IOUs and public power join forces for tax revision

OGJ Online Staff

In an unusual joint appeal, investor-owned and public power system officials asked a U.S. House subcommittee to support legislation that would reduce the tax consequences of a variety of transactions involving transmission assets.

The joint appearance by representatives from Edison Electric Institute (EEI) and the American Public Power Association (APPA) was out of the ordinary because the two organizations often take opposing views on issues.

In testimony before the Subcommittee on Select Revenue Measures of the House Committee on Ways and Means, and speaking on behalf EEI, Gregory Nelson, vice president of Ameren Corp., St. Louis, called for passage of HR 1459, the Electric Power Industry Modernization Act.

He said the legislation is needed to implement Federal Energy Regulatory Commission’s (FERC) goal of achieving nondiscriminatory transmission access and to facilitate electric generation and transmission infrastructure development.

The proposed legislation would do that by modifying existing tax rules to allow publicly owned utilities to sell excess electricity outside their immediate service areas, to let other utilities use their transmission lines, and to join regional transmission organizations (RTO), said John Tiecken, CEO of Santee Cooper, South Carolina’s state-owned electric and water utility, representing APPA and the Large Public Power Council.

Specifically, Ameren’s Nelson said the bill would amend the tax code to do the following:

  • Permit sale of transmission assets on a tax-deferred basis if the sales occur to conform to FERC Order 2000 and allow for a tax-free spin off of transmission assets, even if they are to be combined with neighboring transmission assets. Under current law, electric utilities would incur a substantial federal income tax liability because the value of transmission assets exceeds their tax basis due to depreciation. Shareholder-owned utilities can avoid an immediate tax by transferring control but not ownership to an RTO, but the process results in a cumbersome corporate structure.
  • Facilitate the development of new generation, transmission and distribution facilities by clarifying the tax-free status of payments for connecting new generation to the grid and by removing the tax on payments (contributions in aid of construction, CIAC) for upgrades and additions by developers to transmission and distribution facilities.
  • Update the tax treatment of nuclear decommissioning costs by facilitating the transfer of nuclear facilities to new owners and allowing the owners of nuclear power plants that are no longer subject to cost-of-service ratemaking to continue to make tax-deductible contributions to decommissioning trust funds.
  • Amend the code to allow a public power system to terminate issuing new tax exempt bonds to finance most generation facilities, in return for an exemption from “private use” rules for existing tax exempt bonds. Private use rules limit how much state and local government units that own transmission facilities financed by tax exempt bonds are allowed to let non-government entities use those facilities.
  • Restrict use of tax exempt bonds to finance transmission lines not necessary to serve public power systems’ electric loads or to finance start-up utilities’ distribution facilities. The restrictions will preclude use of tax exempt financing for merchant transmission lines, but will not restrict necessary additions and upgrades to existing facilities, Tiecken said.

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