The News Journal | by Karl Baker
Delaware’s utility regulators should cut water and electricity rates in response to a transformative yet divisive law signed last week by President Donald Trump that slashes corporate tax rates, says Delaware Public Advocate Andrew Slater.
Slater, who is charged with lobbying on behalf of Delaware ratepayers, filed a petition with state regulators on Thursday arguing that the cash windfall from lower corporate taxes – which will benefit utilities, such as Delmarva Power and Artesian Resources Corp. – should bypass those companies’ coffers and flow to electricity and water consumers.
“We have a responsibility to the customers of each regulated utility to safeguard against unjust and unreasonable rates,” Slater said in a statement. “We believe, with the federal corporate tax changes, all additional money should flow back to the ratepayers.”
Regulators and at least one utility company agree, in principle, that Delaware ratepayers should benefit from the corporate tax savings, but it may take a year of negotiations to determine how much that will be – and whether consumers will see lower rates or new, better infrastructure.
“The real question is: Does 100 percent of it flow back to the customer, or should a certain portion of it be offsetting future rates by covering investment in infrastructure?” said Bob Howatt, executive director of the Delaware Public Service Commission.
Five governor-appointed Public Service Commissioners regulate privately owned electricity, water and telecommunications companies in Delaware. In local markets that lack competition between utility companies, commissioners determine consumer prices to ensure rates are “reasonable.”
A utility company is allowed to earn up to 9.7 percent return on equity.
While rate prices are determined with that goal in mind, a complex formula underpins the price calculations and includes company costs such as federal tax liabilities.
Commissioners are supported by a staff, led by Howatt.
Like Slater, the support staff also formally issues opinions on proposed utility rates.
On Thursday, they filed a separate petition arguing for a review of the effects on utility companies of the lower corporate taxes and new depreciation accounting rules outlined in the new federal tax law. The petition did call for all savings to be passed on to consumers.
Jake Sneeden, spokesman for Delmarva Power, the state’s largest electricity utility, said the company has not yet determined how much money it will save in the new tax environment, nor how much of those savings should flow to ratepayers through lower prices.
He said consumers will reap a “portion” of the benefits.
Delmarva may amend downward its current request to state regulators to raise more than $30 million by increasing power bills. Yet the company will not rescind the request completely, Sneeden said.
Slater, in his petition, said Delaware Public Service Commissioners first should direct utility companies to account for all estimated savings from the tax bill and submit that dollar amount to the state by March 31.
Commissioners should then lower rates by the same amount, Slater argued.
If that were to happen, he said, Delaware would be among the first states to take a “proactive step to ensure ratepayers receive the full benefit of the corporate tax reduction.”
While talk of corporate tax cuts has been ongoing since Trump took office, it was just last week when he signed into law the Tax Cut and Jobs Act of 2017, after it narrowly passed Congress amid a bitter partisan dispute.
The law lowers the corporate tax rate to 21 percent from 35 percent and gives companies more freedom to deduct the depreciation they incur on assets.
“Corporations are literally going wild over this,” Trump said while signing the bill.
Democrats say the tax bill, estimated to add $1 trillion to the national debt over the next decade, leaves the country hamstrung, unable to fund critical national priorities, such as rebuilding public infrastructure.
At the bill signing, Trump noted that his next priority is to convince Congress to pass an infrastructure bill.
“Infrastructure is the easiest of all,” Trump said. “We’re going to have tremendous Democrat support on infrastructure.”
When Delaware utility regulators decide how to divvy up the savings, likely by the end of 2018, each utility may face a different mandate, Howatt said.
Some may have greater needs than others to invest in new infrastructure, he said, be it for power lines or water filtration systems.
“A company could say, ‘Look, we can save customers’ money by accelerating capital investment in infrastructure,” he said.
Officials from Delmarva Power said in a statement that the new tax law “will result in meaningfully lower tax costs for Delmarva Power, and thus a lower cost of service that we will pass along to our customers in the form of rate reductions or offsets to investments we are making or other costs we are incurring for the benefit of customers.”
At a public meeting in New Castle in October, Delmarva spokesman Nicholas Morici defended his company’s request at that time for higher electricity and gas rates by pointing to the company’s $50 million investment in infrastructure maintenance since 2016.
Many residents noted the $9 monthly rate hike would place a heavy burden on financially strained Delawareans.
“This rate request strikes me as a bunch of people sitting around a table saying, ‘We’d like to raise rates. Let’s come up with some things to justify it,'” Charlie Fallette, a Newport business owner, said at the meeting.
In addition to Delmarva and Artesian, the utilities regulated by the Public Service Commission include Tidewater Utilities, Suez Water, Chesapeake Utilities and numerous small water companies.
Municipally run utilities and cooperatives are not regulated by the commission.