20180619Report - Capitol Water.pdf

KARL T. KLEIN
DEPUTY ATTORNEY GENERAL
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BARNO.5156
REC T IVE D
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Street Address for Express Mail:
472W. WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Staff of the
Idaho Public Utilities Commission
BEFORE THE 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-18-01
REPORT OF THE
COMMISSION STAFF RE:
CAPITOL WATER
CORPORATION
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 Capitol Water Corporation (the
"Company"), as directed by Order No. 33965.
BACKGROUND
On December 22,2017, the President signed the TCJA into law. Effective January 1,
201 8 the TCJA decreased the federal corporate tax rate from 35Yo to 2lYu 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 affect them, and how resulting benefits
could be passed on to customers. See id. at l-2.
On June 1,2018, the Commission received the Company's response to Commission
Order No. 33965. Through its outside accountant, the Company stated, "it will result in a larger
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1STAFF REPORT JUNE I9,2OI8
tax burden for Capitol Water going forward of between 3oh and 6oh of net income. As a result of
this increase, in the amount (of) tax that will be due, it would not be appropriate to decrease the
rates the customers are being charged, and likely should result in an increase in rates of around
l-2o/o to maintain the profitability for the corporation." The Company fuither stated, "...for
corporations the size and having the profit levels of Capitol Water, the change in the tax law
actually is an increase in tax liability."
STAFF ANALYSIS
Staff has reviewed the Company's response and its20ll Annual Report filed on April
27,2018. Based upon its review, Staff believes the Company will not benefit from the TCJA.
Prior to the TCJA, the corporate income tax rate was blended based on the tax brackets shown in
Table 1 below. With the passage of the TCJA, the corporate tax rate changed to a flat rate of
2t%.
Table 1: Marginal Corporate Income Tax Rates (2005-2017)
Marginal Tax Rate Income Tax
15%$0 - s50,000 15% of the amount over $0
2s%$50,001 - $75,000
$7500 + 25o/o of the amount
over $50,000
34%$75,001 - $100,000
$13,750 + 340h of the
amount over $75,000
39%$100,001 - $335,000
$22,250 + 39oA of the
amount over $100,000
34%$335,001 - $10,000,000
$113,900 + 34Yo of the
amount over $335,000
35%$ I 0,000,001 -$1 5,000,000
$3,400,000 + 35Yo of the
amount over $ I 0,000,000
38%
$15,000,001 -
$ 18,333,333
$5,150,000+ 38%o of the
amount over $ 1 5,000,000
35%Over $18,333,333 35%
2STAFF REPORT JtrNE 19,2018
Staff notes that the Company's customers currently pay rates that assume the Company
has a l5Yo tax rate. The Comp any' s 2017 Annual Report indicates that the Company realized an
operating income before income taxes of $124,578. With a net operating income of $124,578,
the corporate federal tax expense at20l7 tax rates would be $28,240, for an effective federal tax
rate of 24.48%. The corporate federal tax expense at 2018 tax rates would be $18,244, for an
effective federal tax rate of 2lYo.
Since the effective tax rates for 2017 and2018 both exceed the l5Yo 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. Therefore, 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 2017 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 Capitol Water Corporation.
Respectfully submitted this fr+L day of June 2018.
{",( / {ra
Karl T. Klein
Deputy Attorney General
Technical Staff: Kathy Stockton
JSTAFF REPORT JUNE 19,20I8
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 19TH DAY OF JUNE 2018,
SERVED THE FOREGOING REPORT OF THE COMMISSION STAFF RE:
CAPITOL WATER CORPORATION, IN CASE NO. GNR-U-18-01, By MAILING A
COPY THEREOF, POSTAGE PREPAID, TO THE FOLLOWING:
ROBERT PRICE
CAPITOL WATER CORP
2626ELDORADO ST
BOrSE ID 83704-5997
E-mail: carri tohvatercorp(4iyahoo.com
$
CERTIFICATE OF SERVICE