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Regulators size up tax-change impact on utility rates

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Will federal tax reform lead to lower utility bills for Pennsylvania businesses and homeowners?

Utilities around the country have proposed rate cuts in the wake of the tax bill signed into law last year by President Donald Trump, including Pepco in the Washington, D.C., area and Baltimore Gas & Electric Co. in Maryland.

In Pennsylvania, however, utilities and consumer advocates are waiting for guidance from the state Public Utility Commission.

Early this year PUC staff began examining the effects of the recent tax law, which slashed the corporate tax rate from 35 percent to 21 percent. But that is all the agency is saying for now.

PUC spokesman Nils Hagen-Frederiksen declined to answer questions on the timing of the study or what will happen next.

“What I can say at this point is we have staff examining the issue,” Hagen-Frederiksen said.

Utilities, aware of the PUC study, said they would wait for the results before taking any steps themselves.

“We’re going to work with the PUC,” said Scott Surgeoner, a spokesperson for Ohio-based FirstEnergy Corp., which serves millions of Pennsylvania customers through Met-Ed and other subsidiaries. “They are the regulator in Pennsylvania … Whatever decision they may make, we’ll abide by that.”

PPL Electric Utilities Corp., the distribution subsidiary of Allentown-based PPL Corp., has been examining the effect of federal tax reform, said PPL Electric spokesman Kurt Blumenau. But it, too, plans to act only after the PUC.

“We anticipate that the PUC will issue some form of guidance or direction on how to address the effects of the new lower corporate tax rate, and we’ll promptly comply,” Blumenau said. PPL serves 1.4 million customers in Central and eastern Pennsylvania

Advocates for consumers and small businesses said they hope lower federal taxes will yield lower bills. But they, too, were ready to wait for the PUC, even if utilities in other states were forging ahead.

“Personally I would think that a statewide investigation into this, of how all utilities should be reacting to tax reform, is probably in the best interest of ratepayers rather than piecemeal, one utility at a time, deciding what to do,” said Elizabeth Triscari, deputy small business advocate in the Office of Small Business Advocate, an independent state agency.

Complicating the matter is state case law that essentially forbids regulators from adjusting rates based on a single factor, like taxes. Regulated utilities need PUC approval for any change in rates, up or down.

Taxes may go down, but other expenses may go up, said David P. Zambito, managing partner for the Harrisburg office of Cozen O’Connor and co-chair of the law firm’s utility, environmental and energy group.

Any change in rates would have to factor in all the various costs that utilities bear, and the new law ushers in other changes that may affect utility tax bills.

However, it is still too early to say how the PUC will address the impact of tax reform, said Zambito, who represents utility companies.

“I’m not sure they know what they want to do at this point,” he said.

But even if tax cuts don’t lower rates, they may result in utility investments that also benefit customers, Zambito said.

“I think you’ll see the utilities doing the right thing here,” he said. “They will recognize that there are savings and they will recognize that there are capital improvements that need to be made.”

The state consumer advocate, who represents consumers in state utility matters, expressed hope that benefits from the new tax law will flow to residents in the form of lower rates.

But the amount is not clear, said Tanya McCloskey, the acting consumer advocate. “We too are examining what that impact is,” she added.

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Joel Berg

Joel Berg

Joel Berg is editor of the Central Penn Business Journal. Born in Philadelphia, raised in Northern Virginia and now living in York, he's a graduate of Franklin & Marshall College and the University of Maryland. Have a question or story idea? Email him at jberg@cpbj.com. Follow him on Twitter, @JoelBYorkPa.

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