Oregon Bulletin
April 1, 2011
Rule
Caption: In the Matter of the Adoption of
Temporary Amendment to OAR 860-022-0041(10).
Adm.
Order No.: PUC 1-2011(Temp)
Filed with Sec. of
State: 2-23-2011
Certified to be
Effective: 2-23-11 thru 8-21-11
Notice Publication
Date:
Rules Amended: 860-022-0041
Subject: On September 2, 2005, Governor Theodore Kulongoski
signed into law Chapter 757, OR Laws 2005 (SB 408), codified primarily at ORS
757.268. SB 408 requires certain public utilities to file annual tax reports
and other tax information with the Public Utility Commission of Oregon
(Commission). The law requires the report to provide information concerning the
amount of taxes paid by the utility and the amount of taxes authorized to be
collected in rates during specified time periods. Further, the law requires the
Commission to review the report and determine if the amount of taxes assumed in
rates differs by at least $100,000 from the amount of taxes paid to units of
government. SB 408 directs the Commission, upon finding that difference in
amounts, to require the public utility to implement a rate schedule with an
automatic adjustment clause accounting for the difference. To implement SB 408,
the Commission adopted OAR 860-022-0041.
OAR
860-022-0041(4)(d), before this temporary amendment, required that the
Commission perform a test to compare the outcome of the three methods used to
calculate taxes paid (described in (4)(a)-(c)) against the balance of deferred
taxes adjusted for any refunds received during the tax period (hereinafter
referred to as the “(4)(d) limitation). The (4)(d) limitation was originally
adopted to ensure that the calculation of “taxes paid” under SB 408 did not
result in an IRS normalization violation. During review of the utilities’ tax
reports for 2009 filed in compliance with ORS 757.268 and OAR 860-022-0041,
Commission Staff determined that there is no risk of a normalization violation
with two of the three methods for calculating “taxes paid” (the consolidated
and stand-alone methods) because those calculations use only straight-line
depreciation. In addition, applying the (4)(d) limitation to the consolidated
and stand-alone calculations could result in an inflated calculation of “taxes
paid,” which is not in the interest of ratepayers. Staff concluded that the
(4)(d) limitation should apply only to the third method of calculating “taxes
paid” — the apportionment method” described in (4)(c). Under the current
rules, without this amendment, the customers of one of the electric companies
will be assessed in June 2011 a surcharge millions of dollars greater than is
required under ORS 757.268.
Rules Coordinator: Diane Davis—(503) 378-4372
860-022-0041
Annual Tax Reports and Automatic
Adjustment Clauses Relating to Utility Taxes
(1) This rule applies to regulated investor-owned
utilities that provided electric or natural gas service to an average of 50,000
or more customers in Oregon in 2003, or to any successors in interest of those
utilities that continue to be regulated investor-owned utilities.
(2) As used in this rule:
(a) “Affiliated group” has the meaning given to
“affiliated group” in ORS 757.268(13)(a).
(b) “Deferred taxes” for purposes of the utility means
the total deferred tax expense of regulated operations that relate to the year
being reported in the utility’s results of operations report or tax returns,
excluding deferred taxes related to the establishment of a regulatory
receivable or payable account for any rate adjustment imposed under ORS
757.268, in the year the deferred tax is established but not thereafter, to
eliminate the iterative tax effect of the rate adjustment.
(c) “Income” means taxable income as determined by the
applicable taxing authority, except that income means regulatory taxable income
when reporting or computing the stand-alone tax liability resulting from a
utility’s regulated operations.
(d) “Income tax losses” means the negative taxable
income of an entity in the federal taxpayer or unity group, excluding the
current deduction of tax depreciation on public utility property and federal
investment tax credits related to public utility property.
(e) “IRC” means Internal Revenue Code.
(f) “Investment” means capital outlays for utility
property necessary or useful in providing regulated service to customers.
