T&E/MFP
ITEM 1-2
May 17,2010
Worksession 4
MEMORANDUM
TO:
Transportation, Infrastructure, Energy and Environment!
Management and Fiscal Policy Committee
FROM:
~Michael
Faden, Senior Legislative Attorney
Th
I
• " _
Leslie Rubin, Legislative Analyst, Office of Legislative Oversight! ;....
~
SUBJECT: Worksession 4:
Expedited Bi1115-1O, Taxation - Fuel-Energy Tax - Rate
Resolution to change fuel/energy tax rates
This is the joint Committees' fourth worksession on Expedited Bill 15-10, Taxation - Fuel­
Energy Tax - Rate and the companion resolution to change fuel/energy tax rates, both sponsored by the
Council President at the request of the County Executive and introduced on March 23, 2010.
On April 22, the Executive proposed increasing the fuel/energy tax
2
rates by 100% for both
residential and non-residential taxpayers, which would double the revenue raised from the tax. This
followed his two previous proposals, each of which would have raised the tax rate by a lower amount.
The Executive's proposal would raise the average annual energy tax bill for each residential customer by
an estimated $98 (from $99 to $197) and for each non-residential customer by $2,459 (from $2,618 to
$5077). See table on ©56. (In our view the average annual or monthly tax bill is a somewhat useful
point of comparison for residential users even though household energy use varies considerable; it is a
much less useful number for non-residential users because the variations can be orders of magnitude
greater.)
The Executive's proposed rates for each type of energy are shown on ©7. The current rates,
which the tax would revert to on July
1,
2012 under the Executive's proposal, are shown on ©8. The
"short form" rates, using 5 decimal places instead of 10, as Council staff recommends, are shown on
©9-1O.
At the Committees' last worksession, Executive Branch staff also endorsed reallocating how the
tax is apportioned between residential and non-residential rate payers while still raising the same amount
of revenue in FYIl. Tax rates for non-residential rate payers currently are 2
2/3
times the residential tax
rates.
Thank you to OLO Research Associate Sarah Downie, who contributed to the analysis of this issue.
2Hereinafier, the energy tax.
I
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Based on interest expressed by Councilmembers and the Executive's current recommendation,
data in this packet illustrate two scenarios introduced at the last worksession to reapportion the burden of
this tax increase between residential and non-residential customers (#3 - 60/40 and #4 - 50/50) and one
scenario that maintains the current distribution of the tax for comparison (#1
-73172).
The Executive's April 22 proposal would implement the rate increase as of May 1, raising an
additional $21 million in FYlO, and would sunset the tax rate increase at the end of FY12. The next
table summarizes how the revenue would be raised in FYll from each scenario.
Scenarios to Allocate Energy Tax Increase between Residential
and Non-Residential Rate Payers
($
in millions)
Projected total revenue ($ in millions)
Non-residential revenue
Residential revenue
Share ofIncreased Tax Revenue
(Non-Residential! Residential)
$132.2*
$96.2
$36.0
n/a
73/27
$265
$192.8
$72.2
60/40
$176.2
$88.7
50/50
$163.2
$101.7
*Does not include additional FY 10 revenue if tax increase takes effect as of May 1.
Source: Executive Branch data
Issues
1)
Bill or resolution? The Council could change the rates of this tax by a simple resolution, as
it has done each time for at least the last 2 decades, or it could insert the rates in the County Code by
enacting Bill 15-10, as the Executive originally proposed (as part of a larger bill). Enacting a Bill would
be necessary if the Council wants to revise any aspect of the tax other than the rates, but we have not
heard any such amendment proposed. Council staff recommendation: adopt the pending resolution,
which can take effect immediately without Executive approval. (See Issue 4 below for a discussion of
when any tax increase should take effect.) Keep the Bill on hold if any further amendments are needed.
2) How much more revenue should the energy tax raise? The County Executive's final
proposal would raise an additional $133 million in FYll and $21.4 million in FYlO. Executive staff
insist that the FYlO increase is necessary to bring the fiscal year-end reserves to an acceptable level.
The size of the ultimate FYll increase is influenced by macro budget factors that are beyond the scope
of this memo. Council staff recommendation: increase the energy tax rates in FYlO to raise an added
$21.4 million. Increase the rates in FYl1 to raise the amount needed to balance the budget. If the
Council opts for a smaller increase than the Executive proposed, this can be calculated by simply
reducing the applicable rates across the board (for example, by 95%, 90%, etc. of the Executive's
proposed rates).
2
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3) How would any rate increase impact residential and non-residential taxpayers? The
energy tax, since about 1994, has had 2 separate rate schedules - one for residential rate payers and one
for non-residential rate payers. See ©7 -10. Currently, non-residential tax rates are 2 2/3 times the rates
for residential rate payers, resulting in non-residential consumers paying 73% of all energy tax revenue
and residential consumers paying 27%.
Economic analysis: Impact of tax increase on businesses.
Business representatives supported
spreading the tax burden more evenly between residential and non-residential taxpayers. Homeowner
representatives (other than anti-tax activist Robin Ficker) did not testify at the hearing on this proposal.
At Councilmember Leventhal's request, Jacob Sesker, economist with the Planning staff, analyzed the
probable impact of an energy tax increase on County businesses. His memo (see ©53) drew several
conclusions:
Impact on existing businesses:
• Commercial landlords and tenants with existing leases may renegotiate rents to account for a
tax rate increase.
• If increased fuel/energy tax rates impact the continuing viability of businesses (i.e., result in
higher commercial vacancy rates), "increased revenue from the Fuel/Energy Tax could be
offset by reduced taxes from other sources (e.g., income tax and property tax)."
Impact on commercial property values:
• Because of the proposed sunset date, it is unlikely that a tax rate increase will result in lower
land values because "the value of commercial property is largely based on the value of the
income stream it produces, and most of the years of that income stream will be beyond the
sunset of the tax increase."
Impact on the County's ability to attract and retain businesses:
• Estimating the effect of a tax rate increase on the County's ability to attract or retain
businesses "would be difficult" because the County's ability to attract businesses is affected
by all the County's regulatory costs and the regulatory costs of neighboring jurisdictions.
"It
is quite likely, however, that property owners seeking to attract a major bioscience facility or
GSA tenant will ask the County for a subsidy to offset the tax increase."
Options.
At the last worksession, OLO staff used Executive Branch data to illustrate options to
reallocate the tax burden differently between residential and non-residential consumers. The data tables
in this packet carry over 3 of the scenarios from the last worksession: 1, 3, and 4 (at ©57-6l). We
dropped scenario 2 (66/34) because of lack of Councilmember interest.
Each scenario assumes that
the County would raise the same amount of energy tax revenue in FYll: $265 million.
Scenario 1 maintains the current distribution of the tax burden: - 73% from non-residential
consumers, 27% from residential consumers. Scenarios 3 and 4 reallocate the burden of the
increased
revenue
only between residential and non-residential rate payers as follows:
;.. Scenario 3 - 60% from non-residential consumers and 40% from residential consumers;
;.. Scenario 4 - 50% from non-residential consumers and 50% from residential consumers.
3
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Tables in this packet show the following data:
). A graph of the distribution of the tax burden for each scenario
(©S7);
). A comparison of the current average annual energy tax bill with the projected
FYII
average
annual tax bill for each scenario
(©S8);
). A comparison of projected monthly energy tax bills for residential and non-residential
consumers, based on different levels of electricity consumption
(©S9);
and
). A
New Table
shows the monthly fuel/energy tax as a percentage of PEPCO monthly charge
for electricity (©60).
The new table on ©60 shows that under the Executive's proposal, depending on the
scenario used, the typical residential customer's monthly tax on an electric bill would increase by
$5-7 for a small (500 kWh/month) user, $10-15 for a moderate (1000 kWh/month) user, and $52­
74 for a large (5000 kWh/month) user. For a non-residential customer, the projected tax increases
are shown on the bottom half of the table and range, as a percentage of that user's monthly
electric bill, from 15.2% to almost 18%.
Council staff recommendation: reallocate the tax increase
SO/SO
between non-residential and
residential customers. That would shift the overall non-residential/residential tax burden shares to 61/39
(see table on
©S7).
4) How should the tax be applied to master-metered apartment buildings? Currently,
master-metered apartment buildings served by Pepco are taxed at the higher rate charged to non­
residential electricity customers because Pepco classifies them as commercial users. (Council staff has
heard, but not confirmed, that Washington Gas charges the tax for natural gas delivered to master­
metered apartment buildings at the residential rate.) Council staff sees 3 primary options to set rates for
master-metered apartment buildings, which are summarized below and show in more detail in the table
on ©61. That table identifies the impact on the tax rate (and correspondingly the tax bill) for each
option.
Options.
Council staff sees 4 options to tax master-metered apartment buildings within each
revenue allocation scenario:
• Option 1: Keep master-metered apartment buildings in the non-residential electricity rate class
and charge them the FYll Non-Residential Rate. The County Executive's current revenue
assumptions are based on this option. Options 2-4 are compared to this option in the table on
©61.
• Option 2: Create a new rate class for master-metered apartment buildings and charge a rate
halfway between the FYll non-residential rate and the FYll residential rate.
• Option 3: Create a new rate class for master-metered apartment buildings that charges them at
their current rate - the FYI0 non-residential tax rate.
• Option 4: Switch master-metered apartments to the residential rate class and charge them the
FYl1 Residential Rate.
4
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Assuming the 50/50 scenario is selected, Council staff estimates that switching master-metered
buildings to a different rate class could cost the County between $328,000 to $657,000 in revenue in
FYll. County Department of Environmental Protection energy staff pointed out that owners of these
apartment buildings generally pay negotiated electric rates, which are usually below what individual
residential customers pay, and that, if the energy tax on these buildings is reduced, their owners would
not be legally obligated to pass that reduction through to their tenants.
Council staff recommendation: study the issue further after this resolution is adopted because
it
is complex and the equities are not as clear as many initially assumed.
5) When should any tax increase take effect?· The Executive originally proposed that the new
rates would take effect on July 1, which has been customary when energy tax rates are raised during the
operating budget process. His April 22 revision proposed accelerating the effective date to May 1 so
that significant revenue would flow to the County during FYlO. If the Council acts on this Bill or
resolution on May 19, as now scheduled, the new rates could apply to energy delivered on or after May
1. The County Attorney concluded that doing so would be legally permissible, although Pepco and
Washington Gas strongly object to doing so on legal and operational grounds.
In an April 28 letter (see ©34), Pepco "objected to the retroactive application of the proposed
fuel/energy tax, arguing that it is unconstitutional under the Maryland Constitution.
In
a May 12 letter
(see ©37), Washington Gas also opposed any Council action "that would authorize the increased energy
tax to be implemented retroactively."
Options.
Assuming that the Council wants to achieve the Executive's FYlO revenue goals (an
additional $21.4 million) from increasing energy tax rates, Council staff sees 2 workable options:
(1 )
Amend the pending resolution to make the new rates effective for energy delivered on or
after May 1, 2010, at the rates that would apply in FYll.
(2) Recalculate the rates at a higher level that would raise $21.4 million in FYI 0 if applied from
May 20 to July 1 ("the 40-day rates"), then reduce the rates on July 1 to whatever level the Council has
already agreed to. Finance Department staff calculated 40-day rates, attached at © 11.
Council staff recommendation: option 2 ("the 40-day rates"). Pepco staff assured us that a new
set of rates could be immediately put into effect, and then modified on July 1 as needed.
6) Sunset?
In
his April 22 revision, the Executive proposed to sunset the new higher rates on
July 1, 2012.
Options.
Assuming that higher rates are adopted, Council staff sees 3 options:
(1)
I-year sunset Revert to the current rates on July 1,2011.
(2) 2-year sunset Revert to the current rates on July 1,2012.
(3) No sunset Keep the new rates in effect until further Council action.
Council staff recommendation: option 2.
