Audit Procedures for Utilities Gross Receipts Tax
Chapter 1 - Introduction
This audit manual includes information for conducting Miscellaneous Gross Receipts tax audits on electric, gas, and water utilities in Texas, and Public Utility Gross Receipts Assessment audits on electric utilities. These are the two taxes levied on the gross receipts of these utilities and administered by the State Comptroller:
|Chapter||Tax Type||Tax||Applies to Electric Utilities||Applies to Gas Utilities||Applies to Water Utilities|
|2||47||Public Utility Commission Gross Receipts Assessment||Yes||No||No|
|3||23||Miscellaneous Gross Receipts Taxes||Yes||Yes||Yes|
The Public Utility Regulatory Act (PURA) was first enacted in Texas in 1975. That Act established the Public Utility Commission of Texas (PUC) and imposed a gross receipts assessment on electric, telephone and water companies. In 1985 regulatory jurisdiction over water utilities was transferred to the Texas Water Commission.
Regulatory jurisdiction over electric utilities and telephone utilities providing service in Texas remains under the control of the PUC. These utilities send reports and payments for the assessment to the Comptroller. Chapter 2 of this manual discusses the PUC Gross Receipts Assessment as it applies to electric utilities. For information on the PUC Gross Receipts Assessment as it applies to telecommunications, refer to the Telecommunications Taxes Audit Manual.
The Miscellaneous Gross Receipts Tax was codified into Chapter 182 of the Tax Code in 1981, and originally applied to electric, gas, water, and telephone companies. The tax on telephone utilities was later repealed, but remains applicable to electric, gas, and water utilities. This tax on Miscellaneous Gross Receipts Tax is described in Chapter 3 of this audit manual.
Electricity Utility Deregulation
In 1999, the Texas Legislature enacted Senate Bill 7 with the goal of providing retail customers with electric service at lower rates. To accomplish this goal, the bill required the introduction of competition in most parts of the state by January 1, 2002. The first step in the move to competition was to restructure the electric industry. Under Senate Bill 7, the existing monopoly (integrated) utility companies were required to separate their business activities into three units: a power generation company (PGC), a transmission and distribution utility (TDU), and a retail electric provider (REP). Each of these entities is described below. To accomplish the business separation, the integrated utilities could either create separate nonaffiliated companies, create separate affiliated companies owned by a common holding company, or sell assets to a third party. In addition to the unbundling requirements, affiliated retail electric providers were required to establish a "price to beat" for the sale of electricity to residential and small commercial customers. The price to beat, which was originally set at six percent less than the bundled rate charged by the integrated utility on January 1, 1999, served as a benchmark that allowed competitive retailers to enter the retail electric market and attract customers with rates that were lower than those offered by the affiliated REPs. The price to beat requirement expired on January 1, 2007. After that date, the rates of the affiliated REPs were no longer regulated by the PUC.
- Power Generation Company (PGC)
- an entity that generates electricity that is intended to be sold at wholesale. A PGC does not own a transmission and distribution system in Texas and does not have a certificated service area.
- Retail Electric Provider (REP)
- an entity that purchases electricity at wholesale and sells that electricity to retail customers in Texas. A REP is also responsible for buying and paying for transmission and distribution service, billing and collecting payments from its customers, and providing customer service. A REP may not own or operate generation assets.
- Transmission and Distribution Utility (TDU)
- a person or river authority that owns or operates for compensation in this state equipment or facilities to transmit or distribute electricity. These companies, known as "local wires companies," still operate as monopolies in their service areas. The term "transmission and distribution utility" does not include a municipally owned utility or an electric cooperative. A TDU may be a single utility or may be separate transmission and distribution utilities. The price that a TDU may charge for its services must be approved by the Public Utility Commission in a ratemaking proceeding. The TDUs tariff includes "nonbypassable delivery charges" for transmission and distribution service by customer class, as well as the rates for any system benefit fund fees, expected competition transition charges, municipal franchise charges, and transition charges, if any. These rates are set out as Riders under the Rate Schedules approved in the utilities' tariffs.
The TDUs bill to the REP may or may not contain separate amounts for transmission and distribution services, system benefit fund fees, competition transition charges, municipal franchise fees, nuclear decommissioning fees, and transition charges.
The REP then charges its customers for customer service, the electric energy, and transmission and distribution service which usually includes the cost of system benefit fund fees, competition transition charges, municipal franchise fees, nuclear decommission fees, and transition charges, if any. Competitive REPs may also include separate charges for reimbursement of their PUC assessment and miscellaneous gross receipts tax liabilities.