Florida Progress Corporation and Subsidiaries - Page 5




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          utility uses the amounts that it overcollects in earlier years to           
          pay the taxes owed in later years.                                          
               Both the FPSC and the FERC require the establishment and               
          maintenance of deferred income tax accounts that represent the              
          net cumulative amount of Federal income tax expected to be paid             
          in future years.  If the income tax rate remains constant, the              
          deferred income tax account will zero out once the timing                   
          differences between rate-making income and taxable income expire.           
               Customers of Florida Power receive the economic benefit of             
          all deferred income taxes for as long as they are held by Florida           
          Power.  The FERC treats deferred income tax as a reduction to the           
          capital rate base used to calculate the approved rate of return             
          on Florida Power’s invested capital.  The FPSC treats deferred              
          income tax as zero cost capital, meaning that deferred income tax           
          is used to fund services for the benefit of the ratepayers and no           
          return is collected because it was the ratepayers who supplied              
          the capital.  Customers get the resulting economic benefit in               
          reduced rates.                                                              
               From 1975 through 1986, Florida Power collected revenues               
          based on a 46-percent Federal income tax rate and increased its             
          deferred income tax account by the amount of tax related to net             
          income accrued for rate-making purposes over the amount accrued             
          for tax purposes.  However, the Tax Reform Act of 1986 (TRA),               
          Pub. L. 99-514, sec. 821, 100 Stat. 289, effective for 1987 and             





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Last modified: May 25, 2011