Tax Reform and the Regulated Distribution Utility: A Regulatory Summary

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Utilities have inadvertently been caught in the crosshairs of a federal tax policy that is significantly changing the regulated cost of service revenue stream and may influence future utility investment decisions. The Tax Cuts and Jobs Act of 2017 reduced utility cash flows due to lower tax rates, lower and fewer tax benefits, and the need to refund excess deferred income taxes to customers. Utilities will need to calculate and weigh the impacts of tax reform and work with regulators to effectively manage this nascent risk. Loss of bonus depreciation will increase tax payments but will promote more robust growth in rate base (since bonus depreciation leads to greater deferred tax liabilities, which are ultimately deducted from rate base). Depending on the utility’s tax position, a well thought out, tailored and balanced mitigation plan should be developed with regulators.

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