A utility commission's order to flow back excess deferred income taxes without matching rate-base adjustments violates the normalization consistency rule, but the utility avoids sanctions by taking corrective action

Plain-English summary

Utilities that use accelerated depreciation on public utility property must follow the "normalization" rules, which stop regulators from flowing the resulting tax benefits back to ratepayers faster than allowed. When the 2017 Tax Cuts and Jobs Act cut the corporate tax rate, this utility's accumulated deferred taxes became "excess deferred income taxes" (EDIT) that get returned to customers over time using the average rate assumption method (ARAM). A state commission's rate order required the utility to adjust its EDIT amortization (using estimates for a future 24-month period, annual updates, and a volume true-up) without making matching adjustments to rate base, ADIT, book depreciation expense, and tax expense. The utility asked the IRS whether that order complies with the normalization rules. The IRS ruled it does not: the "consistency rule" of section 168(i)(9)(B) forbids using an estimate or projection for one item (EDIT amortization) unless the same estimate is used for tax expense, depreciation expense, the deferred-tax reserve, and rate base, and the order gave customers an improper double benefit. But the IRS also ruled that the utility will not be treated as violating the normalization rules if it follows the corrective actions in its letter, since the commission and the utility always intended to comply and the commission agreed to reopen the order.

Ruling snapshot

• Question: Does the commission's order (adjusting EDIT amortization without matching adjustments to rate base, ADIT, depreciation, and tax expense) comply with the normalization rules, and will the utility be treated as in violation?
• Outcome: Mixed (the order violates the consistency rule; no normalization violation if the utility takes the described corrective action)
• Key authorities: IRC § 168(i)(9); former IRC § 167(l); TCJA § 13001(d); Treas. Reg. § 1.167(l)-1; Rev. Proc. 2017-47

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202142002 Third Party Communication: None
Release Date: 10/22/2021 Date of Communication: Not Applicable
Index Number: 167.22-01
Person To Contact:
--------------------- -----------------------, ID No. ------------
------------------------------------------------------------ Telephone Number:
--------- ---------------------
---------------------------------- Refer Reply To:
----------------------------- CC:PSI:B6
------------------------------ PLR-101961-21
Date:
July 26, 2021

Legend

Taxpayer = ------------------------------------------------------------
Corporation = -----------------------------------------------------
State A = ----------------
State B = -------------
Commission A = ---------------------------------------------------------------------------------
Commission B = -----------------------------------------------------
Order = ------------
Date 1 = ----------------
Date 2 = ----------------
Date 3 = ------------------
Date 4 = ----------------
Date 5 = ---------------------
Date 6 = -----------------------
Date 7 = ---------------------
Date 8 = --------------------------
Year 1 = -------
Year 2 = -------
Year 3 = -------

Dear -------------:

   This letter responds to a request for a private letter ruling dated January 7, 2021,

submitted by Taxpayer. Taxpayer requests rulings with respect to the application of
§ 168(i)(9) of the Internal Revenue Code, former § 167(l), and section 13001(d) of the
Tax Cuts and Jobs Act, Pub. L. 115-97(the “TCJA”) (together, the Normalization Rules),
regarding the proper accounting and ratemaking treatment of excess deferred income
PLR-101961-21 2

taxes (“EDIT”). The relevant facts as represented in Taxpayer’s submission are set
forth below.
FACTS

   Taxpayer is an electric and natural gas utility headquartered in State A.

   Taxpayer is a wholly owned member of Corporation and Subsidiaries

consolidated group. Corporation is an energy services holding company incorporated in
State B. Taxpayer is included in the consolidated federal income tax return of
Corporation. Taxpayer employs a calendar year reporting period and uses an accrual
method of accounting. Corporation elected to be treated as a corporation for federal tax
purposes. Corporation and Subsidiaries are not presently under audit by the Internal
Revenue Service.