5
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This packet
(ontains:'
Expedited Bill 15-10
Legislative Request Report
:"~j~~~.f"~;:~'{:i ·":,<,;;:.·:;>'c~?/; ..';'ii:~~2i~~~\
.
··,tlf!··:FoDnd.at~.
New items in table in bold.
©l
©5
©6
©7
©8
©9
©11
©12
©17
©21
©23
©26
typical usage comparisons, by scenario
©27
©28
©29
©30
©34
©37
©38
©39
©42
©47
©48
©49
©53
©55
©56
©57
©58
©59
©60
©61
I
• Resolution
Rate schedule based on County Executive's April 22 proposed rate increase
• Rate schedule based effective July 1, 2012 - after sunset (identical to current rates)
Rate schedules with 5 decimal places
40-day rate schedule
• Fiscal Impact Statement
County Executive's memo re energy tax options, including scenario calculations
Scenario #1 -
73/27
data table
Scenario #3 - 60/40 data table
Scenario #4 - 50/50 data table
Residential and Non-Residential
Effect of shifting master metered properties to residential energy tax rate
Gazette article - "Electricity distribution rates to rise" - 5-12-10
:
PEPCO testimony
• PEPCO letter re retroactivity issue
Washington Gas letter re retroactivity issue
PEPCO email re SOS rate reduction
Bruce Lee email re proposed tax increase
Greater Silver Spring Chamber of Commerce email re lower cost of energy
Comparison of energy tax rates among regional jurisdictions
Comparative examples of monthly electricity tax among regional jurisdictions
Planning staff summary of economic Issues
Planning staff analysis of fueUenergy tax-implications for commercial real estate
Planning staff demographic data for county residents
Data on impact of proposed increase
OLO Analysis of3 scenarios for
FYII:
Allocation of revenue between residential and non-residential consumers
Average annual tax bill for residential and non-residential consumers
Examples of monthly tax bills based on electricity usage
Monthly fueUenergy tax as a percentage of PEPCO monthly electricity charges
FueUenergy tax options for electricity usage
in
master-metered residential
apartment buildings
6
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Expedited Bill No.
15-10
Concerning: Taxation - Fuel-Energy
Tax - Rate
Revised: 3-22·10
Draft No. _1_
Introduced:
March 23,2010
Expires:
September 23, 2011
Enacted: _ _ _ _ _ _ _ _ __
Executive:
Effective: - - - - - - - - ­
Sunset Date:
~No::!n.!::e,--
_ _ _ _ __
Ch. _ _, Laws of Mont. Co, _ _-..,­
COUNTY COUNCIL
FOR MONTGOMERY COUNTY, MARYLAND
By: Council President at the Request of the County Executive
AN EXPEDITED ACT
to:
(1)
increase the rates of the fuel--energy tax; and
(2)
generally amend County laws related to the fuel-energy tax.
By amending
Montgomery County Code
Chapter 52, Taxation
Section 52-14, Fuel-energy tax
Boldface
Underlining
[Single boldface brackets]
Double underlining
...
[[Double boldface brackets]]
...
...
Heading or defined term.
Added to existing law
by
original bill.
Deletedfrom existing law
by
original
bill.
Added
by
amendment.
Deletedfrom
existing
law
or
the
bill
by
amendment.
Existing law unaffected
by bill.
The County Council for Montgomery County, Maryland approves the following Act:
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exPEDITED
Bill
No. 15-10
1
Sec.
1.
Section 52-14 is amended as follows:
52-14. Fuel-energy tax.
(a)
A tax is levied and imposed on every person transmitting, distributing,
manufacturing, producing, or supplying electricity, gas, steam, coal,
fuel oil, or liquefied petroleum gas in the County. Beginning on July
2
3
4
5
6
7
L
2010 the tax rates in dollars are:
ill
For fuel-energy transmitted
1
1
distributed
1
manufactured,
8
produced, or supplied for residential and agricultural purposes:
I
FUEL
I
-
ENERGY
TAX
- -
RATE
$0.0072924198
· $0.0628010617
· $0.0822605134
· $18.6267531744
•Electricity
~
kilowatt
hr)
!
Natural Gas
~
therm)
Steam
~
therm)
Coal~ton)
•Fuel oil
(rurr
gallon):
I
$0.0899987212
I
$0.0933631594
No.~
I
i
$0.0933631594
$0.0955500442
$0.0974004852
$0.0995873700
1$0.0135686262
distributed
1
manufactured,
I
NO·1
No.~
I
No.
.Q
Liguefied :getroleum gas
(rurr
Qound)
9
10
I
I
ill
For
fuel-energy
transmitted,
Qroduced, or supplied for non-residential purposes:
FUEL-ENERGY
Electricity
~
kilowatt
hr)
TAX RATE
i
$0.0193251926
F:\LAIMBllLS\1 015 Fuei Enef9Y TaxlBill 1.00c
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ExPEDITED Bill NO.
15-10
I
Natural Gas
~
thenn}
!
i
~0.1664230814
Steam
~
thenn)
Coal~ton)
$0.2179903605
$49.3578373320
I
,
!
i
i
Fuel oil
~
gallon):
No .
1
No .
.f.
$0.2384966112
$0.2474123724
$0.2474123724
$0.2532076172
$0.2581112858
1$0.2639065305
$0.0359568595
!
·No·l
NO·1
No.2­
No.§
Liguefied Qetroleum gas
~
Qound)
11
12
13
14
I
I
I
The County Council [must] may set the rates for various fonns of fuel
and energy by resolution adopted according to the requirements of
Section 52-17(c). The Council may, from time to time, revise, amend,
increase, or decrease the rates, including establishing different rates
for fuel or energy delivered for different categories of final
consumption, such as residential or agricultural use. The rates must
be based on a weight or other unit of measure regularly used by [such]
persons in the conduct of their business. The rate for each form of
fuel or energy should impose an equal or substantially equal tax on the
equivalent energy content of each fonn of fuel or energy for a
particular category of use. The tax does not apply to the transmission
or distribution of electricity, gas, steam, coal, fuel oil, or liquefied
petroleum gas in interstate commerce through the County if the tax
would exceed the taxing power of the County under the United States
Constitution. The tax does not apply to fuel or energy converted to
15
16
17
18
19
20
21
22
23
24
25
F:\lAWBlllS\1015 Fuel
Energy
TaxlBil11.DOC
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ExPEDITED BILL
No.
15-10
26
27
another form of energy that will be subject to a tax under this Section.
The tax must not be imposed at more than one point in the
transmission, distribution, manufacture, production, or supply system.
The rates of tax apply to the quantities measured at the point of
delivery for fmal consumption in the County.
28
29
30
31
32
*
Sec. 2. Expedited Effective Date.
*
*
33
The Council declares that this legislation is necessary for the immediate
protection of the public interest. This Act takes effect on the date when
it
becomes
law.
Approved:
34
35
36
37
38
39
40
Nancy Floreen, President, County Council
Approved:
Date
41
42
43
44
45
Isiah Leggett, County Executive
This is a correct copy ofCouncil action.
Date
46
47
Linda M. Lauer, Clerk of the Council
Date
F:\LAIN\8ILLS\1 015 Fuel Energy Tax\Bill1.DOC
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LEGISLA TIVE REQUEST REPORT
Expedited Bill 15·1 0
Taxation -
Fuel~Energy
Tax - Rate
DESCRIPTION:
PROBLEM:
This Bill would increase the rates of the fuel-energy
tax.
In order to meet current fiscal challenges facing the County, the County
must increase the amount of revenue available to maintain core
Government programs and services.
To enhance the amount of revenue available to support core government
programs and services.
.
GOALS AND
OBJECTIVES:
COORDINATION:
Office of Management and Budget; Department of Finance
FISCAL IMPACT:
To
be
requested.
ECONOMIC
IMPACT:
EVALUATION:
To be requested.
Subject to the general oversight of the County Executive and the County
CounciL
EXPERIENCE
ELSEWHERE:
SOURCES OF
INFORMATION:
Joseph Beach, Director of Management and Budget
Kathleen Boucher, Assistant Chief Administrative Officer
Tax laws apply County-wide.
APPLICATION
WITHIN
MUNICIPALITIES:
PENALTIES:
N/A
F,\LAW\BILLS\1015 Fuel Energy Tax\LRR.OOC
@
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Resolution No . .,.....-___
~~---
Introduced:
March 23. 2010
Adopted: _ _ _ _ _ _ _ _ __
COUNTY COUNCIL
FOR MONTGOMERY COUNTY, MARYLAND
By: Council President
SUBJECT:
Fuel/energy
tax -
rates
Background
1.
Section 52-14 of the County Code levies a tax on persons transmitting, distributing,
manufacturing, producing, or supplying electricity. gas, steam, coal, fuel oil, or liquefied
petroleum gas in the County.
Section 52-14 also provides
that
the County Council may amend the fuel/energy
tax
rates
by resolution, after a public hearing advertised as required by Section 52-17. A public
hearing was held on this resolution on (date).
The Council fmds that it is fair and equitable
to
continue different rates for fuels and
energy transmitted, distributed, manufactured, produced, or supplied for residential and
agricultural purposes and for non-residential purposes.
Action
2.
3.
The County Council for Montgomery County, Maryland, approves the following resolution:
1.
On and after July
1,
2010, the fuel/energy tax rates levied under Section 52-14 of the
County Code are as shown on Schedule A, attached to this resolution.
This Resolution supersedes Resolution 16-553.
2.
This is a correct copy ofCouncil action.
Linda
M.
Lauer, Clerk of the Council
Date
F:ILA\V\BILLS\lOII Budget Reconciliation And Financing ActllOl5 Fuel Energy Ta;.;\FYII Draft Resolution.Doc
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Attachment
Resolution No:
SCHEDULE A (starting May 1, 2010)
(a) For fuel-energy transmitted, distributed, manufactured, produced, or supplied for residential
and agricultural purposes:
TAX RATE
$0.0104475928
$0.0899728678
$0.1178517384
$26.6858928000
o.
1
No.2
No.3
No.4
No.5
No.6
Liquefied
$0.1289379960
$0.1337581080
$0.1337581080
$0.1368911808
$0.1395422424
$0.1426753152
$0.019439
(b) For fuel-energy transmitted, distributed, manufactured, produced, or supplied
non-residential purposes:
FUEL-ENERGY
$0.0276865224
$0.238
$0.312307
$70.7132340000
$0.3416856894
$0.3544589862
$0.3544589862
$0.3627616292
$0.3697869424
$0.3780895852
$0.0515141254
No.5
No.6
etroleum gas ( er ound)
\\CCL-FO 1\Data\DEPT\Other_Depts\OLO\Leslie\_Budget\FYll\Fuel-Energy Ta..x Increase\
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Attachment
Resolution No:
SCHEDULE B (starting July 1,2012)
(a) For fuel-energy transmitted, distributed, manufactured, produced, or supplied for residential
and agricultural purposes:
FUEL-ENERGY
Electricity (per kilowatt hr)
Gas (per therm)
Steam (per therm)
Coal (per ton)
Fuel oil (per gallon)
No.1
No.2
No.3
No.4
No.5
No.6
Liquefied petroleum gas (per pound)
TAX RATE
$0.0052237964
$0.0449864339
$0.0589258692
$13.3429464000
$0.0644689980
$0.0668790540
$0.0668790540
$0.0684455904
$0.0697711212
$0.0713376576
$0.0097196463
(b) For fuel-energy transmitted, distributed, manufactured, produced, or supplied for
non-residential purposes:
Electricity (per kilowatt hr)
Gas (per therm)
Steam (per therm)
Coal (per ton)
Fuel oil (per gallon)
No.1
No.2
No.3
No.4
No.5
No.6
Liquefied petroleum gas (per pound)
$0.0138432612
$0.1192142417
$0.1561535534
$35.3566170000
$0.1708428447
$0.1772294931
$0.1772294931
$0.1813808146
$0.1848934712
$0.1890447926
$0.0257570627
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Attachment
Resolution No:
SCHEDULE A (starting May 1,2010)
(a) For fuel-energy transmitted, distributed, manufactured, produced, or supplied for residential
and agricultural purposes:
FUEL-ENERGY
Electricity (per kilowatt hr)
Natural Gas (per therm)
Steam (per therm)
Coal (per ton)
Fuel oil (per gallon)
No.1
No.2
No.3
No.4
No.5
No.6
Liquefied petroleum gas (per pound)
TAXRATE
~
$0.01
$0.08997
$0.11785
$26.68589
$0.12894
$0.13376
$0.13376
$0.13689
$0.13954
$0.14268
$0.01944
(b) For fue I-energy transmitted, distributed, manufactured, produced, or su
non-residential purposes:
.1
.1
r.
