LEXIS-NEXIS® Congressional Universe-Document
LEXIS-NEXIS® Congressional
Copyright 1999
Federal News Service, Inc.
Federal News Service
OCTOBER 19, 1999, TUESDAY
SECTION: IN THE NEWS
LENGTH: 6189 words
HEADLINE: PREPARED TESTIMONY OF
SCOTT MADDOX
MAYOR OF TALLAHASSEE, FLORIDA
ON BEHALF OF THE AMERICAN PUBLIC POWER ASSOCIATION
BEFORE THE
SENATE COMMITTEE ON FINANCE
SUBCOMMITTEE ON LONG-TERM GROWTH AND DEBT REDUCTION
SUBJECT - RENEWABLE ENERGY IN
A DEREGULATED ELECTRICITY MARKET
BODY:
Good morning, Mr. Chairman and members of the subcommittee. My name is Scott
Maddox and I'm the Mayor of Tallahassee, Florida. I am testifying on behalf of
the American Public Power Association. We appreciate the efforts of this
committee to build a record on all
tax- related
electric restructuring issues. Today, I would like to comment specifically on a serious
tax problem facing community owned
electric utilities as they move to
deregulation. If community owned utilities embrace competition, as many state laws are
encouraging them to do, they can be placed in a situation where their existing
tax-exempt bonds will become retroactively taxable. Congress needs to remove this
serious barrier to open competition in order to promote consumer choice and
lower electricity prices for all consumers.
The American Public Power Association (APPA) is the national service
organization representing the interests of over 2,000 community owned and other
state and local government-owned utilities throughout the U.S. While APPA
member utilities include state public power agencies, and serve many of the
nation's largest cities, the majority of our members are located in small and
medium-sized communities in 49 states. In fact, 75 percent of APPA's members
are located in cities with populations of 10,000 or less. APPA member utilities
provide about 14 percent of all kilowatt-hour sales to ultimate consumers in
the U.S. and collectively serve more than 40 million Americans.
Florida has 34 community owned utilities serving more than two million
Floridians. Our utilities are diverse. We have large community owned utilities,
including Jacksonville, Orlando, Lakeland, Tallahassee and Gainesville, and
small utilities, such as Bushnell and Havana, which serve about 1,000 customers
each. The subject of this hearing is the
tax implications of
electric industry
deregulation. The implications for community owned utilities in Florida are huge since they
hold $6.5 billion in
tax-exempt debt. Tallahassee, in particular, has over $297 million in outstanding
tax-exempt bonds.My sole purpose today is to help explain a conflict between
federal
tax policy and energy policy and how it affects Tallahassee as well as the over
2,000 public power communities nationwide. I come to you not just bearing a
problem, but also suggesting a
reasonable solution. To that end, I ask you and the members of the subcommittee
to embrace with confidence and speed S. 386, The Bond Fairness and Protection
Act.
A companion bill, H.R. 721, has been introduced in the House. My personal
objective today is to help you and your staff better understand a severe
problem facing community owned utilities, and why those that have this
"private use" problem are willing to give up our use of
tax-exempt bonds to build new generation facilities in return for the relief we
need. At the same time, it is not fair to penalize these communities that do
not have a private use problem by denying them the right to issue
tax-exempt municipal bonds for local infrastructure facilities, including
electric facilities, in the future. I know there is a lot of misinformation and tension
surrounding this issue, but I am
confident that this hearing will help separate the facts from the fiction.
I. Reconciling Conflicts Between Existing
Tax Laws and Changes in State and Federal Energy Policy
Twenty-three states have now adopted
deregulation legislation. Many other states will follow in the near future. These new laws,
and the
"open access" policies they seek to promote, have created an extremely serious problem for
communities served by public power systems that have issued
tax-exempt debt to finance their local
electric utility infrastructure. If these community owned
electric utilities take steps to conform their operations to these new state policies,
they are immediately confronted with the nearly insurmountable obstacle of
Federal
tax code private use restrictions. In most cases, implementation of state
restructuring plans - - and even Federal Energy Regulatory Commission (FERC)
policies designed to
provide open transmission access for competitive wholesale markets -- will
jeopardize the financial standing of these public power communities and
millions of bondholders across the U.S. Specifically, if community owned
utilities participate in competitive markets and violate private use
restrictions, their outstanding
tax-exempt bonds could become retroactively taxable to the date of issuance.
