AUTHOR:Robert Walton@TeamWetDog PUBLISHEd Feb. 23, 2018
Regulators in Michigan and Louisiana are pressing utilities to return federal tax savings to customers as soon as possible, rather than withhold the largesse resulting from corporate rates declining to 21% from 35%.
Utilities recover taxes from customers, and so the lower rates are expected to result in lower rates. For utilities, however, the lower taxes comes with potential downsides.
Regulators in Michigan and Louisiana are setting deadlines for utilities to estimate savings and return overcollections, pressing to get any savings returned as quickly as possible.
Taxes and ratemaking are complicated areas, but regulators across the country are pressing for utilities to move quickly in returning savings to customers. A recent Brattle Group report finds regulatory proceedings are underway in about half of states.
This week in Louisiana, the Public Service Commission gave staff until March 21 to work with utilities on a way to return the savings. “Revenue requirements for most Louisiana utilities thus are currently overstated for at least two reasons,” regulators wrote in a special order.
In Michigan, utilities must calculate a rate reduction, “Credit A,” that would begin in July and last until the utility’s next rate case.
The Michigan Public Service Commission expects to rule by June 31 on the credit, which would represent the majority of refunds ratepayers will receive. Nine utilities will need to calculate the rate reduction by March 30, while several others have current rate cases where the refund will be calculated.
Michigan regulators say the tax law change will reduce current and future long-term deferred tax payments for 10 utilities by a total of nearly $3.7 billion.
While utilities will benefit from other parts of the tax overhaul, the lower corporate tax rates present some risk for shareholders. The new rates mean utilities will collect less from customers, reducing cash flows. Moody’s has said changes in tax laws will dilute a utility’s ratio of cash flow. The new tax law also cuts bonus depreciation.