Bringing to a close a long consumer battle that spawned unrest and stirred state lawmakers, the Oregon Public Utility Commission (PUC) issued a final order Sept. 15 for implementing a new state law that limits the amount of utility rates covering federal, state and local taxes to the actual amounts of taxes paid. The change will start with 2006 tax year payments, and a consumer activist group immediately criticized the PUC’s action as insufficient.

Oregon’s state legislature last year passed a new law (SB 408) that the PUC attributed to utility customers’ frustrations arising from Enron Corp.’s former ownership of Portland General Electric (PGE). That utility’s rates included estimated federal, state and local taxes that would be paid, and PGE paid those amounts to the parent company, but with its consolidated tax system, Enron received numerous tax breaks from its other lines of business and the utility tax monies ended up never being actually paid to the government as they would have been if the utility paid its taxes on a stand-alone basis.

“The bottom line is if taxes aren’t paid, customers get the money back,” PUC Chairman Lee Beyer said. “We have taken an approach we believe closely captures the intent of the law passed by the legislature. Will everyone agree with the path we are taking? Probably not.

“Customers need to know the law is designed to address potential discrepancies between taxes collected in rates and taxes paid by utilities to federal, state, and local governments.”

Claiming that the Oregon utilities are charging retail customers more than $120 million annually for taxes that are not paid, Dan Meek, an attorney for the Utility Reform Project (URP), said the PUC “could have adopted the simple and workable methodology used by the Pennsylvania PUC since 1988, but instead it adopted an overwhelmingly complex set of formulas that can be understood only by teams of tax lawyers and accountants.”

Meek said the PUC’s approach is “well designed” for the utilities and big corporate customers of the utilities who can afford to hire “legions of tax experts to deal with it.” He predicted that residential and small business customers of the state’s private sector utilities will be hurt by the new system. URP, which has been pushing for utility tax treatment reform for four years, estimated that PGE under Enron charged Oregon ratepayers nearly $1 billion in so-called “phantom taxes” since 1997.

SB 408 requires the utilities to file annual reports to determine the difference between taxes collected in rates and taxes actually paid by the utility’s parent and that are “properly attributed” to the utility, the PUC said in announcing its action. The PUC adopted what it called the “apportionment method” to determine the tax amounts that are attributed to the utility — specifically, the Oregon portion of the utility for ones like PacifiCorp that operate in multiple states and have a parent company, such as its MidAmerican Energy Holdings Co. parent.

The PUC said the apportionment method was adopted originally in Oregon 40 years ago to apportion a parent company’s income for multi-state tax liability. Utilities covered by the PUC’s action in addition to PGE and PacifiCorp include Northwest Natural Gas Co. and Spokane, WA-based Avista Utilities.

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