SENATE BUDGET AND APPROPRIATIONS COMMITTEE
STATEMENT TO
SENATE, No. 31
with Senate committee amendments
STATE OF NEW JERSEY
DATED: JUNE 19, 1997
The Senate Budget and Appropriations Committee reports favorably Senate Bill No. 31 with amendments.
Senate Bill No. 31, as amended, implements a transition to competition among utilities and other energy providers resulting from recent regulatory developments on both the federal and State levels, including the "unbundling" of energy products and services and other moves from regulated monopolies to competition in the free market. The Board of Public Utilities, charged with the supervision and regulation of public utilities to ensure that they furnish safe, adequate, and proper service as well as to maintain their property and equipment in such condition as to enable them to do so, already requires that the books and records of public utilities must be kept within this State for in-State inspection. This bill requires that all energy suppliers maintain such books and records as shall be required by regulation of the Board of Public Utilities in an in-State office, so the Board of Public Utilities may be assured of access to all relevant information and the board may ensure the adequate operation of energy suppliers in this State and ensure an adequate supply of gas and electricity for New Jersey consumers.
To reduce the adverse economic effect of high energy taxation rates on all consumers, to prevent the erosion of tax revenues, annually distributed to municipalities, by energy market changes, and to promote economic development and job growth in the State, this bill, effective for 1998, eliminates the current gross receipts and franchise tax as collected by electric, gas and telecommunications utilities. Instead, electric, gas and telecommunications utilities will be subject to the State's corporation business tax. The State's existing sales and use tax will be applied to most retail sales of electric and natural gas (the excepted sales concern municipal electric utilities and companies, and power users who self-generate or co-generate power; provisions of the bill concerning restrictions of certain exemption provisions to "one on-site end user" will be broadly interpreted when applied to affiliated companies operating on the same site). A transitional energy facility assessment will be applied on electric and gas utilities. This assessment will be phased out over five years.
Under a companion bill, Senate Bill No. 30, municipalities will be guaranteed, beginning in State fiscal year 1998, an annual State aid distribution of at least $740,000,000 from these replacement revenues, increasing in steps to $755,000,000 for fiscal year 2002 and thereafter.
It is the intent of the Legislature that the Board of Public Utilities, when determining electric and natural gas rates, pass along to consumers all tax savings realized by utilities as a result of this bill.
As amended and reported, this bill is identical to Assembly Bill No. 2825 (2R) (Bagger/DiGaetano).
COMMITTEE AMENDMENTS:
The committee amended the bill to:
* Remove from the definition of retail sales, and thus exempt from sales tax, purchases of natural gas converted into another intermediate or end product, other than electricity or thermal energy, produced for sale by the purchaser.
* Modify the concept of on-site sales for purposes of exempting sales of electricity by co-generators to a contiguous user from the sales tax. The electricity would be exempt if was generated by a facility located on the user's property, on property purchased or leased from the user by the co-generator owner and the property is contiguous to the user's property. The electricity could be used on the user's property, and could be transported to the user over wires that cross a property line or public thoroughfare if they merely bifurcate the user's or co-generator owner's otherwise contiguous property.
* Exempt from water company gross receipts sums received for payment 1) for water sold to a gas, electric, or gas and electric public utility subject to the taxes imposed by this bill, and 2) for water that is used to generate electricity that is sold for resale or to an end-user upon whose property is located a co-generation facility or self-generation unit that generated the electricity, or upon the property purchased or leased from the end-user by the person owning the co-generation facility or self-generation unit if the property is contiguous to the user's property and is the property upon which is located a co-generation facility or self-generation unit that generated the electricity.
* Clarify that the sales tax will not apply to existing "flex rate" and similar agreements; prohibits future flex rate agreements from allowing for any reduction or exemption from any tax or surcharge imposed pursuant to this bill.
* Permit an eligible person, as defined in the bill, to change suppliers of natural gas yet maintain the sales tax exemption on the purchase during the phase out of the exemption.
* Clarify language concerning municipal fees charged to telecommunications companies.
* Direct that a statement be developed for inclusion upon customers' billings explaining that a portion of charges in the billing are dedicted to property tax relief.
* Recognize host community benefit agreements.
* Direct the Board of Public Utilities to conduct a review of telecommunications taxes and submit findings to the Governor and Legislature.
* Provide that if a municipal utility was subject to the gross receipts and franchise taxes it will be subject to corporation business tax, sales and use tax, and the transitional energy assessment; if the municipal utility was not subject to the old taxes and it expands its sales into other territory (1) it will not be subject to corporation business tax (2) only its expanded sales will be subject to sales and use tax and the transitional energy assessment.
* Clarify that the bill does not affect cable franchises or franchise fees;
* Clarify the application of the co-generation and self-generation sales tax exemptions;
* Provide a corporation business tax credit for local franchise taxes as well as uniform transitional utility assessments;
* Modify the sales tax definition of electrical "self-generation unit" for consistency with co-generation definitions;
* Specify various rule making authority for the Department of the Treasury;
* Correct timing provisions as they apply to certain co-generators; and
* Provide that no municipality, regional or county governmental agency will directly or indirectly tax as real property, or include within the assessment of real property, the public utility-owned electrical interconnect, water lines or gas lines, or any of those interconnections' value, if the interconnections were in the statutory list of scheduled property before enactment of this bill, regardless where the interconnections are located.
FISCAL IMPACT:
Information provided by the Board of Public Utilities in June of 1997 indicates an expectation that over the five year period following enactment of the bill, corporation business tax payments by telecommunications corporations are expected to increase slowly while corporation business tax payments by energy companies decline and then stabilize. Sales and use tax collections are expected to (initially, as part of rate reduction) shrink, then grow slowly. The five year phase-out of the transitional energy facility assessment will result in a decline in net revenues from the replacement taxes over the first five years, masking underlying increases in the permanent taxes that will become apparent in the sixth year.
Expected total revenues from replacement taxes are expected to be $1,160 million in calendar year (CY) 1998, $1,070,000 billion in CY 1999, $1,010,000 billion in CY 2000, $941 million in CY 2001, $872 million in CY 2002, $798 million in CY 2003 and $814 million in CY 2004. Sales tax revenue, the largest component of the replacement taxes, will also be the most affected by changes in energy consumption levels and future energy price changes.