VI. Electricity Efficiency Fees
An electricity surcharge tax or fee on either energy consumption or generation could be a way to raise revenues for Texas, while encouraging more efficient use of energy and increased use of renewable resources.
For example, a higher tax rate could be charged to power plants that were burning fuels inefficiently, such as older coal-burning power plants. A lower tax rate would be charged to a power plant burning energy more efficiently or to power plants that don't pollute, such as wind power plants. Any such “efficiency” tax or fee would have to be carefully balanced with the taxes that utilities currently pay in Texas. Currently, power plants pay local property taxes, a state utility tax based upon gross receipts, and local fees for right-of-ways for their lines.
One reason a new electricity tax may be needed is because of the expected loss of local property revenues due to electricity deregulation. In a regulated market, local tax assessors base the property tax on invested capital of a power plant. Because the price and customer base is regulated, the energy producer can set the price to pay back this initial investment. But in a competitive market, the value of the property is affected by the ability of the generator to compete, and the market price may not support the initial capital investment. The tax assessor in most cases will have to reduce the assessed property value. While Texas’s electric deregulation bill institutes some new fees to help offset this property loss in the long term, local property districts could face major losses of tax in rural counties where generating stations are located. An electricity tax could be a way to raise money for the state’s education system, while giving an incentive to reduce energy consumption and consumption of fossil fuels in particular.
There are a number of different methods to tax energy consumption. One is to simply charge a tax on kilowatt hours, irrespective of how much energy inputs – measured in BTUs – are used to generate that energy. But a better way might be to base the tax on the amount of BTUs used, rather than kilowatt hours.
Another issue in considering an electricity tax is whether to charge the generator or the consumer. If generators are taxed, they may pass the costs on to their customers. And, those costs might go primarily to residential customers, who are less likely to compare the price and may have fewer options to choose their generator, rather than to industrial users.
However, one advantage of having power generators pass the costs of a new tax or fee on to their residential customers is that it would serve as a strong reminder about the larger impacts of their individual energy choices.
Other states have recently adopted new electricity taxes. Ohio, for example, has adopted a new kilowatt-hour tax on electricity and a thousand-cubic-foot tax on natural gas. These new taxes will allow the state to transfer $288 million annually to schools and local governments. The money replaces property tax revenue lost by local governments and schools as a result of the deregulation of gas and electric utilities. Revenue from the new kilowatt and gas taxes also replaces state gross receipts taxes formerly paid by utilities. 28
Texas should explore a similar energy tax, although we believe a standard sales tax or kilowatt-per- hour tax would put too much of a burden on Texas working families. Instead, we believe we should
28 Tax Analysts, State Tax Notes, September 3, 2001, p. 693. For the press release see http://www.state.oh.us/tax/News Releases/news release 072601.html