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April 23, 1999, Friday

SECTION: BUSINESS , Pg. 2C

LENGTH: 460 words

HEADLINE: DEREGULATION HEARINGS TACKLE UTILITIES' TAXES

BODY:

No competition, no tax break.

Electric utilities hoping to delay the onset of competition should not be rewarded with an immediate state tax break, an Ohio Council of Retail Merchants spokesman told a legislative panel considering an electric deregulation proposal yesterday.

"I don't think the tax reform should preceed competition in the marketplace,'' said Jim Henry, who also represented the Coalition for Choice in Electricity. "If they're not willing to compete for the first five years, why lower the tax?'' A spokesman for American Electric Power and three other utilities countered that the companies deserve a personal property-tax break proposed in Senate Bill 3, dropping the assessment rate for generating equipment to 25 percent from 88 percent. But they also want lawmakers to ease their tax burden another $ 800 million by making technical tax changes.

The tax clash came yesterday as both the Ohio Senate and Ohio House continued hearings on twin proposals to allow Ohioans to pick their electric supplier by Jan. 1, 2001. The change potentially would allow customers to save an average of 10 percent on their monthly electric bills.

Henry urged the Senate Ways and Means Committee not to give utilities the tax break on Jan. 1, 2001, since utilities want a transition period of at least five years before full competition begins. Utilities say they need the transition period to recover the cost of expensive investments, such as nuclear plants, from customers.

"Perhaps the bill has the cart ahead of the horse,'' Henry said, suggesting the tax break should be deleted or delayed until full competition begins.

As an alternative, Henry suggested the bill include an automatic cut in customers' rates when the tax break takes effect. Neither Senate Bill 3 nor House Bill 5 contain such a provision.

Speaking for the utilities, Earl Goldhammer, tax counsel for AEP, asked lawmakers to make technical tax changes that would benefit utilities to the tune of $ 800 million.

He said the bills, as written, would force utilities to pay both a corporate franchise tax and gross receipts tax for a 16-month period, costing them an estimated $ 300 million. Goldhammer suggested having the state credit utilties for the double taxes over a 10-year period.

Goldhammer also complained that the plan would not let utilities depreciate their assets when they begin paying the corporate franchise tax. He said that would result in a one-time loss of $ 500 million.

He suggested the depreciation loss should be spread over 20 years to lessen the impact.

Despite his concerns, Goldhammer said deregulation should be good for AEP investors. "I think we can compete very successfully in a deregulated electric market,'' he said.

LOAD-DATE: April 24, 1999