Utilities keep tax money

Customer advocates complain of law that gives power companies a break

March 15, 2006|By NEW YORK TIMES NEWS SERVICE

Many electric utility companies across America are collecting billions of dollars from their customers for corporate income taxes, then keeping the money rather than sending it to the government.

The practice is legal in most states. The companies say it is smart business.

But some representatives of utility customers say that the practice - which involves using losses from other subsidiaries to reduce taxes - is not fair. They say that money that utilities must collect for federal and state taxes - typically a nickel on each dollar paid for electricity - should go for just that, or not be included in electric bills.

Otherwise, these legal monopolies make more than authorized and other taxpayers have to make up the difference through higher taxes or reduced services.

An examination of regulatory filings by The New York Times shows that companies with electric utilities in at least 26 states have pocketed money intended for income taxes, and that utilities can legally do so in 21 more states.

Because they are legal monopolies, utilities must charge rates set by state regulators. These cover all costs - from buying fuel, to building new power plants, to a virtually guaranteed profit and paying the taxes on that profit.

Normally, customer payments for those taxes eventually find their way to federal and state governments.

But in recent years many utilities have expanded into unregulated businesses, like energy trading and aircraft leasing, while others have been acquired by companies that own other businesses. When those other businesses lose money or create artificial losses through tax planning, those losses can be used to offset income earned by the utilities.

As a result, the parent companies owe less in taxes than their electric customers paid. Sometimes these companies owe nothing, or receive large tax refunds. By not remitting the taxes, the parent companies effectively have more money to invest in their operations or pay to shareholders in dividends.

Customers paid Xcel Energy, a big utility in 10 Midwest and Western states, at least $723 million to cover taxes from 2002 to 2004. But the money did not go to the government; the company received cash refunds of $351.4 million. Xcel said the refunds resulted from a failed energy trading business.

Baltimore Sun Articles
|
|
|
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.