California Residents Will Get Stuck with Even Higher Utility Bills Due to Biden Corporate Tax Rate Hike

Submitted by mmirsky on Tuesday, June 15th, 2021, 12,18 PM

If Feinstein and Padilla enact a corporate income tax rate increase, they will have to explain why they just increased your utility bills

If President Biden and Sens. Dianne Feinstein and Alex Padilla hike the corporate income tax rate, California households and businesses will get stuck with higher utility bills as the country tries to recover from the pandemic.

Democrats plan to impose a corporate income tax rate increase to 28%, even higher than communist China's 25%. This does not even include state corporate income taxes, which average 4 - 5% nationwide.

Customers bear the cost of corporate income taxes imposed on utility companies. Corporate income tax cuts drive utility rates down, corporate income tax hikes drive utility rates up. 

Electric, gas, and water companies must get their billing rates approved by the respective state utility commissions. When the 2017 Tax Cuts and Jobs Act cut the corporate income tax rate from 35% to 21%, utility companies worked with state officials to pass along the tax savings to customers, including at least twelve California utilities.

The savings typically come in the form of a rate reduction, a bill credit, or a reduction to an existing or planned rate increase. 

According to a report published in the trade publication Utility Dive, customers nationwide were to receive a $90 billion utility benefit from the Tax Cuts and Jobs Act:

Estimates derived from 2017 annual SEC 10-K filings indicate that the 14-percentage-point reduction in the corporate tax rate enacted under the 2017 Tax Cuts and Jobs Act (TCJA) resulted in investor-owned utilities establishing significant regulatory liability balances, totaling approximately $90 billion to be refunded back to customers.

Americans for Tax Reform has compiled a 90-second nationwide utility savings video from local news reports which may be viewed here.

If Democrats now impose a corporate income tax rate increase, they will have to reckon with local news coverage noting utility bills are going up. A vote for a corporate income tax hike is a vote for higher utility bills as households try to recover from the pandemic.

Tax Cuts and Jobs Act Impact: Working with the California Public Utilities Commission, California Water Service, Pacific Gas and Electric Company, Golden State Water Company, Suburban Water Systems, San Jose Water Company, California American Water Company, California-Oregon Telephone Company, Southern California Gas Company, Southern California Edison, San Diego Gas & Electric, Calaveras Telephone Company and Sierra Telephone Company passed along tax savings to their customers. 

Southern California Gas Company: As noted in this January 2020 Energy Division document:

SoCalGas tax savings from the TCJA to be refunded to ratepayers is $75 million.

California Water Service: As noted in this May 30, 2018 California Water Service press release:

California Water Service (Cal Water) submitted a filing with the California Public Utilities Commission (CPUC) yesterday to decrease revenue needed in its service areas by almost $18 million, due to changes in federal tax laws and CPUC-authorized capital equity and debt financing costs. If approved as submitted, new rates reflecting the lower tax rates and financing costs will be effective July 1, 2018.

Pacific Gas and Electric Company: As noted in this March 30, 2018, PG&E press release:

PG&E is taking action to pass along approximately $450 million in annual tax savings to its customers. As a first step, today PG&E made three separate filings requesting to pass along approximately $325 million per year in federal tax savings from the  federal Tax Cuts and Jobs Act for 2018 and 2019. PG&E has proposed to the CPUC that the benefits of the federal tax savings be used to offset expected rate increases.

Golden State Water Company: As noted in this June 13, 2018 CBS Sacramento news excerpt:

Golden State Water Company, which services Rancho Cordova, Gold River, and Arden Manor, wants to lower water rates for customers.

The water agency filed paperwork with the California Public Utilities Commission to decrease the rate by 2.88% for metered customers and 2.86% for flat-rate customers. The change, if approved, would take effect July 1, 2018.

Golden State Water made the decision to cut rates after the Tax Cuts and Jobs Act lowered its income tax rate from 35% to 21% on January 1, 2018. Golden State Water may retroactively credit customers if it determines there was a revenue surplus from January 1, 2018-June 30, 2018. It is also adjusting its rate proposal for 2019-2021, which it submitted in July 2017- before the Tax Cuts and Jobs Act was signed into law.

