[Federal Register Volume 83, Number 179 (Friday, September 14, 2018)]
[Notices]
[Pages 46715-46731]
[FR Doc No: 2018-19994]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

Order Rejecting Proposed Tariff Revisions, Providing Guidance and
Providing Limited Compliance Period

Before Commissioners: Kevin J. McIntyre, Chairman; Cheryl A. LaFleur,
Neil Chatterjee, and Richard Glick.

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                                                   Docket Nos.
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Commonwealth Edison Company............  ER18-899-000.
                                         ER18-899-001.
Delmarva Power & Light Company.........  ER18-903-000.
                                         ER18-903-001.
Atlantic City Electric Company.........  ER18-904-000.
                                         ER18-904-001.
Potomac Electric Power Company.........  ER18-905-000.
                                         ER18-905-001.
PJM Interconnection, L.L.C.............  (Not Consolidated).
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    1. On February 23, 2018, as amended on July 9, 2018, Commonwealth
Edison Company (ComEd), Delmarva Power & Light Company (Delmarva),
Atlantic City Electric Company (ACE) and Potomac Electric Power Company
(PEPCO) (together, Exelon Companies), submitted separate but nearly
identical filings pursuant to section 205 of the Federal Power Act
(FPA).\1\ Exelon Companies propose revisions to their formula
transmission rates (Formula Rates), contained in Attachments H-13A, H-
3D, H-1A and H-9A of the PJM Interconnection, L.L.C. (PJM) Open Access
Transmission Tariff (OATT),\2\ to

provide a mechanism to refund or recover, as appropriate, certain
deferred income tax excesses and deficiencies that they previously
recorded on their books and that they will record on an ongoing basis.
In particular, Exelon Companies propose to recover or refund in their
Formula Rates: (1) Excess or deficient Accumulated Deferred Income
Taxes (ADIT) related to tax rate changes (Excess/Deficient Deferred
Taxes); (2) the tax effect of the Allowance for Funds Used During
Construction (AFUDC) equity portion of depreciation expense (AFUDC
Equity); and (3) amounts related to Exelon Companies' switch years ago
from the flow-through method for income tax treatment in ratemaking to
the tax normalization method (Flow-Through Items).
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    \1\ 16 U.S.C. 824d (2012).
    \2\ PJM Interconnection, L.L.C., Intra-PJM Tariffs, OATT ATT H-
13A, OATT Attachment H-13A--Commonwealth Edison Company, 13.0.0,
OATT ATT H-3D, OATT Attachment H-3D--Delmarva Power & Light Company,
5.0.0, OATT ATT H-1A, OATT Attachment H-1A--Atlantic City Electric
Company, 4.0.0, and OATT ATT H-9A, OATT Attachment H-9A--Potomac
Electric Power Company, 6.0.0.
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    2. In this order, we find that Exelon Companies have not shown that
their proposed Formula Rate provisions allowing for the recovery of
previously incurred income tax amounts are just and reasonable.
Therefore, as discussed below, we reject Exelon Companies' filings, but
we provide guidance that Exelon Companies may submit new filings with a
mechanism to refund or recover, as appropriate, deferred income tax
excesses and deficiencies related to the recent Tax Cuts and Jobs Act
\3\ and any future income tax changes, any new originations of past
income tax changes, and taxes on AFUDC Equity associated with current
and future years' depreciation expense. As described below, we also
announce a limited compliance period under Order No. 144 during which
other utilities may make FPA section 205 filings to recover past ADIT
under certain conditions.
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    \3\ Tax Cuts and Jobs Act, Public Law 115-97, 131 Stat. 2054
(2017).
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I. Background

    3. Under a tax normalization policy, tax savings and increases that
result from different treatment for ratemaking and income tax purposes
are not immediately flowed through to customers, but are instead
recognized in rates over time. In 1981, the Commission amended its
regulations to require companies to determine the income tax allowance
included in jurisdictional rates on a fully normalized basis.\4\ The
Commission in Order No. 144 recognized that the adoption of full
normalization, as well as tax rate changes, might result in excesses or
deficiencies in the deferred tax accounts and required rate applicants
to make provision in the income tax component of their cost of service
for any such excess or deficiency. Order No. 144 stated that rate
applicants must ``begin the process of making up deficiencies in or
eliminating excesses in their deferred tax account reserves so that,
within a reasonable period of time to be determined on a case-by-case
basis, they will be operating under a full normalization policy.'' \5\
Order No. 144 further specified that a rate applicant must make
adjustments pertaining to reversals from prior flow-through or tax rate
changes in ``the applicant's next rate case following the applicability
of [Order No. 144].'' \6\
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    \4\ See 18 CFR 35.24 (2017); see also Tax Normalization for
Certain Items Reflecting Timing Differences in the Recognition of
Expenses or Revenues for Ratemaking and Income Tax Purposes, Order
No. 144, FERC Stats. & Regs. ] 30,254 (1981), order on reh'g, Order
No. 144-A, FERC Stats. & Regs. ] 30,340 (1982).
    \5\ Order No. 144, FERC Stats. & Regs. ] 30,254 at 31,560.
    \6\ Id. at 31,519.
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    4. In 1992, the Financial Accounting Standards Board issued
Financial Accounting Standards Board Statement No. 109 (FAS 109), which
required public utilities to make certain changes to their balance
sheets. Among other things, FAS 109 required: (1) Recognition in the
deferred tax accounts for changes in tax laws or tax rates in the
period that the change is enacted; (2) recognition of a deferred tax
liability for the equity component of AFUDC depreciation expense; and
(3) recognition of a deferred tax liability for timing differences
under normalization even if the deferred tax liability was previously
flowed through to ratepayers prior to adopting normalization.
Addressing the implementation of FAS 109, the Commission's Chief
Accountant explained that if as a result of action by a regulator, it
was probable that a tax deficiency would be recovered from customers or
any tax excess would be returned to customers in rates, an asset or
liability must be recognized in the appropriate account. The Chief
Accountant also explained that the asset or liability is a temporary
difference for which a deferred tax asset or liability must be
recognized in the appropriate deferred tax account.\7\ The Chief
Accountant further stated that if an entity's billing determinations
would be affected by adoption of FAS 109, the entity shall make a
filing with the proper rate regulatory authorities prior to
implementing the change for tariff billing purposes.\8\
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    \7\ See Accounting for Income Taxes, Docket No. AI93-5-000
(April 23, 1993).
    \8\ Id. at 11.
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II. Related Proceedings

A. BGE Proceeding

    5. On November 16, 2017, the Commission rejected Baltimore Gas and
Electric Company's (BGE) proposed revisions to its formula transmission
rate to provide a mechanism to refund or recover, as appropriate,
certain deferred income tax excesses and deficiencies previously
recorded and on an ongoing basis.\9\ In the instant proceedings, Exelon
Companies state that their proposed revisions to their Formula Rates
are ``essentially identical'' to those proposed by BGE, which is also a
subsidiary of Exelon.\10\
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    \9\ PJM Interconnection, L.L.C., 161 FERC ] 61,163 (2017)
(November 16 Order).
    \10\ See, e.g., ComEd Transmittal at 33.
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    6. In the November 16 Order, the Commission found that BGE failed
to demonstrate that its proposed mechanisms for the recovery of
previously incurred tax amounts were just and reasonable.\11\ In
particular, the Commission found that BGE should have captured the
accumulated amounts associated with AFUDC Equity that has already been
depreciated and prior period tax balances associated with Flow-Through
Items in its formula rate since its implementation in 2005, consistent
with the directive in Order No. 144 that utilities make such
adjustments in their next rate case, or at least ``within a reasonable
period of time.'' \12\ The Commission further found BGE's proposal to
be inconsistent with the principle of matching (i.e., the recognition
in rates of the tax effects of expenses and revenues with the expenses
and revenues themselves) because the Flow-Through Items related to
certain pre-1976 plant that could be either fully depreciated or
retired by 2016, and because the additional taxes associated with AFUDC
Equity are applicable only to the relevant year's depreciation
expense.\13\ Finding that BGE failed to explain why it did not make
provision for recovery of the deferred amounts for nearly 12 years
after implementing its formula rate and that the proceedings cited by
BGE in support of its proposal do not establish binding precedent, the
Commission rejected BGE's proposed formula rate revisions.\14\
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    \11\ November 16 Order, 161 FERC ] 61,163 at P 18.
    \12\ Id. PP 18-19 (citing Order No. 144, FERC Stats. & Regs. ]
30,254 at 31,519, 31,560).
    \13\ Id. P 20.
    \14\ Id. PP 21-22.
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    7. On December 18, 2017, BGE requested rehearing of the November 16
Order regarding recovery of past deferred tax liabilities and assets.
It also requested clarification that it could

recover: (1) Amounts for new tax liabilities and assets that were
originated on or after the February 11, 2017 effective date that BGE
originally proposed; and (2) amounts for past deferred tax liabilities
and assets that would not have been collected until after February 11,
2017, even if its formula rate had been amended in 2005 to include such
recovery. In support of its rehearing request, BGE raised similar
arguments to those now advanced in Exelon Companies' filings regarding
the timing of recovering deferred amounts, matching, and prior
Commission precedent. The Commission denies all rehearing requests,\15\
but grants clarification in part, of the November 16 Order in an order
being issued concurrently with this one in Docket No. ER17-528-002.\16\
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    \15\ The Maryland Public Service Commission and the Edison
Electric Institute also filed requests for rehearing.
    \16\ PJM Interconnection L.L.C., 164 FERC ] 61,173.
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B. Notice of Inquiry

    8. On March 15, 2018, the Commission sought industry-wide comment
on the effect of the Tax Cuts and Jobs Act on Commission-jurisdictional
rates.\17\ In particular, the Commission sought comment whether, and if
so how, the Commission should address changes related to ADIT and bonus
depreciation in Commission-jurisdictional rates. That proceeding
remains pending.
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    \17\ Inquiry Regarding the Effect of the Tax Cuts and Jobs Act
on Commission-Jurisdictional Rates, FERC Stats. & Regs. ] 35,582
(2018) (Notice of Inquiry).
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III. Exelon Companies' Filings

A. Original Filings

    9. Exelon Companies propose to implement three tax-related changes
(Excess/Deficient Deferred Taxes, AFUDC Equity and Flow-Through Items)
to their Formula Rates to more accurately track expenses arising from
tax liabilities and to clarify the timing for recovery of various
accrued tax liabilities. Exelon Companies assert that the proposed
changes do not alter the amount of taxes to be recovered, but instead
provide clarity to ratepayers as to when various tax liabilities and
assets will be recovered or refunded, and ensure that the proper
amounts will be recovered or refunded over a timeframe that is
consistent with Commission policies. Exelon Companies request that the
Commission accept the revised tariff sheets with an effective date of
April 24, 2018, although these proposed tax changes would be reflected
for the first time in the rate levels charged to customers in Exelon
Companies' June 1, 2019 Annual Update of their Formula Rates (2019
Annual Update) (with the resulting rate levels charged for service on
and after June 1, 2019).
    10. First, Exelon Companies propose an adjustment to their Formula
Rates for Excess/Deficient Deferred Taxes that are the result of
enacted changes in tax laws or rates. Exelon Companies explain that,
due to changes in state and federal tax rates that occur from time to
time, such as the Tax Cuts and Jobs Act, Exelon Companies' deferred
income tax balances do not match their actual tax liabilities. Rather
than allowing such mismatches to accumulate over time, Exelon Companies
propose to correct the mismatches by including a mechanism in their
Formula Rates that will automatically return any future excess deferred
income taxes to customers, as well as recover any future deficiencies
in deferred income taxes from customers. Exelon Companies state that
the automatic adjustments would reflect the tax rate changes from the
Tax Cuts and Jobs Act and past federal and state income tax rate
changes that are not yet fully accounted for, and would also provide an
automatic mechanism to capture the impact of any future tax rate
changes that may be enacted at the state or federal level. Exelon
Companies state that, consistent with the ``South Georgia method'' \18\
and Commission precedent, Exelon Companies propose to amortize the
relevant balances over the remaining useful life of the assets impacted
by the tax rate change.\19\
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    \18\ See South Georgia Natural Gas Co., Docket No. RP77-32 (May
5, 1978) (delegated order). Under the South Georgia method, a
calculation is taken of the difference between the amount actually
in the deferred account and the amount that would have been in the
account had normalization continuously been followed. This
difference is collected from ratepayers over the remaining
depreciable life of the plant that caused the difference. When the
deferred account is fully funded at the end of this transition
period, the annual increment ceases. Memphis Light, Gas & Water Div.
v. FERC, 707 F.2d 565, 569 (D.C. Cir. 1983).
    \19\ See, e.g., ComEd Transmittal Letter at 24-28 (citing
Virginia Elec. Power Co., Docket No. ER16-2116-000 (August 2, 2016)
(delegated order) (VEPCO); Midcontinent Indep. Sys. Operator, Inc.,
153 FERC ] 61,374 (2015) (ITC); DATC Midwest Holdings, LLC, 144 FERC
] 61,015 (2013) (DATC); American Transmission Co., LLC, 93 FERC ]
61,335 (2000) (ATC); Michigan Gas Storage Co., 83 FERC ] 63,001
(1998), order on initial decision, 87 FERC ] 61,038 (1999)).
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    11. Second, Exelon Companies propose an adjustment to their Formula
Rates for the tax effect of AFUDC Equity, which would automatically
amortize in rates the accumulated tax balances for past AFUDC Equity
originations that have not flowed through rates and future AFUDC Equity
originations. Exelon Companies explain that federal income tax rules do
not permit the deduction of AFUDC Equity on the income tax return, but
that AFUDC Equity is included in depreciation expense for financial
reporting purposes. Under FAS 109, this difference between the cost
basis calculated for income tax and financial statement reporting
purposes is recorded as a deferred regulatory asset and associated tax
liability. Thus, Exelon Companies propose to modify their Formula Rates
to recover this tax difference on an ongoing basis, as well as to use a
South Georgia catch-up provision to recover all previously unrecovered
FAS 109 amounts associated with AFUDC Equity over the remaining life of
the transmission assets. Exelon Companies assert that the Commission
has recognized that AFUDC Equity requires adjustment in the income tax
calculation \20\ and that this modification is consistent with the tax
recovery mechanisms that the Commission has allowed in other
transmission rate filings.\21\
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    \20\ Id. at 29 (citing Order No. 144-A, FERC Stats. & Regs. ]
30,340 at 30,136).
    \21\ Id. at 28-30 (citing Indianapolis Power & Light, 162 FERC ]
61,134 (2018) (IPL), Wisconsin Power & Light Co., Docket No. ER18-
216-000 (Feb. 13, 2018) (delegated order) (WPL), VEPCO, Docket No.
ER16-2116-000 (Aug. 2, 2016) (delegated order); ITC, 153 FERC ]
61,374; ATC, 93 FERC ] 61,335; DATC, 144 FERC ] 61,015).
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    12. Third, Exelon Companies propose an adjustment to their Formula
Rates for tax benefits flowed through to customers at the time that
they originated (Flow-Through Items). Exelon Companies explain that, in
the past, they recovered substantially all of their transmission
revenue requirements through bundled retail rates. Exelon Companies
state that they sold their generating facilities and now recover their
transmission revenue requirements through the Formula Rates regulated
by this Commission. Exelon Companies explain that, while their Formula
Rates now employ the tax normalization methodology (i.e., Exelon
Companies use comprehensive tax normalization for ratemaking purposes),
Exelon Companies previously employed flow-through ratemaking for
property placed in service (i.e., Exelon Companies immediately
reflected the tax benefits of accelerated depreciation and cost of
removal in their bundled retail rates).\22\

