Connecticut lawmakers balanced the state budget last year by instituting a new tax on electric bills.
Although, the new tax went into effect Jan. 1, 2011, for Connecticut Light & Power customers, it goes largely unnoticed because it replaces a fee customers paid for the past decade.
At the time of passage, legislators who supported the bill explained the new tax would only cost residents a fraction of the previous fee, which averaged about $7.50 per household.
However, the tax has a much more noticeable impact on employers.
One business – a non-manufacturer located in the Hartford area – paid $3,486 on a recent electric bill, just for the one tax. The total bill would be reduced by 10 percent if the tax was eliminated, which would have happened if the legislature did nothing.
On an annual basis, the company will pay more than $41,000 for this one tax.
According to the U.S. Bureau of Labor Statistics, there were 170,900 unemployed Connecticut residents in January.
And, unlike most taxes in Connecticut, cities and towns have to pay the hidden electric tax.
The City of Torrington, excluding schools, paid $167.39 in taxes on its first electric bill of the year – for just three days of electric service. If that trend continues, the city will pay more than $20,000 in 2011.
New Britain, which estimates its town and school buildings use 25 million kilowatt hours annually, will pay more than $95,000 this year.
CL&P sells 22.7 billion kilowatt hours of electricity a year. At .379 cents per kwh, CL&P customers will pay about $86 million for this tax in 2011. The same customers will continue making these payments for years, just to cover a single year’s budget deficit.
Sen. Joe Markley, R-Southington, was elected in November, after the legislature instituted this new tax. Markley campaigned to oppose taxes as a matter of policy, but this one he believes is actually illegal. He is suing the Department of Public Utility Control to stop it from collecting the tax.
Markley’s lawsuit is delaying the sale of about $650 million in state bonds.
According to Markley, legislators may have created an illegal tax because they were trying to keep it hidden.
“They didn’t want to actually have a tax increase that they admitted was a tax increase,” he explained. “So they took a charge, a legitimate charge on the electrical bills which was due to expire, and decided to just turn it into a tax hoping that nobody would notice. And that’s what made it vulnerable, because you know they have a tax increase you can’t take it t court. But this is a case where they tried to do it kind of on the sly and they tripped themselves up with their own skullduggery.”
Markley’s legal argument is that the DPUC doesn’t have the authority to collect a tax. He also contends the tax violates the legal principle of “equal protection” because it applies to CL&P customers in 2011, United Illuminating customers in 2013 and will never apply to customers of municipal electric utilities.
In addition to his other concerns with the tax, Markley said the job implications of the tax “can only be bad.”
“The legislature has given great lip service to cutting the electrical rates and then when they have the chance to let the rates cut themselves, basically by inaction, they stepped in and turned it into a tax and kept the rates higher,” he explained.
The Connecticut Supreme Court will hear arguments in Markley v. DPUC on March 23, bypassing the appellate court at the request of the state.
“The state requested that the case be taken to the Supreme Court because they want to get it decided so they either can go out and borrow the money or they can find another way to fill the hole in the budget,” Markley said. “Or, of course, another possibility would be to find a way to eliminate the hole in the budget by making some kind of cuts in expenses immediately.”
Gov. Dannel Malloy criticized the hidden tax in his budget address as “just a way to tax us on our electric bill.”
“These bills are too high already, and I will make sure that we reduce that tax as much as possible,” he said.
However, Malloy proposed another electric tax in his budget for next year. It would charge generators of electricity .2 cents per kwh. Malloy’s budget director Ben Barnes said “there is no mechanism” for generators to pass the tax along to consumers.
Markley doesn’t agree.
“There’s a new tax on the generators of electricity. And the idea that somehow corporations are going to absorb that and not pass it on to their customers, of course, is totally naïve. We’ll pay that tax,” Markely said. “’We’ meaning the ratepayers, the businesses and the residents of Connecticut that are paying electrical bills.”