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| Montana Administrative Register Notice 38-5-236 | No. 6 03/24/2017 | |
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BEFORE THE DEPARTMENT OF PUBLIC SERVICE REGULATION OF THE STATE OF MONTANA
TO: All Concerned Persons:
1. On April 18, 2017, at 1:30 p.m., the Department of Public Service Regulation will hold a public hearing in the Bollinger Room, 1701 Prospect Avenue, Helena, Montana, to consider the proposed adoption of the above-stated rules.
2. The Department of Public Service Regulation will make reasonable accommodations for persons with disabilities who wish to participate in this rulemaking process or need an alternative accessible format of this notice. If you require an accommodation, contact the Department of Public Service Regulation no later than 5:00 p.m. on April 13, 2017, to advise us of the nature of the accommodation that you need. Please contact Sandy Scherer, Department of Public Service Regulation, 1701 Prospect Avenue, Helena, Montana, 59620-2601; telephone (406) 444-6199; fax (406) 444-7618; TDD/Montana Relay Service (406) 444-4212; or e-mail [email protected].
3. The rules proposed to be adopted provide as follows:
NEW RULE I Applicability (1) This subchapter is applicable to electric and natural gas public utilities. (2) Except where otherwise provided, a utility shall comply with the minimum filing standards of this subchapter whenever it files for a rate schedule change pursuant to 69-3-302 or 69-3-308, MCA which incorporates changes in Montana state and local tax expense, except that this subchapter does not apply to rate schedules filed to adjust for the Public Service Commission tax or the Montana Consumer Counsel tax. (3) Filings made pursuant to 69-3-308, MCA are exempt from the filing requirements of ARM 38.5.101 to 38.5.195.
REASON: Adoption of New Rule I is necessary to allow the department to establish minimum filing requirements for a utility application that is filed pursuant to 69-3-308, MCA for the automatic rate adjustment and tracking for taxes and fees. The statute currently provides the commission forty-five days to review and address any errors with the application. In administering the statutory requirements the commission has found that a comprehensive review of a utility's application in this time frame is challenging especially without certain information filed as part of the utility's application. Therefore it is necessary for the commission to implement rulemaking to establish minimum filing requirements for these applications pursuant to the authority granted to it by 69-3-310, MCA. The commission currently has minimum filing requirements for other utility applications that under statute allow the commission up to nine months to review. This new rule will also make clear that the more expansive minimum filing requirements of ARM 38.5.101 to 38.5.195, which apply to rate applications of over $100,000 in size, do not apply to applications under 69-3-308, MCA. The commission has not historically enforced these existing administrative requirements to applications under 69-3-308, MCA, but will consider doing so as an alternative to this proposed rule, if it is not adopted.
NEW RULE II ELECTRONIC INFORMATION – LETTER OF TRANSMITTAL (1) The utility shall include with the request for a rate adjustment all files in an easily readable electronic format, which, if applicable, shall have all digital links intact. (2) The letter of transmittal with respect to a filing for a new or existing tariff to provide for an adjustment of state and local taxes and fees under 69-3-308, MCA shall: (a) List the documents submitted with the filing; (b) State the names and addresses of those to whom copies of the rate schedule have been mailed; (c) Include a brief description of the proposed changes in service or rate and charge; (d) State the reasons for the proposed changes; (e) State the estimated number of customers whose cost of service will be affected and annual amounts of either increases or decreases, or both, in cost of service to such customers; (f) Name an employee of the utility who shall be responsible for answering questions concerning the application, or for referring inquiries to appropriate members of the utility staff; (g) Include a clear statement of the relief requested; (h) Include a table or spreadsheet showing each rate affected by the rate adjustment, including the rate as it currently exists, the incremental change due to the tracker, the proposed total rate, and the portion of the rate attributable to tax; and (i) Propose revised tariffs that would be affected by the rate adjustment, including both clean and red-lined copies.
REASON: Adoption of New Rule II is necessary to allow the department to obtain necessary initial information with a utility application under 69-3-308, MCA, in a manner which largely conforms with the transmittal letter requirement that other utility rate applications are subject to in ARM 38.5.101. In previous applications under 69-3-308, MCA, utilities have submitted ambiguous information about consumer impacts, or have not submitted revised tariff editions encapsulating the rate changes sought, or have been unclear about the time period of the effectiveness of the rate changes being proposed. This new rule is necessary to clarify the practice that governs the filings made under 69-3-308, MCA. Additionally, the requirement to include electronic files including spreadsheets with intact digital links under 69-3-302 and 69-3-308, MCA, will allow the commission to review the utility's analysis upon the utility's filing. For applications made under 69-3-308, MCA, the timely receipt of this information is important to ensure no errors are contained and that there are no omissions within the application, which by statute the commission must do within forty-five days.