Exelon Companies state that both the flow-through and normalization
methodologies will recover the proper amount of taxes from ratepayers
over time. However, the switch from one methodology to another creates
timing differences that lead to a difference between a utility's
deferred tax account balance and its future tax liability. Thus, Exelon
Companies propose to modify their Formula Rates using the South Georgia
methodology to amortize the tax balances associated with flow-through
ratemaking over the remaining life of the transmission assets in place
at the time they implemented their Formula Rates.\23\
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    \22\ ComEd states that small excesses remain to be passed
through in ComEd's accounting resulting from the pre-2007 use of the
flow-through method. ComEd Transmittal at 8. Delmarva, ACE, and
PEPCO state that shortfalls remain to be passed through in their
accounting resulting from the pre-2005 use of the flow-through
method. Delmarva Transmittal at 8; ACE Transmittal at 7; and PEPCO
Transmittal at 8.
    \23\ See, e.g., ComEd Transmittal Letter at 32 (citing Duquesne
Light Co., Docket No. ER13-1220-000 (April 26, 2013) (delegated
order) (Duquesne); PPL Elec. Util. Corp., Docket No. ER12-1397-000
(May 23, 2012) (delegated order) (PPL); San Diego Gas & Elec. Co.,
105 FERC ] 61,301 (2003)).
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    13. Exelon Companies state that the timing of their filings was
influenced by a number of factors, in particular the desire to unlock
as soon as possible customer benefits from the Tax Cuts and Jobs Act.
Exelon Companies explain that they assume that recovery occurred for of
an amortized portion of the FAS 109 amounts each year until their
Formula Rate settlements in either 2005 or 2007, depending on the
individual company. They further assert that per the Formula Rate
settlements, recovery of the FAS 109 amounts were expressly excluded.
Therefore, they now seek authorization for recovery of the unamortized
portion of amounts from the dates the Formula Rates became effective
and any new originations since the Formula Rates were effective.
    14. Exelon Companies state that the rate impact from the Formula
Rate revisions on the annual transmission revenue requirements for the
Formula Rates will vary from year to year. Exelon Companies estimated
the one-year impact of the Formula Rate revisions using 2017 data,\24\
as shown in the following table:
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    \24\ See ComEd Transmittal at 47; Delmarva Transmittal at 42;
ACE Transmittal at 40; and PEPCO Transmittal at 42.
    \25\ This column represents Exelon Companies' estimates of the
benefits that customers will receive, beginning June 1, 2019, from
excess ADIT from the Tax Cuts and Jobs Act. The methods for recovery
of these excess ADIT amounts are being explored through the
Commission's Notice of Inquiry.
    \26\ This column represents a one year example of the net rate
increases resulting from the Exelon Companies' proposals. The net
rate increases would occur each year over the remaining lives of the
assets at issue.

----------------------------------------------------------------------------------------------------------------
                                                   ADIT-related      Net rate
                                                   rate decrease   increase from
                                                   from Tax Cuts   prior period     Overall net   Annual revenue
                     Company                       and Jobs Act    ADIT amounts   rate reduction  requirement ($
                                                      \25\ ($         \26\ ($       ($ million)      million)
                                                     million)        million)
----------------------------------------------------------------------------------------------------------------
ComEd...........................................              18               1              17             709
Delmarva........................................             4.1             0.7             3.4           127.9
ACE.............................................             4.2             0.6             3.6           132.7
PEPCO...........................................             5.3             0.9             4.4           161.7
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    15. Exelon Companies assert that their filings are timely and
should be accepted. Exelon Companies assert that the primary basis for
the Commission's rejection of BGE's filing in the November 16 Order was
that the BGE filing was untimely.\27\ They point out that one issue
raised in the November 16 Order was the suggestion that BGE was seeking
recovery of ``decades'' old amounts that should have been recovered
prior to the adoption of BGE's formula rates in 2005.\28\ They state
that BGE's rehearing request explained that BGE was not seeking
recovery of these out-dated amounts and they likewise are not seeking
recovery of out-dated amounts. In particular, Exelon Companies explain
that they assumed that an amortized portion of the FAS 109 amounts were
recovered each year until 2005 (for Delmarva, ACE and PEPCO) or 2007
(for ComEd) when the Formula Rates took effect, and they do not seek
recovery of those amounts prior to 2005 or 2007, respectively. Exelon
Companies state that they assumed that their black-box stated rates in
place prior to the Formula Rates included recovery of FAS 109 amounts.
Exelon Companies assert that this treatment is consistent with
Stingray,\29\ cited in the November 16 Order, in which the Commission
held that it would assume that FAS 109 amounts were being amortized
during the pendency of a settled stated rate that did not address the
FAS 109 issue.
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    \27\ Exelon Companies state that because their amendments to
their Formula Rates are essentially identical to BGE's, which the
Commission rejected in the November 16 Order, Exelon Companies
arguments in support of their amendments are similar to those which
BGE submitted in its rehearing request of the November 16 Order.
See, e.g., ComEd Transmittal at 33.
    \28\ Id. at 34 (citing November 16 Order, 161 FERC ] 61,163 at P
19).
    \29\ Id. at 34 (citing November 16 Order, 161 FERC ] 61,163 at P
19 & n.25 (citing Stingray Pipeline, Co., 50 FERC ] 61,159, at
61,469 (1990) (Stingray)).
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    16. Exelon Companies argue that their Formula Rates were settled
rates, and thus did not violate the ``next rate case'' rule in Order
No. 144. Exelon Companies explain that the November 16 Order found that
BGE should have addressed FAS 109 recovery in its 2005 formula rate
because it was the ``next rate case'' concerning FAS 109 amounts.\30\
Just as with BGE, Exelon Companies argue that the ``next rate case''
rule cannot be applied to Exelon Companies because their Formula Rates
filings resulted in settlements that expressly excluded FAS 109 amounts
from current rates, thus leaving the issue to be decided in some later
proceeding. Exelon Companies argue that no provision in the settlement
requires them to eliminate or reduce FAS 109 recovery, and it would be
unlawful to read such a provision into the settlement.\31\
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    \30\ Id. at 35 (citing November 16 Order, 161 FERC ] 61,163 at
PP 18-19). Order No. 144 specified that a rate applicant must make
adjustments pertaining to reversals from prior flow-through or tax
rate changes in ``the applicant's next rate case following the
applicability of [Order No. 144].'' Order No. 144, FERC Stats. &
Regs. ] 30,254 at 31,519.
    \31\ ComEd Transmittal at 35-36.
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    17. Exelon Companies also argue that Order No. 144 permits
resolution of the FAS 109 issue by settlement, and recognizes that
parties may reach a settlement that would defer litigation of the
timing of tax recoveries. In support of this position, they point out
that after Order No. 144 states that the applicants should address
ratemaking treatment in the ``next rate case,'' it states that: ``The
rule, of course, leaves undisturbed the ability of the parties to reach
a settlement on any of the issues covered by the rule.'' \32\ They also
assert that the Commission explained in Order No. 144 that it wanted to
ensure that ``agreement by the parties not to litigate the issue in
future cases is preserved and

encouraged.'' \33\ They assert that because this is the first rate case
after settlement of the Formula Rates, Exelon Companies have not
violated the ``next rate case'' rule.
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    \32\ Id. at 36 (citing Order No. 144, FERC Stats. & Regs. ]
30,254 at 31,519).
    \33\ Id. (citing Order No. 144, FERC Stats. & Regs. ] 30,254 at
31,561).
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    18. Exelon Companies assert that the ``reasonable period of time''
standard in Order No. 144 applies to the period of time for
normalization, and not the period of time in which the utility must
make its rate filing to implement normalization. They assert that, in
the November 16 Order, the Commission partially quoted and misconstrued
a sentence in Order No. 144 when it stated that: ``In Order No. 144,
the Commission specifically directed utilities `to begin the process of
making up deficiencies or eliminating excesses in their deferred tax
reserves . . . within a reasonable period of time to be determined on a
case-by-case basis.' '' \34\ They state that the full sentence in Order
No. 144 reads:
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    \34\ Id. at 37 (citing November 16 Order, 161 FERC ] 61,163 at P
19 (quoting Order No. 144, FERC Stats. & Regs. ] 30,254 at 31,560)).

    As revised, the final rule requires rate applicants to begin the
process of making up deficiencies in or eliminating excesses in their
deferred tax reserves so that, within a reasonable period of time to be
determined on a case-by-case basis, they will be operating under a full
normalization policy.\35\
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    \35\ Id. at 37 (citing Order No. 144, FERC Stats. & Regs. ]
30,254 at 31,560).

    19. Exelon Companies argue that this Order No. 144 language does
not direct when utilities must make a rate case filing, as the
Commission asserts in the November 16 Order, but instead it explains
the standards for evaluation of ``rate applicants'' when their next
rate case filing is made.\36\ Exelon Companies assert that their
proposal to normalize the recovery of deficient or excess amounts over
the remaining life of the assets meets Order No. 144's requirement for
seeking full normalization over a reasonable period of time. Exelon
Companies also point out that the definition of ``rate applicant'' and
other portions of Order No. 144 do not specify when the next rate case
must be filed.\37\ Exelon Companies also explain that subsequent cases
clarify that recovery ``in a reasonable period of time'' meant recovery
over the remaining life of the assets.\38\ Exelon Companies therefore
assert that, consistent with Order No. 144, this is the first rate case
after their settlement of the Formula Rates in which the issue could be
addressed, and their filings provide for recovery over the remaining
life of the assets, which is a reasonable period of time for recovery.
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    \36\ Id. at 38.
    \37\ Id.
    \38\ Id. at 39 (citing Northern States Power Co. (Wisconsin),
Opinion No. 345, 50 FERC ] 61,377, at 62,148 (1990) (``Opinion No.
345''), and Nat. Gas Pipeline of America, Opinion No. 108, 13 FERC ]
61,266 (1980)).
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    20. Exelon Companies argue that, in the November 16 Order, the
Commission ``suggested'' that BGE's filing violated the Commission's
matching policy because it sought recovery of amounts long after the
underlying assets have been retired or have stopped being
depreciated.\39\ They contend that, like BGE, they meet the matching
test because the filings are tied to recovery over the remaining life
of appropriately chosen assets.\40\ They conclude there is no basis for
concern that ``matching'' of costs and asset lives has somehow been
violated.\41\ Moreover, Exelon Companies argue that their use of the
industry standard PowerTax software verifies that the Flow-Through
Items regulatory asset is linked to assets that are still in
service.\42\
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    \39\ See ComEd Transmittal at 40 & n.85 (citing November 16
Order, 161 FERC ] 61,163 at P 20); Delmarva Transmittal at 35 &
n.83; Atlantic City Transmittal at 33 & n.83; and PEPCO Transmittal
at 35 & n.83.
    \40\ See, e.g., ComEd Transmittal at 40.
    \41\ Id. at 41.
    \42\ Id.
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    21. Exelon Companies next argue that recovery of the amounts from
2005 (for Delmarva, ACE and PEPCO) or 2007 (for ComEd) and going
forward is consistent with Order No. 144, with FAS 109 and the 1993 FAS
109 Guidance Letter, with the 2014 Staff Guidance on Formula Rate
Updates, and with the orders in PPL, Duquesne, VEPCO, and ITC. In this
regard, they briefly discuss each of these cases. They state that, in
PPL, four years had elapsed since PPL had implemented its formula rate,
and the entire regulatory asset amount, as of the date the formula rate
was implemented, was authorized for recovery. In Duquesne, seven years
had elapsed since its formula rate was filed, and the utility was
similarly authorized to recover the amount as of the date of its
formula rate. Regarding ITC and VEPCO, Exelon Companies state that
these cases similarly involved a formulaic mechanism for recovery of an
amortized amount, each year, of transmission-related FAS 109 amounts up
through the date in which each year's rates are calculated. Unlike PPL
and Duquesne, the adjustments in ITC and VEPCO also included new
originating FAS 109 amounts that had been recorded after their formula
rates were put in place. Taken together, Exelon Companies argue that
these proceedings make it clear that formulaic recovery of FAS 109
amounts from prior to, and after, implementation of the formula rate is
appropriate, which Exelon Companies argue is exactly what they propose
here.
    22. While conceding that the PPL, Duquesne, and VEPCO orders were
delegated letter orders, Exelon Companies point out that the ITC order
was not a delegated letter order and argue that the delegated orders
should be given weight as they are consistent with ITC.\43\
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    \43\ Id. at 42-43.
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    23. Finally, Exelon Companies argue that recovery of the past
expenses would not present a problem of retroactive ratemaking because
on appeal of Order No. 144, the court held that a provision for
recovery of deficient deferred taxes relating to prior years is not
retroactive.\44\ Exelon Companies assert that because customers' rates
in past years did not reflect these expenses, if the FAS 109 amounts
flow through rates, Exelon Companies' proposals will place customers in
exactly the same position as if they had included a formulaic rate
recovery of FAS 109 amounts in past rates.\45\
---------------------------------------------------------------------------

