OLR Bill Analysis
AN ACT CONCERNING ELECTRIC RATE RELIEF.
This bill subjects certain electric generators to a tax on the power they generate in the state, starting July 1, 2011. Power produced by natural gas plants, fuel cells, and alternative energy systems, such as solar and wind systems, is exempt from the tax. The tax rate is 0. 05 cents per kilowatt-hour (kwh) for oil-fueled generation, 2 cents per kwh for nuclear generation, and 0. 5 cents per kwh for coal-fired generation. The tax on coal facilities applies only to power generated in January, February, June, July, and August. The bill states that it applies to electric generation facilities, as that term is used in CGS § 12-94d, but that section does not define the term.
For all of the affected facilities, the tax applies to the facility's net generation (i. e. , it does not apply to the power generated at the facility that is used to operate it) delivered to the regional grid. The bill establishes provisions for administering the tax and penalties for nonpayment, and other things.
PA 10-179 authorized the state to issue securitization bonds backed by the competitive transition assessment (CTA) and part of the conservation charge on electric company bills to provide up to $ 956 million for a transfer to the General Fund. Under the act, the bonding is tied to a financing order issued by Department of Public Utility Control (DPUC), which had to reduce the conservation charge by 35% as of April 4, 2012 or an earlier date set by DPUC in the order. An amount equal to this reduction would continue to be charged but used as part of the revenue that backs the bonds.
The bill requires that the new tax revenue be used first to pay off these bonds (which have not yet been issued), before the CTA and conservation charges are used to do so. Once the bonds are paid off or defeased, the tax revenue must provide ratepayer relief (apparently for electric company customers) and funding for clean and renewable energy projects. The bill also makes related changes.
EFFECTIVE DATE: Upon passage for the requirement that the tax revenue be used to pay off the bonds, although the tax itself and the bill's other provisions are effective July 1, 2011.
ADMINISTRATIVE PROVISIONS OF GENERATOR TAX
Each person subject to the tax must, by the last day of January, April, July, and October of each year, give the Revenue Services (DRS) commissioner a return, on forms the commissioner prescribes or furnishes. The return must report the number of kilowatt hours the person generated at its electric generation facility that were delivered to the grid during the calendar quarter ending on the last day of the prior month. The taxpayer must report other information the commissioner deems necessary to administer these provisions.
Each person subject the tax to must file the return and pay the tax to DRS by electronic funds transfer, whether or not it must do so for other taxes under current law. The tax is payable on the return's due date. Unpaid taxes are subject to a penalty of 10% of the unpaid amount or $ 50, whichever is greater. Delinquent taxes are subject to interest at 1% per month.
At the end of each fiscal year starting with FY 12, the comptroller may record as revenue for the fiscal year the amount of tax imposed on electricity generated before the end of the fiscal year that is received by the DRS commissioner no later than five business days after the last day of July immediately following the end of the fiscal year.
A number of administrative provisions that apply to the admissions, cabaret and dues tax and other taxes apply to the generation tax. Among other things, these include record-keeping requirements, procedures for claiming a refund, and appeal procedures. They also include criminal penalties for willful violations of the law. These are:
1. a fine of up to $ 1,000, imprisonment for up to one year, or both for willfully failing to keep records, file a return, or pay the tax; and
2. a fine of up to $ 5,000, imprisonment for one to five years, or both for willfully filing a return or other document the taxpayer knows to be fraudulent or materially false.
USING GENERATOR TAX REVENUE TO FUND SECURITIZATION BONDS
PA 10-179 required the electric companies to submit applications for financing orders to DPUC with regard to the securitization bonds. DPUC had to determine the amount needed to be transferred to the General Fund ($ 956 million minus the unallocated surplus in the FY 10 budget) and the costs associated with the bonding, such as issuance costs. DPUC had to allocate the responsibility for paying these costs between the electric companies. As noted above, under current law the bonds will be funded by the CTA charge and a reallocation of the conservation charge. DPUC issued the order on September 29, 2010, with an April 4, 2012 start date for the conservation charge revenue reallocation.
Current law allows DPUC to consider funding from other sources, including charges assessed on municipal utility customers in adjusting the CTA. The bill additionally allows DPUC to consider the revenues from the generator tax in making this adjustment.
By law (CGS § 16-245i(b)), unchanged by this bill, the financing order is irrevocable and DPUC cannot modify it. It is thus unclear how DPUC could modify the CTA and conservation charge funding for the bonds that had been already authorized by the financing order.
The bill requires, rather than allows, CTA revenue beyond that needed to pay the principal and interest on the bonds and related costs be used to benefit customers.
Related Court Case
In Markley v. DPUC, Superior Court J. D. of New Britain at New Britain C. V. 10 50151232 S (December 21, 2010), the court rejected the plaintiff's claim that the DPUC's financing order exceed its authority and violated the Equal Protection Clause as it did not apply to municipal electric utility customers. It found that it did not have subject matter jurisdiction as Markley had not exhausted his administrative remedies. The case is on appeal before the state Supreme Court.
Energy and Technology Committee
Joint Favorable Substitute