A top priority for the state’s transmission and distribution utilities, the legislation was opposed by groups opposed to unfair taxation. SB 1364 also was the subject of a Snapshot Report by the Texas Coalition for Affordable Power, which documented more than $500 million in tax collections by the North Texas utility for a non-existent tax liability. You can read the report here.

The Texas House of Representatives gave its final approval to the legislation on May 20th. Under the bill, the Public Utility Commission will lose the ability to adjust utility rates downward to reflect tax advantages enjoyed by electric utilities. As a result, utilities will gain the ability to charge customers an additional amount for federal income taxes — even in the absence of a greater tax liability by the utility.

TCAP’s report on these phantom tax collections by utilities drew statewide headlines, and was the subject of numerous television reports. Besides documenting $500 million in tax collections by the Oncor utility for a non-existent tax liability, the report also referenced New York Times findings that CenterPoint had collected $150 million for federal taxes during a time period in which it enjoyed a sizable IRS tax refund.

The phantom tax issue has drawn the attention of organizations on both sides of the political spectrum, including some Tea Party groups and those who have raised separate concerns regarding the installation of smart meters by the state’s transmission and distribution utilities. You can read more about the smart meter controversy here. For more about the phantom tax collections by utilities and SB 1364, check out the news reports found here.

To contact Governor Rick Perry’s office about Senate Bill 1364 and phantom utility taxes,  go to the link found here.

The Texas Coalition for Affordable Power recently released a Snapshot Report examining these issues. The media coverage has been extensive. You can check out some of the news reports at the links, below.

NBC Tyler KETK-TV: Legislation Removes PUC Protections

Dallas Morning News: Power Companies Get a Break in Texas House

NBC Tyler: KETK-TV: Oncor Customer Signs Off

Dallas Observer: Oncor Phantom Tax Windfall May Become Permanent

NBC Tyler KETK-TV: ONCOR – They Collect from You for Tax Bill That Does Not Exist

CBS DFW Channel 11: North Texans Spend Millions on Non-Existent Federal Taxes

Dallas Morning News: Texas Legislature Weighs Change to Power Companies’ “phantom taxes”

Fort Worth Star-Telegram: Oncor keeps millions it collects from ratepayers as ‘federal taxes’

Dallas Morning News: Oncor collecting $200M a year from customers for taxes it never paid, report alleges

Fort Worth Business Press: Potential EFH bankruptcy renews debate on utility tax

Dallas Morning News: Texas Senate approves bill allowing utilities to charge consumers for unpaid taxes

Burleson Star: Potential bankruptcy renews debate on utility tax

Dallas Business Journal: Oncor taxes go to Energy Future Holdings, not the feds

Huffington Post: How Texas Is Making It Easier for Utilities to Keep ‘Phantom Taxes’

Houston Chronicle: Texas lawmakers give utilities a tax boost

Corpus Christi Caller-Times: Forum – Phantom Electricity Tax is Real

San Antonio Express-News: Potential Bankruptcy Renews Debate on Utility Tax

Texas Energy Report: TCAP – Oncor Charges $200 million in Unpaid Federal Taxes

Dallas Observer: Report: Customers Have Forked Over $500 Million to Cover Oncor’s Phantom Tax Payments

Fierce Energy: Oncor, EFH targeted for collecting excessive customer funds

Vaultelectricity.com: Group Claims Oncor Unnecessarily Charged Fees to Texas Electricity Consumers

Randy Moravec, Ph.D., executive director of the Texas Coalition for Affordable Power, penned the following guest editorial for the Coprus Christi Caller-Times.  In it, he highlights pending legislation that would increase unfair tax collections by utility companies.

CORPUS CHRISTI — Did you know your electric company may be charging you for taxes that it never pays to the federal treasury? Instead, these phantom taxes can end up in the pocket of a regulated utility’s parent company. And the parent company can spend this money any way it wants.

Our organization, the Texas Coalition for Affordable Power, has released a report examining these phantom tax collections, and explaining the unusual loophole that allows utilities to collect them. Although the practice is legal, we believe it shouldn’t be. But beware. Legislation now pending in Austin would take Texas in exactly the wrong direction. Under a pair of bills winding their way through the Capitol, phantom tax collections in Texas could become worse.

