‘Tax Law Helps Utilities’

Your recent article, “Tax Law Helps Utilities but Stirs Refund Dispute,” (June 26), was correct on one major point. Utilities are allocating to customers taxes previously collected but no longer owed to the Treasury due to the recent change in the tax law. However, there were inaccuracies in the article which should be corrected.

Most importantly, customers are getting the benefit of this money now. First, money which has been earmarked for the so-called deferred tax account is being used right now by utilities as a direct reduction in rate base--the base upon which rates are set. Utilities do not earn a return on these funds. In addition, deferred taxes no longer owed to the Treasury are being returned to customers over a specified period of time set by Congress--not over 30 years. These facts are well known but regularly ignored by opponents.

The tax law allows all industries to take tax deductions on the depreciating value of property over an accelerated period, thereby deferring tax obligations to future years. This incentive was created by Congress to give industries access to cash which otherwise would have been used to pay taxes. To make sure that all utility customers are charged the same amount in taxes, the tax payments are equalized over the useful life of the property. Because some taxes can be deferred, due to accelerated depreciation, utilities account for the amount of taxes that will be later owed in a so-called deferred tax reserve.

But as utilities take depreciation they are not putting the deferred taxes in a bank account; they are reinvesting the funds in the company--just as Congress intended.

Michael Foley, of the National Assn. of Regulatory Utility Commissioners, acknowledged in the article that utilities were relatively hard hit by the tax law because they are capital intensive and relied heavily on the investment tax credit which was abolished and accelerated depreciation benefits which were sharply reduced. Congress attempted to mitigate these losses for all industries. Regulated utilities, however, are the only companies required to return these excess funds to customers. By spreading the refund over the remaining life of the property which generated the reserve, all customers, present and future, will benefit from the corporate tax-rate reduction.

This treatment of deferred taxes was not “slipped into” the tax bill but was debated for approximately two years and reiterates well-established federal tax policy.

RICHARD P. BRAATZ

Vice President

Edison Electric Institute

Washington, D.C.