Pepco, Washington Gas and other utilities say they plan to pass on to customers the money they’ll save in paying lower corporate income taxes under the federal tax law that took effect Jan. 1.
The Republican-sponsored legislation signed by President Trump on Dec. 22 cut the federal corporate income tax rate to 21 percent from 35 percent.
Customers probably will see smaller-than-anticipated increases in gas and electricity rates or credits on their bills, utility and state officials said.
The tax cut affects only private utility companies. Government-operated utilities, such as D.C. Water and the Washington Suburban Sanitary Commission, do not pay federal corporate income taxes.
Washington Gas officials say they plan to pass on an estimated $34 million in annual tax savings in the rates charged to 1.1 million customers in the District, Maryland and Virginia. The lower rates would kick in early this year, the company said.
Dominion Energy, Virginia’s largest utility, with 2.5 million customers, is evaluating the impact of the corporate tax cut and “how it might benefit our customers,” spokesman Chuck Penn said.
But consumer advocates said utilities across the United States must pass the tax savings to their customers because taxes are part of the “cost of service” that utilities are permitted to offset in the rates that state regulators approve. If those costs fall, consumer advocates said, so too must customers’ bills.
In the District and at least nine states, including Virginia and Maryland, commissions that regulate utility rates have said they are exploring how customers can reap the benefits of the corporate tax cuts.
Sandra Mattavous-Frye, the D.C. People’s Counsel, a city government official who represents the interests of utility customers, said that taxpaying utilities are required to pass on those savings, as they did after the last federal tax cut.
“It’s not a whether,” Mattavous-Frye said. “It’s a when and how much.”
For example, she said, Pepco recently proposed increasing rates in the District to generate an additional $66.2 million. That proposed increase in rates — Pepco has said it would raise the typical residential customer’s bill by 9.24 percent, or about $7.54, monthly — must be reduced to reflect the tax savings, she said.
Pepco officials have said they plan to do so in early February. The utility also has proposed increasing rates in Maryland to generate $41 million, which it says it needs to cover work done last year to modernize its system.
The utility has nearly 1 million customers in the District and Maryland.
Pepco began making contact with local regulators just after the tax law was passed, said Kevin McGowan, Pepco’s vice president for regulatory policy and strategy.
“We wanted to make sure they were aware we were working on this . . . to provide benefits back to our customers,” McGowan said.
The Maryland Public Service Commission anticipates ordering utilities to explain how they plan to return the tax savings to customers “as soon as possible,” spokeswoman Tori Leonard said.
Paula M. Carmody, Maryland’s people’s counsel, said the issue is simple.
“The tax rate has been reduced,” she said. “Customers have been paying for them as part of their utility rates. It’s important to reduce those rates so customers get the benefit of that tax reduction.”
In Virginia, the State Corporation Commission has ordered all private utilities in the state to compute their tax savings under the new law.