(g) “Iterative tax effect” means the tax effect of a
rate adjustment for taxes related to ORS 757.267 or 757.268 in the tax
reporting period that includes the rate adjustment.
(h) “Local taxes collected” means the total amount
collected by the utility from customers under the local tax line-item of
customers’ bills calculated on a separate city or county basis.
(i) “Pre-tax income” means the utility’s net revenues
before income taxes and interest expense, as determined by the Commission in a
general rate proceeding.
(j) “Properly attributed” means the share of taxes paid
that is apportioned to the regulated operations of the utility as calculated in
section (3), subject to subsections (4)(a), (4)(b), (4)(g), and (4)(h) of this
rule.
(k) “Public utility property” means property as defined
by the Code of Federal Regulations, Title 26, Section 168(i)(10).
(l) “Regulated operations of the utility” has the
meaning given to “regulated operations of the utility” in ORS 757.268(13)(c).
(m) “Results of operations report” means the utility’s
annual results of operations report filed with the Commission.
(n) “Revenue” means utility retail revenues received
from ratepayers in Oregon, excluding supplemental schedules or other revenues
not included in the utility’s revenue requirement and adjusted for any rate
adjustment imposed under this rule.
(o) “Revenue requirement” means the total revenue the
Commission authorizes a utility an opportunity to recover in rates pursuant to
a general rate proceeding or other general rate revision, including an annual
automatic adjustment clause under ORS 757.210.
(p) “Stand-alone tax liability” means the amount of
income tax liability calculated using a pro forma tax return and revenues and
expenses in the utility’s results of operations report for the year, except
using zero depreciation expense for public utility property, excluding any tax
effects from investment tax credits, and calculating interest expense using
actual annual average weighted cost of debt derived from the actual annual
average capital structure for the tax period multiplied by the annual average
rate base for the tax period.
(q) “System regulated operations” means those
activities of the utility, in Oregon and other jurisdictions that are subject
to rate regulation by any state commission.
(r) “Tax” has the meaning given to “tax” in ORS
757.268(13)(d).
(s) “Taxes authorized to be collected in rates” means:
(A) The following for federal and state income taxes
calculated by multiplying the following three values:
(i) The revenue the utility collects, as reported in
the utility’s results of operations report;
(ii) The ratio of the net revenues from regulated
operations of the utility to gross revenues from regulated operations of the
utility, calculated using the pre-tax income and revenue the Commission
authorized in establishing rates and revenue requirement; and
(iii) The effective tax rate used by the Commission in
establishing rates for the time period covered by the tax report as set forth
in the most recent general rate order or other order that establishes an
effective tax rate, calculated as the ratio of total income tax expense in
revenue requirement to pre-tax income.
(B) For purposes of paragraph (2)(s)(A) of this rule,
when the Commission has authorized a change during the tax year for gross
revenues, net revenues, or effective tax rate, then the amount of taxes
authorized to be collected in rates will be calculated by weighting the amount
of energy sold during the period that rates were in effect as a percentage of
the total energy sold during the tax year.
(t) “Taxes paid” has the meaning given to “taxes paid”
in ORS 757.268(13)(f).
(u) “Taxpayer” means the utility, the affiliated group
or the unitary group that files income tax returns with units of government.
(v) “Tax report” means the tax filing each utility must
file with the Commission annually, on or before October 15 following the year
for which the filing is being made, pursuant to ORS 757.268.
(w) “Unitary group” means the utility or the group of
corporations of which the utility is a member that files a consolidated state
income tax return.
(x) “Units of government” means federal, state, and
local taxing authorities.
