20180607Report - CDS Stoneridge Utilities.pdf

KARL T. KLEIN
DEPUTY ATTORNEY GENERAL
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 5156
Street Address for Express Mail
472 W, WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Staff of the
Idaho Public Utilities Commission
IN THE MATTER OF THE INVESTIGATION
INTO THE IMPACT OF FEDERAL TAX CODE
REVISIONS ON UTILITY COSTS AND
RATEMAKING
RECE IVED
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BBFORE THE IDAHO PUBLIC UTILITIBS COMMISSION
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CASE NO. GNR.U.18-01
REPORT OF THE
COMMISSION STAFF RE: CDS
STONERIDGE UTILITIES, LLC.
The Staff of the Idaho Public Utilities Commission submits this report about the impact
of the federal Tax Cuts and Jobs Actof 2017 (the "TCJA") on CDS StoneRidge Utilities, LLC
(the "Comp&try"), 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 rate-regulated utilities--except for small water companies with less than 200 customers, and
the small electric utility, Atlanta Power-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.
1STAFF REPORT JLTNE ],2078
The Company filed its response on April 13,2018. The Company stated the new tax
rates do not affect it because it is a Limited Liability Company (LLC) whose taxes pass through
to its owners.
STAFF ANALYSIS
Staff reviewed the Company's response and its 2017 Annual Report. Based upon its
review, Staff believes the TCJA provides no benefits to the Company that might require a water
rate adjustment.
The TCJA reduced the federal corporate tax rate and the federal personal tax rate. As an
LLC, the Company is not subject to the federal corporate tax rate. Instead, the Company is a
pass-through entity whose income flows to, and is taxed at the personal tax rate of its owner.
Because the Company's income is taxed at the owner's personal taxrate, the TCJA's reduction
to the personal tax rate must be considered to determine whether customers' rates include tax
expenses that exceed 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 l5Yo tax rate, as established in Case No. SWS-W-06-01. See Order No. 30342. The
Company's 2017 Annual Report indicates that the Company realized a net income of $65,131.
With a net income of $65,131, the personal federal tax burden at2017 tax rates would be
$12,042, for an effective tax rate of 18.5%. The personal federal tax burden at2018 rates would
be $10,269, for an effective tax rate of 15.8%. See Attachment A for calculations. Since the
effective tax rates for 2017 and2018 both exceed the 15Yo tax rate currently embedded in the
Company's revenue requirement, the Company's rates do not include more utility-related income
tax expense than the Company's owner will pay under the TCJA. Accordingly, the TCJA has
not resulted in tax benefits that should be returned to customers, and no water rate adjustment is
necessary.
STAFF 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 it relates to CDS StoneRidge Utilities, LLC.
STAFF REPORT JUNE 7,20182
Respectfully submitted this tl +h day of June 2018
Kl L
Karl T. Klein
Deputy Attorney General
Technical Staff: John Nobbs
Donn English
JSTAFF REPORT JLINE 7,2018
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Attachment A
Case No. CNR-U-18-01
Staff Report to CDS Stoneridge
Utilities Tax Report
06/07t18
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CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 7TH DAY oF JI-INE 2018, SERVED
THE FOREGOING REPORT OF THE COMMISSION STAFF RE: CDS
STONERIDGE UTILITIES, LLC., IN CASE NO. GNR-U-l8-OI, BY MAILING A
COPY THEREOF, POSTAGE PREPAID, TO THE FOLLOWING:
KEITH E GARNER
STONERIDGE UTILITIES CO
111 E SEGO LILY DR STE 4OO
SANDY UT 84070
CERTIFICATE OF SERVICE
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SECRETARYf-