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

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Posted by John Kartch, Michael Mirsky on Monday, September 6th, 2021, 12:00 PM 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, South Dakota 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 six South Dakota 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 South Dakota Public Utilities Commission, Black Hills Energy, MidAmerican Energy Co., Montana-Dakota Utilities Co., NorthWestern Energy, Otter Tail Power Company and Xcel Energy passed along tax savings to their customers.

Black Hills Energy: As noted on the Black Hills Energy Website:

South Dakota customers served by Black Hills Energy are seeing the benefits of the federal corporate tax rate reduction from 35 percent to 21 percent. These benefits first appeared on customers’ October 2018 bills. 

The settlement agreement provides for the benefits of tax reform for 2018 to be passed on to customers through a one-time credit on their October bill. The aggregate 2018 benefit for all customers is estimated at $7.7 million. For 2019, the settlement agreement authorizes an $8.9 million aggregate reduction in base rates for customers. This reduction will be reflected on customers’ monthly bills beginning in January 2019.

Xcel Energy: As noted in this July 10, 2018 KSOO article excerpt:  

As a result of tax reform Xcel Energy will be giving money back to you.

Xcel Energy will soon distribute approximately $10.9 million to all South Dakota customers as a result of the Federal Tax Cuts and Jobs Act. All Xcel Energy customers in the state will receive a one-time credit on their bills.

The estimated refund for a residential customer will average approximately $55.73, but will vary based on each customer’s actual usage.

MidAmerican Energy Co.: As noted in this May 15, 2019 South Dakota Public Utilities Commission document:

MidAmerican Energy Co. customers will receive a refund and rate reduction as the result of action by the South Dakota Public Utilities Commission at their regular meeting in Pierre on May 14. The approved settlement agreement, presented jointly by PUC staff and MidAmerican Energy, specifies the company will refund $3,308,988 to its South Dakota natural gas customers and $921,476 to its South Dakota electric customers.

Additionally, the commission approved reductions to MidAmerican Energy’s base rates. Natural gas rates will be reduced by $1,205,376 while electric rates will see a $359,811 reduction. The settlement also includes a revision to the energy cost adjustment related to the company’s production tax credits in consideration of the reduced federal income tax rate.

Montana-Dakota Utilities Co.: As noted in this October 16, 2018 South Dakota Public Utilities Commission document

This week the South Dakota Public Utilities Commission approved a refund and reduction of rates for Montana-Dakota Utilities Co. customers as a result of the federal tax cuts enacted late last year.

The total refund to be distributed among Montana-Dakota’s natural gas customers is $1,326,915; the company will refund $591,424 to electric customers. Refunds will appear as a credit on customer accounts in mid-February. An average residential natural gas customer will receive an estimated $14.05 refund; an average residential electric customer will receive an estimated $41.84 refund.

NorthWestern Energy: As noted in this September 18, 2018 Associated Press article excerpt:

State regulators have approved an agreement with NorthWestern Energy to refund roughly $3 million to customers after last year’s federal tax cuts.

The South Dakota Public Utilities Commission said Tuesday that commissioners voted to accept the settlement agreement, which also bars rate hikes until 2021. The refund will be roughly $18 for an average household electric customer and about $9 for an average residential natural gas buyer.

Otter Tail Power Company: As noted in this April 21, 2018 Otter Tail Power Company press release

Today Otter Tail Power Company filed a request with the South Dakota Public Utilities Commission (SDPUC) to increase its rates. The filing starts a nearly year-long process, often referred to as a rate case, during which the SDPUC first reviews the costs the company incurs to provide customers with energy and related services and then determines how much customers should pay for those services.

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“Because of the Tax Cuts and Jobs Act we were able to offset some of the cost to provide service to South Dakota customers,” said Rogelstad. “We determined that reducing our overall rate increase request by more than $1 million is the most efficient and effective means of returning the cost-savings benefits to our customers.”

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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