[Code of Federal Regulations]
[Title 18, Volume 1]
[Revised as of April 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 18CFR154.305]

[Page 448-449]
 
           TITLE 18--CONSERVATION OF POWER AND WATER RESOURCES
 
  CHAPTER I--FEDERAL ENERGY REGULATORY COMMISSION, DEPARTMENT OF ENERGY
 
PART 154--RATE SCHEDULES AND TARIFFS--Table of Contents
 
              Subpart D--Material To Be Filed With Changes
 
Sec. 154.305  Tax normalization.

    (a) Applicability. An interstate pipeline must compute the income 
tax component of its cost-of-service by using tax normalization for all 
transactions.
    (b) Definitions.
    (1) Tax normalization means computing the income tax component as if 
transactions recognized in each period for ratemaking purposes are also 
recognized in the same amount and in the same period for income tax 
purposes.
    (2) Commission-approved ratemaking method means a ratemaking method 
approved by the Commission in a final decision. This includes a 
ratemaking method that is part of an approved settlement or arbitration 
providing that the ratemaking method is to be effective beyond the term 
of the settlement or arbitration.
    (3) Income tax purposes means for the purpose of computing actual 
income tax under the provisions of the Internal

[[Page 449]]

Revenue Code or the income tax provisions of the laws of a State or 
political subdivision of a State (including franchise taxes).
    (4) Income tax component means that part of the cost-of-service that 
covers income tax expenses allowable by the Commission.
    (5) Ratemaking purposes means for the purpose of fixing, modifying, 
accepting, approving, disapproving, or rejecting rates under the Natural 
Gas Act.
    (6) Tax effect means the tax reduction or addition associated with a 
specific expense or revenue transaction.
    (7) Transaction means an activity or event that gives rise to an 
accounting entry.
    (c) Reduction of, and addition to, Rate Base. (1) The rate base of 
an interstate pipeline using tax normalization under this section must 
be reduced by the balances that are properly recordable in Account 281, 
``Accumulated deferred income taxes-accelerated amortization property''; 
Account 282, ``Accumulated deferred income taxes--other property'': and 
Account 283, ``Accumulated deferred income taxes--other.'' Balances that 
are properly recordable in Account 190, ``Accumulated deferred income 
taxes,'' must be treated as an addition to rate base. Include, as an 
addition or reduction, as appropriate, amounts in Account 182.3, Other 
regulatory assets, and Account 254, Other regulatory liabilities, that 
result from a deficiency or excess in the deferred tax accounts (see 
paragraph (d) of this section) and which have been, or are soon expected 
to be, authorized for recovery or refund through rates.
    (2) Such rate base reductions or additions must be limited to 
deferred taxes related to rate base, construction, or other costs and 
revenues affecting jurisdictional cost-of-service.
    (d) Special rules. (1) This paragraph applies:
    (i) If the rate applicant has not provided deferred taxes in the 
same amount that would have accrued had tax normalization always been 
applied; or
    (ii) If, as a result of changes in tax rates, the accumulated 
provision for deferred taxes becomes deficient in, or in excess of, 
amounts necessary to meet future tax liabilities.
    (2) The interstate pipeline must compute the income tax component in 
its cost-of-service by making provision for any excess or deficiency in 
deferred taxes.
    (3) The interstate pipeline must apply a Commission-approved 
ratemaking method made specifically applicable to the interstate 
pipeline for determining the cost-of-service provision described in 
paragraph (d)(2) of this section. If no Commission-approved ratemaking 
method has been made specifically applicable to the interstate pipeline, 
then the interstate pipeline must use some ratemaking method for making 
such provision, and the appropriateness of such method will be subject 
to case-by-case determination.
    (4) An interstate pipeline must continue to include, as an addition 
or reduction to rate base, any deficiency or excess attributable to 
prior flow-through or changes in tax rates (paragraphs (d)(1)(i) and 
(d)(1)(ii) of this section), until such deficiency or excess is fully 
amortized in accordance with a Commission approved ratemaking method.