Falling fuel prices may have helped lower power bills in the recession year of 2009, but those savings for consumers mean TVA will pay less money to state and local governments this year.
The Tennessee Valley Authority paid state and local governments a record $550 million in the fiscal year ended Sept. 30 — up nearly 9 percent from the previous year and the biggest one-year increase in TVA tax-equivalent payments in its 77-year history.
But in the current fiscal year, the federal utility estimates it will cut its tax-equivalent payments by $30 million even though it expects record net income for the past year. This year’s expected decline is the largest cut ever in tax equivalent payments by TVA.
The fluctuations reflect the unique approach the federal utility uses to pay local governments and the unprecedented rise and fall in fuel prices, which help determine electricity rates.
COUNTY PAYMENTSState payments from TVA distributed back to counties last year:* Hamilton County: $3.2 million* Marion County: $1.1 million* Rhea County: $1.1 million* Bradley County $959,317* McMinn County: $835,991* Polk County: $744,932* Meigs County: $726,005* Bledsoe County: $457,529* Sequatchie County: $326,293Source: Tennessee Department of Revenue
“The TVA Act requires that 5 percent of the proceeds from power sales be redistributed as tax-equivalent payments in the areas where TVA holds properties or sells it power,” Chief Financial Officer John Thomas told TVA directors last week. “The reason for the decline this year is that our rates came down and we had relatively flat demand last year.”
The recession and a drop in fuel cost adjustments cut electricity sales by more than 5 percent from 2007 to 2009. This year, fuel cost adjustments pushed rates up by more than 30 percent before they began declining again this month.
Calculating TVA taxes
The agency’s tax payments are based on revenue collections in the previous year. Payments that drop this year are expected to rise again in fiscal 2012 because of higher fuel cost adjustments and improving power sales.
As a federal corporation, TVA is exempt from property and income taxes paid by private businesses. Tax-equivalent payments are distributed to state and local governments based on the value of its properties and the amount of power sold in given areas.
Tennessee puts about half of its TVA tax equivalent money in the general fund and gives the rest to local governments. Georgia, North Carolina and Virginia allocate all of their payments to cities and counties where TVA has property.
Even with reduced payments, TVA Director Bill Sansom said the utility remains one of the biggest “taxpayers” in states such as Tennessee. The state Department of Revenue says Tennessee gets more money from TVA tax equivalent payments than from taxes on beer, mixed drinks, alcoholic beverages, motor vehicle titles and inheritances combined.
TVA estimates it paid states and counties more than $9 billion since the tax equivalent payments formally began in 1941.
Nonetheless, TVA still paid 41 percent less in overall taxes than comparable shareholder-owned utilities last year, according to data from the Edison Electric Institute.
EEI, which represents private utilities, reports that shareholder-owned utilities paid $31.1 billion in income and other taxes in 2009, or 8.5 percent of their $365.9 billion in total revenues. As a government utility, TVA doesn’t pay any corporate income taxes.
If TVA paid local property taxes similar to private utilities in Tennessee, TVA would pay more than $25 million in property taxes to Hamilton County — or more than eight times as much as TVA now pays in tax equivalent payments to the county.
EPB is biggest taxpayer
TVA is the second-biggest taxpayer in Hamilton County, with more than $3.1 million paid last year.
The utility’s electricity distributor in Chattanooga, EPB, is Hamilton County’s biggest taxpayer. According to the county trustee’s office, EPB handed over $8.1 million in tax-equivalent payments to Hamilton and a total of $13 million to cities and counties in and around Chattanooga.
A city-owned utility, EPB is exempt from most taxes. EPB and other TVA distributors use a formula to make tax-equivalent payments to local governments.
Despite the drop in TVA tax equivalent payments, EPB Chief Financial Officer Greg Eaves estimates EPB will boost areawide payments to $15 million next year, primarily because of the continued build-out of its fiber-optics communications network.
Contact staff writer Dave Flessner at 757-6340 or dflessner@timesfreepress.com.