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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