    \44\ Id. at 44 & n.98 (citing Public Systems v. FERC, 709 F.2d
73, 85 (D.C. Cir. 1983) (Public Systems)).
    \45\ Id. at 44.
---------------------------------------------------------------------------

B. Deficiency Letter

    24. On April 24, 2018, Commission staff issued a deficiency letter
advising Exelon Companies that their February 23, 2018 filings were
deficient and requiring additional information to evaluate their
Formula Rate revisions.\46\ Commission staff sought additional
information from the Exelon Companies about when they changed to full
tax normalization, whether the AFUDC Equity relates to current year's
depreciation expense, the method used to allocate FAS 109 amounts to
transmission-related components, past FAS 109 amortization collection
in rate base, the Tax Reform Act of 1986, and an explanation for why
the Exelon Companies decided to exclude FAS 109 recovery in their
Formula Rates and why they delayed in seeking recovery.
---------------------------------------------------------------------------

    \46\ PJM Interconnection, L.L.C., Deficiency Letter, Docket Nos.
ER18-899-000, et al. (Apr. 24, 2018) (Deficiency Letter).
---------------------------------------------------------------------------

    25. On May 3, 2018, Exelon Companies filed motions for additional
time to respond to the Deficiency Letter, so that their responses would
be due on July 9, 2018.\47\ On May 14, 2018, the

Commission granted Exelon Companies' motions.\48\
---------------------------------------------------------------------------

    \47\ ComEd Motion for Additional Time, Docket No. ER18-899-00
(filed May 3, 2018); Delmarva Motion for Additional Time, Docket No.
ER18-903-00 (filed May 3, 2018); ACE Motion for Additional Time,
Docket No. ER18-904-00 (filed May 3, 2018); and PEPCO Motion for
Additional Time, Docket No. ER18-905-00 (filed May 3, 2018).
    \48\ Notice of Extension of Time, Docket No. ER18-899-000 (May
14, 2018); Notice of Extension of Time, Docket No. ER18-903-000 (May
14, 2018); Notice of Extension of Time, Docket No. ER18-904-000 (May
14, 2018); and Notice of Extension of Time, Docket No. ER18-905-000
(May 14, 2018).
---------------------------------------------------------------------------

C. Deficiency Letter Responses

    26. On July 9, 2018, Exelon Companies filed responses to the
Commission staff's Deficiency Letter, which amended their filings.
    27. In their response to the Deficiency Letter, the Exelon
Companies largely reiterated arguments and pointed to data in their
filed cases. In response to staff's question as to when full tax
normalization had occurred at the retail level, the Exelon Companies
explain that, prior to their Formula Rate filings, the Exelon
Companies' rate filings historically resulted from black box
settlements. According to the Exelon Companies, these black box
settlements, prior to the implementation of Formula Rates, made it
impossible to determine whether the [stated] \49\ rates incorporated
full tax normalization. Exelon Companies contend that only after the
adoption of the subject Formula Rates were they effectively approved to
implement full tax normalization.
---------------------------------------------------------------------------

    \49\ Under stated rates, utilities are assumed to be recovering
all of their fixed costs, including any excess or deficiency in the
deferred income tax accounts.
---------------------------------------------------------------------------

    28. With respect to staff's question as to whether the AFUDC Equity
includes prior years' depreciation expense, Exelon Companies explain
that they propose to include South Georgia catchup provisions to
recover all unrecovered FAS 109 amounts associated with AFUDC Equity.
The Exelon Companies explain that they intend to track the relevant
assets and their relevant lives and retirements using their PowerTax
and PowerPlant software, which track each plant item and associated tax
expense, and thus will allow a FAS 109 amortization that properly
adjusts each year based on the remaining lives of the relevant assets.
    29. In response to staff's request on the net plant allocation
method used to determine the transmission-related component of FAS 109
regulatory asset, Exelon Companies explain that they generally use
composite transmission depreciation rates or group rates by account.
Exelon Companies explain that the ADIT reversal is calculated by
multiplying the AFUDC Debt and Equity components in depreciation
expense by the applicable composite income tax rate.
    30. In response to staff's request as to whether there was any
accumulated FAS 109 collections associated with prior flow-through
items, the Exelon Companies cite to their Formula Rate settlements
which specifically exclude FAS 109 amounts from rate base, and state
that their proposed Formula Rates continue to exclude FAS 109 amounts,
and thus FAS 109 does not impact rate base.
    31. In response to staff's request about the Tax Reform Act of
1986, Exelon Companies explain that they assume that they have been
refunding or recovering such amounts from their customers through
stated rates (either retail or Commission rates). However, due to the
fact that the stated rates prior to the effectiveness of their Formula
Rates were black box settlements, there is no rate order that expressly
spells out that such recovery is occurring.
    32. With respect to why the Exelon Companies decided to exclude FAS
109 recovery from their Formula Rates, they explain that exclusion of
FAS 109 amounts was the product of settlement. Nevertheless, they
suggest that it was reasonable given that the Commission's accounting
policies provide that recovery of FAS 109 amounts could only happen
pursuant to a FERC rate filing addressing those amounts. Further, they
explain that while it is clear today that recovery of such amounts can
occur formulaicly, it was not clear at the time that such automatic
flow through would be acceptable.

IV. Notices of Filings and Responsive Pleadings

A. Original Filings

    33. Notice of ComEd's filing in Docket No. ER18-899-000 was
published in the Federal Register, 83 FR 8986 (2018), with
interventions and protests due on or before March 16, 2018. Timely
motions to intervene were filed by FirstEnergy Service Company, Old
Dominion Electric Cooperative, PPL Electric Utilities Corporation and
Public Service Electric and Gas Company. The Illinois Commerce
Commission (Illinois Commission) filed a notice of intervention and
comments. On March 29, 2018, ComEd filed an answer.
    34. Notice of Delmarva's filing in Docket No. ER18-903-000 was
published in the Federal Register, 83 FR 8986 (2018), with
interventions and protests due on or before March 16, 2018. Timely
motions to intervene were filed by Delaware Municipal Electric
Corporation, Inc. (DEMEC), Delaware Division of the Public Advocate,
Maryland Office of People's Counsel (Md People's Counsel), FirstEnergy
Service Company, Old Dominion Electric Cooperative, PPL Electric
Utilities Corporation and Public Service Electric and Gas Company.
DEMEC filed a timely protest. MD People's Counsel filed timely
comments. On March 29, 2018, Delmarva filed an answer. On April 13,
2018, DEMEC filed an answer to the answer.
    35. Notice of ACE's filing in Docket No. ER18-904-000 was published
in the Federal Register, 83 FR 8986 (2018), with interventions and
protests due on or before March 16, 2018. Timely motions to intervene
were filed by FirstEnergy Service Company, the New Jersey Division of
Rate Counsel (Rate Counsel), PPL Electric Utilities Corporation, Public
Service Electric and Gas Company, and Vineland Municipal Electric
Utility (Vineland). Rate Counsel and Vineland filed timely protests. On
March 29, 2018, ACE filed an answer. On April 10, 2018, Rate Counsel
filed an answer to the answer.
    36. Notice of PEPCO's filing in Docket No. ER18-905-000 was
published in the Federal Register, 83 FR 8986 (2018), with
interventions and protests due on or before March 16, 2018. Timely
motions to intervene were filed by FirstEnergy Service Company, MD
People's Counsel, Office of the People's Counsel for the District of
Columbia (DC People's Counsel), Old Dominion Electric Cooperative, PPL
Electric Utilities Corporation Public Service Electric and Gas Company,
and Southern Maryland Electric Cooperative, Inc. (SMECO). DC People's
Counsel and MD People's Counsel filed timely comments. SMECO filed a
timely protest. On March 29, 2018, PEPCO filed an answer. On April 13,
2018, SMECO filed an answer to the answer.

B. Deficiency Letter Responses

    37. Notice of ComEd's Deficiency Letter response in Docket No.
ER18-899-001 was published in the Federal Register, 83 FR 32,662
(2018), with interventions and protests due on or before July 30, 2018.
None were filed.
    38. Notice of Delmarva's Deficiency Letter response in Docket No.
ER18-903-001 was published in the Federal Register, 83 FR 32,662
(2018), with interventions and protests due on or before July 30, 2018.
DEMEC filed a timely protest. On August 13, 2018, Delmarva filed an
answer.
    39. Notice of ACE's Deficiency Letter response in Docket No. ER18-
904-001 was published in the Federal Register, 83 FR 32,662 (2018),
with interventions

and protests due on or before July 30, 2018. None were filed.
    40. Notice of PEPCO's Deficiency Letter response in Docket No.
ER18-905-001 was published in the Federal Register, 83 FR 32,662
(2018), with interventions and protests due on or before July 30, 2018.
DC People's Counsel filed timely comments. On August 13, 2018, PEPCO
filed an answer.

V. Responsive Pleadings

A. ComEd Proceeding, Docket Nos. ER18-899-000 and ER18-899-001

    41. The Illinois Commission filed comments in support of ComEd's
filing and noted ComEd's assertion that the filing represents an
overall rate reduction that will directly benefit customers. It urges
the Commission to allow ComEd's Formula Rate to include any necessary
adjustments so that ComEd's customers fully realize these savings in a
timely manner.\50\ In response, ComEd argues that the Commission should
approve its filing without delay.
---------------------------------------------------------------------------

    \50\ Illinois Commission March 16, 2018 Comments at 1.
---------------------------------------------------------------------------

B. Delmarva Proceeding, Docket Nos. ER18-903-000 and ER18-903-001

1. Protest of DEMEC
    42. DEMEC argues that Delmarva's proposal to recover FAS 109
amounts for prior periods (2005-2017) is contrary to the 2006
settlement of Delmarva's Formula Rate (2006 Settlement) and Commission
precedent. DEMEC argues that contrary to Delmarva's claim that the 2006
Settlement left the issue of FAS 109 amount recovery to some later
proceeding, there is no provision in the 2006 Settlement that expressly
provides for addressing these amounts at some future date, and thus,
Delmarva unlawfully seeks to read into the 2006 Settlement a provision
that was not expressly contained in that 2006 Settlement.\51\ DEMEC
points out that the 2006 Settlement expressly proposed to remove FAS
109 amounts, and does not include any notice or agreement to
retroactively refund to Delmarva deferred tax liabilities recorded as
of December 31, 2004 or any other date. Further, DEMEC asserts that
Delmarva's 2005 formula rate filing was the next rate case after Order
No. 144 and FAS 109 was issued, since Delmarva did make a section 205
filing with its formula rate on January 31, 2005.\52\ DEMEC argues that
Order No. 144 did not permit utilities to forego explaining in their
settlement agreements their intentions regarding implementation of
Order No. 144.
---------------------------------------------------------------------------

    \51\ DEMEC March 16, 2018 Protest at 8.
    \52\ Id. at 9-10.
---------------------------------------------------------------------------

    43. DEMEC argues that Delmarva's filing inappropriately attempts to
tie the reductions due to transmission customers as a result of the Tax
Cuts and Jobs Act to an unjust and unreasonable request for retroactive
recovery of deferred tax amounts that it did not preserve to recover in
subsequent periods. DEMEC asserts that the Commission should summarily
reject any aspect of Delmarva's filing that would permit recovery of
deferred tax adjustments for prior periods, including any proposal for
inclusion of the amortization of regulatory assets and amortization of
prior flow-through amounts which were incurred in the past. DEMEC
argues that Delmarva's proposal pertaining to Flow-Through Items
violates the matching principle, as the Commission found in the
November 16 Order.\53\
---------------------------------------------------------------------------

