Case Background
On September 27,
2017, Tampa Electric Company (Company), the Office of Public Counsel, the
Florida Industrial Power Users Group, the Florida Retail Federation, the Federal
Executive Agencies, and the WCF Hospital Utility Alliance entered into the 2017
Amended and Restated Stipulation and Settlement Agreement (2017 Agreement). The
Commission approved the 2017 Agreement by Order No. PSC-2017-0456-S-EI. Paragraph 9 of the 2017 Agreement
addresses the procedures and principles to be followed for changes in the rate
of taxation of corporate income by federal or state taxing authorities.
On September 12,
2019, the Florida Department of Revenue issued a Tax Information Publication
(TIP) announcing that the Florida corporate income tax rate was reduced from
5.5 percent to 4.458 percent effective retroactive to January 1, 2019, and would
remain in effect through December 31, 2021 (State Tax Rate Change). The TIP indicates that the Florida corporate
income tax rate will return to 5.5 percent effective January 1, 2022. It also indicates that further reductions in
the tax rate are possible for calendar years 2020 and 2021. The Department of
Revenue’s authority to reduce the state corporate income tax rate is contained
in Section 220.1105, Florida Statutes (F.S.).
The Company’s petition
addresses the impacts of the State Tax Rate Change on Tampa Electric as
provided in the 2017 Agreement through proposed reductions to the Company’s
base rates and charges effective with the first billing cycle for January 2020.
The proposed base rates reflect an increase of the Company’s base rates in
effect during 2019 and a reduction to the incremental base rates associated
with the Company’s Third SoBRA approved on October 17, 2019, to reflect the
lower state corporate income tax rate.
The Commission
has jurisdiction in this matter pursuant to Sections 366.04, 366.05, and
366.06, F.S.
Discussion
of Issues
Issue 1:
Should Tampa Electric Company’s petition addressing
Florida’s temporary state corporate income tax rate reduction be approved?
Recommendation:
Yes. Staff recommends the Commission approve an
annual revenue requirement reduction for 2019 of $4,959,442 to reflect the state
corporate income tax rate change; approve the Company’s revised Third SoBRA
revenue requirement of $26,452,000; approve the Company’s proposed 2020 tariffs
and associated base rates and charges and allow them to go into effect
concurrently with meter readings for the first billing cycle in January 2020;
authorize the Company to account for the revenue impact of the state tax change
from January 1, 2019, to December 31, 2019, through a credit of $4,959,442
through the ECCR clause as part of its true-up filing in 2020; and authorize
the Company to flow back excess accumulated deferred income taxes ($4,265,315
total company net of federal offset) for 2022 and 2023 by crediting one-fifth
of the associated separated, annual revenue requirement amount through the ECCR
clause during those years. The proposed tariffs are shown in Attachment Four to
the petition. (Cicchetti, Draper, Forrest)
Staff Analysis: On September 12, 2019, the Florida Department of Revenue issued a TIP
announcing that the Florida corporate income tax rate was reduced from 5.5
percent to 4.458 percent effective retroactive to January 1, 2019, and would
remain in effect through December 31, 2021.
The TIP indicated that the Florida corporate income tax rate will return
to 5.5 percent effective January 1, 2022.
It also indicated that further reductions in the tax rate are possible
for calendar years 2020 and 2021.
Paragraph 9 of the Company’s 2017 Amended and Restated
Stipulation and Settlement Agreement (2017 Agreement) requires the Company, among
other things, to pass along any tax savings associated with federal or state
tax rate changes within 120 days of when the tax reform becomes law. Paragraph
9 also requires the Company to adjust any SoBRAs, that have not gone into
effect, for any changes to federal or state tax rate changes or other tax
reform. The Company believes that the
2017 Agreement requires the Company to reflect the State Tax Rate Change in its
base rates and charges or otherwise address the impact of the tax rate change
on or before January 10, 2020.
2019 Annual Revenue Requirement
As indicated in the Company’s petition, the net annual
income tax expense reduction for 2019 attributable to the State Tax Rate Change
on a total company basis is $3,965,734 and the retail jurisdictional Net
Operating Income impact is $3,743,288. This amount is based on the Company's calculation of excess accumulated
deferred state tax reserves, the Company's
2019 forecasted earnings surveillance report, the 4.458 percent state
corporate income tax rate effective January 1, 2019, and a 5-year flow-back
period for the excess accumulated deferred state tax reserves. After applying
the appropriate retail separation factors and the effective tax rate gross-up
factor, the annual revenue requirement reduction for 2019 necessary to reflect
the effect of tax reform pursuant to the 2017 Agreement is $4,959,442.
Schedules showing the calculation of these amounts were included with the
Company’s petition.
