20180330Idaho Power Company Report.pdf

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An IDACORP Companv
LISA D. NORDSTROM
Lead Counsel
[e-mail]
March 30, 2018
VIA HAND DELIVERY
Diane Hanian, Secretary
ldaho Public Utilities Commission
472 West Washington Street
Boise, ldaho 83702
Re Case No. GNR-U-18-01 - lmpact of Federa! Tax Code Revisions
on Utility Costs and Ratemaking
ldaho Power's Tax Reform lmpact Report and Request for Extension of
Time to File Tariffs
Dear Ms, Hanian
Pursuant to ldaho Public Utilities Commission Order No. 33965 in the above-
referenced case, ldaho Power Company hereby submits an original and four (4) copies
of its Tax Reform lmpact Report. Because the attachment to the report is confidential,
a Protective Agreement is also enclosed. lf the Protective Agreement is satisfactory,
please have the attorney assigned to this case execute the same. Please handle the
confidential information in accordance with the Protective Agreement executed in this
matter.
As described herein, ldaho Power also respectfully requests an extension of the
requirement of Order No. 33965 to file the tariff schedules.
lf you have any questions regarding this filing, please contact Senior Regulatory
Analyst Courtney Waites at [phone] or [e-mail].
Sincerely,
LDN:kkt
Enclosures
Lisa D. Nordstrom
GNR-U-18-01
TAX REFORM IMPACT
IDAHO POWER COMPANY
March 30,2018
Pursuant to ldaho Public Utilities Commission ("Commission") Order No. 33965
issued in Case No. GNR-U-18-01, ldaho Power Company ("ldaho Power" or "Company")
herewith provides the following report identifying and quantifying the income tax changes
resulting from the U.S. Tax Cuts and Jobs Act of 2017 ("2017 Tax Act').
I. BACKGROUND
On December 22,2017, the 2017 Tax Act was signed into law. See Pub. L. No.
115-97,131 Stat 2045. The income tax provisions of the 2017 Tax Act provide for
"reconciliation pursuant to titles ll and V of the concurrent resolution on the budget for
fiscal year 2018." Effective January 1,2018, the 2017 Tax Act lowers the corporate tax
rate to 21 percent from the existing maximum rate of 35 percent, provides for expanded
bonus depreciation, limits the deductibility of interest expense, eliminates alternative
minimum tax, repeals the manufacturing deduction, and imposes additional limitations on
the deductibility of executive compensation.
Public utility companies, such as ldaho Power, retain the fulldeductibility of interest
expense but are no longer eligible for the bonus depreciation provisions; however,
traditional accelerated tax depreciation methods are still available. While the change in
the corporate income tax rate wil! reduce the Company's income tax expense beginning
in 2018, accounting rules required ldaho Power to remeasure deferred income tax assets
and liabilities as of the date of the enactment, significantly reducing net deferred tax
liabilities, as well as causing an increase in income tax expense for 2017.
Page 1 of4
On January 17, 2018, the Commission issued a Notice of lnvestigation in Order
No. 33965 directing all rate-regulated utilities (besides small water companies with less
than 200 customers, and the small electric utility, Atlanta Power) to: (1) immediately
account for the financial benefits from the January 1,2018, tax rate reduction to 21
percent as a deferred regulatory liability, and (2) by Friday, March 30, 2018, file a report
with the Commission identifying and quantifying alltax changes individually.
Order No. 33965 specified that each report must disclose the federal income tax
components for the year 2017, and the federal income tax components if the utility had
been subject to the 2017 Tax Act's revisions to the tax code, including the 21 percent tax
rate. Order No. 33965 at 2. Each utility's report must include proposed tariff schedules
that show the revenue requirement impacts from the 2017 Tax Act, with the differences
between the law in effect on December 31 , 2017, and the law in effect on and after
January 1, 2018. ld. Utilities that operate in ldaho and in other states must separately
calculate system-wide and ldaho-specific figures to show how the 2017 Tax Act impacts
total operations and Idaho operations. /d. An identification and quantification of federal
income tax components that changed as a result of the 2017 Tax Act, as well as changes
that result from the ldaho state tax rate change, is included below and provided in detail
the confidential attachment to this report.
