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As Tax Day Approaches for Consumers, Energy Corporations are Already Calculating Their Savings

March 15, 2005

As Tax Day Approaches for Consumers, Energy Corporations are Already Calculating Their Savings

Corporate Tax Cut Bill Signed in October 2004 Provides New Billion-Dollar Break to Energy Companies

WASHINGTON, D.C. – Washington state’s three corporate utilities will lower their collective 2005 tax bill by as much as $3.75 million – the result of a $76.5 billion federal corporate tax cut bill President Bush signed in October 2004. The savings for Washington state utilities will rise exponentially in future years, as the value of the tax deduction doubles in 2007 and rises by an additional third in 2009.

The tax cut estimate came in response to a request that Public Citizen sent to energy regulators in all 50 states asking them to estimate the savings from the tax bill that utilities in their states will reap. The letter also asked that regulators order that any tax break given to the corporate utilities be refunded to consumers.

Because of state laws, consumers in the 35 states where electric utilities remain regulated should be able to force the utilities to share at least some of the proceeds of this tax cut with utility customers. That means Washington state most likely will require its utilities to return much of the $3.75 million to consumers in the form of a rate reduction.

But those 15 states that deregulated their wholesale markets by breaking up their former monopolies will be powerless to force power companies in their states to share the bounty. That’s because once a state deregulates, it cannot recoup tax breaks from utilities. For example, correspondence Public Citizen received from officials in the deregulated state of Virginia stated that the state’s deregulation law does not allow regulators to force utilities to share tax breaks with consumers.

In addition, consumers living in those 15 deregulated states will continue to suffer escalating energy prices. According to data supplied by the U.S. Department of Energy, deregulated states have seen rates grow faster and become more volatile than rates consumers in regulated states.

 “With Tax Day around the corner, consumers are calculating what they owe while energy companies are tallying up their tax break – and those power producers in deregulated states won’t have to share the loot with consumers,” said Tyson Slocum, research director for Public Citizen’s energy program. “When the higher prices paid by consumers in deregulated states are included, this double whammy will cost consumers more.”

In October 2004, President Bush signed H.R. 4520, which provides $76.5 billion in new tax breaks for corporations’ domestic production activities over the next 10 years, including electricity, natural gas and oil production. The amount of the tax deduction is 3 percent of a company’s qualified production income in 2005 and 2006, rising to 6 percent in 2007-2009 and 9 percent after 2009.

The response to Public Citizen by the Washington Utilities and Transportation Commission represents the first time that companies have provided public estimates of how much they stand to benefit from this new tax change. Electric utility corporations have contributed $34 million to federal candidates since 2001, with 69 percent of that total going to Republicans.

Fifteen other states – Alabama, Colorado, Hawaii, Idaho, Iowa, Kansas, Kentucky, Louisiana, Maine, New Jersey, Ohio, Oregon, Utah, Vermont and Wisconsin – said that they have either initiated or are considering initiating an investigation in response to Public Citizen’s request.

The corporate tax cut bill passed the House of Representatives by a vote of 280–141, and the Senate passed it by a vote of 69–17. The entire Washington state congressional delegation voted in favor of the legislation, except for Rep. Jim McDermott, who voted against it.

To see a list of deregulated states, click here

To read the response from Washington state, click here.