Tax consequences of federal health care reform cited in DPUC’s decision

July 22, 2010 - Weekly Update From Utility Regulatory News #3977: Although acknowledging that the local economy remained sluggish, and that an electric utility seeking additional revenues already had among the highest rates in the country, the Connecticut Department of Public Utility Control (DPUC) has nevertheless authorized the utility, Connecticut Light & Power Co. (CL&P), to raise its rates by more than $100 million over the next two years.

The department explained that the company had demonstrated that it actually had postponed its rate filing by a year out of sensitivity toward its ratepayers and that it also had forgone claims for certain expenses for the same reason. According to the DPUC, the poor economy has taken a toll on the utility, not just its customers, such that a rate increase was warranted. In fact, despite trimming some of CL&P’s operational expenses, it actually boosted one cost category, that of vegetation management. The DPUC said that it was important to keep power lines cleared of overgrown trees so as to reduce the number and duration of service outages caused by downed power lines.

The department also found that certain accounting changes required under the federal government’s new health care reform bill would affect the utility’s tax liabilities. Because that new law eliminates the corporate tax deduction for expenses allocable to Medicare Part D subsidies beginning in 2013, CL&P will not be able to realize tax benefits associated with certain deferred tax assets already on its books.

Even though those changes will not take effect until after the instant rate-effective period ends, the DPUC agreed that it would be appropriate to create a regulatory asset now to reflect the total projected impact of the reform legislation. Subscribe to URN for the full story.