Tax law change provides benefit
MARQUETTE — Customers of the Upper Peninsula Power Company, SEMCO and the Upper Michigan Energy Resources Corp. will soon see the benefit of the Tax Cuts and Jobs Act on their monthly utility bills.
President Donald Trump on Dec. 22 signed into law the TCJA, which lowered the federal corporate income tax rate from 35 percent to 21 percent. Less than five days later, the Michigan Public Service Commission required 13 Michigan rate-regulated utilities to reflect the effects of the TCJA, effective Jan. 1.
The reason for the order, according to the MPSC, is because current utility rates paid by customers were set in previous utility rate cases using the 35 percent federal income tax rate.
The three Upper Peninsula utilities were among nine companies that were given a deadline of March 30 to calculate and submit a proposed rate reduction, referred to by the MPSC case as “Credit A” which would begin in July. This submission is the first of three that utility companies are required to file in order to address the full effect of the TCJA and will not go into effect until they are approved by the MPSC.
According to an April 2 UPPCO press release, the company filed its plan, which details savings for residential, commercial, industrial and lighting customers, with the MPSC on March 30.
“Under our plan, a typical residential customer consuming 500 kilowatt-hours per month will see a reduction of approximately $1.30 per month,” UPPCO Vice President of Business Development and Communication Brett French said. “This is in addition to approximately $7 in monthly savings currently being seen by a typical residential customer because of the steps we implemented in January. We anticipate our customers will see additional savings later this summer after the MPSC approves our plan.”
Germfask resident Gary Talarico, a vocal proponent of lower electric rates, said despite the rate reductions offered by UPPCO, the current rates are “unsustainable for residents and businesses.”
“It amazes me when UPPCO releases statements touting their underwhelming accomplishments to reduce ratepayer costs,” Talarico said. “Seven dollars less on a bill for hundreds of dollars is not true relief. It is an insult. Now UPPCO proposes in their latest filing that if they are ordered to give more than virtually nothing back to the customers after saving 14 percent on their federal tax liability they will have to file for another rate increase.”
John Liskey — counsel for the Lansing-based non-profit Citizens Against Rate Excess, a utility watchdog organization — said in an email on Thursday that CARE is reviewing the UPPCO filing.
“We are concerned that the reductions to residential ratepayers are not enough,” Liskey said. “Residential ratepayers have historically contributed 60 percent of UPPCO’s revenue requirements, yet this proposal only allocates 37 percent of the refund to them.”
UMERC officials said the reduction of the federal corporate tax rate should have a positive impact on its customers, although she did not provide a per-month, per-customer calculation for the company’s 35,000 electric customers and 5,000 gas customers.
UMERC spokeswoman Amy Jahns said the company estimates the reduction of the federal corporate tax rate, as implemented by TCJA for its electric customers, will be approximately $1.9 million for UMERC’s electric customers and approximately $30,000 for the company’s 5,000 gas customers.
“UMERC made its first required filing in the MPSC-assigned docket on March 29 and we will continue to work with the Commission to enable them to confirm the appropriateness of our calculations and proposed approach to provide these benefits to our customers,” Jahns said.
SEMCO, which serves about 300,000 customers statewide according to company spokesman Tim Lubbers, expects the impact of TCJA to be about $5.9 million.
Most of that amount, Lubbers said, about $4 million will be credited to SEMCO’s residential customers.
The proposed credit will result in about 15 cents per decatherm — a measurement in heat equal to one million British Thermal Units or BTU, Lubbers said.
The average residential SEMCO customer uses between 90 and 100 decatherms per year, he said.
It is important to note, Lubbers said, those numbers aren’t carved in stone prior to the MPSC’s ruling on the case.
“I want to stress that this filing has not been approved by the commission,” Lubbers said. “We don’t know how they are going to handle this at this point.”
In addition to the Credit A filings, all 13 utilities are required to file a “Credit B” calculation by Aug. 30, which would determine the tax savings due to rate payers from Jan. 1 through June 30 according to the MPSC order.
As a final step in the process, each utility must file an application with the MPSC by Oct. 1 calculating the impact of other items such as excess deferred taxes or bonus depreciation not accounted for under Credits A or B. The MPSC will then determine how those benefits will be disbursed to rate payers, the order states.