By Amanda Durish Cook

FERC on Thursday terminated its investigations into the tax calculations included in transmission rates after several MISO transmission owners made compliance filings to remove a two-step averaging methodology that could inflate rates by underestimating tax credits.

The commission accepted compliance filings in part for MISO TOs ALLETE, Montana-Dakota Utilities, Northern Indiana Public Service Co., Otter Tail Power and Southern Indiana Gas & Electric (EL18-138), as well as American Transmission Co. (EL18-157) and International Transmission Co. (EL18-159). It also fully approved filings submitted by CAISO TOs GridLiance West (EL18-158) and Southern California Edison (EL18-164).

All the TOs proposed to end the use of a double averaging formula to calculate accumulated deferred income taxes (ADIT).

FERC last year ordered compliance filings and opened a Section 206 proceeding investigating TOs’ use of the practice. (See FERC Acts on Transcos’ Revised Tax Calculations.)

Some MISO TOs were using a two-step averaging methodology in their projected test year calculations of ADIT balances, but FERC said the practice makes deferred income tax credits appear lower than they should be, possibly raising rates because averaging the prorated ADIT value for the year with the beginning-of-year ADIT balance “produces a result that is disproportionately skewed towards the beginning-of-year balance.” (See FERC Broadens Challenge to TOs’ Tax Calculations.)

FERC got a bit more than it bargained for when the MISO TOs submitted compliance filings that also revised their annual ADIT true-up calculations.

The commission rejected the MISO TOs’ proposed revisions to apply the IRS’ proration methodology to their annual true-up calculations, saying the effort was beyond the scope of compliance.

“The filing parties’ proposal to prorate certain MISO TOs’ annual true-up calculations is not necessary to comply with the remedy … and is thus outside the scope of this compliance proceeding,” FERC said.

It directed the TOs to make further compliance filings that include the revised ADIT calculations, this time leaving out “any other modifications or revisions.”

The commission said if the TOs still want to revise their transmission formula rates to apply the proration methodology in their true-up calculations, they could make separate filings for FERC review.

METC Filing Rejected

In a proceeding separate from the other MISO TOs, Michigan Electric Transmission Co. (METC) failed to earn FERC’s stamp of approval over its attempt to address the ADIT issue (EL19-16). In that order, the commission said that while METC’s proposed removal of two-step averaging complied with FERC’s directive, the company’s request to include the IRS’ proration methodology in its true-up calculations for all of 2019 amounted to retroactive ratemaking because the company had submitted its filing on Jan. 22.

“Although we are rejecting METC’s filing, we note that it may refile its proposal to apply the IRS’ proration methodology to its true-up calculations, provided that its proposed revisions apply prospectively, in a separate [Federal Power Act Section] 205 filing. The commission will evaluate the proposal at that time,” FERC said.

Robert Mullin contributed to this article.