    \53\ Id. at 12-13 (citing November 16 Order, 161 FERC ] 61,163
at P 20 & n.30 (citing Order No. 144, FERC Stats. & Regs. ] 30,254
at 31,522)).
---------------------------------------------------------------------------

    44. DEMEC asserts that even if Delmarva's filing is considered on a
forward-looking basis, it is not consistent with Commission precedent,
is lacking in adequate cost support, and contains various other errors
that render it unjust and unreasonable. For these reasons, DEMEC
asserts that Delmarva's filing should be set for hearing and settlement
procedures and an FPA section 206 investigation should be opened to
determine if further rate decreases would be appropriate.\54\
---------------------------------------------------------------------------

    \54\ Id. at 10-11.
---------------------------------------------------------------------------

    45. Specifically, DEMEC argues that the Commission's policy and
guidance reflects the need to differentiate between unfunded versus
funded ADIT balances and to exclude FAS 109 amounts absent a
demonstrated impact on billing determinations and express Commission
approval, noting the 2014 Staff Guidance on Formula Rate Updates.\55\
DEMEC also asserts that Delmarva's proposal lacks cost support for its
amortization periods and fails to pass back tax benefits to ratepayers
in a reasonable amount of time.\56\ For example, DEMEC suggests a five-
year amortization period for Non-Protected Excess ADIT amounts, as the
Commission proposed in its Notice of Inquiry.\57\ Additionally, DEMEC
asserts that Delmarva's filing fails to adjust the Account 190 ADIT
amount to reflect the tax rate change from 35 percent to 21 percent,
fails to exclude ADIT amounts related to the Net Operating Loss
Carryforward, and fails to justify the removal of certain components
from Attachment 5 of its Formula Rate.
---------------------------------------------------------------------------

    \55\ Id. at 11-12 (citing 2014 Staff Guidance on Formula Rate
Updates (July 17, 2014) at 1-2).
    \56\ Id. at 15-16.
    \57\ Id. at 17 (citing Notice of Inquiry, FERC Stats. & Regs. ]
35,582 at P 17).
---------------------------------------------------------------------------

    46. DEMEC argues that Delmarva's request for including the AFUDC
Equity amount in its income tax calculation will result in double
recovery of costs. DEMEC explains that Delmarva's proposal would result
in not only permitting Delmarva to recover the depreciation expense in
rates which exceed depreciation expenses allowed by the Internal
Revenue Service (IRS), but to also recover the income taxes associated
with this over-recovery of depreciation expenses. Further, DEMEC argues
the Commission should ensure that even on a prospective basis, Delmarva
is not permitted to double recover costs associated with depreciation
expense related income taxes.\58\ DEMEC also argues that AFUDC Equity
is a permanent tax difference, rather than a temporary tax difference,
and that the Commission has required support to demonstrate that
recovery of permanent tax differences is just and reasonable.\59\
---------------------------------------------------------------------------

    \58\ Id. at 18.
    \59\ Id. at 19.
---------------------------------------------------------------------------

    47. DEMEC argues Delmarva's filing does not include a number of Tax
Cuts and Jobs Act provisions that would further reduce Delmarva's
transmission rates, including the following: (1) The Federal corporate
rate reduction from 35 percent to 21 percent; (2) employee-related
deductions; and (3) various other reductions. Additionally, DEMEC
asserts that the Commission should require Delmarva to reflect the
refunds caused by all the rate reductions resulting from the Tax Cuts
and Jobs Act as of the effective date of the Tax Cuts and Jobs Act,
which is January 1, 2018.\60\
---------------------------------------------------------------------------

    \60\ Id. at 15.
---------------------------------------------------------------------------

2. Comments of MD People's Counsel
    48. MD People's Counsel argues that the Commission should consider
requiring Delmarva to include an interest provision for refunds from
the Tax Cuts and Jobs Act. MD People's Counsel also argues that
Delmarva's filing lacks sufficient details and supporting workpapers
for MD People's Counsel to understand the impact and accuracy of
Delmarva's ADIT calculations providing for flow-back of excess ADIT to
customers or recovery of deficient ADIT from customers. MD People's
Counsel notes that these were both issues raised in the Commission's
Notice of Inquiry.

    49. MD People's Counsel disagrees with Delmarva that the FAS 109
mechanism for deferred tax assets qualifies for single-issue rate
treatment.\61\ MD People's Counsel explains that the Commission has
limited the use of single-issue rate treatment to ``ADIT treatment in
formula rates when such revisions are only considered mere differences
in timing.'' \62\ MD People's Counsel asserts that Delmarva's revisions
to the treatment of FAS 109 deferred tax assets are more than
differences in timing and represent a significant departure from
previous Commission-approved accounting methods. MD People's Counsel
also explains that Delmarva's Formula Rate protocols only allow single-
issue rate treatment for certain issues, which does not include the
proposed FAS 109 mechanism, and therefore Delmarva's next section 205
general rate cases are the appropriate venue to consider this change.
---------------------------------------------------------------------------

    \61\ MD People's Counsel March 16, 2018 Comments to Delmarva at
5-7.
    \62\ Id. at 5 (citing Indicated RTO Owners, 161 FERC ] 61,018,
at P 14 (2017)).
---------------------------------------------------------------------------

3. Answer of Delmarva
    50. Delmarva responds that its request is permitted under the
Commission's single-issue ratemaking policy, which allows ``limited
revisions addressing [ADIT] treatment in formula rates when such
revisions are only considered mere differences in timing.'' \63\
Further, Delmarva asserts that severing the formula rate adjustments
pertaining to the Tax Cuts and Jobs Act from other portions of
Delmarva's proposal, as requested by the MD People's Counsel, would
transform its filing into a new rate scheme and violate the FPA.\64\
Delmarva asserts that DEMEC and MD People's Counsel have failed to
demonstrate any problem with the Formula Rates, aside from issues
raised in Delmarva's filing, and therefore the Commission should follow
its single-issue ratemaking policy and grant Delmarva's request.\65\
---------------------------------------------------------------------------

    \63\ Delmarva March 29, 2018 Answer at 4 (citing Indicated RTO
Owners, 161 FERC ] 61,018 at P 14).
    \64\ Id. at 12 & n.39 (citing NRG Power Mktg., LLC v. FERC, 862
F.3d 108 (D.C. Cir. 2017) (NRG) (rejecting Commission orders
transforming a rate scheme in a section 205 filing into an entirely
new rate scheme of the Commission's making)).
    \65\ Id. at 4-6.
---------------------------------------------------------------------------

    51. Delmarva also disagrees with DEMEC's allegation that recovery
of FAS 109 amounts would violate the 2006 Settlement Agreement and
would result in retroactive ratemaking. Delmarva states that if the
2006 Settlement Agreement precluded future recovery of FAS 109 amounts
as DEMEC asserts, then DEMEC's request--to recognize in rates excess/
deficient deferred taxes arising from the Tax Cuts and Jobs Act
effective January 1, 2018--would also be precluded.\66\ Delmarva
reiterates its previously stated positions on Order No. 144, FAS 109
and the 1993 FAS 109 Guidance Letter, the 2014 Staff Guidance on
Formula Rate Updates, and the November 16 Order. In particular,
Delmarva explains that since the issuance of Order No. 144, the
Commission has recognized that deferred taxes are not like other rate
elements that can only be recovered during the applicable test period
rate year, but that the Commission allows accrual of deferred tax
excesses and shortfalls until later rate years, with the recovery to be
determined in later rate cases on a ``case by case basis.'' \67\
Delmarva also points out that an appellate court has explicitly
rejected the argument that later recovery of deferred taxes is
retroactive ratemaking.\68\
---------------------------------------------------------------------------

    \66\ Id. at 6-7.
    \67\ Id. at 8.
    \68\ Id. at 8 & n.28 (citing Public Systems, 709 F.2d at 85).
---------------------------------------------------------------------------

    52. Delmarva argues that its filing does not remove any components
of Attachment 5 of Delmarva's Formula Rate and that DEMEC's assertions
that it has deleted these components is erroneous.
    53. Delmarva also argues that DEMEC's claim that rate recovery of
FAS 109 amounts associated with the equity component of the AFUDC
somehow amount to double recovery are incorrect. Delmarva states that
DEMEC's claim seems to be premised on the fact that AFUDC Equity is a
``permanent tax difference'' rather than a ``temporary timing
difference.'' Delmarva argues the Commission has repeatedly recognized
that formula recovery of FAS 109 amounts associated with AFUDC Equity
is appropriate and DEMEC has not addressed this precedent or provided a
reason for the Commission to rule differently.\69\
---------------------------------------------------------------------------

    \69\ Id. at 14.
---------------------------------------------------------------------------

    54. Delmarva argues that DEMEC's challenges to the specifics of
Delmarva's FAS 109 calculations \70\ and to non-FAS issues \71\ should
be addressed as part of the Annual Update process.
---------------------------------------------------------------------------

    \70\ Delmarva notes that, for example, DEMEC raises questions
about whether Delmarva's FAS 109 accounting factors in the
distinctions between ``funded'' and ``unfunded'' assets and
liabilities. Id. at 14 & n.46 (citing DEMEC March 16, 2018 Protest
at 11-12).
    \71\ Delmarva notes that DEMEC raises various questions about
whether Delmarva will properly calculate its Formula Rate, such as
whether Delmarva's rate base calculations will properly reflect
Account 190 and whether its rates will include various tax
deductions from the Tax Cuts and Jobs Act. Id. at 15-16 & n.48
(citing DEMEC March 16, 2018 Protest at 14, 19-20).
---------------------------------------------------------------------------

4. DEMEC's Answer to the Answer
    55. DEMEC reiterates that Delmarva has failed to provide cost
support, workpapers or justification for its proposed amount and timing
of its Excess/Deficient Deferred Taxes adjustment and associated
amortization periods, AFUDC Equity permanent tax difference adjustment,
and Flow-Through Items adjustment. DEMEC states that it cannot rely on
the Annual Update process for this information, as the Annual Update
process does not allow DEMEC to challenge the Formula Rate itself.
    56. DEMEC asserts that Delmarva misstates the terms of the 2006
Settlement. DEMEC points out that Attachment H-3D of the Formula Rate
only includes the instruction to exclude FAS 109 amounts from the
Formula Rate.\72\ DEMEC also argues that section 6.11 of the 2006
Settlement provides that the settling parties are not to rely on any
term not expressly set forth in the 2006 Settlement. DEMEC argues that
there is nothing in the 2006 Settlement that permits Delmarva to
recover excluded FAS 109 amounts in future years. DEMEC therefore
argues that Delmarva unravels the 2006 Settlement by now seeking
recovery of FAS 109 amounts back to 2005. Further, DEMEC states that
the Formula Rate protocols provide that the Annual Updates are final
and no longer subject to change or challenge on the later of the
passage of the challenge period or a final Commission order on the
Annual Update, subject to judicial review.\73\
---------------------------------------------------------------------------

    \72\ DEMEC April 13, 2018 Answer to the Answer at 4. In
particular, Attachment 1 of Attachment H-3D of Delmarva's Formula
Rate states: ``Less FASB 109 Above if not separately removed.''
    \73\ Id. at 6.
---------------------------------------------------------------------------

    57. DEMEC reiterates that Delmarva's 2005 Formula Rate filing was
the ``next rate case'' after Order No. 144 to obtain FAS 109 recovery,
and Delmarva's current proposal, filed 13 years after its Formula Rate
was implemented, was not filed within ``a reasonable period of time''
required by Order No. 144 to obtain FAS 109 recovery.\74\ DEMEC argues
that Public Systems does not support Delmarva's case, because
Delmarva's filing is seeking to recover shortfalls in prior rates going
back over 13 years and therefore Delmarva is engaged in retroactive
ratemaking.\75\ DEMEC therefore requests that the Commission reject
Delmarva's proposal to recover deferred tax amounts back to 2005.
---------------------------------------------------------------------------

    \74\ Id. at 5-6.
    \75\ Id. at 7-8.

