Indiana Utility Cuts Rate Request in Response to Federal Tax Cut

Published April 5, 2018

Indiana Michigan Power (IMP) reached a settlement agreement with the city of South Bend and other entities on a proposed increase to the utility’s base rate, after the company announced the recently enacted federal tax reform law allowed it to reduce its rate hike request.

In July 2017, IMP filed a request for a 19.7 percent rate increase, including a rise in the average monthly residential charge from the current $7.30 per month to $18.00 per month. The Indiana Office of Utility Consumer Counselor joined the cities of South Bend, Fort Wayne, and several other communities and organizations in opposing the proposed increases.

IMP signed a settlement agreement with the groups opposing its rate increase on February 14. As part of the agreement, IMP cut its rate increase request by more than half.

The agreement cuts the requested rate increase to 7.3 percent, adding $9.41 per month to the cost for the average residential customer. The Indiana Utility Regulatory Commission must approve the rate increase and settlement agreement. It is scheduled to consider the matter later this spring.

Tax Cuts Spurred Rate Cut

In its press release announcing the agreement, IMP cited the recent federal tax reform for saving the company money and allowing it to reduce its requested rate increase while still achieving the infrastructure, billing, and weatherization goals it had set for itself in its “Building the Future” plan when it initially requested the rate hike.

“The reduction in the proposed rates largely reflects [IMP’s] new ability to pass savings from the federal Tax Cuts and Jobs Act to customers,” said the company’s statement.

Under IMP’s Building the Future plan, the company says it will modernize and upgrade its electric power delivery infrastructure in order to reduce outages, improve the bill payment system, and assist low-income customers in weatherizing their homes to decrease energy use.

To reduce outages, the company will accelerate the trimming of trees and brush and clearing areas around power lines, IMP’s statement says. In addition, IMP’s press release says the utility will “modernize [its] aging energy delivery system, using expanded technology as well as stronger poles and wires to make the system more resilient and reduce the impact of weather-related outages.”

Under the settlement agreement, IMP will also provide $250,000 to the Indiana Community Action Association for a program to help low-income customers pay their winter electric bills and will allocate $150,000 for weatherization of low-income homes to reduce energy use.

Benefits of Tax Reform

Grover Norquist, president of Americans for Tax Reform, says IMP’s reduced rate request exemplifies the benefits flowing to people nationwide from the federal tax reform bill.

“Despite Democrats’ false statements that the tax cuts passed by congressional Republicans at the urging of President Donald Trump would benefit only the wealthy, and repeated statements calling any benefits to working Americans ‘crumbs,’ the recent tax reductions are benefiting everyone,” Norquist said. “The tax cuts are helping people in a number of ways, but four in particular: four million people so far have received bonuses directly tied to the tax cuts; people have begun to see higher take-home pay in their paychecks every two weeks because of the lower tax rates; the stock market has boomed since the tax cuts, boosting investors’ and retirees’ stock portfolios and pension funds; and, a little-recognized effect at the time, utility ratepayers will not be experiencing large increases in their power and water bills, due to the rate cut.

“Regulated investor-owned utilities are required to pass along the savings from tax cuts to ratepayers, and they have to announce publicly why they are cutting rates or rate requests, which reminds everyone of the benefits of the tax cuts,” said Norquist. “As a result of the federal tax cuts, just as occurred in the Indiana Michigan Power case, utilities across the country are slashing the rate increases they are requesting from their public utility commissions, when they are not withdrawing requests for higher rates entirely. Homeowners and businesses will pay less for electricity on an ongoing basis due to the tax cuts.”

H. Sterling Burnett, Ph.D. ([email protected])┬áis a research fellow at The Heartland Institute.