6.1. ERMUSR 05-13-2008 - Laserfiche WebLink

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VI. Methods Used To Determine Amount of Payments in Lieu of Taxes Payments in lieu of taxes are generally thought of as payments to local government. However, some utilities, particularly those in Kentucky and Washington, make payments in lieu of taxes to the state government. Of the 348 utilities defined in Section V, over 73% (255) made payments in lieu of taxes (also called transfers to the general fund), and the median transfer as a percent of electric operating revenue was 3.5 percent. The most common method used to determine the amount of payments in lieu of taxes was percent of gross electric operating revenue, as shown in the table below. TABLE 6 Methods Used to Calculate Payments in Lieu of Taxes Percent of Number Utilities of Utilities Percent of Gross Electric Operating Revenue 24% 62 Flat Amount Paid Annually 19% 49 Property Tax Equivalent 17% 44 Assessment of Electric Utility and City Budgets 16% 40 Charge per Kilowatt-hour Sold 8% 20 Percent of Net Utility Plant in Service 2% 6 Percent of Income, (Net, Operating or Total) 2% 4 Other 12% 30 The category "assessment of electric utility and city budgets" includes utilities whose payments are set by the city council, the mayor, or a utility commission, and utilities that make payments on an as needed basis. The most common responses in the "other" category are utilities whose payments are based on more than one criterion. Tennessee Valley Authority distribution utilities are not included in the data above. State law determines the payments in lieu of taxes for utilities in the state of Tennessee. The calculation is composed of two parts: (1) percentage of three year average operating revenue less power cost, and (2) property tax rate applied to net utility plant. 9