Randy Moravec

Although the details can get complicated, the core issues are simple. Do you think it’s fair for a utility to charge you for federal taxes that aren’t paid to the federal treasury? Do you think it’s fair for your utility to collect these phantom taxes, but never disclose them on your home electric bill?

In Corpus Christi these phantom taxes are not as great as they are in other areas, and the Public Utility Commission has wisely taken action to further mitigate them. That’s the good news. But phantom utility taxes nonetheless remain a serious problem in Texas, and one that only will become worse under legislation pending in Austin.

How bad can phantom taxes become? Consider the situation in Dallas. Oncor, the transmission/distribution company serving the region, has charged its customers at least $500 million since 2008 for nonexistent federal tax bills. The energy company serving Houston also has collected about $150 million from ratepayers for taxes between 2002 and 2004 — even though it benefited from a massive tax refund during those years.

To understand this issue, first keep in mind that transmission and distribution utilities remain rate-regulated. Much of Texas operates under electric deregulation, with customers choosing among a variety of retail electric providers. But no customer choice exists for transmission and distribution service because these utilities are monopolies. That’s why the Public Utility Commission regulates their rates, including those charged by AEP Texas Central in Corpus Christi.

When the PUC sets these rates, it allows the utility to collect from customers an amount for operating expenses. This can include an amount for federal income taxes. But here’s the rub: Utilities do not make direct tax payments to the federal treasury. Instead, the utility’s parent company files the return. By consolidating its taxes in this fashion, the parent company receives a cash benefit that otherwise would be unavailable to it. This is where the phantom taxes come from.

Sometimes the windfall is enormous — as with the half billion dollars in nonexistent taxes collected by Oncor since 2008. The utility collected these “taxes” from ratepayers as if it files taxes directly to the IRS, even though it does not. Instead, all the “taxes” the utility collected became available to its majority owner, which has not paid a dime in federal income taxes since 2008. In fact, it appears the company received a fat tax refund during some of those years.

Thankfully, the situation in Corpus Christi is not so grave, and the PUC has further mitigated the phantom tax effect by authorizing a $3 million annual discount on electric bills. This is a continuing benefit for everyone in Corpus Christi — but a benefit that would quickly evaporate if the Texas Legislature moves in the wrong direction. Under two bills — House Bill 711 and Senate Bill 1364 — the PUC would lose all discretion with regard to phantom taxes. If these bills pass, not only will Texans see more tax collections on their utility bills, but these tax collections won’t even be fair.

Our organization believes that utilities should only include in rates an amount for federal taxes that the utilities actually pay to the IRS. But failing that, the PUC should at least have the ability to look closely at the issue — and to order adjustments when necessary.

Texans don’t mind paying their fair share of taxes, but there is nothing fair about utility phantom taxes.

Randolph Moravec, Ph.D., is executive director of the Texas Coalition for Affordable Power, a consumer coalition of cities.

ABOUT TCAP

TCAP is a coalition of more than 160 cities and other political subdivisions that purchase electricity in the deregulated market for their own governmental use. Because high energy costs can impact municipal budgets and the ability to fund essential services, TCAP, as part of its mission, actively promotes affordable energy policies. High energy prices also place a burden on local businesses and residences.

These are the findings of a new snapshot report from the Texas Coalition for Affordable Power (TCAP), which concludes that Oncor’s parent, the financially beleaguered Energy Future Holdings, can access more than $500 million in “phantom taxes” paid by Oncor’s customers since 2008. EFH is able to use the money to stave off creditors.

Although the practice is legal, TCAP concludes that it should be reformed. Unfortunately, legislation pending at the state Capitol could increase the payment of phantom taxes by other utility customers in the future, TCAP reports.

“EFH’s financial problems already are placing a multi-million dollar burden on north Texas electricity customers — in the form of phantom taxes,” said Randy Moravec, executive director of TCAP. “Money that utilities collect for federal taxes should be used for taxes. Otherwise, ratepayers are twice burdened — once by paying taxes that are not paid to the treasury, and second by a growing national debt for which taxpayers are ultimately responsible.”

The TCAP report includes a number of findings:

Customers of Oncor paid more than $230 million in 2012 for federal income taxes and slightly smaller amounts in previous years. However, the utility pays no federal income taxes and its majority owner — Energy Future Holdings, which does file a return — has not paid federal income taxes since at least 2008.

Oncor customers have paid more than $500 million in phantom taxes since 2008. The value of these phantom taxes currently average about $30 per year for residential customers.