(3) The amount of income taxes paid that is properly
attributed to regulated operations of the utility is calculated as follows:
(a) The amount of federal income taxes paid to units of
government that is properly attributed to the regulated operations of the
utility is the product of the values in paragraphs (3)(a)(A) and (B), subject
to subsection (3)(b) of this rule:
(A) The total amount of federal income taxes paid by
the federal taxpayer, to which is added:
(i) The current tax benefit, at the statutory federal
income tax rate, of tax depreciation on public utility property;
(ii) The tax benefits associated with federal
investment tax credits related to public utility property; and
(iii) Imputed tax benefits on charitable contributions
and IRC section 45 renewable electricity production tax credits of the
affiliated group, except those tax benefits or credits associated with
regulated operations of the utility; and
(B) The average of the ratios calculated for the
utility’s gross plant, wages and salaries and sales, using amounts allocated to
regulated operations of the utility as set forth in the utility’s results of
operations report in the numerator and amounts for the federal taxpayer in the
denominator.
(b) The amount of federal income taxes paid that is
properly attributed to the regulated operations of the utility under subsection
(3)(a) of this rule shall not be less than the amount of the federal
stand-alone tax liability calculated for the regulated operations of the
utility, reduced by the product of:
(A) The imputed negative tax associated with all
federal income tax losses of entities in the utility’s federal taxpayer group;
and
(B) The average of the ratios for the utility’s gross
plant, wages and salaries and sales, using amounts allocated to the regulated
operations of the utility as set forth in the utility’s results of operations
report in the numerator and amounts for the system regulated operations in the
denominator.
(c) The total amount of state income taxes paid to
units of government that is properly attributed to the regulated operations of
the utility is the product of the values in paragraphs (3)(c)(A) and (B),
subject to paragraphs (3)(c)(C) and (D) and subsection (3)(d) of this rule:
(A) The total amount of Oregon income taxes paid by the
Oregon unitary group taxpayer, to which is added:
(i) The current tax benefit, at the state statutory
rate, of tax depreciation on public utility property; and
(ii) Imputed Oregon tax benefits on charitable
contributions of the unitary group, except those tax benefits associated with
regulated operations of the utility; and
(B) The average of the ratios calculated for the
utility’s gross plant, wages and salaries and sales using amounts allocated to
regulated operations of the utility as set forth in the utility’s results of
operations report in the numerator and amounts for the unitary group taxpayer
in Oregon, adjusted to reflect amounts allocated to regulated operations of the
utility, in the denominator.
(C) If a utility’s taxes collected in rates reflect
non-Oregon state income taxes, the utility must make a one-time permanent
election in its October 15, 2006, tax report filing, or in the case of a change
of the majority ownership of the utility’s voting shares pursuant to ORS
757.511, in the first tax report filing that includes a tax reporting period
reflecting the new ownership, to either:
(i) Multiply the total amount of Oregon income taxes
paid in paragraph (3)(c)(A) of this rule before adjustments by the ratio
calculated as the state income tax rate used by the Commission in establishing
rates divided by the Oregon statutory tax rate set forth in ORS 317.061; or
(ii) Calculate the total state taxes paid using the
formula set forth in paragraphs (3)(c)(A) and (B) of this rule on a state by
state basis, apportioned to Oregon by multiplying the total state taxes paid by
the average of the ratios calculated for gross plant, wages and salaries and
sales using amounts allocated to the regulated operations of the utility in the
numerator and amounts for the system regulated operations in the denominator.
(D) When Oregon income tax attributable to system
regulated operations is 100 percent allocated to Oregon in setting rates, 100
percent of the Oregon income tax of system regulated operations must be
attributed to the regulated operations of the utility.
(d) The amount of state income taxes paid that is
properly attributed to the regulated utility operations of the utility under
subsection (3)(c) of this rule must not be less than:
(A) For a utility for which Oregon state income taxes
are the only state income taxes included in rates, the amount of the Oregon
state stand-alone tax liability calculated for the regulated operations of the
utility, minus the imputed negative tax associated with all Oregon state income
tax losses of entities in the utility’s unitary group; or
(B) For a utility for which non-Oregon state income
taxes are included in rates, the product of:
(i) The sum of the state stand-alone tax liability
calculated for the applicable system regulated operations in each state in
which the utility is a member of a unitary group, minus the sum of the imputed
negative tax associated with all state income tax losses of entities in the
utility’s unitary group in each state; and
(ii) The average of the ratios calculated for gross
plant, wages and salaries and sales using amounts allocated to the regulated
operations of the utility in the numerator and amounts for the system regulated
operations in the denominator.
