Enstar to cut rates with $5M benefit from 2017 tax reform
Enstar Natural Gas Co. anticipates $5 million in additional revenue coming in 2018 thanks to the U.S. corporate tax rate changing from 35 percent to 21 percent and plans to cut rates for its 144,000 customers.
Enstar’s move is among the latest by companies on how they intend to use the benefits from the recently enacted Tax Cuts and Jobs Act of 2017.
Enstar hasn’t determined yet the amount its customers’ rate will go down, said spokeswoman Lindsay Hobson.
“We’re filing soon with the Regulatory Commission of Alaska to let them know the tax change will impact rates,” Hobson said. “The request will include the amount to reduce rates. Anytime we can save customers money, we like to do that.”
Once the RCA approves the new rate, customers should see an immediate difference in their Enstar bills, Hobson said.
The RCA sent out a letter March 23 to all for-profit utilities in the state requesting information on the effects of the new tax act. Among those sent the letter were TDX North Slope Generating Inc., Doyon Utilities, College Utilities Inc., Golden Heart Utilities Inc. in Fairbanks and Cook Inlet Natural Gas.
Another of those was Juneau’s power company, Alaska Electric Light and Power Company, or AELP, which also anticipates “reducing its annual revenue requirement by approximately $1.5 million to $2 million,” wrote AELP President and General Manager Connie Hulbert, in a response to the RCA.
“While the utility hasn’t yet determined a specific course of action, it plans to ensure that the benefits of the tax cut will be reflected in customers’ rates,” Hulbert wrote.
For-profit utilities also may be in line for other tax breaks, as AELP indicated.
“The Tax Act also has an impact on accumulated deferred income taxes (ADIT),” Hulbert wrote.
The actual amount of the excess ADIT taxes paid won’t be known until the 2017 income tax return is prepared this fall, Hulbert wrote in the letter.
The impact of the lower corporate tax rate on deferred taxes is what has allowed many corporations to see immediate reductions to their tax liability, despite the fact the new tax act just took effect in January. BP recently reported results for Alaska that were improved by $500 million because of reduced liabilities on deferred taxes.
Non-profit utilities or cooperatives such as Chugach Electric Association, Homer Electric Association, Matanuska Electric Associations and Golden Valley Electric in Fairbanks do not pay federal taxes. The RCA didn’t send them a letter requesting the information, said Grace Salazar, the Consumer Protection Section chief at the RCA.
Electric cooperatives are not impacted by the corporate tax cuts, Salazar said.
Another significant Alaska economic benefit likely will come from the state’s lone individual market health insurance provider.
Premera Blue Cross Blue Shield announced last month that it will invest $50 million in Alaska infrastructure over four years, starting in 2019, thanks to the tax changes. That tax benefit came when the new tax act repealed the corporate alternative minimum tax, or AMT.
Premera Alaska President Jim Grazko said the $50 million will focus on infrastructure projects in three key areas: improving health care access in rural Alaska, investing in behavioral health and shoring up the individual insurance market that was set up under the Affordable Care Act.
The tax savings are expected to trigger premium rebates for individual and small group customers under the medical loss ratio provision of the ACA, Grazko said. Premera also expects to return about $1.5 million to those covered in large groups or employee-sponsored insurance policies.
Teresa Newins, a partner in KPMG’s tax practice in Anchorage, explained that many medium-size companies in Alaska also should see big refunds.
“They won’t be anywhere near as large as Premera’s,” Newins said.
Refunds for these companies will be in the $1 million range, either more or slightly less. KPMG, a national accounting and consulting firm, has many Alaska customers but does not name its clients. Newins spoke in general, predicting that about $10 million will drift into the Alaska economy from corporate AMT’s repeal.
This is a narrow category that “relate to the refund of alternative minimum tax credits for corporations,” Newins explained. “These credits are generated in years where the AMT tax is greater than the regular tax. The new 2017 Act repeals AMT for corporations and, as such, allows the credits to either offset future regular tax or be refunded over tax years beginning in 2018 through 2021.”
Prior to tax reform, corporations with three-year average annual gross receipts of greater than $7.5 million could be subject to the AMT. As such, there are various Alaskan corporations that have AMT credit carry-forwards that may qualify for the new refund or offset to federal tax, Newins said.
The tax cuts also promise to provide bonuses for employees of some of Alaska’s biggest corporations.
The Alaska Chamber sent out a survey to Alaska members to find out how the new tax structures may impact them.
Chamber President Curtis Thayer said they received a good response back that allows a snapshot insight into how the tax changes could impact the Alaska economy, because they have members in every corner of the state.
“We asked what was their take on the new tax bill. A lot of people were still trying to figure it out,” Thayer said.
Based on survey responses, Thayer said Alaska Airlines was able to give employees a bonus, as did Wells Fargo and Home Depot. AT&T, the largest telecommunications company in Alaska by wireless customers, was the first company to announce $1,000 bonuses after tax reform passed.
Northrim Bank responded that it did some restructuring on their employees’ 401Ks to increase the bank’s match.
Smaller to medium companies reported a different kind of impact, Thayer said.
For the past several years, small businesses were hit by huge health care costs for their employees under the ACA. At the same time, they are contending with a shaky economy that’s been in a multi-year recession.
“Several of the companies had indicated that the potential tax savings allowed them to keep employees. They didn’t think they would lay anyone off this year,” Thayer said.
Taking corporate taxes down from 35 percent to 21 percent will impact small family companies differently than its large corporate counterparts, but “there’s also an economics of scale within the company and how they were surviving the past few years,” Thayer said. “For some, that tax break means keeping employees and avoiding another round of layoffs.”
Still, more impacts won’t be known until next year, when companies do their 2018 taxes, Thayer predicts.
“The Lower 48 is booming,” he said. “We’ll see a delayed reaction until 2018 taxes are paid.”
Either way, the tax cuts should help Alaska in its economic slump that started when oil prices spiraled downward in late 2014.
“From the sum total, clearly I think it is helping soften the recession to some degree. Just Premera putting $50 million back into health care buffers a lot,” Thayer said. “It avoids more layoffs across companies. It’s softening but we’re not out of it. This isn’t going to solve our economic problems; only state fiscal policy will.”
Naomi Klouda can be reached at [email protected].