ORDER NO. 98-125

ENTERED APR 7 1998

This is an electronic copy.

BEFORE THE PUBLIC UTILITY COMMISSION

OF OREGON

AR 329

DISPOSITION: AMENDMENTS ADOPTED

On July 8, 1997, the Public Utility Commission of Oregon opened this docket to consider amendments proposed by its Staff to OAR 860-022-0040, 860-022-0042, 860-022-0045, 860-034-0330, and 860-034-0340, relating to city, county, and local government fees, taxes and other assessments.

On July 10, 1997, the Commission filed a Notice of Proposed Rulemaking with the Oregon Secretary of State. Requests for hearing were filed, as were written comments. On October 14, 1997, the Commission filled a Notice of Rulemaking Hearing setting a public hearing for December 3, 1997.

On December 3, 1997, Thomas G. Barkin, an Administrative Law Judge for the Commission, presided over a public hearing in Salem, Oregon. Additional written comments were filed by January 12, 1998.

The Commission considered this matter at its Public Meeting on April 7, 1998. The Commission decided to adopt the amendments set out in Appendix A to this order.

The Proposed Rules

Staff modified its proposed rules in several ways during the proceeding in response to comments from the participants. The final version is set out in Appendix A.

Amendments to OAR 860-022-0040, 860-022-0045, and 860-034-0340

Staff’s proposed amendments to these three rules involve "housekeeping" changes consistent with revisions adopted by the Commission in dockets AR 337 and AR 338 (Orders No. 97-442 and 97-443). These changes involve word usage, sentence structure, and punctuation. No objections were raised to these changes. They are appropriate and are adopted.

PacifiCorp requests that OAR 860-022-0040 be amended to remove the limitation (3 percent for gas utilities and 3.5 percent for electric, steam, and water utilities) on the exactions which may not be itemized or billed separately to customers. It contends that the likely restructuring of the electric industry will make "unbundling" of items on utility bills, including taxes, helpful to consumers in determining their choice of a provider.

Staff and other parties suggest that PacifiCorp’s proposal is premature because restructuring will not be a reality in Oregon for some time. The Commission agrees with Staff and will not adopt PacifiCorp’s suggestion.

Amendments to OAR 860-022-0042 and 860-034-0330

Staff Position. These rules concern privilege taxes, fees, and certain other assessments imposed on telecommunications utilities by cities. Staff proposed some housekeeping changes to these rules which were not contested. Staff also proposed some substantive changes to these rules designed to make the rules clearer and to provide for more equitable treatment of ratepayers. Changes to the substantive provisions of each rule were contested.

Under the existing rules, the aggregate amount of various exactions made by a city on a telecommunications utility up to 4 percent of gross revenues (defined as revenues derived from exchange access services, less net uncollectibles) is allowed as operating expenses for rate-making purposes and is not to be itemized on customers’ bills or billed separately. The amount above that limit is to be charged pro rata to customers of basic local access services within the city and itemized or billed separately.

Staff argues that the existing rules do not apply to any city tax not based on gross revenues, such as those based on net income or payroll taxes. The proposed amendments attempt to treat all city taxes equally, regardless of name and regardless of whether they are based on revenues, net income, or some other basis. Staff notes that some cities now impose or may implement taxes and fees on telecommunications utilities which do not fit within the definition of a gross revenue based tax or which have been given names which may suggest that the tax is outside the statutory 7 percent limitation on privilege taxes set out in ORS 221.515. The city of Eugene, for example, has enacted an "Annual Telecommunication Registration Fee" which may be outside the statutory limitation on privilege taxes. Portland has a long standing business income tax which is not subject to the limitation in ORS 221.515. Staff believes other cities may enact new ways of raising revenues that may be included in a utility’s operating expenses and thus "hidden" from the ratepayers/taxpayers. Sections (1) and (2) of the amendments to these two rules therefore seek to bring within the scope of the rules every type of exaction that a city might impose on a telecommunications utility, except property taxes (ad valorem taxes).

Staff argues that the amendments will make the burden of payment of the exactions more equitable by increasing the proportion of the exactions that is itemized and collected from the ratepayers living in the city imposing the exaction. Taxes which are recovered in a utility’s base rates are paid by all customers of the utility, wherever situated, not just by those who live in the taxing jurisdiction and who thus benefit from the taxes and fees. Taxes which are paid to the telecommunications utility directly by the customer, on the other hand, are paid by those benefiting directly from the tax. Thus, increasing the proportion of taxes which is itemized will apportion the burden more fairly.