(e) The amount of local income taxes paid to units of
government that is properly attributed to the regulated operations of a utility
is the product of the values in paragraphs (3)(e)(A) and (B) of this rule for
each local taxing authority in Oregon:
(A) The total amount of income taxes paid by the
taxpayer to the local taxing authority, as adjusted to include the imputed
effect on local income taxes of:
(i) The current tax benefit of tax depreciation on
public utility property; and
(ii) Imputed tax benefits on charitable contributions
of the taxpayer except those associated with regulated operations of the
utility; and
(B) The ratio calculated using the method for
apportioning taxable income used by the local taxing authority, with the amount
for the regulated operations of the utility in the local taxing authority in
the numerator and the amount for the taxpayer in the local taxing authority in
the denominator.
(4) On or before October 15 of each year, each utility
must file a tax report with the Commission. The tax report must contain the
following applicable information for each of the three preceding fiscal years:
(a) The amount of federal and state income taxes paid
to units of government by the taxpayer, as adjusted pursuant to subparagraphs
(3)(a)(A)(i), (ii) and (iii) of this rule;
(b) The amount of the utility’s federal and state
income taxes paid that is incurred as a result of income generated by the
regulated operations of the utility, where:
(A) The amount of federal income taxes paid is equal to
the federal stand-alone tax liability calculated for the regulated operations
of the utility;
(B) For a utility for which Oregon state income taxes
are the only state income taxes included in rates, the utility’s state income
taxes paid is the Oregon state stand-alone tax liability calculated for the
regulated operations of the utility; and
(C) For a utility for which non-Oregon state income
taxes are included in rates, the amount of state income taxes paid is the
product of:
(i) The sum of the state stand-alone tax liability
calculated for the applicable system regulated operations in each state in
which the utility is a member of a unitary group; and
(ii) The ratio calculated as the income of the
regulated operations of the utility divided by the income of the system
regulated operations;
(c) The amount of federal and state income taxes paid
to units of government by the taxpayer that is properly attributed to the
regulated operations of the utility, as calculated in section (3) of this rule;
(d) The lowest of the amounts in subsections (4)(a),
(4)(b) and (4)(c) of this rule, after making adjustments in paragraphs (4)(d)(A)-(E).
For purposes of this rule, the adjusted amount reported under (4)(c) must not
be less than the deferred taxes related to depreciation of public utility
property for regulated operations of the utility, reduced by any tax refunds
recognized in the reporting period and allocated to the regulated operations of
the utility:
(A) The items defined in subsection (2)(t) of this
rule;
(B) A reduction equal to the current tax benefit
related to tax depreciation of public utility property for regulated operations
of the utility;
(C) A reduction equal to the tax benefit related to
federal investment tax credits recognized by the Commission in establishing
rates;
(D) An increase equal to the tax benefit of Oregon
business energy tax credits, including those credits transferred pursuant to
ORS 469.206 and 469.208, of the unitary group, excluding those credits covered
by 757.268(13)(f)(B); and
(E) Elimination of the iterative tax effect to the
extent such iterative tax effect has not been eliminated by paragraph (4)(d)(A)
of this rule;
(e) The amount of federal and state income taxes
authorized to be collected in rates;
(f) The amount of the difference between the amounts in
subsections (4)(d) and (4)(e) of this rule;
(g) The amount of local income taxes paid to units of
government by the taxpayer, calculated for each local taxing authority, and to
which is added the imputed effect on local income taxes of the amount in
subparagraph (3)(e)(A)(i) of this rule;
(h) The amount of local income taxes paid to units of
government by the taxpayer that is incurred as a result of income generated by
the regulated operations of the utility, calculated as the stand-alone tax
liability in each local taxing authority;
(i) The amount of local income taxes paid to units of
government by the taxpayer that is properly attributed to the regulated
