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NC tax law changes to increase power bills

North Carolina’s tax law changes were designed to put more money in taxpayers’ pockets, but the new policies will marginally increase electric utility bills.

The N.C. Utilities Commission, which oversees rates customers pay, is reviewing how to apply the complex new tax law, and consumer advocates are urging the commission to limit its effect on the public as much as possible.

The first tax changes are effective Jan. 1, but some don’t fully go into effect for another year. They will end up costing Duke Energy and Duke Energy Progress customers about $1 a month, or a little less if the Utilities Commission decides to shave off a few nickels.

The reason customers will pay more is that corporations are getting tax breaks, while consumers will see their taxes on electricity sales increase from 3 percent to 7 percent.

The reduction of the corporate income tax – from 6.9 percent to 6 percent next month, and then to 5 percent in 2015 – will mean utility companies will pocket more money from customer bills unless the Utilities Commission cuts rates accordingly.

Most of the new tax changes will be automatically factored into utility rates under House Bill 998, which became state law earlier this year. But one tax change is up to the Utilities Commission: whether the reduction of the corporate income tax will be adjusted in utility rates, or whether the power companies get to keep the difference.

Duke Energy recommends that rates be left alone for now, suggesting instead that the issue be considered whenever Duke comes in for a rate case, which could be several years. Consumer advocates, including state Attorney General Roy Cooper, urge against delaying a rate adjustment to benefit customers.

“We’re saying that it should be done now,” said Jim Hoard, director of the accounting division of the Public Staff, the state’s consumer advocacy agency in utility rate matters.

The difference is negligible: 25 cents a month for Duke customers and 15 cents a month for Progress customers, if rates are cut to reflect the corporate tax reduction. But it adds up to millions of dollars for the companies.

“Utility rates were set based on the assumption that the utility will pay a 6.9 percent state income tax,” the Public Staff wrote in a public filing. “Until the Commission adjusts utility rates to reflect the new lower tax rates, the utilities will continue to collect taxes from ratepayers at the higher state income tax rates approved in each utility’s most recent rate case.”

Duke said in its filing that the money could be credited to customers later, or spent on a public purpose, such as environmental remediation.

“The materiality of this particular tax change is substantially smaller” than previous tax law changes, Duke said. “In this case, the benefit to the customers is small. … However, the impact to the Companies is large – approximately $20 million in aggregate.”

Based on Hoard’s analysis, the new tax laws will automatically raise a typical Duke bill for residential customers by 97 cents a month, and a typical Progress bill by 83 cents a month, for a household that uses 1,000 kilowatt hours a month of power.

However, if the Commission agrees with the Public Staff and the attorney general to adjust rates for the lowering of the corporate income tax, Duke customers would pay about 72 cents a month more, and Progress customers 68 cents a month more.

“It is important for utility customers to receive the full benefit of the tax reductions,” Cooper’s office said in its filing this week.

Progress is a Duke subsidiary, but the utilities have independent rates.

By far the most significant change for power companies is the repeal of the gross receipts tax that utilities have been paying. In 2015 and thereafter, that change will bring an extra $158 million a year to Charlotte-based Duke and more than $107 million a year extra for Raleigh-based Progress in their North Carolina operations.

Murawski: 919-829-8932
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