Reform the Tax Treatment of Texas’ Regulated Electric Utilities: What’s good for them is good for Texas

Print Friendly

Texas is known for its pro-business stance, lack of overly burdensome regulations, and fair and reasonable tax structure. And in order to maintain Texas’ position as an economic and energy leader and support its swiftly growing population, utilities must continue to invest in the electric grid. Unfortunately, today’s regulatory treatment of federal income tax for Texas regulated utilities can distort the cost of providing electricity in affected areas by inappropriately including non-utility operations when determining the impact of a company’s taxes on its regulated rates.

As a result of the way taxes for ratemaking purposes are currently calculated by the Public Utility Commission, investors in regulated electric utilities in Texas end up on the losing side of an unfair ratemaking process. One of only five states with a Consolidated Tax Adjustment structure, regulated electric utilities in Texas have to take away tax benefits from their unregulated affiliates, which have nothing to do with electricity production, and use those tax losses produced by other companies to subsidize electric rates. If the Texas electric utility is in a tax loss position, it conversely has to give away some of that benefit to other unregulated affiliates. This ratemaking approach makes no sense, because it forces one business to subsidize another, which is why almost every other state and the federal regulators have rejected it. Because it penalizes firms that choose to invest in Texas, it hurts consumers, affected companies, and the electric power marketplace.

On April 23, SB 1364, a bill aimed at revising how the PUC calculates taxes for ratemaking purposes, passed the full Texas Senate on a 24-7 vote. In the coming days, the full Texas House may review the legislation, which would remedy this unfair approach to regulating businesses that are providing a much-needed public good.

As noted in a May 1 article from SNL’s RRA Regulatory Focus titled, “Texas House to consider consolidated tax legislation,”

“the CTA ranks as one of the more troublesome policies for utility investors that can be imposed by regulators….the issue of whether an unregulated affiliate is earning a profit or generating losses should be irrelevant to the calculation of the utility’s recoverable tax expense.”

Additionally, utility customers should be shielded from financial risks associated with non-utility operations; they should also not be forced to subsidize non-utility operations. Not only does the current structure create an unfair tax treatment, it unintentionally has the effect of suppressing state revenues. By removing this tax treatment for regulated electric utilities, the state will promote greater financial stability in this sector, and will attract necessary capital investment in Texas’ current electric infrastructure.

Oppose CSSB 241: Unfavorable Provisions Diminish Grid Reliability and Reduce Benefits for Texans

Print Friendly

CSSB 241 Socializes Costs and Cuts Reliability

CSSB 241 provides carte-blanche opt-out of advanced meters and funds this initiative by socializing the costs to all consumers. Said another way, it requires those customers who do not opt-out to fund the removal, re-installation and monthly reading of traditional meters by utility personnel on the opt-out customers’ premises. This forces utilities to take a step backwards in providing reliable service.

CSSB 241 Imperils Legislative Directive

The Legislature encouraged utilities to invest in advanced metering systems in both 2005 and 2007. Multiple stakeholders helped the PUC develop rules for implementing this technology. CSSB 241 jeopardizes this technological investment.

CSSB 241 Thwarts Resource Adequacy in ERCOT

CSSB 241 would diminish resource adequacy by eliminating ERCOT’s long-standing interconnection to neighboring grids, used to ensure reliability during times of exceptionally high demand. In addition, CSSB 241 could reduce the potential for residential participation in demand response programs.

CSSB 241 Impedes Opt-Out Programs Currently Under Development at the PUC

CSSB 241 impedes the ability of the PUC to study and implement an opt-out program for advanced meters that treats all parties fairly and ensures that, as a whole, customers benefit from the outage restoration, reduced need to dispatch trucks, and energy efficiency enhancements created by advanced meters.

Click here to download a copy of this issue paper.

SB 1364/HB 711: Appropriate Regulatory Treatment of Federal Income Tax for Affected Electric Utilities

Print Friendly

AECT Supports SB 1364 by Schwertner and HB 711 by Murphy

Overview

  • As currently written, the Public Utility Regulatory Act (“PURA”) has been interpreted to allow the PUC to negatively adjust the income tax portion of regulated rates for utilities, to compensate for tax benefits received by affiliated companies – whose operations have nothing to do with the provision of electric service in Texas.
  • This adjustment, referred to as a consolidated tax savings adjustment (CTSA) results in the commingling of electric utility and non-electric utility costs, a practice generally prohibited.
  • Forty-five other states, the Texas Railroad Commission, and the FERC do not make a CTSA.
  • This tax treatment is counter to Texas’ reputation of treating businesses fairly, promoting investment and maintaining a reliable electric system.

AECT Position: Support SB 1364/HB 711

  • This proposal would remove the CTSA calculation for affected regulated electric utilities.
  • Patterned on how the process works already for gas utilities in Texas, electric utility rate treatment should reflect income tax expense calculated on a stand-alone basis using only the regulated utility’s income and the applicable income tax rates.
  • This solution will further the general regulatory principle that the activities of an electric utility’s affiliates should not affect the service provided to ratepayers or the rates they pay for that service.
  • The result? Texas would join the 45 other states that have rejected imposing such a penalty, enhancing the State’s attractiveness for investment by utilities.
  • This solution does not reduce the State’s, or the federal government’s, tax collections by even one dollar, and is clearly equitable.
  • This solution results in a less expensive rate review process by eliminating an unnecessarily complex issue.

