October 10, 2006
AVERAGE ENERGY BILLS AND TAXES
By: Kevin E. McCarthy, Principal Analyst
You asked (1) how much residential consumers pay for average heating bills and electricity (we provide information on the utilities serving your district), (2) how much of this amount is taxes, (3) are the taxes itemized, and (4) if the law precludes such itemization.
The statewide average oil heating bill last heating season was approximately $1,690 according to Gene Guilford, executive director of the Independent Connecticut Petroleum Association, which represents oil dealers. The average annual bill for Southern Connecticut Gas residential customers who use natural gas for heating was approximately $2,000 according to the Department of Public Utility Control. For non-heating customers, the average was $750. The average residential bill for United Illuminating (UI) customers was approximately $1,230.
Based on current wholesale prices, it appears that heating oil and gas bills will be somewhat lower this year than last year. However, last year was relatively warm, with approximately 15% fewer heating degree days than normal. If this winter is colder than last winter, oil and gas prices and total bills will presumably go up. Moreover, it is likely that electric rates will increase substantially next year, particularly for UI customers, because of increased wholesale power costs. A UI website, http://www.uinet.com/about/2007rates.asp, describes this situation.
TAXES AND ITEMIZATION
Because there are hundreds of heating oil companies serving the state and the industry is not subject to economic regulation by the state or federal government, it is impossible to determine the overall tax rate for the oil industry. Moreover, the rates for some taxes vary by company. For example, oil dealers based in cities and inner ring suburbs generally are subject to higher mill rates and thus higher property tax liabilities than similar companies in other areas.
On the other hand, we can estimate the share of electric and gas bills that go to taxes by dividing total tax payments, as reported to the Federal Energy Regulatory Commission, by total operating revenues. Based on the utilities' 2005 annual reports the proportion of operating revenues that goes to taxes is as follows: Connecticut Natural Gas, 8.4%; Southern Connecticut Gas 7.7%; Yankee Gas 7.3%; Connecticut Light and Power 5.5%; and United Illuminating, 8.9%. These figures include funds set aside for deferred income taxes and the investment tax credit. They do not include taxes paid by the utilities' wholesale suppliers. For example, they do not include the taxes paid by generators who sell power to the electric utilities.
Taxes are generally not itemized on heating or electric bills. No law precludes the itemization of taxes on oil or gas bills, but the law effectively bars itemization on electric bills. CGS Sec. 16-245d requires that electric bills have a standard format. Applicable taxes must be included the charge for electric transmission and distribution.
It would be relatively straightforward to itemize some, but not all, taxes on utility bills. For example, gas and electric utilities are subject to a tax on their gross earnings, other than sales to manufacturers. For gas utility sales to residential customers, the tax rate is 4%; for sales to non-residential customers other than manufacturers the rate is 5%. Itemizing this tax for electric utilities would be somewhat more complicated, because it only applies to the transmission and distribution component of electric bills, and applies at different rates for residential and non-residential customers (as is the case with gas, service to manufacturers is not subject to the tax). On the other hand, property taxes, federal income taxes, and certain other taxes are not directly related to sales, and it is unclear how these taxes would be itemized on utility bills. Similarly, most heating oil sales are exempt from ad valorem taxes such as the petroleum products gross earnings tax, and it is unclear how dealers would itemize other taxes, such as the property tax.