Under current
tax law,
electric utilities owned and operated by units of state and local government issue
tax-exempt bonds to finance their capital investments. These bonds are subject to
the private use rules in the federal
tax code designed to prevent private parties from benefiting from lower-cost
tax-exempt financing. These private use rules impose two significant restrictions
on community owned utilities with
tax-exempt financed transmission and generation facilities:
- First, the rules severely restrict the
use of community owned utilities' transmission facilities by private business,
including investor owned utilities and power marketers, to use their
transmission or distribution lines, and could prevent the transfer of control
of these facilities to third party, independent grid management organizations.
- Second, the private use rules severely limit the ability of community owned
electric systems from selling power (from
tax-exempt financed generation facilities) to individual customers on negotiated
terms.Both problems discourage community owned utilities from embracing
electricity
deregulation and form a barrier to open and efficient electricity markets at both the
wholesale and retail level. These problems, and the need for flexibility from
the private use restrictions, make it impossible for community owned utilities
to compete for their own EXISTING CUSTOMERS or open up their transmission
lines. The purpose of S. 386 is to prevent
existing
tax-exempt bonds from becoming retroactively taxable and keeping rates low, not to
permit community owned utilities to sell power into distant markets, and
aggressively pick off large industrial customers from the private sector and/or
build the country's national transmission network!
I am here today because as a Mayor I do not want to raise
electric rates for the City of Tallahassee nor do I want to see our bondholders placed
in a situation where their investments are not what they bargained for.
Moreover, I would like to keep the decision making at the local level in my
community, which is precisely what S. 386 does.
Below are some examples of what the private use rules mean in a competitive
environment, which already exists in the wholesale market and which is becoming
a reality in the retail markets affecting over half the nation's population. (See attachment A for a more detailed description of private use problems titled
The Ties That Don't Bond, Private Use and Public Power, February 1999.)
II. Real Life Problems (Opening Transmission Lines, Industrial Contracts, Lost
Load Problems, Joint Power Agencies and their Cities are at Risk) a.
Transmission
Severe problems exist for all community owned utilities that have transmission
facilities.
In its recent Notice of Proposed Rulemaking (NOPR) the FERC calls for all
utilities including community owned utilities - to join Regional Transmission
Organizations (RTOs) within the next two years. Community owned utilities
support formation of RTOs However, transferring ownership or operational
control of transmission facilities to an RTO - and even providing for open
access in accordance with policy expectations of the Energy Policy
Act of 1992 - can result in a retroactive determination that the underlying
bonds are taxable.
b. Industrial Contracts
Passage of state
electric deregulation legislation enables individual customers to choose from several alternative
power suppliers. Private and cooperative utilities, as well as power marketers,
are signing contracts with their largest customers in an effort to retain those
customers once retail competition is an option. These utilities can provide a
specially tailored contract in exchange for a long-term arrangement.
Unfortunately, if a community owned utility executes a similar contract, it can
count against the private use restrictions. Thus, community owned utilities are
limited in the steps they can take to retain existing retail customers. These
limitations increase the potential that the utility will lose customers and
will compound the impact of the private
use problem.
c. Lost Load
As explained above, in retail markets large customers will seek and obtain
specially tailored contracts to meet their specific needs, just as they do in
buying any other products. Because of outdated private use rules, a community
owned utility may be unable to offer such a contract, even to customers in
their own service territory that they have been successfully serving for
decades. This could deny that customer the best choice in the market, and will
lead to loss of customers by the utility for reasons that have absolutely
nothing to do with price or quality of service.
If a community owned system loses a customer (and all utilities will lose
customers) the public system may be unable to re-market the generating capacity
it had built to serve that lost customer as a result of the private use rules.
