Tax Issues for Electric Utilities: Impact of Tax Reform, FERC Ratemaking, ADITs, and Other Key Challenges
Interest Deductions, Expensing, NOL, IRS Normalization Rules and Safe Harbors, Regulated Trade or Business Carve-Outs
Course Details
- smart_display Format
On-Demand
- signal_cellular_alt Difficulty Level
- work Practice Area
Energy
- event Date
Tuesday, February 25, 2020
- schedule Time
1:00 p.m. ET./10:00 a.m. PT
- timer Program Length
90 minutes
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This 90-minute webinar is eligible in most states for 1.5 CLE credits.
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This CLE course will provide energy counsel, tax professionals, and advisers an in-depth analysis of complex tax issues for electric utilities. The panel will discuss the impact of tax reform on electric utilities, with a focus on utility accounting challenges and FERC rate making. The panel will also consider regulatory liabilities for excess accumulated deferred income tax (ADIT) balances, regulatory tax planning opportunities, and offer best practices in minimizing tax liabilities and compliance issues for electric utilities.
Mr. Chenoweth is a partner and a member of the firm’s Tax, Private Equity and Energy and Infrastructure practice groups. He simplifies tax aspects of partnership and corporate M&A and joint venture transactions and capital markets activities.
Mr. Jakubiak is a member of Gibson Dunn’s Energy, Regulation and Litigation Practice Group. He counsels clients regarding a broad variety of matters at the Federal Energy Regulatory Commission (“FERC”). Holding a bachelor’s degree in quantitative economics, Mr. Jakubiak’s practice focuses on matters at the crossroads of law and economics, particularly electric company mergers and power sales, transmission rates, energy market manipulation, and the workings of energy markets. He has a deep understanding of the methodologies used by FERC to set returns on equity and to analyze generation market power, and has developed proprietary quantitative analytical tools that he uses to advise clients on electric asset transactions, market-based rate authorizations, and litigation risk.
Ms. Johnston is a national tax partner of EY America’s Power & Utilities Tax Practice serving clients, industry groups, regional teams throughout the US, Canada, Mexico to deliver sustainable value for tax operations. She has 28 years of energy sector experience in corporate tax, including experience leading tax efficient M&A strategies, legislative advocacy efforts, regulatory proceedings, audit settlement negotiations, tax operational effectiveness redesigns, and merger integration and divesture plans. Ms. Johnston serves investor-owned utilities and midstream companies on complex regulatory taxation matters impacting FERC and State Public Utility Commission proceedings, including serving as an expert tax witness.
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.
- Key tax reform provisions impacting electric utilities
- FERC activities after tax reform impacting electric utilities
- ADIT balances within regulated trade or businesses (i.e. utilities)
- Other critical tax liability and compliance issues
The panel will review these and other key issues:
- What are the key tax reform provisions impacting electric utilities?
- What are the available techniques to ensure compliance with applicable tax rules?
- What are the IRS normalization rules and safe harbors (Rev. Rul. 2017-47 and Notice 2019-33)?
- What is the impact of excess ADIT for electric utilities?
- What actions have FERC taken in response to tax reform impacting electric utilities and what obligations have resulted?
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