    Taxpayer is engaged in the production, transmission, and distribution of

electricity and the distribution of natural gas in State A. It is subject to the regulatory
authority of Commission A and Commission B as to the terms and conditions of service
and the rates it is permitted to charge for its service. Its rates are established or
approved based on its costs of service, including a return on its capital investment (rate
base).

     Taxpayer’s rates are established by Commission A on a “cost of service, rate-of-

return” basis. Thus, Taxpayer is permitted an opportunity to recover its prudently
incurred costs and earn an appropriate return on its rate base, which reflects its net
invested capital. The convention employed in State A with respect to rate base is that a
utility’s accumulated deferred income tax balance (“ADIT”) offsets gross rate base (rate
base computed before reduction by ADIT). Included in Taxpayer’s ADIT balance are a
significant amount of deferred taxes attributable to accelerated depreciation claimed
with respect to public utility property. Thus, Taxpayer’s ADIT is, to a substantial extent,
subject to the normalization rules contained in § 168(i)(9) and former § 167(l).
Commission A uses an historical test period consisting of a 12-month period for
purposes of determining Taxpayer’s costs and rate base. Results of this test period are
adjusted by “pro forma adjustments” to remove materially distortive items and to give
effect to known and measurable changes that are not offset by other factors.

   As part of this process of setting rates, Taxpayer computes its depreciation

expense and its income tax expense, including both current and deferred components
of income tax expense, for inclusion in its cost of service. Taxpayer also reduces its
gross rate base by its ADIT balance to determine the rate base on which it is permitted
to earn a return. Taxpayer’s accounting treatment for depreciation expense, income tax
expense, ADIT, and rate base has been consistent with the Normalization Rules.

    On December 22, 2017, the TCJA was signed into law. Among other changes,

the TCJA reduced the federal corporate income tax rate from 35 percent to 21 percent
for tax years beginning after December 31, 2017, Taxpayer’s calendar Year 1 tax year.
PLR-101961-21 3

    As a result of the tax reduction, the deferred taxes Taxpayer had accumulated at

a 35 percent rate were reduced to those that would have been accumulated at a 21
percent rate had the 21 percent rate been in effect for all prior years. Because
Taxpayer had a net deferred tax liability (“DTL”) on December 31, 2017, the tax rate
reduction resulted in EDIT, because Taxpayer now expects to pay income taxes to the
Department of the Treasury at the reduced 21 percent rate, as the timing differences
that gave rise to its DTL reverse. In general, Taxpayer had collected the EDIT from
customers through its traditional ratemaking methodology and not on a precise dollar-
for-dollar basis. The 14-percentage point reduction in the tax rate is available to reduce
the tax expense that Taxpayer included in setting customer rates. It is the timing of this
reduction of the EDIT that is the issue of this ruling request.

    Taxpayer maintains records that include the vintage records necessary to apply

the average rate assumption method (“ARAM”). The total balance of Taxpayer’s EDIT
is unknown. The annual amount of EDIT reversal under ARAM will vary each year, and
this variance is unknown at this time. In general, this variability is caused by future
events, including the time at which a vintage begins to reverse or when a vintage fully
reverses. Taxpayer provides deferred taxes on plant-related timing differences whether
or not those timing differences are protected by the Normalization Rules or unprotected
by the Normalization Rules. Taxpayer and Commission A intend to apply ARAM to all
plant-related timing differences. There is no dispute over this intent to apply ARAM.
Throughout Taxpayer’s general rate case (“GRC”), these balances are commonly
referred to as “protected plus” or “PP” to acknowledge the fact that ARAM is being
applied not only to all protected EDIT, but also unproteced plant-related EDIT.

 Taxpayer has been accounting for EDIT balances in ratemaking on a consistent

method since the Tax Reform Act of 1986, Pub. L. No: 99-514 (“TRA 1986”). That
method has been as follows:

  Taxpayer closes its books on a monthly basis. Each resulting monthly income
  statement and balance sheet contains its share of book depreciation, rate base,
  income tax expense, and ADIT (including EDIT). Taxpayer includes the ARAM
  reversal of EDIT in its monthly calculation of tax expense. Its EDIT balance is
  included in its ADIT to ensure that rate base is reduced by the proper amount of
  deferred taxes. This treatment ensures that book depreciation, income tax
  expense, ADIT, and rate base are computed consistently.