Thus, any
excess capacity that a public system has may become idle and unproductive
solely as a result of the private use
tax rules. Inability to resell the capacity can lead to significant financial
losses, and, in turn, higher costs for the remaining customers of that utility
as well as a reduction in overall economic efficiency.
d. Joint Action Agencies and their Cities are also at Risk
Missouri River Energy Services (MRES) is the supplemental power supplier to 17
community owned
electric utilities in western Iowa - providing about 40 percent of the energy needs of
these communities. Currently, about half of the entire MRES sales to its Iowa
members is for retail service to 6 large customers. Given experience in other
industries and independent assessments of the
electric utility industry it is likely that at least some of those customers - as well
as
other industrial customers, large commercial customers and customers with
multiple facility locations - will be lost to other power providers. Under the
current private use restrictions, the affected Iowa community owned utilities
and MRES would be limited in the offsetting sales that could be made. While the
energy can be sold on the short-term market, such sales neither covers the full
cost of the energy nor services the underlying debt. The revenue shortfall can
only be made up through higher rates in the remaining electricity MRES sells to
its Iowa members and members in other states. This situation could lead to
further load lost and threaten the financial health of the Iowa community owned
utilities and MRES. (Note: there are 68 Joint Action Agencies nationwide)
III. IRS Temporary and Proposed Regulations Do not Fix the Problem
The Department of Treasury issued
"proposed and temporary"
regulations in January 1998, and while the regulations are helpful, they did
not resolve all of the issues. First, the regulations are
"final and temporary"-lasting three years. They expire in January 2001. Community owned utilities
are reluctant to make long-term decisions with substantial financial
implications on the basis of temporary regulations. Second, the Joint Committee
on Taxation has issued a report questioning the legal authority of the
regulations. While we believe (JCT) Treasury acted properly, the JCT report
makes us more reluctant to base critical financial decisions on these
regulations. Finally, and most importantly, generation private use problems are
not adequately addressed in the regulations and future transmission private use
problems are not addressed at all. Clearly, the Treasury doesn't have that
statutory authority to resolve all of the critical issues facing community
owned
utilities as we move to
electric deregulation. Only Congress can provide permanent transition relief.
IV. Financial Implications (Bad for Consumer, Bondholders and Local Governments)
As the aforementioned conflicts arise, most utilities have two options:
defease, or call, their existing
tax-exempt debt and replace it with taxable debt, or forgo the sale of capacity
from transmission or generating facilities, leaving fixed costs of those
facilities to be borne by the remaining ratepayers on the systems and close
their transmission and distribution facilities from competition. The first
option - refinancing existing debt with taxable debt - would in itself lead to
significant turmoil in the bond markets. Community owned utilities and their
customers would pay significantly higher rates since bonds would now be
taxable. This would be, in effect, a new retroactive
tax on consumers, something I know this Committee does not want to embrace.
Certainly this situation, and the degree of uncertainty suddenly injected into
the equation would, impact all municipal markets and investor confidence if
more than $75 billion in
tax-exempt debt were suddenly recalled or rendered taxable as a result of
incompatibility of the
tax laws with state
deregulation initiatives.
The second option - leaving unproductive facilities idle simply because of
arcane
tax rules - is woefully inefficient, both economically and environmentally. This
option would leave the remaining customers saddled with potentially high costs
and would make the electricity market far less efficient by removing
competitively priced electricity from the marketplace.
Both of these options would raise
electric rates considerably - possibly by hundreds of millions of dollars - and in the
worst case could lead to a death spiral as customers faced with higher
electric costs leave the system for other suppliers. If Congress does not address this
problem soon, the
outcome of the introduction of electricity competition will be higher
electric rates for millions of Americans served by community owned utilities.
V. Legislative Proposals
1. S. 386-- The Bond Fairness and Protection Act
APPA supports a solution spearheaded by Senators Slade Gorton and Bob Kerrey --
the Bond Fairness and Protection Act (S. 386/H.R. 721) -- that would preserve
local decision making about how to use
tax-exempt bonding authority. It would allow each community owned
electric system to
"elect" to obtain relief from private use limits, but forego the right to issue
tax-exempt bonds for new generation facilities in the future. In short, the bill
provides two choices:1) Lifts the private use test on outstanding bonds (i.e.
grandfather existing bonds), but
only if the utility agrees to never again issue
tax-exempt bonds to build new generation facilities, or
2. If no private use relief is needed, the utility can continue to issue
tax-exempt debt under a clarified version of the existing private use rules.
The bills clarifications of the private use definition allow common sense
activities envisioned by developing federal and state; providing open access
transmission in compliance with FERC Order 888 or state laws; joining an ISO,
Regional Transmission Group (RTG) or power exchange, or; providing open retail
access over your distribution.
