A LOCAL DISTRIBUTION COMPANY has gone to court to challenge the IRS over whether it must pay income taxes on refunds from its gas suppliers.

The suppliers had to make the refunds after regulators said it overcharged for gas. The case has implications for electric utilities – for example, in California – who might receive refunds in the future from their electricity suppliers.

The LDC is Bay State Gas Co. in Massachusetts. The Federal Energy Regulatory Commission ordered upstream suppliers of gas to Bay State to make refunds after concluding that the gas rates charged by these suppliers in 1993 and 1994 were “excessive.” Bay State is required by law to pass through the refunds to its ratepayers. However, rather than write checks, it made an adjustment in its cost-of-gas accounts so that there would be less cost of service to pass through to customers in future periods.

The case is before the US tax court.

Keith Martin