LEXIS-NEXIS® Academic Universe-Document
Back to Document View


Copyright 1999 The Tribune Co. Publishes The Tampa Tribune  
The Tampa Tribune

 View Related Topics 

September 3, 1999, Friday, FINAL EDITION


LENGTH: 677 words

HEADLINE: Fairness for tax-sheltered utilities;


Deregulating the production and sale of electricity is raising issues that would challenge the  wisdom of King Solomon.

One is how to treat the many taxpayer-owned utilities and the tax-exempt bonds they have sold.  The proceeds from these bonds have built supply lines and power plants for what has until recently  been a protected market.

What happens when these city- and county-owned power companies face competition for their  customers, or sell outside their jurisdictions? The risk is growing that their bonds will suddenly  become taxable, shocking bondholders and jeopardizing the financial viability of the customer-owned  utility. President Clinton proposes protecting the tax-exempt status of existing bonds, which is good,  but he would also prohibit the companies from issuing new tax-exempt debt, which doesn't make  sense. Florida has wisely taken a cautious approach toward the deregulation of electric utilities,  and its municipal utilities, such as those run by Lakeland and Orlando, are in no rush either to  expand or to change their tax status.

A better compromise is offered by the Bond Fairness and Protection Act, which has bipartisan  sponsorship in the House and Senate. It would allow a city-owned utility to sell electricity to  outside customers without jeopardizing the tax-exempt status of its old bonds, but if the utility  expanded capacity to compete for additional outside customers, the bonds sold for such expansion  would be taxable.

Lakeland, for example, would retain the flexibility to sell electricity to surrounding areas in  times of regional shortages without jeopardizing the tax-exempt status of its bonds.

Lakeland got into the electricity business in 1904 and boasts that its residential rates are  among the state's lowest. City Finance Director Jerry Reynolds tells us that the city treasury gets  an annual dividend from its electric company of about $ 19 million a year, plus the donation of  electricity for city uses.

And sometimes its coal-burning plant can produce electricity cheaper than can its neighbors, and  so it sells its excess. Such limited sales benefit both the city and the outside customers.

"These guys run good operations," says Joe Garcia, new chairman of the state Public Service  Commission.

But because it is usually easier to raise electric rates than to raise taxes, cities typically  use electric revenues to subsidize other aspects of government. It is reasonable to place limits on  how far their tax-sheltered operations can extend. The Bond Fairness Act strikes a good balance by  leaving it up to the cities to decide when or if to expand into new markets. Whatever their  decision, it is one locally made after being discussed in public meetings.

Statewide, Florida has 17 customer-owned electric utilities with a total bond debt of $ 6.5  billion. It would not be fair to bondholders to revoke the tax-free status of these bonds. Nor  would it be fair to investor-owned utilities to allow these tax-sheltered companies, which pay no  income taxes, to issue more tax-free debt to steal customers from a tax-paying utility.

The American Public Power Association warns that without the special protection of this bill,  customers of municipal utilities could face higher rates and higher taxes because cities would be  forced into a marketplace they might prefer to avoid.

"My constituents are deeply committed to keeping local control of our municipal utility in the  hands of their elected representatives here in Orlando," says Orlando Mayor Glenda E. Hood. "The Bond  and Fairness Protection Act will protect tax-free financing, enabling my city to keep its promise  to its citizens to preserve municipal power without imposing retroactive or new taxes on municipal  bonds and utility revenues."

Total deregulation of electricity is a number of years away for Florida. In the meantime, there  is no good reason to rob cities of their tax-sheltered utilities and hit bondholders with a  surprise tax.


LOAD-DATE: September 5, 1999