If enacted, this legislation will accomplish two objectives: 1) clarify
existing
tax laws and regulations regarding the private use rules so that they will work in
a new competitive marketplace and 2)
provide encouragement for public power utilities to open their transmission or
distribution systems, thereby providing a choice to more consumers.
This bipartisan bill has gained strong support in the Senate, where it has 30
cosponsors, seven of which are on this Committee -- Senators Jeffords;
Thompson; Grassley; Moynihan; Hatch; and Robb and Kerrey. Companion House
legislation (H.R. 721) sponsored by Reps. J.D. Hayworth (R-AZ) and Bob Matsui
(D-CA) has 87 cosponsors.
In addition, the provisions of H.R. 721 were recently incorporated by Chairman
Joe Barton (R-TX) in H.R. 2944, The Electricity Competition and Reliability
Act, comprehensive electricity legislation expected to be considered next week
by the Energy and Power Subcommittee of the House Commerce Committee. (See
Attachment B for a complete list of co- sponsors of S. 386/H.R.
721, the Bond Fairness and Protection Act.)
Support for this legislation has grown considerably. Seniors, environmental
groups, investor owned utilities, state and local organization, as well as over
166 local governing organizations, ranging in size from as small as the City of
Chattahoochee, Florida to as large as the San Antonio City Council, have
publicly endorsed S. 386, the Bond Fairness and Protection Act. Moreover 57
Local Chambers of Commerce support the GortonKerrey bill, because of ability
for local communities to make their own financial decision. Companies such as
Alcoa, Praxair, Enron Corp. as well as many others have voiced support for S.
386. Over 1000 local elected officials throughout the country have also
endorsed the Gorton-Kerrey approach. (See Attachment C for a complete list of
organizations and resolutions endorsing the bill.)
Congressional action in this area is
urgently needed -- existing wholesale markets cannot function effectively, and
state restructuring plans cannot be fully implemented, without public power's
full participation. The private use restrictions not only hamstring the ability
of public power utilities to ensure that their communities receive the benefits
that effective competition can provide, but also negatively impact the
underlying market.In conclusion, The Bond Fairness and Protection Act, assures
a fair and reasonable resolution of this problem, and it provides a resolution
that respects the inherent rights of the units of local government we represent.
Concerns Raised About S. 386 are Unfounded
a. Transmission: Some have argued that S. 386, The Bond Fairness and Protection
Act, will promote the building of transmission lines on a
tax-exempt basis and that community owned electricity systems will finance all
transmission facilities
nationwide. Nothing is farther from the truth. It is a fundamentally flawed
assumption that if community owned utilities have access to
tax-exempt financing they will then build the entire national grid. This
assumption does not recognize the current reality of the transmission system in
this country or the difficulty of siting new lines or how and why state and
local governments issue
tax-exempt bonds. If the use of
tax-exempt financing drove transmission construction decisions, it should be doing
so now. So why doesn't public power own more that 8 or 9 percent of the
existing transmission lines, and why do we have so many transmission
constraints all over the country? Because utilities can't put wires anywhere
they want and you don't run multiple sets of wires from the same generation
source!
Even more significant is the fact that community owned utilities focus on the
needs of their communities. They do not exist to
engage in activities far removed from those communities. As the Mayor of
Tallahassee, I can assure you that neither I nor the city council would permit
our community owned utility to issue
tax-exempt debt to finance transmission facilities in distant parts of the state,
much less in distant parts of the country. Even though such debt might be
legally separated from debt our city issued for other purposes, the credit
worthiness of our city is affected by the security of the debt issued by our
utility. We would not allow our credit rating to be adversely affected by
actions of our local utility, especially if their actions would not directly
benefit our own community. I can assure you local elected officials throughout
the country certainly share this view.
b. Public Power Systems Can Still Issue
Tax-Exempt Bonds For Future Generation Facilities:
Not all community owned utilities have or expect to have a private use problem
- and many will not take the
"election" made available by the Gorton-Kerrey bill. Requiring all utilities to forego
future
tax-exempt financing would force many municipal systems -including systems in
Florida, Alaska, Iowa and Delaware to name a few - to give up an essential tool
of municipal government for no reason. In addition, a wide array of local
government groups would strongly oppose the mandated denial of
tax- exempt financing for what is a legitimate governmental function. The
Gorton-Kerrey bill allows each local utility to determine which policy option
is best for the community. In short, it promotes local control.