II.IDAHO POWER'S 201 7 PROFORMA ANALYSIS
ldaho Power has performed a 2017 proforma analysis, comparing actual 2017
financial statement income tax expense with a quantification of the impact to the
Company's income tax expense had ldaho Power been subject to the 2017 Tax Act
provisions for the 2017 yeat. The Company's 2017 proforma analysis also includes the
Page2 of 4
changes to the Idaho state tax rate (federal and state changes collectively referred to as
"Tax Reform").
Tax Reform results in a current tax expense reduction, serving as an immediate
cash savings. ln addition to current tax expense reductions, Tax Reform caused
adjustments to 2017 deferred tax expense, reducing amounts customers owe in the
future. Due to ldaho Power's use of flow-through income-tax accounting, which has
historically reduced income tax expense and contributed to lower rates for customers, the
Tax Reform changes may not reduce future deferred income tax expense as significantly
as that of ldaho Power's peer utilities who use fully normalized income tax accounting.
The following summarizes the results of ldaho Power's 2017 proforma analysis,
on a total system and jurisdictional basis, as detailed in the confidential attachment:
Tax Reform lmpact -2017 Proforma Analysis
System ldaho Otherl
Current Tax lmpact (Cash)($15,416,760)($1 1 ,178,487)($4,238,273)
Deferred Tax lmpact (Non-Cash)($15,690,259)($14,918,298)($771,961)
Total Tax Reform lmpact ($31,107,019)($26,096,785)($5,010,234)
1. The "Othe/' category reflects tax benefits apportioned to the Company's other retail and wholesale jurisdictions.
III. RECOMMENDATION
The results of ldaho Power's 2017 proforma analysis indicate expense reductions
exist that may be eligible to be provided to customers pursuant to Order No. 33965. While
in recent years adjustments in tax law that have either increased or decreased income
tax expenses for ldaho Power have been addressed in the Accumulated Deferred lncome
Tax Credit ("ADlTC")/Revenue Sharing mechanism approved by Order Nos. 30978,
32424, and 33149, the Company, Commission Staff, and the lndustrial Customers of
ldaho Power (the "Parties") have been exploring options to provide a rate reduction for
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customers in 2018 outside of the ADITC/Revenue Sharing mechanism. On March 29,
2018, the Parties reached a settlement in principle regarding how Tax Reform benefits
should be provided to customers. As such, ldaho Power respectfully requests an
extension of the requirement of Order No. 33965 to file the resulting tariff schedules
showing the revenue requirement impacts of Tax Reform. lnstead, ldaho Power will file
tariff schedules in conjunction with a settlement stipulation, with a proposed effective date
of June 1,2018, as soon as practicable.
Page 4 of 4
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on the 30th day of March 2018 I served a true and
correct copy IDAHO POWER COMPANY'S TAX REFORM IMPACT REPORT upon the
following named parties by the method indicated below, and addressed to the following:
Commission Staff
Karl Klein
Deputy Attorney General
ldaho Public Utilities Commission
47 2 W est Washington (83702)
P.O. Box 83720
Boise, ldaho 83720-007 4
X Hand Delivered
_U.S. Mail
_Overnight Mail
_FAXX Email [e-mail]
lndustrial Customers of ldaho Power
Peter J. Richardson
Greg Adams
RICHARDSON ADAMS, PLLC
515 North 27th Street (83702)
P.O. Box 7218
Boise, ldaho 83707
_Hand DeliveredX U.S. Mail
_Overnight Mail
_FAXX Email [e-mail]
o req @ rich ardso nad ams. com
Dr. Don Reading
6070 Hill Road
Boise, ldaho 83703
_Hand DeliveredX U.S. Mail
_Overnight Mail
_FAXX Email [e-mail]
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