Public Service Enterprise Group is expecting to record a one-time, noncash earnings benefit in the range of $660 million to $850 million as a result of the sweeping tax cut signed into law last month by President Trump.
Approximately $530 to $650 million of this is expected to accrue to PSEG Power, the operator of three nuclear units in South Jersey. Earlier this month its parent unsuccessfully lobbied for a $300 million a year ratepayer subsidy, according to a regulatory filing.
The disclosure, filed in an 8-K Form with the Securities and Exchange Commission Thursday, also revealed that Public Service Electric & Gas, another subsidiary, expects to have excess deferred taxes in the range of $1.8 to $2.2 billion. All benefits received by PSE&G are expected to be passed through to customers, the company said.
Since the tax plan was enacted, several utilities across the nation have announced plans to cut customers’ rates as a result of the lower tax rates.
Cloudy future for nuclear subsidy
What all this portends for the future of PSEG’s efforts to secure subsidies for its nuclear plants, without which the company says it will close them, is murky. Some of the tax benefits are likely to be reflected in an ongoing gas-modernization rate case in which the utility is seeking to spend $2.7 billion, as well as a new rate-base case the utility is expected to file for gas and electric customers today.
The nuclear subsidy issue is likely to resurface quickly this year, with Senate President Steven Sweeney already introducing an identical bill to the one that failed to clear either chamber in the lame-duck session.
But the disclosure is likely to fuel opponents’ arguments that PSEG failed to demonstrate that the nuclear plants are in financial distress.
“We said all along they are making money,’’ said Stefanie Brand, director of the New Jersey Division of Rate Counsel. “This adds to the money they are making.’’
Ev Liebman, associate director of AARP New Jersey, agreed. “Clearly this has an impact on Power’s financial situation and raises questions on whether they need any subsidy,’’ she said.
Plants can’t pay their way
But the company said in a statement that even after taking into account the positive impact of tax reform, it believes that its nuclear plants will not be cash positive within two years. It is critical that the plants be recognized for the contribution they are making to reducing climate-change gases and enhancing reliability through fuel diversity, a spokesman said,
In the SEC filing, the company said the lower corporate income tax rate dropped from 35 percent to 21 percent, as of January 1. “This is also expected to increase PSEG’s and Power’s net income,’’ the filing said.
For the utility, the tax law change is expected to lead to lower customers rates over time due to lower income tax expense recoveries and the refund of deferred tax liabilities, partially offset by the impacts of a higher rate base, according to the filing.
“What this filing shows is that PSEG, by its own admission, is set to receive a major corporate tax cut and make hundreds of millions of dollars along the way,’’ said Matt Fossen, spokesman for the New Jersey Coalition for Fair Energy, which is made up of energy competitors to PSEG.
Following lead of other states
The subsidy being sought by the company is similar to what economically challenged nuclear plants have been awarded in New York and Illinois. In New Jersey, the cost would have amounted to about $31 a year to the average residential customer, but as much as $400,000 annually to a large chemical company.
PSE&G also is expected to file a base-rate case for its utility customers. The filing was not immediately available today, but is expected to boost rates only minimally. More importantly, the utility is expected to seek approval for a decoupling provision, similar to that enacted in other 29 other states.
The provision would decouple distribution revenue from sales volume, a step that would encourage larger investments in energy efficiency projects that ultimately lower customers’ bills.
The impact of the utility’s deferred taxes likely will be applied across the board in other rate cases involving PSE&G, Brand said. Besides the gas modernization case, now in settlement discussions at the Board of Public Utilities, it will likely come up in a new filing to make its electric system more resilient, as well as other initiatives sought by PSE&G.
Typically, in rate cases where a utility is seeking a boost in customer rates, it will try to offset the increase with credits or refunds that may be T due to ratepayers from other charges on their bills.