Written on: January 28, 2013
Texas lawmakers have taken aim this session at preferential tax breaks, vowing to eliminate those that lack any rationale for their continued existence. It’s a bipartisan clean-up effort, and one welcomed by many.
But just as our legislative leaders are pushing to close unfair loopholes, lobbyists for big monopoly utilities are clamoring to open up another sort of tax-related dodge — and one that could cost Texans millions upon millions of dollars.
At issue is the treatment of federal taxes by local utilities. Under Texas law, if utilities receive a tax benefit they’re supposed to pass that benefit along to customers. Remember, these utilities are monopolies — they have no competition to keep down prices — and so regulators must do all they can to ensure rates are fair. That includes making sure utilities don’t collect reimbursements from their customers for tax expenditures the utilities never incurred.
But the big utilities want to game the system, to set up rules whereby they can benefit from federal tax breaks, but not share those benefits with Texans. Here’s how the dodge would work:
Rather than filing separate federal tax returns for all their separate affiliates, electric companies typically consolidate these returns. Consolidating tax filings provides a huge benefit for the utilities — and one that can lead to significant savings for the company. Typically, the company then is required to provide a proportional share of those tax breaks to its local customers.
Not surprsingly, the savings can be huge. In one 2012 rate case, for instance, the utility customer share of the tax break was valued at about $9.8 million annually.
Under Texas law, the Public Utility Commission has the discretion to consider these tax breaks when setting rates. But the utility lobbyists want to deprive the PUC of this discretion. If they are successful, the regulatory playing field will tilt further in favor of the big monopoly utilities and the result will be higher rates.
State Sens. John Carona and Rodney Ellis proposed in a recent editorial to hunt down and eliminate old tax breaks that continue to live on, even though their rationale has ended. But this new utility dodge never was a good idea. The Texas Coalition for Affordable opposes any proposal that allows utilities to overcharge Texans by gaming their tax bill. You should too.