Tax Reform Today and Tomorrow: Preparing for Change

Tax in Transition

Helping utilities navigate corporate tax reform

Early in the first Trump administration, a seismic shift in tax policy loomed: the corporate tax rate, which had remained relatively unchanged since the Tax Reform Act of 1986, was set to be reduced from 35% to 21%.

This reduction promised to bring significant changes to the energy and utilities industry, thrusting tax teams into the spotlight as CEOs and CFOs needed to quickly understand the implications for their businesses and their customers.

It was a transformative year. Conversations and terminology once limited to tax organization conference rooms were now debated in boardrooms. As a tax leader at an investor-owned utility at the time, I sat in those boardrooms; I led those conversations. We were wading into uncertain waters when the Tax Cuts and Jobs Act (TCJA) passed late in December 2017.

Ultimately, the lower corporate tax rate passed in the TCJA and later new energy tax credits from President Biden’s legislation—the Inflation Reduction Act (IRA) of 2022—served to keep customer utility bills lower. For example, the TCJA’s 14% corporate income tax rate reduction returned nearly $62 billion to customers. EEI estimates that maintaining the energy credits in the IRA will lower customer bills by $45 billion between 2025 and 2032.

But while the TCJA and IRA brought benefits to utility customers, it also brought a new wave of complex challenges to the utilities that had to prepare for the reform and implement the effects. And now it appears there are more changes on the horizon.

What’s Next?

Now amidst a second Trump administration, we await the promised “one big, beautiful bill” addressing expiring provisions in the TCJA and the continuation of energy credits established in the IRA. On April 10th, House Republicans adopted a budget resolution, paving the way for legislators to begin negotiations and draft legislation allowing for these changes to be addressed. As a result, tax teams are once again in the spotlight and leading the charge in discussions around how anticipated changes will impact their businesses.

Whether the corporate tax rate will increase or decrease and what credits will be retained remains uncertain, but what is certain is that utilities should ensure they are prepared, no matter the outcome.

Follow me on LinkedIn to stay tuned for my next blog in this series where I’ll share tangible takeaways on how best to prepare your organization for a potential rate change. You can also reach out to taxreform@powerplan.com with any questions.