Because EFH faces possible bankruptcy or restructuring in the near term, these phantom taxes may never be remitted to the federal treasury.

Under state law, regulators have the ability to mitigate the payment of phantom taxes when setting utility rates. However, legislation pending at the state Capitol would deprive regulators of this discretion — potentially leading to the unfair payment of even more phantom taxes in the future.

The snapshot report references federal Securities and Exchange Commission filings, Public Utility Commission regulatory filings, and describes pending legislation that could lead to further phantom tax payments in the future.

TCAP recommends that money collected from ratepayers for federal taxes should be used to pay federal taxes — or the utilities should not collect the money at all. In the alternative, the Texas Public Utility Commission should retain the discretion to apply special adjustments to mitigate phantom tax payments by utility customers. Any legislation to limit this authority should be rejected.

The report can be found at this link.

ABOUT TCAP

TCAP is a coalition of more than 160 cities and other political subdivisions that purchase electricity in the deregulated market for their own governmental use. Because high energy costs can impact municipal budgets and the ability to fund essential services, TCAP, as part of its mission, actively promotes affordable energy policies. High energy prices also place a burden on local businesses and residences.

Pocketbook Policy: how much will legislation in Austin cost you?

1. House Bill 711 and Senate Bill 1365

Utilities typically save money on their federal taxes by consolidating the federal returns from their different affiliates. But HB 711 and Senate Bill 1364 would make it impossible for the Public Utility Commission to properly consider these tax savings when they set your utility rates. These bills would make Texans pay an unfair share of their utility’s tax bills, and lead to HIGHER rates.

2. House Bill 1148

It’s important that consumers have champions to defend their interests during utility rate cases. Historically, cities have played this role. During the last decade alone, city involvement in rate cases have have helped save Texans more than $5 billion. But under House Bill 1148, cities would find it more difficult to defend their citizens in rate cases. This legislation will potentially INCREASE electric costs.

3. House Bill 1600 and Senate Bill 206

Although their overarching purpose is to reauthorize the Public Utility Commission, HB 1600 and SB 206 also include important consumer protections. These protections includes new enforcement authority for the PUC and a requirement that the PUC conduct cost-benefit studies before embarking on super-expensive market changes. As currently written, these bills BENEFIT electric consumers.

4. House Bill 1962 and Senate Bill 599

These bills create new standard offers in the Texas electricity market. Standard offers help consumers by allowing apples-to-apples price comparisons when Texans shop for power. These bills enhance competition, increase choices and should help keep prices down. We give HB 1962 and SB 599 TWO THUMBS UP.

5. Senate Bill 602

Another great bill for consumers, SB 602 would improve the state’s powertochoose website by requiring that it include additional information about complaints filed against electric retailers. Like HB 1962 and SB 599, this bill will help Texans shop for the best deals in the deregulated electricity market.

– R.A. Dyer

What is the Texas Coalition for Affordable Power?

Electric complaints are higher than pre-deregulation levels.

The rate at which Texas electric companies violate customer protection rules has increased for the second consecutive year, according to a new report.

The report also found that while the overall number of electric complaints filed with the Public Utility Commission decreased by 10 percent over the last year, the rate for which electric companies were found in violation of commission rules nonetheless increased by more than 30 percent. The report was issued by an Austin-based consulting firm, Regulatory Compliance Services.

The growing problem has captured the attention of state Sen. Wendy Davis, who has filed Senate Bill 602 to make complaint and violation data more easily available for online inspection. The bill is up for consideration Tuesday in a key Senate Committee.

The Regulatory Compliance Services report found that Retail Electric Providers accounted for 4,984 of the 6,618 complaints investigated by the PUC during the last calendar year, according to a synopsis of the report by the online Energy Choice Matters publication. The Texas Coalition for Affordable Power, a coalition of cities, has found separately that customer complaints have skyrocketed since the state deregulated its electricity market.

Senator Wendy Davis

Senate Bill 602, by Sen. Davis, would help address those concerns by authorizing reforms to the powertochoose.com website. Created by the PUC, the website lists electric companies and prices in a sortable fashion. Under Senate Bill 602, the PUC would post more complete complaint data as well as information about enforcement actions against retail electric providers. In addition, SB 602 would require the PUC to update the online data at least once every three months.

