Baltimore Gas & Electric Co. plans to pass on about $82 million in tax savings to customers as a result of the federal tax reform passed by Republicans in December that lowered the corporate tax rate.
The Baltimore-based utility announced the pending rate cuts Friday, saying the average residential electric customers can expect their monthly bill to decrease by $2.31 beginning in February. Bills will go down by an average of $4.27 a month for customers who buy both electricity and natural gas from BGE.
“For us it was real simple,” said BGE CEO Calvin G. Butler Jr. . “We wanted to share those benefits with consumers.”
The savings would represent a bill reduction of up to 5.2 percent, but the move requires approval from the Maryland Public Service Commission, which regulates utilities.
The Tax Cuts and Jobs Act, which took effect Jan. 1, slashed the corporate tax rate from 35 percent to 21 percent, offering huge savings to large companies.
On Friday, President Trump touted the tax bill’s benefits to consumers.
“The tax cuts are really kicking in far beyond what anyone thought,” he said before boarding Marine One at the White House to meet with Republicans at Camp David. “Numerous companies have today come out and announced that they're going to make big payments to their employees — something that nobody really had in mind. So we're very honored by it.”
BGE is the latest company to say it is sharing savings from the reduced tax rate with customers or employees.
Moments after President Donald J. Trump signed the tax reform into law in December, Sinclair Broadcast Group said it would give $1,000 bonuses to 9,000 full- and part-time employees nationwide — most of its workers.
“We are grateful to our president and legislature for passing the landmark Tax Cuts and Jobs Act and are excited about the benefits it will provide for our country’s economy, our company, and our employees,” said Chris Ripley, president and chief executive of Hunt Valley-based Sinclair, in a statement at the time.
AT&T, Boeing, Comcast, GoDaddy and PNC have all said they would give employees bonuses or raises, or make other investments in response to the new law.
Christopher B. Summers, president and chief executive of the Maryland Public Policy Institute, said he expects to see more businesses, including small businesses, follow suit.
“That’s capital you have now that you can invest in growing your company or hiring more people — making an investment on your terms,” Summers said. “Overall it’s going to be a very positive effect on the Maryland economy and those who live here.”
But businesses enjoy significant leeway in how they spend their tax savings, said JP Krahel, an assistant professor of accounting at Loyola University Maryland. Some may use the money to boost dividends for investors or pad executive compensation, he said.
Businesses also may be more likely to pursue capital investments, such as office expansions or new technology, because of a change in the tax law that allows businesses to write-off such investments up-front, instead of over time, he said.
Still, Krahel said he is not sure that the new incentives will make a significant difference for businesses.
“This tax bill is coming at a time when cash is cheap,” he said. “It’s not as if this is a sea change in the availability of cash for companies. I don’t think this difference is going to be as dramatic, at least in the short term, as it may seem to be.”
The rules are different for public utilities.
The state’s Public Service Commission routinely reviews the rates utilities charge, and the amount they pay in taxes is one of many factors considered when ensuring the rates allow the utilities to earn enough money to support their business while still being fair to consumers.
The lower tax rate impacts that formula. Rather than waiting to address the change at a future rate hearing, BGE decided to be proactive in seeking an adjustment to rates now, Butler said.
“We recognize when we go in for a rate case whether it’s a dime or a dollar it’s significant for our customers,” Butler said.
BGE was the first utility in Maryland to file a request with the state regulators tied to the tax reform, but others in the state said they will do the same.
On Friday, Pepco and Delmarva Power said they expect to submit plans to the commission in early February as a result of paying reduced federal income taxes under the new law. If approved, the utilities said they would start offering a credit lowering bills of their more than 770,000 electric customers in the first quarter of the year.
“The tax law will result in lower bills for our customers and lower taxes for Pepco and Delmarva Power,” said Dave Velazquez, president and CEO of Pepco Holdings, which includes both Pepco and Delmarva Power, in a statement. “We are pleased to provide these savings to our customers, while at the same time ensuring we are making prudent investments in the local power grid.”
Both BGE and Pepco Holdings are owned by Exelon, a Chicago-based energy giant.
Paula Carmody, the People’s Counsel for Maryland, said her office will spend the next few weeks analyzing BGE’s request. To ensure that customers across the state benefit from rate relief, the Office of People’s Counsel, which represents residential electricity, natural gas, telecommunications and private water consumers, also has filed its own petition asking the commission to direct all utilities in the state to start tracking the impact of the tax bill on their revenue and rates.
“I appreciate that BGE took a proactive step to propose the rate reduction to reflect the reduction in the corporate income tax rate,” Carmody said. “This was an important step to take to deliver these tax benefits directly to the customers.”
Baltimore Sun reporter Lorraine Mirabella contributed to this article.