20180530Report - Falls Water.pdf

KARL T. KLEIN
DEPUTY ATTORNEY GENERAL
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BARNO.5156
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Street Address for Express Mail:
412 W. WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Staff of the
Idaho Public Utilities Commission
BEFORE THB IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE INVESTIGATION
INTO THE IMPACT OF FEDERAL TAX CODE
REVISIONS ON UTILITY COSTS AND
RATEMAKING.
CASE NO. GNR.U.18.O1
REPORT OF THE
COMMISSION STAFF RE:
FALLS WATER COMPANY
The Staff of the Idaho Public Utilities Commission submits this report about the impact
of the Tax Cuts and Jobs Actof 2017 (the "TCJA") on Falls Water Company (the "Comp&ny"),
as directed by Order No. 33965.
BACKGROUND
On December 22,2017 , the President signed the TCJA into law. Effective January l,
2018, the TCJA decreased the federal corporate tax rate from 35o/o to 2lYo. In response, the
Commission opened this multi-utility case to investigate whether to adjust the rates of certain
utilities that benefit from the reduced tax rate. See Order No. 33965. The Commission directed
all affected utilities-including the Company-to immediately account for the tax benefits as a
regulatory liability, and to report on how the tax changes affected them, and how resulting
benefits could be passed on to customers. See id. at l-2.
On March 30,2018, the Company responded to Commission Order No. 33965. The
Company stated that its rates should not be adjusted due to the TCJA because the tax rate used to
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ISTAFF COMMENTS MAY 30,2018
calculate the Company's revenue requirement in its last general rate case was 15oZ (see Case No
FLS-W- l2-01), which is less than the reduced corporate federal tax rate of 2lo/o. Additionally,
the Company is an S-Corporation and, for federal tax purposes, passes its corporate income,
losses, deductions, and credits through to its owner's federal tax return.
STAFF ANALYSIS
Staff has reviewed the Company's response to Order No. 33965, and additional
information provided in the Company's 2017 Annual Report. Based upon its review, Staff
agrees that rates for the Company's customers should not be adjusted. As an S-Corporation, the
Company is a pass-through entity and is not subject to federal corporate tax rate. Rather, its
income flows through to its owner and is subject to the owner's personal tax rate. The TCJA
also reduced the personal tax rate. Thus, while the TCJA's reduced corporate federal tax rate
does not apply to the Company, the TCJA's reduction to the personal federal tax rate-including
that of the Company's owner-must be assessed to determine whether the customers' rates are
covering tax expenses that are higher than what the Company, through its owner, will now pay.
Staff notes that the Company's customers currently pay rates that assume the Company
has a I 5o/o tax rate. The Company's 2017 Annual Report indicates that the Company realized a
net income of $280,81 I . With a net income of $280,81 1, the personal federal tax burden at 2017
tax rates would be $76,088, for an effective tax rate of 27 .l percent. The personal federal tax
burden at20l8 tax rates would be $73,974, for an effective tax rate of 26.3 percent. See
Attachment A for calculations. Since the effective tax rates for 2017 and 2018 both exceed the
75Yo tax rate currently embedded in the Company's revenue requirement, the Company's base
rates do not assume the Company is paying more tax than it will pay under the TCJA. Thus, the
TCJA has not inflated the Company's base rates or resulted in Company benefits that should be
returned to customers, and no rate adjustment is necessary.
RECOMMENDATION
After reviewing the Company's response and additional information filed in the
Company's Annual Report, Staff recommends that the Commission accept the Company's
response as complying with Order No. 33965, not adjust the Company's rates due to the TCJA,
and close this case as to Falls Water Company.
2STAFF COMMENTS MAY 30,2018
Respectfully submitted this 3 dt day of May 2018.
u //L
Karl T. Klein
Deputy Attorney General
Technical Staff: Brad Iverson-Long
Joe Terry
3TAFF COMMENTS MAY 30,2018
Attachment A
Case No. GNR-U-18-01
Staff Report to Falls Water's
Tax Report
0s/30/18
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CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 3OTH DAY OF MAY 2018,
SERVED THE FOREGOING REPORT OF THE COMMISSION STAFF RE: FALLS
WATER COMPANY, N CASE NO. GNR-U-18-01, By MAILING A COpy
THEREOF, POSTAGE PREPAID, TO THE FOLLOWNG:
K SCOTT BRUCE
GENERAL MANAGER
FALLS WATER COMPANY INC
2180 N DEBORAH DR
IDAHO FALLS ID 83401
E-mail : scritt I (a)t'zrllswalg,f .c-om
-b/,h,LSECRETARY
CERTIFICATE OF SERVICE