PGE Enron, Your Taxes, and the Cayman Islands

The New York Times has a context-setting piece on the practice of utilities collecting taxes that they never pay.

Two views:

Expressing the utilities' view, Paul L. Joskow, an economist at the Massachusetts Institute of Technology, said, "For the customer, the result is the same." If the utility were a stand-alone company and filed its own tax return, he added, the customer would pay the same for power. ...

Critics argue that when utilities collect taxes the government never receives, customers do lose. The Minnesota attorney general, Mike Hatch, said, "Essentially, the utility ratepayers pay the tax twice, once through the utility bill and again through the lost revenue to government that means either higher taxes for them or less government services."

Regarding our very own PGE Enron:

Enron was a pioneer in turning taxes into profit. Since 1997 the company, now in bankruptcy, has collected nearly $900 million from customers of a utility it acquired, Portland General Electric, to cover income taxes. But none of that money reached the federal government from Enron, and only a quirk in the law forced Portland G.E. to pay about $800,000 in income taxes, of which $20 went to the state of Oregon.

Enron could keep the tax money because it created 881 subsidiaries in the Cayman Islands, Bermuda and other tax havens, tax shelters that on paper generated losses for the parent. ...

The prospect that a utility could charge for taxes that the government would never receive became a major issue in Oregon when David Bonderman's Texas Pacific Group tried to buy Portland General Electric in 2004. ... In the wake of the controversy, the Oregon Legislature passed a law requiring that taxes on electric bills be turned over to the government and rates adjusted each year to accurately reflect what customers paid and governments collected.

MidAmerican Electric, an Iowa utility holding company controlled by Mr. Buffett, and PacifiCorp, a Scottish-owned electric utility, have been lobbying in Oregon for repeal of the law. The National Federation of Independent Business's Oregon chapter, with 12,000 members, favors the law. J. L. Wilson, its executive director, said it helped prevent a practice that "just bumps up electric rates."

Discuss.

  • Tom Civiletti (unverified)
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    It amazes me that so many Oregonians who bitch up a blue storm over the taxes they pay to government have no objection to paying taxes to a corporation that transfers the funds directly to their profit line. One would think the cognitive dissonance would explode the brains of these anti-government pro-corporatists, but it seems there isn't much there to detonate.

  • Joel Shapiro (unverified)
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    Tom -- very cogent post. The (lack of) cognitive dissonance stems from their mutually held beliefs that government is universally bad, and private enterprise is universally good. Thus, any corporation that has figured out how to deprive the government of tax dollars has accomplished something beneficial. Padding it's own bottom line in the process is not malevolent, but, in fact, a further beneficial act. The idea that this action has the exact same impact on the citizen -- raising their out-of-pocket costs -- does not register. It's not taxes paid to the evil, bloated government, so no biggie. That noble corporation is of course going to use the revenue to generate jobs, so it's all good. BTW, don't ask what contries the execs are vacationing in to blow their hard-earned performance incentives. Or how many actual American workers they've purged from the payroll. That information just gets in the way of a nice, clean politico-economic philosophy.

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    It just makes me sick that our family paid more in taxes than PGE did-- and we were making so little we were getting food stamps.

    We may have gotten all our money back from the federal government, but we still paid several hundred in state taxes.

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    It is rather disgusting. Individuals pay their taxes (except those tax evaders) and support the system. Too bad we all can't open an account in the Cayman Islands to launder money.

  • marco (unverified)
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    If it's news to Oregonians, it's in the New York Times.

  • Alice (unverified)
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    Tom:

    If PGE's handling of tax payments was illegal, then the PUC, the IRS, the SEC, the Oregon A.G. or FERC should investigate and punish them. We've already heard from the PUC, and they said PGE did nothing illegal. The New York A.G. (Spitzer) has indicted/charged hundreds of companies across the country; maybe you could persuade A.G. Hardy Meyers to take a look at PGE? If everybody except Randy Leonard takes a pass, perhaps that's because PGE complied with the law.

    If PGE's handling of tax payments was legal, then you ought to focus your energy on the Oregon Legislature and U.S. Congress that passed the laws, and leave PGE alone. If you want to start protesting every piece of IRS code that treats people unfairly, go for it. You'll be very busy, and nothing much is likely to change.

    There's no cognitive dissonance required: most people don't debate tax policy in terms of what's "fair" (we know taxation is inherently unfair); our focus is on what's legal.

  • Tom Civiletti (unverified)
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    Alice,

    The utility company tax rip-off would not be possible without complicity of OPUC, the governors who appoint them, and the legislature who makes the law. The political influence that utilities exercise through campaign contributions, lobbying, and expensive PR campaigns is the crux of this situation. It would be silly to try to change all this while not mentioning the corporations who pull the strings and pocket the booty, don't you think?

  • Alice (unverified)
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    Tom: I think it's silly to try and change "all this" when meaningful reform will never be passed by the very legislators who benefit the most from the status quo.

    To put it another way: we just went through a period of time where many utility companies were pushed to the edge of bankruptcy (and several went bankrupt, or were acquired by their competitors on the cheap). The very tax loopholes that you decry helped make the utilities more attractive to investors (like Warren Buffet) which will lead to further investment in generation and transmission capacity, renewable energy production, and better reliability.

    The additional "profit" (or offset taxes) do benefit the utility investors and (over time) the consumers as well (see previous paragraph). The collectivists in Oregon need to ask themselves if profits are really the evil they portray them to be, or the economic driver of future investment in the utility company's infrastructure.

