Potential bankruptcy renews debate on utility tax

Potential bankruptcy of Dallas-based Energy Future Holdings stirs opponents of tax collection

Associated Press

AUSTIN, Texas (AP) -- The potential bankruptcy of Dallas-based Energy Future Holdings is being seized on by some groups to stir debate over taxes that power companies collect but don't always pass on to the federal government.

A report released Wednesday by the Texas Coalition for Affordable Power, a group of dozens of cities that purchase power on the deregulated market, calls for continuing to let state regulators use what is known as a "consolidated tax savings adjustment" when calculating rates for utility providers.

The adjustment has been in place since the 1970s and is used to determine the fair share of taxes passed on to ratepayers. Supporters say the law helps keep residential bills down, but Republican lawmakers trying to wipe it off the books say it is unfair to business and puts Texas providers at a competitive disadvantage.

A bill that would do away with the adjustment was placed this week on the Senate's calendar.

"Fundamentally, this is a tax fairness issue for Texas business," said Republican state Sen. Charles Schwertner.

Energy Future Holdings is considering filing for Chapter 11 bankruptcy to restructure $32 billion in debt. The company said in a filing with the Securities and Exchange Commission it has discussed with senior creditors the possibility of reducing its debt to give it "a sustainable capital structure."

The potential has renewed debate over "phantom taxes" — millions of dollars in excess taxes that utilities sometimes collect but legally do not have to pass on. It arises from complex corporate structures in which parent companies — such as Energy Future Holdings — can reduce taxes owed by taking into account the losses from other subsidiaries.

That same dynamic is used by many utilities and their parent companies.

Chris Brewster, a spokesman for the Texas Coalition for Affordable Power, said the adjustment helps customers from paying more taxes that may never be put in government coffers.

"There's more to do," Brewster said. "But it's a good first start."

Republican state Rep. Jim Murphy, who is carrying efforts to scrap the adjustment in the House, disputed that the bills of ratepayers would go up if his bill passes. He told a House committee earlier this month that for a customer with annual utility bill of $1,300, "any possible increase" would come out to about $2.20 more.

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