In 1986, the Challenger Space Shuttle disintegrated on live television to the horror of millions of Americans. That same year Haley’s Comet zoomed by Earth and Geraldo Rivera opened Al Capone’s secret vault days before a nuclear power plant melted down in Chernobyl. It was the year Mike Tyson won his first title and the Iran-Contra affair first started making headline. It was also the year that Ronald Reagan implemented his second round of sweeping changes to the U.S. tax code.
Some 32 years later, another sweeping rounds of tax cuts are now beginning to take effect, albeit much faster than the Reagan tax cuts of 1986.
“We are reliving tax reform of 1986,” Oklahoma Corporate Commissioner Bob Anthony said. “When Reagan was President, they passed the Tax Cut Act which lowered it (corporate tax rate) from 45 percent to 36 percent, about 12 percent total. Now we have the Tax Cut and Jobs Act with a percentage drop of about 14 percent. Both are double-digit reductions.”
Anthony called the drop in rates in 1986 a significant event, adding that the 2018 drop would have a $100 million impact on the operating cost for regulated public companies in Oklahoma, but wouldn’t impact municipality-run utility companies or co-ops.
“That is a significant reduction in the corporate taxes,” Anthony said. “Every time a customer pays their bill, it is partly composed of the federal tax.”
Anthony said that utility companies figure the amount of corporate taxes into their services when requesting rates from the corporation commission. Anthony referred to himself as the “oldest serving commissioner in Oklahoma.” He was first elected to the position in 1988.
“The biggest change is the effective date,” Anthony said. “Now we only have a few weeks to get ready, then we had several months.”
Regulated public companies like OG&E and Oklahoma Natural Gas are required to make their cases to the commission for changes to customer rates. The companies are not required to pass any savings obtained through the tax cut to the consumers.
“The question is, who is going to get those savings?” Anthony said. “The company, the customers or the shareholders. It worked rather amicably in 1986, and we know how I’ve voted on these things in the past. I have a pattern of voting that rate payers (consumers) should receive some or all of the tax savings. But I have to leave myself open to any new arguments.”
Attorney General Mike Hunter filed five motions last week with the commission, asking for an immediate reduction in customer rates from the state’s leading utility companies.
OGE, one of the state’s largest providers of electricity, has been proactive in the days leading up to the signing of the tax bill, according to Brian Alford, OGE’s director of communications.
“We’ve been having these conversations with the commission for more than a month now about the potential impact of the tax bill,” Alford said. “We were planning to ask for a rate review, but we’ve deferred the review for a few weeks until we get a better understanding of that tax reform.”
Hunter requested customer rates be reduced by an amount reflecting the lower federal corporate income tax rates, according to a press release from the State AG office.
“These companies will begin seeing major savings after the tax cut is implemented on Monday,” Hunter said in the release. “Oklahomans who are customers of these companies should immediately retain the benefits of the savings from the tax cut in the form of lower rates. We urge the OCC to act quickly and in the best interests of customers, not company shareholders.”
Also in the motions, the attorney general is requesting the OCC protect customers’ ability to receive excess accumulated deferred income tax, which is used to reflect utility companies’ past use of tax breaks to defer tax bills. With lower tax rates enacted, a portion of accumulated deferred income tax would be unnecessary to cover future taxes — creating an “excess” portion, according to the release.