Moreover, the community owned utilities that issue
tax-exempt bonds
for new generation will still be subject to the stringent 10 percent private
use test. This fact alone will inhibit, if not prohibit, them from building
competitive generation facilities to sell power in the open market. Further,
the construction of
"new" merchant generation plants - plants constructed to sell power in the
competitive generation market - is inherently risky. So as a local elected
official, I would not want my community owned utility to take risks of this
nature because in the end they could have an adverse effect on the overall
credit rating and credit worthiness of my community. Opponents of the bill
never highlight this fact.
c. Exceptions In The Bill Are Too Broad: It has been argued that this
legislation provides large loopholes that make it unfair. One such area is the
exemptions in the bill for electing utilities. It is correct that this
legislation includes a limited number of minimal exceptions. However, they are
targeted, narrow and necessary to transition into a competitive electricity
marketplace. First, the bill allows for available refinancing of outstanding
generation bonds - provided the term of the bond is not extended. Second,
tax-exempt bonds can be issued for project renovations - provided that the
generation capacity of the project is not significantly increased. Third, the
bill allows
tax-exempt financing for environmental compliance - an
"exception" insisted upon by the bill's sponsors. (Note: private utilities have used
tax-exempt pollution control bonds in the past and continue to refinance this
debt; in addition, private utilities continue to have access to
tax-exempt financing for fishery protection efforts at privately licensed
hydropower projects.)
2. Clinton Administration's Legislation S. 1048
APPA would
like to comment on the Clinton Administration's proposed private use solution.
The Administration's proposal would eliminate all authority for state and
localities to issue
tax-exempt bonds in the future for generating and transmission facilities.
Distribution facilities would still be eligible for bond financing. The
Administration's proposal is commendable in that it eliminates the private use
restrictions on outstanding
tax-exempt
electric utility debt and protects bondholders.
However, we oppose this proposal on two grounds. First, it provides no element
of choice. All community owned
electric systems would lose the ability to issue
tax-exempt bonds regardless of whether they face private use problems. This
approach represents a virtually unprecedented restriction on the ability of
state and local governments to use
tax-exempt financing for facilities that would not violate private use
restrictions. APPA, along with other state and local organizations, oppose this
aspect of the bill because of its federally intrusive approach.
Second, we find little justification for eliminating
tax-exempt financing for transmission facilities. Transmission lines are not being
deregulated; they are just becoming more open -- for all to use. Transmission
and distribution facilities are expected to continue as regulated monopoly
functions - it is not expected that multiple parties will seek to build
competing systems. However, under FERC rules and under many state
deregulation plans, these facilities will be available on an open access, common-carrier
basis. Thus, any reduction in system costs resulting from
tax-exempt financing will be available equally to all users of the system.
Community owned systems will not receive a
"competitive advantage." Moreover, providing local
"wires" is a basic function of community owned utilities, and we are not willing to
relinquish this basic community owned authority.3. H.R. 1253, The Private
Sector Enhancement and Protection Act (Bad Policy)
The Private Sector Enhancement and Protection Act, H.R. 1253 would increase the
rates of public power systems and eliminate them as competitors as the
electric utility industry moves to a more competitive structure. H.R. 1253 does not
provide relief on existing
tax-exempt bonds, the primary reason legislation is needed. Moreover, with a
number of exceptions, H.R. 1253 would deny public power utilities that sell
outside their
"qualified governmental service area" the use of
tax-exempt financing and would require them to give up their income
tax-exemption on sales outside their qualified governmental service area. Rep.
English, the author of the bill, says that his bill would impact
"less than 30 large, aggressive utilities that want to sell
electric generation outside of their service territory!! Unfortunately the bill
captures over 752 community owned utilities, and 450 of them own no generation.
Specifically, the bill as introduced would apply to all
"governmental
electric output facilities," with exceptions for:
- local distribution facilities within a utility's service area;
- small utilities (defined as those that provide electricity to less than 5,000
consumers and that derive at least 30 percent of average gross income from
sales to residential customers during any three- calendar year period);
- sales to another governmental utility for resale only to ultimate consumers
located within the purchasing utility's territory;
- sales pursuant to a pooling or swap arrangement, to a regional transmission
group, or for emergency transfers;
- sales pursuant to an existing contract or
a renewal of an existing contract provided the renewal is at the sole option of
the purchaser;
- and de minimus sales (less than 10 percent of the utility's average sales
during the preceding three calendar years).
