Thursday, February 11, 1999
FOR IMMEDIATE RELEASE
FOR MORE INFORMATION:
John Castagna 202-508-5661
Jim Owen 202-508-5659
Internet Address: www.eei.org

THERE THEY GO AGAIN -- NEW PUBLIC POWER TAX BILL STILL DOES NOT CREATE LEVEL PLAYING FIELD, EEI SAYS

WASHINGTON, DC (February 11) – New so-called “compromise” legislation introduced to clarify the use of tax-exempt financing by municipal utilities makes some changes but still falls short of creating a level playing field in future competitive markets, the Edison Electric Institute said today.

An EEI analysis of S. 386, introduced this week by Sens. Slade Gorton (R-Wash.) and Robert Kerrey (D-Neb.), shows that the bill does not create a level playing field between government-owned utilities -- which pay no income tax and enjoy tax-free financing, a drain on the federal treasury -- and shareholder-owned utilities, which pay billions in taxes.

“S. 386 has been touted as a ‘compromise’ aimed at leveling the playing field, but this bill in reality will continue providing public power with substantial federal subsidies,” said EEI Executive Vice President David K. Owens. “This legislation in some ways actually broadens the ability of government utilities to leverage their tax preferences to compete against taxpaying utilities.”

“Private use” laws restrict the ways in which municipal electric utilities can use tax-exempt bonds, generally limiting them to serve the residents of their own municipalities.

But with the advent of retail competition -- now approved by one-third of the states and counting -- municipal utilities would like to use their tax exemptions to underwrite their efforts to compete against tax-paying, shareholder-owned companies in deregulated markets across the country.

"Moreover, the Gorton bill would extend these benefits to municipal utilities which do not even offer retail competition to their own customers,"

Owens said. "The fact is, S.386 would allow the munis to keep their monopoly franchises while using the subsidies to compete beyond their borders in newly opened markets." Owens noted that S. 386 would also:

  • Allow public power entities to sell power from federally subsidized facilities in competitive markets, outside the utility’s traditional service territory, without even paying income tax on those sales.
  • Broaden the ability of publicly-owned utilities to build new transmission facilities with tax-exempt bonds, facilitating public control of transmission as the industry restructures.
  • Run contrary to the Clinton administration’s position, which would bar new tax-exempt debt for building new transmission lines.
“This bill is not a compromise,” Owens said. “In a competitive marketplace, it is unfair for the federal government to subsidize government entities competing with private, taxpaying businesses. By expanding subsidies for government utilities, S. 386 would expand the role of government in the electric industry — an outcome few people want.”

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Edison Electric Institute is the association of investor-owned electric utilities and international affiliates whose domestic members serve about three-quarters of the nation’s electric customers.

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