FUEL-ENERGY
E:iectricity (per kilowatt hr)
Natural Gas (per therm)
Steam (per therm)
Coal (per ton)
Fuel oil (per gallon)
No.1
No.2
No.3
No.4
No.5
No.6
Liquefied petroleum gas (per pound)
$0.02769
$0.23843
$0.31231
$70.71323
$0.34169
$0.35446
$0.35446
$0.362761
$0.36979
$0.37809
$0.05151
\ \CCL-
FO
1\Data\DEPT\Other_Depts\0LO\Leslie\_Budget\FY
II
\F uel-Energy Tax Increase\
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Attachment
Resolution No:
SCHEDULE B (starting July 1,2012)
(a) For fuel-energy transmitted, distributed, manufactured, produced, or supplied for residential
and agricultural purposes:
FUEL-ENERGY
Electricity (per kilowatt hr)
Gas (per therm)
Steam (per therm)
Coal (per ton)
Fuel oil (per gallon)
No.1
TAX RATE
$0.00522
$0.04499
$0.05893
$l3.34295
$0.06447
$0.06688
$0.06688
$0.06845
No.3
No.4
No.5
No.6
Liquefied petroleum gas (per pound)
~
$0.00972
(b) For fuel-energy transmitted, distributed, manufactured, produced, or supplied for
non-residential purposes:
~
U:'
~watthr)
Steam (per therm)
Coal (per ton)
Fuel oil (per gallon)
No.1
No.2
No.3
No.4
No.5
No.6
Liquefied petroleum gas (per pound)
$0.01384
$0.11921
$0.15615
$35.35662
$0.17084
$0.17723
$0.17723
$0.18138
$0.18489
$0.18904
$0.02576
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Current Rates
New Energy
Tax Rates
Estimated
Revenues
40 Days
$2,156.85
$291,781.39
NON-RESIDENTIAL
Fuel-Oil
#1
#2 &#3
#4
#5
#6
LPGas
Electricity
Natural Gas
$0. [708428447
$0. [77229493 [
$0.1813808146
$0.1848934712
$0.[890447926
$0.4614331590
$0.4 786829967
$0.48989539l3
$0.4993828020
$0.5105951964
$0.0695678115
$38,149.60
$0.0 [384326 [2 $0.0373895656 $22,760,208.48
SO. I 192
[42417 $0.3219883410 $5,088,768.39
RESIDENTIAL
Fuel-Oil
#1
#2&#3
#4
#5
#6
LPGas
Electricity
Natural Gas
SO.0644689980
$0.0668790540
SO.0684455904
$(L06977[ 1212
SO.()713376576
$0.0097196463
$0.0052237964
$O.()449864339
$0.1741257204
$0.1806350931
$0.1848661854
$0.1884463404
$0.1926774326
$0.0262520043
$0.0141090654
$0.1215048388
$402.14
$200,979.85
$32,200.61
$7,228,644.25
$2,859,195.98
$38,502,487.55
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OFFICE OF MA"JAGET\1ENT AND BUDGET
Isiah Leggett
County Executive
Joseph
F.
Beach
Director
MEMORANDUM
April 27, 2010
TO:
FROM:
SUBJECT:
Joseph F. Beach,
JSlll~tt>
Expedited Bill 15-1 0, Taxation - Fuel-Energy Tax - Rate
tyCouncil
The purpose ofthis memorandum
is
to transmit a fiscal and economic impact statement to
the Council on the subject legislation.
LEGISLAnON SUMMARY
The original proposed legislation introduced March 23, 2010 would increase fuel-energy
tax rates 39.6% consistent with the County Executive's March 15 operating budget recommendation.
Since March 15, the Executive has proposed two modifications
to
the rate increase, the latest ofwhich
was a 100% increase in fuel-energy tax rates effective May 1, 2010 included in his FYIO and FYll
operating budget amendments transmitted to the County Council on
Apri122~
2010. The latest proposed
rates are attached to this fiscal impact statement. The Executive recommends that the 100% increase in
the fuel-energy tax rates sunset atthe end ofFY12.
FISCAL AND ECONOMIC SUMMARY
The original Expedited Bill No. 15-10 increased the fuel-energy tax by 39.6% to raise $50
million more
in
General Fund revenue than current rates would generate
in
FYII. These revenues were
assumed in the Executive's March 15 recommended operating budget. The 100% increase recommended
by the Executive on April 22 will produce $101.3 million (combined over FYlO and FYll) more than
assumed in the March 15 budget and is required to maintain balance in the operating budget and restore
reserves to the policy level of 6% oftotal resources. The increase in fuel-energy tax rates will also have a
fiscal impact on the operating budgets ofCounty funded agencies and departments (see attachment for
detail). The Executive recommended certain budget adjustments to accommodate some ofthese cost
increases.
The energy
taX
is a broad-based
tax
paid by households, businesses, and all levels of
government. Based on current usage patterns the recommended 100% increase will result in an increase
of approximately $8.00 per month for the average homeowner and $289 per month for the average non­
residential ratepayer. Since the energy
tax
is based on consumption, the amount ofthe
tax
can be reduced
by decreasing energy usage, and a number ofexisting programs provide incentives for consumers to
conserve energy.
Office of the Director
101 Monroe Street, 14th Floor • Rockville,
Maryland
20850 • 240-777-2800
www.montgomerycotlntymd.goY
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Nancy Floreen, President, County Council
Apri127,2010
Page 2
The
following contributed to this analysis: Bryan Hunt, Office ofManagement and Budget,
David Platt, Department ofFinance.
JFB:bh
Attachments
c: Kathleen Boucher, Assistant Chief Administrative Officer
Dee Gonzalez, Offices ofthe County Executive
David Platt, Department ofFinance
Bryan Hunt, Office ofManagement and Budget
John Cuff, Office of Management and Budget
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PY08
FY09
Carbon Taxes
Res. No. 16-553
PdChange
I
FYlO
I
Proposed Rates
FYll
Pet.
Cbg.
FY10-FYII
Proposed Rates
Pet.
Chll·
FY10-FYH
Proposed Rates
Pet.
Chg.
NON-RESIDENTIAL
Fuel-Oil
#1
#2
&
#3
114
$0.1553116770
$0.1611177210
$0.1648916496
$0.1680849738
$0.1718589024
$0.0245305359
$29.4638475000
$0.14195777:58
$0.01258,47830
$0.1135373730
$0.1708428447
$0.1772294931
$0.1813808146
$0.1 848934712
$0.1890447926
$0.0257570627
$35.3566170000
$0.1561535534
$0.0138432612
$0.1192142417
10.0% $0.1708428447 $0.2384966112
10.0% $0.1772294931 $0.2474123724
10.0% $0.1813808146 $0.2532076172
10.0"10
$0.1848934712 $0.2581112858
10.0"10
$0.1890447926 $0.2639065305
5.0% $0.0257570627 $0.0359568595
20.0% $35.3566170000 $49.3578373320
10.0% $0.1561535534 $0.2179903605
10.0% $0.0138432612 . $0.0193251926
5.0% $0.1192142417 $0.1664230814
39.6% $0.27966973677
39.6% $0.290 12468020
39.6% $0.29692039350
39.6% $0.30267061235
39.6% $0.30946632549
39.6% $0.04216431164
39.6% $57.S7878202900
39.6% $0.25562336692
39.6% $0.02266141858
39.6% $0.19515371366
63.7% $0.34168568940
63.7% $0.35445898620
63.7% $0.36276162920
63.7% $0.36978694240
63.7% $0.37808958520
63.7% $0.05151412540
63.7% $70.7)323400000
63.7% $0.31230710680
63.7% $0.02768652240
63.7% $0.23842848340
100.0%
100.0%
100.0"/0
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
#5
#6
LPGas
Coal
Steam
Electricity
Natural Gas
RESIDENTIAL
Fuel-Oil
#1
#2 &#3
114
#5
$0.0586081800
$0.0607991400
$0'(l622232640
$0.0634282920
$0.0648524160
$0.0092568060
$11.1191220000
$0.0535689720
$0.0047489058
$0.0428442228
$0.0644689980
$0.0668790540
$0.0684455904
$0.0697711212
$0.0713376576
$0.0097196463
$13.3429464000
$0.0589258692
$0.0052237964
$0.0449864339
10.0%
10.0%
10.0%
10.0%
10.0%
5.0%
20.0%
10.0%
10.0%
5.0%
$0.0644689980
$0.0668790540
$0,0684455904
$0.0697711212
$0.0713376576
$0.0097196463
$13.3429464000
$0.0589258692
$0.0052237964
$0.0449864339
$0.0899987212
$0.0933631594
$0.0955500442
$0.0974004852
$0.0995873700
$0.0135686262
$18.6267531744
$0.0822605134
$0.0072924198
$0.0628010617
39.6% $0.1 0553574973
39.6% $0.10948101140
39.6% $0.11204543148
39.6% $0.11421532540
39.6% $0.1 1677974549
39.6% $0.01591106099
39.6% $21.84240325680
39.6% $0.09646164788
39.6% $0.00855135471
39.6% $0.07364279229
63.7% $0.12893799600
63.7% $0.13375810800
63.7% $0.13689118080
63,7% $0.13954224240
63.7% $0.14267531520
63.7% $0.01943929260
63.7% $26.68589280000
63.7% $0.11785173840
63.7% $0.01044759280
63,7% $0.08997286780
100.0%
100.0%
100.0%
lOO.O%
100.0%
100.0%
100.0%
100.0"10
100.0%
100.0%
#6
LPGas
Coal
Steam
Bleclricily
Natural Gas
@)
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" "j •
~.:""
Impact of Proposed Increase to Energy Tax
Average Impact to Residential and Non-Residential Taxpayers
Based on latest figures available for energy consumption (2009 Energy Tax data), housing units (2008 Census Bureau
data) and business establishments (2007 Census Bureau data)
Residential
Units
Consumed
12,808
624
Current
Tax
$66.91
$28.08
$94.99
<,"
,"
Fuel Type
Electricity
Heating Fuel
Total
Units
kWh
Therm
Tax Rate
0.005224
0.044986
For Each
Proposed
100%
Increase
Total
Difference
1% Increase
$133.81
$66.91
$0.67
$0.28
$56.16
$28.08
$94.99
$0.95
$189.97
.. :<c.., ".:'.
:.;·:·'.<'....
';·.·c·.·
,'<....'; .
..•• _ _ .t. ....
I ...
J'!!IIt.L.. _ _ _ _
Non-Residential
Examples of Proorams Funded with Enerov T
.,
.-.
Units
Consumed
Fuel Type
Units
204,614
Electricity
kWh
5,325
Heating Fuel
Therm
Total
Monthly Change
-~
-_
......
Tax Rate
0.013843
0.119214
Current
Tax
$2,832.53
$634.86
$3,467.39
'
Proposed 100% Increase
For Each
1% Increase
Total
'Difference
$2,832.53
$5,665.06
$28.33
$1,269.72
$634.86
$6.35
$6,934.78
$34.67
$3,467.39
..
""
,'­
$
Some Examples
Current
Tax
. $89.68
$47,075.00
$3 ,537,!36
For Each
Proposed
100%
Increase
>':M9#t9~Y:·
Difference
1% Increase
,0
i.ffereiice
Total
$89.68
$179.35
$0.90
/.i:\;$Z·~4.7
$47,075.00
$470.75 )YS3.S22.:92
$94,150.00
$3,537.86
$7,()75.7'J.