Staff argues that its proposed amendments do not shift the burden of payment from companies to customers, as claimed by other participants. The utility will continue to be responsible for payment of the tax or other exaction. The amendments will simply change the body of customers from whom a telecommunications utility collects revenues to pay the taxes: the city’s residents will pay more of the exactions and the ratepayers outside the city less. Staff also argues that the proposed amendments will allow telecommunications utilities to pass on city tax increases and decreases to customers immediately instead of in a later rate proceeding.

Staff argues that its amendments do not affect the amount of taxes or other exactions that cities may charge telecommunications utilities. Moreover, in Staff’s view, the changes would have no financial impact on telecommunications utilities. The aggregate amounts that appear on bills may change in some instances. Customers will thus be more aware of the amounts of and changes to city assessments.

Position of Certain Cities. The League of Oregon Cities and the cities of Portland, Springfield, Eugene, Wilsonville, Albany, Sandy, Medford, Newberg, Bend, and Hillsboro filed comments. They supported many of the modifications to the proposed rules made by Staff during the course of the proceeding. All, however, opposed the final version of both OAR 860-022-0042 and 860-034-0330. The discussion below summarizes the prevailing sentiment of the cities. The Commission recognizes, however, that not all of the participating cities asserted every position set out below.

The cities argue that the changes proposed by Staff would significantly alter the measurement of the amount of exactions which must be itemized on the customers’ bills. According to the cities, the taxes included in the 4 percent limitation on unitemized exactions would be increased and the base used to make the calculation would be shrunk. The changes would thus increase the exactions which would be itemized and billed directly to the customers. According to the cities, the amendments would shift the tax burden from the corporations to the individual customer without any examination of whether public policy justifies such changes. The amendments would in effect create a new "sales tax." Since the Commission does not have tax-making authority, this revision of the taxes on utilities "to create a tax on customers that merely flows through the corporations" is improper.

The cities also assert that the proposed changes may violate the 1996 Telecommunications Act. According to the cities, the new provisions will allow telecommunications utilities to subsidize their tax burden by shifting the taxes onto their customers. The additional expenses of tracking these funds and paying them to the appropriate city would be recoverable regulatory costs to the telecommunications utility. Other businesses, including competing telecommunications providers, might not be able to effect such shifts for economic and accounting reasons and would have no way of directly recovering the attendant costs. The competing telecommunications providers would thus be at a disadvantage vis-à-vis existing telecommunications utilities. This state of affairs would violate § 253(a) of the Telecommunications Act, which prohibits states from materially inhibiting the ability of any competitor or potential competitor to compete in a fair and balanced legal and regulatory environment.

DISPOSITION

The amendments to OAR 860-022-0040, 860-022-0045, and 860-034-0340 were not opposed by any party. They are adopted. As noted above, we do not adopt at this time PacifiCorp’s suggestion that OAR 860-022-0040 be further amended to remove the percentage limitations for gas, electric, steam, and water utilities.

The amendments to OAR 860-022-0042 and 860-034-0330 were contested. We will discuss those two rules in some detail.

The amendments are designed to clarify our policies and make them internally consistent. Staff points out that differences may now exist in the treatment of various exactions, depending on their basis or even their names. The amendments seek to reduce that disparity and provide for uniformity of treatment. We conclude that they accomplish these goals.

Some of the cities argue that the amendments change the payer of the taxes or fees involved or create a "new" tax. We conclude otherwise. The company owes and must pay the tax, either directly from its own resources, to be recouped in rates, or by collecting the tax from customers and forwarding it to the taxing authority. They are paid by "customers" in either event. The amount of exactions cities may levy is not changed by the amendments. The amendments do, however, change the groups of customers who pay. They increase the proportion of the taxes that are paid by the residents of the city imposing the tax rather than by the entire ratepayer base of the utility. This is fair, because those living in the jurisdiction get the greatest benefit from whatever the taxes finance. Customers of the utility who live outside the city will also benefit from the services and infrastructure provided through the city’s use of the tax expenditures, but the benefit to them will, in general, be much less than the benefit to the city’s residents. Of course, people in a city who are not customers of the utility get a "free ride," since they neither pay the rates nor pay the taxes directly. The Commission can do nothing about that, however. There is no method within our jurisdiction to spread the tax among all those who potentially benefit from it. Thus, the proposed amendments, while not leading to a perfect symmetry between payment and benefit, move the rules closer to symmetry.

