NV Energy sues state energy regulators over tax issue

NV Energy has filed a lawsuit against the Public Utilities Commission, seeking a court order to overturn a regulatory decision related to the 2017 reduction in federal corporate taxes that could be worth tens of millions of dollars.

The lawsuit, which was filed in Washoe County District Court on Dec. 28, accuses state utility regulators of “engaging in unlawful and impermissible ad hoc rulemaking” through its decision how to treat the accounting of federal income tax owed on power plants and other large-scale capital investments by NV Energy, which one estimate pegs at being worth around $1.75 million a month.

In an interview, NV Energy executive Shawn Elicegui said it was the first time in his decade with the utility that the utility had appealed a PUC decision to the judicial system. Elicegui declined to say what the utility estimated the cost of the commission’s decision, but that utility regulators had overstepped their authority in their final order.

A spokeswoman for the PUC said the commission was served with the lawsuit on Wednesday afternoon.

Reflecting the 14 percent reduction in corporate taxes approved as part of the 2017 federal Tax Cuts and Jobs Act, NV Energy in February proposed cutting electric rates by $83.7 million, good for a roughly $4 a month decrease in average residential power bills for Southern Nevada.

Although the PUC approved the rate reductions in March, proceedings before the commission continued through November because of complaints filed by a handful of corporations, including casino companies and Walmart, asserting that the utility was holding on to millions of dollars in revenue through refusing to change its accounting procedure for future unpaid federal taxes on depreciating capital investments, such as power plants, owned by NV Energy.

Keeping these so-called accumulated deferred income taxes, or ADIT, in place without modifying the corporate tax rate they were based on could result in a windfall of up to $46 million for the utility, according to one estimate. Attorneys for the casino groups said in filings that there was “no justification” for the utility to retaining any of the savings associated the federal tax cut.

But the lawsuit filed by NV Energy claims that after the initial rate reductions were approved, the commission “improperly broadened” the scope of the proceedings to include an examination of ADIT taxes on protected utility assets, such as power plants and long-term contracts.

“Through these Orders the Commission exceeded its statutory authority, employed unlawful procedure, abused its discretion and unlawfully and erroneously expanded the scope of the proceedings,” the lawsuit stated.

Although the lawsuit seeks to overturn part of the commission’s order, it expressly states that it is not challenging or seeking to change the electric rate reductions approved by regulators last year.

In its November order, commissioners wrote that they and NV Energy “simply interpret the relevant regulations differently,” and that the commission’s reading of state regulations called for the commission to determine the amortization period for excess ADIT collections in the utility’s next rate case, as opposed to making it immediately effective.

The state’s Bureau of Consumer Protection in comments submitted to the commission called NV Energy’s complaint over ADIT treatment “meritless” and “unfounded,” stating the state regulation on amortizing ADIT was clearly vested with the commission.

Members of the PUC’s advisory staff also said the initial order was legal and followed state regulators properly.

“Simply because the Commission interprets its regulations in a manner that is inconsistent with NV Energy’s interpretation does not mean the Commission has engaged in ad hoc rulemaking,” they wrote in a Nov. 6 filing.

At least 24 other states are dealing with similar problems on how electric utilities manage ADIT balances with lower corporate tax rates, and the Federal Energy Regulatory Commission issued several orders addressing the issue in November.

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Updated at 9:17 a.m. to correct that the PUC was served with the lawsuit Wednesday afternoon.