Montana Administrative Register Notice 38-5-236 No. 11   06/09/2017    
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In the matter of the adoption of NEW RULES I through XII pertaining to minimum filing requirements for rate adjustments for taxes and fees







TO: All Concerned Persons:


1. On April 18, 2017, the Department of Public Service Regulation published MAR Notice No. 38-5-236 pertaining to the public hearing on the proposed adoption of the above-stated rules on page 332 of the 2017 Montana Administrative Register, Issue Number 6. On May 12, 2017, the department published an amended notice of proposed adoption of the above-stated rules at page 601 of the 2017 Montana Administrative Register, Issue Number 9.


2. The department has adopted NEW RULES I (38.5.801), X (38.5.810), and XII (38.5.812) as proposed.


3. The department has adopted the following rules as proposed, but with the following changes from the original proposal, new matter underlined, deleted matter interlined:


NEW RULE II (38.5.802)  ELECTRONIC INFORMATION – LETTER OF TRANSMITTAL (1) and (2) remain the same.

(a)  Llist the documents submitted with the filing;

(b)  Sstate the names and addresses of those to whom copies of the rate schedule have been mailed;

(c)  Iinclude a brief description of the proposed changes in service or rate and charge;

(d)  Sstate the reasons for the proposed changes;

(e)  Sstate 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)  Nname 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)  Iinclude a clear statement of the relief requested;

(h)  Iinclude 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)  Ppropose revised tariffs that would be affected by the rate adjustment, including both clean and red-lined copies.


            NEW RULE III (38.5.803)  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 and work papers contained in the filing.


            NEW RULE IV (38.5.804)  Expense and Revenue Adjustment Work Papers (1) remains the same.

(a)  Tthe projected changes in taxes from the prior year;

(b)  Tthe true-up of the prior year's actual revenue attributable to taxes versus actual taxes; and

(c)  Tthe extinguishment of deferred balances.

(2) through (2)(b) remain the same.

(c)  rates authorized by other state utility commissions, to the extent that Montana state and local taxes and fees are allocated to those jurisdictions; and

(d) remains the same.

(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.


NEW RULE V (38.5.805)  Jurisdictional FERC Allocations for Taxes (1) remains the same.

(a)  Tthe utility shall disclose and explain the present allocation methodology of the expense to retail and wholesale customers.;

(b)  Tthe 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)  FERC account plant type and location;

(ii)  value in rate base, on an original cost less depreciation basis; and

(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) (iii)  the total amount of tax expense for each FERC account property listed.

(c)  Iif 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)  Tthe 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)  Tthe utility will present information for allocation methodologies, regardless of which is proposed or adopted for current use.  These shall include at a minimum:

(i) remains the same.

(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)  Tthe commission may request an additional study to allocate this expense on another basis.; and 

(g)  Aa utility that does not collect any revenues under FERC tariffs will file a statement certifying accordingly.


NEW RULE VI (38.5.806)  Jurisdictional Allocations for Taxes   (1)  For Montana state and local taxes and fees and for other states' taxes, excluding income taxation, which are allocated to rates authorized by the commission and by other state utility commissions:

(a)  Tthe utility shall disclose and explain the allocation methodology of these expenses to Montana customers and to customers of other states; and

(b)  Tthe 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) (i)  discloses the actual tax expense attributable to each jurisdiction under the last approved allocation methodology of the commission; and

(iii) (ii) 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) remains the same.


NEW RULE VII (38.5.807)  Income Taxation (1) remains the same.

(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) through (c) remain the same.



(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 an allocation of Montana state and local taxes and fees to plant by FERC account.:

(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) remains the same.

(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 The utility will provide FERC account balances for plant for the previous two years as of the lien date used by the Montana Department of Revenue for tax purposes.


NEW RULE IX (38.5.809)  Valuation and Protests (1) A utility will file the past five two 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) and (5) remain the same but are renumbered (2) and (3).


NEW RULE XI (38.5.811)  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, including, but not necessarily limited to, tribal taxes.


4. The department has thoroughly considered the comments and testimony received. A summary of the comments received and the department's responses are as follows:


COMMENT NO. 1: A commenter provided general background information on the level of taxation a public utility experiences, the methodology by which the Montana Department of Revenue values utilities, and the legislative history of 69-3-308, MCA.  The commenter noted that the commission has not found it necessary to adopt rules until now.