Staff reviewed the calculations included with the
Company’s petition and recommends the petition be approved. Staff recommends
the Commission approve an annual revenue requirement reduction for 2019 of
$4,959,442 to reflect the state tax rate change. Additionally, staff recommends
the Commission authorize the Company to account for the revenue impact of the
state tax change from January 1, 2019, to December 31, 2019, through a credit
of $4,959,442 through the ECCR clause as part of its true-up filing in 2020.
Additionally, because the "stay out period" specified in the 2017
Agreement ends on December 31, 2021, staff recommends the Commission authorize
the Company to complete the flow back of excess accumulated deferred income
taxes ($4,265,315 total company net of federal offset) for 2022 and 2023 by crediting
one-fifth of the associated
separated, annual revenue
requirement amount through the ECCR
clause during those years using the true up provision in paragraph 9(b) of the
2017 Agreement.
Adjusting the Third SoBRA
Paragraph 9(b) of the 2017 Agreement requires the Company
to "adjust any SoBRAs that have
not yet gone
into effect to
specifically account for
Tax Reform." As indicated in
the Company’s petition, the annual revenue requirement for the Third SoBRA
re-calculated using the 4.458 percent state corporate income tax
rate is $26,452,000, which is $144,000 lower than the amount approved in
the Third SoBRA docket. The Company’s petition showed the revenue requirement
for the Third SoBRA using the new state rate. Staff reviewed the calculations regarding
the revenue requirement for the third SoBRA included with the Company’s
petition and recommends $26,452,000 be approved as the revised revenue
requirement for the Third SoBRA.
Proposed Tariffs and Base Rates
The Company is seeking approval of proposed tariffs and
associated charges that reflect the impact of the decrease of the state
corporate income tax on the utility’s 2019 annual revenue requirement and the
revised Third SoBRA revenue requirement.
The Company’s Third SoBRA and associated tariffs were approved by the
Commission in Order No. PSC-2019-0477-FOF-EI effective January 1, 2020.
However, since as discussed above, the Commission-approved Third SoBRA rates
did not reflect the new state income corporate tax, the Company filed revised
tariffs reflecting an across-the-board reduction in base rates as approved in
Order No. PSC-2019-0477-FOF-EI.
Attachment Four to the petition shows the proposed tariffs
in legislative format. The Company indicated that customers will be notified of
the proposed 2020 base rates and charges, including changes to the cost
recovery clauses, in December bills. Tampa Electric provided staff a copy of
the notice to customers for review. The current 2019 base rate portion of the 1,000
kilowatt-hour (kWh) residential electric bill is $66.53. With approval of the
Third SoBRA rates, the base rate portion of the 1,000 kWh bill increased from
$66.53 to $68.08. With the proposed tariffs as shown in Attachment Four to the
petition, the base rate portion of the 1,000 kWh bill will decrease from $68.08
to $67.76, a $0.32 decrease. Staff notes that Tampa Electric’s total 1,000 kWh
residential bill, including all cost recovery clauses, will decrease in 2020.
Future True-Ups
As noted previously, further reductions in the state
corporate income tax rate are possible for calendar years 2020 and 2021. Also,
the Company’s 2018 excess accumulated deferred state income tax reserves may require
a true-up. Consequently, it is likely that future true-ups will be necessary.
Base Rate Reduction Proposed Agency
Action Approach
In its petition, the Company requested, in light of the
requirement in the 2017 Agreement to make base rate changes within 120 days,
that the petition be given expedited treatment and scheduled for consideration
on or before the December 10, 2019 Commission Conference for disposition on a
proposed agency action (PAA) basis. In
addition, even though it will need to load the 2020 proposed base rates and charges
into its billing system and begin publishing notice of those changes before a
final Commission decision on this petition, the Company requested permission to
implement the reduced 2020 proposed base rates and charges effective with the
first billing cycle in January 2020 and provide notice of proposed base rate
decreases in this petition as "proposed" rate changes consistent with
the normal 30-day customer notice requirement, i.e., before the Commission's
decision on this petition.
Further, the Company requested that if the Commission
approves this petition on a PAA basis on December 10, 2019, and then a
substantially affected party protests the order and, after a hearing, the
Commission adjusts the annual revenue requirement and/or Third SoBRA impacts
proposed in its petition, the Company requested that any resulting revised rate
be put into effect subsequent to such decision with appropriate notice to
customers using the ECCR refund mechanism reflected in paragraph 9(b) of the
petition to account for any such resulting differences between the time the
rates proposed in this petition go into effect and any such revised rates are
put into effect.
Staff recommends that the Company’s request to use the base
rate reduction PAA approach as described above be approved.
Issue 2:
Should this docket be closed?
Recommendation:
No. This docket should remain open through 2022 to
address any associated necessary true-ups. (Brownless)
Staff Analysis:
As noted previously, further reductions in the state
corporate income tax rate are possible for calendar years 2020 and 2021. Also,
the Company’s 2018 excess accumulated deferred state income tax reserves may
warrant a true-up. Consequently, it is likely that future true-ups will be
necessary.
