Electric Deregulation Brings about Taxation Questions

Article excerpt

POINT CLEAR, Ala. -- Taxation may be the most important question to be answered in the current nationwide push to deregulate electric utilities.

It will impact the kinds and amounts of taxes utilities pay, as well as tax revenues of state and local governments. In some states, like Oklahoma, the entire question of deregulation may swing on finding an equitable tax solution.

The importance of the issue was stressed by two speakers at a conference on state trends in energy held last week by The Energy Council in Point Clear. The council is a legislative organization comprised of 10 member states from major energy producing regions. Sen. Larry Dickerson, D- Poteau, is chairman of the organization. Other Oklahoma legislators on the council's executive committee include: House Speaker Loyd Benson, D-Frederick; Sen. Kevin Easley, D-Broken Arrow; and Rep. Larry Rice, D-Pryor. Much of the conference program was devoted to electric and natural gas deregulation. John Neumann, vice president of the Edison Electric Institute, told the meeting the "electric utility industry is in the midst of dramatic change and uncertainty from a myriad of restructuring proposals." He expects significant tax and financial issues will arise as a result. Bob Uehling, senior manager of Deloitte & Touche, emphasized the two main issues: * Possible revenue loss to state and local governments. * Different tax treatments for competing providers. The significance of the tax issues was further emphasized by Rice. Discussing Oklahoma's new law, he said the tax question is so important, the law requires the state's tax commission study how to change the taxing structure to not only ensure a level playing field for all electric providers, but also prevent loss of revenue to local governments. In the Sooner State, there is a general consensus some form of consumer tax is the best way to equalize the tax burden. There are constitutional questions about whether the property tax may be eliminated. Under another provision of Oklahoma's constitution, other changes in tax laws would require a three- fourths majority vote in the Legislature, or approval by a vote of the people. Regardless of these potential problems, the new law prevents implementation of deregulation by the year 2002 unless the tax issues are resolved. Jim Wilson, manager of government affairs for Oklahoma Gas and Electric Services, raised another question that must be decided -- allocating revenues to the various recipients when converting from multiple tax sources to a single source. This also will require legislative decisions as well as possible constitutional changes. According to Neumann, financial and tax matters arising from deregulation will include depreciation, investment tax credits, stranded investments, certain preferred stock dividends and contract termination payments. It will necessitate re-evaluation of the tax treatment of all electric utilities -- municipal, cooperatives and investor owned utilities alike -- to provide a level playing field. …