NV Energy hasn’t paid IRS since 2000; kept millions intended for taxes

NV Energy collected millions to pay federal income taxes since 2000 but hasn’t sent the money to the Internal Revenue Service, according to documents filed by the company in the Nevada Public Utilities Commission.

The utility collected at least $126 million worth of income tax payments from companies in that time. By law, NV Energy can hold the tax contributions for extended periods of time, but that practice has drawn questions about what the utility does with the funds and whether they benefit ratepayers. NV Energy says holding the money helps reduce rates, but critics contend that the utility does not clearly show how those costs keep power bills from increasing.

The $126 million comes from developers who pay the utility for extending the power grid to their housing developments, gaming properties or other projects requiring electricity. The utility charges those customers for the cost of the job and then also collects for taxes that the IRS levies for earnings on private projects.

The utility can keep the money because of large deductions it can make for infrastructure projects — which often costs hundreds of millions of dollars. The accounting technique, allowed by federal law, allows the company to show no taxable income despite its tax collections from customers.

The PUC and NV Energy tout it as a ratepayer protection. Instead of paying the IRS, the utility uses the money to help offset the expenditures incurred for building and buying power infrastructure to serve the state, NV Energy said in a statement to the Sun. The PUC said the same in an interview.

“It goes to reduce the rates for everyone else,” said Anne-Marie Cuneo, PUC regulatory operations director.

NV Energy declined requests for an interview. In its statement, the company said it would be a “taxpayer” next year, signaling that it will no longer deduct its expenses to avoid paying taxes. The utility declined to provide any other information on when it would pay the IRS, or why .

Business operators criticize the contributions, which they say are simply passed on to customers through higher prices for goods and services or, in the case of developers, land costs and home prices. More than one large utility customer expressed disdain over the practice and asked not to be identified as to not damage ongoing relationships with the utility.

The revelations about the tax practice appeared in documents filed in the utility’s last general rate case in the PUC, which regulates the utility.

The documents shine light on a complicated tax practice and an ongoing dispute between big business and the power utility, which is now owned by billionaire Warren Buffett’s Berkshire Hathaway Energy. It also shows how the utility — a regulated monopoly — covers all of its expenses and more on projects.

The PUC’s general counsel denied a record request for the rate case documents, saying the records constitute investigative files prepared in anticipation of litigation. The Attorney General’s Bureau of Consumer Protection, which advocates for ratepayers in PUC deliberations, released all requested documents it maintained related to the tax practice.

The utility’s tax collections have raised concerns for years, and some critics contend that ratepayer benefits exist on paper only.

The Bureau of Consumer Protection hired James Dittmer, a utility industry accounting expert, to testify in front of the PUC in 2011. He expressed concern with the practice, saying it was “inappropriate and inequitable.”

Years later, the bureau remains critical.

The utility’s ability to deduct expenses and charge for taxes on private projects can result “in a free source of funds for the utility,” Dan Jacobsen, technical staff manager at the Bureau of Consumer Protection, said.

The PUC allows the company to collect a 12 percent return on ratepayer money it invests in power plants and other infrastructure. When the company breaches that, ratepayers are entitled to rebates.

“These situations contribute to utilities earning more than their authorized rate of return,” Jacobsen said “In the past we have asked regulators to mitigate the impact on customers. We will continue to recommend measures to help assure that utility rates are as low as possible.”

In 2012 and 2013, the utility had combined over-earnings of $44 million, according to documents from the rate case. The utility reimbursed $14 million to ratepayers in 2013 after the Bureau of Consumer Protection expressed concerns about over earnings.

“The effect of [the tax contributions] on the utility’s earnings is minimal – it is likely not the main factor driving any over-earnings,” Cuneo said.

Howard Hughes Corp. addressed other concerns about the tax contributions in a 2014 general rate case, a forum where the PUC every three year holds a series of public hearings to decide and calculate power company rates. Customers can weigh in with questions for the utility. WalMart, Switch, the Southern Nevada Hotel Group and others asked about pensions, employee compensation and infrastructure. But documents show Howard Hughes Corp. peppering the utility with questions and data requests about the tax compensation.

One question was whether NV Energy ever sought a formal opinion on its current practice.

“We have not requested any legal and accounting opinions, letters, letter rulings, or reports from 2000 through the present time related to the calculation, assessment, or payment of the Tax… ,” Rachel Ringenbach, an accountant with the utility, wrote in response.

The Howard Hughes documents also show that from 1989 to 2010, the PUC and its regulatory operations staff did not abide by the regulation drafted to govern the practice. Instead it used a commission order overriding the regulation as the de facto best practice, according to the rate case documents.

The commission accepted the longstanding practice as the regulation in 2010 — the same year Howard Hughes Corp. started asking questions about the tax practice.

NV Energy is not alone in using tax money for other purposes.

In 2006, the New York Times found that utilities nationwide collected billions from customers for taxes but never paid the federal government.

The utilities used similar methods, using net operating losses to justify keeping tax payments.

In Minnesota, a private citizen unsuccessfully sued to recover $300 million in tax money the utility held instead of paying to the IRS.

Mike Hatch was the state’s attorney general at the time and wanted the taxes to go into government coffers.

In an interview with the Sun, he called the practice “a double scam.”

“Quite frankly, you cheat the customer and you also cheat the taxpayer because government is going to have to increase the base,” he said.