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Oncor's "Phantom Tax" Windfall May Become Permanent as Bill Hits Texas House Floor

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Oncor, the Dallas-based sticks-and-wires utility, has collected half a billion dollars from ratepayers since 2007 for federal income taxes. But according to a report, the IRS hasn't received a dime.

In fact, most of that cash has gone to its struggling parent, Energy Future Holdings, which is marching inexorably toward bankruptcy court. Its quarterly reports have logged such huge and consistent losses that the company has actually collected refunds from the IRS on top of the unnecessary tax bill its regulated utility siphons from electricity users. It's a perfectly legal loophole that allows a robust Oncor to be taxed as if it were a healthy, standalone operation, while its parent company consolidates its tax bill and reaps a windfall.

An Oncor spokesman told a KETK reporter in Longview that the millions it has collected over the years -- some $800 million in all, he said -- have been funneled into an account. For safe keeping, obviously. "Those sums that are not used to pay taxes now, will be used in future rate cases to reduce rates in the future," he said. So, no worries, right? That money is safe, and certainly not being used to prop up EFH.

Except that Moody's Investors Service, whose business it is to know that kind of stuff, thinks it is. It downgraded Oncor's debt rating for, among other reasons, its parent company's "high reliance on Oncor's up-stream tax payments to support (Energy Future Holding's) debt service."

Some might perceive this as a problem. And the solution that may soon find its way to Governor Rick Perry's desk? Make this arrangement the law of the land.

On Friday, a bill authored by Senator Charles Schwertner, a Republican from Georgetown, and sponsored by Representative Jim Murphy, a Republican from Houston, is scheduled to hit the House floor -- the penultimate leg of its journey into law. As it stands, the Public Utility Commission has the ability to take Oncor's actual tax exposure into account and to reduce the rates its customers pay. It has never done so. And if this bill is signed into law, it never will. The bill would remove from the state regulator the discretion to review a utility's actual tax burden when it calculates future rates.

We can only speculate why this bill has an actual shot at imminently becoming law. Essential legislation, like a water infrastructure spending measure proposed at a time when municipal supplies in some corners of the state are approaching crisis levels, has inexplicably floundered. And the regulated utilities this bill is intended to address certainly haven't fallen on hard times. Despite the financial ill health of its parent, Oncor's balance sheet is healthy.

Yet the legislature may just find the votes to guarantee that ratepayers continue to foot a tax bill that will find its way into Energy Future's coffers, not the federal treasury.

The full report from the Texas Coalition for Affordable Power is here.

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