Suburban Water Systems: As noted in this September 24, 2020 California Public Service Commission document:

This Resolution grants Suburban Water Systems’ (Suburban) request in Advice Letter No. 348 the authority to amortize the 2019 amount of $289,879 or 0.34% of authorized revenues, recorded in the Tax Cuts and Jobs Act Memorandum Account (TCJAMA) related to the 2019 excess accumulated deferred federal income tax (ADFIT) not reflected in rates for the period January 1, 2019 through December 31, 2019. The 2019 balance of the TCJAMA will be amortized as a single monthly bill credit based on the customer’s meter size. The credit amount includes interest and is to refund the excess ADFIT related to 2019 revenue requirement not currently reflected in rates. 

San Jose Water Company: As noted in this January 16, 2020 California Public Service Commission document:

This Resolution grants San Jose Water Company’ (SJWC) request in Advice Letter No. 537 & 537A, the authority to refund the over collected amount of $6,624,690 for the period January 1, 2018 through December 31, 2018, or 1.75% of authorized revenues,recorded in the 2018 Tax Accounting Memorandum Account (TAMA). The balance is associated with changes in tax expenses resulting fromTax Cut and Jobs Act signed into law December 22, 2017 that among other matters reduced the federal corporate tax rate from 35% to 21% effective January 1, 2018. The TAMA should be closed and the balance transferred to a 2018 Tax Accounting Balancing Account to amortize the refund. The 2018 balance in the TAMA will be refunded as a one-time bill credit based on the customer’s meter size. The bill credit is effective beginning on January 21, 2020 as shown below. Any over or under refunded balance in the 2018 Tax Accounting Balancing Account once the amortization period concludes should be addressed in the context of SJWC’s 2022 Test Year general rate case.

California American Water Company: As noted in this December 13, 2018 American Water press release:

The California Public Utilities Commission (CPUC) today approved a decision in the company’s general rate case for new water and wastewater rates for customers statewide.

The company’s rate request, which was filed in July 2016, will set rates through 2020. The decision approves approximately $103 million in capital investment in infrastructure replacements and improvements in 2018 and 2019.

“We are extremely proud of our significant level of system investment, combined with operational efficiency measures and innovative technologies, to ensure continued water quality, service reliability and fire protection for the more than 600,000 Californians who depend on us every day,” said Rich Svindland, President of California American Water. “This decision enables us to continue this important work on behalf of our customers, while balancing the cost impact for them.”

The decision approves a $10.3-million annual increase in authorized water and wastewater revenues for California American Water compared to previously authorized rates in the fall of 2016. The increase reflects savings generated by changes in federal tax law from the 2017 Tax Cuts and Jobs Act and the 2018 Cost of Capital decision.

California-Oregon Telephone Company: As noted in this August 9, 2018 California Public Service Commission document:

Staff has recalculated the tax impact of the TCJA to include the excess deferred tax impact. Prior to the enactment of the TCJA, Cal-Ore’s deferred income tax liability balance was $1,182,356.  On January 1, 2018, the new tax rate of 21% resulted in deferred income tax of $730,279 causing an excess deferred tax reserve of $452,077.  This $452,077 should be returned to ratepayers ratably over the remaining life of the assets that gave rise to the excess tax reserve balance.  The TCJA provides guidance for the return of the excess deferred tax reserve under normalization rules.   In summary, the TCJA rules say that if the excess deferred taxes are to be reduced, they should be reduced no faster than using the average rate assumption method (ARAM).  But if the utility does not have the appropriate vintage data to use ARAM, an alternative method based on a composite rate is allowed.   

