Could Trump Tax Reform Mean Lower Bills for NJ Ratepayers?

Tom Johnson | February 1, 2018 | Energy & Environment
New federal law cuts utility tax rates to 21 percent, but money could go to offsetting ratepayers subsidies on solar and wind initiatives

BPU president Joseph Fiordaliso
The state’s beleaguered utility customers may be getting some relief on their monthly bills, a result of the recent changes in federal tax law.

The New Jersey Board of Public Utilities yesterday issued an order kicking off a proceeding to determine how the state’s utilities pass along any economic benefit they gain from the Trump tax cuts enacted in December.

The state’s utility rates are based, in part, on the utility company’s tax liability. The new federal tax law reduces their tax rate from 35 percent to 21 percent. As a result, ratepayers may receive a reduction in their monthly bills, or it will offset otherwise higher increases.

For instance, Public Service Electric & Gas has calculated that the tax changes resulted in “excess deferred tax liabilities” in the range of $1.8 billion to $2.2 billion. With a lower liability, the utility must return those benefits to ratepayers.

That already has resulted in the company lowering the projected revenues it needs in a base rate case it filed earlier this month with the BPU. In that case, PSE&G lowered its revenue by $130 million. In addition, the utility lowered its transmission revenue by $140 million to reflect the lower tax rate.

Karen Johnson, a spokeswoman for the utility, said the company is still evaluating the impacts of the tax reform. “The lower tax rate is by far the biggest impact of tax reform and we are passing that back dollar for dollar,” she said.

“It’s important to the Murphy administration that ratepayers see savings from the new tax law,” said BPU President Joseph Fiordaliso.

The proceeding launched by the state agency will determine the proper method of delivering refunds to ratepayers. At its monthly hearing yesterday, the board said it hoped to reach a decision by its June meeting so refunds could go out in July.

“It’s a trend we are seeing across much of the country,” said Paul Patterson, an energy analyst with Glenrock Associates, referring to benefits from the tax cuts being returned to utility customers. “It could be a significant amount of money, but there may be other things that offset it.”

That could prove especially true in New Jersey as the new administration is considering proposals to have ratepayers subsidize nuclear power plants, solar, and offshore wind projects that could run into billions of dollars.

The new tax rates took effect January 1, 2018, the timing of which may have resulted in utilities overcollecting from customers on their deferred taxes.

In its order, the BPU ordered the utilities to defer, with interest, the effects of the new tax law.