~:3.5.38;i;':)d$g{;l4l82
•.
3,000 sq.
ft.,
4~bedroom,
3.5 bath house {DEP employee)
Council Office Building (142,480
Sq.
ft.)
East County Government Center (13,700
~g.
ft.)
®
.
"._--,-,,----.
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'. Impact of Proposed Increase to Energy Tax
Impact
to
County
Government
and County
Agencies
Based on
FY09
energy consumption for the County Govemment and
FYOa
energy consumption for County agencies.
All Agencies
MCG (Tax
+
Non Tax)
MCPS
WSSC
MNCPPC
MC
Total
Mar
15
CERec
996,030
0
0
96,200
210000
1,302,230
Cost Estimate
of Proposed
Rate Increase
2,691,670
3,706,820
3,009,000
259,970
567,490
10,234,950
~
1,695,640
3,706,820
3,009,000
163,770
357,490
8,932,720
FY11
Amendme!lt
691,710
0
0
163,770
357.490
1,212,970
FY10
~
448,610
617,800
501,500
43,330
94,580
1,705,820
MeG
Allocation
UtilitiesNDA
Transit SeNicss
Recreation
Tax Supported
Fleet Mgmt SVC5
PLD - Bethesda
PLD ­ Silver Spring
PLD-MH
PLD Wheaton
Llq uor Control
SWS Disposal
Non Tax Supported
Total MCG
FY09
8gl.lgls
x
(;!,
23,605,663 .
82,350
J,Ql:!0,374
26,738,387
1,011,100
1,167,144
1,734,446
1,924
97,134
889,147
130616
5,031,511
31,769,898
%
ofTotal Mar
15
CE Rec
74.30%
996,030
0.26%
0
9.60%
Q
996,030
84.16%
3.18%
3.67%
5.46%
0.01%
0.31%
2.80%
0.41%
15.84%
0
0
0
0
0
0
Q.
Allocation of
'Increase
1,999,960
6,980
258,440
2,265,380
FY11
Amendment
0
6,980
258.440
265.420
85,660
96,890
146,950
160
8,230
75,330
11,070
426,290
691,710
FY10
~
333,330
1.160
43,070
377,560
14,280
16,480
. 24,490
30
1,370
12,560
1.850
71,060
448,620
0
996,030
85,660
98,890
146,950
160
8,230
75,330
11,070
426,290
2,691,670
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OFFICE OF THE COUNTY EXECUTIVE
Isiah Leggett
County Executive
ROCKVILLE,
M~RYLAND
20850
MEMORANDUM
May 6, 2010
o
w
TO:
FROM:
SUBJECT:
Energy
Tax
Options
At the request of the joint
MFP/T
&E Committee I am providing the Council with
additional information related to options on changes to the energy tax rates.
In
addition I
am providing information related to the impact of scheduled changes in the Standard
Offer Service (SOS) rates on the electric bill for residential and non-residential
customers.
I
This analysis indicates that reductions in the SOS rates could more than
offset the increase in the electricity portion of the fuel energy tax rate for residential
customers and substantially modify the net increase in electricity bills for non residential
customers.
A residential customer in the example four bedroom, 3.5 bath home could
experience a reduction in their electric utility bill of $60 annually, due to the combined
impact ofrate changes due to SOS and the higher fuel-energy tax rates. This can be seen
in the attached analysis, which shows such a home using 1, 180 kWh of electricity per
month and under the current energy tax rate structure paying $148 annually in the energy
tax, an increase of $74 annually. However, because ofthe projected change in rates due
to SOS, their cost of electricity would decline by $134.
2
The net change in the electric
utility bill would be a reduction of $60 annually_
Under my initial proposal, an Office Building using 365,876 kWh of electricity
per month would see a $61,042 annual increase in the energy tax. However, because of
the projected change in the cost of SOS electricity their cost of electricity could decline
All usage data for each category of rate payer used in the attached analyses was provided by PEPCO.
2
This analysis is based on changes in Pepco's approved Schedule R SOS rates for summer 2010 versus
summer 2009. Market indicators suggest similar reductions will occur in winter 2010 rates.
I
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Nancy Floreen, Council President
May 6, 2010
Page 2
by $45,178. The net change in the electric utility bill would be an increase of $15,864
annually approximately 3% of the total electric utility bill.
3
Other examples of the impact of the energy tax increase and the reduction in SOS
rates are included in the attached analyses including examples that show the net
difference in utility bills assuming changes in the relative burden of the
tax
rate increase.
As currently structured, 27% of the energy
tax
is paid by residential rate payers and 73%
is paid by non-residential rate payers. Two preferred options for changing this structure
would include having 34% of the tax paid by residential rate payers and 66% by non­
residential or with 40% of the tax paid by residential rate payers and 60% by non­
residential. Both of these options still result in net reductions in households' electricity
bills yet significantly reduce the total electricity bill increase for commercial customers.
Whatever rate structure the Council ultimately supports I believe we must remain
focused on maintaining the projected revenues at the levels in my April 22 budget
recommendations to the County Council. Reducing overall revenues from that level
could severely impact the estimated increased energy tax revenues required in FYlO
($21.4 million) to maintain fiscal balance in the current year and begin the important
process of rebuilding our reserves. It would also impact our ability to preserve service
levels in FYII and FYI2. Current assumptions in the balanced fiscal plan would limit
expenditure growth to 1% in FY12. A further erosion in projected revenues would
require even further reductions in planned expenditures in that budget.
The charts also indicate the projected savings that would result from relatively
modest reductions in usage an additional goal of the energy tax. Such reductions in
usage would serve to offset the tax even further for both residents and businesses. The
attached analysis provides an estimate by each category of rate payer of a 2% reduction
in electricity usage. I have also attached a matrix prepared by the Department of
Environmental Protection that shows the existing programs supporting energy efficiency
and renewable energy incentives for both residential and non residential utility customers.
Attachments
copies:
Timothy
L.
Firestine, Chief Administrative Officer
Robert Hoyt, Director, Department of Environmental Protection
Jennifer E. Barrett, Director, Department of Finance
Joseph F. Beach, Director, Office of Management and Budget
Kathleen Boucher, Assistant Chief Administrative Officer
This analysis is based on changes in Pepco's approved Schedule OS SOS rates for summer 2010 versus
summer 2009. Other time of use based rates may apply to commercial customers.
3
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Assumptions
Energy Tax
The energy tax is levied on all suppliers of electricity, natural gas, fuel oil, and other building
fuels in the county. The Maryland Public Service Commission (PSC) authorizes that the tax be
passed through the utility bill to the consumer. The tax is broken into two categories:
Residential
Single family homes
Individually Metered
Apartments/Condos
Agriculture
N on-Residential
Commercial
Government (Fed, State, Local)
Non-Profit
Master Metered Multi-family
The PSC also authorizes the utilities to include a small administrative fee for collecting the tax.
For example, the fee charged residential accounts in 2010 equaled approximately 1.8% of the
residential energy tax rate.
Analysis of Standard Offer Service Rate Changes
Standard Offer Service (SOS) is the rate that utility service subscribers default to if they have not
selected a competitive energy supplier. The rates for SOS, which includes generation charges,
are established based on twice a year auctions in the wholesale energy market for energy supply.
The energy tax with a sunset in 2012 will go through three cycles of updated SOS rates.
Residential:
This analysis compares the Pepco residential rate (Schedule R) for summer 2009 with summer
2010 (June 1 to September 30).
It
is assumed that reductions between winter 2009 and winter
2010 will be comparable. The analysis addresses only SOS and not the pricing from competitive
energy suppliers. However, opportunities for rate reductions from these suppliers are anticipated
to be similar.
Commercial:
Pepco has
14
different commercial rate categories. This analysis uses the General Service
(Schedule GS) rate as a proxy for all commercial rates. However, the GS rate is the only option
that is fixed per kilowatt-hour, as opposed to being variable based time of use.
It
is assumed that
buildings on other rate schedules will have comparable opportunities to achieve similar savings
as both are set on wholesale market factors.
Monthly Electricity Usage:
This analysis uses sample monthly electricity usage provided by Pepco for March from a variety
of accounts. These figures are multiplied by 12 to estimate annual consumption. Actual annual
consumption will vary due to fluctuations in electricity use through the year.
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Reductions in Electricity Use
This analysis shows the estimated savings associated with a reduction in electricity use of 2%.
Entities may also use heating fuels such as natural gas or oil that are also taxed. Energy
efficiency measures could also reduce the consequences of increased tax rates on these fuels, and
well as increase in fuel costs.
The attached table provides information on energy efficiency and renewable energy incentives
and credits that are available to residential and non-residential entities in Maryland from a
variety of sources.
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Energy Tax Rate Calculator
FY10
Energy Tax Revenue
Total
Residential
...
Non-Residential
Revenue
132,193,552
36,005,559
96,187,993
Split
Base
Split
-------­
FY11
Additional
Split
100%
..
FYll Increase
Total
264,960,000
72,167,158
------­
192,792,842
Revenue
Split
100% 132,766,448
27% 36,161,599
73%
96,604,849
%
100%
100%
100%
--.-~
100% 135,120,000
27% 36,802,636
73
%
98,317,364
100% 129,840,000
27% 35,364,522
73% 94,475,478
~~~
-------------­
Energy Tax Rates
Sector
Residential
Non-Residential
~---
Electricity
FY11
Difference
$0.010470
$0.027747
FY10
$0.005224
$0.013843
%Chng
100%
100%
Pepco SOS Energy Rates (1)
Difference
2010
2009
---------­
-------­
$0.12787
$0.005246
-$().12852
$0.013903
$0.11842 _($0.00945)
($0.01029)
$0.11833
Monthly
Elec. Use
(kWh) (2)
Residential
,105 SquareFOOt
_
..;~8SqUare
Feet
Square Feet
6 Bedroom, 5 Bath
4 Bedroom;-3.i5 Bath
3,600 Square Feet
Non-Residential
Coffee in
Restaurant
Ice Cream Parlor
Hotel
Grocery Store
Florist
_N()Il::pro~
-------­
Energy Tax
FY10
------­
FY11
-
....
Difference
---­
Projected Cost of SOS Electricity
Difference
FY11
FY10
------_
Elec. Bill
Net
Difference
Including a Reduction in Electricity
Use of
2%
FY11
Difference
FY10
. ....
......
1,868,
3,370
258
5,420
1,180
658
117
....
~
340
74
41
----------­
--------­
235
423
32
681
148
83
-
118
212
16
341
_74
41
......
..
-~-.------
2,866
5,171
396
8;317
1,811
1,010
12,530
44,204
15,373
------­
2,655 ._ _ (212)
.1
94)
(170)
(382)
4,789
367
.... _ .... (13) .
(273)
7,702
-(5()
1,677
(134)
(75)
(33)
935
(J~:i
2,983
5,382
412
8,656
1,885
1,051
....
2,831
5,108
391
8,215
1,789
997
13,946
49,200
17,110
674,239
~9~,782
(~~
(21 )
(441)
(96)
~
67
238
83
3,258
1,932
13
1,078
3,037
42,440
---­
_
_.O!!ice B
lI
iI<:li
l1
!;1
Biotech Company
----­
8,118
28,640
9,960
392,488
232,721
1,584
-----_
...
129,920
----­
365,876
-------­
5,112,805
----­
-~-
1,349
4,758
1,655
65,200
38,659
263
21,582
-5(),779
849,335
2,703
9,536
3,316
130,682
77,486
527
43,258
121,821
1,702,350
..
---------­
1,354
4,778
1,662
65,482
38,827
_--­
264
21,676
61,042
853,016
605;is2
...
-----­
359,191
----­
2,445
200,524
-_._­
564,708
7,891,308
~~-·18~~~~
_. (1,230)
(48,464)
(28,736)
(196)
(16,043)
519,529
--.­
(45,178)
(631,329)
7,259,979
---~--
11,527
40,668
14,143
557,317
330,455
(1,002)
.....
