UNS Electric, Inc. Tax Adjustment Plan of Administration

Transcription

1 Tax Adjustment Plan of Administration 1. GENERAL DESCRIPTION The purpose of the Tax Adjustment is to address changes in the Company s federal income tax rate until such changes are reflected in the Company s next general rate case. The savings will be returned through a combination of (i) a per kilowatt-hour ( kwh ) bill credit for all customer classes and (ii) a regulatory liability that reflects the deferral of the return of a portion of the savings (which will be returned to customers in the Company s next rate case). The initial Tax Adjustment shall go into effect for a 7-month period beginning with the June 2018 billing cycle. UNS Electric shall make an annual informational filing with Docket Control ( Informational Filing ) no later than October 1 st of each year that includes its Tax Adjustment for the next January to December 12-month period based on the federal income tax rate in effect for the calendar year and expected sales for the 12-month bill credit period. The Tax Adjustment will also include a balancing account for estimates of (i) differences in actual kwh sales versus forecasted sales from the preceding 12-month bill credit period, (ii) differences in the actual versus forecasted excess deferred income tax ( EDIT ) amortization resulting from adjustments to accumulated deferred income taxes ( ADIT ) related to the change in the income tax rate for the applicable calendar year, and (iii) changes, if any, in the effective federal income tax rate. The Tax Adjustment shall be terminated on the effective date of new rates in the Company s next rate case. Upon termination of the Tax Adjustment, any remaining amounts that have not been returned to customers will be reflected in the regulatory liability to be returned to Customers in the Company s next rate case. 2. CALCULATION OF TAX ADJUSTMENT The calculation of the Tax Adjustment is set forth in Table 1 below and in the attached schedules. The tax savings to be returned to customers starting in June 2018 will include the direct tax savings resulting from the tax rate change plus an estimate of the EDIT amortization resulting from adjustments to ADIT related to the change in the federal income tax rate. The per kwh bill credit will be calculated based on these calendar year 2018 tax savings and the estimated kwh sales for the initial 7-month bill credit period ( 7 of Table 1). For 2019 (and subsequent years), the tax savings to be returned to customers will be calculated as for 2018 and will reflect the effective federal income tax rate applicable for that tax year. In addition, a balancing account will be used to true up the actual EDIT impact and the difference between forecasted and actual kwh sales for the preceding calendar year ( 2 of Table 1). 1 P age

2 The bill credit portion of the Tax Adjustment shall be 75% in 2019, 50% in 2020, and shall remain at 50% until the effective date of new rates in UNS Electric s next rate case ( 4 of Table 1). In Years 2 and 3 (and until new rates become effective in the Company s next rate case), the portion of the Tax Adjustment not returned to customers as a bill credit will be deferred and returned to customers in the Company s next rate case (s 8 and 10 of Table 1). The deferred amounts shall accrue interest at an annual rate of 4.66% ( 9 of Table 1). TABLE 1 Jun. 1, Dec For Illustrative Purposes Only Jan. 1, Dec. 31, 2019 Jan. 1, Dec. 31, Gross Tax Adjustment $ 3,843 $ 3,843 $ 3,843 2 Total Balancing Account N/A Net Annual Tax Adjustment ( 1 + 2) $ 3,843 $ 3,843 $ 3,843 4 Bill Credit % 100% 75% 50% 5 Total Annual Tax Adjustment $ 3,843 $ 2,882 $ 1,922 6 Forecasted Credit Period Retail Sales (MWh) 1,610,718 1,620,161 1,645,864 7 Annual $/kwh Credit ( 3 / 6) $ $ $ Total Deferred Tax Adjustment ( 3 5) $ - $ 961 $ 1,922 9 Accrued Interest $ - $ - 10 Accumulated Deferred Tax Adj. ( 8 + 9) $ - $ 961 $ 2, FILING AND PROCEDURAL DEADLINES UNS Electric will file the Informational Filing, which includes the Tax Adjustment for the coming 12-month period and all supporting data and documentation used in calculating the bill credit, with the Commission each year no later than October 1. The Informational Filing shall also include the current balance of the deferred tax savings that will be credited to customers in the Company s next rate case. The Tax Adjustment proposed in the Informational Filing shall be effective in the first billing cycle in January. 2 P age

