The Trump Tax Plan: How Will it Affect FirstEnergy and Our Customers?
January 12, 2018
The first big overhaul of our country’s tax code in 30 years is designed to grow the American economy by encouraging corporate investments and creating jobs. However, as a regulated utility, a lower tax rate does not necessarily translate into higher earnings or additional cash flow as compared with other industries.
The Tax Cuts and Jobs Act was signed into law by President Donald Trump late last year, reducing the corporate tax rate from 35 percent to 21 percent to help spur economic growth and investment as well as increase the country’s overall competitiveness. “We’re hopeful that lower corporate taxes will encourage businesses to invest in new facilities and jobs, which could translate into load growth in our service area,” said Jon Taylor, vice president, controller and chief accounting officer. “However, as a regulated utility, customer rates are based on a utility’s operating costs plus a return on invested capital. In a typical rate case, customer rates are adjusted to reflect changes in our cost to serve customers. We will work with our regulatory commissions to determine what, if any, impact the tax changes may have on customer rates.”
The new tax law also preserves the ability of utilities to deduct interest expense as well as state and local taxes – an issue supported by FirstEnergy, our peer companies and the Edison Electric Institute. For other businesses, the new tax law significantly limits interest expense deductions.
“The utility business is very capital-intensive, so the ability to deduct the interest we pay each year on our debt is incredibly valuable to us,” said Greg Gawlik, director, Tax Planning. “The new rules also require our utilities to depreciate for tax purposes the cost of capital projects over longer periods of time, rather than immediately, which was another provision supported by the electric industry.”
“Overall, we believe the new tax plan will ultimately benefit the economy and the businesses we serve,” Jon added. “And we will work with regulatory utility commissions to understand the impact on customer rates.”
More on the New Tax Law
What about pay and travel expenses for employees?
While the tax legislation generally reduced tax rates for individuals, employees will not see any changes in the amount of federal or state tax withholding in their January paychecks. The Internal Revenue Service (IRS) has not issued revised withholding tables, which are required for our company to determine how much to withhold in federal taxes based on the new tax rates. While the IRS expects to issue this guidance “sometime in January,” it will take some time for the changes to be implemented in our payroll system. In addition, certain states have to provide us with updated withholding tables. We are hopeful the new tables will be available in January and fully implemented sometime in February. Our company will provide more information as soon as possible, including whether employees will be required to complete updated withholding tax forms.
The tax legislation also eliminated corporate deductions for business-related entertainment, such as tickets for sporting events, golf outings and some meals. This does not include qualified expenses for normal business travel and related meals. Employees should continue submitting those expenses for reimbursement as they have in the past. Also, under the new law, the company still can fully deduct its corporate sponsorships at sports arenas and other events as marketing expenses.