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

If President Biden and congressional Democrats hike the corporate income tax rate, Idaho households and businesses will get stuck with higher utility bills.

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 five Idaho 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.

Tax Cuts and Jobs Act Impact: Working with the Idaho Public Utilities Commission, Idaho Power, Intermountain Gas, Suez Water Idaho Inc., Avista, and Rocky Mountain Power passed along tax savings to their customers.

Idaho Power: As noted in this April 23, 2018, Idaho Public Utility Commission document

On April 12, 2018, Idaho Power Company filed a Settlement Stipulation and Motion to Approve Settlement Stipulation. The Company, Commission Staff, and the Industrial Customers of Idaho Power signed the Settlement Stipulation to enable Idaho Power to provide its customers with approximately $33.9 million in benefits under a new tax law that decreased the Company’s corporate tax rate and expenses.

Intermountain Gas: As noted in this May 22, 2018 Idaho Public Utility Commission document:

On December 22,2017, the President signed into law the Tax Cuts and Jobs Act of 2017 (“TCJA”). Effective January 1,2018, the TCJA decreased the federal corporate tax rate from 35 percent to 21 percent. In response, the Commission opened this multi-utility case to investigate whether to adjust the rates of certain utilities that benefit from the reduced tax rate. See Order No. 33965. The Commission directed all affected utilities-including the Company-to immediately account for the tax benefits as a regulatory liability, and to report on how the tax changes affected them, and how resulting benefits could be passed on to customers. See id. at l-2. 

The Company filed its report on March 23,2018. In its report, the Company proposed using the 2016 test year from its last rate case (NT-G-16-02) to calculate the benefits from the TCJA. Using a2016 test year would have resulted in a $4,966,895 rate decrease. 

A settlement conference was held at the Commission offices on May 7,2018. Representatives of Intermountain, Alliance of Western Energy Consumers, and Commission Staff (collectively, the “Parties”) attended this meeting. Through discussions and compromise, the Parties agreed to the proposed Settlement Stipulation. 

On May 10, 2018, Intermountain filed Settlement Stipulation, which was signed by all Parties. The Settlement Stipulation, if approved, would result in the Company returning to customers, S5,111,303 of tax benefits the Company has realized under the TCJA, on a 2017 normalized basis. Furthermore, the deferred liability on the Company’s books would be credited back to customers as part of the Company’s next Purchased Gas Cost Adjustment (“PGA”).

Suez Water Idaho Inc.: As noted in this May 22, 2018 Idaho Public Utility Commission document:

The Company filed its report on March 29,2018. In it, the Company proposes to reduce base rates by $2,722,791, or about 5.60A, to account for the reduction in corporate tax rates and associated changes to the revenue conversion factor. The Company has hired an outside consulting firm to assist in a detailed review of its income tax records in order to verify the balances of the regulatory liabilities subject to normalization (plant-related) as well as deferred tax liabilities that are unprotected (non plant-related). Thus, the Company did not propose any changes related to revaluing or amortizing deferred tax liabilities, preferring to wait to address the deferred tax liabilities in a general rate case, after the detailed review has been completed. 

Avista: As noted in this May 11, 2018 Idaho Public Utility Commission document

The Parties agree that Avista will reduce its Idaho base rates by $ 13.74 million (5 3%) for electric service, and $2.556 million (61%) for natural gas service. The Company will return these amounts to customers through Tariff Schedules 72 (electric) and 172 (natural gas) until the next general rate case when the tax benefits will be incorporated into base rates. The Parties agree to spread these permanent tax benefits (rate credits) on a uniform percent of base revenue basis for both electric and natural gas. The rate credit within each service schedule will be a uniform cents per kWh (electric) and therm (natural gas) to the volumetric block rates by schedule. The monthly service charge for each schedule will remain unchanged. Staff supports this method of rate spread and rate design because it generally matches how costs are being recovered from customers. 

The permanent reduction consists to two components, the tax rate change and the excess accumulated deferred federal income tax (ADFIT) amortization.

Rocky Mountain Power: As noted in this June 15, 2018 Idaho Public Utility Commission document:

State regulators have approved a rate decrease for customers of Rocky Mountain Power, reflecting the benefits of the Tax Cuts and Jobs Act of 2017 and changes to the corporate income tax rate at the state level.

The Idaho Public Utilities Commission’s decision reduces rates by about 1 percent. 

The change took effect June 1 and is the result of a Commission decision in January that ordered all utilities to report the impact of the tax law.

A main feature of the tax law that took effect Jan. 1 was to reduce the federal corporate tax rate from 35 percent to 21 percent. Shortly thereafter, Idaho Governor C.L. “Butch” Otter signed into law House Bill 463, reducing the state’s corporate tax rate from 7.4 percent to 6.925 percent.

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.