As a result, Staff recommends the $452,077 excess deferred income tax reserve should be returned to ratepayers over the weighted average of the remaining useful life of Cal-Ore’s depreciable assets as of December 31, 2017.  Appropriately, as the excess deferred tax reserve is returned to Cal-Ore’s ratepayers, rate base will be incrementally increased by $33,737 per year (as the $452,077 excess remaining in the deferred tax account will be incrementally decreased as it is returned to ratepayers).

Southern California Edison: As noted in this August 16, 2018 San Diego Union-Tribune article:

Representatives from Southern California Edison told the Union-Tribune the utility is reducing the total revenue it is requesting before the CPUC in its general rate case by about $139 million this year, about $185 million in 2019 and $235 million in 2020, largely due to the tax cut.

Without the legislation, Edison expected residential customers would see an average monthly increase of $1.51 a month this year, $5.01 in 2019 and $6.83 in 2020.

With the tax cut, the figures would drop to a 6-cents decrease per month in 2018, a $3.98 increase in 2019 and a $5.56 increase in 2020, based on average monthly usage of 550 kilowatt-hours.

San Diego Gas & Electric: As noted in this January 2020 Energy Division document:

Sempra GRC Gas Highlights:

  • Disallowed SDG&E’s request to use 2018 tax savings from Tax Cuts & Job Act (TCJA) to offset expense for helicopter for fires and liability insurance, and to refund the $12 million tax savings to ratepayers over 2 years


Calaveras Telephone Company: As noted in this August 23, 2018 California Public Service document

Staff recalculated the tax impact of the TCJA to include the excess deferred tax impact. Prior to the enactment of the TCJA, Calaveras’ deferred income tax liability balance was $145,643. On January 1, 2018, the new tax rate of 21% resulted in deferred income tax of $89,956 causing an excess deferred tax reserve of $55,687. This $55,687 should be returned to ratepayers ratably over the remaining life of the assets that gave rise to the excess tax reserve balance, The TCJA provides guidance for the return of the excess deferred tax reserve under normalization rules. In summary, the TCJA rules say that if the excess deferred taxes are to be reduced, they should be reduced no faster than using the average rate assumption method (ARAM).   

Accordingly, Staff has adjusted the $55,687 excess deferred income tax reserve and returned it to ratepayers over the weighted average of the remaining useful life of Calaveras’ depreciable assets as of December 31, 2017.  Appropriately, as the excess deferred tax reserve is returned to Calaveras’ ratepayers, rate base will be incrementally increased by $10,507 per year (as the $55,687 excess remaining in the deferred tax account will be incrementally decreased as it is returned to ratepayers).

Sierra Telephone Company: As noted in this August 9, 2018 California Public Service Commission document

Staff has recalculated the tax impact of the TCJA to include the excess deferred tax impact. Prior to the enactment of the TCJA, Sierra’s deferred income tax liability balance was $5,131,347.  On January 1, 2018, the new tax rate of 21% resulted in deferred income tax of $3,169,361 causing an excess deferred tax reserve of $1,961,986.  This $1,961,986 should be returned to ratepayers ratably over the remaining life of the assets that gave rise to the excess tax reserve balance.  The TCJA provides guidance for the return of the excess deferred tax reserve under normalization rules. In summary, the TCJA rules say that if the excess deferred taxes are to be reduced, they should be reduced no faster than using the average rate assumption method (ARAM). But if the utility does not have the appropriate vintage data to use ARAM, an alternative method based on a composite rate is allowed.    

As a result, Staff recommends the $1,961,986 excess deferred income tax reserve should be returned to ratepayers over the weighted average of the remaining useful life of Sierra’s depreciable assets as of December 31, 2017. Appropriately, as the excess deferred tax reserve is returned to Sierra’s ratepayers, rate base will be incrementally increased by $316,449 per year (as the $316,449 excess remaining in the deferred tax account will be incrementally decreased as it is returned to ratepayers).

Conversely, if Biden and Democrats raise the corporate tax rate, they will add to the burden faced by working families. And any small businesses operate on tight margins and can't afford higher heating, cooling, gas, and refrigeration costs.

President Biden should withdraw his tax increases.

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