(~,536)
---­
..
352
1,242
432
17,018
10,091
69
5,633
15,864
_.
221,686
---------­
---------­
13,878
48,962
17,027
670,981
397,850
2,708
222;106
625,487
8,740,642
-------­
-------~-
2,721
223,184
628,524
8,783,082
-------­
--------­
(1) Pepco Standard Offer Service (SOS) rates for residential customers (Schedule R) and commercial customers (Schedule GS).
(2) Electricity use provided by Pep co in April 20, 2010 written testimony.
@)
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Energy Tax Rate Czlculator
FY10
Energy Tax Revenue
Total
0,
;N,
--­
Non-Residential
-
Revenue
132,193,552
36,005,559
96,187,993
Split
Base
Split
FYll
Additional
100% 135,120,000
27% 36,RO? R<\R
73% 98,317,364
100% 129,840,000
27% 44,145,600
73% 85,694,400
Split
100%
34%
66%
Total
?~A Q~r
Split
('1m
An
Q4R?:'\R
184,011,764
100%
31%
69%
FYll Increase
Revenue
%
100%
132,766,448
125%
44,942,677
91%
87,823,772
Sector
Residential
Non-Residential
FY10
$0.005224
$0,013843
Energy Tax Rates - Electricity
%Chng
FY11
Difference
125%
91%
----------­
$0.011744
$0.026483
$0.006520
$0,012639
Pepco SOS Energy Rates (1)
Difference
2009
2010
$0.11842 _____ ($0.00945)
$0.12787
($0.01029)
$0,12862
$0.11833
Monthly
Elec, Use
(kWh) (2)
Residential
7,105 Square Feet
1,428 Square Feel
789
§~uare
Feet
6 Bedroom, 5 Bath
4 Bedroom, 3.5 Bath
3,600 Square Feet
Non-Residential
Coffee Rockville
------------
1,868
3,370
258
5,420
1,180
658
8,118
28,640
9,960
392,48(j
232,721
1,584
129,920
Energy Tax
FY10
~
I Difference
2,86~
Elec. Bill
Net
Difference
2,655
4,789
367
7,702
1,677
935
---------------
Including a Reduction in Electricity
Use of
2%
FY10
FY11
I
Difference
2,983
2,859
5,382
5,159
412
395 _
8,6568;297 -
1,885
1,806
1,051
1,007
13,878
48,962
17,027
670,981
397,850
2,708
222,106
13:825
48,774
16,962
668,406
396,323
2,~~(j
117 __
263146
211
475
264
_________
~
_ 3 6
20
340
764
1 - -
424
74
166
92
41
93
51
5,171
396
8,317
1,811
1,010
(212)
(382)
(29)
(615)
(134)
(75)
(66)
(118)
(9)
(191
(41
(23)
(124)
(224)
(17)
(360)
(78)
(44)
(53)
(188)
(65)
(2,575)
(1,527)
(10)
(852)
(2,401)
(33,546)
in
Resta~~l1t
i
{349-
2,580
------------i
4,758
1,655
65,200
38,659
263
21,582
9,102
3,165
---------------i
124,730
-----------i--
73,957
503
41,288
Ice Cream Parlor
Hotel
Grocery Store
Florist
Non-profit
i
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
1,231
12,530
11,527
(1,D02)
229
4,344
44,204
40,668
(3,536)
807
1,511
15,373
14,143 - - - (1,230)--
28T
59,530
- - - - - - - - - - -
(48,464)
- - - ­
605,782
557,317
11,066
--
---
35,298
359,191
330,455
(28,736)
6,561
240
2,445
2,249
(196)
45
19,705
200,524
184,481 -------- (16,043) ---------- 3,663
564,708
7,891,308
519,529
7.,259,979
(45,178) --10,315
(631,329)144, 15()
221,253
Office Building
Biotech Company
365,876
5,112,805
60,T79
116,273
55,494
849,335{s24:814i75,47g
625,487
623,086
8,740,6428,707,097
(1) Pepco Standard Offer Service (SOS) rates for residential customers (Schedule R) and commercial customers (Schedule GS).
(2) Electricity use provided by Pepco in April 20, 2010 written testimony.
®
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Energy Tax Rate Calculator
FY10
Energy Tax Revenue
Total
Residential
Revenue
132,193,552
36,005,559
96,187,993
Split
Base
Split
100% 135,120,000
36,802,636
------­
98,317,364
FYll
Additional
Split
100%
40%
60%
100% 129,840,000
51,936,000
27%
77,904,000
FY11 Increase
%
Revenue
------------­
Energy Tax Rates - Electricity
Sector
Residential
Non-Residential
FY10
$0.005224
1$0.013843
%Chng
----­
Pepco SOS Energy Rates (1)
Difference
$0.007651
$0.011518
---------­
FY11
$0.012874
$0.025362
2009
$0.12787
$0.12862
2010
$0.11842
$0.11833
Difference
($0.00945)
($0.01029)
146%
83%
Monthly
Elec. Use
(kWh) (2)
Residential
____
7,105S~~Feet
1,428Square Feet
789 Square Feet
____6 Bedroom, 5 Bath
-
4 Bedroom, 3.5 Bath
3,600 Square Feet
Non-Residential
Coffee in Rockville
Restaurant
Ice Cream Parlor
---------­
FY10
Energy Tax
FY11
289
521
40
837
182
Projected Cost of SOS Electricity
Difference
171
309
24
498
108
60
1,122
3,959
1,377
54,250
32,167
219
17,958
50,571
706,690
FY10
2,866
5,171
396
8,317
1,811
1,010
12,530
44,204
15,373
605,782
359:191
2,44 5
200,524
564,708
7,891,308
FY11
---------­
Elec. Bill
Net
Difference
(40)
(73)
(6)
(117)
(25)
(14)
--­
Difference
(212)
(382)
(29)
(615)
(134)
(75)
Including a Reduction in Electricity
2%
Use of
FY10
FYll
Difference
--------------­
1,868
3,370
258
5,420
1,180
658
8,118
28,640
9,960
392,488
232,721
1,584
129,920
365,876
5,112,805
-------------­
117
1--­
211
16
340
74
41
1,349
4,758
1,655
65,200
38,659
263
21,582
60,779
849,335
---­
10i
-----­
-
2,655
-----­
4,789
367
7,702
--­
1,677
1-­
935
---------­
----------­
---­
---------
-------------­
2,983
5,382
--­
412
8,656
1,885
1,051
----------­
2,884
5,203
398
8,369
1,822
1,016
---------------­
(99)
(179)
(14)
(288)
_____ (63)
~
--~----
2,471
8,716
119,449
70,826
482
39,540
111 ,350
1,556,025
_Hot~
Grocery Store
Florist
~,~
-,... .)fil
OffiCe. Building
Biotech Company
---------­
-
-----------_.
----
---­
(1,002)
11,527
(3,536)
40,668
14,143
(1,230)
557,317 _____(48, 464
(28,736)
330,455
2,249
(196)
184,481
(16,043)
(45,178)
519,529
(631,329)
7,259,979
2
120
422
147
5,785
3,430
23
1,915
5,393
75,361
-------­
---------­
-------------­
13,878
13,718
(160)
(566)
48,962
48,396
16,831
(197)
17,027
663,231
(7,750)
670,981
393,255
397,850
(4,595)
2,708
2,677
(31)
(2,565)
222,106 •• --­ 219,540
625,487
618,262 __________ (7,225)
8,740,642
8,639,684
(100,959)
---------­
(1) Pepco Standard Offer Service (SOS) rates for residential customers (Schedule R) and commercial customers (Schedule GS).
(2) Electricity use provided by Pepco in April 20, 2010 written testimony.
~
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Selected Energy-Efficiency and Renewable Energy Incentives
(Utility)
5/4/2010
(Utility)
Allegheny (Utility)
.
Non":Residential
Residential
Energy Wise Programmable Thermostat/Cycling Program ­
• Up to $250,000 per account or $500,000 for multi­
$160 annual savings for cycling
Ale.
account holders for energy-efficiency improvements to
commercial properties.
Lighting Program
- Up to $1.50 off a single or $3.00 off a multi­
• Prescriptive incentives for high-efficiency lighting,
pack of compact fluorescent lamps (CFL). Savings potential up to
HVAC, vending machine controls, and motors.
$10/year per lamp.
• . Custom incentives available for qualifying projects.
Pepco Appliance Program
- Up to $300 per household for the
purchase of energy-efficient appliances.
Home Energy-Efficiency Programs
- $100 full home energy
enhanced incentives for efficiency improvements resulting from the
audit.
HVAC Efficiency Program
Up to $200 for heat pumps and up to
$300 for
AlC
replacement. Up to $100 for a tune-up.
Income Eligible Program
- Complete energy audit and retrofits for
income eligible consumers.
Peak Rewards
Up to $100 and a programmable thermostat for
• Small Business Lighting Solutions
Up to 80% of the
cost of qualified lighting improvements.
cycling of
AlC.
• Business Energy Solutions
- Up to 50% of retrofit costs
Lighting Program
Up to $2.50 per CFL or $10 per fixture for
compact fluorescent or energy-efficient lighting.
for qualitying energy-efficiency retrofits and 75%ofthe
incremental cost for new construction.
Appliance Program
• Up to $100 per energy-efficient refrigerator.
• Up to $150 for energy-efficient electric water heaters, or
$300 for heat pump water heaters.
• Up to $25 for energy-efficient window air-conditioners.
• $50 bonus for recycling of old refrigerator.
Home Performance with ENERGY STAR Program
- Approximately
$1,200 in incentives for improvements identified in a comprehensive
audit report.
Heating and Cooling-
(ala carte) $75 for system tune-ups, $200 for
duct sealing, up to $400 for high-efficiency equipment, up to $200
for efficiency equipment that meet high quality installation
standards.
Income Eligible Program
- Complete energy audit and retrofits for
income eligible consumers.
Lighting Energy-Efficiency
- $15 to $25 per energy-
Lighting Program
- Up to $1.50 off a single or $3.00 off a multi-
efficient lighting fixture or exit sign.
pack of CFLs.
• $40 per ton of efficient AC or $80 per ton of efficiency
Appliance Program
- Rebates for energy-efficient appliances.
• $25 for energy-efficient dishwashers or clothes dryers with
heat pump.
moisture sensors, room air-conditioners, or programmable
• Up to 50% of the cost of variable frequency drives,
thermostats.
efficient motors controllers common on HV AC systems.
• $75 for energy-efficient clothes washers.
• For projects that can save greater than 250,000 kWh per
®
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Maryland Energy
Administration
$50 on refrigerators or $25 on freezers.
$200 on energy-efficiency
Ale
or heat pumps
Home Performance with ENERGY STAR - Providing a subsidized
$180 comprehensive audit and up to $1,000 in incentives for
insulation and air-sealing recommended by the audit.
Geothermal Heat pump Grants
-
Up to $3,00 for Geothermal Heat
pump Installations
Solar Grants
-
Up to $10,000 for solar photovoltaic systems or up to
$2,000 for solar water heating.
EmPower Communities Grants
Bi-annual competitive grant
program for low-moderate income energy-efficiency improvements
operated by non-profits and local governments.
year, up to
or 50%
awarded. ($2,000,000 Maryland cap)
Federal
Tax credit equal to 30% of the cost or up to $1,500 per home for
building envelope, heating and cooling system improvements.
Tax credit equal to 30% of the cost of solar, geothermal or wind
energy systems.
Montgomery County
Home Energy Loan Program (HELP)
Up to $25,000 in financing
for cost-effective energy-efficiency improvements identified in a
qualifYing audit report. Renewable energy installations where cost-
effective or in concert with energy-efficiency.
EEiRE Property Tax Credit
Up to $250 annually for energy-
efficiency improvements or up to $5,000 for solar or geothennal
installations (oversubscribed for FYlO as of
5/20
10).
