Tax Break Leading to Rate Cuts for Utilities

By Roland Murphy for Arizona Builder’s Exchange

Despite the sea of controversy surrounding last month’s revamp of the federal tax code, one benefit is on its way to Arizona utilities customers in the form of rate reductions.

The relevant change is a cut in the corporate tax rate from 34 percent to 21 percent.

Arizona Public Service Company announced last week it has requested approval of a $119M reduction from the Arizona Corporation Commission.

“If approved, the $119M decrease will offset the $95M revenue increase that resulted from APS’s last rate review,” the announcement stated. “The savings… will be passed directly to customers through the Tax Expense Adjustor Mechanism, a new adjustor mechanism that was included in the company’s rate review, and customer savings will vary with actual energy usage. APS customers would receive the credit on their monthly bill.”

An article in The Arizona Republic clarified APS was granted a $6 rate increase in August, which will remain in place. The proposed reduction, however, would save the average residential customer approximately $4.70 a month. In the announcement, APS said it expects additional savings from the tax cuts will be available once the full impact of the changes become apparent.

Other utilities around the state, including Tucson Electric Power, are also anticipating lowering their rates. The Arizona Daily Star reported TEP plans to file a proposal but that details are not yet available.

Corporation Commissioner Justin Olson has requested all Arizona utilities that collect tax revenue from customers to weigh in on the possibility of rate reductions. Responses are expected next week, according to the Daily Star.

The Republic quoted Olson as saying, “I acknowledge it is a significant task to make these reductions to the rates of every utility that maintains recovery of federal tax in their revenue requirement. Still, it is imperative that this Commission and the regulated utilities work together to pass the tax savings onto the ratepayers.”

Because it is structured differently than other utilities providers, Salt River Project does not collect federal income tax via customers and will not be impacted by the new law.