3 Schedule 1 ANNUAL TAX ADJUSTMENT $PER KWH CREDIT FOR JUNE 1, 2018 TO DECEMBER 31, 2018 Current Year Ending 12/31/2018 Annual Tax Adjustment $per kwh Credit Reference Jun 1, Dec. 31, 2018 For Illustrative Purposes Only Jan 1, Dec. 31, 2019 Jan 1, Dec. 31, Gross Tax Adjustment Schedule 3, A-1, 12 $ (3,843) $ (3,843) $ (3,843) 2 Total Balancing Account Schedule 2, Net Annual Tax Adjustment $ (3,843) $ (3,843) $ (3,843) 4 Bill Credit % 100% 75% 50% 5 Total Annual Tax Adjustment $ (3,843) $ (2,882) $ (1,922) 6 Forecasted Credit Period Retail Sales (MWh) Company Records 1,032,893 1,615,279 1,639,896 7 Annual $/kwh Credit 5 / 6 $ (0.0037) $ (0.0018) $ (0.0012) 8 Total Deferred Tax Adjustment 3-5 $ - $ (961) $ (1,922) 9 Accrued Interest* Accumulated Deferred Tax Adjustment $ - $ (961) $ (2,882) * UNS Electric, Inc. shall accrue interest on tax savings deferred as a regulatory liability at an annual interest rate of 4.66%.

4 Schedule 2 BALANCING ACCOUNT Current Year Ending 12/31/2018 (A) (B) (C) Current Year Balancing Account Reference $ Previous Filing Schedule 1 1 Prior Period Annual Adjustment 5 2 Accumulated & Deferred Income Tax Estimate (a) Update Previous Filing 3 Amount Applied to Customer's Bills in Prior Period (b) Company Records 4 Balancing Account (a) Represents any difference between prior period annual tax adjustment credit and actual tax adjustment credit pass to customers. (b) Represents the amount applied to customers for the prior year approved credit period. True-up is the result of utilizing forecasted jurisdictional retail sales for the credit period.

5 Schedule 3-A1 COMPUTATION OF GROSS REVENUE REQUIREMENTS ACC JURISDICTION Description Original Cost RCND Fair Value (A) (B) (C) 1 Adjusted Rate Base $ 270,293 $ 437,710 $ 354,001 2 Adjusted Operating Income 11,543 11,543 11,543 3 Current Rate of Return 4.27% 2.64% 3.26% 4 Required Operating Income 19,509 19,509 19,509 5 Required Rate of Return on OCRB 7.22% 4.46% 5.51% 6 Adjusted Operating Income Deficiency on OCRB 7,966 7,966 7,966 7 Gross Revenue Conversion Factor Increase/(Decrease ) in OCRB Revenue Requirements $ 10,695 $ 10,695 $ 10,695 9 After Tax Return on Fair Value Increment Revised Increase/(Decrease) in Base Revenue Requirements $ 11, Less: Approved Increase in Base Revenue Requirements 15, Tax Expense Adjustment - Increase/(Decrease) in Base Revenue Requirements $ (3,843) (A) Source: Schedule 3-B1 (1) (F), Schedule 3-C1 (2) (B) Source: Schedule 3-B1 (2) (F), Schedule 3-C1 (2) (C) Calculation