Heat pump Grants
-
Up to
Geothermal Heat pump Installations
Farm Energy Program
-
Incentives for agricultural
upgrades
Subsidized energy audit $300
Up to $0.08IkWh or $1.50 gallon propane per
estimated electricity savings.
Solar Grants
-
Up to $10,000 for solar photovoltaic
systems, up to $2,000 for solar water heating.
Pay for up to 50% of energy assessment costs for for-
profit organizations and 75% of the costs for not-for­
profit organizations through the Maryland Technology
Extension Service.
Up to $1.80 per square foot tax deduction for new or
existing buildings that achieve prescribed values for
energy-efficiency.
Tax credit equal to 30% of the total cost of a solar energy
system.
Jaxcredit equal to 10% of a geothermal system.
Commercial/Multi-Family Grant Program
Up to
$75,000 or 25 to 50% of project costs competitively
awarded for up to 50 projects.
(i)
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Energy Tax Rate Calculator
FY10
Energy Tax Revenue
Total
Residential
.
-,-­
Non-Residential
Revenue
132,193,552
36,005,559
96,187,993
Split
Base
Split
Additional
100% 135,120,000
27% 36,802,636
98,317,364
73%
FY11
Split
100%
50%
50%
Total
264,960,000
101,722,636
163,237,364
Split
100%
38%
62%
100% 129,840,000
27% 64,920,000
64,920,000
73%
FY11 Increase
Revenue
132,766,448
65,717,077
67,049,372
%
100%
183%
70%
Sector
Residential
Non-Residential
FY10
$0.005224
$0.013843
Energy Tax Rates - Electricity
FY11
Difference
%Chng
183%
70%
$0.014758
$0.023493
$0.009534
$0.009650
Pepco SOS Energy Rates (1)
2009
$0.12787
$0.12862
2010
$0.11842
$0.11833
Difference
($0.00945)
($0.01029)
Monthly
Elec. Use
(kWh) (2)
Residential
7,105 Square Feet
1,428 Square Feet
---
789 Square Feet
6 Bedroom, 5 Bath
4 Bedroom, 3.5 Bath
3,600 Square Feet
Non-Residential
Coffee in Rockville
Restaurant
Ice Cream Parlor
Hotel
Grocery Store
Florist
Non-profit
Office Building
Biotech Company
----_.
-0
FY10
Annual Energy Tax
Difference
FY11
331
597
46
960
209
117
2,289
8,074
2,808
110,648
65,608
447
36,626
103,146
1,441,377
214
386
30
620
135
75
940
3,316
1,153
45,449
26,948
183
15,044
42,367
592,042
Annual
Projected Cost of SOS Electricity
FY11
Difference
FY10
2,866
5,171
396
8,317
1,811
1,010
12,530
44,204
15,373
605,782
359,191
2,445
200,524
564,708
7,891,308
2,655
4,789
367
7,702
1,677
935
11,527
40,668
14,143
557,317
330,455
2,249
184,481
519,529
7,259,979
(212)
(382)
(29)
(615)
(134)
(75)
(1,002)
(3,536)
(1,230)
(48,464)
(28,736)
(196)
(16,043)
(45,178)
(631,329)
Elec. Bill
Net
Difference
2
3
0
5
1
1
(62)
(220)
(77)
(3,016)
(1,788)
(12)
(998)
(2,811)
(39,287)
Including a Reduction in Electricity
Use of
2%
FY11
FY10
Difference
2,983
5,382
412
8,656
1,885
1,051
13,878
48,962
17,027
670,981
397,850
2,708
222,106
625,487
8,740,642
2,926
5,278
404
8,489
1,848
1,031
(58)
(104)
(8)
(168)
(37)
(20)
1,868
3,370
258
5,420
1,180
658
8,118
28,640
9,960
392,488
232,721
1,584
129,920
365,876
5,112,805
117
211
16
340
74
41
1,349
4,758
1,655
65,200
38,659
263
21,582
60,779
849,335
13,540
(339)
(1,195)
47,767
16,612
(416)
654,606
(16,375)
388,141
_ _
(9J09)
2,642
(66)
216,685
(5,420)
-"--­
610,222
(15,265)
8,527,329
(213,314)
(1) Pepco Standard Offer Service (SOS) rates for Summer 2009 versus Summer 2010 for residential customers (Schedule R) and commercial customers (Schedule GS).
(2) Electricity use provided by Pepco in April 20, 2010 written testimony.
o
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Energy Tax Rate Calculator
Monthly
Elec. Use
(kWh) (2)
Reside!ltial (4.Bed .• 3.5 Bath)
27% R-73% NR
34% R-66% NR
40% R-60% NR
-50"!.
R - 50% NR
-_~n-Residential
(Grocery Store)
27% R-73% NR
34% R- 66% NR
60%NR
- --------------­
40% R­
_._
...
­
50% R - 50% NR
-~-------~
Annual Energy Tax
FY10
FY11
Difference
74
74
74
74
38.659
38,659
38,659
38.659
148
166
182
Annual
Projected Cost of SOS Electricity (1)
FY10
FY11
Difference
1.811
1.811
1.811
1,811
359.191
359.191
359,191
359,191
1.677
1.677
1.677
1,677
330,455
330,455
-------­
330,455
330,455
(134)
(134)
(134)
(134)
(28.736)
(28.736)
(28.736)
(28.736:
Elec. Bill
Net
Difference
(60)
(41)
Including a Reduction in Electricity
Use of
2%
FY10
FY11
Difference
-------------­ ---­
1.180
1.180
1,180
1,180
232.721
232,721
232,721
232,721
--­
-------------­
209
----------------------­
74
92
108
135
-~)
--­
10,091
6,561
3,430
(1,788)
1.885
1.885
1.885
1,885
397,850
397.850
397,850
397.850
1.789
1.806
1,822
1,848
~---
(96)
(78)
(63)
(37)
1,932
(1,527)
(4.595)
(9.709)
77,486
73.957
70.826
65.608
38,827
35.298
f------­
32.167
26,948
---------------­
~.--
399,782
396.323
393,255
388.141 _____
(1) Pepco Standard Offer Service (SOS) rates for Summer 2009 versus Summer 2010 for residential customers (Schedule R) and commercial customers (Schedule GS).
(2) Electricity use provided by Pepco in April 20. 2010 written testimony.
r:;; ")
~-
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Effect of Shifting Master Metered Properties to Residential Energy Tax Rate
Impact on Individual Units
Monthly
Elec. Use
Split
27% R-73%
NR
34% R - 66%
NR
- 60%
NR
50% R -50%
NR
(kWh) (1)
500
500
500
If Charged
Non-Residential Rate
Tax Rate
$0.0277465
$0.0264828
----­
..•....
$0.0253616
Tax
166
159
152
141
If Charged
Residential Rate
Tax Rate
$0.0104702
$0.0117442
_
-$0.0128745
$0.0147582
Tax
63
70
77
89
Difference
(104:
(88)
(75)
(52)
Total
Units (2)
Impact on Projected Revenue
Revenue if
Charged Non-
Res Rate
Revenue if
Charged
Res Rate
787.089
882.860
967,826
-------­
1,109,435
Difference
(1.298.727)
----­
(1.107.955)
...
~~~~ ~ ~
0 _ _ _
~~
_ _ _ _ _ _ _
........
---­
500
---W.0234929
12.529
2,085.817
12.529
1.990,815
---­
12.529
1,906.531
12,529
1,766,057
--
-------­
J~38.7~~1
(656.622)
Notes
1. 500 kWh/month based on 50% of the average single-family home energy consumption.
2. Master metered housing units include all high-rise and low-rise units in the County built before 1978; as supplied by the Department of Finance.
®
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-
-.-,;
.
~
,
....
­
~!~chicitydisttibU~oh,ntfe'stQnse··
i.
,.r ;::
;~,.
>
Butfallillg_
fuel
costs could' offset
.
disiribut:j~nrate's be~g
in
July,
under
~
request filed by
,the
utility late laSt year: The average monthly bill, would
grow by $3:76'-:'from $151.78 to.$155:54'- for standard­
,'
•• oger:service.
custom~is
who!1se I;OOO)dlo'NatHiouts per
. BY SEAN
R.
SEDAM'
''''mopfh..';\,'.· . , ' ' , , ' ",', "
ase also' could be partially offset
by
a 2.2
,.1.
STAEE
WRiTER
>!
; ,- .
,~.
'B1.ltJPIlt.
'perct!llt decrease, in standard -offeLservicerates tMt
'take
" .
:S~,.~Qf\e .electric~ty; cust?Ill~rs,:in. Mo~tg~~~i:y. Co~ty .;f!e~.t}!m.ec}.'!'h!
decrease,
th~ r7s~t.Qf c~n.:~e~~~e
'bfds,
, ;'couId see mcreases to therr.billsm the,
cP~g
months as
"Mll
reduceav~rage
monthly bills by $3.3,1; gIYlllg ratepay- '
,
uttI!ti~s
seek
to biep up withdiecost of d!stibuting
power>'er~a
net 39'
cenfincrease..
',"
,i;:~:
:i",}kd,
r '
'?'~~~:;J~atJ:i:more
Gas lI!ld Electric
p!~d
a
reque~tFI1d~Y~th,,;
:
~~)::r.~~,
rSC";hlstoricallygivesutilities
les~~than
they
die Maryland.Public SerVice Commission to fuctease distri- .'request;meaillng the, rate ,ip.crease could be even smaller.
for the fust tiniein 17 years.
',' ':'; ,: ./ :,;
,/~;~>
Pepcq p1,lIchases
~l~ctricity
at auction frOIilli vanety of
12,500 residennaI electricity customers in 'energy sources, including coal, oil,natural gas and renew- '
~o!ltgomeryComity,
part
of1.~
million
reSident:ialeleG'~
.•.ableenergy,
,,'.i
,\'.
;~,t[~t;.
,
.,'
.
. stomers across eight central Maryland counties, " ,
:~Prices
Qf commodities, fossil fuels, have been drop­
., -
, ',,' - "
' C l a y Anderson: The PSC
. ore city:'
'posed
raty
hike~i'lul~,
increase BgE electri,c /'
ng savjngs to !:ustQmers.
much of
the hike
for billing
",
':!
fu.st.e
,
I
'r
',,', '
":'
,
, Y ' ,
_<
..
_
'l,r:of.atypi~aI
resi ' .
~lechic~lisfgIll,~t,;u~~Kab?u,!,;~9_~~~<:~,
,.~~ in¥QD.t&()mery:,~~fr~ce
,
,l,QOO
:
(;[,~,-<Yl~,
c:un,ountsJo.
-.}{~wge~spunti, ~t
..
,~·
.
" ',' """ ". '.
$1.84p
. '
, g . , ' ",
,-".B.~caus~
Pepco orily diStrtbutes>and does nO,tgenerate,
.. ,' ,The ,increase must be ,apprpved
bY
the PSC before it "'electricity, the, utility ':can only C¥'k for, increases, through
,
c~an.
t,ate' effect", likely by,the end of the year. BGE
esti~ ~stiibut:ion
rates," Anderson said. Dist;ribundnrates'make
ma'
aqt
n~eds
to-'nuse $110.8 million locover Gistri-", :up one-quarter ora monthlybill.,'
,"
",'"
buti
"
'tt:!
March 2008
agfe~ment
With the state "·Thedistribution tate increase, Pep co's
third
in
lz'years,
restricts the ·amount of distribution ,revenue
it
can raise would raiseabout $40inillion·that would go toward
"·keep~
,
iiIg ,the'system' reliable," An<;lerson said. ''Were talking
to $46.9 IDillion. '. ,, -
The request, comes as'falling commodity prices, are \ about, maintaining the poles and the wires' and maintain-
expected to yield what the BGEflling described as, "sub-' , ing the basit infrastructure."