RESPONSE: The commission appreciates the commenter's view as to the substance and history of tax policy in the State of Montana and its attendant treatment in utility regulation.  The commission now finds it necessary to adopt these rules for several reasons.  First, the commission's practice over the years has demonstrated that it is difficult to timely gather information in the context of this short-lived proceeding.  Second, one utility's application raises questions that the commission had not foreseen in the implementation of this law.  Third, since the practice of implementing this statute has a substantial history, it is now prudent to codify the practice of preparing certain work papers in rulemaking so that the form and substance of these filings is not merely a matter of institutional memory.


COMMENT NO. 2: Two commenters provided the view that the rulemaking intends to limit or nullify the statutory tax tracker.


RESPONSE: The commission disagrees.  Nothing in the rulemaking prevents a utility from using the statutory tax tracker and the rate schedules authorized pursuant to it to recover the net change in Montana state and local taxes from its customers.


COMMENT NO. 3: One commenter expressed the view that it is generally supportive of the rule, which should assist the commission in the timely compilation of information in the tax tracker docket.


RESPONSE: The commission agrees with the comment.


COMMENT NO. 4: One commenter observes, relative to New Rule III, that a person may not testify to the accuracy of a matter unless he or she has personal knowledge thereof, and that therefore a requirement for certifying the accuracy of an entire application is not appropriate.


RESPONSE: The commission agrees with the comment and has modified New Rule III accordingly.


COMMENT NO. 5: Two commenters note that New Rule IV(3) appears redundant of statute.


RESPONSE: The commission agrees with the comment and has modified New Rule IV accordingly.


COMMENT NO. 6: Two commenters contend that New Rule IV requires information about revenue attributable to the tax component of existing rates that may not be available.  One commenter argues this point generically.  Another contends specifically that because FERC cases are generally settled, rates do not specifically identify any property tax component.  The commenter contends that the legislature did not grant the commission the authority to require an allocation of revenue, or to restrict a utility's recovery of state and local taxes and fees.


RESPONSE: The commission believes this information is either available or calculable.  One commenter itself calculates, using an allocation adopted by the commission in a prior tracker, an allocation of revenue attributable to the tax component of FERC rates in the annual application it files pursuant to 69-3-308, MCA.  Merely because FERC rates may be a result of a settlement does not mean that a reasonable allocation cannot be undertaken.  If this were not the case, it would mean that a utility could contend that because no revenue from other jurisdictions' rates were precisely calculable, that the entirety of this expense category should fall upon Montana customers.  The commission makes allocations frequently in its regulatory practice, and one of the foundational statutory authorities of the commission, which this rule implements, is the ability exercised under 69-3-202(1), MCA, to prescribe the manner and form of a public utility's books and records.  Additionally, 69-3-201, MCA, requires that a utility's rates be just and reasonable.  The commission is not making a predetermination on an appropriate allocation in this rulemaking, but 69-3-308, MCA, does not appear to have amended the authority contained in 69-3-202(1) and 69-3-201, MCA, and there is no language in 69-3-308, MCA, that requires a specific form for the allocation of tax expense and revenue from the tax component of rates to various jurisdictions.  The commission agrees that the legislature did not provide for the commission to restrict a utility's recovery of state and local taxes and fees.  The rulemaking provides the necessary information to ensure these taxes and fees, which are sometimes paid by both wholesale and retail customers, or by customers in various states, or by customers of both regulated and unregulated services, are not double-collected from ratepayers.


COMMENT NO. 7: One commenter observes that New Rule V requires an allocation methodology to reflect the effects of FERC-jurisdictional customers' revenues and contends that the statute does not contemplate this information as necessary.  The commenter then observes that an order in an early property tax tracker docket was used to develop an allocation methodology for this issue, before again commenting that there is no need for this information.


RESPONSE: The commission partially agrees with the comments by the commenter.  The commenter itself concedes this issue has been necessary to resolve in a proceeding held under the tax tracker before opining that there is no need to consider this issue.  The commission is not making a predetermination on an appropriate allocation in this rulemaking.  The commission agrees with the commenter to the degree the commenter concedes this is inevitably an issue where a property that is subject to tax is being paid for by two sets of customers with rates set by two different regulators, in this instance FERC and the commission.  However, to simplify its consideration of various allocation methodologies, the commission will modify New Rule V(1)(e)(ii) to reduce the number of methodologies that must be presented in a rate filing.


