1. Should the current taxation scheme for electric utilities remain in effect if the General Assembly makes the policy decision to allow retail competition?
No. Several tax statutes must be amended to accommodate retail competition. These statutes include the state license tax (gross receipts tax) Va. Code §§58.1-2620 through 2659, local license taxes Va. Code §58.1-3731, the regulatory revenue tax Va. Code §§58.1-2660 through 2665, and local consumer utility taxes Va. Code §58.1-3814.
The state gross receipts tax must be amended because under its present form the Commonwealth will lose revenue and in-state sellers will be disadvantaged if retail electricity competition is adopted. The Commonwealth will lose revenue because it will be unable to tax out-of-state suppliers. This is already occuring in the case of certain municipal electric system purchases from an out-of-state supplier. In-state sellers will be disadvantaged because they will be required to pay the gross receipts tax while out-of-state suppliers may not be subject to the tax.
Similar problems attend the local license taxes and regulatory revenue taxes that are also based on gross receipts.
Although consumer utility taxes are imposed on Virginia consumers, all of whom may be taxed by Virginia, the present statute is unclear as to how the tax would be collected if, after deregulation, the seller of power and the seller of delivery services is not the same.
In general, AEP agrees with the approach taken in S.B. Nos. 619 and 620 to amend the present tax structure. S.B. No. 619 recognizes that the present state gross receipts tax, local license taxes, and regulatory revenue tax cannot operate properly if electric generation is deregulated. In lieu of those taxes it substitutes a kilowatt-hour tax on consumers in the Commonwealth. It is our understanding that S.B. No. 620 attempts to impose the corporate net income tax on income from electric generation by investor-owned corporations that generate electricity in the Commonwealth for sale to others.
In its submission to the Task Force prior to the October 1 meeting, AEP suggested amendments to S.B. Nos. 619 and 620 and suggested certain additional amendments to current tax provisions in the Virginia Code to accommodate possible electricity deregulation.
2. Which mechanisms are appropriate replacement mechanisms for
the state gross receipts tax:
a. Corporate income tax on generation.
b. "Declining block" consumption
tax
As introduced, S.B. No. 620 would impose the corporate net income tax on "investor-owned wholesale electric power supplier[s]." We understand the intent of the legislation to be that corporations that generate electricity within the Commonwealth would pay corporate net income tax on profits from their generating activity. No income tax would be paid on profits from transmission and distribution of electricity.
AEP has preserved the application of the corporate net income tax solely to profits from generation in its submission to the Task Force referred to above. However, it should be noted that from an administrative standpoint, it would be simpler to tax all income from whatever source derived, rather than limiting the tax to income from generation only.
AEP strongly favors the declining block consumption tax that is set forth in S.B. No. 619.
3. Should the "declining block" consumption tax include:
a. Local gross receipts taxes
b. State Corporation Commission
special assessment
In this respect, AEP agrees with S.B. No. 619 that replaces the state gross receipts tax, local gross receipts taxes, and the State Corporation Commission special assessment with the declining block consumption tax.
4. Describe the appropriate tax treatment for:
a. Electric cooperatives
b. Municipal electric systems
In its submission to the Task Force referred to above, AEP did not suggest substantive changes to S.B. No. 620 insofar as it imposed a "modified gross receipts tax" on cooperatives and certain other taxpayers. AEP believes that the "electric utility consumption tax" that would be imposed by S.B. No. 619 should be imposed on all ultimate consumers of electricity in the Commonwealth no matter what entity supplies the consumer with electricity, including those receiving their electricity from municipal electric systems.
5. Which state agency should administer any tax program designed to replace the current gross receipts tax?
AEP expresses no preference as to which state agency administers the taxes that replace the state gross receipts tax.
6. What action should the General Assembly take to protect/preserve the current revenues received from real property taxes on generation facilities.
If electric generation is deregulated, any change in the valuation of generating plants for property tax purposes is uncertain at this time. Individual generating plants may increase or decrease in value. Therefore, AEP does not advocate any legislation at this time to protect/preserve the current revenues received from taxes on generation facilities.
7. Who should perform assessments on property owned by suppliers of electricity?
Because the State Corporation Commission has developed expertise in valuing electric industry property, including valuing electric generating equipment, and because of the administrative convenience of having a central assessing authority for electric utility property, AEP believes that the SCC should continue to perform assessments on property owned by electric utilities. In order to assure uniformity of assessments following deregulation of electric generation, AEP believes that the assessment authority of the SCC should be extended to all electric generating facilities in the Commonwealth.
8. What assessment method should be used on property owned by suppliers of electricity?
The Virginia Constitution (Article X, sec. 2) requires property to be assessed at its fair market value. The SCC has assessed electric utility property based on cost less depreciation. AEP believes that this method of assessment should be used after deregulation to assess the property owned by all suppliers of electricity in the Commonwealth. AEP believes the SCC should continually review the depreciation factors it applies to electricity property to assure accuracy in achieving the above constitutional mandate. Further, in exceptional cases, if use of the cost less depreciation method of assessment does not result in fair market value, then another method should be allowed as long as the proponent of the alternate method is able to show that it results in fair market value.
9. What action should the General Assembly take to protect/preserve the current revenues received from the consumer utility tax?
Presently, the consumer's electric utility collects the consumer utility tax (generally imposed as a percentage of the monthly electric utility bill) and remits the amount collected from the consumer to the locality that imposes the tax. The tax liability is on the consumer, but the utility has the duty to collect and remit the tax. If electric generation is deregulated, consumers may receive separate bills for their power and for their delivery service. Further, particularly with respect to large users, the competitive price the consumer pays for his power may be confidential.
The foregoing poses the possibility that the consumer may be taxed twice, once by the power supplier and again by the delivery company. This problem cannot necessarily be solved by having the delivery company (or other billing entity) send one bill because the cost of the power may be confidential.
In its submission to the Task Force, AEP has suggested that the consumer utility tax be reformulated and based on kilowatt-hours used per month. In performing this reformulation care must be taken to preserve, but not increase, the revenues of the localities and to avoid excessive taxation of large electricity users.
10. Who should collect and remit the consumer utility tax to localities?
The above answer to question 9 discusses the difficulties of retaining the consumer utility tax in its present form. If the tax were reformulated and based on kilowatt-hours used per month, the tax could be collected and remitted by the "service provider" as defined in S.B. No. 619.