Utilities can pass tax hike to customers

Erin Neff

Tuesday, July 29, 2003 | 11:18 a.m.

Legislators crowed about how the record tax increase they passed July 21 protected the "little guy." But a largely unnoticed provision of the tax bill is expected to mean higher electric, phone, gas, cable and trash bills for all Nevadans.

Buried at the bottom of page 135 of Senate Bill 8 is a section permitting any public utility to increase its rates for service to offset any new tax liability. The law also includes companies that have agreements with cities and counties to provide services such as cable TV and trash collection.

The utilities and companies can estimate what they'll pay in new taxes from now until Jan. 1, 2005, and can start collecting that from ratepayers over the next 16 months, according to Tim Hay, the state consumer advocate.

"The effect of the bill is to give public utilities an automatic pass-through," said Hay, director of the office of Consumer Protection for the state Attorney General. "There are no provisions for how they allocate that."

Representatives for utilities and the affected companies said that even if the tax liability is passed on to customers, the impact would be "minimal" because those companies have such large customer bases over which to spread the impact.

Under the new law, a business' payroll will be taxed at 0.65 percent this fiscal year and 0.7 percent in the next fiscal year, less the cost of health benefits the company provides its workers.

Southwest Gas Co. spokesman Roger Buehrer said the payroll tax created by the Legislature will roughly cost his company an additional $400,000 a year.

"It's very early on and that initial estimate is based on our rough understanding of how the tax would work and how we figure the health care credit," Buehrer said.

Using that estimate, the company's added tax liability could be about $600,000 for the period through Jan. 1, 2005.

Southwest Gas has 575,000 customers in Nevada, with roughly 473,000 of those in Southern Nevada.

Buehrer said his company has not yet decided whether it will pass the estimated tax liability on to customers, but said Southwest Gas will go to the PUC for guidance.

"It's a cost of service and that's one of our costs of doing business," Buehrer said. "Obviously any decision we make in that vein, we'd take before the Public Utilities Commission. We feel that we have a responsibility to at least get some direction from the Public Utilities Commission."

Other companies said they were still trying to figure out what the tax means to them.

Republic Services, which provides garbage and recycling services in Southern Nevada, has about 1,400 employees. But Republic has 400,000 customers over which that tax liability can be spread, according to Lee Haney of the Rogich Communications Group who serves as the company's spokeswoman.

"We're still in the process of evaluating," Haney said. "But at first glance it appears to be a fairly minimal impact when you have as many customers as we do."

That argument doesn't lessen the concerns of Marcia Gallegos of Henderson. The 33-year-old cocktail waitress had just finished mailing her Sprint bill on Monday when she was told that Sprint, Republic and others could soon increase her bills to cover their new payroll tax costs.

"I pay electric and gas and trash and phone and cell phone and everything else," Gallegos said. "Sure, it may be minimal in one bill, but it will be a big deal to my budget if they all increase their rates."

Hay, the consumer advocate, said it may be even worse than it seems at first blush.

The companies could bill current customers for the entire amount of the tax increase. But since the total amount won't be known until 2005, consumers may actually pay more up front and have little recourse to recoup that money 16 months from now, Hay warned.

"They're going to collect all at once," Hay warned.

Paul Brown, executive director of the Progressive Leadership Alliance of Nevada, said estimating the tax liability is akin to a "free loan."

"If you deliberately overestimate -- not that they'd ever do anything like that -- it's like free money," Brown said.

Hay said he also fears a utility like Sprint could actually place all of its tax liability across its customer base, meaning someone who only has basic phone service might pay the same rate increase as a customer with cell phone, high-speed Internet or broadband services.

"Would they place the tax liability on the basic rights and not discretionary services?" Hay asked. "There are great opportunities for shuffling their increased tax liability to the consumers least able to pay for it."

Sprint spokeswoman Detra Page said each of the company's divisions is separate, with basic phone service regulated by the state PUC and wireless or cellular services unregulated bu the state.

"Each of the divisions will look at the impacts separately," Page said.

Assembly Majority Leader Barbara Buckley, D-Las Vegas, said the section of the bill in question was recommended language from Legislative Counsel Bureau attorneys to protect monopoly businesses.

"Monopolies are different," Buckley said. "They are guaranteed a reasonable rate of return."

Buckley said if utilities and companies like Republic were not able to pass the increases along, they could consider the new taxes to be a "taking" of their assets.

"Our staff felt that it had to be set up this way," Buckley said. "I would have preferred it to be done the other way, but I'm only one person."

Private utility companies like Nevada Power, Sprint and Southwest Gas Co. could spike rates to make up for the increase in taxes without asking the Public Utilities Commission, according to Hay's interpretation of the bill's language.

Hay said a company like Republic Services or Cox Cable is permitted to increase rates without going through the municipal government boards that granted the company's current franchise agreements.

Public utility companies like the Southern Nevada Water Authority are exempt from the new business payroll taxes, as government is not subject to taxing employee payrolls.

Peggy Maze Johnson, executive director of Citizen Alert, said she "would like to have asked for a second opinion" on why the provision was included in the tax law.

"All those little guys who were sitting there during tax debates saying 'no' are the very ones who are going to get stuck paying this," Johnson said.

Johnson also chaired the committee for Question 14 during last fall's election, promoting the ballot initiative that expressed support for a public-owned electric utility.

Her organization questions why private utilities can make money from essential services. Sprint's Page said that while her company is still evaluating its tax liability, it understands the statute "allows us to recover this in our rates."

She also said that the impact should be minimal because of Sprint's large customer base. Page said Sprint has 1,750 employees in Nevada. However, she declined to state how many customers Sprint has "for proprietary reasons."

Buckley said utility lobbyists told her that their companies "wouldn't take advantage of" their estimates.

Hay said his office will monitor any rate increases that are imposed as a result of the tax increases to the utilities.

Although utility companies hint that customers will be impacted, they have not yet estimated the amount or offered specific details on the increases.

In a written statement, Nevada Power Co. President Pat Shalmy said: "We are still analyzing the tax plan and its financial implications at this time. However, we do believe the effect on the average residential customer should be minimal."

Nevada Power, like all utilities, took a neutral position on taxes during the legislative debate. Shalmy, in his statement, said his company did make it clear to lawmakers they wanted to "minimize the impact on our customers."

Representatives of Cox Cable could not be reached this morning for information on that company's tax liability.

Michael Lavine, president of Consumers for the Protection of People, expressed serious concerns about Nevada Power during last year's record rate case.

Lavine now serves on a citizen advisory panel to the company and said he was certain any additional rate increases will come before him and other panel members.

"It was a foregone conclusion in that awful legislative session that whatever business or utilities got taxed was going to mean they were going to pass it along to consumers," Lavine said.

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