May 4, 2011
TAXES ON ELECTRIC GENERATORS
By: Kevin McCarthy, Principal Analyst
You asked for a description of taxes and other state-imposed costs that apply to electric generators, particularly those that are specific to that industry.
Most electric generation plants are owned by corporations and are subject to taxes that generally apply to corporations and other companies. These include the corporation business, sales, and property tax. The corporation tax applies to the business's net income. The sales tax applies to most of the goods and some of the services the company buys. The property tax applies to the company's real property (the power plant building and the land on which it is located) and its personal property (notably the generation equipment). There are several exemptions to these taxes. For example, air and water pollution control equipment at power plants is exempt from the property tax (in the case of the nuclear power plants, the containment building is considered pollution control equipment since it protects the public from potential radioactive emissions).
The owners of generation plants are also subject to state-imposed costs that apply to businesses generally. These include charges for unemployment insurance and workers' compensation. In addition, they are subject to some state-imposed costs that are specific to the electric industry. Notably, Connecticut requires generators to participate in the Regional Greenhouse Gas Initiative, a cap and trade program for carbon dioxide emissions. Under the program, owners of fossil fuel power plants with a capacity of 25 megawatts or more must hold allowances equal to their carbon dioxide emissions over a three-year control period. Connecticut and other states participating in the initiative sell these allowances to the generators, and use the proceeds primarily to fund energy efficiency and renewable energy programs.
Generators are also subject to a number of indirect taxes. Many of the plants in Connecticut use natural gas as a fuel. The gas companies and suppliers that sell gas are subject to a gross earnings tax that, with one exception, applies to sales to electric plants. The exception is sales of gas to a combined cycle power plant comprised of three gas turbines with a total generating capacity of 775 megawatts, i.e., the Lake Road plant in Killingly.