operations of the utility, as calculated in section (3) of this rule for each
local taxing authority;
(j) The lowest of the amounts in subsections (4)(g),
(4)(h) and (4)(i) of this rule, calculated for each local taxing authority,
after making adjustments for:
(A) The items defined in subsection (2)(t) of this
rule; and
(B) A reduction equal to the local tax effect of the
current tax benefit related to tax depreciation of public utility property for
regulated operations of the utility; and
(C) Elimination of the iterative tax effect to the
extent such iterative tax effect has not been eliminated by paragraph (4)(j)(A)
of this rule;
(k) The amount of local income taxes collected from
Oregon customers, calculated for each local taxing authority;
(l) The amount of the difference between the amounts in
subsection (4)(j) and (4)(k) of this rule, calculated for each local taxing
authority;
(m) The proposed surcharge or surcredit rate
adjustments for each customer rate schedule to charge or refund customers the
amount of the differences in subsections (4)(f) and (4)(l) of this rule;
(n) If the utility claims the minimum taxes paid amount
set by subsections (3)(b) and (3)(d) of this rule, the total federal and state
income tax losses in the utility’s affiliated and unitary groups associated
with the imputed negative tax claimed; and
(o) Any adjustments, in addition to the adjustments
required in section (3) and subsections (4)(a) through (4)(n) of this rule,
that the utility proposes to avoid probable violations of federal tax
normalization requirements.
(5) In calculating the amount of taxes paid under
sections (3) and (4) of this rule:
(a) “Taxes paid” must be allocated to each tax year
employed by the utility for reporting its tax liability in the following
manner:
(A) For any tax return prepared for the preceding tax
year and filed on or before the date the tax report is due for such tax year,
the utility must allocate each reported tax liability to the tax year for which
such return is filed;
(B) For each adjustment made to an originally filed
federal, state, or local tax return, including adjustments resulting from an
audit, the utility must include the related tax liability or tax refund in the
first tax report filed after the tax liability or tax refund has been paid or
received and the taxing authority has made a final determination regarding the
adjustment;
(C) Taxes paid must include any interest paid to or
interest received from units of government with respect to tax liabilities.
(b) When a utility’s fiscal year or parent changes, and
a partial year consolidated federal income tax return is filed during the year,
taxes paid must be calculated in the manner defined by ORS 314.355 and OAR
150-314.355. For purposes of this rule, the amount of taxes paid must reflect a
weighted average of the months in effect related to each tax return filing.
(6) The utility must explain the method used for
calculating the amounts in this rule and provide copies of all work papers and
documents supporting the calculations.
(7) The Commission will establish an ongoing docket for
each of the October 15 tax report filings. Upon signing a protective order
prepared by the Commission, any intervenor may have access to all such tax
report filings, subject to the terms of the protective order.
(a) Within 20 days following the tax report filings, an
Administrative Law Judge will conduct a conference and adopt a schedule.
(b) Within 180 days of the tax report filings, the
Commission will issue an order that contains the following findings:
(A) Whether the taxes authorized to be collected in
rates for any of the three preceding fiscal years differs by $100,000 or more
from the amount of taxes paid to units of government that is properly
attributed to the regulated operations of the utility;
(B) For the preceding fiscal year, the difference
between the amount of federal and state income taxes paid to units of government
by the taxpayer that is properly attributed to the regulated operations of the
utility and the amount of taxes authorized to be collected in rates;
(C) For the preceding fiscal year, the difference
between the amount of local income taxes paid to units of government by the
taxpayer that is properly attributed to the regulated operations of the utility
and the amount of local taxes collected in rates; and
(c) Any other finding or determination necessary to
implement the automatic adjustment clause.
