The urban legend of Senate Bill 408

For those of you who find your eyes glazing over when political freebasers get wonky--this post might send you into stratospheric heights of unbelievable yawning boredom. For that, I apologize. But I need to get this off my chest.

During the primary race in April, I read through comments on this Blue Oregon post with a lot of concern. Specifically my concerns were flamed when reading allegations that Democratic Representative Brad Avakian voted against Senate Bill 408 due to campaign contributions, which was brought to the fore by Dan Meek:

Rep. Avakian was one of 2 Dems in the Legislature to vote against SB 408 (2005), the bill to ban regulated utilities from charging ratepayers for "income taxes" that the utilities are not actually paying. This practice, allowed by the Oregon PUC, cost Oregon ratepayers $150 million per year in phony charges. The vote in the House was 54-6. The vote in the Senate was 30-0.

I guess Rep. Avakian could have taken the easy way out by voting for SB 408, since his vote obviously did not matter to the outcome. But his vote shows that he will indeed courageously stand up for the utilities. My review of his C&E shows about $10,000 in campaign contributions from the affected electric and gas utilities since his vote. These are exceeded only by contributions from the Oregon Beverage PAC (about $12,000).

That's a really serious charge, in my book. If someone who've I considered on my side is participating in a quid pro quo, I want to know about it and call them out on it. Unethical behavior is wrong on all sides of the aisle. So I've spent the last several months making phone calls, researching on the internet and conducting interviews about Senate Bill 408.

The first thing I did was go back and read the bill. Not being fluent in legislationlegalspeak, this was no easy task. So I enlisted an attorney friend of mine to read the bill and give me a rundown on the thrust of what it does.

He told me that in essence, Senate Bill 408 requires utilities to return to the ratepayers any monies collected for taxes that aren't actually paid as taxes. In other words, if a utility chooses not to pay the taxes it collects--it has to give money back to the ratepayers.

At first blush this might seem like a reasonable and good idea. After all, this bill was incepted in the first place because Enron was dipping into PGE's coffers and taking the money that would have been used for taxes. Thus leaving PGE without the needed revenue. There was little the State could do because Enron is a Texas company following Texas laws--PGE was merely their subsidiary.

What this bill doesn't do however, is force utilities to pay their taxes even though that's exactly how it was sold, according to Avakian:

There's no question that when the proponents of the bill were lobbying people in Salem that they were lobbying this as a bill that would force utility companies to pay their taxes. That was premised mostly on the PGE-Enron situation where taxes were being collected in rates that people paid. Then Enron was sticking its hands into Oregon and taking that money out of PGE and pulling it into Texas. So the dollars that were collected from consumers were actually ending up in Texas rather than being paid back to the State of Oregon as taxes. This bill was being touted as a bill that would fix that and force PGE and other companies to pay those taxes that they collect.

The bill was pushed by various interest groups such as the Citizens Utility Board, groups that believed in public ownership of utilities, Associated Oregon Industries and other groups that had business clients who would benefit from the lower rates they'd pay if the bill passed.

A superficial look at the bill might make it seem like a common sense, positive policy as Brad articulated:

I think that this bill would conceivably save consumers about $150 million. And it would guarantee that the money stayed in Oregon for people to spend on whatever they wanted to spend. As opposed to being sucked out to a parent corporation out of state. Which does look on its face, very attractive. But as I looked deeper into the bill I was not convinced that in the long run it would benefit consumers. And I was convinced that as far as the structure of government goes, what the role of the legislature is versus the role of the executive branch of government, whether or not it was the right thing to do.

So there were various reasons that even though on the face it looked like saving money for consumers was important, there were various other reasons that I think superceded that.

Brad noted that there is nowhere in the bill that says that companies have to pay their taxes. Instead, the bill says that if a utility doesn't pay its taxes, it has to reduce the rate it charges ratepayers. Given that reality, Brad says he had to vote against it.

The main reason? Oregon needs the revenue:

Schools are struggling more than they've ever struggled. We can't get medications cheaply to seniors, children and other people who need them. Our corrections system is busting, we're laying off cops. This is all because we don't have enough money in tax dollars coming in. I wanted a bill that forced these companies to pay their taxes. That's what this state needs and this bill didn't do it.

Another reason? Brad noted that setting rates is out of the legislature's purview and Constitutionally rests with the Executive branch:

You've got the legislature which in charge of creating certain policies for the state. In the past, the legislature granted the authority to the executive branch in order to set rates for the utility industry through the Public Utility Commission.

Now if the legislature chose to it could say we're going to change that policy and we're going to take that back. We're going to set policies now that dictate how to set rates, which is what this bill does. There is in my mind a Constitutional separation of powers issue with this bill.

The legislature isn't precluded from taking back the authority its given another branch of government. But when you're sitting as a legislator you're not just analyzing what you have the power to do. You're analyzing if you should exercise that power. This was a situation where I did not believe that the legislature should exercise its authority to step into a different branch of government and do something that the branch is responsible for.

The PUC should be setting the rates, not the legislature. This bill blended that authority. I thought that was an inappropriate use of legislative power.

A check of Avakian's C&E reports does show that he accepted money from utilities. But he also took money from groups and individuals who would have their rates cut under this bill in greater amounts. This makes Meeks' accusation of quid pro quo specious, at best.

Another legislator who voted against Senate Bill 408 is Representative Greg MacPherson out of the 38th House District in Lake Oswego. MacPherson says that legislators were "sold a bill of goods by industrial customers of utilities" and that the bill was about "a fight between two business interests fighting for tax savings".

Representative MacPherson noted that behind the scenes, 408 was about a struggle between utilities and the Industrial Customers of Northwest Utilities (ICNU). ICNU is a trade organization for larger industrial energy users. ICNU wanted the bill because it would lower their rates. But MacPherson said that consumers weren't a part of the process of deciding this policy and unfortunately many don't understand what it was about:

There's an overly simplified tendency on the part of the public that this was a victory of public over business. But it's one business interest over another.

MacPherson articulated the same essential reason for voting against Senate Bill 408 as Avakian: it doesn't solve the problem of utilities in Oregon not paying their taxes. He said that the momentum for the bill was so strong that even legislators who were concerned about it were loathe to vote against it for political reasons.

Its not as if the legislature didn't have an alternative bill, either. MacPherson said he felt the way to solve the problem of utilities not paying taxes was to install a corporate minimum tax. MacPherson introduced House Bill 3503, which would have done just that and Avakian would have supported. Unfortunately, House Republicans won't go near anything that might give a hint of a tax increase-even when its the best solution to a problem.

The only real conclusion I can make after researching this issue is that Senate Bill 408 is a lemon. It provides a short term political cover, making it look like the legislature is solving the problem of utilities not paying taxes. But in fact, it starves the state of needed revenue and doesn't compel utilities to pony up the dollars that they owe.

Its apparent to me that citizens ought to be questioning those that voted FOR 408, rather than those who voted against it.