Utility companies looking to pocket tens of millions of dollars in savings through tax reform will be required to present a plan to the Montana Public Service Commission next spring showing how they’ll pass the savings on to power customers.
The Tax Cuts and Jobs Act, adopted last week by Republicans in Congress, reduced the corporate tax rate from 35 percent to 21 percent. That creates a gap between the tax rate customers pay to Montana utility companies, who stand to benefit from the savings.
But the PSC on Wednesday directed regulated utilities in the state to calculate the change in their tax liability and present a proposal by April about how to apply those benefits, whether it’s customer refunds or zero-cost financing for capital improvements.
“Consumers are currently paying more in taxes through utility rates than the actual tax expense that utilities will incur next year,” said PSC chairman Brad Johnson, R-East Helena. “The commission wants to ensure that this money is not simply captured by shareholders, but instead is directed in a way that provides a long-term benefit to the consumer.”
The PSC said regulated utility customers have already paid tax expenses on future tax liabilities. As a result, the lower tax rate that will be applied to those liabilities in future years could create a benefit for power consumers.
Last week, the PSC released a memo suggesting the total tax benefit to the state’s utility customers will amount to tens of millions of dollars annually.
“Utilities basically have four options,” said Commissioner Roger Koopman, R-Bozeman. “They can issue customer refunds, use the money as a source of zero-cost financing for capital projects, direct the funds to offset large and unusual expenses, or propose some combination of these three applications.”
Koopman said the PSC is currently leaning toward ratepayer refunds.
For now, the additional funds collected through rates will be accounted for as a deferred liability. Because retroactive ratemaking is unlawful, the PSC said it intends to impose its accounting requirement before the law’s effective date to preserve its authority to determine how the additional revenue will be treated.
“Our commission is, if not the first, one of the early movers on this issue among the 50 state utility commissions in the nation,” said Commissioner Travis Kavulla, R-Great Falls. “Taking this first step is essential to ensuring that consumers reap the benefits of the tax reform legislation.”
NorthWestern Energy’s electric and gas utilities are subject to the PSC’s oversight, as is the electric service of the Montana-Dakota Utilities. The gas utility at Great Falls Energy West and MDU’s gas utility will also have their rates adjusted after tax reform during pending rate cases.