SALEM, Ore. – A 2005 law intended to protect consumers from companies like Enron that avoid paying federal and state income taxes will result in a rate increase for Pacific Power customers, according to filings made today with Oregon regulators.  

According to Pacific Power, the law, Senate Bill 408, has fixed the problem of utilities not paying all of the taxes they collect through rates, but the law is faulty for utilities such as Pacific Power and its parent, Berkshire Hathaway, that do pay their taxes. Berkshire Hathaway pays about $4.4 billion in taxes annually.

           “We understand the frustration with the Enron situation that led to this legislation’s passage, but the law is faulty in several respects for utilities that do pay their taxes,” said Pat Reiten, president of Pacific Power. “We brought this to the attention of the Legislature in the 2007 session; unfortunately, agreement couldn’t be reached so key legislators decided to wait and see before considering any changes.”

Pacific Power filed its first tax report today under the 2005 law. The filing indicates that Pacific Power in 2006 actually paid approximately $32.6 million more in taxes than are reflected in rates. Under the 2005 law, Pacific Power is required to raise its rates to its customers for this difference, plus $5.5 million in interest, for a total of about $38.2 million in federal, state and local taxes.  

Rather than increase rates the full amount, the company is proposing to moderate the impact of the increase by limiting the average increase to about 3 percent. The increase would be effective in June 2008. “We are proposing to defer recovery of approximately $11 million until Oregon legislators have an opportunity to reconsider the law,” said Reiten.

Since adjustments related to the law are based on usage, residential customers will pay a smaller surcharge, approximately 2.4 percent, compared to industrial customers, who will pay approximately 4.4 percent.

According to Pacific Power, the law requires regulators to use a specific formula for calculating taxes collected through utility rates. This faulty formula was added to the law in the closing days of the 2005 session without public input. It is this formula that is flawed, according to the company, resulting in a permanent mismatch between taxes that are paid versus taxes that are collected every single year.

The problems with the law were magnified for Pacific Power and its customers because the company had a rate case pending in 2005 when the law was passed. Regulators applied the law to the company and were required to assume that Pacific Power, under its then owner Scottish Power, would not pay the full amount of taxes that it owed.   However, Pacific Power was purchased in early 2006 by MidAmerican Energy Holdings Company, which is owned by Berkshire Hathaway. Berkshire Hathaway is one of the largest tax paying corporations in the world. Therefore, the initial assumption that Pacific Power would pay only a limited amount of taxes was incorrect, and a portion of the rate increase associated with Pacific Power’s Oct. 15, 2007, filing reflects a correction of that assumption.

“We’ve always supported the idea that utilities, like every other business and private citizen, should pay their fair share of taxes,” Reiten said. “But this well-intended law has backfired with serious consequences to our customers. We believe the flawed formula will always result in a mismatch between taxes collected and paid and will continue to produce instability in our customers’ rates. This instability will threaten long-term investments in energy infrastructure to serve the growth of Oregon’s economy. I know no one wants that.”

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About Pacific Power

Pacific Power is headquartered in Portland, Ore., and provides electric service to more than 713,000 customers in Oregon, Washington and California. It is part of PacifiCorp, one of the lowest-cost electricity producers in the United States, providing approximately 1.7 million customers in six states with reliable, efficient energy. The company works to meet growing energy demand while protecting and enhancing the environment.