Trickle-Down Benefits Reduce Energy Prices

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By PowerOptions Team

While there is much debate about whether the GOP tax plan will, in fact, provide economic benefits for employees and consumers in America, one clear benefit should be captured immediately: the reduction in utility rates from the reduction in the corporate income tax rate.

Utilities pay taxes like any other corporation, and they will see the reduction immediately. Yet their rates are based on costs that include the higher income tax rate. The corporate rate reduction from 35 percent to 21 percent is significant and should result in significant cost reduction to the utilities—gas and electric. They should be required to pass those savings on to customers immediately.

The last time the corporate income tax rate was reduced was in 1986, when President Reagan’s tax plan reduced it from 46 percent to 35 percent. The Federal Energy Regulatory Commission and every state in the nation directed their utilities to come in with rate reduction filings reflecting the reduced cost. The commissions in New England should do the same this time around.

Kudos to Massachusetts Attorney General Maura Healey for her petition to the Massachusetts Department of Public Utilities to do just that. She has also sought a reopening of the Eversource rate order issued just last month in order to incorporate the new tax rate. In that case alone, she estimates the impact as a net rate reduction of $50 million for eastern Eversource customers and a 50 percent reduction in the net rate increase for western Eversource customers that otherwise would have occurred as a result of the rate case.

In 1986, the utilities argued that this one cost component (i.e. tax liability) should not be isolated, and rates should not be reduced without looking at the totality of the utilities’ costs. For Eversource there is no such excuse; the tax rate reduction coincides with the conclusion of its full rate hearing. Even for the others, such excuses should not be tolerated. The DPU rejected those arguments back in 1986, and the same should be done again.

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