  Taxpayer’s rates are set periodically in a GRC using an historical test period. In
  a GRC, the accounting activity recorded in each month during the historical test
  year is the basis for setting customer rates, plus or minus any pro-forma
  adjustments. Once customer rates are established, they remain constant until
  the next GRC. At that next GRC, customer rates will be reset based on a new,
  different historical test year – different income and expenses (including income
  tax expense and book depreciation expense), different rate base, and different

PLR-101961-21 4

  ADIT. The assumption underlying the use of an historical test year is that the
  costs and benefits in the historical period, plus or minus any pro-forma
  adjustments, will be representative of future periods during which customers will
  pay the rates. The process is intended to ensure that customer rates will be fair,
  just, reasonable, and sufficient. This is so even though the actual income and
  incurred costs, including EDIT reversals, for the period for which the rates are set
  will be different than those used to set the rates during the GRC.

   In its Year 2 GRC, Taxpayer used calendar year Year 1 as the historical test

year. This was its first GRC following the TCJA. In its monthly accounting activity
throughout Year 1, Taxpayer recorded its EDIT reversal using ARAM. Those
accounting entries had the effect of reducing Taxpayer’s deferred tax expense and
reduced Taxpayer’s EDIT balance. No other entries were made with respect to EDIT.
These entries were identical to those Taxpayer made since the tax rate reduction
provided by the TRA 1986 to account for the EDIT created by the TRA 1986 tax rate
reduction and used to set rates since that time.

   In filing its Year 2 GRC, Taxpayper included the EDIT reversals that it recorded

in calendar year Year 1, consistent with the use of Year 1 as the historical test period.
In addition, its ADIT balance, including the EDIT, reflected these reversals. The
accounting that occurred in calendar year Year 1 formed the basis for the amounts that
Taxpayer proposed in setting rates for Year 2. In other words, the Year 1 book
accounting provides the basis for ratemaking in the Year 2 GRC, which was originally
intended to be effective for new rates beginning in mid-Year 3.

   In response to Taxpayer’s Year 2 GRC filing, Commission A issued Order on

Date 1. Commission A did not follow Taxpayer’s requested historical treatment.
Instead, Commission A ordered the approach that raises the normalization issues that
are the subject of this request.

   Order requires Taxpayer to separately track EDIT on a tariff rate schedule

independent of its rates set in its general rate order. In one requirement, Commission A
requires the schedule to be updated annually for the reversal of the EDIT for the current
year as if rates were set each year. Furthermore, in another requirement, Commission
A requires Taxpayer to true-up for the difference between the EDIT amounts set in the
schedule and the actual amount passed back due to volumetric variances. Commission
A has ordered that the schedule must produce an annual adjustment to Taxpayer’s
rates for ARAM amortization of EDIT without any corresponding adjustment to
Taxpayer’s rates for annual changes in depreciation expense, income tax expense, rate
base, or ADIT (including EDIT).

   Order includes Taxpayer’s depreciation expense, tax expense, ADIT (including

EDIT), and rate base for the test year in the computation of the primary cost of service
and base rate. Order then requries an adjustment to cost of service by removing the
test year ARAM amortization of EDIT and substituting for that amount, as a reduction in
PLR-101961-21 5

cost of service, the estimated EDIT amortization for the year following the test year plus
the next year which includes part of the rate year (in total, a 24-month period). No other
similar adjustments are made for depreciation expense, income tax expense, ADIT
(including EDIT), or rate base, which were, instead, based on the historical test period
(again, not including pro forma adjustments which are not a topic of this PLR).

