828).

The commission found PacifiCorp’s ADIT filing did not comply with Order 864’s categories 1 and 2 worksheet requirements.

In category 1, “Order No. 864 required public utilities to include in their permanent ADIT worksheets ‘how any ADIT accounts were remeasured and the excess or deficient ADIT contained therein,’” FERC said.

PacifiCorp’s proposed ADIT worksheets did not demonstrate how any ADIT accounts were remeasured but only showed the “excess and deficient ADIT contained therein, and then allocated the ADIT amounts to transmission without providing additional illustration or explanation of their calculations,” FERC said.

To satisfy the category 1 requirements, PacifiCorp “must provide the pre-tax rate change and post-tax rate change ADIT account balances, in addition to the resulting excess and deficient ADIT already provided,” the commission said. “Further, such information must be provided at a level of detail such that interested parties can identify the source (i.e., the originating accounts) of excess or deficient ADIT in the proposed ADIT worksheet and verify excess and deficient ADIT resulting from the Tax Cuts and Jobs Act and future tax rate changes.”

In category 2, PacifiCorp identified end-of-year balances of excess and deficient ADIT but did not provide the full accounting for any unamortized excess or deficient amounts, FERC said.

“Specifically, the ADIT worksheets do not display the gross-up on unamortized excess and deficient ADIT included in these accounts,” it said. “As such, in the compliance filing ordered below, we direct PacifiCorp to display the gross-up on excess and deficient ADIT included” in two specified accounts.

Duke Partially Approved

Finally, the commission partially accepted Duke Energy Ohio/Kentucky’s (DEOK) (NYSE:DUK) proposed revisions to its transmission formula rate, directing a further compliance filing within 60 days (ER20-1832).

DEOK argued its existing formula rate included a rate base adjustment mechanism for several of its accounts “as adjusted by any amounts in contra accounts identified as regulatory assets or liabilities.” But DEOK proposed adding language to an existing account “to maintain rate-base neutrality in the event of a change to income tax rates” and that the account balance would be derived form the new ADIT worksheet it proposed to comply with Order 864.

The compliance filing proposed adding language to the formula rate “to incorporate the amortization of excess and deficient ADIT into the income tax calculation, in order to return or recover excess/deficient ADIT.” DEOK also proposed incorporating a new permanent ADIT worksheet into its formula rate that would annually track information related to its “protected and unprotected deficient deferred income tax” and to provide an “informational reconciliation of accounts remeasured as a result of federal and state income tax rate changes.”

American Municipal Power (AMP) made several protests of the filing, alleging that DEOK may be retaining a portion of excess ADIT because of the Kentucky corporate income tax rate changing from 6% to 5% in 2018. AMP said DEOK “improperly amortized certain excess ADIT related to that change,” requesting that the commission require DEOK to refund the amounts with interest and recalculate its 2019 annual update “because DEOK has not ensured rate-base neutrality.”

The commission found that the utility’s rate-base adjustment mechanism partially complied with Order 864, saying the mechanism “allows DEOK to deduct any excess ADIT calculated in the proposed ADIT worksheet from rate base, thus preserving rate-base neutrality for that component” and that it may be applied to “any future federal tax rate changes that give rise to excess or deficient ADIT.”

But it also said it agreed with AMP that the mechanism does not reflect the 2018 Kentucky excess ADIT as a “contra” in several accounts “instead of using its proposed rate-base adjustment mechanism.”

The commission said DEOK’s proposal “does not show how much of the 2018 Kentucky excess ADIT ultimately were included in other components” of the rate and how it meets the requirements of the ADIT worksheet.

It directed DEOK to show how its proposal for the state tax rate changes are consistent with the requirements of Order 864, including “how transmission customers will receive the full amount of both protected and unprotected excess ADIT balance to be returned to transmission.”

FERC also found that DEOK’s ADIT worksheet partially complied with Order 864, directing more changes. While the worksheet shows adjustments from the originating ADIT accounts to the regulatory asset and liability accounts, it does not include the beginning balance of the remeasured ADIT amounts, the commission said.