Texas Comptroller Rules On Electricity Transmission And Distribution Cost Inclusion In COGS Deduction

On March 3, 2016, the Texas Comptroller of Public Accounts issued a letter ruling addressing the inclusion of certain costs incurred by different types of utility providers in the Revised Texas Franchise Tax (RTFT) cost of goods sold (COGS) deduction.¹ Specifically, the ruling addresses the treatment of electricity transmission and distribution (T&D) costs, franchise fees, property taxes and insurance costs related to T&D assets and operations.

Deregulation of Texas Electric Utility Market

Beginning on September 1, 1999, the Texas electricity market was partially deregulated.² With the advent of deregulation, some of the formerly rate-regulated and integrated electric utilities (IEUs) in Texas were separated into non-regulated power generation companies (PGCs) and retail electricity providers (REPs) and regulated transmission and distribution utilities (TDUs). The REPs purchase electricity from the PGCs and resell the electricity to consumers. The TDUs transmit and