    Order was applied to Taxpayer as follows: The test year was calendar year

Year 1. The original rate year was to be Date 2 through Date 3, but the start of that rate
period was initially delayed due to Coronavirus to an effective date of Date 4. After
some further delays, the rates became effective Date 5, for gas operations and Date 6,
for electric operations. Taxpayer’s originally proposed ARAM EDIT amortization was
based on the test year (calendar year Year 1). The Order adjustment was based on an
estimate of ARAM EDIT amortization for the two-year period Date 7 through Date 8, the
total two-year amount to be passed back in one year.

    Taxpayer has proposed corrective action if the Service concludes that the EDIT

treatment in Order is not consistent with a normalization method of accounting. If that
determination is made, Taxpayer will need to reestablish a normalization method of
accounting. In that event, Commission A has agreed to immediately open a proceeding
upon Taxpayer’s receipt of a PLR from the Service and revisit its order to comply with
the Normalization Rules. This agreement was a condition of Taxpayer dismissing its
judicial appeal of Order.

    Taxpayer has taken additional action to ensure a quick and complete correction if

Order is found inconsistent with the Normalization Rules. Taxpayer filed an accounting
petition with Commission A on Date 5 in which it requested that Commission A allow
Taxpayer to track the difference between Taxpayer’s approach and the approach
required in Order. The difference between the two approaches will be recorded to
Taxpayer’s balance sheet as a monthly entry. Two accounts will be used – a tracking
account and a contra account (collectively, the “PLR Tracker Accounts”). The two
accounts will net to zero and thereby have no impact on Taxpayer’s financial results, as
doing otherwise would not be in compliance with Commission A’s order. However, the
accounts will provide contemporaneous documentation of the variance between the two
approaches.

    For gas customers, rates consistent with Order went into effect on Date 5. For

electric customers, new rates went into effect on Date 6. For both gas and electric
customers, the accounting petition will provide Commission A with the ability to correct
any normalization infraction that the IRS identifies in its ruling.

   Taxpayer anticipates that any correction will involve two elements. The first

element is a new tariff rate that will comply with the Service’s ruling, which will be a new
base tariff. That rate would continue in effect until Taxpayer’s next rate-setting event,
which is expected to be a GRC. The second element is a temporary tariff rate to bring
the EDIT balance back into alignment with a normalization method of accounting. This
PLR-101961-21 6

second component would have the effect of reversing the amounts that were tracked in
the PLR Tracker Accounts. The recovery of these balances would likely occur over a
relatively short period.

                             RULINGS REQUESTED

Taxpayer requests rulings whether the accounting for EDIT as required by Order of

Commission A is consistent with the Normalization Rules of § 168(i)(9), former § 167(l),
and section 13004(d) of the TCJA. Specifically:

(1) Whether the Normalization Rules of § 168(i)(9), former § 167(l), and section
    13001(d) of the TCJA permit Taxpayer to adjust its EDIT ARAM amortization
    based on the test year to the EDIT ARAM amortization based on one or more
    subsequent years without making similar adjustments to rate base, ADIT, book
    depreciation expense, and tax expense;

(2) Whether the Normalization Rules of § 168(i)(9), former § 167(l), and section
    13001(d) of the TCJA permit Taxpayer to adjust its EDIT ARAM amortization
    annually without making similar adjustments to rate base, ADIT, book
    depreciation expense, and tax expense;

(3) Whether the Normalization Rules of § 168(i)(9), former § 167(l), and section
    13001(d) of the TCJA permit Taxpayer to provide a true-up to EDIT ARAM
    amortization in the year following the rate year based on volume variances
    between the test year and the rate year without making similar adjustments to
    rate base, ADIT, book depreciation expense, and tax expense;

(4) Additionally, Taxpayer asks that if we determine that any of the requirements
    described of Order are not consistent with the Normalization Rules of
    § 168(i)(9), former § 167(l), and section 13001(d) of the TCJA, Taxpayer
    requests that we provide in the ruling that Taxpayer will not be considered to be
    in violation of the normalization rules if it follows the corrective actions described
    in its letter.

