Utility Taxes, Again

Even after more than 20 years of watching utilities, I am sometimes surprised by the proposals they make. PGE recently asked to be made whole because their taxes were greater last year than had been forecast. What makes it so surprising is that Oregon had a system to true up taxes every year (SB408), so that the amount that customers paid the utility to cover the utility’s tax bill was equal to the amount of money that the utility paid the government in taxes. PGE led the effort to replace that law and move to a system where taxes are forecast into rates (SB 967), like all other costs. PGE’s state income tax rate varies from year to year depending on how much of its revenue is earned in Washington.

Last year, PGE made less wholesale sales in the state of Washington, where it pays no tax. The effect of the reduction in Washington sales revenue was a small increase in PGE’s overall income tax rate because more of the percentage of their earnings came from Oregon. This resulted in an additional tax expense to the company of $5 million. Because it faced a higher tax bill in Oregon, PGE asked the PUC to require Oregon customers to reimburse PGE for the additional tax bill. As noted above, utility taxes are now forecasted. What happened here was that the company got the forecast wrong. Customers do not pay for wrong tax forecasts. The PUC, therefore, correctly denied PGE’s request this past Tuesday, April 23rd.

To provide additional color we provide a short retrospective on what got us all to this point: PGE used to be owned by Enron. During that period of time, PGE would collect state and federal taxes from customers and send them up the corporate chain to Enron. However, Enron was consistently able to identify enough tax deductions and loopholes that it was paying little or no taxes. Hundreds of millions of dollars that customers paid to cover PGE’s tax bill were instead used by Enron for other purposes. This led to the passage of SB 408, which required the PUC to establish a process so that there would be an annual true-up and customers would not pay more for utility taxes than the utility actually paid in utility taxes.

SB 408 was contentious and led to some unintended results. Under better than normal hydro conditions, for example, PGE would have lower costs and greater earnings and therefore greater taxes. Under SB 408, customers would be surcharged for this greater tax bill, even though the company’s additional earnings allowed them to cover the tax bill. Giving surcharge money to a utility that was earning more than its authorized rate of return did not seem fair.

With Enron and ScottishPower no longer owning PGE and PacifiCorp, the worst abuses of overcharging customers for taxes ended. This led to the agreement in 2011, to replace SB 408 with a new law that would return to forecasting taxes, but would require the PUC to take into account the corporate structure of the utility and the actual tax payments made by the utility when forecasting taxes. PGE led the effort to reconsider SB 408.

So that brings us back to today where two years after the passage of SB 967, PGE’s taxes were a little greater than was forecast in their last rate case. Their solution was to have customers pay the difference. At Tuesday’s PUC public meeting, PGE admitted that SB 408, which they pushed to repeal, would have required customers pay this tax bill – SB 967 does not.

I’ve seen lots of silly self-serving proposals come out of utilities over the years – but even I was surprised by this one.

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