,
stantial decreases" into mid-201L
"'Allegheny Power, which has 220,000 Maryland' cus­
"These decreases
will
offset the distribution increase tomers, including
25,500
in
Montgomery C01.mty, is seeking
and lead to net reductions in customers' total electric a 1 percent decrease in rates, beginning June 1. . '
bills," a BGE attorney wrote in ,the filing. Even with the'
CustoIl1ers saw a 0.7 percent rate ,credit in. January,
rer.:J.uested distri,bution rate fricrease,the averageelectric- which
d~creaSed
average monthly bills from. $104.30 to
" ity bill wollid,seea net
aede~se-of7.1
percent,according $103.53, said Allegheny Power spokesmaIJ. Todd Meyers.
. to BGE.'
: -
~,
", .,.'
"
,
,~:
The company has not had
II:
distributiQ'Q rate increase
'
.,
,
Pepco customers: could see a 2.5 percent increase, in since 1994. Meyers said. "
.
,*:."..,
-
­
,r~~e.~f-l~~ p'e~~~~!~
'i':·;.:
'~~$. ·.'~:·r_
.'
.~-;",:,: ~','.',_,' ~-~ ~',,>
'.
'no
~."
·Sity,~q·;;J~~990T~~g~~i1tial ~d.
. . . .• @.
 PDF to HTML - Convert PDF files to HTML files
7
~pepco
A PHI Company
Charles
L.
Washington, Jr.
Manager
Government Affairs
701 Ninth Street,
r#\I
Washington, DC 20068
202872-2132 Phone
202 872-2032 Fax
April 20, 2010
The Honorable Nancy Floreen
President, Montgomery County Council
100 Maryland Avenue
Rockville, MD 20850
Re: Expedited BilllS-17 - Taxation - FuellEnergy .
Dear Council President Floreen,
Good evening. My name is Charles Washington and I am the Public Affairs Manager for
Pepco. Pepco appreciates the opportunity to comment on the proposed FuellEnergy tax
currently before you. Pepco, a subsidiary of Pepco Holdings, Inc., provides safe and reliable
electric service to 767,000 residential and commercial customers in Washington, D.C., and its
Maryland suburbs, including Montgomery County.
As the electric distributor for the majority of Montgomery County, Pepco is concerned about
the proposed increase
in
the county's FuellEnergy tax.
In
2003, this tax on electricity, natural
gas, oil, coal and other fuels raised $26 million. In 2011, the county's annual Fuel/Energy tax
revenues would increase to nearly $217 million if this proposal is approved. That is a
731
%
increase in only 8 years.
Montgom ery County Energy Tax (2003-2009)
250
I
I-
I/)
200
>-t:
0)0
150
-
(1)=
t:-
w:i
100
"a:i
50
aI:
0
.S
><
III
-
....
2003
2004
2005
2006
2007
2008
2009
2010*
2011#
!
-II-
Pepco Fuel Energy
-+-
Montgomery County Total
Fuel Energy Tax Receipts:
~.
­
'2010
totas
projected 'Nith ct.rrern rates. #2011
tctals
p-cjected wi
'11
Executive's proposa:1 increases.
Tax Payments
..
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The County's FuellEnergy increases since 2003 have always disproportionally impacted
commercial customers. However, this proposed increase crosses a notable threshold. Pepco, a
distribution company, collects approximately $88.6 million in distribution revenues from
commercial customers in Montgomery County. As illustrated below, if the County
Executive's proposal is approved, the County would collect over $130 million from those
same customers. In essence, the County will be collecting more from the energy tax than
Pepco collects as a power delivery company to maintain and operate our electric system.
Pepco Distribution Revenues vs. Projected Fuel Energy Tax
Revenues from MaCo Commercial CLEtomers
• Projected Fuel Energy Tax
Revenues from MaCo
Commercial Customers
• Pepco Distribution Revenues
I
from MaCo Commercial
• Customers
As demonstrated below using actual randomly selected commercial accounts, this increase
will have a real impact on County businesses. One restaurant in Silver Spring will see an
increase of over $3,000 a year. A hotel in Bethesda will see a tax increase of approximately
$41,000 a year. The County's successful Biotech companies will see increases ofhundreds of
thousands of dollars of year, with at least one projected to see an increase of over half a
million dollars.
Business
Apartment Building in
Bethesda
Coffee in Rockville
Restaurant Silver Spring
Ice cream parlor in
Germantown
Hotel in Bethesda
Grocery Store in Silver Spring
Florist in Takoma Park
Non profit serving children
Office Building in Rockville
Biotech Company
KWH
Old Tax
New Tax
• Difference
194347
8118
28640
9960
392488
232721
1584
129
365876 •
5112805
$32,284.76
$1,348.56 •
$4,757.65
$1,654.55
$65,199.77
$38,659.41
$263.13 •
$21,582.20
$60,779.00
$849,334.7 4
$52,850.14
$2,207.58
$7,788.28
$2,708.49 •
$106,.732.02
$63,285.46
I
$430.75
$35,330.06
$99,495.23
~1,390,3§().97
!
$20,565.39
$859.03
$3,030.62
$1,053.95
$41,532.25
$24,626.04
$167.62 •
$13,747.86 •
$541,026.23 •
I
I
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It
is important to note that the proposed increase on commercial customers will almost
certainly have an impact on County residents as well.
In
compliance with the applicable laws
and regulations, Pepco charges apartment buildings and condominiums that are master­
metered the non-residential FuellEnergy tax rate. Upon the expiration of their leases, property
management companies will pass the FuellEnergy tax increase through to renters. Renters in
these master-metered facilities will be harder hit than other County residents. As indicated
below using randomly selected actual Pepco accounts, where a typical, individually metered
residential customer who uses 1000 KWH a month would see a tax increase of $40 a year; a
similar resident in a master-metered building would be responsible for $106 a year.
T ical Homes
7,150 SQF Home
in Potomac, MD
1,42
KWH
1868
3370
Old Tax
$117.10
$211.25
$16.17
New Tax
$191.69
$345.82
$26.47
Difference
$74.59
$134.57
$10.30
6 bedroom, 5 bath
. Home in Germantown,
i
MD
4 bedroom, 3.5 bath
Home in Rockville, MD
3,600 SQF Home
in Gaithersbur , MD
5420
1180
650
$339.76
$73.97
$40.75
$556.18
$121.09
$66.70
$216.42
$47.12
$25.95
Pepco and its customers would be responsible for approximately 74% of the revenues from
this tax, or $160.4 million. This comes at a time when Pepco's customers are experiencing
unprecedented fmancial difficulties. More than 48,600 Pepco customers are currently in
arrears for over $19 million. Many disconnected accounts are.never settled and must be
written-off. In the first quarter of2010, Pepco wrote-off over 2,700 Montgomery County
accounts, valued at $1.6 million. This bad debt must then be added to Pepco's Maryland rate
base resulting in higher rates for all Maryland customers, including those
in
Montgomery
County.
This tax also puts Pepco's Maryland customers at risk because the company pays the tax on
quarterly usage, even ifit cannot collect the tax along with other portions of the bill. The risk
to customers would be somewhat mitigated if Pepco remits the tax to the County as a pure
pass-through, paying only what we actually collect.
Pepco recognizes that, if approved, our customers will be hit hard by the proposed tax
increase. Weare working with our customers to mitigate the challenges of the tough
economic times by offering budget billing plans that allow customers to manage their energy
costs.
In
recent weeks, Pepco announced additional programs to encourage its Maryland
customers to conserve by providing energy saving opportunities in the home and installing
energy efficient products which in turn save money.
@
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Earlier this year, Pepco also announced that beginning June 1,2010 the cost for Standard
Offer Service (SOS) electricity will decrease by 2.2 percent for residential Maryland
customers. The reduction in the cost of electricity translates into a savings of $3.3 7 on the
average monthly bill. This decrease in the cost of electricity is the result of competitive bids to
supply electricity.
Despite, our efforts on this front, we know many of our customers remain concerned about
their energy bills. In consideration of these customers, Pepco urges the County to avoid
raising additional revenues through energy bills and to seek alternative funding solutions
wherever possible.
Pepco recognizes this is a very challenging economic time for Montgomery County and tough
decisions must be made in order to balance the budget. However, we felt that it was critical to
communicate in real terms the direct and indirect impact of this proposed energy tax to our
common constituency.
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.j
I
pepco
A PHI Cornpony
701
Ninth
Street. NW
Suite 9212.
Washihgton.DC20a:6B
Kim M. Watson
\flce President
~Marylarid
Affairs
1202) 872-2524
kmwat:;on.~pepco.;co[n
AprO 28,
2010
The Honorable Nancy Floreen
President, Montgomery County Council
100
Maryland Avenue
Rockville, MD
20850
Dear CounCil Pre.sideflt Ftoreem
I
write today to further addreS$ Pepco's positIon 6n Exp'edited Council
SiH 15'-10
1
Taxation -F'uel-EnergyTax -Rate,. and the alternative resolution tosigriificantly incre.ase·
the fuel/energy tax rate$.?reviously, Charles Washington, Manager, Government
Affairs, testified on behalf of Pepco thatthe proposed increa.se would negatively inipact
the
306,000
commercial and
resip~ntial
customers
w~serve
in MO,ntgom:erY county.
[n
adclitlon to our concern about the. negativedirecf and indirect irnpactof this proposed'
energy taxon our customers., Pepco strongly objects to this tax being implemented
retroactively.
.
The most recent County ExecLltiveproposal requests
that
the
neW
cates take eft'e9t on
May 1,.
2010.
However,the County Couhcil nasannounced that
it
does not plantb take
action on the Executive's proposal befbre May 19. This plan poses serious legal issues
as well as operational and customer service challenges for Pepco.
Pepco objects to the retroactive application oT the: proposed fuel/energytax,as
It
is
unconstitwtional under Article 24 of the. Maryland Declaration bfRights, and Article
m~
§40 of the Maryland
Constitution~
In determining whether or not a retroactive civil tax is
unconstitutional under these provisions of the Maryland Cons,titutign, the MaryJanci
courts analyze the legislature's intent and whether the retroactive legislationii'npairs'
a
vested right Pepco's positiori is thatthe proposed retroactive tax likely impairs a vested
right and istherefore unconstitutional.
The Court ofAppeals of Marylanqhas broadiy defined "ve$fed rights;"
When
determinlnQ whether vested. rights have been impaired, the Marylarid ,courts consider
whether-the retroactive taxis a change in legislative policy. Pepco
submit~dhaUh~
"
retroactive tax is tantamount to a change lri legislative poHcy, and thus, untbristitutidnaf,.
insofaras the fuel/energy tax is intended to be fully recoverable from customers. County
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The Honorable Nancy Floreen
April 28, 2010
Page 2
Executive Leggett's March 18,2010 letter to you explicitly acknowledged this policy by
stating, "[als the Council knows, the County's energy tax is actually a tax on fuel oil,
.natural gas, and electric utility providers which is passed on to all utility customers."
However, the proposed retroactive application of the fuel/energy tax would likely prevent
full recovery of this tax from Pepco's customers. Our intention, both in Mr. Washington's
testimony and in this letter, has been to illustrate the difficulties, and likely near
impossibility, of full recovery of the retroactive portion of the proposed fuel/energy tax.
Thus, approval of the proposed retroactive tax would indicate a change in legislative
policy from complete recovery of the tax from customers to only partial recovery by
utilities, at best.
Additionally. the sheer magnitude of the proposed increase is sufficientto indicate a
change in legislative policy, which would be unconstitutional if appfied retroactively. If
adopted, the proposed amendment will retroactively raise the fuel/energy tax a
staggering 100%. The Court of Appeals of Maryland has previously considered the
retroactive approval of a much lower percentage tax increase to be a change in
legislative policy.
In addition to the fact that the proposed retroactive fuel/energy tax represents a clear
departure from existing legislative policy, the courts may consider several additional
factors in detennining whether a vested right is impaired by a retroactive civil statute.
One such factor is whether the statute works substantial injustice. Pepco submits that
the negative effects of trying to recover the proposed retroactive portion of the
fuel/energy tax increase (Le., approximately $4.5 million) works a substantial injustice
against the company. When combined with the customer/constituent dissatisfaction,
community
ill
will,
and increased operational demands; the potential financial exposure
Pepco faces for the portion of the retroactive increase that it is unable to collect from
customers is aU the more burdensome.
