Texas lawmakers give utilities a tax boost

Wondering what makes your utility bills go up every year?

Under current law, taxes collected by utility companies for transmission lines can be kept by utilities owners if they have losses in other businesses or in other states to offset profits.

Texas lawmakers are proposing that these tax overpayments will not be part of the calculation in setting future transmission rates in Texas.

The Texas Senate passed a bill on Tuesday afternoon that would remove the ability of state regulators to review tax payments made in Texas in calculating future utility rates increases.

The legislation, Senate bill 1364, passed yesterday in a 27-4 vote.

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While electricity generation and retail services were deregulated in Texas in 2002, electricity transmission rates are still set by the Public Utilities Commission. These rate increases determine how much companies like CenterPoint Energy, which provides electric transmission and distribution utility to the Houston metropolitan area, can charge.

The Public Utility Commission currently also has the power to factor in overbilling for taxes in determining rate increases.

The Texas Coalition for Affordable Power, a non-profit organization representing electricity users, has argued that this ability helps compensate Texas customers for a loophole in the federal tax system, which allows utilities to collect estimated taxes in advance, based on profits and losses for a single business. Under the tax code, parent companies of utilities can consolidate their earnings, and the estimated tax bill for one entity can be offset by the performance of another business under the parent company’s corporate umbrella.

But transmission providers have argued that electricity customers should not get a rate break just because a parent company has a troubled business in other state or in another sector that allows it to keep taxes paid by customers.

“Our position is that whatever happens in those other companies shouldn’t impact rates, whether it is an increase in the taxes paid or the decrease in the taxes paid,” said John Reed, CEO of Concentric Energy Advisors and a tax advisor to the Association of Electric Companies of Texas. “To take the tax benefit associated with the loss and say we are going to give back some of the tax to customers who had nothing to do with footing the cost of that loss – that just doesn’t make sense.”

The bill would benefit all transmission companies, including CenterPoint, who received a $10 million discount on its rate increase in 2012 by the PUC to offset taxes overpayments by its customers.

Dallas-based Energy Future Holdings, the parent company of regulated electricity distribution and transmission business Oncor, would likely be another beneficiary, according to The Texas Coalition for Affordable Power.

“We are disappointed by today’s vote on the Senate floor,” said Randy Moravec, executive director of the Texas Coalition for Affordable Power. “Oncor, the state’s largest electric utility, already has collected hundreds of millions of dollars from ratepayers for federal income taxes that will never be paid to the U.S. treasury. If Senate Bill 1364 becomes law, it will become easier for other utilities to also pass along phantom taxes to their customers. This means that residents of TCAP member cities in South Texas and the Houston area will eventually have to pay higher rates.”

A similar House bill, H.B. 711, is being supported by Houston Rep. Murphy, and received approval in the Houston state affairs committee in mid-April but has not been scheduled for a floor vote.