The law requires that PacifiCorp move away from figuring taxes on a stand-alone basis, pretending as though they were not part of a larger corporate entity. This is exactly the position that CUB has been advocating and we are thrilled with the Commission's ruling.
The Commission first ruled on PacifiCorp's rate increase request last September, when they slashed the rate increase request from 12.5% to 3%. About $26 million of that reduction was due to a tax adjustment proposed by CUB and adopted by the PUC. PacifiCorp filed for Reconsideration of that ruling, which the Commission granted in December 2005. Today's Order is the result of that Reconsideration case. Interestingly enough, the Commission affirmed the principles of SB 408, but stated that the tax adjustment would stand even without SB 408. This is exactly how CUB argued for the tax adjustment last summer, before the bill had even passed the Oregon Legislature.
In the Commission's own words: "In this order, we clarify, but affirm, our application of Senate Bill 408 in this proceeding to reduce the amount of tax expense PacifiCorp may recover in rates ... [W]e adopted an adjustment based on CUB's proposal to reduce PacifiCorp's proposed tax expense by $16.07 million ... this disallowance translates to a $26.6 million revenue requirement decrease." (Public Utility Commission of Oregon Order on Reconsideration of UE 170, 07/10/06.)
CUB formed our argument to reduce tax expense by $16.07 million based upon the "known and measurable" factor of tax deductions that would accrue to PacifiCorp due to a loan made by Scottish Power to PacifiCorp Holdings, Inc. (PHI), PacifiCorp's immediate parent company. The $160 million PHI was paying in interest to pay back the loan was eligible for a tax deduction, and Oregon's share of that deduction came to about $16 million. CUB argued that this tax deduction amount would reduce the taxes that went from PacifiCorp to government, and therefore should not be charged to customers. The Commission agreed with CUB during the first case, and upheld that decision in this Reconsideration, but allowed PacifiCorp to refigure the interest on the loan using changing interest rates. The effect of this refiguring will bring the final tax adjustment savings for Oregon Pacific Power customers to approximately $20 million.
The PUC is expected to issue its decision regarding the Permanent Rules for implementing SB 408 later this week. We believe that this PacifiCorp Reconsideration decision is a good step on the path toward utility tax reform on a long-term basis, and that this is a clear indication that the stand-alone taxation so strongly advocated by utility companies (because they can charge customers for taxes they may or may not wind up paying) is no longer accepted practice for utility companies is Oregon. Good news indeed!
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