TCAP issued a report earlier this year finding that annual electric complaints filed with the PUC remain at a level five times greater than the pre-electric deregulation average. TCAP, which supports SB 602, also found an uptick in complaints regarding smart meters and the controversial policy of blocking some households from switching electric companies.

Customers wishing to file complaints regarding their electric service can do so through the PUC’s Office of Customer Protection, which can be reached at 1-888-782-8477, by email at customer@puc.state.tx.us, or online at http://puc.state.tx.us/consumer/complaint/Complaint.aspx.

TCAP also supports the inclusion of complaint data on Energy Facts Labels for all retail electric providers. These labels can be found on the powertochoose website. Texans utilizing the powertochoose website also should be able to sort companies by complaint rates, as well as by price and terms of service.

– R.A. Dyer

What is the Texas Coalition for Affordable Power?

The Public Utility Commission cannot a

The so-called PUC “Sunset” Bill also includes provisions that reauthorize operations of the PUC for 10 years, that allow the agency to issue emergency “cease and desist” orders, and that transfers water utility regulation from a separate agency.  The House approved the far-reaching legislation on Thursday, although it still requires Senate action.

The biggest surprise so far was the approval of the cost-benefit study provision, which was included in an amendment by Rep. Sylvester Turner, D-Houston. The provision requires the PUC to analyze consumer impacts before adopting any change to the energy market that is reasonably expected to cost Texans $100 million or more. The PUC currently is considering a so-called “capacity market” that could cost Texans in excess of $1 billion annually.

Both Republicans and Democrats expressed support for the amendment, with one House member calling it “one of the most important pro-consumer amendments to be considered this legislative session.” But most amendments failed in the House, and the cost-benefit amendment only succeeded after receiving the endorsement of Rep. Byron Cook, who chairs the powerful House State Affairs Committee.

The Sunset Bill also includes a provision allowing the PUC to issue emergency “cease and desist” orders against electric companies if the agency fears for the the stability of the power grid. That provision was almost removed after opposition emerged from the Texas Public Policy Foundation, an Austin-based think tank known for receiving financing from the electric industry.

The Texas Coalition for Affordable Power, an organization of more than 160 cities and other political subdivisions that purchase power together for their own governmental use, supports both the cost-benefit study provision and the cease-and-desist rules. The Sunset bill now goes to the Texas Senate, where it eventually will be considered by that chamber’s Business and Commerce Committee.

The PUC Sunset legislation is designated House Bill 1600. More information about it can be found here.

– R.A. Dyer

ABOUT the Texas Coalition for Affordable Power

TCAP is a coalition of more than 165 cities and other political subdivisions that purchase electricity in the deregulated market for their own governmental use. Because high energy costs can impact municipal budgets and the ability to fund essential services, TCAP, as part of its mission, actively promotes affordable energy policies. High energy prices also place a burden on local businesses and home consumers.

But electric deregulation doesn’t give customers complete control over what they pay for power. Legislative action at the state Capitol also can impact rates — and sometimes for the worse.

That’s why it’s important to keep a close eye on Austin during the 83^rd regular session of the Texas Legislature. More than 100 bills relating to electric and gas utility service have been filed at the Capitol. Some of these bills could lead to higher rates.

Among problematic bills, for instance, are House Bills 1148 and 1149, which would limit the ability of cities to protect their citizens in utility rate cases. HB 1148 and HB 1149 are top priorities for CenterPoint Energy, a Houston utility, but have attracted opposition from consumer activists and cities.

Sylvester Turner

Another bill that has drawn concern is House Bill 711. Under this legislation, the Public Utility Commission would lose its ability to pass along utility tax savings to ratepayers. If House Bill 711 (or its companion, Senate Bill 1364) becomes law, the result almost certainly would be higher electric rates.

Some bills that would help electric customers include House Bill 1962 and its companion, Senate Bill 599. These bills would require that retail electric companies include a “standard product” among their menu of other electricity offers. By comparing standard products, Texans could more easily make apples-to-apples price comparisons when shopping for power.

Sen. John Carona

Other beneficial bills include House Bill 550 (by state Rep. Sylvester Turner) and Senate Bill 326 (by state Sen. John Carona). These bills would safeguard a special fund intended to help low-income Texans pay their electric bills. The Legislature in recent years has raided this fund for budget-balancing purposes.

