Wednesday, March 24, 1999
John Castagna, 202-508-5661
Jim Owen, 202-508-5659


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 utilities.

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, etc.) .
  • 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 Administration, etc.

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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.

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