---------------------------------------------------------------------------

    58. DEMEC states that, contrary to Delmarva's assumption, DEMEC's
argument about double recovery of AFUDC Equity is not based on a claim
that the request represents a permanent tax difference.\76\ Rather,
DEMEC explains that the AFUDC Equity adjustments results from the fact
that the IRS does not allow depreciation expense associated with AFUDC
Equity to be deducted on the tax return, while the Commission does
permit recovery of this depreciation expense in transmission rates.\77\
DEMEC states that Delmarva includes AFUDC Equity as a part of its rate
base, and it recovers depreciation associated with the AFUDC Equity as
well as a return on it with associated income taxes at the full
statutory tax rate. DEMEC asserts that Delmarva's proposal would permit
Delmarva to recover the depreciation expense in rates, which exceed
depreciation expenses allowed by the IRS, and also recover the income
taxes associated with this over-recovery of depreciation expenses.\78\
---------------------------------------------------------------------------

    \76\ Id. at 11 (citing Delmarva March 29, 2018 Answer at 14).
    \77\ Id.; DEMEC March 16, 2018 Protest at 18.
    \78\ DEMEC April 13, 2018 Answer to the Answer at 11.
---------------------------------------------------------------------------

    59. DEMEC also asserts that Delmarva is incorrect that single-issue
rate making is applicable to its filing, because its filing is not
limited to addressing ADIT timing differences in the current or future
test years. DEMEC argues that any proposed change to this component of
the Formula Rate retroactive to 2005 would require investigation of the
justness and reasonableness of the provisions of the existing Formula
Rate that Delmarva has not proposed to change.\79\
---------------------------------------------------------------------------

    \79\ Id.
---------------------------------------------------------------------------

5. DEMEC Protest of Deficiency Letter Response
    60. DEMEC reiterates its position that the 2006 Settlement contains
no provision that supports Delmarva's proposed treatment of FAS 109
amounts, AFUDC equity, and excess/deficient deferrals amounts. DEMEC
maintains that recovery of these amounts for prior periods would be
contrary to the filed rate doctrine, and that Delmarva's claims
pertaining to recovery in the ``next rate case'' are contrary to
relevant Commission precedent and guidance.\80\
---------------------------------------------------------------------------

    \80\ DEMEC July 30, 2018 Protest of Deficiency Letter Response
at 6.
---------------------------------------------------------------------------

    61. DEMEC also argues that Delmarva's Deficiency Response amplifies
the unreasonableness of its AFUDC equity proposal, because the proposal
implicates potential double-recovery or previously bargained-for
compromises. DEMEC restates that Delmarva's proposal runs afoul of the
rationales articulated by the court in Public Systems, and that PPL,
Duquesne, and VEPCO are inapt. DEMEC notes that Delmarva failed to
respond to Commission staff's question regarding the retail rate orders
approving Delmarva's full tax normalization and any catchup provisions
similar to the South Georgia catchup provision. DEMEC asserts that
Delmarva's reliance on discovery protocols in the annual update process
for post-2005 originations is insufficient as it is Delmarva's burden
to prove the reasonableness of its section 205 application.\81\
---------------------------------------------------------------------------

    \81\ Id. at 10-11.
---------------------------------------------------------------------------

    62. Finally, DEMEC emphasizes that Delmarva did not clarify whether
the ``weighted average expected service lives'' it references in its
Deficiency Response are equal to the lives used by Delmarva for
depreciating the assets and amortizing the Investment Tax Credits.
DEMEC requests that the Commission require Delmarva to do so.\82\
---------------------------------------------------------------------------

    \82\ Id. at 11.
---------------------------------------------------------------------------

6. Delmarva Answer to DEMEC Protest of Deficiency Response
    63. Delmarva reiterates its arguments that the 2006 Settlement
expressly recognizes the existence of the FAS 109 regulatory asset or
liability.\83\
---------------------------------------------------------------------------

    \83\ Delmarva August 13, 2018 Answer to DEMEC Protest of
Deficiency Response at 5.
---------------------------------------------------------------------------

    64. With respect to DEMEC's concern that the AFUDC equity component
of Delmarva's filing amounts to double recovery or over recovery,
Delmarva argues that as the Commission explained in Ameren, the
Commission's guiding principle is that it limits the allowance charged
to ratepayers to an amount equal to the costs the company incurs in
serving them.\84\ Delmarva argues there is no serious dispute that the
AFUDC Equity amounts at issue here, even those that originated pre-
2005, are real costs incurred by Delmarva in serving ratepayers and
thus, Delmarva is entitled to recover those costs.\85\
---------------------------------------------------------------------------

    \84\ Id. at 13 (citing Midcontinent Indep. Syst. Operator, 163
FERC ] 61,163, at P 63 (2018) (Ameren)).
    \85\ Id.
---------------------------------------------------------------------------

    65. In response to DEMEC's argument that there is something unclear
about the amortization proposed in the filing, Delmarva argues its
filing was clear.\86\ Delmarva asserts that as explained in the
response to Question 2(iii), Delmarva will amortize post-2005 amounts
based on the remaining lives of the relevant assets. For pre-2005
assets, Delmarva argues it proposes an amortization based on the
average remaining life of all of its transmission assets as of 2005-25
years, which it argues is consistent with the methodologies the
Commission accepted in PPL and Duquesne.\87\ Delmarva asserts that if
questions arise about whether Delmarva has properly implemented the
rates in any rate year, those questions can be raised as part of the
annual rate update process.\88\
---------------------------------------------------------------------------

    \86\ Id. at 13-14.
    \87\ Id. at 14.
    \88\ Id.
---------------------------------------------------------------------------

C. ACE Proceeding, Docket Nos. ER18-904-000 and ER18-904-001

1. Protests of Vineland and Rate Counsel
    66. Vineland concurs with the ACE Formula Rate amendments to the
extent that they provide a mechanism to refund to customers the excess
ADIT created when the Tax Cuts and Jobs Act reduced the ACE corporate
tax rate.\89\
---------------------------------------------------------------------------

    \89\ Vineland March 16, 2018 Protest at 1-2.
---------------------------------------------------------------------------

    67. However, Vineland objects to ACE's proposal to amend its
Formula Rate to recover deficient ADIT predating the Tax Cuts and Jobs
Act. Vineland argues that the proposals by ACE on: (1) Excess/Deficient
Deferred Taxes; (2) AFUDC Equity; and (3) Flow-Through Items were
specifically considered and rejected in the BGE case. Vineland argues
the same logic that led the Commission to reject those proposals in BGE
should prevail here.\90\
---------------------------------------------------------------------------

    \90\ Id. at 2.
---------------------------------------------------------------------------

    68. Vineland argues that ACE's proposed amortization period for
refund of the excess ADIT related to the Tax Cuts and Jobs Act, set
forth in Exhibit D-2 of ACE's Filing, is not well documented and
Vineland seeks Commission review and approval of the amortization
period proposed. Vineland notes that ACE proposes a 35-year
amortization period which it states equates to the average remaining
book life of the assets that were initially taxed. Vineland seeks
Commission review and confirmation that the amortization period is
properly related to the transmission plant giving rise to the refund of
excess ADIT brought about by the Tax Cuts and Jobs Act.\91\
---------------------------------------------------------------------------

    \91\ Id. at 5-6.
---------------------------------------------------------------------------

    69. Rate Counsel argues that as the changes sought by ACE are
substantively identical changes to those sought previously--and
unsuccessfully--by BGE, the Comission should summarily reject them.\92\
Rate Counsel disagrees that the precedent cited by ACE--Duquesne, PPL,
VEPCO and ITC--is applicable. Rate Counsel

argues that the ITC proceeding related to a 2011 tax change that
occurred four years prior to the filing in that case and the VEPCO
proceeding related to a 2013 tax change that occurred three years prior
to the filing in that case. Rate Counsel states that in contrast, while
the identity of the events that have given rise to the changes ACE
wishes to implement are not obvious from ACE's filing, it appears that
ACE--much like its affiliate BGE, which the Commission condemned for
seeking recoveries related to pre-1976 plant--is here seeking
recoveries associated with items dating back to the 1970s. Similarly,
Rate Counsel argues ACE's reliance on other Commission letter orders,
such as the one issued in Wisconsin Power & Light Co., do not justify
approval here.\93\
---------------------------------------------------------------------------

    \92\ Rate Counsel March 16, 2018 Protest at 4.
    \93\ Id. at 4.
---------------------------------------------------------------------------

    70. Rate Counsel notes that FAS 109, established in 1992, required
public utilities to make changes to their balance sheet to account for
the proper recording of (i) changes in tax laws or tax rates in the
period that the change is enacted and reflected in the utilities'
deferred tax accounts, (ii) a deferred tax liability for the equity
component of AFUDC depreciation expense, and (iii) a deferred tax
liability for any unfunded tax benefits previously flowed through to
ratepayers. Rate Counsel notes that in implementing FAS 109, the Chief
Accountant advised that if a utility's billing determinations would be
affected by adoption of FAS 109, then the utility must file with the
proper rate regulatory authorities before implementing the change in
tariff billings. Thus, Rate Counsel argues that contrary to ACE's
request here, filings implementing FAS 109 changes for billing purposes
were to be prospective--not retrospective.\94\
---------------------------------------------------------------------------

    \94\ Id. at 5.
---------------------------------------------------------------------------

    71. Rate Counsel next argues that ACE, like BGE, failed to comply
with the requirement to make a filing within a reasonable period of
time. Rate Counsel argues ACE has previously recorded all amortizations
of the FAS 109 regulatory assets and liabilities on its books and
records for the period 2005-2017. Rate Counsel argues ACE's claim that
it is making this adjustment to reverse the prior accounting treatment
of amortizing the FAS 109 assets and liabilities for 2005-2017 period
to ``properly match the ratemaking'' is illogical.\95\ Rate Counsel
argues ACE's existing transmission formula rate template already
appropriately reflects the removal (i.e., exclusion) of FAS 109's
current year balance from ADIT.\96\ Rate Counsel argues ACE has already
properly excluded FAS 109 balances for ratemaking purposes in prior
year periods, and has also properly amortized the FAS 109 assets and
liabilities each year for the 2005-2017 period.\97\
---------------------------------------------------------------------------

    \95\ Id. at 6.
    \96\ Id. at 6-7.
    \97\ Id. at 7.
---------------------------------------------------------------------------

    72. Rate Counsel argues the 2006 Settlement Agreement did not
contemplate that ACE would defer these FAS 109 amounts and seek
recovery in a subsequent rate case. Rather, in the 2006 Settlement
Agreement, the settling parties agreed on a revenue formula that was
accepted as just and reasonable, and which specifically excluded the
recovery of FAS 109 ADIT and annual amortization amounts.\98\ Rate
Counsel asserts that ACE has offered no basis that would justify a
unilateral amendment of the settled formula rate.\99\
---------------------------------------------------------------------------

    \98\ Id.
    \99\ Id. at 9.
---------------------------------------------------------------------------

    73. Rate Counsel asserts ACE cannot leverage the tax law change
into a basis for belated recovery of unrelated dollars. While Rate
Counsel agrees that a mechanism should be added to the formula to
account for the flow back of prospective Excess/Deficient Deferred
Income Taxes associated with federal income tax and state income tax
rate changes, especially in light of the recent significant reduction
of the federal income tax rate, Rate Counsel argues that it is not
appropriate to include amortization of Excess/Deficient Income Taxes
from prior periods. Rate Counsel argues that in addition to dating back
as much as 44 years, many of these items appear to be temporary in
nature and thereby create only temporary timing differences. Rate
Counsel argues ACE has not provided a detailed description of each of
the ``Other Flow Through Items,'' nor a detailed explanation supporting
a special formula adjustment to accommodate them. Rate Counsel argues
ACE has also not demonstrated that transmission customers benefited
from the prior flow-through. Therefore, Rate Counsel argues ACE has not
demonstrated that the transmission customers should now fund the
``deficiency'' in deferred income tax liabilities.\100\
---------------------------------------------------------------------------

    \100\ Id. at 11-13.
---------------------------------------------------------------------------

    74. Rate Counsel argues that ACE's claim that all FAS 109 items
must flow through the formula is unfounded and asserts FAS 109 includes
numerous items, each of which needs Commission approval. Rate Counsel
argues that a new line item can be added in Account 283 to record the
excess deferred taxes related to the federal income tax rate
change.\101\
---------------------------------------------------------------------------

    \101\ Id. at 13.
---------------------------------------------------------------------------

    75. Rate Counsel argues ACE has not demonstrated that the ten-year
amortization period is appropriate for transmission customers. Rate
Counsel argues the use of such a lengthy amortization period may cause
cross-generational cost allocation issues.\102\
---------------------------------------------------------------------------

    \102\ Id. at 14.
---------------------------------------------------------------------------

2. Answer of ACE
    76. ACE filed in its answer nearly identical responses to
Delmarva's answer in response to protesters' arguments on the following
three issues: (1) Single-issue rate treatment; (2) the allegation that
recovery of FAS 109 amounts would violate the 2006 Settlement Agreement
and would result in retroactive ratemaking; and (3) severing formula
rate adjustments pertaining to the Tax Cuts and Jobs Act from other
portions of ACE's proposal.
    77. ACE argues that Vineland's suggestion--that ACE seek Commission
approval for each and every FAS 109 amount as it arises--would be
burdensome and extreme because FAS 109 amounts arise frequently, thus
requiring multiple section 205 filings for every such expense. ACE
states that the Commission has repeatedly recognized that formula
recovery of FAS 109 amounts is just and reasonable.\103\
---------------------------------------------------------------------------

    \103\ ACE March 29, 2018 Answer at 12-13.
---------------------------------------------------------------------------

    78. ACE asserts that Rate Counsel failed to cite precedent that
precludes ACE from correcting accounting errors, such as ACE's reversal
of amortizations of FAS 109 amounts. ACE instead argues that Duquesne
and PPL support its proposal to correct these amortizations to align
rate treatment of FAS 109 amounts, and therefore Rate Counsel's
argument should be summarily rejected.\104\
---------------------------------------------------------------------------

    \104\ Id. at 13-14.
---------------------------------------------------------------------------

    79. Finally, ACE argues that various challenges raised by Rate
Counsel regarding numerical values in the proposal are more
appropriately raised within the annual formula rate update and
challenge process. ACE states that the formula rate protocols provide a
robust process for obtaining discovery on and challenging particular
items included in the annual rate update, and therefore the Commission
should reject Rate Counsel's arguments without prejudice to their right
to raise those issues in that forum.\105\
---------------------------------------------------------------------------

    \105\ Id. at 15.
---------------------------------------------------------------------------

3. Rate Counsel's Answer to the Answer
    80. Rate Counsel argues that contrary to ACE's claims, the ACE
accounting

department did not make an error, but instead correctly amortized the
FAS 109 amounts in ACE's books and records from 2006 through 2016,
consistent with Generally Accepted Accounting Principles (GAAP).\106\
Further, Rate Counsel argues that if ACE's intention was to defer FAS
109 amortizations from 2006-2016, then ACE should have requested
authorization from the Commission to implement such accounting
treatment.\107\
---------------------------------------------------------------------------

