The Department of Public Utilities had ordered all utility companies in June to reduce their rates going forward in the wake of the Tax Cuts and Jobs Act of 2017 that cut the federal corporate income tax rate from 35 percent to 21 percent starting January 2018.
But it stopped short of requiring them to refund customers for any savings they realized for the first half of the year, when the companies’ utility rates were based on the former — higher — tax rate. By lowering the rates starting in July, DPU decided, ratepayers would still receive “prompt and significant” savings amounting to tens of millions of dollars.
To order refunds would be “inappropriate,” DPU officials said.
In a 26-page motion filed Thursday, Healey’s office criticized the department for not providing “substantial evidence” to back up its February decision. It estimated that the savings could amount to $40 million for ratepayers over those six months, and urged the DPU to reconsider, writing that it runs counter to decisions made in nearly a dozen other states.
“The DPU has handed a $40 million windfall to the utility companies that should be returned to customers,” Healey said in a statement.
In early 2018, the DPU had ordered electric, gas, and water companies to determine new rates, writing in an order that it’s “appropriate to promptly adjust rates” so that ratepayers could see the benefits of the tax cut.
It also directed utilities to account for any new revenues they’d see as of Jan. 1, when they first took effect, and then file proposals by that May to reduce the rates. At the time, DPU officials said that in light of the tax package, the current rates the companies were charging may not be “just and reasonable.”
But the companies objected, arguing that the state was prohibited from ordering them to give a retroactive refund to ratepayers covering January to June, before new rates were set for the following year.
The utilities have also disputed that they stood to reap a “windfall” by not turning over any tax savings to customers, DPU officials wrote.
In their Feb. 15 order, DPU officials note that they never before had to consider a so-called retroactive rate making in the wake of a change in the federal corporate income tax rate. The last time there was such a tax cut, the law was signed in October 1986 but it didn’t go into effect until July 1987, giving the DPU time to investigate and ultimately direct the utilities to make changes to their rates by the time it went into effect, DPU officials wrote.
In this case, the 2017 tax plan was signed into law on Dec. 22, 2017, and it took effect just days later on Jan. 1, meaning the DPU had little chance to probe its effects.
Given that timing, DPU officials said they were “persuaded” by the companies’ arguments that providing a refund from the tax savings would be “inappropriate,” and ruled that they would not require them to do so. They also pointed to the companies’ arguments that the tax package could hurt their short-term cash flow and potentially spur a credit downgrade.
Healey’s office said Thursday it disagrees, charging that there was no policy reason that should allow the utilities to keep the savings.
“The tax savings represent ratepayer money, designated for a particular purpose, that the [companies] no longer need,” Healey’s office wrote.
Katie Gronendyke, a DPU spokeswoman, said the department will review Healey’s motion, but defended the steps it’s taken to realize savings for ratepayers.
“As part of its continued commitment to ensuring ratepayers are receiving the most reliable service at the lowest possible cost, the Department of Public Utilities was proud to take action last year to ensure that the hundreds of millions of dollars in tax savings for utility companies were passed on to Massachusetts residents,” she said.
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