Trickle-Down Benefits of Tax Plan Start with Reducing Energy Prices for Consumers

By Cynthia A. Arcate 22 December, 2017

While there is much debate about whether the GOP tax plan will, in fact, provide economic benefits for employees and consumers in America, one clear benefit should be captured immediately: the reduction in utility rates from the reduction in the corporate income tax rate.

Utilities pay taxes like any other corporation, and they will see the reduction immediately. Yet their rates are based on costs that include the higher income tax rate. The corporate rate reduction from 35 percent to 21 percent is significant and should result in significant cost reduction to the utilities—gas and electric. They should be required to pass those savings on to customers immediately.

The last time the corporate income tax rate was reduced was in 1986, when President Reagan’s tax plan reduced it from 46 percent to 35 percent. The Federal Energy Regulatory Commission and every state in the nation directed their utilities to come in with rate reduction filings reflecting the reduced cost. The commissions in New England should do the same this time around.

Kudos to Massachusetts Attorney General Maura Healey for her petition to the Massachusetts Department of Public Utilities to do just that. She has also sought a reopening of the Eversource rate order issued just last month in order to incorporate the new tax rate. In that case alone, she estimates the impact as a net rate reduction of $50 million for eastern Eversource customers and a 50 percent reduction in the net rate increase for western Eversource customers that otherwise would have occurred as a result of the rate case.

In 1986, the utilities argued that this one cost component (i.e. tax liability) should not be isolated, and rates should not be reduced without looking at the totality of the utilities’ costs. For Eversource there is no such excuse; the tax rate reduction coincides with the conclusion of its full rate hearing. Even for the others, such excuses should not be tolerated. The DPU rejected those arguments back in 1986, and the same should be done again.

2 comments on “Trickle-Down Benefits of Tax Plan Start with Reducing Energy Prices for Consumers
  1. Very helpful. How will this impact locked in pricing through Power Option negotiated contracts

    • PowerOptions says: January 11, 2018 at 4:21 pm

      In Massachusetts, the Attorney General has petitioned the Department of Public Utilities (DPU) to open a generic docket to review the impact of the tax bill on the revenue requirements of the state’s utilities. This docket would assess how large of a rate reduction each utility should be making. Eversource Electric is a unique case. As the company has just finished a rate case, the DPU is able to more easily calculate the impact of the cut in the corporate income tax rate and pass those savings on to customers. Eversource and the Attorney General agree that the net impact of the rate case minus the corporate tax cut will lead to a $35.4 million rate reduction for NSTAR customers and a $16.5 million rate increase for WMECO customers, however there is ongoing debate over whether further reductions are warranted. It is expected that the rate reductions associated with the tax bill will occur either with the rate changes scheduled for February 1, or shortly thereafter.

      In Connecticut, the Public Utilities Regulatory Authority (PURA) has reopened the most recent rate cases for each of the state’s utilities so as to address the impact of the tax bill. CL&P currently has a rate case pending before the PURA, so the tax issue will be addressed in that proceeding.

      Rhode Island has not explicitly indicated how it will address the tax issue. However, in the open rate case for National Grid electric, the Public Utilities Commission (PUC) has asked the company to revise its revenue requirement to reflect the changes contained in the tax bill.

      At the federal level, 19 state attorneys general have petitioned the Federal Energy Regulatory Commission (FERC) to address the impact of the tax bill on the earnings of the utilities regulated at a federal level. For New England, this would most likely constitute a reduction in transmission rates. FERC has not indicated how it will act yet.

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