COMMENT NO. 8: Two commenters note that New Rule V requires information that may not be available.  One contends specifically this is because the tax authority does not appraise assets in locations, but centrally assesses a company based on its unit value.  It also contends the language is ambiguous, although it does not identify which section, and again contends the requirements are inconsistent with the legislature's mandated process.


RESPONSE: The commission partially agrees and has simplified the language of New Rule V(1)(b), to reflect that plant can be tracked by FERC account rather than by a particular location.  The rule already acknowledges in (1)(c) that the tax authority may not particularly assign value or expense to property with great specificity, in which case the rule permits an allocation consistent with the utility and commission's past practice.  An allocation, as stated in response to comment no. 7, is necessary to resolve an over-collection or under-collection issue where a property that is subject to tax is being paid for by two sets of customers with rates set by two different regulators.  The legislature did not provide any specific direction on how this issue should be resolved, but for each tracker proceeding since the statute was enacted this issue has been present.  The commission is not making a predetermination on an appropriate allocation in this rulemaking.  The rule merely codifies the extant practice and requires more refined reporting requirements relative to the underlying plant and associated tax expense in question.


COMMENT NO. 9: A commenter contends that a simplified approach for New Rules V and VI would be to identify multi-jurisdictional assets and its current allocation methodologies, along with an explanation of a change from the prior year allocation.


RESPONSE: The commission partially agrees with the comment and has modified New Rule V in the ways described in its response to comment no. 8.  With respect to New Rule VI, the commission also partially agrees and simplifies the requirements associated with multi-jurisdictional assets, although it notes this issue is effectively dealt with primarily in New Rule VIII, which has been modified more extensively to make multi-jurisdictional assets' reporting more easily achieved.  The commission is not making a predetermination on an appropriate allocation in this rulemaking.  To the extent that the commission disagrees, it is because of a tacit assumption on the part of commenter that any allocation methodology used in a prior rate case will result in just and reasonable rates when applied on a forward basis, when the reality is that these allocation methodologies sometimes do not attract a meaningful amount of attention, and are sometimes settled in the context of a proceeding in 69-3-302, MCA, while they could receive more precise and specific attention in the context of a proceeding held under 69-3-308, MCA, notwithstanding the shorter statutory deadline. At the same time, the commission would not intend to make frequent changes in the context of such annual proceeding.


COMMENT NO. 10: A commenter disagrees that the commission has authority to deny a utility a tax tracker adjustment based on the levels of revenues earned from customers and rates in other jurisdictions.


RESPONSE: The commission is not making any predetermination of this kind here.  Such a decision would be reached only in a proceeding held pursuant to 69-3-308, MCA. The commission notes generally that for allocations between the federal and state jurisdictions, one utility already uses, and the commission approves, a methodology that measures the revenue from the former jurisdiction's customers and applies it to the expense which is being tracked to the latter.  To the degree that the commenter suggests this is not lawful, the commission disagrees and notes that nothing in the law requires the commission to select only an expense allocation, instead of a revenue-credit, approach to an issue where a property that is subject to tax is being paid for by two sets of customers with rates set by two different regulators.


COMMENT NO. 11: A commenter suggests that because the Montana Department of Revenue allocates a certain amount of corporate value to Montana, that Montana customers, not other states' customers, should be paying this tax.


