Duke, FirstEnergy Fight Rate Reductions From Federal Tax Savings

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By Alex Ebert

Duke Energy Corp., American Electric Power Co. Inc., FirstEnergy Corp., and the Dayton Power and Light Co. are putting up a legal fight to rate reductions based on their decreased tax liabilities from the new federal tax law.

The Public Utilities Commission of Ohio (PUCO) requested information Jan. 10 on the utilities’ savings from the federal corporate tax rate reduction of 35 percent to 21 percent, in hopes those savings could be passed down to 4.5 million Ohio households. The utilities filed a motion Feb. 9 seeking a “rehearing” related to that directive, which is part of a PUCO investigation.

While the utilities’ motion acknowledged that PUCO should “consider the impacts” of the federal law change, the companies want all findings to be preliminary and not take any effect until the commission renegotiates individual rates with each company. However, drawing out current rate plans could be a boon to providers, allowing utilities months to realize lower taxes while maintaining rates set when the federal corporate rate was 35 percent.

State attorneys general and utility commissions across the country have been investigating corporate tax savings in an effort to quickly adjust rates—so far, signs point toward quick savings for millions of customers. Companies such as Maryland-based Delmarva Power have agreed to immediately seek $13 million in rate reductions for their customers.

In a Jan. 25 federal filing, AEP said an increase of almost $100 million in 2017 fourth-quarter earnings over its 2016 fourth-quarter earnings was due in part to the “effects” of the 2017 federal tax act ( Pub. L. No. 115-97).

Nasdaq analysts have said the federal tax change could cause a significant upside to Duke’s stock, which would be slightly dampened if Duke passes savings on to its customers. Duke is in the process of seeking rate increases in some states, including Ohio.

Seeking Clarification, Hearing

AEP spokesperson Scott Blake told Bloomberg Tax in a Feb. 12 email that the rehearing motion is meant to clarify the commission’s order. He said AEP wants to “ensure that the effort to address this issue is done in a fair and deliberate manner that complies with Ohio Law so our customers can realize the benefits of tax reform.”

Duke Energy spokesperson Lee Freedman echoed those comments, adding that the commission’s requirement that each utility calculate a “deferred liability” from Jan. 1 due to company savings isn’t legal.

“The law that gives the commission the power to issue this type of order requires that it first hold a hearing, which it has yet to do,” Freedman said. He further said that generally rates can only be changed in a commission rate case, not through the process the commission is using to explore the company’s taxes.

Ohio Consumers’ Counsel Bruce Weston told Bloomberg Tax in a Feb. 13 email that Ohio utilities were favoring themselves over consumers by challenging the commission’s attempts to investigate electricity rate reductions. The OCC has joined the investigation case as an interested party.

“The Ohio electric utilities have filed at the PUCO to prevent or limit reducing their rates to share federal corporate tax cuts with Ohio consumers,” Weston said. “Our view is that utility consumers should see reduced charges from the federal corporate tax cuts, and sooner rather than later.”

Recent Case Limits PUCO Power

Just last month, the Ohio Supreme Court ruled the PUCO couldn’t retroactively take back $43 million of FirstEnergy’s earnings under a rate plan, even if the commission ruled some of the company’s electricity purchases weren’t justified.

That means the later the commission holds individual rate cases, the better for utilities’ bottom lines. The utilities cited that ruling in a part of their motion arguing the state is bound by current rates until it goes through the normal hearing process.

“Unlike other businesses, utilities are not able to raise or lower rates on their own. We must make a case for the rate change and seek formal approval from our state regulators prior to making any adjustments,” Freedman said. “Oftentimes this is a lengthy and detailed process. But, in the end, it’s a transparent process that strives to ensure fairness among customers, utilities, and other stakeholders.”

With assistance from Che Odom in Washington and Leslie A. Pappas in Philadelphia

To contact the reporter on this story: Alex Ebert in Columbus, Ohio at aebert@bloomberglaw.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bloombergtax.com

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