Illinois utilities told to pass along tax savings to customers or say why not

Published on January 29, 2018 by Bill Yingling


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As Illinois’ biggest utilities proceed with plans to pass along federal corporate tax savings to customers, state regulators are telling smaller companies to do the same or explain why they should be exempt.

The Illinois Commerce Commission on Jan. 25 issued orders to 22 regulated utilities, including electric, gas and water companies. They have 30 days to respond. Some of those companies already are engaged in the process. Others have yet to decide how they’ll respond.

Effective Jan. 1, the federal corporate income tax rate was cut from 35 to 21 percent. Competitive companies can do what they want with the savings. But officials across the nation are saying that regulated utilities, which operate as monopolies and whose rates are set by government, should pass along the savings to customers.

In Illinois, the issue has an additional shade of complexity. The federal tax cut follows about six months behind an increase in the state’s corporate income tax rate from 5.25 to 7 percent. This makes the total state corporate tax rate 9.5 percent, including a 2.5 percent levy paid to local governments, the ICC staff noted in a Jan. 22 report.

For some smaller utilities, who may operate on a slim profit margin, passing along the savings may be an issue. In its orders, the commission recognized that some companies may not be in a position to reduce rates. A utility could show, for example, that even with the tax savings, the company is not over-collecting from customers.

Illinois Gas Co. has not yet decided upon its response to the ICC, but it may seek a waiver, at least temporarily. The gas distribution company, which has been in business for a century, serves about 9,500 customers in southeastern Illinois about 240 miles south of Chicago.

Darin Houchin, general manager, told Daily Energy Insider the company’s earnings are minimal and may not be enough to justify a rate reduction.

Where ComEd, with more than 3.8 million customers in Chicago and northern Illinois, said its adjustment will result in a reduction of about $2 to $3 a month on an average customer’s bill, Houchin said any reduction to his customers would be between $1 and $2 a year.

“The effect would not be much because there just is not that much profit to give back,” Houchin said. “The amount of money is just orders of magnitude smaller than the larger utilities in the state.”

Houchin said the gas company has not had a rate case in nine years and the company does not have a way to steady its revenue as temperatures vary from year to year. Extremely cold winters can cause revenue to surge and warmer winters can cause it to dip. In recent years, he said, the winters have been warm and profits are down.

Illinois Gas Co. could ask the commission to defer action on an immediate rate reduction, Houchin said, and ask regulators instead to consider the impact of the tax cut in a full rate case within the next two to three years.

“We’re small and we never fight the commission,” he added. “Whatever the commission wants us to do, we’ll do it.”

The ICC staff said it will work individually with companies to determine the best way to resolve the issue. Regardless of the method, however, the commission is ordering each utility to begin setting aside their estimated tax savings to be used in case the commission orders a refund.

ComEd said it voluntarily filed its proposal with the commission in an effort to enhance customer value. The commission, supported by various stakeholders, acted quickly in approving the measure Jan. 18. ComEd will pass along about $200 million in tax savings in 2018 starting in February.

If the company had gone through the normal ratemaking process, customers would not see the benefits until 2020, said Jane Park, vice president of Regulatory Policy & Strategy at ComEd. So ComEd accelerated the process.

“This was a very fast moving docket, Park said in an interview. “It’s a nice example of how quickly the stakeholders can move to give these benefits back to the Illinois customers.”

Other energy companies are still in the regulatory process but have indicated they expect to pass along some level of savings to customers.

Peoples Gas with 840,000 customers in Chicago and its affiliate, North Shore Gas, with 159,000 customers, have filed testimony with the ICC. The two companies said the amount would be decided by the commission and that it expects customers to start seeing the benefits as soon as May.

“Peoples Gas and North Shore Gas would like our customers to benefit from the recently enacted federal tax legislation this year,” said Charles Matthews, president and chief executive officer, in a news release.

NiCor Gas, with 2.2 million natural gas customers in the state, also said it expects to pass along savings.

“Every customer deserves reliable energy at a price they can afford,” Melvin D. Williams, Nicor president, said in a written statement. “The benefits of the new tax law will lower costs for the company, which we are pleased to share with our customers.”

Ameren Illinois, which serves customers in central and southern Illinois, also has filed a proposal. Ameren Illinois has 1.2 million electric customers and 816,000 natural gas customers. Those electric customers could save $2.50 to $3 on average per month in 2018, while natural gas customers could save an average of $1 a month if the ICC approves the company’s plan.

“Ameren Illinois’ effective tax rate is expected to decrease by nearly 13 percent under the federal tax plan,” said Marcelyn Love, spokesperson for the company. “As a rate-regulated utility, those savings can be passed back to our customers through existing rate mechanisms. We recently filed proposals asking the ICC for permission to expedite the process and that will enable us to return those savings to our customers in 2018.”