Customers of regulated, for-profit utility companies that supply electric, gas and water could benefit from the corporate tax cut under the tax reform legislation recently signed into law by President Donald Trump.
But that is likely to occur only if state regulating agencies are on their toes and look out for the interests of consumers. Considering the way structures are set up to determine how much those customers should have to pay for utility services, those regulating agencies should act to do just that.
Electricity, gas for heat, and water are among the basics of life. Recognizing that, states have established agencies - usually called public service commissions - with the authority to establish the rates that utility companies providing those commodities can charge customers.
A chief part of the reasoning for that is that most utility companies operate as monopolies or near monopolies without any competition for serving their customer bases.
The regulating agencies' mission is to protect consumers from exorbitant rates while allowing utility companies a fair return - or profit - on their investments.
As a result of the just-approved reduction in the corporate tax rate from 35 percent to 21 percent, the amount of federal taxes utility companies pay will be reduced, thus changing one of the factors that go into establishing utility rates.
Some experts estimate that utilities' tax burden will drop by about 15 percent, meaning they will make a bigger profit than determined by regulators as fair if no adjustments are made.
Already, some states have taken action to address the issue. The Michigan Public Service Commission, for example, last week ordered 13 utilities operating in that state to study the impact of the tax cuts and how savings will be passed along to consumers through lower electric and gas bills.
The Kentucky Public Service Commission has ordered for-profit utilities to track their savings under the lower tax rates. "Since ratepayers are required to pay through their rates the tax expenses of a utility, any reduction in tax rates must be timely passed through to ratepayers," the KPSC said in its order.
And this week, the West Virginia Public Service Commission said it would act, also.
In a news release, the commission said it has directed all privately owned electric, gas, water, sewer and solid waste facilities to track the tax savings resulting from the law beginning this month. The PSC says those utilities should file testimony with the commission by May 30, explaining the impact of the law on their federal income tax. The commission is also inviting other interested parties to file written testimony identifying the potential effects of the law on commission-regulated entities.
The public service commissions are taking the right steps. And based on the information gathered, adjustments to utility rates should be made to ensure that consumers are treated fairly.