BILL REQ. #:  S-3630.1 

Read first time 01/10/2006.   Referred to Committee on Water, Energy & Environment.

     AN ACT Relating to capping and annually adjusting state and local public utility tax rates based upon increases or decreases in the cost of electricity and natural gas to residential consumers; amending RCW 82.16.020 and 35.21.870; adding new sections to chapter 82.16 RCW; and creating new sections.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION.  Sec. 1   (1) The legislature finds: (a) When retail energy prices rise, the amount of taxes paid by consumers also increase, because state and local public utility taxes are presently levied as a fixed percentage of revenue derived by electric and natural gas utilities from retail energy sales; (b) increased energy costs can have an adverse impact on the economy of the state of Washington and this impact is compounded by attendant increases in the amount of taxes that must be paid on energy purchases; (c) volatility in wholesale energy prices has become more common, compared to historical wholesale market behavior, and changes in wholesale prices ultimately translate into higher retail energy prices; and (d) further increases in wholesale and retail energy prices appear imminent.
     (2) The legislature declares that the rate of state and local public utility taxes and the corresponding rate of use taxes on natural gas purchases should be indexed to the cost of energy for residential consumers, providing that tax rates should be adjusted downward when energy prices rise and upward when energy prices fall, except that tax rates should be capped at the rate currently provided under law so that consumers would never pay a higher tax rate than they do at present.

Sec. 2   RCW 82.16.020 and 1996 c 150 s 2 are each amended to read as follows:
     (1) There is levied and there shall be collected from every person a tax for the act or privilege of engaging within this state in any one or more of the businesses herein mentioned.
     (a) For the following businesses, the tax shall be equal to the gross income of the business, multiplied by the rate set out after the business, as follows:
     (((a))) (i) Express, sewerage collection, and telegraph businesses: Three and six-tenths percent;
     (((b) Light and power business: Three and sixty-two one-hundredths percent;
     (c) Gas distribution business: Three and six-tenths percent;
     (d))) (ii) Urban transportation business: Six-tenths of one percent;
     (((e))) (iii) Vessels under sixty-five feet in length, except tugboats, operating upon the waters within the state: Six-tenths of one percent;
     (((f))) (iv) Motor transportation, railroad, railroad car, and tugboat businesses, and all public service businesses other than ones mentioned above: One and eight-tenths of one percent;
     (((g))) (v) Water distribution business: Four and seven-tenths percent.
     (b)(i) For a light and power business, the tax is equal to the gross income of the business, multiplied by the rate determined under section 3 of this act.
     (ii) For a gas distribution business, the tax is equal to the gross income of the business, multiplied by the rate determined under section 4 of this act.
     (2) An additional tax is imposed equal to the rate specified in RCW 82.02.030 multiplied by the tax payable under subsection (1) of this section.
     (3) Twenty percent of the moneys collected under subsection (1) of this section on water distribution businesses and sixty percent of the moneys collected under subsection (1) of this section on sewerage collection businesses shall be deposited in the public works assistance account created in RCW 43.155.050.

NEW SECTION.  Sec. 3   A new section is added to chapter 82.16 RCW to read as follows:
     (1) The maximum tax rate that can be applied to the gross receipts of a light and power business under RCW 82.16.020(1) is three and sixty-two one-hundredths percent. The department shall annually adjust the tax rate applied to a light and power business pursuant to this section.
     (2) Beginning October 1, 2006, and each October 1st thereafter, the department shall calculate the tax rate for light and power businesses to apply the following calendar year. To determine the annual tax rate, the department shall perform the calculations required under this section.
     (3) By October 1, 2006, the department shall establish a base year electric power rate by determining a state average electric power rate for residential retail customers of all light and power businesses in the state. The base year rate shall be the average of all residential classification tariffs or schedules filed, published, or maintained by light and power businesses effective on December 31, 2004. To perform the calculation under this subsection (3), the department shall rely solely upon customer classifications established by light and power businesses; the department shall not define or otherwise determine the class of residential customers. The base year rate shall be stated in units of dollars per kilowatt-hour.
     (4) Beginning October 1, 2006, and every October 1st thereafter, the department shall annually calculate the state average electric power rate for residential retail customers of all light and power businesses in the state. The state average electric power rate shall be the average of all residential classification tariffs or schedules filed, published, or maintained by light and power businesses effective on December 31st of the immediate prior year. To perform the calculation under this subsection (4), the department shall rely upon the customer classifications established by light and power businesses; the department shall not define or otherwise determine the class of residential customers. The annual state average electric power rate shall be stated in units of dollars per kilowatt-hour.
     (5) The department shall divide the base year state average electric power rate, as calculated under subsection (3) of this section, by the annual state average electric power rate, as calculated annually under subsection (4) of this section, to determine a ratio of state average electric power rates.
     (6) The department shall multiply the ratio of state average electric power rates, as calculated under subsection (5) of this section, by the maximum tax rate specified in subsection (1) of this section. The product of this calculation shall be the adjusted tax rate for the following calendar year for light and power businesses. At no time shall the adjusted tax rate exceed the maximum rate under subsection (1) of this section.
     (7) By November 1, 2006, and each November 1st thereafter, the department shall inform taxpayers of its determinations under this section.

