Let the States Decide

When the 1986 Tax Reform Act lowered the corporate tax rate, the tax bill of the nation’s public utilities shrank from 46% to 34% of their total income. But between September, 1986, the time the tax legislation was passed, and July 1, 1987, the start of the new fiscal year, the nation’s utilities continued to charge their customers on the basis of the higher rate. These tax overcharges amount to $19 billion nationwide. In California the figure is more than $1 billion. This is money owed to everyone who pays a utility bill.

According to Rep. Robert T. Matsui (D-Sacramento), utility companies have already invested these excess funds into their plants and do not have the cash on hand to repay a debt so large. Moreover, he asserts, the cost of quickly raising the money would ultimately be passed on to the consumer. Matsui’s 1986 provision to the tax act not only allows the overcharges but also provides the utilities with a federally regulated reimbursement period tied to the depreciation rate of their investments. In some cases this period could amount to 30 years. Although many public utilities do not readily have the assets to refund the tax overcharges, numerous other utilities can repay their customers on a much faster schedule. The wealthier utilities argue that their excess funds barely recoup their loss of the investment tax credit. And they emphasize that investing the excess tax funds provides their customers with the most modern equipment and most efficient service. Critics contest the wisdom of the utilities’ investments.

How public utilities manage their finances is an issue of heated dispute. And this dispute should be aired publicly on the state level, not judged from afar in Congress. Rep. Byron L. Dorgan (D-N.D.) has proposed exactly such legislation. State regulatory commissions customarily supervise utilities, and are better equipped to handle such issues. State regulatory commissions are also closer, and therefore more attentive, to the needs of both the utilities and their customers. Finally, state agencies can respond more flexibly than federal agencies can to the varied financial conditions of their utilities. Financially strapped utilities should have the option to reimburse their customers at a mutually agreeable rate. Utilities able to repay their customers should promptly refund the money that is no longer theirs.