(8) Upon entry of an order finding a difference of
$100,000 or more in section (7) of this rule, the utility must file an amended
tariff, to be effective each June 1 unless otherwise authorized by the
Commission, to implement a rate adjustment applying to taxes paid to units of
government and collected from ratepayers for each fiscal year beginning on or
after January 1, 2006.
(a) The utility must establish a balancing account and
automatic adjustment clause tariff to recover or refund the difference determined
by the Commission in paragraph (7)(b)(B) of this rule through a surcharge or
surcredit rate adjustment.
(b) A utility that is assessed a local income tax must
establish a separate balancing account and automatic adjustment clause tariff
for each local taxing authority assessing such tax. The utility must apply a
surcharge or surcredit on the bills of customers within the local taxing
authority assessing the tax. The amount of the surcharge or surcredit must be
calculated to recover or refund the difference determined by the Commission in
paragraph (7)(b)(C) of this rule.
(c) Any rate adjustment must be calculated to amortize
the difference determined by the Commission in paragraphs (7)(b)(B) and
(7)(b)(C) of this rule over a period authorized by the Commission.
(d) Any rate adjustment must be allocated by customer
rate schedule according to equal percentage of margin for natural gas utilities
and equal cents per kilowatt-hour for electric utilities, unless otherwise authorized
by the Commission.
(e) Each balancing account must accrue interest at the
Commission-authorized rate for deferred accounts. For purposes of calculating
interest, the amount of the difference calculated in this section of the rule
will be deemed to be added to the balancing account on July 1 of the tax year.
(f) The automatic adjustment clause must not operate in
a manner that allocates to customers any portion of the benefits of deferred
taxes resulting from accelerated depreciation or other tax treatment of utility
investment or regulated affiliate investment required to ensure compliance with
the normalization method of accounting or any other requirements of federal tax
law.
(g) On or before December 31, 2006, each utility must
seek a Private Letter Ruling from the Internal Revenue Service on whether the
utility’s compliance with ORS 757.268 or this rule would cause the utility to
fail to comply with any provision of federal tax law, including normalization
requirements. Each utility must file a draft of its Private Letter Ruling
Request with the Commission on or before November 15, 2006. While a utility’s
request for a Private Letter Ruling is pending, or a related Revenue Ruling is
pending, no rate adjustment will be implemented, but interest will accrue
according to subsection (8)(e) of this rule on the amount of any rate
adjustment determined by the Commission pursuant to paragraphs (7)(b)(B) and
(7)(b)(C) of this rule.
(9) No later than 30 days following the Commission’s
findings in section (7) of this rule, any person may petition to terminate the
automatic adjustment clause on the basis that it would result in a material
adverse effect on customers. In the event of a filing under this section, the
applicable rate adjustment will not be implemented until the Commission makes
its determination. If the Commission denies the request to terminate the rate
adjustment, interest will accrue according to subsection (8)(e) of this rule on
the final amount of the rate adjustment.
Stat. Auth.: ORS 183, 756, 757
& 759
Stats. Implemented: ORS 756.040,
756.060, 757.267 & 757.268
Hist.: PUC 8-2006, f. & cert.
ef. 9-18-06; PUC 11-2007, f. & cert. ef. 9-18-07; PUC 4-2009(Temp), f.
& cert. ef. 4-15-09 thru 10-9-09; PUC 11-2009, f. & cert. ef. 10-2-09;
PUC 3-2010, f. & cert. ef. 6-28-10; PUC 1-2011(Temp), f. & cert. ef.
2-23-11 thru 8-21-11
Notes
1.) This online version of the OREGON BULLETIN is provided for convenience of reference and enhanced access. The official, record copy of this publication is contained in the original Administrative Orders and Rulemaking Notices filed with the Secretary of State, Archives Division. Discrepancies, if any, are satisfied in favor of the original versions. Use the OAR Revision Cumulative Index found in the Oregon Bulletin to access a numerical list of rulemaking actions after November 15, 2010.
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