First and foremost, the bill does not lift the private use restrictions on
outstanding
tax exempt debt or the problems associated with these restrictions.
This proposal has been constructed on an unsound foundation and is based on the
faulty assumption that the
"playing field" is tilted in favor of public power. The faulty assumption relies on incorrect
information about the role public power plays in 2,000 communities across the
country and lack of knowledge about community sovereignty over community owned
bond issuance.
This sovereignty is based on our federalist system of government. In most
countries, the central government exerts substantial if not total control
over financial affairs of subordinate governments. In stark contrast, one of
the distinguishing characteristics of our federalist system is the ability of
state and local governments to issue debt on their own behalf to finance local
infrastructure needs without federal intervention. Public power systems are
eligible to issue
tax-exempt bonds because they are entities of state and local government, and are
owned and operated by the communities they serve.
Moreover, the proposal subjects public power communities to federal income
taxation on revenue from
electric sales made outside their existing service territory. Proposals that suggest
income or other federal
taxes be imposed on any unit of state and local government is also contrary to our
federalist system wherein one level of government does not
tax another.
Lastly, the proposal prohibits public power systems from using
tax- exempt bonds for generation facilities if they sell
power outside of their traditional service territory. At a time when states are
requiring
electric utilities to open their service territories and offer consumers a choice, H.R.
1253 pushes publicly owned utilities to build a fence around their
communities--or suffer a significant
tax penalty. In essence, it raises rates on consumers and hinders competition.
Vl. Nuclear Decommissioning Fund
Tax Deduction/Cooperatives' 85/15
Tax Exemption Issue
APPA recognizes that certain provisions of the U.S.
Tax Code affecting all
electric utilities conflict with changes in the
electric utility industry brought about by state restructuring initiatives. These
provisions include: 1 .) contributions to nuclear decommissioning funds; 2.)
the 85/15 rules affecting rural
electric cooperatives
tax exempt status, and 3.) the private use
restrictions for public power. We believe it is imperative for Congress to
provide
tax equity between all sectors of the industry and urge Congress to address these
issues simultaneously.
U.S.
Tax Code provisions dealing with the
tax treatment of contributions to nuclear decommissioning funds, and the
tax-exempt status of rural
electric coops who receive more that 15 percent of their
electric revenue from non-members, are also affected by state restructuring legislation.
On the nuclear decommissioning
tax issue, private investor-owned utility owners of nuclear power facilities may
deduct authorized contributions to an approved decommissioning fund in
calculating federal income
taxes. The allowed amount of such deductions by law is the lesser of the state
utility commission approved amount, or an amount approved by the Internal
Revenue Service. Without this special provision, these contributions would
not be deductible for income
tax purposes until decommissioning expenses are actually incurred.
With state restructuring and
deregulation, and the elimination of cost-of-service rates, the amount of state authorized
contributions to decommissioning funds may be zero. And since federal law
requires that deductions shall be the lesser of state or IRS allowed amounts,
current contributions to such funds may no longer be deductible for federal
income
tax purposes. With respect to the
tax-exempt status of rural
electric cooperative, we understand that if more than 15 percent of the revenue come
from other than members, all income from that year becomes taxable. State
restructuring activities may force coops to exceed this threshold with regard
to revenues received for the use of their transmission facilities, or for the
sales of energy and capacity from their generation facilities.
These provisions of the U.S.
Tax Code dealing with all segments of the
electric utility industry
need to be reconciled with changes in state laws so that the public policy
objectives of these
Tax Code provisions do not conflict with or create obstacles to the realization of
the public policy objectives of newly enacted state electricity
deregulation efforts. And all of these
Tax Code provisions should be dealt with comprehensively.
The Clinton Administration's comprehensive electricity bill (S. 1048) includes
a provision allowing for nuclear decommissioning funds to continue to be
tax deductible. However later in the year broader legislation was introduced in
both the House and the Senate, which included provisions to eliminate any
tax liability associated with the transfer of such nuclear decommission funds in
the event that nuclear facilities are sold. This broader legislation, The
Nuclear Decommissioning Funds Clarification Act, H.R. 2038/S. 1308 currently
has two co-sponsors in the Senate and 17 in the House.