                               LAW AND ANALYSIS

    Former section 167(l) of the Code generally provided that public utilities were

entitled to use accelerated methods for depreciation if they used a “normalization
method of accounting.” A normalization method of accounting was defined in former
§ 167(l)(3)(G) in a manner consistent with that found in § 168(i)(9)(A). Section 1.167(l)-
1(a)(1) provides that the normalization requirements for public utility property pertain
only to the deferral of federal income tax liability resulting from the use of an accelerated
method of depreciation for computing the allowance for depreciation under § 167 and
the use of straight-line depreciation for computing tax expense and depreciation
expense for purposes of establishing cost of services and for reflecting operating results
PLR-101961-21 7

in regulated books of account. These regulations do not pertain to other book-tax timing
differences with respect to state income taxes, F.I.C.A. taxes, construction costs, or any
other taxes and items.

   Section 168(f)(2) provides that the depreciation deduction determined under

§ 168 shall not apply to any public utility property (within the meaning of § 168(i)(10)) if
the taxpayer does not use a normalization method of accounting.

    In order to use a normalization method of accounting, § 168(i)(9)(A) requires that

a taxpayer, in computing its tax expense for establishing its cost of service for
ratemaking purposes and reflecting operating results in its regulated books of account,
use a method of depreciation with respect to public utility property that is the same as,
and a depreciation period for such property that is not shorter than, the method and
period used to compute its depreciation expense for such purposes. Under
§ 168(i)(9)(A)(ii), if the amount allowable as a deduction under § 168 differs from the
amount that would be allowable as a deduction under § 167 using the method, period,
first and last year convention, and salvage value used to compute regulated tax
expense under § 168(i)(9)(A)(i), the taxpayer must make adjustments to a reserve to
reflect the deferral of taxes resulting from such difference.

    Section 168(i)(9)(B)(i) of the Code provides that one way the requirements of

§ 168(i)(9)(A) will not be satisfied is if the taxpayer, for ratemaking purposes, uses a
procedure or adjustment which is inconsistent with such requirements. Under
§ 168(i)(9)(B)(ii), such inconsistent procedures and adjustments include the use of an
estimate or projection of the taxpayer’s tax expense, depreciation expense, or reserve
for deferred taxes under § 168(i)(9)(A)(ii), unless such estimate or projection is also
used, for ratemaking purposes, with respect to all three of these items and with respect
to the rate base (hereinafter referred to as the “Consistency Rule”).

    Taxpayer’s requests relate primarily to Taxpayer’s compliance with the

Consistency Rule. Taxpayer asks whether the Normalization Rules permit Taxpayer to
adjust its EDIT ARAM amortization annually without making similar adjustments to rate
base, ADIT, book depreciation expense, and tax expense. More specifically, Taxpayer
also asks whether the Normalization Rules permit Taxpayer to adjust its EDIT ARAM
amortization based on the test year to the EDIT ARAM amortization based on one or
more subsequent years without making similar adjustments to rate base, ADIT, book
depreciation expense, and tax expense. Lastly, Taxpayer asks whether the
Normalization Rules permit Taxpayer to provide a true-up to EDIT ARAM amortization
in the year following the rate year based on volume variances between the test year and
the rate year without making similar adjustments to rate base, ADIT, book depreciation
expense, and tax expense.

   Therefore, the threshold question is whether the Consistency Rule applies to

EDIT being accounted for under ARAM. Because these amounts were originally
deferred pursuant to a normalization method of accounting, these amounts remain
PLR-101961-21 8

subject to the Normalization Rules of § 168(i)(9), former § 167(l), and section 13001(d)
of the TCJA. Thus, if the EDIT being accounted for under ARAM is subject to
Normalization Rules, the Consistency Rule must apply to the EDIT.