Lawmakers this year also are considering important “Sunset bills” that will reauthorize operations at the Public Utility Commission and the Texas Railroad Commission. The PUC and the Railroad Commission have responsibility for electric and gas rate regulation, respectively. The PUC Sunset bills are House Bill 1600 and its companion, Senate Bill 206. The Railroad Commission Sunset bills are House Bill 2166 and its companion, Senate Bill 212.

You can find a full description of bills at the Texas Capitol website, www.capitol.state.tx.us.  Looking for the name and contact information for your lawmaker? Check out the link, found here.

– R.A. Dyer

Legislation in Austin could weaken customer protections.

If it’s not broke, don’t fix it — that was the message delivered to Texas lawmakers this week regarding proposals to undermine a system whereby cities defend their citizens against unfair rate hikes.

Under current law, Texas cities have partial jurisdiction over the prudence of electric distribution and gas rates charged within city limits. Cities also have the right to defend local ratepayers at the state level. This system has resulted in hundreds of millions of dollars in savings for gas and electric customers over the last decade.

But House Bills 1148 and 1149 would deprive cities of much of that authority, and also make it difficult for cities to pay the expense of defending their citizens in rate cases. Both bills are top priorities for CenterPoint Energy, a Houston utility that would benefit if HB 1148 and HB 1149 becomes law. 

About a dozen city representatives expressed opposition to HB 1148 and 1149 during a March 6 public hearing of the House State Affairs Committee in Austin. Across five hours of testimony, the only opposition that emerged was from a single CenterPoint vice president and from one official with an Austin think tank supported by the energy industry.

Jay Doegey

Under the terms of HB 1148, gas utilities could take action that would deprive cities of their ability to consider a company’s rate filings at the city level. Opponents at the commitee hearing noted that the legislation would deprive cities of local control and make it difficult for cities and utilities to work together to settle rate cases. 

“If you want to drive up the costs of utilities in the state of Texas, pass House Bill 1149,” said Jim Gerlt, the Lubbock city council member.

Similarly, House Bill1148 would make it much more difficult for cities to collect reimbursements for the expense of defending their citizens in electric and gas rate cases. But one city official cited data showing that cities have helped save gas utility customers more than $430 million over a 10-year period, but with only $12.7 million in rate case expenses. Jay Doegey, chairman of the Steering Committee of Cities Served by Oncor, also noted that cities helped save customers in  north Texas more than $1 billion as a result of a single regulatory settlement. 

House Bills 1148 and 1149 were left pending in committee.

– R.A. Dyer

A “capacity market” could
cost Texans more than
$2 billion annually.

Grocers make money selling groceries. Bakers make money selling bread. But big electric companies want to make money simply for existing. And if they get their way, electricity costs in Texas would go up. Maybe by a lot.

In a proposal that has been roundly rejected by organizations across the political spectrum, the owners of Texas power plants want to receive extra subsidies based on the number and size of plants they own. The more they own, they more they get. The subsidies would be added to wholesale power costs, but they’d trickle down into home energy bills.

According to UBS Securities, the generator proposal (it’s known as a “capacity market”) would cost Texans between $1.2 billion and $2.3 billion a year. Capacity markets in other states also have been very costly, including in New Jersey where one has added $1 billion to annual electricity charges.

What’s the argument for these subsidies?  Generators say they need the extra cash as an incentive to build more power plants. Texas potentially faces a power shortfall after 2018, and because of the state’s deregulated electricity system there’s no easy way to confront the problem.

But generators offer no guarantees that they’ll use the money to build more power plants, and such subsidies in other states have not worked as intended. Part of the problem is that almost all the extra money ends up supporting companies with existing generation — whether those companies build new power plants or not. There’s also a question of basic fairness. For years, when energy prices in Texas were high, generators argued against any market intervention. Now that prices have come down, they’re clamoring for subsidies.

Creating a capacity market in Texas has been roundly rejected by conservation groups, free market groups, customer coalitions, manufacturers, elderly advocates and environmentalists. The Public Utility Commission also has taken aggressive steps to address the state’s reliability concerns, including significantly increasing caps on wholesale power costs. This likely will increase energy costs during the summer months and during other high-demand periods. The new subsidies, if also adopted by the PUC, would only add to the costs.

The Texas Coalition for Affordable Power is on record in opposition to a capacity market. The municipal energy consumer coalition has proposed technical fixes that will help address reliability concerns, but not at the expense of affordability.

– R.A. Dyer

What is the Texas Coalition for Affordable Power?