NEW RULE III PRE-FILED TESTIMONY (1) The application made under 69-3-308, MCA, by a utility shall include the pre-filed testimony of a witness or witnesses. If the testimony of more than one witness is presented, the utility will identify one witness who is responsible for certifying by affidavit, and if necessary under oath at hearing, the accuracy and completeness of the statements contained in the filing.
IMP: 69-3-202, 69-3-205, 69-3-308, MCA
REASON: Adoption of New Rule III is necessary to allow the department to obtain necessary initial pre-filed testimony with the utility application. The inclusion of testimony will allow the commission to review the utility's analysis in a timely manner to make sure no errors exist in its application and a decision can be reached within the forty-five-day time period set out in statute. It will also ensure that the utility identifies an employee or officer responsible for verifying the accuracy of the statements required by the commission in the other new rules proposed in this notice.
NEW RULE IV Expense and Revenue Adjustment Work Papers (1) The application for automatic adjustment for Montana state and local taxes and fees, excluding income taxation, provided for under 69-3-308, MCA shall include: (a) The projected changes in taxes from the prior year; (b) The true-up of the prior year's actual revenue attributable to taxes versus actual taxes; (c) The extinguishment of deferred balances. (2) Revenues attributable to the component of existing rates attributable to Montana state and local taxes and fees shall be calculated, including the revenues earned and projected to be earned by: (a) rates authorized by the Montana Public Service Commission; (b) rates authorized by the Federal Energy Regulatory Commission (FERC); (c) rates authorized by other state utility commissions, to the extent that Montana state and local taxes and fees are allocated to those jurisdictions; (d) charges made by the utility, its affiliates, or its parent for services which are not regulated but on which the utility is assessed Montana state and local taxes and fees, including but not limited to non-regulated gas gathering and production activities. (3) The adjustment shall reflect the impact from the deductibility of incremental or decremental expense of Montana state and local taxes and fees on a utility's income taxation.
IMP: 69-3-201, 69-3-202, 69-3-308, MCA
REASON: Adoption of New Rule IV is necessary to allow the department to establish minimum filing requirements for the information which will allow the commission to ascertain whether actual revenues and expenses and projected revenues and expenses will affect the adjustment for taxes contemplated in 69-3-308, MCA, and result in just and reasonable rates pursuant to 69-3-201, MCA. Some of this information has traditionally been submitted together with a utility's initial application, while other parts have been obtained only during the discovery process, which imposes a burden on the commission and others because of the proceeding's forty-five-day time period provided for in statute. To the degree this new rule provides for new bookkeeping and accounting requirements, it implements 69-3-202, MCA.
NEW RULE V Jurisdictional FERC Allocations for Taxes (1) For Montana state and local taxes and fees, excluding income taxation, allocated to rates collected under FERC tariffs: (a) The utility shall disclose and explain the present allocation methodology of the expense to retail and wholesale customers. (b) The utility will identify in a table a list of all property which is subject to a jurisdictional allocation between retail and wholesale customers by: (i) plant type and location; (ii) value in rate base, on an original cost less depreciation basis; (iii) value as part of property-tax valuation, as allocated to taxing jurisdictions, derived from the Montana Department of Revenue's unit valuation and the allocation to local taxing jurisdictions; and (iv) the total amount of tax expense for each property listed. (c) If the taxing jurisdiction does not disclose or specifically identify the amount of tax expense allocated or assessed to property by type, the utility will disclose as such and will use an appropriate allocator consistent with prior commission orders or with its own internal practice. (d) The utility will indicate the last time it has filed at FERC a general rate case or a case specific to a service offered under its open access transmission tariff, and describe how tax expense was incorporated into its rate proposal and, if specified, the FERC's final determination of rates. (e) The utility will present information for allocation methodologies, regardless of which is proposed or adopted for current use. These shall include at a minimum: (i) the revenue produced under FERC rates which is attributable to Montana state and local tax and fee expense, calculated on the basis of the percentage of the last-approved revenue requirement which was attributable to this expense; and (ii) a calculation of the usage of the assets subject to state and local taxes and fees by retail customers and by wholesale customers, with an allocation of the associated tax expense to the wholesale and retail customers of the utility on a basis consistent with that usage, employing: (A) a twelve-coincident-peak methodology; and (B) an energy-and-demand methodology. (f) The commission may request an additional study to allocate this expense on another basis. (g) A utility that does not collect any revenues under FERC tariffs will file a statement certifying accordingly.