 

HB 1600 – Sunset Review of the Public Utility Commission of Texas: Keep It Clean

Print Friendly

AECT Supports HB 1600 by Cook. See below for key provisions of the bill.

Overview of Key Provisions (read the full bill here)

  • HB 1600 continues the operations of the Public Utility Commission of Texas (PUC) for 10 years.
  • HB 1600 prohibits any PUC Commissioner from working for the Electric Reliability Council of Texas (ERCOT) for two years after leaving the PUC.
  • The bill allows the PUC to issue cease-and-desist orders in cases where the Commission determines that the conduct of a person poses a threat to continuous and adequate electric service; is hazardous; creates an immediate danger to public safety; or could cause immediate injury that monetary compensation could not rectify.
  • It also includes due process provisions in the cease-and-desist process, giving affected persons up to 30 days to request a hearing, which then must be held within 10 days.
  • The PUC will review ERCOT’s proposed annual budget and authorize the administrative fee to recover ERCOT’s approved costs.
  • HB 1600 also moves water and sewer ratemaking authority from the Texas Commission on Environmental Quality (TCEQ) to the PUC; water and sewer small consumer representation moves from the TCEQ to the Texas Office of Public Utility Counsel (OPUC).

AECT Position on HB 1600:

PURA provides a solid regulatory framework, and AECT supports the continuation of the PUC for another 10 years as proposed under the Sunset review legislation.

HB 994 – Extending Deadline for Nuclear Generation to Qualify for Decommissioning

Print Friendly

AECT Supports HB 994 by D. Bonnen

Background

  • Texans today are served by an electricity system that boasts a diverse resource base – fossil, renewable and nuclear – a reliable mix that works as a hedge against regulatory and economic swings. Future citizens of Texas deserve to enjoy those same benefits and, for new nuclear generation to have a future role in ERCOT, the Legislature must act.
  • In 2007, the Texas Legislature passed HB 1386 to ensure that new nuclear generating projects in Texas’ competitive electric market can satisfy Nuclear Regulatory Commission (NRC) requirements for issuance of a Construction & Operating License.
  • In a traditional regulated electricity market, the cost to decommission – that is, to deconstruct – a nuclear plant at the end of its operating life, is borne by captive ratepayers through rates approved by the PUC.
  • In the ERCOT competitive market, the nuclear project owner must bear the decommissioning cost. NRC requires a decommissioning funding mechanism which is provided by the program established by HB 1386. It established a state funding program for decommissioning that meets NRC requirements and adequately protects customers.
  • Subsequent to passage of HB 1386, a PUC rulemaking set up the administrative rules necessary to implement the statute.

Issue

  • Project construction must begin before January 1, 2015 in order for a proposed nuclear project to qualify for the HB 1386 program. At the time HB 1386 was passed, it was anticipated that one or more proposed projects would meet this requirement. However, due to recent international industry events, the current economic environment, and low natural gas prices, no proposed projects, nor any future projects that may take advantage of breakthrough technology, will meet this construction deadline requirement.

AECT Position: Support HB 994

  • HB 994 extends the construction deadline until January 1, 2033, preserving the option for development of economically feasible nuclear generation in ERCOT. HB 994 makes no other changes to the program established by HB 1386 nor the subsequent PUC rules implementing the program.

 

HB 4 – Creation of the State Water Implementation Fund

Print Friendly

AECT Supports HB 4 by Ritter

The Electric Industry’s Role in Water Development (read the full bill here)

  • Water demand for electric generation is currently 4% of total Texas water demand. The Texas Water Development Board projects this to grow to 7.4% by 2060. It is noteworthy that this minor increase in water usage is sufficient to provide electricity for a population projected to grow over the same time frame by 82%.
  • Much of this water would be withdrawn and recirculated and, using once-through cooling, only a fraction of that water would be ‘consumed’ or evaporated.
  • Electric generation companies have long been a partner in water development in Texas, and we will continue to be a partner that is willing to do our fair share.
  • AECT and its member companies support full funding of the State Water Plan. We were active participants in developing major water legislation SB 1 in 1997, SB 2 in 2001 and SB 3 in 2007.
  • Representatives of power generators serve as active members on each of the regional water planning groups that develop the state water plan.
  • In addition to conservation and reuse, our companies continue to seek opportunities to develop adequate water supplies for reliable electric generation, including building pipelines to remote water sources, seeking additional water rights, adding pumping capability and using lower quality water for power plant cooling.

The electric industry depends on long-term planning and development.

  • Water supply is secured in the form of water contracts or rights prior to the construction of an electric generation station.
  • These contracts or rights are secured at levels to ensure a reliable long-term water supply even during drought periods.

AECT Position on HB 4

Electricity is vital to Texas’ economic development. HB 4 will help ensure continued access to adequate water is available for electric generation units to maintain their reliability.