Money ManOncor, the North Texas electric utility, collects more than $200 million annually from its customers for federal income taxes — even though neither Oncor nor its majority owner currently pay income taxes to the federal government.

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.

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