IMP: 69-3-201, 69-3-202, 69-3-302, 69-3-308, MCA
REASON: Adoption of New Rule V is necessary to allow the department to evaluate a utility's allocation of Montana state and local taxes and fees, excluding income taxation, to properties which are paid for under both rates established by the department and by the FERC, such as electric transmission lines. The inclusion of this minimum filing requirement is necessary for the commission to verify that no errors exist in the utility's application under 69-3-308, MCA, and that there is a sufficient evidentiary basis for the commission to approve rates that are applied for under 69-3-302, MCA.
NEW RULE VI Jurisdictional Allocations for Taxes (1) For Montana state and local taxes and fees and for other state taxes, excluding income taxation, which are allocated to rates authorized by the commission and by other state utility commissions: (a) The utility shall disclose and explain the allocation methodology of these expenses to Montana customers and to customers of other states; (b) The utility shall provide a statement including data for the last three years and for the coming year, which: (i) discloses the amount of revenue attributable to tax expense collected in each jurisdiction under existing rates; (ii) discloses the actual tax expense attributable to each jurisdiction under the last approved allocation methodology of the commission; and (iii) provides an estimate of the amount of revenue attributable to these taxes the utility had projected to earn based on the tax expense in rates of its last general rate case filings in those jurisdictions, inflated or deflated by the projected growth in sales volumes of units whose rates include tax-related expense. (2) For the purposes of making findings on questions of jurisdictional separations for the purposes of including tax expense into rates, the commission, upon evaluating the information provided pursuant to this section and other information which it may possess, may find errors that lead to adjustments in rates for reasons including, but not limited to, the following: (a) that an allocation methodology inaccurately allocates the expense or the revenue, or both, to customers of different jurisdictions; or (b) that revenues from other jurisdictions' customers are sufficient to satisfy the utility's liability for Montana state and local taxes and fees.
IMP: 69-3-201, 69-3-202, 69-3-302, 69-3-308, MCA
REASON: Adoption of New Rule VI is necessary to allow the department to verify the amount of tax expense collected and projected to be collected in each jurisdiction under existing allocations and rates for property of a multi-jurisdictional utility which is used to serve customers in multiple states, such as an electric generating unit which serves customers on a multi-state integrated grid. The inclusion of this minimum filing requirement is necessary for the commission to verify that no errors exist in the utility's application under 69-3-308, MCA, and that there is sufficient evidentiary basis for the commission to approve rates that are applied for under 69-3-302, MCA.
NEW RULE VII Income Taxation (1) To account for the deductibility of tax expense from the utility's income tax liability when filing for an automatic rate adjustment for Montana state and local taxes and fees, the utility will multiply the statutory income tax rate by the incremental change in Montana state and local tax expense. The product of this multiplication is the amount of the income tax benefit, positive or negative, that results from the automatic rate adjustment for Montana state and local taxes and fees. (2) Together with an application for automatic adjustment for Montana state and local taxes and fees filed pursuant to 69-3-308, MCA or with a change in rate schedules filed pursuant to 69-3-302, MCA the utility shall: (a) provide its last three annual income tax filings for both the federal and Montana jurisdictions; (b) file a request for a protective order no later than three weeks before such a rate filing is made, if the utility desires to exercise its right under federal law to keep its income tax filing confidential; and (c) file a statement which: (i) discloses the amount of revenue attributable to the component of existing commission rates attributable to federal and state income taxes; (ii) identifies the total income tax expense associated with or allocated to the customers paying those commission rates; (iii) indicates any amount of tax benefit or liability which is normalized pursuant to federal or state laws or regulations; (iv) indicates any amount of tax benefit or liability which is normalized voluntarily, at the utility's option, and not because it is required pursuant to federal or state laws or regulations; and (v) provides a spreadsheet or other information documenting a cost-benefit analysis for customers regarding the utility's election for a tax treatment that prohibits flow-through and requires normalization.
