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

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Posted by John Kartch and Michael Mirsky on Thursday, June 3rd, 2021, 10:44 AM PERMALINK

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, Louisiana 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 eight Louisiana 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 Louisiana Public Service Commission, Entergy Louisiana, Entergy New Orleans, Cleco Corporation, Southwestern Electric Power Company, Atmos Energy, Ascension Wastewater Treatment, Inc., Pierre Part Natural Gas Company, Inc. and South Coast Gas Co.  passed along tax savings to their customers.

Entergy New Orleans: As noted in this April 11, 2018 Entergy New Orleans press release:

Entergy New Orleans filed with the New Orleans City Council Monday its proposal for implementing the benefits of the recent federal tax reform legislation. If approved by the council, customers would realize approximately $47 million annually in near-term tax savings and an additional $71 million in savings over the longer term.

"We're working to ensure that our customers receive timely benefits from the new tax reform legislation," said Charles Rice, president and CEO of Entergy New Orleans, LLC. "We're glad to pass on these additional savings by reducing rates below what they otherwise would be, especially during the hot summer months when energy usage rises along with the thermometer."

Cleco Corporation: As noted in this July 10, 2019 KTBS News excerpt:

SWEPCO and CLECO customers will get a break on their monthly bills in the coming months thanks to lower federal taxes, Louisiana Public Service Commissioner Foster Campbell announced Wednesday.

For the average SWEPCO customers, bills will decline more than $13 per month for the next three months. For CLECO customers, bills will go down more than $12 per month for the next 12 months.

To be more specific, an average SWEPCO residential customer using 1,282 kilowatt-hours will receive a credit of $13.62 on their August, September and October electric bills, while an average CLECO residential customer using 1217 kilowatt-hours will get a $12 credit beginning next month and running through July 2020.

Extending the benefit, average SWEPCO bills for November 2019 through July 2020 will reflect reductions of $3.03 each month.

The overall impact is a reduction of $24.4 million for SWEPCO’s 231,000 Louisiana customers and a drop of $84 million for CLECO’s 285,000 customers.

Entergy Louisiana: As noted in this April 18, 2018 Entergy Louisiana press release

Entergy Louisiana customers will see a series of rate reductions over the remainder of 2018 under an agreement approved today by the Louisiana Public Service Commission.

The first of the reductions will occur in May as a result of $210 million in federal tax reform-related savings, $105 million of which will be returned to customers over the next eight months, with the remaining half of these savings returned to customers over the following four years.  As a result, a typical residential customer using 1,000 kWh per month will see a roughly $4.20 decrease on monthly bills from May through December of this year.

A second reduction of approximately $2 per month on residential bills will occur in September 2018 as a result of additional credits tied to the Tax Cuts and Jobs Act approved by Congress in late 2017. At the same time, Entergy Louisiana will begin realizing approximately $130 million in annual tax savings to offset the cost of upgrading infrastructure.

“Along with customer refunds, tax reform also helps provide us the ability to invest in modernizing our system for the benefit of customers while maintaining some of the lowest rates in the country,” Phillip May, president and CEO of Entergy Louisiana, said

Southwestern Electric Power Company: As noted in this July 10, 2019 Shreveport Times excerpt:

Average SWEPCO customers will see their monthly bills decline more than $13 per month for the next three months due to lower federal taxes paid by SWEPCO, according to Public Service Commissioner Foster Campbell.

An average SWEPCO residential customer using 1,282 kilowatt-hours will receive a credit of $13.62 on their August, September and October electric bills. 

Extending the benefit, average SWEPCO bills for November 2019 through July 2020 will reflect reductions of $3.03 each month.

The overall impact is a reduction of $24.4 million for SWEPCO’s 231,000 Louisiana customers.  Exact impacts for customers will be based on their individual consumption.

Atmos Energy: As noted in this February 14, 2018 Louisiana Public Service Commission document

Income taxes, like all other prudently incurred costs, are passed through to our customers through our rates. Atmos Energy is committed to ensuring customers receive the full benefit of the changes in the utility’s cost of service resulting from the TCJA. As discussed in more detail below, the annual rate stabilization clause (“RSC”) process allows changes in the Company’s cost of service to be promptly reflected in its rates each year, as opposed to waiting for a general rate case. Through Atmos Energy’s RSC filing on December 22, 2017 (Trans La) and April 1, 2018 (LGS), the comprehensive impacts of TCJA will be reflected in customer rates as early as July 1, 2018, as described further below. However, if the Commission desires a quicker impact to rates, the Company is amenable to discussing accelerated solutions that will permit the current portion of the income tax expense savings to be implemented sooner. Below is a description of how these savings will be incorporated into Atmos Energy’s rates in the Louisiana Gas Service Rate Division (“LGS”) and the Trans Louisiana Gas Division (“TransLa”). 