The Commission does not accept the cities’ argument that the proposed amendments will violate the 1996 Telecommunications Act. We see no reason that competing telecommunications service providers cannot pass through the taxes to their customers in the same fashion that telecommunications utilities will do under the amendments: by putting them on the bill, collecting them from the customers, and passing them on to the taxing authority. If they choose not to do so, for competitive or other strategic reasons, that choice cannot reasonably be construed to make the Commission’s rules violative of the Act. We note that no actual or prospective competitive telecommunications provider has raised this issue in this proceeding. We are therefore skeptical that this issue is of real concern to them.

Staff argues that the amendments will prevent Oregon cities from adopting taxes that would be "hidden" by our present rules. Of course, it is not our job to come between local governments and their constituents or to act as a tax watchdog. Nevertheless, we do believe that the taxes that affect utilities and their customers should be explicit. The proposed amendments will move us toward that goal. The cities have not provided any sound reason why the nature and amount of exactions levied against telecommunications utilities should be covert, nor have they advanced any reason that the utilities should have to recover the exactions through the rate-making process rather than directly from the customers who benefit most from them.

Some of the cities suggest that the Commission or Staff should have consulted with the cities before proposing to adopt the amendments in question. Of course, the Commission wants to be apprised of the views of all affected parties before making a decision on a policy matter. However, that consultation need not come prior to our Staff’s initial proposal to adopt, amend, or repeal a rule. It can come during the public review of the rule, as it has in this case. As noted above, 10 cities and the League of Oregon Cities have expressed their views in writing and at the public comment hearing. It is clear that we are now well informed of the views of those affected by these proposed changes.

In summary, we conclude that the proposed amendments will clarify the rules and provide for more equitable treatment of various exactions made by cities upon telecommunications utilities. They are adopted.

ORDER

IT IS ORDERED that the amendments to OAR 860-022-0040, 860-022-0042, 860-022-0045, 860-034-0330, and 860-034-0340, set out in Appendix A to this order are adopted. They will be effective upon filing with the Oregon Secretary of State.

Made, entered, and effective ____________________________.

BY THE COMMISSION:

A person may petition the Commission for the amendment or repeal of a rule pursuant to ORS 183.390. A person may petition the Court of Appeals to determine the validity of a rule pursuant to ORS 183.400.

AR 329

860-022-0040

Relating to City Fees, Taxes, and Other Assessments for Electric, Gas, Steam, and Water Utilities

(1) The aggregate amount of all business or occupation taxes, license, franchise or operating permit fees, or other similar exactions imposed upon gas, electric, or steam, or water utilities by any city of this state in Oregon for engaging in business within such city or for use and occupancy of city streets and public ways, which does not exceed 3% percent for gas utilities or 3.5% percent for electric, steam, and water utilities, applied to gross revenues as defined herein, shall be allowed as operating expenses of such utilities for rate-making purposes and shall not be itemized or billed separately. See OAR 860-022-0042 for municipality privilege taxes, fees, and other assessments relating to telecommunications utilities.

(2) Except as otherwise provided herein, "gross revenues" shall means revenues received by utilities from utility operations within the city less related net uncollectibles. Gross revenues of gas, electric, and steam utilities shall include revenues from the use, rental, or lease of the utility’s operating facilities of the utility other than residential-type space and water heating equipment. Gross revenues shall not include proceeds from the sale of bonds, mortgage or other evidence of indebtedness, securities or stocks, sales at wholesale by one public utility to another when the utility purchasing the service is not the ultimate consumer customer, or revenue from joint pole use.

(3) Permit fees or similar charges for street opening, installations, construction, and the like to the extent such fees or charges are reasonably related to the city’s costs of the city for inspection, supervision, and regulation in the exercise of exercising its police powers;, and the value of any utility services or use of facilities provided on November 6, 1967, to a city without charge, shall not be considered in computing the percentage levels hereinabove set forth. Any such services may be continued within the same category or type of use. The value of any additional category of utility service or use of facilities provided after November 6, 1967, to a city without charge shall be considered in computing the percentage levels hereinabove set forth.

(4) This rule shall not affect franchises existing on November 6, 1967, granted by a city. Payments made or value of service rendered by a utility under such franchises shall not be itemized or billed separately. Where When compensation different from the percentage levels set forth in section (1) of this rule is specified in a franchise existing on November 6, 1967, such compensation shall continue to be treated by the affected utility as an operating expense, during the balance of the term of such franchise. Any tax, fee, or other exaction set forth in section (1) of this rule, hereinafter unilaterally imposed or increased by any city during the unexpired term of a franchise existing on November 6, 1967, and containing a provision for compensation for use and occupancy of streets and public ways, shall be charged pro rata to local users as hereinafter provided.