NEW SECTION.  Sec. 4   A new section is added to chapter 82.16 RCW to read as follows:
     (1) The maximum tax rate that can be applied to the gross receipts of a gas distribution business under RCW 82.16.020(1) is three and six-tenths percent. The department shall annually adjust the tax rate applied to the gross revenue of a gas distribution business pursuant to this section.
     (2) Beginning October 1, 2006, and each October 1st thereafter, the department shall calculate the tax rate for gas distribution businesses to apply the following calendar year. To determine the annual tax rate, the department shall perform the calculations required under this section.
     (3) By October 1, 2006, the department shall establish a base year gas rate by determining a state average gas rate for residential retail customers of all gas distribution businesses in the state. The base year rate shall be the average of all residential classification tariffs or schedules filed, published, or maintained by gas distribution businesses effective on December 31, 2004. To perform the calculation under this subsection (3), the department shall rely solely upon customer classifications established by gas distribution businesses; the department shall not define or otherwise determine the class of residential customers. The base year rate shall be stated in units of dollars per cubic feet.
     (4) Beginning October 1, 2006, and every October 1st thereafter, the department shall annually calculate the state average gas rate for residential retail customers of all gas distribution businesses in the state. The gas rate shall be the average of all residential classification tariffs or schedules filed, published, or maintained by gas distribution businesses effective on December 31st of the immediate prior year. To perform the calculation performed under this subsection (4), the department shall rely upon customer classifications established by gas distribution businesses; the department shall not define or otherwise determine the class of residential customers. The annual state average gas rate shall be stated in units of dollars per cubic feet.
     (5) The department shall divide the base year state average gas rate, as calculated under subsection (3) of this section, by the state annual average gas rate, as calculated annually under subsection (4) of this section, to determine a ratio of state average gas rates.
     (6) The department shall multiply the ratio of state average gas rates, as calculated under subsection (5) of this section, by the maximum tax rate specified in subsection (1) of this section. The product of this calculation shall be the adjusted tax rate for the following calendar year for gas distribution businesses. At no time shall the adjusted tax rate exceed the maximum rate under subsection (1) of this section.
     (7) By November 1, 2006, and each November 1st thereafter, the department shall inform taxpayers of its determinations under this section.

