On January 9, 2018, several state Attorneys General, state agencies, and state consumer advocates (“State Advocates”) sent a joint letter to the FERC Commissioners requesting that FERC open an investigation into the continued justness and reasonableness of FERC-jurisdictional electric and natural gas utilities’ (“Public Utilities”) rates considering the recent reduction in the federal corporate income tax rate. The State Advocates further urged FERC to promptly adjust the revenue requirements of such Public Utilities to prevent utility customers across the nation from overpaying for service.

In its letter to FERC Commissioners, the State Advocates cited H.R. 1 – An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018 (also referred to as the “Tax Cuts and Jobs Act”) that was signed into law by President Trump in December 2017. The Tax Cuts and Jobs Act reduced the marginal federal corporate income tax rate from 35 to 21 percent. In response to this tax rate reduction, the State Advocates raised concerns over the Act’s impact on: (1) the incorporation of current corporate income tax expenses into Public Utilities’ rates; and (2) the amount of excess accumulated deferred income taxes received by customers.

The State Advocates assert that the reduction in corporate income tax rate will result in a windfall for Public Utilities. Thus, the State Advocates urged FERC to institute investigations to determine the justness and reasonableness of all applicable rates recovered by the Public Utilities in light of this change in corporate income tax rates. Specifically, the State Advocates requested FERC action pursuant to section 206 of the Federal Power Act, section 5 of the Natural Gas Act, the Interstate Commerce Act, Title XVIII of the Energy Policy Act of 1992, and any other applicable statutes and regulations.

In making its request upon FERC’s Commissioners to respond to this tax rate reform, the State Advocates recognized that many Public Utilities are subject to “formula” or stated rates, which are updated annually. Still, the State Advocates asked FERC to consider updating such Public Utilities’ formula rates now, rather than waiting for the annual update to reflect the change in tax rates. Finally, the State Advocates asked that FERC act swiftly to ensure that all rates continue to be just and reasonable.

A copy of the letter submitted by the state Attorneys General is available here.