Page M4 of this week’s Barron’s had a discussion about tax reform, and the fact that it will not provide much benefit to utility companies. (See article here) The problem is that since the industry is regulated any benefits will eventually get passed on to customers with lower rates. Of course, the process of lowering the rates could take a while, so it is possible that some utilities could keep a little extra money for a year or two, but eventually the rates will be adjusted. There is one small benefit to the tax cut that the article failed to mention. Lower customer rates means happier customers. It also means that the next time there is a rate case, the historical growth of customer rates will be lower, and there may not be as much pushback against rate increases. One of the big benefits of the shale gas revolution is that customer rates decreased. These fuel costs were just pass through costs to the utilities, so it didn’t impact their bottom line. But it did make it easier for them to pass through other expenses where they could make a return.
So while utilities definitely don’t get the same benefit as companies in other industries, remember there is still something positive happening for them with these tax cuts.