RESPONSE: The commission generally disagrees, although it is not making a predetermination on an appropriate allocation in this rulemaking. The Montana Department of Revenue has authority and is responsible for making an allocation of unit value to a state.  The commission does not suggest it has any authority to change that.  However, the commission has traditionally been responsible for allocating those expenses to customers.  Under traditional ratemaking principles, certain utility property, such as a headquarters building located in the state of Montana for a multi-jurisdictional utility, could be considered common plant because it serves customers in multiple states in which it operates.  That property would be taxed by the Montana tax authority, but it does not necessarily follow that this tax should be paid only by Montana customers.  Section 69-3-308, MCA does not appear to mandate a particular form of allocation to customers in Montana or another jurisdiction.  As discussed above, the enactment of House Bill 642 in 2003 did not amend 69-3-201 or 69-3-202, MCA, the just-and-reasonable rates and books-and-records provisions, which the commission uses to make such allocations in ratemaking proceedings.  The commenter itself calculates, using an allocation adopted by the commission in a prior tracker, an allocation of revenue attributable to the tax component of FERC rates in the annual application it files pursuant to 69-3-308, MCA.  Section 69-3-308, MCA appears to make no distinction between the FERC jurisdiction and another state jurisdiction for the purpose of making an allocation, and indeed common plant and its associated expenses are typically allocated between states.  The commission is uncertain why that is not the case for the purpose of one expense, namely state and local tax expense. The commission will explore the matter in a future proceeding held under 69-3-308, MCA and the information elicited by this rulemaking makes this potential determination possible.


COMMENT NO. 12: One commenter notes that New Rule VII(1) is appropriate and consistent with existing commission practice on the deductibility of incremental Montana state and local tax expense from income tax liability, which is to use the statutory income tax rate to calculate effect on income tax.  Another commenter suggests that the commission either clarify this is the case, or explain the reason for making the change if not.  Commenters both observe that given this rule, it is unclear why providing tax returns, which would show actual income taxes, would be necessary because if the statutory rate is used, actual taxes are irrelevant.


RESPONSE: The commission agrees with the first commenter, and clarifies to the latter that the language as written in (1) of the rule is consistent with the commission's historic practice, and merely codifies it.  The commission also agrees with both commenters that it is not necessary to obtain income tax returns for the purposes of 69-3-308, MCA, for the reasons stated by commenters. The commission modifies the rule to delete the reference to that statute, and instead makes this requirement applicable only to 69-3-302, MCA.  It is appropriate in those cases to collect this information because controversies have frequently arisen as to whether the commission should use actual or normalized income taxes for the purpose of setting base rates, and unlike (1), the commission has not adopted a clear rule on this practice.


COMMENT NO. 13: Two commenters raise concerns about the practicality of New Rule VIII because they contend it requires the utility to account for plant in a way that is not consistent with their extant practice.  They also contend the rule is irrelevant because the tax authority makes a company-wide and not plant-specific valuation, and that it is unlawful because the legislature did not say taxes were excluded on the basis of the plant's identity.


RESPONSE: The commission partially agrees with the comments and partially disagrees with them. The commission agrees to the extent that the commenters raise concerns about causing a new and burdensome system of classifying and accounting for plant.  It makes significant deletions to the rule, and instead adopts a classification which is explicitly consistent with the FERC accounts that regulated electric and gas utilities use to book plant.  However, the information reporting required by this rule is necessary to make an allocation of tax expense to particular plant, regardless of whether or how the tax authority values it.  This is because, while the tax authority may not need or use that information tied to the FERC system for its purposes, it is important and necessary to make an allocation of this expense to particular plant for the purposes of the multi-jurisdictional allocations discussed in New Rules V and VI, and for the concerns responded to in Comments 6 through 11.  The revisions to this rule require two years' data on this plant to ascertain how the net change in tax is related to the net balances recorded in the FERC system.  The rolling collection of this information will allow the commission to make better informed decisions on allocations when appropriate.  The use of FERC accounts will also allow the commission to track plant that is non-utility property and construction work in progress, but the commission makes no predetermination in this rule that tax expense associated with these or other accounts is properly excluded when using the tracker provided for under 69-3-308, MCA.


COMMENT NO. 14: Two commenters both raise concerns about the relevance of information required by New Rule IX to proceedings under 69-3-308, MCA.  One commenter suggests changes in valuation by the tax authority in prior years are irrelevant to the tracker, and are available online in any case.  Other tax authorities' valuations are not relevant and changes to the Montana tax authority's methodology are not relevant to the statutory command to track these taxes regardless, commenters contend.  One commenter does not seem to object to (4) and (5), noting the information is provided, while another claims it is redundant of statute.


