NATIONAL ASSOCIATION OF STATE UTILITY CONSUMER ADVOCATES

RESOLUTION

Requesting Congress to clarify applicable provisions of the Internal Revenue Code to provide that the normalization rules set forth therein are not violated when the benefits of unamortized investment tax credits and excess deferred income taxes are passed on to ratepayers due to the sale of generation property

WHEREAS, In 1986 Congress amended the Internal Revenue Code by lowering the corporate income tax rate, terminating investment tax credits on certain utility property and thereby creating a condition of over-recovery for deferred taxes and tax credits calculated under the prior income tax rates applicable to public utilities;

WHEREAS, prior to Congressional enactment of the Tax Reform Act of 1986 which accomplished these changes, the representatives of electric utilities argued that immediate recognition in utility rates of the excess deferred tax amounts and investment tax credits would constitute a financial hardship to the utilities and create cash flow difficulties;

WHEREAS, the representatives of the National Association of State Utility Consumer Advocates (NASUCA), the National Association of Regulatory Utility Commissioners (NARUC) and others argued that, to the contrary, ratepayers deserved full and immediate recognition of all tax credits associated with utility property in rates, prior to enactment of the1986 tax changes;

WHEREAS, the representatives of electric utilities asserted during this Congressional debate that, if ratepayer receipt of these tax benefits were to be delayed as proposed by the same electric utilities, ratepayers advocates could nonetheless count on the full amount of these deferred credits to be eventually returned to the benefits of ratepayers in future state and federal ratemaking proceedings;

WHEREAS, in 1997 and 1998 the states of Maine and Connecticut, respectively, enacted Electric Restructuring legislation providing for the divestiture of electric generating property that previously had been included in rate base for ratemaking purposes,

WHEREAS, numerous other states have subsequently adopted similar provisions providing for the divestiture of generating property by means of mandatory or voluntary sale, as a means for reducing the level of stranded costs which otherwise were eligible for recovery in rates from electric customers;

WHEREAS, in rent Private Letter Rulings involving utilities in Maine and Connecticut, the Internal Revenue Service has ruled against the flowthrough to ratepayers of any excess deferred income taxes or investment tax credits associated with generation property divested under a state restructuring statute; and

WHEREAS, these rulings are inconsistent with the statements of utility representatives that informed the Congressional debate prior to the enactment of the Tax Reform Act of 1986 and constitute a significant hardship to electric consumers who must pay for stranded costs associated with the same assets.

THEREFORE, BE IT RESOLVED, that the National Association of State Utility Consumer Advocates requests Congress to clarify applicable provisions of the Internal Revenue Code to provide that the benefits of unamortized investment tax credits and excess deferred income taxes are passed on to ratepayers due to the sale of generation property;

BE ALSO RESOLVED, THAT NASUCA may join with NARUC and other organizations vested with responsibility for the interests of utility consumers in seeking to argue jointly and in concert for such changes to federal law as override and reverse the Private Letter Rulings referred to above; and

BE IT FINALLY RESOLVED, that the Executive Committee of NASUCA is authorized to take all steps consistent with this Resolution in order to secure its implementation.

APPROVED BY NASUCA: Submitted by:

By Faxed Ballot NASUCA Electric Committee

Place

April 14, 2001