Demand-side management: Why ratemaking should`nt control tax policy
- Deloitte & Touche LLP, Columbus, OH (United States)
As utilities spend money on demand-side management (DSM) programs, they usually deduct their costs currently as ordinary and necessary business expenses. However, state regulators may force deferral of DSM costs for ratemaking purposes, with possible consequences on tax returns. When regulators defer DSM costs, the Internal Revenue Service (IRS) has offered several theories to challenge current tax deductions. One theory requires capitilization instead of a current deduction if regulators include the DSM cost in rate base and provide for a rate of return on the balance. The IRS explained this theory two years ago in a White Paper on conservation expenses: The direct relationship between a rate of return allowed by the Regulator for conservation expenditures allowed in rate base and future profits establishes a prima facie case for capitalization under the future benefit standard. The authors believe that IRS policy should not be linked to ratemaking decisions.
- OSTI ID:
- 68472
- Journal Information:
- Fortnightly, Vol. 133, Issue 1; Other Information: PBD: 1 Jan 1995
- Country of Publication:
- United States
- Language:
- English
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