Federal tax subsidies for electric utilities: an energy-policy perspective
A number of analysts have recently concluded that for the US economy generally, and for electric utilities in particular, the most rational energy strategy would emphasize control of energy demand. In many cases, conservation and solar heating could displace the need for electricity and nonrenewable fuels, with potentially significant economic and environmental benefits. Yet, most US electric utilities are proceeding with an investment strategy based on large, conventional powerplants, and have shown little inclination to invest significantly in alternative technologies and conservation measures. While the situation differs for each utility, the author feels that the anomalous decision making evidenced by the above is at least in part an economically rational response by profit-maximizing utility managers to the tax and regulatory environment in which they operate. Electric utilities currently receive massive Federal income tax subsidies - notably accelerated depreciation and the investment tax credit - for investments in additional capacity. This article examines these and other tax incentives from an economic, tax, and energy policy perspective. It argues that Federal tax subsidies combine with the regulatory structure and various institutional factors unique to utilities to create perverse incentives for utility overexpansion, making profitable what could otherwise be uneconomic new-plant investments. The article demonstrates that such tax subsidies to utilities reflect poor tax policy in terms of need, cost, complexity, equity, and federalism; and produce effects squarely contrary to the goals of a viable national energy policy. The article concludes that, at a minimum, the tax subsidies for utilities should be repealed, but that the optimal solution is to replace utility income taxation with an excise tax on electricity usage.
- Research Organization:
- Harvard Law School, Cambridge, MA
- OSTI ID:
- 6587619
- Journal Information:
- Harvard Environ. Law Rev.; (United States), Vol. 4:2
- Country of Publication:
- United States
- Language:
- English
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Related Subjects
POLICY AND ECONOMY
ELECTRIC UTILITIES
ENERGY POLICY
SUBSIDIES
POWER GENERATION
CAPACITY
FINANCIAL INCENTIVES
TAXES
GOVERNMENT POLICIES
PUBLIC UTILITIES
296000* - Energy Planning & Policy- Electric Power
293000 - Energy Planning & Policy- Policy
Legislation
& Regulation