Exempt the State from Utility Surcharges, Assessments and Rate-Case Expense Allocations

The Legislature should exempt state agencies and institutions of higher education from utility surcharges, additional charges and assessments.

Utility bills for telephone, electric and gas services often include surcharges or special assessments. As a large user of utility services, with expenditures of approximately $300 million annually, state government has an interest in deter-mining the amou nt and appropriateness of these surcharges and assessments. 1

Utility surcharges and assessments are numerous and take various forms, but all increase costs for ratepayers, including state government.

A variety of assessments against utilities are charged back to their ratepayers. For example, each city is allowed to impose an assessment on utilities for the use of streets and alleyways; this assessment generally is calculated as a percentage of gross r eceipts and ranges from 2 to 4 percent. 2 Gas utilities also pay a Railroad Commission assessment of 0.25 per- cent of gross receipts, and telephone and electric utilities pay a Public Utilities Commission (PUC) assessment of one-sixth of 1 percent.

Utilities also recover from ratepayers their own costs of litigating rate cases. In addition, utilities must pay the reasonable cost of cities rate-case expenses, and these costs too are passed on to their ratepayers. 3 Tax increases also can be passed on. The PUC is required to allow utilities to recover tax increases from customers via a surcharge. 4 Telecommunica- tions utilities also must contribute to a Universal Service Fund 5 ; these expenses are also passed on to the customer base via a surcharge. 6 Surcharges and assessment pass-throughs represent at least 3 percent of the state s total utility- related costs. 7

Generally, state government can levy taxes on political subdivisions, but the subdivisions cannot levy taxes on the state. Similarly, the state does not pay attorneys fees and court costs without specific statutory authority to do so. 8 Yet, the state does pay part of the costs utilities incur in attempting to raise their rates, and assists in defraying cities rate-case expenses.

For example, the University of Texas at El Paso (UTEP) has paid at least $120,000 in the last year for rate-case expense surcharges to cover its share of costs incurred by the City of El Paso in El Paso Electric Company rate cases. Moreover, the city has s trongly opposed UTEP s request to receive service from a rate schedule that is available to municipal accounts, which is much less expensive. 9

The Legislature should provide that no state agency or institution of higher education shall be subject to utility surcharges, additional charges or assessments.

Specific exemptions should include, but not be limited to, the High Cost Fund, Universal Service Fund, Municipal Franchise Fee, Gross Receipts Assessment, Rate Case Expenses, House Bill 11 surcharge, and Railroad Commission and PUC assessments. In order to achieve these savings, the Legislature must reduce the appropriation of state agencies and institutions by the amount indicated in the fiscal impact section below.

The Legislature is responsible for determining which surcharges and assessments are applicable to state operations. Reducing state costs regarding these services will benefit all taxpayers. There are precedents for exempting governmental entities from such taxes or surcharges. Both the Public Utility Regulatory Act and the Gas Utility Regulatory Act currently exempt school and hospital districts from pass-throughs of payments in lieu of taxes. 10

Fiscal Impact
State government spent about $212 million in fiscal 1992 for telephone, electric, gas and water utility service. 11 Since the various fees and surcharges typically represent about 3 percent of total expenditures, annual savings from this recommendation would be $6.3 million. The five-year savings would be $31.5 million, assuming continuation of present consumption, rat e and surcharge and assessment levels.

Fiscal Savings to the Savings to Other Dedicated Savings to All Dedicated Change in
Year General Revenue Fund 001 Accounts or Funds Accounts or Funds FTEs

1994 $3,276,000 $3,024,000 $6,300,000 0
1995 3,276,000 3,024,000 6,300,000 0
1996 3,276,000 3,024,000 6,300,000 0
1997 3,276,000 3,024,000 6,300,000 0
1998 3,276,000 3,024,000 6,300,000 0

1 Comptroller of Public Accounts, Expenditures for Electric, Gas, Telephone Monthly and Long Distance and Water During Fiscal Years 1991 and 1992, November 13, 1992 (computer printout). This report indicates $230 million in fiscal year 1991 and $223 million in fiscal year 1992 for utility expenditures. The report does not include utilities expenditures from local funds or payments made by state agencies for utility expenses of entities as a part of some other service.
2 Tax Code, Section 182.025, allows cities to levy a street use fee of up to 2 percent of gross receipts on electric, gas and water utilities. The 2-percent maximum is waived if a franchise agreement executed before May 1, 1941, provided for a higher amount . Some cities charge as much as 4 percent. Tel ephone utilities also pay city franchise fees and the gross receipts amount is generally equivalent to that paid by other utilities. In addition to city franchise fees, the state imposes a gross receipts tax. That tax ranges from 0.581 to 1.997 percent. Un like city fees, which are usually passed on to customers via a surcharge on the bill [the formula is (tax percent / 100 percent - tax percent) * gross receipts amount = surcharge], state gross receipts taxes are treated as an expense and recovered from customers as part of the basic bill.
3 See Public Utility Regulatory Act (PURA), Section 24(a) and Gas Utility Regulatory Act (GURA), Section 3.03(a).
4 PURA, Section 43(j).
5 PURA, Section 98(b).
6 PURA, Section 96A(c).
7 This percentage was estimated based on the Attorney General s Office experience in rate cases. It varies by area and ranges from 3 to 7 percent.
8 The general attorneys fees authority is found in Tex. Civ. Pract. & Rem. Code, Section 38.001. Parties may recover attorneys fees if they p revail on a valid claim for eight enumerated causes of action. The Code, however, only authorizes attorneys fees from an individual or corporation. The state is neither an individual nor a corporation. The Code does allow for state payment of attorneys fees and costs if a state agency asserts a frivolous cause of action per Section 105.001 et seq.
9 If UTEP were to be made eligible for service from the City/County rate in EPEC s tariffs, it would save about $550,000 per year. City/County service is ava ilable to El Paso Community College, but not UTEP. State offices in the area would save around $85,000 per year if they could subscribe to the rate available to city or county customers with the same usage characteristics. This dispute is addressed in anot her section of the report.
10 PURA, Section 48 and GURA, Section 5.13.
11 Comptroller of Public Accounts, Expenditures for Electric, Gas, Telephone Monthly and Long Distance and Water During Fiscal Years 1991 and 1992, November 13, 1992 (computer printout). The Comptroller s figure for gas utility service includes liquid petroleum gas, which is not subject to the same taxes and surcharges as are utility services. In this respect, the gas/LP figure is high. The total gas/LP amount was $30,984,920, and it i s not possible to segregate the two, since expenditures for these items are booked to the same account (7502). In an attempt to at least partially eliminate the overcount, the estimate of the percent of total spending that is related to taxes, fees, surcha rges, etc., was slightly reduced.