    Compare PGE to the Portland owned Bureau of Environmental Services (BES): the City of Portland has 80 year old water and sewer pipes that should have been replaced 40 years ago. They have outlived their useful life and maintaining them (repairing pipes after they have failed) is inefficient and much more costly than a logical replacement schedule. But the City of Portland has no economic incentive (no profit motive) to go out and float another bond measure to get ahead of the problem.

    To the contrary, the elected officials that "manage" the BES are motivated to delay additional rate hikes (a result of additional bond issues) if they want to get reelected. The leaky water and sewer pipes don't vote, and the problem is (quite literally) buried underground. So our elected officials pretend like everything is fine, and our existing (inadequate) strategy to replace the 80 year old pipe continues at a snails pace.

    It's not really a problem unless sewage is running through your neighborhood or park; if the sinkhole opens up on a street you don't drive on, it really doesn't get much visibility.

  • Tom Civiletti (unverified)
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    Alice,

    I've read part way through your last comment and haven't found anything to any with yet.

    "it's silly to try and change 'all this'" - changing things like this is what progressive politics is all about. While others prefer to wage annual fights over a few percent difference in budgets - not that this is not important - I prefer to work on fundamental change that will have profound effect in the log-term.

    Making utilities attractive take-over targets is not my idea of good public policy. We "collectivists in Oregon" have the facts on our side. Publicly owned power is consistently less expensive and just as reliable. When free market shenanigans led to blackouts and mega-inflation in California, it was the PUDs and municipal utilities that kept the grid up and prices down. You insist on arguing from rhetoric that flies in the face of verifiable truth. How can you expect folks at BlueOregon to take you seriously when you don't argue seriously?

    I have a suspicion that you would have been one of the people bitching if Portland had asked for bond levies large enough to replace aging sewer and water pipes. I also suspect that you will not object to PGEs request for higher rates, adding to their already too-high rates. You are reflexively anti-government and pro-corporation. I believe that both government and business have their strengths and weaknesses. Business is better at developing hitech devices and clothing. Government is better at supplying public utilities and education.

  • Alice (unverified)
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    Government is better at supplying public utilities and education? Portland's Bureau of Environmental Services is a public utility of sorts: does anybody believe it is managed any better than PGE, NW Natural, or PacifiCorp?

    Private enterprise can certainly pave streets more economically than the City, and I'm willing to venture that OHSU could have managed Tram Construction more competently than the City of Portland's office of transportation.

    Private enterprise certainly would not have spent $62 million on a jail if they didn't have a contract or funding to operate it.

    Would you rather send your kid to O.E.S., Catlin, or P.P.S.?

    Lewis & Clark, University of Portland, or PSU?

    Get an MBA from Harvard, Stanford, or University of Washington?

    Collectivism is alive and well in Portland and Berkeley; it's a bankrupt philosophy in Budapest, Prague, Moscow, Germany, China, Korea, France, and most of the United States. Eventually, reality (and unfunded pensions, health benefits, and deferred maintenance) will catch up with Portland too. Just give it another 10 or 15 years: you'll be wondering how to reduce your tax burden too.

  • Tom Civiletti (unverified)
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    Alice,

    Try to compare like examples. Show me some statistics, not just anecdotes about public versus private water systems. Then get to the issue at hand: provide statistics showing that investor owned electric utilities are less expensive and more reliable than public power. Of course, you cannot, because such statistics do not exist. You are arguing from your ideological assumptions, and they simply do not hold when applied to electric power.

    As to education, I don't think you will find much support on BlueOregon for your views. Catlin and Harvard [of course, I was writing avbout k-12, not higher education] are fine schools. They also are much more expensive than public schools. I doubt someone with your attitude toward taxation would approve of sending all Oregon's children to schools modeled on and costing as much as Catlin Gable.

    Trying to reduce this issue to one of collectivism versus free enterprise is dishonest and trivializing. Every society uses both forms of organization. If you argue that every societal need should be served by private enterprise, you isolate yourself as an ideological extremist. If you argue that electric power is better provided by private enterprise, present specific support for this view, not the weak the generalizations and analogies you have brought to this discussion so far.

    I'm sorry if I come off as rude or dismissive, but this is an important issue that should not be clouded by fallacious argumentation. You are entitled to your opinions, but if insist on obscuring the truth, I feel the need to expose the shortcomings of your argument.

  • Alice (unverified)
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    Tom: sorry for the delayed response...my home computer I.P. address was blocked "you are not allowed to post" by BlueOregon (Hey Kari, what's up with censorship?)....I'd welcome the chance to continue the discussion, if Kari would be willing to unblock by I.P.

    I can't hang out at Big Town Hero's or Starbucks for more than a few minutes with my schedule.

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    Alice, we don't censor here at BlueOregon based on content. We've blocked roughly equal numbers of lefties and righties. As we've made clear previously, BlueOregon is a commons. A place for everyone to share ideas. To that end, we're going to block folks who consume all the oxygen in the room. Those folks who repeatedly overwhelm threads - responding to every comment, and refusing to allow the conversation to develop -- they'll get blocked.

    On occasion, we release the blocks after a while, hoping that folks will behave better. Sometimes it works, sometimes it doesn't. If you're a good citizen, then there won't be a problem. There are plenty of righties who have never run afoul of things because they're respectful of the commons.

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    <h2>I should point out that the alternative is a registration/password system and I don't think I'm inclined to go that route.</h2>
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