IMP: 69-3-201, 69-3-202, 69-3-302, 69-3-308, MCA
REASON: Adoption of New Rule VII is necessary to allow the department to verify that the utility appropriately accounted for the deductibility of tax expense from the utility's income tax liability when filing an application pursuant to 69-3-308, MCA. Additionally, it is necessary because it establishes a requirement for the pre-filing of a request for protective order for income tax return information which is statutorily protected from public disclosure in order to streamline the processing of utility rate cases under 69-3-302 and 69-3-308, MCA, which implicate income taxes. Finally, the rule imposes an ongoing bookkeeping requirement to track the total expense collected from consumers to offset income taxes versus the total present-day and deferred actual income tax liability of the regulated firm. This requirement is necessary because federal policy allows utilities to claim tax benefits which cannot be flowed through to customers, and it is necessary to keep a record of the accounts so that the information can be used in rate cases where adjustments to utility rate base and income tax expense are proposed.
NEW RULE VIII ATTRIBUTION OF TAX TO PLANT (1) Together with an application for an automatic rate adjustment for Montana state and local taxes and fees under 69-3-308, MCA, a utility will identify the allocation of Montana state and local taxes and fees to plant by: (a) identifying the total amount of plant additions, by plant type and location, where the commission approved a revenue requirement which included, as part of that requirement, a specified amount of return of and on capital investment in this plant; (b) identifying the total amount of plant additions, by plant type and location, where a utility has proposed such plant in a general rate case held pursuant to 69-3-302, but which had a stipulated result which did not result in a commission determination of the total rate base value of company plant, the utility will indicate this plant in the statement; (c) identifying the total amount of plant additions, by plant type and location, where a utility has added such plant after the twelve months following the test year pursuant to ARM 38.5.106 and 38.5.124; (d) identifying the total amount of construction work in progress which is taxed; (e) identifying any property that the utility considers to be not used and useful pursuant to ARM 38.5.128 which is taxed. (2) In making the allocation of taxes to plant type, the utility will identify and explain its methodology, which may be informed by both the books and records of the utility company's capital investments and by the allocation of value to taxing jurisdictions by governmental authorities and by other factors the utility and the commission consider reasonable. (3) For the purpose of this rule, a utility may aggregate plant entries that are individually less than $10,000 into categories, so long as the plant entries which are aggregated resemble each other in function and use.
IMP: 69-3-109, 69-3-201, 69-3-202, 69-3-308, MCA
REASON: Adoption of New Rule VIII is necessary to allow the department to review and verify the inclusion of state and local taxes included in the application that a utility allocates to various plant. The rule is necessary to provide the commission visibility into how a utility takes its valuation from the Montana Department of Revenue and its assessments from various taxing entities and then proceeds to allocate those taxes for internal bookkeeping and public utility ratemaking purposes to particular plant. Additionally, the submission of this information is necessary for the commission to determine whether the utility's application appropriately includes the taxes for specific utility plant based on whether the plant has or has not been actually used and useful to customers and has been approved as part of the utility's rate base at a declared value pursuant to 69-3-109, MCA, in a proceeding establishing rates that collect for return and expenses associated with such property.
NEW RULE IX Valuation and Protests (1) A utility will file the past five years' tax valuations from the Montana Department of Revenue. (2) A utility will pre-file direct testimony explaining how the valuation methodology of the Montana Department of Revenue has changed from the last time a rate schedule change incorporating tax expense was filed. (3) A utility for which other governmental authorities responsible for taxation make an appraisal of the utility's value will submit the latest appraisal of all entities that make such a valuation together with their submission of the Montana Department of Revenue valuation. (4) The utility will describe any informal or formal protests for its valuation or its tax expense that it has filed with any jurisdiction. (5) For the purposes of complying with 69-3-308(2)(a)(i)(C), MCA a utility will provide a statement or table of adjustments made for the resolution of property taxes paid under protest. If there are none, it will file a statement indicating as such.
IMP: 69-3-106, 69-3-109, 69-3-302, 69-3-308, MCA
REASON: Adoption of New Rule IX is necessary to allow the department to obtain information that can be used to compare or reconcile the tax valuation the Montana Department of Revenue undertakes to the process the commission undertakes for purposes of utility ratemaking. Additionally, it is necessary for the commission to possess information involving the resolution of property taxes paid under protest for the purposes of the commission's review under 69-3-308, MCA.
NEW RULE X Allocation of taxes and fees – rate design (1) A utility's application under 69-3-308, MCA, must include testimony and work papers showing the allocation of an adjustment to Montana state and local taxes and fees to each of the utility's customer classes. Testimony must include a thorough description of and justification for the allocation method(s). (2) A utility's application must include testimony and work papers showing the derivation of rate adjustments provided for in [NEW RULE II(2)(i)]. Testimony must include a thorough description and justification for the requested rate design. Work papers must include an analysis showing customer bill impacts, by customer class, for various usage levels typical for the customer class.
