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State-Regulated Utilities Under Pressure to Pass on Corporate Tax Savings

Posted on December 29, 2017 by JAD CHAMSEDDINE

New federal corporate tax rates may translate into lower utility bills for consumers as state regulators look to pass on savings to customers.

With a cut in the corporate tax rate to 21 percent from 35 percent, Michigan Public Service Commissioner Rachael Eubanks expects there will be significant benefits to the state’s residents.

“The information we receive in this docket will be incredibly useful in understanding the magnitude of the expected reduction in federal taxes that the utilities pay, which is likely to be significant,” Eubanks said at a December 27 commission meeting. “It will also provide broader input regarding the appropriate avenue for how to extend benefits to customers.”

The commission is ordering the state’s regulated utility companies to provide the agency with a report showing how the new federal tax law will affect rates, mimicking requests promulgated by utility regulators in Kentucky, Montana, Oklahoma, and South Dakota.

Regulated utilities are expected to outline by January 19 their preferred methods for ensuring that the expected tax cuts will flow to Michigan residents. The companies are also expected to provide an estimated dollar impact that the new tax law will have on their current and deferred tax in 2018.

The commission said it welcomes comments from interested parties on proposals by the utility companies by February 2. The order applies to 13 state-regulated utility companies, including several subsidiaries of S&P 500 electric and gas utility holding companies such as Xcel Energy Inc. and WEC Energy Group Inc.

The Kentucky Public Service Commission issued a similar order December 27, asking investor-owned utility companies to track federal tax savings.

“Since ratepayers are required to pay through their rates the tax expenses of a utility, any reduction in tax rates must be timely passed through to ratepayers,” Kentucky’s commission said in the order.

The Kentucky order also asks the utility companies to “calculate the excess amount of future tax liabilities that they are carrying on their books” that will need to be refunded to ratepayers.

The order explains that the commission looked into the matter following a complaint by Kentucky Industrial Utility Customers, an association of major energy-consuming companies, which said rates wouldn’t be “fair, just, and reasonable” following the tax cut.

“While the exact amount of the tax savings and resulting rate reductions cannot be determined with precision at this time, each of the (companies) should use its best estimate to determine the amount to be recorded . . . subject to review and adjustment as part of this case,” the order said.

Similar steps are being taken by the Montana Public Service Commission, which met December 27 and directed utility companies to provide it with calculations of the effects of the tax law.

“The commission wants to ensure that this money is not simply captured by shareholders, but instead is directed in a way that provides a long-term benefit to the consumer,” said Commission Chairman Brad Johnson in a statement December 27. 

Fellow commissioner Travis Kavulla acknowledged that Montana isn’t the only state working on such proposals.

"Our commission is, if not the first, one of the early movers on this issue among the 50 state utility commissions in the nation," Kavulla said in a statement. "Taking this first step is essential to ensuring that consumers reap the benefits of the tax reform legislation." Montana utility companies have until March 31 to submit their findings and plans to the commission.

In South Dakota, Public Utilities Commission staff filed a motion requesting that the agency investigate the effects of the tax law on utilities.

“Since the Tax Cuts and Jobs Act will be effective January 1, 2018, and this is a known and measurable change, South Dakota ratepayers should receive any benefits associated with this tax reform as of January 1, 2018,” the motion said.

South Dakota Public Utilities Commission (PUC) Chairperson Kristie Fiegen, who requested the staff’s motion, expects the process of analyzing possible tax changes to be “time consuming and complex,” which is why she wants to move quickly to ensure that customers don’t end up paying more than they should.

“Consumer protection is among the PUC’s top priorities,” Fiegen said. “If companies will experience a reduction in taxes, the expectation is those savings should flow to consumers.” The South Dakota PUC is expected to meet December 29 to discuss the motion and steps to be taken by utility companies.

While utility regulators have taken it upon themselves to push utilities to disclose potential savings, it took Oklahoma Attorney General Mike Hunter (R) to start the process in the Sooner State. Hunter filed five motions with the Oklahoma Corporation Commission, the state's utility regulator, asking for a reduction in customer rates. 

“These companies will begin seeing major savings after the tax cut is implemented on Monday,” Hunter said in a statement December 28. “Oklahomans who are customers of these companies should immediately retain the benefits of the savings from the tax cut in the form of lower rates."

The statement says that five utility companies operating in Oklahoma could save as much as $97 million in annual corporate taxes, with most of the savings going to Oklahoma Gas & Electric, a subsidiary of publicly traded OGE Energy Corp. 

Hunter warned the regulators to act quickly and in the best interest of consumers and not company shareholders. A hearing on the matter is scheduled for January 4.