The tax cut just signed into law by President Trump will be a boon to the nation’s utilities, but will their customers share in the good fortune?
Utilities from California to Florida are seeing their expenses drop dramatically with the GOP tax overhaul, which could save these regulated electric, gas and water utilities billions of dollars each year. But some state regulators nationwide have been slow to recognize this potential windfall and ensure that consumers also benefit — either with a reduction in rates or a mandate for utilities to invest more in safety measures, such as replacing aging gas pipelines.
Massachusetts, Kentucky, Oklahoma and Montana are some of the states that have seized on the new law to demand that utilities reduce charges to consumers, forgo planned rate increases, or at the least, keep track of the reduced expenses they are enjoying. But industry observers say many states have yet to respond.
“There’s a real need here for states to act, and act quickly,” said David J. Hayes, a former Interior Department official who now directs the State Energy and Environmental Impact Center, a group that works with state attorneys general on regulatory issues. “The argument for tax reform is that a lot of these savings would trickle down to ordinary Americans. In this case, that is a big question mark.”
One challenge is the complexity of the 503-page tax bill that President Trump signed into law on Dec. 22. The law reduces the corporate tax rate from 35 percent to 21 percent but also includes numerous other provisions that affect utilities, including tax credits that the industry lobbied heavily to retain.
No one knows how much savings the new law will produce for utilities, but the figure is sure to reach several billions of dollars.
Utilities are now trying to determine how the law will affect them individually, said Eric Grey, senior director of government relations for the Edison Electric Institute, a group that represents more than 300 electric companies and suppliers.
“This new law is super complex,” Grey said. “All of our companies are digesting it right now, working with their accountants and seeing how it applies to their financial situation.” Some have already started conversations with state regulators, he added.
States are not the only entities with a role in regulating utility profits. The Federal Energy Regulatory Commission (FERC) regulates natural gas pipelines and electricity transmission lines that cross state lines, and it sets the rates these monopolies can charge customers. Those customers are now paying charges based on pipeline and transmission companies paying a 35 percent corporate tax, instead of 21 percent. Some groups are frustrated FERC hasn’t moved quickly to reduce those charges.
The American Public Gas Association, which represents 1,000 communities that own their own gas system, wrote FERC a Jan. 3 letter protesting that its members continue to pay “unjust and unreasonable” rates. The association’s CEO and president, Bert Kalisch, urged FERC to promptly reduce the rates in response to the new law. FERC did not immediately respond for comment.
Massachusetts is one state that has moved aggressively after passage of the new tax law. In December, Massachusetts Attorney General Maura Healey asked the state Department of Public Utilities to recalculate rate hikes that the DPU had granted a month earlier to Eversource, an electric and gas utility in three northeastern states. Eversource responded by pledging to pass on almost $56 million in savings from the new tax bill to its 1.4 million customers in Massachusetts.
Oklahoma Attorney General Mike Hunter has also called for “an immediate reduction in customer rates” for that state’s regulated utilities. In Kentucky, the Public Service Commission ordered utilities to start tracking their savings from the new law just five days after Trump signed it.
In Florida, the Public Services Commission is taking a slower approach. “The Florida PSC is currently studying the law to establish an appropriate course of action,” spokeswoman Cindy Muir said in an email. The new law has prompted Florida Power & Light to hold off on asking regulators for approval to recoup $1.3 billion in costs incurred from Hurricane Irma. Muir said the utility delayed that decision on its own, not because of a request from the PSC.
Ben Wilcox, director of the watchdog organization Integrity Florida, said his group will be watching the state’s investor-owned utilities to see what kind of hurricane cost recovery they request, given the new tax law. In October, Integrity Florida released a report accusing the state PSC of being a “captured” agency of the big utilities, a charge that commission leaders have rejected.
California is home to numerous investor-owned utilities, ranging from Pacific Gas & Electric to private water companies. Terrie Prosper, a spokeswoman for the California Public Utilities Commission, said that all the state’s gas and electric utilities “are tracking the savings from the tax law changes and will be required to refund the savings to their customers.”
Normally, she said, the refunds would be made as part of a utility’s next general rate case, a proceeding to address the costs of operating and maintaining a utility. “Given the size of the savings from these tax law changes, the CPUC may take action to refund the money to customers sooner,” Prosper added.
Bob Finkelstein, general counsel for The Utility Reform Network, a San Francisco-based consumer group, said the CPUC appears to have mechanisms in place to track utility savings, and return those to ratepayers. His group estimates that one utility alone, Southern California Edison, will save $100 million yearly from the new tax law.
Finkelstein said he wasn’t surprised that some companies will need time to calculate their savings from the tax law, given its complexities. “This is one rare instance where I am sympathetic to utilities,” he said.
While state regulators are under pressure to reduce rates, some may instead prod utilities to use tax-law savings to upgrade aging infrastructure. In California, for instance, watchdog groups want PG&E to invest more in gas pipeline safety following the 2010 San Bruno gas pipeline disaster. More recently, there’s been concern about the utility’s power lines blowing down and causing wildfires.
Hayes, of the State Impact Center, said attorneys general can play roles to ensure that consumers, not just utility shareholders, benefit from the tax law. “We will be seeing how quickly the regulatory institutions can step up,” he said. “Consumers should not be penalized by slow regulatory review of something that can put money in people’s pockets.”