John Castagna, 202-508-5661
Jim Owen, 202-508-5659


WASHINGTON (June 18) A senior Edison Electric Institute official praised new legislation that he said will help alleviate a provision in the U.S. tax code that effectively double- taxes the overseas operations of U.S. shareholder-owned electric utilities.

The new bill, S.1226, introduced by Sen. Connie Mack (R-Fla.), will help overcome current Internal Revenue Service rules that "sharply limit the benefit of the existing foreign tax credit and result in double taxation for utilities," said Richard McMahon, EEI group director, energy supply.

"This legislation will fix a problem that has become increasingly acute as more and more utilities move into overseas markets," McMahon said. "This bill will help those companies and their shareholders by putting them on more equal footing with other U.S. industries that make investments overseas."

Companion legislation was introduced in the House on April 15 by Rep. Jim McCrery, R-La.

Foreign nations usually impose taxes on income earned within their borders. At the same time, the IRS imposes income tax on U.S. companies' worldwide income. For electric utilities, this results in double taxation, despite a U.S. tax provision that is intended to allow U.S. companies to offset their domestic tax liabilities with taxes paid to foreign governments.

Because the electric utility industry is the most capital-intensive industry in the U.S., and because state regulators require certain debt/equity ratios, it amasses substantial interest expenses each year. Complex federal tax law requires utilities to allocate their domestic interest costs to foreign income, which in turn reduces foreign income on their balance sheets.

"As a result, utilities are not able to take full advantage of the foreign tax credit in ways that nearly every other industry is able to," McMahon said. "This new legislation will fix that unintended consequence and enable utilities to take full advantage of a provision that was designed to avoid a tax penalty for U.S. companies operating abroad."

In 1999, U.S. utilities have acquired or developed electrical generation, transmission or distribution assets around the world, including Europe, Asia, Latin America and Africa. Nearly all of this expansion has occurred since the 1992 passage of the Energy Policy Act, which authorized regulated U.S. utility companies to develop overseas subsidiaries.

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EEI is the association of shareholder-owned electric companies and international affiliates whose domestic members produce and distribute more than three-quarters of the nation's electricity.

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