   As described in § 168(i)(9)(B)(ii), the use of a procedure or adjustment that uses

an estimate or projection of any of (1) the taxpayer's tax expense, (2) depreciation
expense, or (3) reserve for deferred taxes under § 168(i)(9)(A)(ii), does not comply with
the Consistency Rule unless such estimate or projection is also used, for ratemaking
purposes, with respect to all three of these items and with respect to the rate base.
Therefore, generally, the Normalization Rules do not permit Taxpayer to adjust its EDIT
ARAM amortization without making similar adjustments to rate base, ADIT, book
depreciation expense, and tax expense. More specifically, in regard to request (1), the
Normalization Rules do not allow Taxpayers to make an adjustment to cost of service
by removing the test year ARAM amortization of EDIT and substituting for that amount,
as a reduction in cost of service, the estimated EDIT amortization for the year following
the test year plus the next year which includes part of the rate year (in total, a 24-month
period) while also making no similar adjustments for depreciation, expense, income tax
expense, ADIT (including EDIT), or rate base, which were based on the historical test
period. In regard to request (2), the Normalization Rules do not allow Taxpayer to
adjust its EDIT ARAM amortization annually without making similar adjustments to rate
base, ADIT, book depreciation expense, and tax expense.

   Additionally, in response to request (3), providing a true-up to EDIT ARAM

amortization in the year following the rate year based on volume variances between the
test year and the rate year without making similar adjustments to rate base, ADIT, book
depreciation expense, and tax expense likewise is not in compliance with the
Consistency Rule. The true-up mechanism adjusts for volume differences only with
respect to one item, EDIT amortization. This results in the use of estimated volumes in
setting rates for all items other than EDIT reversal which uses actual volumes. This
treatment is an inconsistent use of estimates or projects not allowed by section
168(i)(9)(B).

    The Normalization Rules were enacted in response to Congressional concerns

over the growing number of public utility commissions that were mandating investor-
owned regulated utilities to not retain these tax benefits from accelerated depreciation,
but, instead, to immediately flow-through all of these tax incentives to ratepayers in the
form of lower income tax expense in regulated cost of service rates. Congress’
response was to enact legislation that would preclude regulated investor-owned utilities
from utilizing accelerated depreciation methods of tax purposes if the related tax
benefits were immediately flowed-through to ratepayers in rates or were flowed-through
to ratepayers faster than permitted under the Normalization Rules.

   The underlying concept and purpose of the Normalization Rules is to prevent the

flow-through of these accelerated depreciation-related tax benefits to ratepayers in
regulated rates any faster than permitted by the Normalization Rules. Thus, the flow-
PLR-101961-21 9

through of these tax benefits to ratepayers faster than permitted by the Normalization
Rules would result in a normalization violation that would preclude the taxpayer from
using any of the accelerated tax depreciation methods on public utility property and,
instead, require the taxpayer to use the same depreciation method and period as those
used to compute depreciation expense in its cost of service for ratemaking purposes.
Conversely, a taxpayer that flows through these tax benefits to ratepayers slower than
permitted by the Normalization Rules, or that never flows through any of the tax benefits
from accelerated depreciation to ratepayers, would not be in violation of those rules.

   By removing EDIT amortization for the test year and including the estimated

EDIT amortization for the two following years, the EDIT amortization on the cost of
service is higher than allowed under the ARAM limitation for the test year. This
acceleration of the EDIT amortization occurs under the Order without any reduction to
the EDIT balance which is taken into account in determining rate base. This provides
customers not only with a lower cost of service through the acceleration of EDIT
amortization but also a rate base which is artificially low because the EDIT credit
balance included in rate base has not been reduced by the EDIT reversal that has been
accelerated. This incorrectly provides customers with the double benefit of lower cost of
service and lower rate base for the same EDIT.

