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PUD Challenges Tax on
Energy Rebate Fund

by Don Jenkins
The Daily News, February 20, 2010

Cowlitz PUD will challenge a decision by state revenue officials to demand $117,920 in back taxes on money the utility received from the Bonneville Power Administration over the past three years to give homeowners and businesses rebates for taking energy-saving measures.

The amount of money at stake is too small to affect electric rates, but the case could set a precedent for Washington utilities and shift about $300,000 a year into the state's general fund and away from conservation programs statewide.

The PUD argues the transfer doesn't make sense when Northwest utilities are being pressed to reduce carbon emissions and meet the region's future energy needs primarily through conservation.

"Our ratepayers paid into a conservation fund, not the general fund," PUD spokesman Dave Andrew said. "What we don't like about this is that it would take money away from conservation."

Since 1982, BPA, which supplies more than 90 percent of the electricity used in Cowlitz County, has added to its rates a small amount for conservation. BPA sends back to Washington utilities some $18 million a year, including about $2 million to Cowlitz PUD, one of BPA's larger customers. The utility uses the money to subsidize the insulating of homes, the purchasing of energy-saving appliances and other conservation measures.

The revenue department, during a routine audit of Cowlitz PUD finances last year, concluded that the BPA conservation money should count as income and be subject to the state's business and occupation tax on gross revenue. The department applied the 1.5 percent tax retroactively for the previous three years.

Andrew said the utility plans to step up conservation measures this year and could spend as much as $5.3 million on energy-saving programs. The tax would subtract about $80,000 from that effort, Andrew said.

The utility will dispute the bill at a closed-door hearing Wednesday in Olympia. The PUD and revenue department will present their cases to an administrative law judge, whose decision could be appealed to Superior Court.

The PUD will argue the conservation funds are not gross revenue and that the department's position conflicts with prohibitions on taxing the generation of electricity, since conserving energy is as good as making it. "I think our argument is very strong," PUD attorney Paul Brachvogel said.

The PUD also argues that the Department of Revenue's demand conflicts with the Northwest's push to consume less electricity and with the department's own previous stance. Cowlitz PUD cites a letter the department sent to Spokane-based Inland Power and Light Company in 2002 that concluded the BPA funds were not taxable.

Revenue spokesman Mike Gowrylow said he could not comment directly on the case because the law prohibits taking about specific taxpayers.

He said a letter to one taxpayer, however, should not be interpreted as a department position that applies to all taxpayers. Gowrylow also said the department applies taxes broadly unless the Legislature approves an exemption.

"When we took a look at the law, it seems pretty clear this income is subject to the B&O tax. Is that the right policy? I don't know, that's up to the Legislature," Gowrylow said.

In addition to fighting the tax in court, the PUD has asked legislators to specifically exempt BPA conservation funds from the business and occupation tax. House Bill 2951 introduced by Rep. Dean Takko, D-Longview, and Senate Bill 6614, sponsored by Sen. Craig Pridemore, D-Vancouver, have not received hearings. Takko said this week he still hopes his bill will receive consideration, though time is growing short.

The Legislature is scheduled to adjourn March 11 and soft deadlines for the bills to receive hearings have passed.

Don Jenkins
PUD Challenges Tax on Energy Rebate Fund
The Daily News, February 20, 2010

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