(5) Except as provided in section (4) of this rule, to the extent that any city tax, fee, or other exaction referred to in section (1) of this rule exceeds the percentage levels allowable as operating expenses in said section (1) of this rule, such excess amount shall be charged pro rata to users of the utility customers within said city and shall be separately stated on the regular billings to such users customers.

(6) The percentage levels set forth in section (1) of this rule subsequently may be changed if the Commission determines after such notice and hearing, as are required by law, that fair and reasonable compensation to a city or all cities should be fixed at a different level, or determines that by law or the particular circumstances involved a different level should be established.

Stat. Auth.: ORS Ch. 183, 756 & 767

Stat. Implemented: ORS 756.040

Hist.: PUC 164, f. 4-18-74, ef. 5-11-74 (Order No. 74-307); PUC 3-1990, f. & cert. ef. 4-6-90 (Order No. 90-417); PUC 14-1990, f. & cert. ef. 7-11-90 (Order No. 90-1031)

860-022-0042

Relating to City Privilege Taxes, Fees, and Other Assessments for Telecommunications Utilities

(1) The aggregate amount of all privilege, business or occupation taxes, license, franchise or operating permit fees, or other similar exactions privilege taxes and fees and other assessments imposed upon a telecommunications utilities utility by any city of this state in Oregon for engaging in business within such city or for use and occupancy of city streets and public ways, whether applied to gross regulated revenues as defined herein, net income, or other bases, shall be allowed as operating expenses of such utilities the telecommunications utility for rate-making purposes and shall be itemized or billed separately, subject to sections (2) through (4) of this rule.

(2) Except as otherwise provided herein, As used in this rule:

(a) "Fees and other assessments" means business or occupation taxes or licenses; franchise or operating permit fees; sales, use, net income, gross receipts, and payroll taxes, levies, or charges; and other similar exactions imposed by cities, other than ad valorem taxes, upon revenues or income received from regulated telecommunications services by a telecommunications utility.

(b) "Local access revenues" means those revenues derived from exchange access services within the city, as defined in ORS 401.710, less related net uncollectibles.

(c) "Privilege taxes" means taxes levied and collected by cities from a telecommunications utility for use and occupancy of city streets, alleys, or highways, as provided under ORS 221.515.

(d) "gross Regulated revenues" shall means those revenues derived from exchange access services, as defined in ORS 401.710, regulated telecommunications services within the city less related net uncollectibles from such revenues. Regulated revenues include, but are not limited to, local access revenues.

(3) Separate fees for street opening, installations, construction, and maintenance of fixtures or facilities to the extent such fees or charges are reasonably related to the city’s costs of the city for inspection, supervision, and regulation in the exercise of its police powers may shall be allowed as operating expenses of a telecommunications utility for rate-making purposes. Such fees shall not be deducted in computing the percentage levels herein set forth in section (4) of this rule.

(4) The aggregate amount of all privilege taxes and fees and other assessments, business or occupation taxes, license, franchise or operating permit fees, and other similar exactions imposed upon a telecommunications utilities utility by municipalities a city, which does not exceed 4 percent of local access revenues, shall be allowed as operating expenses for rate-making purposes and shall not be itemized or billed separately. All such exactions privilege taxes and fees and other assessments in excess of 4 percent of local access revenues shall be charged pro rata to users of basic local access services, within the municipality city, and the aggregate excess amount shall be separately itemized on customers’ bills, or billed separately.

Stat. Auth.: ORS Ch. 183, 756 & 759

Stat. Implemented: ORS 759.105

Hist.: PUC 14-1990, f. & cert. ef. 7-11-90 (Order No. 90-1031)

860-022-0045

Relating to Local Government Fees, Taxes, or and Other Assessments

(1) In the event If any county of the State of in Oregon, other than a city-county, should imposes upon any public a utility subject to the jurisdiction of the Public Utility Commission any new taxes, or license, franchise, or operating permit fees, or increases any such taxes or fees, the public utility required to pay such taxes or fees shall collect from its customers within the county imposing such taxes or fees the amount of the taxes or fees, or the amount of increase in such taxes or fees provided, however, that should. However, if the taxes or fees cover the operations of a public utility in only a portion of a county, then the affected public utility shall recover the amount of the taxes or fees or increase in the amount thereof from customers in the portion of the county which is subject to the taxes or fees. "Taxes," as used here in this rule, means sales, use, net income, gross receipts, payroll, business or occupation taxes, levies, fees, or charges other than ad valorem taxes.

(2) The amount collected from each public utility customer pursuant to section (1) of this rule shall be separately stated and identified to in all customer billings.

(3) This rule shall apply applies to new or increased taxes imposed on and after December 16, 1971, including new or increased taxes imposed retroactively after that date.

