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The Republican tax reform bill is now law, meaning that as of January 1 the corporate tax rate dropped significantly from 35 percent to 21 percent. Republican lawmakers suggested that windfall could go toward bettering products, lowering prices, and generally boosting the economy. Critics argue the extra money will line the pockets of shareholders.
The debate is now consuming public utility commission (PUC) meetings across the country, as regulated utilities face the question of how to apportion potentially billions of dollars that were not available just last month.
“It’s a big pot of money that you can use for a customer refund. On the other hand, if you’ve got a utility that’s been harping to the commission for a long time about how its lead pipes need to be replaced or its distribution system needs to be upgraded to modern codes, this big pot of money could be spent on that,” said Travis Kavulla, vice chair of the Montana PUC. “It is one of the more mundane things that a regulator has to deal with, but its magnitude is really significant.”
For that reason, the Montana PUC in late December directed regulated utilities to calculate their tax benefit and begin formulating plans for the cash. Regulators at other PUCs and public service commissions across the country, from South Dakota to Delaware and Wyoming, are asking the same questions of their utilities.
Based on the response, ratepayers could see significant direct savings. But utilities could also choose to keep the money to pay for the industry’s notoriously capital-intensive infrastructure projects or other high operating costs. That would reduce customer spending down the line. In any case, Kavulla said customers should see some benefit.
“This is one of those strange situations where rates are precipitously dropping -- or at least they should,” said Kavulla. “At least in the regulated utility sector, it’s my own view that this money really should not be some kind of a bonus to shareholders. Those shareholders are essentially insulated already from the vicissitudes of the wider market…so it’s really not appropriate to allow a windfall to accrue to them.”
According to Kavulla, the PUC’s initial calculations for Montana’s largest electric and gas utility, serving about 350,000 customers, would pencil out to about $30 million a year. That could offer the average customer $80 to $90 per year in returns.
In Oregon, in an attempt to move savings to customers, the Public Utility Commission said it would file applications on behalf of utilities that don't file their own or for applications that don't meet commission standards. In Montana, utilities have until March 31 to present their calculations and plans to pass the funds to consumers in some way.
But what customers and regulators may prefer is not necessarily how a utility chooses to run its business.
“Cynically, I assume none of the utilities are exactly chomping at the bit to flow through any of this directly to consumers,” said Kavulla, adding that at least one Montana utility, NorthWestern Energy, has suggested using the money for tree clearing. Kavulla said he thinks many commissions may ultimately offer some money directly to ratepayers and leave some for future utility projects.
Kavulla said that for utilities currently in the midst of a ratemaking process, lower rates could trickle down to customers as early as the spring. The timeline for utilities filing standalone plans in Montana and other states remains less clear, but the process will move more quickly the faster regulators act.
“The long and the short of it is if a regulator wants to be sure that benefit is captured to the benefit of ratepayers, they really do need to act expediently to get that in motion,” said Kavulla.
Other commissions have echoed the importance of acting quickly. “I think its really important we expedite this process,” said South Dakota Public Utilities Commission chair Kristie Fiegen. Commissioners there told journalists that they want to give utilities enough time to calculate the benefit and work out an effective plan for a unique situation, one where companies can dole out money rather than ask for more.
“We don’t do this every day,” said Fiegen.