||Wednesday, March 24, 1999|
FOR MORE INFORMATION:
ENGLISH BILL MOVES TAX-EXEMPT PUBLIC POWER, TAXPAYING
SHAREHOLDER-OWNED UTILITIES TOWARD A LEVEL PLAYING FIELD
WASHINGTON (March 24) – The president of the Edison Electric
Institute praised new legislation introduced today that he said
would move the nation closer to the day when government-owned
electric utilities play by the same set of rules as taxpaying,
shareholder-owned utilities in newly competitive electric markets.
The bill, introduced today by Rep. Phil English (R-Pa.), will
help create a level playing field as our industry continues to be
restructured,said Thomas R. Kuhn, president of EEI, which represents
shareholder-owned companies. The bill had not been assigned a number
at press time.
English’s bill comes at a time when Congress is weighing various
legislative proposals to bring competition to the nation’s electric
utility markets. The Pennsylvania Republican’s bill addresses a key
component in that debate – the role of tax-exempt financing and
income tax exclusions for government utilities as they seek to
compete against taxpaying, shareholder-owned utilities.
The bill will prevent governmental utilities wishing to compete
in new competitive markets from issuing new tax-exempt bonds to
finance generation and transmission facilities, said Kuhn. It will
also impose an income tax on profits from electric sales by
government utilities outside their historic service territories.
“There is no reason why government utilities should be able to
use their tax exemptions to compete against tax-paying
entitites,”Kuhn said. “After all, no tax-exempt government airline
competes against United or American or Delta.”
Kuhn noted that the English bill will continue to enable
government-owned utilities to serve their current municipalities
without ceding their ability to issue tax-exempt debt to finance
their operations. Only new generation and transmission designed to
serve new customers would be subject to the restrictions.
English’s bill also exempts government utilities serving fewer
than 5,000 customers even if they make sales outside their service
areas. As a result, the vast majority of government-owned utilities
will be unaffected by the law, Kuhn added.
By contrast, other bills introduced in both the House and Senate
would allow tax-exempt public power to expand their current federal
subsidies to compete against taxpaying shareholder-owned utilities.
The identical bills are S. 386, by Sen. Slade Gorton (R-Wash.), and
H.R. 721, by Rep. J.D. Hayworth (R-Ariz.).
Both bills would continue to exempt municipal utilities from
paying income tax on sales outside their service areas. And both
also would expand the ability of government owned utilities to build
new transmission facilities with tax-exempt bonds, facilitating
government control of transmission as the industry moves to
competition, Kuhn said.
Kuhn also noted that the Gorton and Hayworth bills have been
inaccurately touted as a “compromise.” But he said that in reality,
the bills actually broaden the ability of government utilities to
leverage their tax preferences to compete against taxpaying
In 1997, shareholder-owned utilities paid roughly $25 billion in
taxes, including federal, state, and local taxes, gross receipts
taxes and franchise fees. Municipal utilities pay no federal income
tax, enjoy the use of tax-exempt bond financing and have access to
preference power, together resulting in a drain on the U.S. Treasury
of some $6.23 billion.
Kuhn pointed out that the English bill will in no way affect:
- The vast majority of bonds issued by state and local
governments for legitimate governmental purposes (police, fire,
- Existing tax-exempt bonds or current bondholders.
- The ability of municipalities to annex new service territory
and engage in growth consistent with state rules and regulations.
- Federally owned utilities, such as the Bonneville Power
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Edison Electric Institute is the association of
U.S. shareholder-owned electric utilities, international affiliates
and associates, whose domestic members produce more than
three-quarters of the nation’s electricity.