(4) Should If any county, public utility or, customer affected by this rule deems its the rule’s application in any particular instance to be unjust or unreasonable, it may apply for a waiver of this rule by petition to the Commission, setting forth the reasons why the rule should not apply.

Stat. Auth.: ORS Ch. 183, 756, 757 & 759

Stat. Implemented: ORS 757.110

Hist.: PUC 164, f. 4-18-74, ef. 5-11-74 (Order 74-307)

860-034-0330

Relating to Municipality City Privilege Taxes, Fees, and Other Assessments for Utilities

(1) The aggregate amount of all privilege, business or occupation taxes, license, franchise or operating permit fees, or other similar exactions privilege taxes and fees and other assessments imposed upon a utilities utility by any city of this state in Oregon for engaging in business within such city or for use and occupancy of city streets and public ways, whether applied to gross regulated revenues as defined herein, net income, or other bases, shall be allowed as operating expenses of such utilities the utility for rate-making purposes and shall be itemized or billed separately, subject to sections (2) through (4) of this rule.

(2) Except as otherwise provided herein, As used in this rule:

(a) "Fees and other assessments" means business or occupation taxes or licenses; franchise or operating permit fees; sales, use, net income, gross receipts, and payroll taxes, levies, or charges; and other similar exactions imposed by cities, other than ad valorem taxes, upon revenues or income received from regulated telecommunications services by a telecommunications utility.

(b) "Local access revenues" means those revenues derived from exchange access services within the city, as defined in ORS 401.710, less related net uncollectibles.

(c) "Privilege taxes" means taxes levied and collected by cities from a utility for use and occupancy of city streets, alleys, or highways, as provided under ORS 221.515.

(d) "gross Regulated revenues" shall means those revenues derived from exchange access services, as defined in ORS 401.710, regulated telecommunications services within the city less related net uncollectibles from such revenues. Regulated revenues include, but are not limited to, local access revenues.

(3) Separate fees for street opening, installations, construction, and maintenance of fixtures or facilities to the extent such fees or charges are reasonably related to the city’s costs of the city for inspection, supervision, and regulation in the exercise of its police powers may shall be allowed as operating expenses of a utility for rate-making purposes. Such fees shall not be deducted in computing the percentage levels herein set forth in section (4) of this rule.

(4) The aggregate amount of all privilege taxes and fees and other assessments, business or occupation taxes, license, franchise or operating permit fees, and other similar exactions imposed upon a utilities utility by municipalities a city, which does not exceed 4 percent of local access revenues, shall be allowed as operating expenses for rate-making purposes and shall not be itemized or billed separately. All such exactions privilege taxes and fees and other assessments in excess of 4 percent of local access revenues shall be charged pro rata to users of basic local access services, within the municipality city, and the aggregate excess amount shall be separately itemized on customers’ bills, or billed separately.

Stat. Auth.: ORS Ch. 183, 756, & 759

Stat. Implemented: ORS 759.045

Hist.: PUC 6-1993, f. & ef. 2-19-93 (Order No. 93-185)

860-034-0340

Relating to Local Government Fees, Taxes, or and Other Assessments

(1) In the event If any county of the State of in Oregon, other than a city-county, should impose upon a utility subject to the jurisdiction of the Public Utility Commission any new taxes, or license, franchise, or operating permit fees, or increase any such taxes or fees, the utility required to pay such taxes or fees shall collect from its customers within the county imposing such taxes or fees the amount of the taxes or fees, or the amount of increase in such taxes or fees. provided, however, that should However, if the taxes or fees cover the operations of a utility in only a portion of a county, then the affected utility shall recover the amount of the taxes or fees or increase in the amount thereof from customers in the portion of the county which is subject to the taxes or fees. "Taxes," as used here in this rule, means sales, use, net income, gross receipts, payroll, business or occupation taxes, levies, fees, or charges other than ad valorem taxes.

(2) The amount collected from each utility customer pursuant to section (1) of this rule shall be separately stated and identified to in all customer billings.

(3) This rule shall apply applies to new or increased taxes imposed on and after December 16, 1971, including new or increased taxes imposed retroactively after that date.

(4) Should If any county, utility or, customer affected by this rule deems its the rule’s application in any particular instance to be unjust or unreasonable, it may apply for a waiver of this rule by petition to the Commission, setting forth the reasons why the rule should not apply.

Stat. Auth.: ORS Ch. 183, 756, & 759

Stat. Implemented: ORS 759.045

Hist.: PUC 6-1993, f. & ef. 2-19-93 (Order No. 93-185)