May 7, 2018

Lower Federal Taxes Expected to Lower Utility Bills in Indiana

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Most public utilities’ rates are set by state regulatory commissions. With limited exceptions, once a public utility’s base rates have been set, those are the only rates it can charge its customers until the next time the regulatory commission takes a comprehensive look, known as a rate case, at all of the utility’s costs and sets new rates, on a prospective basis. Some utilities have rate cases every few years, while others go for more than a decade between rate cases.

One of the costs utilities are expected to have the opportunity to recover through their regulated rates is their taxes. Effective January 1, 2018, the federal Tax Cuts and Jobs Act of 2017 (Tax Act) lowered the federal corporate income tax rate to 21%. Many utilities’ current rates, however, were set prior to 2018 and are based on a need to recover higher taxes under the former federal tax rates.

The state commission responsible for determining most utility rates in Indiana is the Indiana Utility Regulatory Commission (IURC). On January 3, 2018, the IURC opened an investigation into the effects of the Tax Act on all of the utilities it regulates. In a subsequent order, it directed all such utilities to determine how much lower their rates would need to be if the only cost that changed since their last rate case was for federal income taxes. In a footnote in that February 16, 2018 order, the IURC observed that “The near immediate implementation of the [Tax Act] creates a situation in which [utilities’] actual federal tax burden is no longer aligned with the federal tax burden reflected in the rates currently in effect.”

Although the IURC had not conducted any hearings, all jurisdictional utilities were ordered to submit new rates by March 26, 2018. Any utility that wanted to have a review specific to their circumstances, however, could withdraw its new rates before they became effective and ask to establish such a specific review, known as a subdocket. If a utility did not request a subdocket, the new rates it filed by March 26 would be reviewed on an expedited basis and expected to take effect by May 1, 2018.
While these procedures resulted in many utilities having lower rates after May 1, the IURC also is planning a Second phase of the investigation it launched on January 3. In the Second phase, it intends to address some of the more complex impacts of the Tax Act, including relating to any needed adjustments to utilities’ accumulated deferred income taxes and also “the timing and method for how these benefits will be realized by customers.”

As of May 7, 2018, the IURC had opened four subdockets at the request of Indianapolis Power and Light Company, Duke Energy Indiana, Sycamore Gas Company and Indiana American Water, respectively.
More information about this case, IURC Cause No. 45032, can be found on the IURC’s website,