PSEG Says $2B Tax Cut Won’t Offset Need for Nuclear Subsidies

Tom Johnson | January 18, 2018 | Energy & Environment
Company says some deferred taxes will be passed along to utility customers in current and coming rate cases

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The Trump tax cuts may allow Public Service Electric & Gas to reduce customers’ gas and electric bills, but they will be not rich enough to stop its parent from seeking subsidies once again for its nuclear power plants.

In a call with reporters, Dan Cregg, chief financial officer for the Public Service Enterprise Group, outlined generally how a steep cut in its federal tax rate should benefit utility customers but not erase financial troubles facing its three nuclear units in South Jersey.

PSE&G is expected to have roughly $2 billion in excess deferred taxes, a benefit that will be passed on to the utility’s customers in ongoing and future rate cases. Some of that benefit has already reduced its revenue need by $130 million in a utility rate case it filed Friday, as well cutting transmission rates by $148 million, officials said.

Unquantified savings

In the rate case, the first filed by the state’s largest utility in eight years, the company is seeking to boost rates for customers by 1 percent, or about $19.70 a year for the typical residential customer. A company spokeswoman said they could not yet quantify the savings from the transmission reduction for residential customers.

The call occurred on the heels of the Newark company’s disclosure Friday that PSEG Power expects to receive a one-time noncash benefit of between $550 million to $650 million from the tax plan enacted last month. But Cregg said the benefit is not likely to offset the economic challenges facing its nuclear plants, which the company says may be losing money within two years.

“The challenge remains,’’ Cregg said, referring to the nuclear units. “To the extent that asset is lacking earnings, the asset will lack the tax benefit from a lower rate.’’

The tax reform plan signed into law dropped the corporate income tax rate from 35 percent to 21 percent. “With those lower earnings, those lower rates don’t do much for us,’’ Cregg said.

The company sought roughly $300 million in annual subsidies from ratepayers for the nuclear plants in the last days of the lame-duck legislative session in December and January, which ended earlier this month. The bill, already reintroduced in this session, is expected to come up early in the year.

New ammunition

The tax benefits accruing to PSEG from the new law are giving opponents of the subsidies new ammunition in their fight to prevent the company from obtaining lucrative financial incentives for the units. The plants have run into economic challenges because natural gas has lowered energy prices in the power sector, leading PSEG to threaten to close the plants without a safety net.

For utility customers, the case is more settled, although the terms and timing of the benefits remain to be worked out between the utility, the state Board of Public Utilities, and other interested parties. PSE&G is likely to try to use the benefits from the deferred taxes to offset some of the increase from an ongoing rate case in which the utility is seeking to invest $2.7 billion to modernize its gas system.

In addition, the utility has told regulators it plans to file another petition seeking to extend its Energy Strong program, which involved spending to upgrade electric substations and other parts of its gas and electric infrastructure. Another filing is also expected this year from the utility to expand the scope of its energy-efficiency programs.