Customers of Tucson Electric Power Co. will see credits of nearly $5 a month on their power bills starting in May, as the utility passes along the benefits of a federal corporate income-tax cut to ratepayers.
The Arizona Corporation Commission on Thursday approved a refund plan that will give TEP home customers with average monthly usage of 800 kilowatt-hours a monthly credit of about $4.49 through the end of this year, with declining credits starting next year, the company said.
Prompted by a Corporation Commission mandate on all state-regulated utilities that pay income taxes, TEP had proposed refunding the entire $36.6 million it expects to save this year to ratepayers, to credit 75 percent of the savings next year and 50 percent the third year, with the rest retained as a “regulatory liability” that will eventually be refunded to customers.
TEP initially estimated its tax savings this year at $34 million and credits would average $3.07 per month.
The commission agreed with a staff proposal to prompt TEP to refund the 2018 savings in the remaining eight months of this year, rather than over a yearlong period TEP had proposed.
The commission agreed to defer part of the tax credits in subsequent years, estimating the monthly credits for average residential usage at $2.45 next year and $1.59 in 2020.
The tax-reform law passed in late 2017 cut the corporate income-tax rate to 21 percent, from 34 percent. That prompted regulators in Arizona and other states to seek refunds for customers, since the cut would otherwise result in a windfall based on the utilities’ cost-based rates.
But TEP contends it already is earning less than its allowed rate of return, even with the reduced taxes.
Together with an expected increase in capital spending, TEP contended that returning all of the tax savings each year would pressure the utility’s cash flow, potentially adversely affect its credit ratings and increase its borrowing costs.
