Legislators scrap law on taxing ratepayers
A new bill readdresses the taxes that utilities actually pay versus the taxes they pass on to their customers
Note: This article is not available online at The Oregonian.
By TED SICKINGER
May 14, 2011
After a six-year fight over a law to prevent utilities from charging ratepayers for taxes that the utilities don't pay, the Legislature has punted the issue back to utility regulators.
Senate Bill 967, passed by the Legislature on Thursday, gets rid of a complicated annual tax true-up that resulted in a surcharge or refund to ratepayers based on whether regulators determined that the utility had overcollected or undercollected from ratepayers to cover its tax bill.
Instead, taxes will go back to being part of standard rate cases. The bill directs the Oregon Public Utility Commission to analyze all tax benefits, liabilities and credits, as well as a utility's corporate structure and tax payment history when setting utility rates.
The bill also directs the PUC to consider the effect of any merger on utility taxes.
The bill, if signed by the governor, effectively kills Senate Bill 408, which was passed in 2005 to protect ratepayers from phantom taxation. OPUC commissioner Susan Ackerman said she believes the new rate case treatment of taxes will achieve the original intent in a cleaner fashion.
"We learned so much about the complications of federal tax law that we almost have a different staff," she said. "They will bring that knowledge to bear" during rate cases.
It was the PUC's implementation of SB 408, as much as the law itself, that generated so much controversy in subsequent years.
Dan Meek, a Portland area lawyer who was instrumental in pushing the original legislation, said Friday that the original idea was to reduce the PUC's discretion to allow utilities to charge ratepayers for phony taxes. The PUC opposed the bill, he said, then sabotaged the law by adopting a methodology to calculate utilities' tax liabilities that was neither transparent nor confirm-able.
"What this bill does is once again give the PUC discretion to allow utilities to charge ratepayers for phony income taxes," Meek said. "I don't see any reason to expect them to be any different than they were in 2005 and earlier. This is a victory for utilities and a defeat for ratepayers." Read more ...
SB 408 aimed to solve the "Enron problem," where the Texas utility giant sucked up hundreds of millions of dollars in taxes from ratepayers of
its then-subsidiary Portland General Electric, but paid no taxes because it offset its liability with operating losses from other subsidiaries.
PacifiCorp's then-owner, Scottish Power, also was generating interest deductions that were not being passed to ratepayers.
Senate Bill 408 was supposed to offer a simple solution, forcing utilities to reconcile their tax collections and payments after the fact, then adjust rates to reflect the difference. But nothing about the bill turned out simple.
After the law was passed, ratepayer advocates, the PUC staff and utilities fought over definitions of taxes collected and paid as well as what portion of a parent company's tax liability should be "properly attributed" to a utility.
Utilities, led by PacifiCorp, have complained for years that the law has a "double whammy effect," exacerbating earnings volatility by forcing them to surcharge customers when they earned more than forecast or refund money to customers when they earned less than expected. "This repeals the unworkable and unfortunate aspects of 408 while retaining the good aspects of 408, protecting ratepayers," Paul Vogel, a spokesman for PacifiCorp, said Friday.
The law became a battleground for the Industrial Customers of Northwest Utilities, which said the PUC was undermining the law's intent. It still believes utilities are hiding the ball with Oregon ratepayers. "We're resigned to where it's at," said Melinda Davison, an attorney for the industrial customers group. "We never had a good set of rules that implemented the law as passed."