Utilities and Tax Reform: Communication is Key

Tax Reform

Utilities are not always the most popular businesses with consumers. Rising rates, service interruptions and perception of poor customer service make it challenging to maintain a positive reputation and strong relationships. The best way to combat this problem is active and open communication that builds personal connections, increasing trust and loyalty over time.

The most recent issue to face utilities is the Tax Cuts and Jobs Act, passed in late 2017, which reduces the overall tax rates of businesses and individuals. The old maximum tax rate of 35% for businesses is out, and the new rate for all businesses — including utilities — is now set at 21%. That means a lot more money in the company coffers in 2018, forcing businesses to decide how to best use the additional resources.

Several large retailers moved quickly and have already made news by announcing hourly wage increases or individual bonuses for their employees, while others have unveiled plans to spend more on manufacturing or R&D. Likewise, utilities across the country are looking at how to use the savings in their operations.

In some cases, because utilities are regulated, the decision may be out of their hands, as this New York Times article explains. Given the option, does it make more sense to reduce rates, increase investment in infrastructure, or put more effort into renewables? That’s a difficult question for an industry that struggles with its image in the eyes of consumers, who often feel they pay too much for their energy.

  • Option 1: Passing the savings on to customers through lower rates, or even smaller-than-planned rate increases, seems like the obvious move to make the market happy. A recent Bloomberg article lists a number of utilities that have already committed to rate reductions as a result of the tax reform legislation. It’s clearly a popular move, but that doesn’t necessarily mean it’s the best decision for every utility in the long run.
  • Option 2: Following the devastating tropical storms late last year, not to mention the various ice storms in the Northeast over the past decade, a lot of attention has been directed at power delivery infrastructure and the need to upgrade systems to withstand increasingly harsh weather events. Savings from the lower tax rate could be put toward modernizing the grid and improving the delivery systems in vulnerable areas. Customers are not happy when the power goes out, and the media is quick to point fingers.
  • Option 3: Looking to the future, some utilities are ramping up investment in renewable energy sources as a way to reduce costs, cut emissions and cater to the growing number of customers demanding more environmental responsibility. Tax savings could be used to explore or develop renewable options over a period of time.

So what’s the right way for utilities to invest those tax savings? Ask the customers and they would say they want it all — lower rates, better infrastructure and more renewables. That’s likely not possible, so the decision is an important one, and the way it is communicated is critical. In reality, what’s more important than how to spend the money is letting customers know that the money will improve service.

Some utilities have already seen how powerful improved communication can be. Take, for example, the Omaha Public Power District (OPPD), which, when facing a decision on whether to decommission three coal-fired generating units, set up an open house series, carried out a PR initiative and launched a microsite to invite the public to comment. The program rallied customer support and was so successful that the site is still used to regularly solicit customer opinions on other issues.

This approach is right in line with our “Brand as Friend” philosophy, which provides an ideal framework to help utilities establish strong relationships. When incorporated as part of the strategic planning process, this approach sets the stage for effective communication that can address and resolve any issue that may arise, including how the savings from tax reform will be leveraged.

Utilities need to carefully consider the ways they communicate these decisions, and we can help with our Brand as Friend® approach. Download our ebook to read about utilities that are having success today.