Although the law has been under discussion in rate cases recently, most notably the Reconsideration of PacifiCorp's last rate case, the Commission has been operating without Permanent Rules on the subject since the law was passed last year. This Order moves the PUC toward Permanent Rules regarding utility taxes, and does so in an effective and fair manner. Though not accepting either the utilities' stand-alone approach to utility taxes (ignoring the income and tax deductions of affiliates in a corporate family), and not embracing CUB's specific approach to determining "properly attributed" taxes, the Commission has proposed a third method of arriving at a fair means of tax attribution.

This method begins with the assumption that customers should not be paying significantly more to utilities than the utility's fair share of the taxes paid to government by the utility's parent company. From the Order: "If amounts collected and amounts paid differ by more than $100,000, SB 408 requires this Commission to direct the public utility to implement a rate schedule ... accounting for the difference."

The question is and has been: When a utility is part of a large conglomerate, how do we "properly attribute" a share of that conglomerate's tax liability to the utility and its customers. The Commission calls this issue "difficult and controversial" and they ain't kidding! For almost a year, CUB, industry groups, the utilities and the Commission themselves have wrangled with the question of how to solve this problem of phantom taxation: taxes paid by customers to a utility, but retained by a consolidated corporate utility due to its tax deductions.

Today's Order solves this issue in a surprisingly simple way. The Commission has decided to treat the taxes as just another expense being incurred at the corporate parent level, and passed on to customers proportionally. As with executive salaries at the parent company (such as when PGE customers were paying part of Ken Lay's salary), the proportional amount paid by Oregon utility customers is figured following a three-factor formula. At the risk of providing too much information, the formula works with factors of the overall corporation's total sales, property, and payroll. The numbers are then divided according to the Oregon utility's portion of the final figure.

It's a less labor-intensive formula than the one CUB had proposed, because it doesn't require as much information from and about the corporation's other affiliates, which makes PUC Staff breathe a sigh of relief. It is a clear rejection of the utility's argument that SB 408 does not require a significant change in the way we charge taxes to customers. Most importantly, it fixes the major problem of customers paying into a tax account, only to see that money diverted to utility shareholders.

We are pleased with the Commission's creativity and diligence in crafting a solution. While we have not seen this methodology until today, and have not fully evaluated it, we do expect that this decision will lead to lower rates because rates will no longer include inflated tax amounts. However, we don't expect the case to be closed on the issue of utility taxes. PacifiCorp, particularly, has shown itself to be tireless in working to undermine tax reform, and we expect them to try to convince the 2007 Legislature to repeal SB 408.

CUB has been a leader in confronting the problem of unfair utility tax practices, and we will continue to work on the issue as it arises, whether at the Public Utility Commission or in the Oregon Legislature. We will also continue to play a role in educating the public and the media about what is often a complicated issue.

If you are pleased to hear about this step forward in the battle for fairer utility bills, please consider making a donation to CUB today. We rely on member support in fighting for lower rates and cleaner energy for Oregon utility customers. We appreciate the feedback from our members, and the financial support that makes our work possible.