Sec. 5   RCW 35.21.870 and 1984 c 225 s 6 are each amended to read as follows:
     (1) No city or town may impose a tax on the privilege of conducting an electrical energy, natural gas, steam energy, or telephone business at a rate which exceeds six percent of gross receipts unless the rate is first approved by a majority of the voters of the city or town voting on such a proposition.
     (2)(a) The maximum tax rate that can be applied to the gross receipts of an electrical energy business is the rate provided in subsection (1) of this section. The city or town shall annually adjust the tax rate applied to electrical energy businesses pursuant to this subsection (2).
     (b) Beginning October 1, 2006, and each October 1st thereafter, the city or town shall calculate the adjusted tax rate for electrical energy businesses to apply the following calendar year, beginning January 1, 2007, and each January 1st thereafter. To determine the annual tax rate, the city or town shall perform the calculations required under this subsection (2).
     (c) By October 1, 2006, the city or town shall establish a base year for the purpose of (e) of this subsection, by determining a local average electric power rate for residential retail customers of all electrical energy businesses providing retail electric service within the city or town. The base year rate shall be the average of all residential classification tariffs or schedules filed, published, or maintained by light and power businesses effective on December 31, 2004. To perform the calculation under this subsection (2)(c), the city or town shall rely solely upon customer classifications established by electrical energy businesses; the city or town shall not define or otherwise determine the class of residential customers. The base year local average electric power rate shall be stated in units of dollars per kilowatt-hour.
     (d) Beginning October 1, 2006, and every October 1st thereafter, the city or town shall annually calculate the local average electric power rate for residential retail customers of all electrical energy businesses providing retail electric service within the city or town. The local annual average electric power rate shall be the average of all residential classification tariffs or schedules filed, published, or maintained by electrical energy businesses effective on December 31st of the immediate prior year. To perform the calculation under this subsection (2)(d), the city or town shall rely upon the customer classifications established by electrical energy businesses; the city or town shall not define or otherwise determine the class of residential customers. The local annual average electric power rate shall be stated in units of dollars per kilowatt-hour.
     (e) The city or town shall divide the base year local average electric power rate, as calculated under (c) of this subsection, by the local annual average electric power rate, as calculated annually under (d) of this subsection, to determine a ratio of local average electric power rates.
     (f) The city or town shall multiply the ratio of local average electric power rates, as calculated under (e) of this subsection, by the rate imposed by the city or town under subsection (1) of this section on January 1, 2006. The product of this calculation shall be the adjusted tax rate for the following year for electrical energy businesses. At no time shall the adjusted tax rate exceed the maximum rate under subsection (1) of this section.
     (g) Beginning November 1, 2006, and for each November 1st thereafter, the city or town shall inform taxpayers of its determinations under this subsection (2).
     (3)(a) The maximum tax rate that can be applied to the gross receipts of a natural gas business is the rate provided in subsection (1) of this section. The city or town shall annually adjust the tax rate applied to the gross revenue of a natural gas business pursuant to this subsection (3).
     (b) Beginning October 1, 2006, and each October 1st thereafter, the city or town shall calculate the tax rate for natural gas businesses for the following year, beginning January 1, 2007, and each January 1st thereafter. To determine the annual tax rate, the city or town shall perform the calculations required under this subsection (3).
     (c) By October 1, 2006, the city or town shall establish a base year for the purpose of (e) of this subsection, by determining a local average gas rate for residential retail customers of all natural gas businesses providing retail gas service within the city or town. The base year local average gas rate shall be the average of all residential classification tariffs or schedules filed, published, or maintained by natural gas businesses effective on December 31, 2004. To perform the calculation under this subsection (3)(c), the city or town shall rely solely upon customer classifications established by natural gas businesses; the city or town shall not define or otherwise determine the class of residential customers. The base year local average gas rate shall be stated in units of dollars per cubic feet.
     (d) Beginning October 31, 2006, and every October 31st thereafter, the city or town shall annually calculate the local average gas rate for residential retail customers of all natural gas businesses providing retail gas service within the city or town. The local annual average gas rate through tariffs or schedules filed, published, or maintained by natural gas businesses effective on December 31st of the immediate prior year. To perform the calculation performed under this subsection (3)(d), the city or town shall rely upon customer classifications established by natural gas businesses; the city or town shall not define or otherwise determine the class of residential customers. The annual local average gas rate shall be stated in units of dollars per cubic feet.
     (e) The city or town shall divide the base year local average gas rate, as calculated under (c) of this subsection, by the local annual average gas rate, as calculated annually under (d) of this subsection, to determine a ratio of local average gas rates.
     (f) The city or town shall multiply the ratio of town average gas rates, as calculated under (e) of this subsection, by the rate imposed by the city or town under subsection (1) of this section on January 1, 2006. The product of this calculation shall be the adjusted tax rate for the following year for natural gas businesses. At no time shall the adjusted tax rate exceed the maximum rate under subsection (1) of this section.
     (g) By November 1, 2006, and for each November 1st thereafter, the city or town shall inform taxpayers of its determinations under this subsection (3).
     (4) If a city or town is imposing a rate of tax under subsection (1) of this section in excess of six percent on April 20, 1982, the city or town shall decrease the rate to a rate of six percent or less by reducing the rate each year on or before November 1st by ordinances to be effective on January 1st of the succeeding year, by an amount equal to one-tenth the difference between the tax rate on April 20, 1982, and six percent.
     Nothing in this subsection prohibits a city or town from reducing its rates by amounts greater than the amounts required in this subsection.
     Voter approved rate increases under subsection (1) of this section shall not be included in the computations under this subsection.

NEW SECTION.  Sec. 6   This act shall be known and cited as the "energy tax control act."

NEW SECTION.  Sec. 7   If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.