TAXATION COMMITTEE MEETING

IMPACT OF TAXES ON UTILITY RATES

Jim WarrenMontreal, Canada

June 28, 2010

AGENDA

Acquisitions Uncertain Tax Positions Mixed Service Costs Repairs CTAs

ACQUISITIONS

Asset acquisition/338(h)(10)/disguised sale Value to the transaction

Step up To book Premium

Recent examples: El Paso Dominion PPL/UGI UIL Holdings

ACQUISITIONS

Elimination of ADFIT, EDFIT and ADITC Response of consumers, Staff, etc. Normalization problem Management of the issue from the outset is

critical

UNCERTAIN TAX POSITIONS

FASB Requirements FERC Response Arguments con Arguments pro The potential cost of winning Potential outcomes The outcome so far

MIXED SERVICE COSTS

SSCM – short term timing difference Not protected ADIT issues

Uncertain tax positions Tax expense issues

481(a) adjustment FAS 71 reg asset – can it be supported?

Prospective operational differences Reversal

Pretty much over?

MIXED SERVICE COSTS

Facts and circumstances Déjà vu again?

REPAIRS

Not protected ADIT issues

Uncertain tax positions Tax expense issues

Treatment of PRA 481(a) adjustment Prospective operational differences

THE NEW MATH

Large 481(a) adjustments beget large ADIT offsets

Large ADIT offsets beget lower returns Lower returns beget lower-than-forecasted

earnings Lower-than-forecasted earnings beget lower

incentive payouts Lower incentive payouts beget Cobra

coverage

THE RIGHT MATH

Company vs. IRS Company benefit means there is something to

share (or pass on) Company vs. ratepayer

Company should strive to at least be neutral Shouldn't be worse off

Reducing rates at the expense of the IRS is not a bad thing

THE RIGHT MATH

How to achieve neutrality As to tax risk

Amended return FIN 48 treatment

As to return Synchronize build with ADIT Shrink capital structure

Helps EPS but not earnings trend Time rate cases

In all cases, there is regulatory work to be done!

CTAS

New Jersey Pennsylvania West Virginia

Is there an affirmative right to a CTA? Oregon Texas

Are they weakening? Maryland DC Kentucky Others?