Steep reduction in the federal corporate tax rate put to a vote late Tuesday or early Wednesday could be a significant windfall to Kansas’ public utilities that state regulators have authority to transfer into rate adjustments for consumers.
Staff with the Kansas Corporation Commission formally requested a general investigation to determine what level of savings was realized by each utility company upon reduction in the federal corporate tax rate from 35 percent to 21 percent.
In addition, KCC staff said in a document filed last week the inquiry needed to reflect how each company’s tax savings compared to rising costs of providing utility services. The analysis could result in lower utility rates for consumers or delay anticipated cost increases ordinarily passed along to consumers.
“The new federal income tax legislation could create significant cost savings annually for the state’s public utilities,” said Justin Grady, KCC’s chief of accounting and financial analysis. “These cost savings should not become a windfall for public utility investors.”
Late Tuesday or early Wednesday, the U.S. House and Senate were poised to vote to approve the largest overhaul of federal tax code in three decades. President Donald Trump is expected to promptly sign the bill.
The Kansas Industrial Consumers Group, which represents large-volume users of energy, filed a complaint with the KCC against all investor-owned electric and natural gas public utilities in Kansas “whose retail rates will become unjust and unreasonable upon the effectiveness of the reduce federal income tax rates.”
Companies named in the filing include Westar Energy, Kansas Gas and Electric Co., Kansas City Power and Light, Atmos Energy, Black Hills-Kansas Gas Utility Co., Empire District Electric Company and Kansas Gas Service.
Overland Park attorney James Zakoura represents the industry group organized in 2005 to advance interests of robust users of oil, natural gas, electric power and renewable energy.
In the complaint, Zakoura said federal corporate income taxes are a component of the cost-for-service ratemaking under direction of the KCC. Kansas utilities collect hundreds of millions of dollars annually from ratepayers to meet income tax obligations.
“A declining corporate income tax rate should reduce a utility’s cost of service and, in turn, cost-based utility rates,” he said in the complaint.
Zakoura said 40 jurisdictions opened public utility rate and accounting reviews following adoption of a large federal tax reform in 1986. The latest overhaul will “undoubtedly stir similar regulatory activity throughout the United States,” he said.