Federal Tax Cuts Benefitting Utility Ratepayers

Published April 23, 2018

Consumers across the country are seeing their electric power, gas, and water costs decline as a result of corporate tax relief in the Federal Tax Cuts and Jobs Act signed by President Donald Trump in December of 2017.

The tax reform law cut individual and corporate tax rates, reducing the federal corporate tax rate from 35 percent to 21 percent. One little-recognized benefit of the corporate tax cut that utility ratepayers have already begun to see or soon will be seeing is lower utility rates.

Passing Savings to Consumers

Regulated investor-owned utilities are required to pass along savings from tax cuts to ratepayers, and they must announce publicly why they are cutting rates or rate requests.

Since the tax bill passed, dozens of utilities across the country have announced they are cutting rates, or will be reducing or eliminating proposed rate hikes, because of the tax savings they are receiving.

Pacific Power, which serves parts of Oregon and Washington, announced rate cuts for its customers.

“The benefit of this tax cut should be passed on to our customers, and we will work with our regulators and stakeholders on the best way to do that,” said Stefan Bird, president of Pacific Power, in a statement announcing the cuts.

Oregon’s Rocky Mountain Power announced rate cuts for its customers as well.

Public Service Electric and Gas Co. (PSE&G) filed a petition with the New Jersey Board of Public Utilities to reduce customers’ rates by approximately 2 percent beginning April 1, 2018. The PSE&G rate cut amounts to $114 million in annual savings across all users, approximately $41 per year for the average household, reflecting the company’s lower federal tax bill.

CO Senate Pushes Rate Cuts

Republicans in the Colorado Senate took action when Xcel Energy, the state’s largest investor-owned utility, and Black Hills Energy were slow to announce rate reductions reflecting the savings they expect to receive from the federal tax reform law.

Seventeen of the 18 Republican members of the Colorado Senate signed a letter written by state Sen. John Cooke (R-Greely), the majority whip, urging the Public Utilities Commission (PUC), the Office of Consumer Counsel (OCC), and the Office of Attorney General to consider the federal tax reform when they review rates for Xcel Energy and Black Hills Energy consumers.

“Recent news reports show that regulators and elected officials across the country have asked regulated utilities in their states how they plan to pass along the savings due to the lowering of the corporate tax rate from 35 to 21 percent,” the January 22 letter reads. “Some utilities are voluntarily passing along those savings and we commend them. Unfortunately, we have not seen or heard anything from Colorado regulators or our utilities.”

Shortly after the Republican senators sent their letter, Xcel announced it would reduce residential natural gas rates by an estimated 87 cents per month and lower small business utility rates by $3.46 per month.

Black Hills Energy proposed lowering the average household’s monthly electric cost by $2.56 per month.

Credit to Trump, CO GOP

Amy Oliver Cooke, executive vice president of the Independence Institute and wife of state Sen. Cooke, says Trump and the Colorado Senate deserve credit for the rate reduction.

“Thanks to President Trump and the Colorado Senate GOP, Colorado ratepayers will see some relief from the trend of skyrocketing rates,” said Cooke. “Just last October, Xcel Energy applied for another rate increase of nearly 10 percent by 2021.

“If not for the state Senate holding the PUC and utilities accountable, I don’t know how quickly or even if the savings would have been passed along directly to ratepayers,” Cooke said.

Hawaii Rate Reversal

The tax reform law is having an even more dramatic effect in Hawaii.

Hawaiian Electric Company announced its first rate increase in six years in early February. The 2.3 percent hike would have cost the average household approximately $2.60 per month per 500 kilowatts of power used. Reflecting expected tax savings, Hawaii Electric reversed course on March 9, announcing it will reduce rates instead of increasing them. The household using 500 kilowatts of power will receive a $3.36 per month reduction in its electric bill after the cut, 76 cents below what it was before the February rate increase.

Keli’I Akina, president of the Grassroot Institute of Hawaii, says the tax cut is expanding Hawaiians’ economic freedom.

“Federal tax reform has paid dividends in several ways for Hawaii’s taxpayers, one being lower utility rates for Oahu residents,” said Akina. “Tax reform has led to more money in the pockets of Hawaii residents and has helped expand economic freedom for families in the state.”

‘Quietest Benefit’

Grover Norquist, president of Americans for Tax Reform, says people may not realize the federal tax cut is lowering their utility bills.

“The IRS tells us 90 percent of Americans will see lower taxes and higher take-home pay thanks to the Republican tax cut, and everyone knows more than four million Americans have been awarded bonuses thanks to the tax cut,” Norquist said. “But the quietest benefit is the lower utility rates for electric power as utilities are passing on their lower tax costs in the form of lower bills.”

H. Sterling Burnett, Ph.D. ([email protected]) is a senior fellow at The Heartland Institute.

Official Connection

State Sen. John Cooke (R-Greely): https://leg.colorado.gov/legislators/john-cooke; [email protected]