Neither the provisions of the Administration's
nuclear decommissioning bill (S. 1048) nor the more generous provisions of H.R.
2038/S. 1308 were included in this year's large
tax cut bill, H.R. 2488, the Taxpayer Refund and Relief Act of 1999. Instead, that
bill contained a
"middle ground" provision that dealt with the nuclear decommissioning issue without providing
excessively generous
tax breaks to private utilities. The Senate Finance Committee did not include this
provision in its version of the legislation, and instead agreed that all
transactional
electric utility
tax issues should be considered simultaneously. APPA applauds the committee's
decision.
The investor owned utilities, many of whom actively and aggressively oppose the
enactment of the Bond Fairness and Protection Act, are now urging Congress to
ignore the obvious fact that both the private use and nuclear decommissioning
problems are the result of changes in the industry brought about by state
restructuring legislation. They are urging Congress to enact the Nuclear
Decommissioning Restructuring Act now, but to oppose the simultaneous enactment
of the Bond Fairness and Protection Act. APPA endorses
tax equity for all sectors of the industry.
VII. Tradable
Tax Credit/Renewable Energy Production Incentive (REPI)/ Section 45, Renewable
Production
Tax Credit
Our primary concern is the private use issue and the need for a fair and
reasonable resolution to this problem; however, APPA would like to comment for
the record on another matter under jurisdiction of this committee. As you may
or may not know, public power has a long- standing position in favor of the
development and pursuit of renewable energy. Through our membership and
committee process, we have developed principles on renewable energy policy that
Congress should consider as it develops legislation promoting the restructuring
of the
electric utility industry or as
it pursues air quality measures. Below is a representative sampling of our
renewable energy principles followed by a discussion of a new renewable energy
incentive that we would like this committee to contemplate.Principles
1. Public power recognizes the importance for the power generation sector to
increase the use of renewable energy and other green technologies.
2. Such increased use can be best achieved through competitively neutral
incentives that treat public power entities on an equivalent basis as
non-public power entities.
3. Incentives should be structured to assist power generator entities to
overcome existing barriers to increased renewable energy use and deployment of
other green technologies.
4. Incentives should be structured to provide comparable benefits to each
region of the country and allow power generator entities to be most responsive
to the needs and preferences of their customers and the competitive
market.
5. The incentive should be easy to administer and provide sufficient
documentation for easy verification.
Elements of a Renewable Incentive Available to Not-for Profit Entities
APPA advocates the creation of tradable or refundable
tax credits for use by energy producing entities unable to take advantage of
existing renewable energy
tax credits.
The option would make such credits available under the Treasury Department.
Not-for profit entities would be eligible to claim a
tax credit similar to the Section 45 credit. Specifically, the amount of credit is
not effected by the amount of federal
tax liability, rather, it would be calculated along the same guidelines as Section
45 projects. A participant would be given a refund based on a 1.5 cents
(adjusted for inflation) per kWh of electricity generated from renewable energy
projects.
Such
a proposal would require an amendment to the Internal Revenue Code to provide a
refundable credit against Federal
taxes for
tax- exempt, as well as taxable
electric utilities that produce electricity from eligible renewable energy projects. A
new Section 34 would be added to allow for-profit taxable utilities to claim a
refund income
tax credit while not-for profit entities could claim a refund payment by the
Secretary of the Treasury in new Section 6431.
Refunds would be based on the number of kilowatt hours of
electric energy generated by the facility through the use of solar, wind, geothermal
and biomass as defined by the Public Utility Regulatory Policies Act (PURPA).
The amount of such payments would be 1.5 cents per kilowatt hour, adjusted for
inflation.
Entities eligible for this refund would be prohibited
against
"double dipping", that is, taking the benefits of this program together with any other
tax or appropriated incentive program designed to promote renewables.
VIII. Conclusion
Federal
tax policy must be reconciled with current energy policy. These changes must be
done by Congress and are needed today. State and federal
deregulation laws cannot be fully implemented without transitional
tax relief, and the temporary IRS regulations do not address the entire problem
nor do they do so on a permanent basis. In closing, I urge this committee to
address these transitional
tax issues simultaneously. I also urge you to do so expeditiously. The Bond
Fairness and Protection Act is a fair bill and deserves this Committee's
support. Thank you for your time.
END
LOAD-DATE: October 21, 1999