    Section 168(f)(2) provides that the depreciation deduction determined under

§ 168 shall not apply to any public utility property (within the meaning of § 168(i)(10)) if
the taxpayer does not use a normalization method of accounting. However, in the
legislative history to the enactment of the normalization requirements of the Investment
Tax Credit (ITC), Congress stated that it hopes that sanctions will not have to be
imposed and that disallowance of the tax benefit (there, the ITC) should be imposed
only after a regulatory body has required or insisted upon such treatment by a utility.
See Senate Report No. 92-437, 92nd Cong., 1st Sess. 40-41 (1971), 1972-2 C.B. 559,

581. See also, Rev. Proc. 2017-47, 2017-38 I.R.B. 233, September 18, 2017.

     Commission A has, at all times, required that utilities under its jurisdiction use
     normalization methods of accounting. Further, Commission A has agreed to
     immediately open a proceeding upon receipt of Taxpayer’s receipt of a PLR from the
     Service and revisit its order to comply with the Normalization Rules if the Service
     concludes that Order results in a rate calculation that is not consistent with the
     Normalization rules.

     Taxpayer also intended at all times to comply with the Normalization Rules.
     Taxpayer has initiated the measures necessary to conform to the Normalization Rules.
     As noted, Taxpayer filed an accounting petition with Commission A in which it requested
     that Commission A allow Taxpayer to track the difference between Taxpayer’s approach
     and the approach required in Order. The difference between the two approaches will be
     recorded to Taxpayer’s balance sheet as a monthly entry identified as “the PLR Tracker
     Accounts.” For both gas and electric customers, the accounting petition provides
     PLR-101961-21 10

Commission A with the ability to correct any normalization infraction that the IRS
identifies in this ruling.

   Taxpayer's failure to comply with the Normalization Rules was inadvertent.

Because the Commission, as well as Taxpayer, at all times sought to comply, and
because corrective actions will be taken at the earliest available opportunity, it is not
appropriate to conclude that the failure to follow the Consistency Rule for the EDIT that
is a part of ADIT and calculated according to ARAM constituted a normalization violation
and apply the sanction of denial of accelerated depreciation to Taxpayer.

                                   CONCLUSION

  Accordingly, we rule as follows:

(1) The Normalization Rules of § 168(i)(9), former § 167(l), and section 13001(d) of
    the TCJA do not permit Taxpayer to adjust its EDIT ARAM amortization based
    on the text year to the EDIT ARAM amortization based on one or more
    subsequent years without making similar adjustments to rate base, ADIT, book
    depreciation expense, and tax expense;

(2) The Normalization Rules of § 168(i)(9), former § 167(l), and section 13001(d) of
    the TCJA do not permit Taxpayer to adjust its EDIT ARAM amortization annually
    without making similar adjustments to rate base, ADIT, book depreciation
    expense, and tax expense.

(3) The Normalization Rules of § 168(i)(9), former § 167(l), and section 13001(d) of
    the TCJA do not permit Taxpayer to provide a true-up to EDIT ARAM
    amortization in the year following the rate year based on volume variances
    between the test year and the rate year without making similar adjustments to
    rate base, ADIT, book depreciation expense, and tax expense.

(4) While we have determined that the described requirements of Order are not
    consistent with the Normalization Rules of § 168(i)(9), former § 167(l), and
    section 13001(d) of the TCJA, Taxpayer will not be considered to be in violation
    of the normalization rules if it follows the corrective actions described in its letter.

  Except as specifically set forth above, no opinion is expressed or implied

concerning the federal income tax consequences of the above described facts under
any other provision of the Code or regulations.

  This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3) of

the Code provides it may not be used or cited as precedent.

  This ruling is based upon information and representations submitted by Taxpayer

and accompanied by penalty of perjury statements executed by an appropriate party.
PLR-101961-21 11

While this office has not verified any of the material submitted in support of the request
for rulings, it is subject to verification on examination.

     In accordance with the power of attorney on file with this office, a copy of this

letter is being sent to your authorized representative. We are also sending a copy of
this letter ruling to the LB&I Policy Office.

                                   Sincerely,



                                   Patrick S. Kirwan
                                   Chief, Branch 6
                                   Office of Associate Chief Counsel
                                   (Passthroughs & Special Industries)

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