Dive Brief:
- Louisville Gas & Electric and Kentucky Utilities are pushing back on directives from state regulators to increase rate cuts in response to lower corporate taxes, citing procedural and factual errors, according to the Courier Journal.
- Last week, the Kentucky Public Service Commission ordered KU and LG&E to reduce revenues by $203.8 million — about a 6% decrease for electric customers and 4.5% for gas.
- In December, Congress passed broad tax legislation reducing the corporate income rate from 35% to 21%, among other changes. Utilities across the country have been working to adjust rates to reflect the lower tax burden.
Dive Insight:
KU and LG&E were already planning rate reductions, the result of a settlement between the utilities and Kentucky Industrial Utility Customers (KIUC), an association of large, energy-intensive companies. That agreement, in which KIUC was seeking a reduction due to the lower taxes, called for a total revenue decrease of $176.9 million. But regulators decided that was not sufficient.
The PSC ordered an additional $26.9 million in rate reductions "because of modifications it made to the
manner in which the impact of the tax reduction was calculated," regulators said in a statement.
KIUC had filed cases against LG&E and KU, as well as Duke Energy Kentucky and Kentucky Power Co., seeking similar reductions. Regulators have opened similar cases to examine the effect of the tax changes on other investor-owned utilities.
The reduction ordered for LG&E and KU would be reflected as the "Tax Cut and Jobs Act Surcredit," on customer bills. The credit is due to take effect April 1 and extend through April 30, 2019.
The utilities, however, have pushed back
According to the Courier Journal, the utilities said they "have asked the commission to allow us to go ahead and begin delivering the [initially agreed upon] savings to our customers as planned beginning April 1 while we await the next steps." Kentucky regulators said they will respond within the next few days.
Federal regulators have opened a proceeding to tackle the impact of the tax reduction on electricity rates. Earlier this month, the Federal Energy Regulatory Commission began seeking comment on the tax law's impacts on commission-jurisdictional rates for public utilities, interstate natural gas pipelines and oil pipelines.
The lower tax rates may not be all-positive for utilities. A recent report from The Brattle Group notes that revenue reductions could weaken the credit profile of some utilities. Moody’s Investors Service, in a January report, warned that tax reform is credit negative for utilities.
