Tax Issues for Electric Utilities: Impact of Tax Reform, FERC Ratemaking, ADITs, and Other Key Challenges

Description

Tax reform has had a significant impact on electric utilities requiring a careful analysis of its effect on investments, planning, and operations. An understanding of key provisions of the new tax law, such as the reduction in the corporate tax rate, elimination of the corporate alternative minimum tax (AMT), and the regulated trade or business carve-outs, is critical for electric utilities to properly comply with the tax laws, FERC rate-making rules and US GAAP and FERC accounting and reporting requirements.

The new tax law forces corporations and partnerships to consider methods to optimize capital structures to achieve the most favorable tax treatment. The most significant change under the new tax law is the reduction of the maximum corporate tax rate down to 21%, causing a ripple effect on the use of some deductions.

Also, electric utilities must focus on regulatory liabilities stemming from ADIT balances, including the financial statement consequences and impact to rate making and customers. In the context of electric utilities and other regulated trades or businesses, ADIT balances are considered "loans" from the government, requiring an adjustment to a utility's rate base. The reduction in the corporate tax rate requires adjustment to ADIT balances and, potentially, refunds to customers.

Also, counsel and tax professionals must be able to identify challenges relating to interest expense deductions, net operating losses, IRS normalization rules, and regulated trade or business carve-outs to advise electric utilities and ensure sufficient planning effectively.

Listen as our panel discusses the impact of tax reform on electric utilities and provides methods to optimize tax benefits and deductions and avoid pitfalls.