A. LGS 

The Company will file its annual rate stabilization clause (“RSC”) filing before April 1, 2018. Included in this year’s filing will be an update to the federal income tax rate from 35% to 21% Based on the change in deficiency that results from the 35% to 21% income tax rate, the reduction to the 2017 LGS RSC filing for this item is expected to be approximately $5.9 million. 

The Company recorded excess deferred income taxes (“EDIT”) in its quarter ended December 31, 2017 related to LGS in the amount of $38.3 million. An estimate of the amortization period is not available at the time of this report. However if the EDIT is amortized over a period of forty years the annual reduction to cost of service is an additional $950,000, with a corresponding adjustment to rate base. 

The Company is working to establish an initial estimate for incorporating the EDIT into the RSC filing. The software modifications to incorporate the amortization into the books and records will take some months to perform. Therefore, the Company believes that an initial estimate is the best approach for this year’s filing. Any variances in the estimated amortization and actual amortization can be trued—up on a subsequent RSC filing. 

B. TransLa 

The Company filed its RSC filing on December 22, 2017; thus, the filing did not incorporate the impact of TCJ A. However, the Company and Commission Staff have agreed (Docket U—347l4) to suspend the April 1, 2018 implementation of rates to allow additional time for Staff’s consultant to conduct proper discovery and to incorporate the impacts of TC] A into the filing. The effect of reducing the income tax rate from 35% to 21% reduces the TransLa filing by approximately $2.5 million. 

The Company recorded EDIT in its quarter ended December 31, 2018 related to Trans La in the amount of $23.3 million. An estimate of the amortization period is not available at the time of this report. However if the EDIT is amortized over a period of forty years the annual reduction to cost of service is an additional $575,000, with a corresponding adjustment to rate base. 

The Company is working to establish an initial estimate for incorporating into discovery provided in the Trans La RSC filing. The software modifications to incorporate the amortization into the books and records will take some months to perform. Therefore, the Company believes that an initial estimate is the best approach for this year’s filing. Any variances in the estimated amortization and actual amortization can be trued—up on a subsequent RSC filing. 

Ascension Wastewater Treatment, Inc.: As noted in this March 20, 2018 Louisiana Public Service Commission document

In summary, AWT’s 2018 estimated current income tax expense savings resulting from the passage of the TCJA totals $53,604 for an estimated $0.31 monthly rate reduction per ratepayer. All requirements to both record and adjust any regulatory liabilities as it relates to the reduced federal rate of 21% along with any excess accumulated deferred income taxes will be made, accordingly, subject to AWT’s ability to verify the actual amount of tax savings.

Pierre Part Natural Gas Company, Inc.: As noted in this March 20, 2018 Louisiana Public Service Commission document

Pierre Part further understands there will be two impacts from the tax reduction. First, there is a reduction in annual federal tax expense incurred by Pierre Part. Second, there is a reduction in the amount of accelerated deferred taxes that Pierre Part is required to reflect on its balance sheet and a corresponding increase in rate base. Each of these impacts is discussed below. 

Regarding the reduction in annual federal tax expense, Pierre Part estimates the reduction will be approximately $5,075 based on June 1, 2017 - July 31, 2018 fiscal year data. Current rates are based on federal tax expense of $12,689, which would be reduced to 7,615 based on a 21% tax rate, for a difference of $5,075.

Regarding the reduction in deferred taxes, Pierre Part estimates the reduction would be approximately $853 per year. The reduction of deferred taxes on the balance sheet would be $22,800, amortized over 25 years, for an annual amount of $853 after offsetting the corresponding effect of increased base rate.

South Coast Gas Co.: As noted in this March 20, 2018 Louisiana Public Service Commission document

South Coast further understands there will be two impacts from the tax reduction. First, there is a reduction in annual federal tax expense incurred by South Coast. Second, there is a reduction in the amount of accelerated deferred taxes that South Coast is required to reflect on its balance sheet and a corresponding increase in rate base. Each of these impacts is discussed below. 

Regarding the reduction in annual federal tax expense, South Coast estimates the reduction will be approximately $88,131 based on June 1, 2017 — July 31, 2018 fiscal year data. Current rates are based on federal tax expense of $220,329, which would be reduced to $132,198 based on a 21% tax rate, for a difference of $88,131. 

Regarding the reduction in deferred taxes, South Coast estimates the reduction would be approximately $10,146 per year. The reduction of deferred taxes on the balance sheet would be $271,268, amortized over 25 years, for an annual amount of $10,146 alter offsetting the corresponding effect of increased rate base.

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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