News Story

Residents Seeing Tax Cut Bonus In Their Utility Bills

Not much but not nothing: About $20 a year

Michigan residents and businesses soon will recognize an estimated $379.5 million in savings on their utility bills as a result of Tax Cuts and Job Act passed by Congress and signed by President Donald Trump in December 2017. The federal tax cut reduced corporate tax rates from 35 percent to 21 percent.

Investor-owned utility companies are among the beneficiaries. Because they are regional monopolies with rates regulated by the Michigan Public Service Commission (MPSC), their customers are entitled to some of the tax savings. The MPSC estimates that business and residential customers of the state’s electricity and natural gas utilities will see an average savings of $1.95 a month.

The MPSC last December ordered 13 Michigan utilities to calculate their savings under the tax law that went into effect on Jan. 1, 2018. The commission then approved approximately $370.8 million in rate cuts for Michigan utility customers over the summer, including an estimated $269.6 million in savings for electric customers of the state’s two largest, Consumers Energy and DTE Electric.

“When regulated utilities have lower costs, those savings get passed along to consumers,” said James M. Hohman, director of fiscal policy at the Mackinac Center for Public Policy. “So one of the benefits of the federal tax cut is lower electric rates, and that will be appreciated by households and businesses.”

According to an MPSC estimate, Michigan utilities will see a $3.7 billion reduction in their current and future long-term tax liability as a result of the tax-law changes. “The Commission’s goal was twofold,” said Commissioner Rachael Eubanks: “Return the maximum amount of rate relief possible to utility ratepayers, and do it in an expeditious manner. We’re proud to have been able to accomplish both,” she said.

With the first round of tax-reform generated customer credits approved last spring, lower rates started appearing in customers’ July bills. While the decrease varies for each utility’s residential customer, the bill of the average Michigander will go down $1.93 a month.

“In January, the MPSC began the process of calculating rate savings for customers of investor-owned electric and gas utilities,” said Nick Assendelft, a spokesman for the public service commission. “In February, it started a three-step process that balanced thoroughness and opportunity for stakeholder input with expediency.”

“Commission staff reviewed the law’s impact on previous rate orders; filed testimony, rebuttals, briefs and reply briefs; and participated in settlement meetings to expedite the process,” he continued. “MPSC staff worked collaboratively with utilities and other stakeholders to complete in just six months the Credit A bill adjustments. They have now launched the second round of Credit B calculations and the Commission anticipates announcing this fall more customer rate relief. That will be followed by a third round of analysis — Calculation C — to capture future, long-term impacts that the lower federal corporate tax will have on customer rates.”

Customers of other investor-owned Michigan utilities are also seeing tax cut credits under the MPSC’s recent order. The credits include $8.6 million for customers of Indiana Michigan Power Co., and approximately $50.3 million divided between customers of Alpena Power Co., DTE Gas Co., Michigan Gas Utilities Corp., Northern States Power, SEMCO Energy Gas Co., and Upper Michigan Energy Resources Corp.

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.