Leaders of Westar Energy and KCP&L said Wednesday they will return to customers 100 percent of any savings their businesses receive from a corporate tax rate decrease from 35 percent to 21 percent as a result of the federal tax act.
The tax savings to Westar will be about $65 million, while KCP&L expects to see a corporate tax drop of $100 million, of which about $35 million would be allocated to Kansas customers, according to the CEOs of the companies.
“That benefit should and will go to our customers,” wrote Westar leader Mark Ruelle in a letter to Lt. Gov. Jeff Colyer.
Colyer and Kansas Secretary of State Kris Kobach both had encouraged the utilities to return all tax savings to customers.
In December, the Kansas Corporation Commission, which regulates Kansas utilities, opened a general investigation to determine the process for handling the changes incorporated in the Tax Cuts and Jobs Act of 2017 and the impact of those changes on the state’s utilities. A hearing on that docket is scheduled for Thursday morning. The decision on whether the funds will be returned to customers lies with the KCC.
“The Commission, in determining rates, generally authorizes recovery of all federal taxes from ratepayers,” KCC staff said in a filing. “Failure to recognize the reduction in federal taxes owed if the TCJA becomes law could result in a financial windfall to the utilities in terms of rates.”
David Nickel, consumer counsel with the Citizens’ Utility Review Board, which advocates for residential and small business utility customers, said it was “great news” the two companies say up front they will refund the money to consumers, a stance KCC commissioners are likely to fully support.
“If Westar and KCP&L have agreed to that, that’s great,” he said. “Then we don’t have to fight over it. The KCC is going to determine what they do. But clearly, our opinion is simply this: that 100 percent of the amounts that reduce the rates to consumers should belong to the ratepayer.”
“It’s pretty straightforward that what we pay in taxes is reflected in our prices,” said Westar spokeswoman Gina Penzig. “State, local and federal taxes are something that is included in rates. So whether that’s a tax bill going up or going down, as we update prices, those tax changes are reflected.”
Penzig said Westar is planning to file for a rate review in the next few weeks. That process generally takes about eight months, so the KCC’s general investigation is expected to address how the savings that are being captured since Jan. 1, 2018, will be handled as that process is underway.
“I believe that is part of what they’re addressing in the morning, customers getting the benefit of the reduced taxes, starting this past Jan. 1, and not having to wait until prices are updated,” she said.
In KCC filings, staff said the commission faced this situation in 1986 when the Tax Reform Act lowered corporate tax rates from 46 percent to 40 percent to 34 percent. Facing the same concerns about the “financial windfall” that could occur for utilities, the commission created a mechanism to capture the ratepayer benefits of the corporate tax reduction that were accruing during the rate review process.
The mechanism created a deferred account and a tracking mechanism where the percentage of company revenues being saved — in the current case the difference between 35 percent and 21 percent — would be placed. At the end of the rate review, “any excessive collections in the deferred revenue subaccount … shall be refundable to ratepayers along with interest calculated at the rate being used for interest paid on customer deposits,” the filing said.