    \106\ Rate Counsel April 10, 2018 Answer to the Answer at 3.
    \107\ Id. at 3-4.
---------------------------------------------------------------------------

    81. Rate Counsel also argues that contrary to ACE's claims, it is
not asking the Commission to make an impermissible retroactive change
to ACE's rates. To this point, Rate Counsel argues that the FAS 109
current balances, after reflecting all prior period amortizations and
those amortizations that should have been expensed annually, are the
appropriate basis for any current or future amortizations and only
after the Commission approves each FAS 109 component.\108\
---------------------------------------------------------------------------

    \108\ Id. at 4.
---------------------------------------------------------------------------

D. PEPCO Proceeding, Docket Nos. ER18-905-000 and ER18-905-001

1. Protest of SMECO
    82. SMECO asserts that PEPCO's proposal to recover FAS 109 amounts
from prior periods is not just and reasonable for four reasons. First,
SMECO argues that PEPCO's proposal violates the filed rate doctrine and
the rule against retroactive ratemaking. SMECO reasons that the 2006
Settlement Agreement adopted a formula rate template that specifically
excluded these amounts and that PEPCO did not expressly reserve a right
to defer these amounts for future recovery.\109\ SMECO also contends
that, contrary to PEPCO's assertion, the 2006 Settlement Agreement
constituted the ``next rate case'' following Order No. 144.\110\
Alternatively SMECO argues that to the extent PEPCO wanted to attempt
to recover these FAS 109 amounts, it should have done so immediately
after the rate moratorium (which resulted from settlement) that ended
on June 1, 2009. SMECO notes that accepting PEPCO's proposal now would
also contradict precedent set in the November 16 Order involving
BGE.\111\
---------------------------------------------------------------------------

    \109\ SMECO March 16, 2018 Protest at 3-4.
    \110\ Id. at 5.
    \111\ Id. at 6-7.
---------------------------------------------------------------------------

    83. Secondly, SMECO notes that, for accounting purposes, PEPCO has
already been amortizing FAS 109 regulatory assets and liabilities for
the 2005-2017 period. SMECO states that PEPCO's proposal to reverse all
these amortizations ``to properly match the ratemaking'' is illogical
because PEPCO's formula rate already appropriately reflects the
exclusion of FAS 109 current year balances from ADIT.\112\
---------------------------------------------------------------------------

    \112\ Id. at 8.
---------------------------------------------------------------------------

    84. Thirdly, SMECO argues that for PEPCO to properly seek rate
recovery of prior FAS 109 amounts for AFUDC Equity Origination/
Depreciation, it would have needed to create a deferred regulatory
asset on its books to record the annual AFUDC Equity depreciation
amount, which it did not. SMECO contends that PEPCO is effectively
attempting to revise its books to create these deferred regulatory
assets retrospectively.\113\
---------------------------------------------------------------------------

    \113\ Id. at 9.
---------------------------------------------------------------------------

    85. Finally, SMECO agrees that a mechanism in the formula rate is
necessary to flow back Excess/Deficient Deferred Taxes associated with
federal and state income tax changes. However, SMECO claims that PEPCO
has not adequately supported its proposed amortization and that it is
inappropriate to include amortization of Excess/Deficient Income Taxes
from prior periods.\114\
---------------------------------------------------------------------------

    \114\ Id. at 10-11.
---------------------------------------------------------------------------

    86. SMECO alleges that many of the ``Other Flow Through Items''
appear to be temporary in nature, and that PEPCO has failed to
sufficiently support its basis for making a special adjustment to
income taxes in the formula rate for these items. SMECO maintains that,
as with the other prior-period FAS 109 amounts, it is inappropriate for
PEPCO to recover these amounts from prior periods in its current and
future formula rates, and that PEPCO could have dealt with these items
in the 2006 Settlement Agreement.\115\
---------------------------------------------------------------------------

    \115\ Id. at 11-12.
---------------------------------------------------------------------------

    87. SMECO states that the entire FAS 109 amounts (including
deferred tax amounts from prior periods) do not need to be included in
rates in order to effectuate the Tax Cuts and Jobs Act. SMECO argues
that PEPCO can instead create a new line item in Account 283 to
implement the excess deferred taxes related to the adjustment of the
federal income tax rate, or that the regulatory liability balance for
the excess deferred tax reserve recorded in Account 254 can be included
as an adjustment to rate base.\116\
---------------------------------------------------------------------------

    \116\ Id. at 12-13.
---------------------------------------------------------------------------

    88. SMECO also argues that PEPCO has not supported its claim that
the Flow-Through Items regulatory asset is linked to assets that are
still in service. SMECO further argues that the Commission should
reject PEPCO's attempt to shift the burden of proof regarding the
reasonableness of its proposal to transmission customers via the
formula rate protocols.\117\ SMECO also notes that PEPCO does not
address the overall tax rate change from 35 percent to 21 percent in
its filing.\118\
---------------------------------------------------------------------------

    \117\ Id. at 13.
    \118\ Id. at 14.
---------------------------------------------------------------------------

    89. SMECO argues that PEPCO has not sufficiently supported the
amortization periods it proposes to apply for Excess Deferred Taxes
Decrease/(Increase) to deferred tax assets for Protected Property Rate
Base, Non-Protected Property Rate Base, Non-Protected Non-Property Rate
Base, and Non-Protected Non-Rate Base balances. SMECO also specifically
disputes PEPCO's proposed 10-year amortization period for Non-Protected
Non-Property and Non-Protected Non-Rate Base items, alleging that this
may cause intergenerational cost allocation issues, wherein the
customers that contributed to the excess deferred income taxes may not
necessarily be the same customers that receive the flow back of excess
deferred income taxes.\119\
---------------------------------------------------------------------------

    \119\ Id. at 14-15.
---------------------------------------------------------------------------

2. Comments of MD People's Counsel and DC People's Counsel

    90. MD People's Counsel filed comments in response to PEPCO's
filing that were identical to the comments it filed in response to
Delmarva's filing.\120\
---------------------------------------------------------------------------

    \120\ MD People's Counsel March 16, 2018 Comments to PEPCO at 1,
3-7.
---------------------------------------------------------------------------

    91. DC People's Counsel agrees with PEPCO's proposal to apply the
average rate assumption method in calculating excess ADIT on Protected
Property Rate Base balances, but requests that the Commission utilize
its discretion to institute a shorter amortization period for excess
ADIT on Non-Protected Rate Base and Non-Rate Base balances. DC People's
Counsel specifically requests a 10-year amortization period for excess
ADIT on Non-Protected Property Rate Base balances, and a 5-year
amortization period for excess ADIT on Non-Protected Non-Property Rate
Base and Non-Protected Non-Rate Base balances.\121\
---------------------------------------------------------------------------

    \121\ DC People's Counsel March 16, 2018 Comments to PEPCO at 5-
6.
---------------------------------------------------------------------------

    92. DC People's Counsel argues that amending the formula rate to
recover historical FAS 109 amounts and provide for automatic pass
through of ongoing FAS 109 amounts is unnecessary to return tax savings
to ratepayers resulting from the Tax Cuts and Jobs Act. DC People's
Counsel notes that although PEPCO argues the instant case is the

``next rate case'' following the 2006 Settlement Agreement, the
requested 60-day schedule is insufficient to thoroughly explore the
ramifications of PEPCO's proposal.\122\ DC People's Counsel also states
that it would be unwise to approve PEPCO's proposal until the
Commission completes its review of ADIT issues implicated by the Tax
Cuts and Jobs Act under Docket No. RM18-12-000.\123\
---------------------------------------------------------------------------

    \122\ Id. at 7-8.
    \123\ Id. at 9.
---------------------------------------------------------------------------

    93. DC People's Counsel argues that PEPCO's proposal does not meet
the Commission's criteria for single-issue treatment of ratemaking. DC
People's Counsel states that the Commission has limited the use of
single-issue treatment to ``ADIT treatment in formula rates when such
revisions are only considered mere differences in timing,'' and that
PEPCO's proposal represents a significant departure from previous
Commission-approved accounting methods. DC People's Counsel further
argues that the proposed treatment of FAS 109 amounts will likely
result in changes in other component costs that warrant the
Commission's full understanding, which is not possible in a single-
issue rate case.\124\
---------------------------------------------------------------------------

    \124\ Id. at 9-10.
---------------------------------------------------------------------------

3. Answer of PEPCO
    94. PEPCO filed in its answer nearly identical responses to
Delmarva's responses to protesters' arguments on the following three
issues: (1) Single-issue rate treatment; (2) the allegation that
recovery of FAS 109 amounts would violate the 2006 Settlement Agreement
and would result in retroactive ratemaking; and (3) severing formula
rate adjustments pertaining to the Tax Cuts and Jobs Act from other
portions of ACE's proposal.
    95. PEPCO asserts that SMECO failed to cite precedent that
precludes PEPCO from correcting accounting errors, such as PEPCO's
reversal of amortizations of FAS 109 amounts. PEPCO instead argues that
Duquesne and PPL support its proposal to correct these amortizations to
align rate treatment of FAS 109 amounts, and therefore SMECO's argument
should be summarily rejected.\125\
---------------------------------------------------------------------------

    \125\ PEPCO March 29, 2018 Answer at 13-14.
---------------------------------------------------------------------------

    96. Finally, PEPCO argues that various challenges raised by SMECO
regarding numerical values in the proposal are more appropriately
raised within the annual formula rate update and challenge process.
PEPCO states that the formula rate protocols provide a robust process
for obtaining discovery on and challenging particular items included in
the annual rate update, and therefore the Commission should reject
SMECO's arguments without prejudice to their right to raise those
issues in that forum.\126\
---------------------------------------------------------------------------

    \126\ Id. at 14.
---------------------------------------------------------------------------

4. SMECO's Answer to the Answer
    97. SMECO argues that there is no provision in Attachment 1 of
Attachment H-9A or any other portion of the settlement agreement or
Formula Rate established as part of the 2006 Settlement that preserves
PEPCO's ability to collect FAS 109 deferred tax amounts at a future
date. Further, SMECO argues that Section 6.11 of the 2006 Settlement
makes clear that the Settling Parties are not to rely on any term not
expressly set forth in the Settlement by stating, ``none of the
Settling Parties has relied upon any representation, express or
implied, not contained in this Settlement.'' \127\ Additionally, SMECO
argues that until PEPCO revised its formula rate protocols effective
December 3, 2015, the formula rate protocols provided that PEPCO's
annual updates would become final and no longer subject to change or
challenge by any entity on the latter of the passage of the challenge
period or final FERC order on the annual update, subject to judicial
review.\128\
---------------------------------------------------------------------------

    \127\ SMECO April 13, 2018 Answer to Answer at 3-4.
    \128\ Id. at 4.
---------------------------------------------------------------------------

    98. SMECO argues that PEPCO misstates the applicability of Order
No. 144 and associated cases and Commission guidance to its filing in
this proceeding. SMECO further argues that even if PEPCO's erroneous
interpretation of the 2006 Settlement and the Order No. 144 precedent
is considered in a light most favorable to PEPCO, recovering deferred
tax liabilities thirteen years after they could have been captured in
the Formula Rate since its implementation on 2005, is not a reasonable
period.\129\
---------------------------------------------------------------------------

    \129\ Id. at 6.
---------------------------------------------------------------------------

    99. SMECO argues that it is not seeking to prevent PEPCO from
recovering prior FAS 109 amounts due to ``erroneous accounting'' that
has now been corrected. SMECO argues that while PEPCO describes it as
an ``accounting error,'' PEPCO's amortization of FAS 109 amounts in
fact reflects that PEPCO's accounting department recognized that PEPCO
had not sought or received Commission approval for the deferral of FAS
109 amounts and must amortize the FAS 109 amounts as required under
GAAP.\130\
---------------------------------------------------------------------------

    \130\ Id at 7-8.
---------------------------------------------------------------------------

    100. SMECO argues PEPCO does not meet its FPA section 205 burden of
proof in this proceeding when it argues that the issues SMECO has
raised in its protest should be deferred to the annual update process.
SMECO asserts that the issues it has raised are pertinent to the
justness and reasonableness of PEPCO's Formula Rate revisions and
should be addressed in the instant proceeding.\131\
---------------------------------------------------------------------------

    \131\ Id. at 8.
---------------------------------------------------------------------------

5. DC People's Counsel Comments on Deficiency Letter Response
    101. In its response to PEPCO's response to the Deficiency Letter,
DC People's Counsel reiterates its opposition to PEPCO's proposal to
recover FAS 109 deferred tax assets.\132\
---------------------------------------------------------------------------

    \132\ DC People's Counsel July 30, 2018 Comments on Deficiency
Letter Response at 1-2.
---------------------------------------------------------------------------

    102. DC People's Counsel states that PEPCO's current transmission
Formula Rate plan does not include FAS 109 deferred tax assets.
However, PEPCO's application proposes a modification to the Formula
Rate plan that would include historical FAS 109 deferred tax assets in
the Formula Rate plan dating back to December 31, 2004.\133\ DC
People's Counsel expresses concern regarding PEPCO's request to modify
its Formula Rate plan to now include these historical FAS 109 deferred
asset balances going back to December 31, 2004 and to provide for
automatic pass through in formula-based transmission rates of similar
deferred assets.\134\
---------------------------------------------------------------------------