REASON: Adoption of New Rule X is necessary to allow the department to establish minimum filing requirements which include testimony and the associated work papers necessary for the commission to verify errors, if any, in the utility's allocation of state and local taxes and fees to the utility's customer classes. The submission of bill impacts is necessary for the commission to ensure that the allocation methodology results in just and reasonable rates and will not disproportionately impact one customer class.
NEW RULE XI TAXES EXCLUDED (1) A utility will disclose any taxes or fees assessed by taxing jurisdictions within the state of Montana which are not Montana state or local taxes or fees under the statutory definition included within 69-3-308, MCA.
IMP: 69-3-201, 69-3-202, 69-3-308, MCA
REASON: Adoption of New Rule XI is necessary to allow the department to verify that all taxes and fees included in a utility's application meet the statutory requirements for inclusion pursuant to 69-3-308, MCA and there are no errors in the application.
NEW RULE XII REQUIREMENTS FOR THE SUBMISSION OF OMITTED INFORMATION (1) For utility applications made pursuant to 69-3-308, MCA if a utility has not complied with the minimum filing standards of this subchapter or has otherwise failed to provide information as provided for in the proceeding to consider the filing, the commission may order within forty-five days of receipt of the utility's application that the utility address these omissions and continue the proceeding until they are addressed. (2) For utility applications made pursuant to 69-3-302, MCA, a filing made by a utility which does not include the information required by this subchapter, the remedies provided for in ARM 38.5.184 apply. (3) This rule does not affect the commission's ability to pursue the remedies provided for in 69-3-206 and 69-3-208, MCA.
IMP: 69-3-202, 69-3-302, 69-3-206, 69-3-208, 69-3-308, MCA
REASON: Adoption of New Rule XII is necessary to allow the department to enforce the minimum filing requirements set out in the above-proposed rules. If the utility has not complied with the minimum filing requirements or does not provide sufficient information during the proceeding, the commission may order within forty-five days of the receipt of the application that the utility address these omissions. Such an order would not impact the automatic rate implementation of interim rates on January 1st of each year, but would allow the commission to make findings relative to the rate proposal after the information is finally submitted. For applications under 69-3-302, MCA, with its longer timeline, the new rule cross-references the rule addressing deficient filings within the existing subchapter governing the minimum information standards for such applications.
4. Concerned persons may submit their data, views, or arguments either orally or in writing at the hearing. Written data, views, or arguments may also be submitted to: Sandy Scherer, Department of Public Service Regulation, 1701 Prospect Avenue, Helena, Montana, 59620-2601; telephone (406) 444-6170; fax (406) 444-7618; or e-mail [email protected], and must be received no later than 5:00 p.m., April 25, 2017.
5. The commission, a commissioner, or a duly appointed presiding officer may preside over and conduct the hearing.
6. The department maintains a list of interested persons who wish to receive notices of rulemaking actions proposed by this agency. Persons who wish to have their name added to the list shall make a written request that includes the name, e-mail, and mailing address of the person to receive notices and specifies for which program the person wishes to receive notices. Notices will be sent by e-mail unless a mailing preference is noted in the request. Such written request may be mailed or delivered to the contact person in paragraph 2 above or may be made by completing a request form at any rules hearing held by the department.
7. An electronic copy of this proposal notice is available through the Secretary of State's web site at http://sos.mt.gov/ARM/Register. The Secretary of State strives to make the electronic copy of the notice conform to the official version of the notice, as printed in the Montana Administrative Register, but advises all concerned persons that in the event of a discrepancy between the official printed text of the notice and the electronic version of the notice, only the official printed text will be considered. In addition, although the Secretary of State works to keep its web site accessible at all times, concerned persons should be aware that the web site may be unavailable during some periods, due to system maintenance or technical problems.
8. The bill sponsor contact requirements of 2-4-302, MCA, apply and the primary sponsor of the bill has been contacted by phone.
9. With regard to the requirements of 2-4-111, MCA, the department has determined that the adoption of the above-referenced rules will not significantly and directly impact small businesses.
/s/ JUSTIN KRASKE /s/ BRAD JOHNSON Justin Kraske Brad Johnson Rule Reviewer Chairman Department of Public Service Regulation
Certified to the Secretary of State March 13, 2017.
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A directory of state agencies is available online at http://www.mt.gov/govt/agencylisting.asp.
For questions about the organization of the ARM or this web site, contact [email protected].