RESPONSE: The commission mostly agrees with these comments.  It deletes the sections of the rule that require a utility to provide other tax authorities' valuation and to explain changes in the Montana tax authority methodology.  It modifies the rule to require only two years of valuation information, instead of five, because two years will provide the year-on-year change that drives the incremental or decremental tax that is being tracked.  The rule continues to require information to be filed about tax protests.  The statute is not clear where or how this information should be filed with the commission, and the rule makes clear this is a filing requirement.  In this respect it is not an impermissible redundancy of the statute.


COMMENT NO. 15: One commenter opines that New Rule X is appropriate. Another commenter disagrees that New Rule X is appropriate, and argues that the legislature did not intend 69-3-308, MCA, to become a "mini-rate case." It observes the commission allocates state and local taxes and fees in a rate case and that the statute does not authorize the commission to change the allocation outside a rate case.


RESPONSE: The commission agrees with the first commenter this rule is appropriate, and disagrees with the second commenter.  Nothing in the statute requires the commission to adhere to a uniform percentage increase on all customer classes when tax expense increases and is tracked pursuant to 69-3-308, MCA.  Indeed, if taxes increase due to generation or production asset investments used by some customers, but not transmission and distribution assets used by all customers, and it has been a substantial amount of time since a proceeding held under 69-3-302, MCA, then it is possible that a uniform percentage increase on all customers would have the effect of a distortive and inequitable rate increase on some customers.  Nothing in the statute requires the commission to allow this to occur without investigation and modification, and nothing in the statute modifies the requirement of 69-3-201, MCA, which this rule also implements, to ensure that rates charged to all customers are not unjust or unreasonable.


COMMENT NO. 16: Two commenters argue that New Rule XI is unclear about what it means by taxes that are excluded.  One commenter notes that the commission has found that tribal taxes are not Montana state and local taxes and fees.  It also notes there is no statutory definition of Montana state and local taxes and fees, as the rule appears to suggest.


RESPONSE: The commission mostly agrees with commenters.  There is no statutory definition of Montana state and local taxes and fees, and this reference has been deleted.  The rule is intended to be a reference to tribal taxes, which are not imposed by the state sovereign or by a local government. The rule's language has been amended accordingly. The commission believes both commenters are already compliant with this rule, and the rule merely codifies existing practice, making clear that such exclusions need to be stated and shown.


COMMENT NO. 17: One commenter contends New Rule XII inappropriately applies ARM 38.5.184 to the property tax tracker of 69-3-308, MCA.


RESPONSE: The commission disagrees.  The rule clearly states that ARM 38.5.184 applies to filings made pursuant to 69-3-302, MCA.  This rule would not apply ARM 38.5.184 to filings made under 69-3-308, MCA.


COMMENT NO. 18: One commenter contends New Rule XII(2) and (3) do not apply to the tax tracker of 69-3-308, MCA, and are not necessary in this rulemaking.


RESPONSE: The commission disagrees.  This rulemaking concerns filing requirements for dockets where tax expense is at issue, including both 69-3-302, MCA, and 69-3-308, MCA.  Certain rules in this rulemaking are applicable to both, and certain rules are applicable only to one, as referenced throughout the rulemaking.


COMMENT NO. 19: Two commenters suggest that New Rule XII is inconsistent with the legislature's goals for requirements of 69-3-308, MCA, which establish the procedures for processing a tracker application. The commenters exhort the commission to adhere to legislative intent.


RESPONSE: The commission disagrees and believes the intent of the legislature was to direct the commission to consider any errors or omissions it might find, pursuant to 69-3-308(2)(c), MCA.  Neither the term "error" nor the term "omission" were defined, and the commission reasons that requiring minimum information requirements pursuant to this rulemaking will more clearly establish expectations to what information is required, and, therefore, what an omission might constitute.  Since this rulemaking implements in its various rules the proceedings held under both 69-3-302, MCA, and 69-3-308, MCA, it is necessary to clarify what the remedy is for each, should a utility file an application that omits information required by this rulemaking.  The remedy for the former appropriately contours to ARM 38.5.184, on deficient filings, and the remedy for the latter is a commission order within 45 days as anticipated by the statutory deadline in 69-3-308, MCA.



/s/ JUSTIN KRASKE                                  /s/ BRAD JOHNSON                     

Justin Kraske                                               Brad Johnson

Rule Reviewer                                             Chairman

                                                                     Department of Public Service Regulation


Certified to the Secretary of State May 30, 2017.


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