FRANKFORT, Ky. (KT) - Another blast of winter weather may be on the way, but many utility customers will have a break on their energy costs, thanks to an order issued by the Kentucky Public Service Commission on Tuesday.
The PSC has reduced the annual revenue of Kentucky Utilities and Louisville Gas and Electric by over $203 million to reflect the reduction in federal corporate income taxes that took effect the first of the year.
As a result, KU and LG&E residential customers will see monthly bills go down about six percent, while residential LG&E natural gas customers will see a drop of 4.5 percent in their base rate.
The order modified a previous settlement reached between the two utilities and the Kentucky Industrial Utility Customers, Inc., which had filed a case seeking a tax reduction, and the Kentucky Office of Attorney General, which also was a party to the case. The settlement called for a total revenue decrease of $176.9 million.
The reduction ordered by the PSC is $26.9 million larger because of modifications it made in how the impact of the tax reduction was calculated.
The federal tax law enacted in December reduced the corporate income tax rate from 35 percent to 21 percent beginning this year, substantially reducing the tax burden on for-profit, investor-owned utilities. The reduced tax burden in turn reduces the amount of revenue that utilities need to offer their investors an opportunity to earn a reasonable rate of return, according to the PSC.
KIUC filed cases against LG&E and KU, as well as Duke Energy Kentucky and Kentucky Power Co., seeking reductions in rates that would reflect the lower taxes. The PSC opened similar cases to examine the effect of the tax changes on other investor-owned utilities.
Most of the tax bill’s impacts fall into two areas: savings from the immediate reduction in the corporate tax rate and the effect on deferred tax liabilities that utilities carry on their books and that may need to be refunded to ratepayers. The KU and LG&E case addresses both.
The revenue reduction will be reflected in a credit, the Tax Cut and Jobs Act (TCJA) Surcredit, that will appear on KU and LG&E customer bills. The TJCA Surcredit will take effect April 1, 2018 and will extend through April 30, 2019. It will reflect both ongoing tax savings and an additional credit for the first three months of this year.
The credit expires in 2019, because the PSC says the utility will file a rate adjustment to take into account the lower tax rates.
The PSC in January issued a final order adjusting the rates of Kentucky Power Co. But it reflected only the impact of current tax payment and did not address the question of deferred taxes, which are being dealt with in a separate proceeding.
The PSC has indicated that the full impact of the tax changes on the electric rates of Duke Energy Kentucky will be addressed in that utility’s current electric rate case. Duke Energy Kentucky’s natural gas rates are being addressed separately.