INFORMATIONAL HEARING

PUBLIC UTILITY COMMISSION REPORT

TAPES 30, 31 A-B

004

Chair Deckert

Calls meeting to order at 8:34 a.m.

INFORMATIONAL MEETING

038

Lee Beyer

Gives overview of PUC White Paper titled Treatment of Income Taxes in Utility Ratemaking (EXHIBIT 1). With sale of PGE, there is a lot of public interest in the issue of taxation. If legislature chooses to change policy, it will be for several companies, not just PGE. Suggests committee talk with legislative counsel about uniformity clause and whether to treat all utilities the same. PUC will deliver a background piece which traces the history of legal issues across the country.

083

Beyer

Reviews 2003 session when issue first came up. Beyer suggested legislature change the way the state treats corporate taxes. Urged deconsolidation of tax structures. Now, contends this may not be a good idea.

107

Beyer

Oregon has taken a “traditional approach” to this tax issue. In terms of choices, there are three ways to deal with taxes and rate setting.

1)      adjust them as all states do

2)      annual true up

3)      tax deconsolidation

130

Chair Deckert

Requests presenters tell committee which issues are statutory decisions and which are role making authority.

135

Ed Bush

Begins PowerPoint slide presentation: Treatment of Income Taxes in Utility Ratemaking (EXHIBIT 2). Presentation describes:

1)      Current method PUC uses to determine amount of income taxes to be included in customer rates

2)      Three reasons why amounts collected are different from amounts of taxes paid

3)      Options for how PUC can determine taxes

168

Bush

White paper discusses five options. First four are ratemaking; fifth is tax filing option.

181

Bush

Tax Example (Option 1 – Current Practice) page 1, slide 2.

·         Income taxes calculated on Utility stand-alone basis

·         Based on estimated revenues and costs in rate case.

Key point: Calculation is based on cost of regulated service.

247

Bush

Answers questions.

277

Bush

Continues slide show, Option 1 (continued) page 2, slide 1.

·         Payment to Taxing Authorities will be different than taxes collected in rates

322

Beyer

Gives example in regard to differences in taxes collected.

356

Bush

Concurs with Beyer’s example.

407

Bush

Full True Up (Option 2) page 2, slide 2.

·         Customers get back what wasn’t paid to Taxing Authorities

·         How much was deemed paid?

458

Chair Deckert

Does PUC have access to filings made with Dept. of Revenue?

460

Beyer

Responds, PUC has no access other than information from regulated utilities. PUC could enter into a confidentiality agreement with DOR to get that information, although DOR doesn’t have that information either. Only way to get this information is to change state law. Pennsylvania has voluntary compliance.

043

Sen. Metsger

Clarifies, lawmakers would have to change state law in order to share information. Follow-up questions.

057

Beyer

That probably wouldn’t work. Should give the hammer to the PUC to force utilities to provide information.

070

Paul Warner

Dept. of Revenue has strict disclosure laws and some agreements with Internal Revenue Service.

085

Beyer

PUC doesn’t have the expertise to answer these information gathering questions. Suggests members direct questions to DOR.

095

Bush

Full True Up (option 2) (continued) page 3, slide 1.

·         Assume deemed taxes paid = 40

·         Effects

118

Chair Deckert, Sen. Metsger

Ask questions concerning accelerated tax deductions.

129

Bush

Responds to questions.

150

Beyer

Issue is the effect of the regulated utility, where filing as stand-alone or consolidated, they will still pay federal taxes. Also, recommends members talk to DOR whether corporations can switch back and forth.

175

Paul Graham

There are some rate effects involved with accelerated appreciation.

Mr. Bush will cover those.

182

Bush

Resumes discussion on Full True Up option 2.

198

Bush

Full True Up (Option 2) (continued) page 3, slide 2.

Assume deemed taxes paid = 125

238

Bush

Partial True Up (option 3) page 4, slide 1.

·         Same as Full True Up, except preserve benefits of Accelerated Tax Deductions

·         Losing these benefits would mean

·         Options for meeting federal tax code requirements

289

Chair Deckert

Asks questions concerning accelerated tax deductions.

292

Bush

Responds.

323

Beyer

From a customer’s perspective what is the benefit of accelerating depreciation? It allows a lower interest loan for operations over a period of time. Makes it less costly for a utility to operate and results in lower rates.

Answers follow-up questions.

366

Bush

Continues discussion on Partial True Up option 3.

394

Bush

Consolidated Tax Savings (Option 4) page 4, slide 2.

·         Allocate a share of consolidated tax savings

·         Prospective, not annual true up

Discusses “Pennsylvania approach”.

420

Chair Deckert

Asks, why buy a utility in Pennsylvania or locate a parent company there?

440

Beyer

Bottom line is, companies must be kept healthy so they can continue to provide reliable power. Currently some Oregonians feel gouged at the end of the month by their electric bills. What Pennsylvania is doing probably doesn’t meet federal guidelines but it hasn’t been challenged in federal court.

044

Bush

Emphasizes, this would not be an annual true up, it would be a prospective approach.

058

Bush

Consolidated Tax Savings (Option 4) (continued) page 5, slide 1.

·         Example assumes

·         In this example, 50% of 75 loss is allocated to utility for ratemaking

087

Bush

Summary of Pros and Cons, page 5, slide 2.

·         Utility Stand-Alone

127

Bush

·         Annual Full True Up

·         Annual Partial True Up

·         Consolidated Tax Savings.

160

Debra Buchanan

When a corporation files an Oregon return it attaches federal return. There are two sets of disclosure laws. Can’t change the federal law, so perhaps information should be provided to the regulatory commission by the taxpayer so disclosure would be made to PUC.

180

Chair Deckert

Assumes this would have to be done statutorily.

195

Sen. Prozanski

Comments on second set of options.

226

Beyer

Discusses complaint about PGE and Enron. PGE has included a substantial amount of taxes within its rates. PGE sends it to its parent utility. Parent utility files consolidated return and regulated utility has no idea what parent paid in taxes. PUC doesn’t know either.

280

Beyer

Asks legislature for direction about what it would like from PUC.

283

Sen. Prozanski

Would like more open disclosure as to what’s being paid.

303

Beyer

Fields follow-up questions.

347

Sen. Metsger

Asks if Beyer is aware of any electric utilities that paid more taxes than they collected in the last 10 years.

357

Bush

PUC doesn’t have that information as a rule.

380

Sen. Metsger

Comments and questions pertaining to how much PGE paid in taxes.

407

Beyer

Responds to Metsger’s questions.

016

Sen. Prozanski

Continues questioning of panel on issue of ratepayer transparency and disclosure.

034

Beyer

Focusing on ratepayers paying more taxes than they should. Consider a hypothetical utility, if it were totally deconsolidated, would ratepayers be paying the right amount of taxes? Ratepayer rates would not change. The real question is, are citizens receiving the appropriate amount of taxes?

060

Chair Deckert

Asks committee for other questions or discussion. Will revisit this issue in March.

165

Beyer

Committee will receive a legal opinion later today. PUC will return later this session with a recommendation.

078

Chair Deckert

Would be interested to examine how various states have handled this issue.

098

Chair Deckert

Will schedule more public comment on this issue. Adjourns meeting at 10:05 a.m.