6 Schedule 3-B1 (1) SUMMARY OF ORGINAL COST RATE BASE ELEMENTS TOTAL COMPANY AND ACC JURISDICTION Total Company Original Cost ACC Description Pro Formas Adjusted Pro Formas Adjusted (A) (B) (C) = (A) + (B) (D) (E) (F) = (D)+ (E) 1 Gross Utility Plant in Service $ 677,165 $ - $ 677,165 $ 567,545 $ - $ 567, Less: Accumulated Depreciation & Amortization 283, , , , Net Utility Plant in Service $ 393,519 $ - $ 393,519 $ 306,682 $ - $ 306,682 3 Deductions: 4 Customer Advances for Construction $ (3,833) $ - $ (3,833) $ (3,833) $ - $ (3,833) 4 5 Customer Deposits (4,428) - (4,428) (4,428) - (4,428) 5 6 Other (422) - (422) (422) - (422) 6 7 Accumulated Deferred Investment Tax Credits Accumulated Deferred Taxes (36,819) - (36,819) (35,161) - (35,161) 8 9 Total Deductions $ (45,502) $ - $ (45,502) $ (43,844) $ - $ (43,844) 9 Additions: 10 Regulatory Assets $ - $ - $ - $ - $ - $ Allowance for Working Capital * 7,792-7,792 7,454-7, Other Total Additions $ 7,792 $ - $ 7,792 $ 7,454 $ - $ 7, Total Rate Base $ 355,810 $ - $ 355,810 $ 270,293 $ - $ 270, * The tax savings would have an immaterial impact on cash working capital. For simplicity, the Company chose to exclude from this calculation.

7 Schedule 3-B1 (2) SUMMARY OF RCND RATE BASE ELEMENTS TOTAL COMPANY AND ACC JURISDICTION Total Company RCND ACC Description Pro Formas Adjusted Pro Formas Adjusted (A) (B) (C) = (A) + (B) (D) ( E) (F) = (D)+ (E) 1 Gross Utility Plant in Service $ 1,154,781 $ - $ 1,154,781 $ 996,219 $ - $ 996, Less: Accumulated Depreciation & Amortization 521, , , , Net Utility Plant in Service $ 633,518 $ - $ 633,518 $ 503,990 $ - $ 503,990 3 Deductions: 4 Customer Advances for Construction $ (4,268) $ - $ (4,268) $ (4,268) $ - $ (4,268) 4 5 Customer Deposits (4,428) - (4,428) (4,428) - (4,428) 5 6 Other (422) - (422) (422) - (422) 6 7 Accumulated Deferred Investment Tax Credits Accumulated Deferred Taxes (67,663) - (67,663) (64,616) - (64,616) 8 9 Total Deductions $ (76,781) $ - $ (76,781) $ (73,734) $ - $ (73,734) 9 Additions: 10 Regulatory Assets $ - - $ - $ - - $ Allowance for Working Capital * 7,792-7,792 7,454-7, Other Total Additions $ 7,792 $ - $ 7,792 $ 7,454 $ - $ 7, Total Rate Base $ 564,529 $ - $ 564,529 $ 437,710 $ - $ 437, * The tax savings would have an immaterial impact on cash working capital. For simplicity, the Company chose to exclude from this calculation.

8 Schedule 3-B2 ORGINAL COST RATE BASE PRO FORMA ADJUSTMENTS Accumulated & Deferred Income Tax Adjusted at End of Test Year 12/31/2014 Impact Test Year 12/31/2014 Description Total Company ACC Total Company ACC Total Company ACC (A) (B) (C) (D) (E)=(A) - (C) (F) = (B)-(D) 1 Gross Utility Plant in Service $ 677,165 $ 567,545 $ 677,165 $ 567,545 $ - $ Less: Accumulated Depreciation & Amortization 283, , , , Net Utility Plant in Service $ 393,519 $ 306,682 $ 393,519 $ 306,682 $ - $ Total Deductions $ (45,502) $ (43,844) $ (45,502) $ (43,844) $ - $ Total Additions 7,792 7,454 7,792 7, Total Rate Base $ 355,810 $ 270,293 $ 355,810 $ 270,293 $ - $ - 6

9 Schedule 3-B3 RCND RATE BASE PRO FORMA ADJUSTMENTS Accumulated & Deferred Income Tax Adjusted at End of Test Year 12/31/2014 Impact Test Year 12/31/2014 Description Total Company ACC Total Company ACC Total Company ACC (A) (B) (C) (D) ( E)=(A) - (C) (F) = (B) - (D) 1 Gross Utility Plant in Service $ 1,154,781 $ 996,219 $ 1,154,781 $ 996,219 $ - $ Less: Accumulated Depreciation & Amortization 521, , , , Net Utility Plant in Service $ 633,518 $ 503,990 $ 633,518 $ 503,990 $ - $ Total Deductions $ (76,781) $ (73,734) $ (76,781) $ (73,734) $ - $ Total Additions 7,792 7,454 7,792 7, Total Rate Base $ 564,529 $ 437,710 $ 564,529 $ 437,710 $ - $ - 6