    \133\ Id. at 5.
    \134\ Id. at 6.
---------------------------------------------------------------------------

    103. DC People's Counsel concludes that the explanations provided
in PEPCO's response are insufficient to justify inclusion of such FAS
109 deferred asset balances in PEPCO's revised Formula Rate plan at
this time. Given PEPCO's history of ``black box'' settlements and the
lengthy period (from mid-2005 through 2017) over which PEPCO has
accumulated such balances, DC People's Counsel recommends excluding the
FAS 109 deferred asset amortizations from the adjustment to PEPCO's
transmission rates at this time, to allow for detailed scrutiny and
analysis of those balances in a complete rate case.\135\
---------------------------------------------------------------------------

    \135\ Id. at 7.
---------------------------------------------------------------------------

6. PEPCO Answer to DC People's Counsel Comments on Deficiency Response
    104. PEPCO argues DC People's Counsel has not alleged, much less
supported, an argument that formula elements outside of the proposed
FAS 109 modifications are incorrect and that there is no basis for
ordering a complete rate case that goes beyond the issues

raised in PEPCO's filing.\136\ PEPCO argues that the Commission
accepted a single issue filing considering amendments to a formula rate
to provide for rate recovery of FAS 109 amounts in May 2018 in
Ameren.\137\
---------------------------------------------------------------------------

    \136\ PEPCO August 13, 2016 Answer to DC People's Counsel
Comments on Deficiency Letter Response at 5.
    \137\ Id. at 5 (citing Ameren, 163 FERC ] 61,163).
---------------------------------------------------------------------------

    105. PEPCO argues the Commission's policy and precedent permitting
rate flow through of FAS 109 amounts is clear and argues the
Commission's recent ruling in its Pipeline Tax Final Rule describes and
summarizes the Commission's relevant tax ratemaking policies, and makes
clear that PEPCO's filing is well founded.\138\ PEPCO argues the
findings in the Pipeline Tax Final Rule concerning FAS 109 adjustments
are directly applicable in this proceeding, because PEPCO's filing
relies on the exact same policies and precedent. PEPCO argues that it
is subject to the Commission's accounting rules that require accrual of
FAS 109 amounts to a regulatory asset or liability, and the precedent
providing for later rate pass through.\139\
---------------------------------------------------------------------------

    \138\ Id. at 5-6 (citing Interstate and Intrastate Natural Gas
Pipelines; Rate Changes Relating to Federal Income Tax Rate, Order
No. 849, FERC Stats. & Regs. ] 31,404 2018)).
    \139\ Id. at 7.
---------------------------------------------------------------------------

    106. With respect to DC People's Counsel's argument to accept
certain aspects of PEPCO's filing, while rejecting others, PEPCO argues
that neither the FPA nor Commission precedent permit the Commission to
somehow sever the adjustments related to the Tax Cuts and Jobs Act from
the other portion of the FAS 109 modifications in the filing. PEPCO
argues that in doing so, it would transform the filing from a fair and
evenhanded amendment intended to have taxes flowing through rates match
actual tax liabilities over time into an entirely different rate scheme
in which tax liabilities of the utility would not be adequately
reflected in rates. Further, PEPCO argues there is no basis for
rejecting, delaying, or otherwise preventing the effectiveness of the
proposed FAS 109 amendments.\140\
---------------------------------------------------------------------------

    \140\ Id. at 8.
---------------------------------------------------------------------------

VI. Discussion

A. Procedural Matters

    107. Pursuant to Rule 214 of the Commission's Rules of Practice and
Procedure, 18 CFR 385.214 (2018), the notices of intervention and the
timely, unopposed motions to intervene serve to make the entities that
filed them parties to the specific proceeding in which they intervened.
    108. Rule 213(a)(2) of the Commission's Rules of Practice and
Procedure, 18 CFR 385.213(a)(2) (2018), prohibits an answer to a
protest and an answer to an answer unless otherwise ordered by the
decisional authority. We will accept the answers to the protests and
the answers to the answers in the specific proceeding in which they
were filed because they have provided information that assisted us in
the decision-making process.

B. Substantive Matters

    109. We find that Exelon Companies have not shown that their
proposed Formula Rates provisions allowing for the recovery of
previously incurred income tax amounts are just and reasonable and
therefore we reject their filings. While we do not find Exelon
Companies' proposal to refund deferred amounts related to the recent
Tax Cuts and Jobs Act or its proposal to recover or return deferred
income tax amounts on an ongoing basis to be unjust and unreasonable,
we reject Exelon Companies' proposal as a whole, in recognition of
Exelon Companies' statements that accepting only certain aspects of its
proposal would ``transform this filing into an entirely new rate
scheme.'' \141\
---------------------------------------------------------------------------

    \141\ E.g., ComEd Transmittal at n.8.
---------------------------------------------------------------------------

    110. As described below, our rejection of the Exelon Companies'
filings is without prejudice to Exelon Companies submitting new filings
with a mechanism to refund or recover, as appropriate, deferred income
tax excesses and deficiencies related to the recent Tax Cuts and Jobs
Act and any future income tax changes, any new originations of past
income tax changes, and taxes on AFUDC Equity associated with current
and future years' depreciation expense.\142\ As described below, we
also announce a limited compliance period under Order No. 144 for other
utilities to make section 205 filings to recover past ADIT in certain
circumstances.
---------------------------------------------------------------------------

    \142\ Further, our action here is not intended to prejudge
future action by the Commission in the Notice of Inquiry concerning
the Tax Cuts and Jobs Act.
---------------------------------------------------------------------------

1. Timing of Exelon Companies Filings
    111. As the Commission found in the November 16 Order involving
BGE, we find that the deferred amounts Exelon Companies seek to recover
here should have been captured when Exelon Companies' Formula Rates
were implemented in 2005 (for Delmarva, ACE and PEPCO) and 2007 (for
ComEd).\143\ While Order No. 144 put ratepayers on notice that
companies may make adjustments for recovery of certain tax
deficiencies, the Commission required such adjustments to be made for
the purpose of transitioning to full normalization in ``the applicant's
next rate case following the applicability of the rule.'' \144\ Exelon
Companies' initial Formula Rate filings included line items that
expressly excluded recovery of these items in their Formula Rates.\145\
Exelon Companies thus failed to comply with the requirement in Order
No. 144 that recovery should be addressed in the ``next rate case'' at
the time they initially filed their Formula Rates.
---------------------------------------------------------------------------

    \143\ November 16 Order, 161 FERC ] 61,163 at P 18.
    \144\ Order No. 144, FERC Stats. & Regs. ] 30,254 at 31,519.
This requirement is reflected in the Commission's regulations
regarding tax normalization, which state that, if the public utility
has not provided deferred taxes in the same amount that would have
accrued had tax normalization been applied for transactions
occurring any time before the test period, or if tax rate changes
cause the accumulated provision for deferred income to become
deficient or in excess, the public utility is required to compute
the income tax component in its cost of service by making provision
for any excess or deficiency in deferred taxes. 18 CFR 35.24(c)
(2018).
    \145\ For ComEd, see Formula Rate Filing, Docket No. ER07-583-
000, Appendix A, Attachment H-13, at line 40 (filed Mar. 1, 2007)
(line item for ``ADIT net of FASB 106 and 109'') (emphasis added).
For ACE, Delmarva and PEPCO, see Formula Rate Filing, Docket No.
ER05-515-000, Appendix A, Attachments H-1, H-3 and H-9, at line 40
(filed Jan. 31, 2005) (line item for ``ADIT net of FASB 106 and
109'') (emphasis added).
---------------------------------------------------------------------------

    112. Exelon Companies insist that they did not run afoul of this
guidance because their Formula Rate filings in 2005 (for Delmarva, ACE
and PEPCO) and 2007 (for ComEd) resulted in settlements \146\ that
expressly excluded FAS 109 amounts from current rates,\147\ and the
settlement for Delmarva, ACE and PEPCO included a rate moratorium
preventing them from filing a further rate case until 2009.\148\ While
it is true that the Formula Rate proceedings in 2005 (for Delmarva, ACE
and PEPCO) and 2007 (for ComEd) were resolved via settlements that
expressly excluded FAS 109 amounts, we disagree with Exelon Companies'
characterization of this exclusion as ``leaving the issue to be

addressed in some later proceeding.'' \149\ Exelon Companies argue that
interpreting the settlements to require them to eliminate or reduce
their FAS 109 regulatory assets, instead of deferring recovery for the
future, reads extraneous provisions into the settlements.\150\ However,
the settlements did not expressly reserve deferred income tax issues,
as Exelon Companies contend; rather, the settlements were silent on
this point. The Exelon Companies' settlements were thus not analogous
to the Stingray settlement, which expressly provided a compromise level
of adjustment to deferred tax accounts.\151\ Accordingly, in finding
that the Exelon Companies' 2005 and 2007 Formula Rate cases constituted
the ``next rate case'' for purposes of Order No. 144, we are not
disregarding the settlement, but rather interpreting the references to
line items being ``net of'' or ``less'' FAS 109 amounts to mean that
the Exelon Companies did not intend to pursue recovery of these
amounts, whether at the time of the settlement or 10 years later.
Moreover, because Exelon Companies did not request recovery of FAS 109
amounts in their initial filings of their Formula Rate cases, Exelon
Companies could not have deferred recovery of FAS 109 amounts for the
next rate case unless they expressly addressed this issue in the
settlements of their Formula Rates.
---------------------------------------------------------------------------

    \146\ Order No. 144 states that ``[t]he rule, of course, leaves
undisturbed the ability of the parties to reach a settlement on any
of the issues covered by the rule.'' Order No. 144, FERC Stats. &
Regs. ] 30,254 at 31,519.
    \147\ For ComEd, see Offer of Settlement, Docket No. ER07-583-
000, (filed October 5, 2007) (Attachment H-13, at line 40 (line item
for ``ADIT net of FASB 106 and 109'') (emphasis added) and
Attachment 1--ADIT Worksheet, which states: ``Less FASB 109 Above if
not separately removed''). For ACE, Delmarva and PEPCO, see Offer of
Settlement, Docket No. ER05-515-000, (filed March 20, 2006)
(Attachments H-1, H-3 and H-9, at line 40 (line item for ``ADIT net
of FASB 106 and 109'') (emphasis added) and Attachment 1--ADIT
Worksheets, which state: ``Less FASB 109 Above if not separately
removed'').
    \148\ E.g., Delmarva Transmittal at 19.
    \149\ E.g., ComEd Transmittal at 35.
    \150\ Id. at 35-36.
    \151\ Id. at 34-35.
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    113. In addition, Exelon Companies failed to comply with the
directive in Order No. 144 to begin the process of adjusting its
deferred tax deficiencies and excesses ``so that, within a reasonable
period of time to be determined on a case-by-case basis, [it would] be
operating under a full normalization policy.'' \152\ According to
Exelon Companies, even after its 2005 and 2007 Formula Rate proceedings
were resolved by settlement, and after the rate moratorium established
in the settlements for Delmarva, ACE and PEPCO ended in 2009, this is
the first rate case since to address these issues.\153\ Exelon
Companies still do not explain why they waited an additional nine and a
half years to make their February 23, 2018 filings. And Exelon
Companies' apparent conclusion that they could hold these amounts in
reserve indefinitely conflicts with the language of Order No. 144.
Order No. 144 also established that rate applicants must ``begin the
process of making up deficiencies in or eliminating excesses in their
deferred tax account reserves so that, within a reasonable period of
time to be determined on a case-by-case basis, they will be operating
under a full normalization policy.'' \154\ We find that the
``reasonable period of time'' language was intended to work in
conjunction with the ``next rate case'' requirement, not as an
alternative. In other words, requiring applicants to begin the process
of making up deficiencies or returning excesses so as to be operating
under a full normalization policy ``within a reasonable period of
time'' does not negate the requirement that applicants must seek
recovery in their next rate case. As explained above, Exelon Companies
failed to file for recovery in its next rate case as required by Order
No. 144 or reserve the issue for future consideration through
settlement. Having failed to meet that requirement, they cannot now
claim that their filing would provide for recovery within a
``reasonable period of time.''
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    \152\ Order No. 144, FERC Stats. & Regs. ] 30,254 at 31,560.
    \153\ ComEd Transmittal at 39; Delmarva Transmittal at 34-35;
ACE Transmittal at 33; PEPCO Transmittal at 35.
    \154\ Order No. 144, FERC Stats. & Regs. ] 30,254 at 31,560
(emphasis added).
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    114. We further disagree with Exelon Companies' assertion that
Order No. 144 did not impose any requirement on utilities to make a
rate filing. Exelon Companies suggest that by using the term ``rate
applicant,'' defined in the regulation text as a utility ``that makes a
rate filing,'' the Commission was signaling in Order No. 144 that
utilities need only begin the process of recovering deficiencies or
refunding excesses after they filed a rate case, without imposing any
requirements as to when that rate case must be filed.\155\ Exelon
Companies' reading is inconsistent with the intent of the quoted
sentence, which requires rate applicants to begin the process ``so
that, within a reasonable period of time to be determined on a case-by-
case basis, they will be operating under a full normalization policy.''
\156\ If, as the sentence suggests, the goal was for utilities to begin
operating under a full normalization policy within a reasonable time,
interpreting this ``reasonable period of time'' requirement to be
triggered only after a rate case is filed with no parameters as to when
the rate case must be filed defeats this purpose. Additionally, while
Exelon Companies stress that Order No. 144 did not actually direct
utilities to make a rate filing,\157\ the Commission directed utilities
to ``begin the process'' of making up deficiencies or eliminating
excesses, and required a rate applicant to compute the income tax
component in its cost of service by making provision for any excess or
deficiency in its deferred tax reserves resulting both from the prior
flow through treatment of timing differences and from tax rate changes,
which would require a rate filing.\158\ In sum, while the language in
Order No. 144 recognizes that the reasonable timing for implementing
tax normalization may vary and thus provides some flexibility, Exelon
Companies' reading would render the timing purely discretionary.
---------------------------------------------------------------------------

