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The regulatory agencies had the authority to require
petitioner to adjust rates to reflect such an excess, but TRA
section 203(e), 100 Stat. 2146, provided that the normalization
provisions of sections 167 and 168 would be violated if a utility
reduced its excess deferred Federal income tax reserve more
rapidly than as provided under the average rate assumption method
(ARAM). This TRA provision generally applies to those excess
deferred Federal income taxes attributable to timing differences
relating to depreciation and property classifications described
in sections 167(a)(1) and 168(e)(3) (protected excess deferred
Federal income tax). Under ARAM, the protected excess deferred
Federal income tax can be reversed only through rate adjustments
as the timing differences that created them reverse.
Accordingly, the protected excess deferred Federal income tax is
reduced ratably over the underlying asset’s remaining useful
life, consistent with normalization, by reducing future utility
rates.
Consistent with these provisions, petitioner began reducing
its protected excess deferred Federal income tax account in
November 1987 by reducing utility rates. This continued through
1990. The rate reductions were allocated to each customer class
based on each customer class’s contribution to the excess
deferred Federal income tax, but rate reductions were not
specifically allocated to customers who paid pre-1987 utility
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Last modified: May 25, 2011