10 Schedule 3-C1 (1) TOTAL COMPANY ADJUSTED TEST YEAR INCOME STATEMENT Description Total Company Test Year Ended 12/31/2014 Proforma Adjustments Adjustments (A) (B) (C)=(A) + (B) Operating Revenues 1 Revenues form Base Rates $ 154,888 $ - $ 154, Miscellaneous Service Revenues 1,386-1, Rent from Electric Property Other Electric Revenues Total Revenues $ 156,717 $ - $ 156,717 5 Operating Expenses 6 Fuel and Purchased Power $ 5,544 $ - $ 5, Operations and Maintenance Excluding Fuel 104, , Depreciation and Amortization 15,035-15, Income Taxes 6,858 (2,844) 4, Other Taxes 7,203-7, Interest on Customer Deposits Total Expenses $ 139,512 $ (2,844) $ 136, Net Operating Income $ 17,205 $ 2,844 $ 20,049 13

11 Schedule 3-C1 (2) ACC JURISDICTION ADJUSTED TEST YEAR INCOME STATEMENT Description ACC Jurisdiction Test Year Ended 12/31/2014 Proforma Adjustments Adjustments (A) (B) (C)=(A) + (B) Operating Revenues 1 Revenues from Base Rates $ 154,888 $ - $ 154, Miscellaneous Service Revenues 1,386-1, Rent from Electric Property Other Electric Revenues Total Revenues $ 156,717 $ - $ 156,717 5 Operating Expenses 6 Fuel and Purchased Power $ 5,544 $ - $ 5, Operations and Maintenance Excluding Fuel 118, , Depreciation and Amortization 13,060-13, Income Taxes 2,812 (1,014) 1, Other Taxes 6,141-6, Interest on Customer Deposits Total Expenses $ 146,188 $ (1,014) $ 145, Net Operating Income $ 10,530 $ 1,014 $ 11,543 13

12 Schedule 3-C2 COMPUTATION OF GROSS REVENUE CONVERSION FACTOR Description Percentage of Incremental Gross Revenues (A) Pro Forma Percentage of Incremental Gross Revenues (B) 1 Gross Revenue % % 1 2 Less: Uncollectible Revenue % % 2 3 Taxable Income as a Percent 99.75% 99.75% 3 4 Less: Federal and State Income Taxes * 37.52% 25.26% 4 5 Change in Net Operating Income 62.23% 74.48% 5 6 Gross Revenue Conversion Factor * (Combined Effective Tax Rate= 25.33% () ()

13 Schedule 3-C1 Wokpaper Detail TOTAL COMPANY AND ACC JURISDICTION DETAIL OF PRO FORMA ADJUSTMENTS AS SHOWN ON SCHEDULE 3-C1 Description Total Company ACC Jurisdiction Pro Forma Income Tax Pro Forma Income Tax (A) (B) (A) (B) 1 Pre-Tax Operating Income $ 24,063 $ 24,063 $ 13,341 $ 13, Allocated Interest Expense (7,824) (7,824) (5,943) (5,943) 2 3 Adjusted Operating Income $ 16,239 $ 16,239 $ 7,398 $ 7, Effective Tax Rate= 25.33% () () $ 4,113 $ 6,108 $ 1,874 $ 2, Tax Effected Permanent Items 5 6 Federal Tax Credits $ (1) $ (1) $ (1) $ (1) 6 7 Federal Excess Deferred Tax Amortization (98) - $ (74) $ State Excess Deferred Tax Amortization (66) (55) (50) (42) 8 9 Meals & Entertainment Fuel Tax Credit Addback Federal Flow Thru Items AZ Flow Thru Items Other Adjustment (2) Total Adjustments $ (99) $ 750 $ (75) $ Tax Expense $ 4,014 $ 6,858 $ 1,799 $ 2, Pro Forma for Impact $ (2,844) $ (1,014) 16