    \155\ ComEd Transmittal at 38; Delmarva Transmittal at 33; ACE
Transmittal at 32; PEPCO Transmittal at 33.
    \156\ Order No. 144, FERC Stats. & Regs. ] 30,254 at 31,560.
    \157\ ComEd Transmittal at 37-38; Delmarva Transmittal at 33;
ACE Transmittal at 32; PEPCO Transmittal at 33.
    \158\ Order No. 144, FERC Stats. & Regs. ] 30,254 at 31,560.
---------------------------------------------------------------------------

    115. Exelon Companies further assert that subsequent cases
interpreting Order No. 144 have established that recovery in a
``reasonable period of time'' means that deferred tax amounts should be
flowed back ``over the remaining life of the property that generated
the deferred tax reserve.'' \159\ However, we disagree with Exelon
Companies' position that the Commission's use of a ``reasonable period
of time'' referred solely to the time period to amortize the tax
deficiencies.\160\ Rather, the Commission expressed the intention in
Order No. 144 that utilities take the necessary steps to ensure that
they would be operating under a full normalization policy within a
reasonable period of time, that to be operating under full
normalization, the method to be used should be a Commission-approved
method, and that provision for such differences be included in the
income tax component of cost of service. While the choice of
normalization method is

certainly relevant to this objective,\161\ so is the timely proposal of
provisions to recover deficiencies and excesses of deferred income tax
(including the proposed choice of normalization method) to be
adjudicated in the companies' next rate case. In other words, requiring
applicants to select normalization methods that will ensure a timely
transition to full normalization would be meaningless if the applicants
can defer filing those proposed methods over the course of several rate
cases.
---------------------------------------------------------------------------

    \159\ ComEd Transmittal at 39; Delmarva Transmittal at 34; ACE
Transmittal at 32-33; PEPCO Transmittal at 34 (citing Opinion No.
345, 50 FERC at 62,148, and Nat. Gas Pipeline of America, 13 FERC ]
61,266).
    \160\ In the proceedings underlying Opinion No. 345, intervenors
used the term ``reasonable period of time'' to question whether the
speed at which deficiencies would be flowed back to customers using
the Average Rate Assumption Method (ARA Method) would comply with
the policy expressed in Order No. 144. See Opinion No. 345, 50 FERC
at 62,148. The Commission found that it was reasonable to flow back
the two percent of deferred taxes related to timing differences
using the ARA Method (required under the Tax Reform Act of 1986 for
the other amounts), because the ARA Method provided a reasonable way
to flow back deferred amounts ``over the remaining life of the
assets that generated the deferred taxes'' and because the impact on
customers would be so minor. Id. at 62,149. The Commission did not
comment on intervenors' characterization of the term ``reasonable
period of time'' nor apply Order No. 144 in reaching this result.
    \161\ See Order No. 144, FERC Stats. & Regs. ] 30,254 at 31,560
(``Since the appropriateness of any method to accomplish the
objective of full normalization at current tax rates has not been
analyzed by the Commission on a generic basis, the Commission is, at
this time, requiring resolution of this problem on a case-by-case
basis.'').
---------------------------------------------------------------------------

    116. In the November 16 Order, the Commission held that
``[c]ontrary to BGE's assertions, . . . utilities do not have
unfettered discretion to defer these [deferred] tax amounts on their
books for decades without timely seeking regulatory approval to collect
them.'' \162\ Exelon Companies take umbrage to the suggestion that they
are seeking to recover decades-old amounts.\163\ As Exelon Companies
assert, deferred income taxes necessarily reflect a timing difference
in the recognition of current income tax effects on the tax return and
recognition on the books in future periods. However, as Exelon
Companies accede, these items were amortized and recovery of these
items was included in rates through black box settlements through 2005
(for Delmarva, ACE and PEPCO) and 2007 (for ComEd), then expressly
excluded by Exelon Companies until their February 23, 2018 filings,
more than a decade later. In other words, our concern is not that
deferred income taxes are, by definition, collected over a period of
time, but that the Exelon Companies are now seeking to recover amounts
that should have been recovered between 2005 or 2007 and 2018.
---------------------------------------------------------------------------

    \162\ November 16 Order, 161 FERC ] 61,163 at P 19.
    \163\ ComEd Transmittal at 34-35; Delmarva Transmittal at 30;
ACE Transmittal at 28-29; PEPCO Transmittal at 30.
---------------------------------------------------------------------------

    117. In the November 16 Order, the Commission cited Stingray \164\
for the proposition that recording a deferred tax liability does not
guarantee that the utility will be able to recover this amount, as
express approval is needed from the Commission.\165\ Exelon Companies
state that the Commission recognized in Stingray that there could be
remaining unamortized amounts that were properly recoverable in rates
on an ongoing basis in the years after the settlement.\166\ Exelon
Companies claim that they similarly assumed that an amortized portion
of the FAS 109 regulatory asset was recovered in rates prior to 2005
(for Delmarva, ACE and PEPCO) and 2007 (for ComEd), and has limited
their filings to seeking recovery of remaining balances and new
accruals as of 2005 and 2007 respectively.\167\ As we recognized in
Stingray, recovery of remaining unamortized balances of regulatory
deferrals is permissible on an ongoing basis, provided that the utility
properly addresses the manner of recovery. Exelon Companies present no
arguments in their applications that have persuaded us that deferred
income tax amounts were reserved for future collection.
---------------------------------------------------------------------------

    \164\ Stingray, 50 FERC ] 61,159.
    \165\ November 16 Order, 161 FERC ] 61,163 at P 19.
    \166\ ComEd Transmittal at 34-35; Delmarva Transmittal at 30;
ACE Transmittal at 29-30; and PEPCO Transmittal at 30.
    \167\ Id.
---------------------------------------------------------------------------

2. Matching
    118. As the Commission explained in Order No. 144 \168\ and in the
November 16 Order,\169\ the primary rationale for tax normalization is
matching the costs of plant (i.e., tax benefits from depreciation
expense) to the periods to which they are allocated in rates. To
operate properly, ``tax normalization allocates the tax benefits of an
expense to the same time periods that the expense itself is
allocated.'' \170\ The Commission found in Order No. 144 that the
properly applied tax normalization method was more equitable than the
flow-through method, which, through its inequitable allocation of tax
costs over time, distorted the Commission's pricing policies.\171\
---------------------------------------------------------------------------

    \168\ Order No. 144, FERC Stats. & Regs. ] 30,254 at 31,522.
    \169\ November 16 Order, 161 FERC ] 61,163 at n.30.
    \170\ Order No. 144, FERC Stats. & Regs. ] 30,254 at 31,522.
    \171\ Id.
---------------------------------------------------------------------------

    119. In the cases before us, Exelon Companies argue that, in the
November 16 Order, the Commission ``suggested'' that BGE's filing
violated the Commission's matching policy because it sought recovery of
amounts long after the underlying assets have been retired or have
stopped being depreciated.\172\ They contend that, like BGE, they meet
the matching test because the filings are tied to recovery over the
remaining life of appropriately chosen assets.\173\ They conclude there
is no basis for concern that ``matching'' of costs and asset lives has
somehow been violated.\174\
---------------------------------------------------------------------------

    \172\ ComEd Transmittal at 40 & n.85 (citing November 16 Order,
161 FERC Stats. & Regs. ] 61,163 at P 20).
    \173\ Id. at 40.
    \174\ Id. at 41.
---------------------------------------------------------------------------

    120. In the November 16 Order, the Commission made a finding that
``[b]ecause BGE did not address the tax deficiency in a reasonable
time, its proposal no longer has the requisite matching of the
amortization period with the relevant transmission assets.'' Thus, the
Commission found that it was ``not appropriate for BGE to propose, at
this late date, a mechanism to recover years of accumulated deferred
tax liability amounts.'' \175\
---------------------------------------------------------------------------

    \175\ November 16 Order, 161 FERC ] 61,163 at P 21.
---------------------------------------------------------------------------

    The Commission found it troublesome to allow recovery of these
amounts for plant that was either fully depreciated or retired by the
time BGE submitted its filing.\176\
---------------------------------------------------------------------------

    \176\ Id. P 20.
---------------------------------------------------------------------------

    121. Exelon Companies argue that their instant proposals, and BGE's
proposal in Docket No. ER17-528, are all consistent with the
Commission's matching policy. Exelon Companies' arguments, however,
mischaracterize the Commission's matching policy. The Commission's
matching policy does not, as suggested, hinge on whether the regulatory
assets are ``linked to assets that are still in service.'' Exelon
Companies' basis for contending that their proposals do not violate
matching principles is that their use of the industry standard PowerTax
software verifies that the Flow-Through Items regulatory asset is
linked to assets that are still in service.\177\ This ignores, however,
that assets often can and do remain in service after the amortization
period has expired and the assets are fully depreciated. This was an
important factor in the Commission's findings in the November 16 Order
that Exelon Companies' arguments ignore.
---------------------------------------------------------------------------

    \177\ Id.
---------------------------------------------------------------------------

    122. For example, Exelon Companies propose to recover the Flow-
Through Items over the remaining life of the assets in place at the
time they implemented their Formula Rates (i.e., in 2005 or 2007).
However, they have failed to show that these assets have not been fully
depreciated and that they are still in service. The correct time period
for recovery of the tax benefits from the depreciation expenses for
these assets was over the remaining life of the assets in place at the
time the switch to full normalization occurred (i.e., in the 1970s).
The Commission has never approved such a re-amortization period as
proposed by the Exelon Companies for the regulatory assets at issue
here, and nothing presented here convinces

us that this would be appropriate. Further, with regard to AFUDC
Equity, the Exelon Companies propose to develop new South Georgia tax
provisions for each year's new AFUDC Equity origination and adjust the
amortization for any retirements or changes in depreciation rates.
However, South Georgia catch-up provisions are not supposed to change
unless the tax rates change.
    123. Exelon Companies also propose to recover accumulated amounts
associated with AFUDC Equity that has already been depreciated.\178\
However, to ensure consistency with the matching principle, only the
additional taxes associated with the relevant year's depreciation of
AFUDC Equity are eligible for recovery.\179\
---------------------------------------------------------------------------

    \178\ In response to the Deficiency Letter, Exelon Companies
explain that the requisite formulaic data inputs to determine the
taxes associated with the current year's depreciation expense (i.e.,
gross accumulated AFUDC Equity in transmission plant, depreciation
rates and applicable income tax rates) do exist, but the proposed
tax adjustments for the tax effects associated with AFUDC Equity do
not match their current year's depreciation expense.
    \179\ November 16 Order, 161 FERC ] 61,163 at P 20.
---------------------------------------------------------------------------

3. Prior Precedent
    124. We find unpersuasive the arguments by Exelon Companies that
recovery of the amounts from 2005 or 2007 and going forward is
consistent with Order No. 144, FAS 109 and the 1993 FAS 109 Guidance
Letter, the 2014 Staff Guidance on Formula Rate Updates, and the orders
in PPL, Duquesne, VEPCO, and ITC.
    125. In support of their argument, Exelon Companies briefly discuss
each of these cases. They state that, in PPL, four years had elapsed
since PPL had implemented its formula rate, and the entire regulatory
asset amount, as of the date the formula rate was implemented, was
authorized for recovery. In Duquesne, they state that seven years had
elapsed since its formula rate was filed, and the utility was similarly
authorized to recover the amount as of the date of its formula rate.
Regarding ITC and VEPCO, Exelon Companies state that these cases
similarly involved a formulaic mechanism for recovery of an amortized
amount, each year, of transmission-related FAS 109 amounts up through
the date in which each year's rates are calculated. Unlike PPL and
Duquesne, Exelon Companies state that the adjustments in ITC and VEPCO
also included new originating FAS 109 amounts that had been recorded
after their formula rates were put in place. Taken together, Exelon
Companies argue that these proceedings make it clear that formulaic
recovery of FAS 109 amounts from prior to, and after, implementation of
the formula rate is appropriate, which, Exelon Companies argue, is
exactly what they propose here.
    126. In addition, while conceding that the PPL, Duquesne, and VEPCO
orders were delegated letter orders, Exelon Companies point out that
ITC was not a delegated letter order and argues the delegated orders
should be given weight as they are consistent with ITC.\180\ These same
arguments were also raised on rehearing in Docket No. ER17-528-002.
Consistent with the November 16 Order and rehearing order being issued
concurrently in that proceeding, we disagree with the Exelon Companies
for the reasons stated in the November 16 Order, the rehearing order
and reasons discussed below. As we stated in the November 16 Order, the
records in the ITC and VEPCO proceedings ``do not reflect that either
VEPCO or ITC requested a South Georgia catch-up provision to recover
prior period accumulated amounts related to AFUDC Equity.'' \181\