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, Mississippi 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 26.5%, even higher than communist China’s 25% and higher than the developed world average of 23.5%. 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 four Mississippi 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 Mississippi Public Service Commission, Entergy Mississippi, Mississippi Power Co., CenterPoint Energy Mississippi and Atmos Energy Mississippi passed along tax savings to their customers.
Entergy Mississippi: As noted in this June 27, 2018 Entergy press release:
Beginning July 1, Entergy Mississippi customers will see more than $300 million in benefits under a plan approved by the Mississippi Public Service Commission.
“The plan, a result of the Tax Cuts and Jobs Act, will let us reduce future rates and provide prompt credits that will lower bills during the high-usage summer months,” said Haley Fisackerly, Entergy Mississippi president and CEO. “It also lets us avoid a rate increase that would have resulted from nearly $1 billion in improvements we’ve made to strengthen and modernize the grid for our customers during the past three years.”
Under the plan, the typical residential customer bill for 1,000 kWh will drop more than $12 per month from July through September. Of that amount, $7.59 stems from tax reform. The remaining $5.05 is from an MPSC fuel order last January that was designed to reduce bills during the hot summer months. That portion will remain in effect through February 2019.
This means that the current typical residential customer bill for 1,000 kWh will drop from $114.01 to $101.37 from July through September, and from the current $114.01 to $109. 24 from October through February 2019.
Bills are a combination of rates and usage. Customers who use more electricity than 1,000 kWh per month will see larger savings, while customers who use less than that will see lower savings.
The Tax Cuts and Job Act reduced the corporate tax rate from 35 percent to 21 percent.
CenterPoint Energy Mississippi: As noted in this Mississippi Public Service Commission document:
The purpose of this rider is to provide customers with certain tax benefits associated with the Tax Cuts and Jobs Act of 2017 (“TCJA”). The TCJA reduced the maximum corporate income tax rate from 35 percent to 21 percent beginning January 1, 2018. Rider TCJA returns to customers the estimated Unprotected Excess Accumulated Deferred Income Tax (“ADIT”) amounts not subject to the normalization provision of the Internal Revenue Code.
The Unprotected Excess ADIT will be amortized over three years and allocated to the customer classes based on the currently approved allocation factors per Rate Regulation Adjustment (“RRA”) Schedule 3.10. The allocated amounts by class shall be divided by the customer count billing determinants to calculate a monthly per bill credit.
Monthly credits shall appear as a line item on the bill titled, “Tax reform refund”.
Atmos Energy Mississippi: As noted in this October 23, 2018 Mississippi Public Service Commission document:
In its review of the Company’s filing, the Staff reviewed the Company’s reduction to the Stable Rate revenue adjustment to reflect the amortization of excess deferred income taxes (“EDIT”)related to the change to the federal corporate income tax rate in the 2017 Tax Cuts and Jobs Act (“TCJA”). The Staff and Company discussed the potential that the earnings band provision in the Stable Rate Rider could prevent customers from receiving the full benefit of the TCJA. Therefore, the Staff and the Company have agreed that it is consistent with the public interest to remove at this time the provision imposing an earnings band of 50 basis points above or below the Performance Based Benchmark Return and incorporate a provision providing a de minimis threshold such that the Annual Evaluation will not result in a change in revenues if the revenue deficiency/excess reflected in the filing is less than $250,000. The Staff and the Company further agree that this modification to the Stable Rate Rider shall be reviewed in the Company’s next general rate case, which is currently scheduled to be filed no later than February of 2022 pursuant to the Commission’s Order dated August 20, 2015, in Docket 2015-UN-49, for a determination by the Commission as to whether it is just and reasonable to adopt these changes permanently.
Mississippi Power Co.: As noted in this August 7, 2018 Clarion Ledger excerpt:
The increase is lower than the company originally sought, in part because of federal corporate tax cuts approved last year.
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.