If Tester votes for Biden’s corporate income tax rate increase proposal, he will have to explain why he just increased your utility bills

If President Biden and Senator Jon Tester (D-Mont.) hike the corporate income tax rate, Montana households and businesses will get stuck with higher utility bills. President Biden has formally proposed the tax increase in his 2025 budget, and if both men are sent back to Washington for another term, watch your wallet.

Democrats plan to raise the current 21% federal corporate income tax rate to 28%, a rate 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 two Montana 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. Americans for Tax Reform has compiled a 90-second nationwide utility savings video from local news reports (including Montana) which may be viewed here.

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.

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 Montana Public Service Commission, Montana-Dakota Utilities and NorthWestern Energy passed along tax savings to customers.

Montana-Dakota Utilities: As noted in a Dec. 19, 2018 Montana Public Service Commission statement:

The Montana Public Service Commission voted unanimously to approve an agreement for Montana-Dakota Utilities’ electric business to refund to consumers the benefits they received from the Tax Cuts and Jobs Act. The agreement, or Stipulation, calls for a $1.5 million consumer refund as a result of the TCJA.

“The consumers of Montana get to keep more of their hard-earned money. The utility is treated fairly. This agreement is a win for all concerned,” said Commissioner Tony O’Donnell, R-Billings, whose district is served by MDU.

In response to the tax cuts passed by Congress and signed into law by President Donald Trump, the PSC required major regulated utilities in Montana to pass any benefits on to consumers. The reduction of the corporate income tax from 35 percent to 21 percent could have potentially created substantial savings to the utilities.

MDU initially argued that they were currently under-earning from their authorized rate of return, and thus should not have to refund the benefits from the TCJA. Consumer groups, however, argued that utilities are not guaranteed to earn their expected rate of return, and that regardless of MDU’s actual earnings, tax savings should be refunded to the consumer.

The stipulation settles the dispute in favor of a $1.5 million refund to electric consumers. It comes on the heels of a stipulation from NorthWestern Energy, the other large regulated electric and gas utility in Montana, returning $20 million to their consumers. MDU customers will receive their refunds as bill credits next April. The average bill credit is expected to be about $23. For those no longer receiving utility service from MDU, if the amount they are owed is $5 or more they will receive a check. For amounts less than $5, the amount will be applied to the company’s deferred fuel cost account.

MDU’s gas business had already returned the tax benefits to consumers in the context of a different proceeding.

Commission Vice Chairman Travis Kavulla voted in favor of the Stipulation, and noted it was the final proceeding before the Commission to resolve the distribution of tax benefits. “I’m pleased that we finally finished our work to make sure Montana consumers received the benefits of the tax cuts,” he said.

NorthWestern Energy: As noted in this April 3, 2018 Billings Gazette article excerpt:

The tax savings stem from the Republican Tax Cuts and Jobs Act, which Congress passed in December and was signed into law by President Donald Trump. Federal corporate tax rates fell from 35 percent to 21 percent.

Regulated utilities like NorthWestern cannot pocket the savings, which must be shared with ratepayers, who also pay the utilities’ taxes. NorthWestern has about 345,000 customers in Montana. 

NorthWestern is proposing that its natural gas customers receive direct refunds for the entire $3.154 million in tax breaks associated with the utility’s natural gas business. The company’s electric customers would receive half of the $10.8 million in tax breaks associated with NorthWestern’s electric business. Half the money would be spent removing hazard trees that pose a fire or outage risk.

Conversely, if Biden and Tester 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.