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FirstEnergy lowers recovery under distribution rider to reflect new tax rate

FirstEnergy Corp. on March 1 lowered recovery under its annual distribution modernization rider in Ohio by nearly $40 million to reflect its new corporate income tax rate.

The Public Utilities Commission of Ohio in October 2016 adopted a three-year distribution modernization rider for FirstEnergy's utilities. The PUCO said the rider, set at $132.5 million before taxes, will reach about $204 million after grossed up for taxes annually, with a possible two-year extension.

The federal Tax Cuts and Jobs Act lowers the corporate income tax rate to 21% from 35% beginning in the 2018 tax year. Regulated utilities and holding companies are largely expected to pass along any benefits from the lower tax rate to customers.

FirstEnergy in a Jan. 12 filing with the Public Utilities Commission of Ohio modified tariffs for its distribution rider to reflect the lower income tax rate. The commission on Feb. 28 accepted FirstEnergy's modified tariffs that effectively reduce the rider to $168 million, effective March 1.

The Office of the Ohio Consumers' Counsel, or OCC, argued that customers will not receive the full benefit of tax reform since the reduced rates do not incorporate about $6 million in tax savings in January and February. OCC recommended that the distribution rider "should include an explicit provision that the rider is charged subject to refund."

FirstEnergy argued that the commission has previously rejected the concept of riders being subject to refund. The company added that customers of its Ohio utilities are benefiting from tax reform "because the companies proactively updated Rider DMR nearly 11 months early, as opposed to re-calculating the rider by December 1, 2018, by filing its compliance tariffs 11 days after the effective date of [the new tax law]." (PUCO docket 17-2280-EL-RDR)

Customers, however, are not likely to see a significant change in base rates soon. The PUCO in a Jan. 10 order told the state's utilities to record their estimated reduction in federal taxes as deferred liability, but the companies said the commission should reconsider the accounting treatment and "should not engage in ratemaking."

The utilities further argued the commission can only change base utility rates through future rate cases. FirstEnergy's next rate case is not until 2024.