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Residents in President Biden’s home state of Delaware – which he represented in the Senate for more than three decades – saw a $15 decrease in their utility bills in 2018, replacing the anticipated $65 increase.
The reason was the Tax Cut and Jobs Act, according to the Delaware Public Service Commission, in announcing the rate cut from Delmarva. The tax reform package that President Trump signed in late 2017, among other things, slashed the corporate tax rate from 35% to 21%.
Delaware is one of at least 38 states to pass along the corporate tax rate cut to customers, according to data compiled by Americans for Tax Reform. That includes the current president’s birth state, where the Pennsylvania Public Utility Commission announced in 2018 a monthly credit to customer bills for 17 electric, natural gas, and water and wastewater utilities, totaling more than $320 million.
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Now the Biden administration is proposing to increase the corporate tax to 28%. That’s still lower than it was before Trump’s tax reform package – but some fear enough to force power bills to increase.
Investor-owned utility companies, such as electric, gas and water companies, are regulated entities and required by law to get their billing rates approved by state public utility commissions. The commissions must consider how tax liability and other expenses factor into the cost of operation. Utility companies have significantly less flexibility in how to absorb such costs.
“Those taxes are passed directly to the public utility customers,” Americans for Tax Reform President Grover Norquist told Fox News. “With public utilities, all agreed to the rate of return. … Regulated businesses can’t move money around.”
The Trump corporate tax cut in 2017 reportedly led more than 100 public utilities across the country to return $90 billion to customers, according to annual SEC 10-K filings. After the tax cut, public service commissions had to enter settlements with public utility companies to determine what to do with the excess accumulated deferred income tax balances, or EADIT.
Biden has repeatedly promised that he would not increase taxes on anyone earning less than $400,000 annually. However, because of how utility rates are determined, these corporate tax hikes could turn into an indirect tax on utility rate payers.
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White House press secretary Jen Psaki dismissed this concern when asked about it in April.
“Well, I would say that there’s no reason that that is what needs to happen. We have evidence of what happens,” Psaki said. “Back in 2017, when Republicans prioritized tax cuts for big corporations over investing in working people, there were many arguments made about what the impact would be: the benefits would be passed on to consumers, they would invest in R&D, there would be jobs created. None of that happened. … So I would say that’s not a concern we have at this moment in time.”
The utility rate cuts that accompanied the corporate tax cut spanned the country in red, blue and battleground states. This included some of the most populous states, such as Texas, where at least 10 companies cut rates; New Jersey, where 14 utility companies passed it on to customers; Virginia, where at least a dozen companies cut rates; and nine companies out of Ohio and six companies in Illinois passed along the savings. Residents in smaller states, such as Utah and Vermont, also benefited, as did ratepayers in both Carolinas, both Dakotas and the two early presidential contest states of Iowa and New Hampshire.
As with any legislation, Biden will have to rely on the support of Democratic Sens. Kyrsten Sinema of Arizona and Joe Manchin of West Virginia.
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In Arizona, at least 10 utility companies, including electric, water and waste water companies, cut rates or provided refunds in the hundreds of millions, attributed to the corporate tax cut. In West Virginia, at least three companies passed on savings from the corporate rate cut to customers. These were Appalachian Power Company, which reportedly saved $235 million; Potomac Edison that reportedly saved $85 million and West Virginia American Water Company reportedly saved $4.6 million.
“Any increase in the corporate tax rate increases the bills you pay, particularly with publicly regulated corporations,” Norquist said. “This is going to affect the public utilities in all 50 states.”
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