In addition to the unconstitutionality of the retroa.ctive tax increase, Pepco faces serious,
financial, operational, and customer care concerns. If the fuel/energy tax is implemented
retroactively, under our current tariff, Pepco would under-collect the revenue required to
compensate .the Company for the fuel energy tax by approximately $4.5 million. Our
billing system must be programmed in advance of any tax increases and is unable to'
"back-bill" customers for a retroactive tax increase. If the Council approves a retroactive
tax increase, it will be nearly impossible for the Company to accurately collect the
difference in the tax increase from customers, based on their usage.
Instead, Pepco would either attempt to manually calculate the adjustment to all
Montgomery County customers on our system or cancel and "rebill" all statements
issued before May 20. Either of these options would be costly and labor intensive,
requiring either weeks of programming or many man-hours of account work in addition to
costs for postage and printing new statements. Undoubtedly. Pepco would still be unable
to fully realize the required revenue because we would be unable to collect from
customers who are no longer associated with the premises or have been final billed.
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The Honorable Nancy Floreen
April 28, 2010
Page 3
The customer impact of this retroactive tax would prove challenging to the company as
well. If the County Executive's proposal were approved, Pepco would implement a
proactive communications plan to explain to customers why they may now have a
balance for a monthly charge that they had previously paid in full. Still, we would expect
a flood of confused and angry customers to contact our call centers. large businesses,
in particular, stand to see significant increases and many of these businesses
will .
express their serious concerns about such large increases to Pepco's customer seNice
representatives. It is also highly likely that these customers, your constituents,
will
contact the Council and the Maryland Public SeNice Commission.
In aggregate, the challenges of this retroactive tax
will
be a costly burden for Pepco and
its residential and business customers. Pepco strongly objects to the proposed
retroactive application of the tax. If the County Council chooses to raise the fuel energy
tax to address the current budget challenges, the company requests that the Council
collect the desired revenue through a
constitutiona"y~permissible
implementation of the
fuel energy tax that is not retroactive and that provides ample notice of these significant
bill increases to Pepco and its customers.
~~;M ~~
V
l
, .KiJJvatson
IJ>V'---­
/1
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@
Washington
Gas
101
Constitution Avenue, NW
Washington. DC 20080
www.washingtongas.com
Steven Jumper
Director
Corporate Public Policy
(202) 624-6696 Office
(202) 624-6010 Fax
sjumper@washgas,ccm
May 12,2010
The Honorable Nancy Floreen
President, Montgomery County Council
100 Maryland Avenue
Rockville, MD :20850
Dear Madam President:
Washington Gas strongly urges the Council to oppose any provision in Expedited
Council Bill 15-10, Taxation-Fuel-Energy Tax-Rate and the alternative resolution that
would authorize the increased energy tax to be implemented retroactively.
No doubt you are aware of the legal issues raised by PEPCO in its letter to you dated
April 28,2010 regarding the constitutionality of a retroactive tax rate resolution as
proposed in Bill 15-10. While the Energy Tax is ultimately paid by utility customt.'fs, the
company is obligated to first pay
the
tax to the County and then collect it from customers.
It
was the specitic intent of the Council, consistent with legislative bodies throughout this
region and the country, to allow utilities to collect this cost from its customers and was
authorized by law to do so. Washington Gas is extremely concerned not only about the
financial hardship an uncollectible retroactive tax increase will have on the company, but
also about the mispcrception our customers
will
have by concluding the increase in their
bill is due to a utility rate increase instead of a county tax increase.
Further, if the retroactive provision (begin collecting on May
I)
were to be deemed
legally invalid by n court of competent jurisdiction, the utility would be obligated,
Oil
a
pro-rated basis, to return the tax to the customer, or credit accounts accordingly. This
process would be time-consuming and very expensive f{)r Washinbrton Gas to implement
since its billing systems are not designt.xi to accommodate these detailed tax calculations.
This provision would ultimately undermine the intent ofthe legislature, would diminish
the long-standing reputation the company has built in the community over 160 years of
service, and would promote inaccurate, underlying inferences regarding the accuracy of
our billing processes and customer service in generaL Therefore, we urge you to oppose
any provision to implement the increased energy tax retroactively.
Kind regards,
pc: Mon gomery County Council Members
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Page 1 of 1
Faden, Michael
From:
Sent:
To:
cwashingtonjr@pepco.com
Thursday, May 06, 2010 7:15 PM
Faden, Michael
Subject: SOS Reduction information
Beginning June 1,2010, the cost for Standard Offer Service (SOS) electricity will decrease for
Pepco MD commercial and residential customers, compared to rates in effect at the same time in 2009.
SOS prices are subject to change, based on market conditions. At some point in the future it is
almost a certainty that SOS prices will increase.
Under deregulation, Maryland's bidding process requires Pepco to solicit a series of two-year
contracts twice a year. Each contract covers approximately 25 percent of the anticipated amount of the
electricity required to meet the needs of Pepco's customers.
91 % of Residential customers in Montgomery County use SOS, while 9% shop for competitive
supply.
Many of the businesses listed by the County Executive use competitive supply, so they will not
benefit from SOS reductions.
82% of commercial usage in Montgomery County is competitively supplied, while only 18%
of commercial usage is supplied by SOS.
The proposed rates can be found at:
http://www.pepco.com/res/documents/PepcoSOSQuarterlyandResidentiaITypellandTypelRates042810.pdf
Charles L. Washington, Jr,
Public Affairs Manager
PEPCO
202-872-2132 (Office)
202-872-2032 (Fax)
This Email message and any attachment may contain information that is proprietary, legally privileged,
confidential and/or subject to copyright belonging to Pepco Holdings, Inc. or its affiliates ("PHI"). This
Email is intended solely for the use of the person(s) to which
it
is addressed.
If
you are not an intended
recipient, or the employee or agent responsible for delivery of this Email to the intended recipient(s),
you are hereby notified that any dissemination, distribution or copying of this Email is strictly
prohibited. If you have received this message in error, please immediately notify the sender and
permanently delete this Email and any copies. PHI policies expressly prohibit employees from making
defamatory or offensive statements and infringing any copyright or any other legal right by Email
communication. PHI will not accept any liability in respect of such communications.
517/2010
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\OH
<+/
20 / 10
~~
'WI<
~
l'3H..
L,le-ID,
Page 1 of2
IT'll-
Marin, Sandra
From:
Floreen's Office, Councilmember .
Tuesday, April 20, 20104:51 PM
Montgomery County Council
Sent:
To:
Subject:
FV1/:
Proposed Energy Tax
0561..57
1'-"
C: '-'
z
'-,
--Original Message----- .
,
From: Bruce H. Lee [mailto:bruce@leedg.com]
Sent:
Tuesday, April 20, 2010 11:12 AM
To: Floreen, Nancy
Cc: Andrew's Office, Councilmember; Ervin's Office, Councilmember; Eirich's Office, Councilmember;
councilmem ber .berliner@montomgerycountymd.gov; councilmember.trachten
berg@montomgery~ountymd.gov;
Leventhal's
Office, Councilmember; Navarro's Office, Councilmember;Knapp's Office, Councilmember
'
Subject:
Proposed Energy Tax
Dear Council President Nancy Floreen,
The Greater Silver Spring Chamber of Commerce contacted our company last week and informed me of the proposed increase of
the Montgomery County Energy Tax which is under consideration. We have analyzed some of our properties and discussed
internally the impact of the new Energy Tax. By sampling a few of our properties to determine the financial impact on our .
tenants and on LDG INC, I can provide several examples ofthe affects on both large businesses and small businesses. Here is
what we have determined the impacts to be:
1.BAE is a single tenant in Aspen Hill where they occupy 263,000 square feet of office space. Many peo.ple remember the
property as the Vitro property. Based on BAE's annual use of KWH they paid $86,342.34 over the prior year for their
portion of the Montgomery County Energy Tax. Under the new proposed Energy Tax, their payment will increase to
$141,342.42. This represents an increase of approximately 63.7%. BAE is 100% responsible for their utility bills under
the terms of their lease. The impact calculation is attached
~or
you to see (dick on the bottom BAE tab on the
spreadsheet to view). As BAE is vacating Asp.en Hill this summer and downsizing their offices in Montgomery County
this building will be 100% Vacant whereby LDG INC will be responsible for the utilities. There is no new tenant to
occupy the building which has been on the market for over a year.
2. Ray's the Classics, located at 8606 Colesville Road, is a good example of what will happen'to a small business
with the proposed increase. Keep in mind, Ray's the Classics moved from Virginia and is now recognized as
one of the best steakhouses in the DC area. they took a gamble on Silver Spring and Montgomery County and
they are hanging-in-there but it is tough going. They are currently paying $5,189.58 annually for their portion
of the Montgomery County Energy Tax. After applying the proposed increase in the Energy Tax their new
annual payment will be approximately $8,459.31 annually. This represents an increase of approximately
63.7%. Ray's the Classic's is responsible for 100% of their utility bills under the terms of their lease where
they occupy 4,862 square feet.
3. The Aspen Hill Florist, located at our N orthgate Plaza Shopping Center, occupies 1,230 square feet of space.
They paid $971.05 over the prior :y.ttar for their portion of the Montgomery County Energy Tax. Under the new
proposed Energy Tax, their payment
will
increase to approximately $1,589.61 annually. This represents an
increase of approximately 63.7%. Under the terms oftheir lease, Aspen Hill Florist is 100% responsible for
their utilities.
4. Lee Plaza is a Class A office building located in Downtown Silver Spring and is owned and managed by LDG
INC. The total rentable area is 138,386 square feet. The building is occupied by approximately 33 tenants
mostly made up of small businesses. Over the prior year Lee Plaza's paid $55,200.41 for its portion Ofthe(hf.\.
(,
4/2112010
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Montgomery County Energy Tax. Under the new proposed Energy Tax, Lee Plaza's payment will increase to
approximately $90,363.06 annually. This represents an increase of 63.7%. Under the terms of the individual·'
leases, tenants participate in reimbursing the landlord for Common Area Maintenance (CAM) which includes
utilities. Keep in
mind,
the base year of the lease determines how much they pay. A new lease, with a new
lease base year, will pay very little and the landlord will be responsible for covering the increase. The tenants
who have old base years will pick up the increase. So, for example, a small law
fum,
non profit or accounting
fum
occupying 7,000 square feet of space would see an increase of $1,905 to their annual CAM
reimbursement payment. There is a spread sheet for Lee Plaza (click on the bottom Lee Plaza tab on the
spreadsheet to view) breaking out the new Energy Taxwhich also shows the impact of the pass
tbru
to a tenant
with an old base year.
This proposed Energy Tax is a significant hit to the bottom line of businesses many of whom are already struggling stay in
business. This could not come at a worse time. Property owners are experiencing a continued decline in rental rates and vacancy
continues to rise for all office properties in Montgomery County. In sampling 548 office buildings which represent 37,745,921
square feet of office space, the current vacancy rate is 19% and the projected vacancy rate of space coming available but still
occupied or under lease is
26.2%.
Last year at this time, the same sampling of office buildings had a vacancy rate of
16.3%
and
the projected vacancy rate of space coming available was
24.6%.
The vacancy trend continues to get worse, not better.
I
have
shared my monthly analysiS on vacancy in Montgomery County in the past with you and
I
would be happy to continue sharing
my reports if they are of help.
I
wish had better news on the County's office vacancy.
to
A
time when b.usinesses in general are seeing their revenues drop and expenses going up is not a good time to pile
on
taxes and
make the bleeding worse. Businesses bring revenue and we need to foster and encourage businesses to stay, locate to and'
flourish in Montgomery County. On many fronts, we are no longer competitive with other jurisdictions and our County's
reputation remains one of being not "business-friendly". Please do not impose this significant tax increase on all the
Montgomery County businesses.
Thank you for your consideration in this matter.
Let me know how
I