Posted on November 8, 2011

PG&E Responds: On Federal Tax Payments and Investing to Improve the Economy

A number of media outlets recently wrote about a report that said 30 major U.S. public companies, including PG&E, had not paid federal income taxes over the past three years.

As the Edison Electric Institute and others have pointed out, the report is highly misleading, glossing over or ignoring the story behind the tax deductions.

In fact, the tax deductions stem directly from legislation passed by Congress during the depths of the recession to help spur economic growth and job creation by providing companies with a strong incentive to make big capital investments in infrastructure, among other things. The law helped drive utilities to make hundreds of billions of dollars in new investments in the past few years.

Specifically, companies that made such investments were given the opportunity to depreciate them immediately for tax purposes, reducing their tax bills in the near term. For companies like PG&E, that created an incentive to accelerate certain investments that otherwise would have been made over a longer time period. PG&E did exactly that — precisely as Congress and our regulators at the California Public Utilities Commission intended.

Additionally, because we could fund these additional investments using tax savings, the company did not have to raise financing in the capital markets, saving customers the cost of that financing.

Also lost in the story was the fact that the utilities still will pay the same tax bill they would have originally, only later. The accelerated depreciation results in a deferral of taxes, not an elimination of taxes. In the meantime, the economy and our customers get the benefit. In our book, that’s smart policy at a time when the country is facing the worst recession since the 1930s.

As the EEI President Tom Kuhn pointed out, the investments by utilities fueled the creation of more than 100,000 permanent jobs and more than 500,000 construction and other non-permanent jobs, helping to support struggling local economies.

Kuhn added that the total utility sector capital investment during the study’s time frame was up sharply from previous years.

Still, some have suggested that instead of using tax savings to boost investments, utilities should pass the savings directly back to customers. Under the law, however, that’s not an option. Congress explicitly bars utilities from doing so, for the obvious reason that it would sabotage the very intent of the law.

It also should be noted that PG&E, which serves 15 million people in Northern and Central California, is a significant provider of local and state tax dollars. PG&E forecasts that it will pay about $100 million in California state franchise and income tax for 2011.

In April, the company made franchise fee and property tax payments of almost $259 million to the 49 counties and 244 cities where we operate. The next payments will be made in December.

The property tax payments totaled more than $140 million, for taxes due for the period from January 1 to June 30, 2011. The company’s tax payments to counties for tax year 2010/11 increased by almost $29 million over the previous property tax year’s payments as a result of an increase in assessments due to PG&E’s infrastructure investments and an overall increase in tax rates.

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"PG&E" refers to Pacific Gas and Electric Company, a subsidiary of PG&E Corporation.
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