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Friday, May 29th, 2020Last Update: Wednesday, May 6th, 2020 02:21:47 PM

Federal Tax Cuts Could Result in Utility Rate Cuts

By: Constitution Staff

Federal Tax Cuts Could Result in Utility Rate Cuts for Customers

The estimated annual tax savings for the five utility companies is approximately $100 million, not including additional savings from other affected utility accounts.

With the December passage of federal tax cuts, Oklahoma Corporation Commissioner Bob Anthony urged quick action to return ratepayer money to Oklahoma public utility customers. Commissioner Anthony said utility customers could see a $100 million savings. But, Anthony warned that unless regulators act, that benefit could go to the utilities rather than customers. The new tax law went into effect on January 1.

Because public utility rates include a component for federal income taxes paid by the utilities, Anthony suggested that utility rates should be lowered to pass the savings on to utility customers. But when the Tax Reform Act of 1986 lowered federal corporate income tax rates, modified depreciation provisions and otherwise changed the ways corporate taxes were calculated, Oklahoma customers did not see a rate reduction.

In the case of Southwestern Bell (now AT&T) a settlement agreement allowed the company to keep the federal tax savings rather than refunding the accumulated savings and lowering rates. The agreement was approved by the OCC, but it was later learned that the deciding vote was cast by a commissioner that was bribed. Now, more than three decades later, a group of Southwestern Bell customers is still battling to have the money returned. A separate article elsewhere in this edition reviews the latest action in those efforts.

In response to Commissioner Anthony’s call for a reduction of rates, Oklahoma Attorney General Mike Hunter filed five motions with the OCC asking for an immediate reduction in customer rates from the state’s leading utility companies. The attorney general’s request came the day that the overhaul of federal income taxes was signed into law. The new law lowers the highest corporate income tax rate from 35 percent to 21 percent.

The estimated annual tax savings for the five utility companies is approximately $100 million, not including additional savings from other affected utility accounts. “Oklahomans who are customers of these companies should immediately retain the benefits of the savings from the tax cut in the form of lower rates. We urge the OCC to act quickly and in the best interests of customers, not company shareholders,” Attorney General Hunter said.

The attorney general also requested that the OCC protect customers’ ability to receive excess accumulated deferred income tax, which is used to reflect utility companies’ past use of tax breaks to defer tax bills. With lower tax rates enacted, a portion of accumulated deferred income tax would be unnecessary to cover future taxes – creating an “excess” portion. Without OCC action, utility companies could retain the entire benefit of excess accumulated deferred income tax, so the attorney general requested that the OCC create a temporary protection. The actual treatment of the excess could then be addressed at the time of the final order, where the attorney general would request a refund to ratepayers.

The Attorney General’s office provided estimated annual corporate tax savings, not including accumulated deferred income tax, for each utility company :

Oklahoma Gas & Electric - $51.7 million;

Public Service Company of Oklahoma - $24 million;

Oklahoma Natural Gas - $20 million;

CenterPoint Energy - $859,000;

Arkansas Oklahoma Gas - $270,500 (changed order to reflect size)

In response to the initial recommendation of Commissioner Anthony, followed by Attorney General Mike Hunter’s formal request, OCC Administrative Law Judges held hearings and recommended that Oklahoma utilities use the savings they receive from the new federal corporate tax rates to issue rebates to their customers. But Commission Chairman Dana Murphy worried that the complexities of the new federal tax measure and each utility’s unique situation might make it difficult for regulators to quickly calculate what customers are due.

On January 9, the OCC in a 2 - 1 vote with Commissioner Anthony being the only member in favor of the immediate customer rate reduction, struck down the attorney general’s main recommendation. An alternative proposal supported by Commissioner Dana Murphy and Commissioner Todd Hiett was then approved which requires utility companies to begin tracking savings that each company will receive from the federal income tax cut. The order also instructed the companies to create an account for the savings received and refund those savings to customers after a review by the OCC at a later date. Companies must provide the OCC estimates of tax savings within four months.

Attorney General Hunter said he hopes the OCC’s decision will ultimately lead to money back in the pockets of Oklahomans. “We appreciate the commission acting quickly on our motions,” Hunter said. “While we would have preferred customers see immediate savings, putting the money aside and distributing it at a later date will give Oklahomans future relief.” Hunter urged the OCC to press forward without delay in completing its review of the amount to be refunded to customers, and in lowering customer rates.

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