Pennsylvanians have been jolted in recent years by whopping increases in property taxes - unless the property happens to be a power plant.
While homeowners are paying an average of 30 percent more than they did in 1997, Exelon, Pennsylvania Power & Light, and the other major electric utility companies in the state are paying 85 percent less in taxes on their plants, down from about $120 million annually to about $20 million, an Inquirer analysis has found.
Meantime, the utilities are passing on their real estate levies to their customers, based not on what the companies are currently taxed but on the far higher sums of six years ago.
And it is perfectly legal.
Whether it is fair, however, is a point of contention for thousands of communities and school districts across Pennsylvania that have seen much-counted-on tax revenues from the utilities shrink, in some cases to almost nothing.
The City of Philadelphia, for instance, is losing $20 million a year and its fiscally stressed schools nearly $6 million. The districts of Council Rock in Bucks County and North Penn in Montgomery County used to get $1 million apiece; now each takes in about $160,000.
"It is an outrage," said Eric Epstein, a consumer-energy activist based in Harrisburg. The state and the electric companies "created a tax-depletion system for the school districts at the worst possible time."
That system was born in the complex deregulation deals the generators cut with the Pennsylvania legislature and the Public Utilities Commission in the mid-1990s, when they gave up their monopolies and allowed competitors to sell power on what had been their exclusive turfs. The change, the Ridge administration said, would "generate savings and choice for people."
It also opened a side door to big tax savings for the utilities.
John Hanger, the former PUC member who was the architect of deregulation, said the utilities' lower taxes have been more than offset by expenses wrought by the free market.
"It wouldn't be fair to say that utilities had a windfall out of this," Hanger said.
Critics, though, are saying exactly that.
"I can't imagine a deal where consumers and local taxpayers got kicked in the rear worse than this one," said Pittsburgh lawyer Ira Weiss, an expert on Pennsylvania real estate taxes.
For the previous 25 years, the power companies' property taxes were relatively cut-and-dried. Payments were calculated by the state and put into one important pot: the Pennsylvania Utility Realty Tax Act fund, or PURTA. For 1997, $167.5 million was paid in, the bulk of it by the two electric behemoths, Peco Energy Co. and Pennsylvania Power & Light.
Harrisburg distributed the money annually to every county, town and school district according to their overall tax revenues. The more they collected, the greater their share of PURTA. That is why Philadelphia and its schools got so much, about 20 percent of the fund.
When the state loosened its grip on the electric industry, the commercial power plants - 25 major ones, 55 much smaller - were gradually released from PURTA. For the first two years, 1998 and 1999, the utilities were allowed to appraise their plants for tax purposes; the fund tumbled to $60 million.
On Jan. 1, 2000, the plants were removed from PURTA and put on the property rolls of the locales in which they sat, to be assessed and taxed like any hometown business.
PURTA was kept alive, but barely. Minus the big-ticket plants, contributions largely came from industries still state-regulated, such as telecommunications and water, and added up to $29.5 million a year.
The PURTA handouts shriveled. That has been double trouble for communities and school districts that cannot make up the losses because they have no sizable power plants within their borders to tax - and more than 90 percent of them do not.
Philadelphia has seen its annual take drop from $24.4 million in 1997 to nearly $4.3 million today; its schools are getting $960,000 instead of $6.85 million. They are the big losers, topping a list of nearly 3,000 other losers statewide.
Over the next five years, city budget director Rob Dubow noted, Philadelphia will be out $100 million. "To put that in context," he said, "the whole giant wage-tax battle last year was about $120 million over five years."
Among the lawmakers who had almost unanimously approved the PURTA change, "everyone knew those local governments were going to [take a hit]," said John Raymond, an aide to State Sen. Vincent J. Fumo, the ranking Democrat when deregulation was negotiated. Fumo and other party leaders, Raymond said, raised the issue, to no avail.
As a spokesman for then-Gov. Tom Ridge explained, "The purpose of electric competition [is] not to generate money for government."
Still, some municipalities and school districts seemed destined for windfalls. They were the ones blessed with electric plants in their yards. But instead of a bonanza, what they have gotten from the utilities is a power play, one used effectively in other states.
On the local tax rolls, the companies had the same right as any property owner: They could appeal their assessments. And they have done so aggressively, arguing that when they gave up their monopolies, their plants plummeted in value. They also contend that most of their equipment should be exempt.
Contesting the assessments, the utilities said, is part of their duty to customers and shareholders to contain costs.
"We appreciate the fact that [local] officials have an obligation to the taxpayers to ensure that corporations like ours pay their fair share," said George Biechler, a PP&L spokesman.
"However, we are reaching out to our plant neighbors to respect the fact that PP&L must look at the bigger picture. We also have a responsibility to [our] 1.3 million customers across eastern and central Pennsylvania and to our more than 150,000 shareowners across the country. That responsibility includes opposing local taxes that are excessive and that unfairly single out our company."
Appeals have been filed on virtually all plants in Pennsylvania. The cases are entangled in questions. For starters, how does one put a market value on an electric-generating facility? Comparable sales are hard to come by.
While their cases are pending, the utilities typically make interim tax payments that are considerably lower than what they would pay under current assessments. It is an option not available to homeowners.
Among the major disputes:
Limerick nuclear power plant. Montgomery County assessed it at $912 million. Its owner, Peco Energy, part of Chicago-based Exelon, says it is worth only $10 million. The appeal has been pending for more than two years. Meanwhile, the utility is paying $2.1 million in taxes annually to the county, Limerick Township and Spring-Ford School District - a fraction of the $16 million it would owe under the county assessment.
"Nobody out there thought that the utilities would say places like Limerick were worthless," said Wendy Rothstein, an attorney for the school system.
Exelon, said Spring-Ford business manager Timothy Anspach, is "playing hardball."
Three Mile Island nuclear power plant.Dauphin County assessed the facility, scene of the nation's worst nuclear accident, at $64.9 million. AmerGen, the Exelon partner that owns it, put its worth at $5 million. While the appeal is pending, AmerGen is paying $400,000 in taxes a year, compared with $1.5 million it would have to pay under the county's assessment.
Lower Dauphin School District already has spent $75,000 in legal and appraisal fees to fight the appeal, said business manager Bill Miller.
Eddystone Generating Station. In the spring of 2002, Exelon protested that Delaware County's $300 million assessment on its fossil-fuel plant was so out of line that it was entitled to withhold tax payments. When the company declined to pay the $7.8 million bill, Ridley School District was plunged into crisis.
Under public pressure, Exelon made an interim payment of $2.85 million.
Last summer, the utility and the county agreed to a lower assessment of $52.5 million. The annual tax on the Eddystone plant is now $1.5 million.
Susquehanna nuclear power plant. Although the facility was built at a cost of $4 billion and assessed at $3.8 billion, PP&L argued in its appeal that it was worth only a fraction of that. In December 2000, a Luzerne County judge agreed, fixing the assessment at $165.4 million.
PP&L now pays $3 million annually to the county, Salem Township and the Berwick Area School District - far less than the $30 million the plant used to add each year to the PURTA pot, according to court records.
The Susquehanna appeal has been by far the biggest in the state. The Common Pleas Court ruling, which paralleled PP&L's arguments virtually point for point, could set the course for other cases in Pennsylvania and around the nation, said Epstein, the consumer activist.
"[Susquehanna] was the first nuke case to come in, and it was precedent-setting," Epstein said. Since then, he added, the strategy "of driving school districts off a cliff without a seat belt" has been applied in cases around the commonwealth.
In PURTA's heyday, Philadelphia and its schools reaped about $10 million a year just from the Susquehanna plant. Still hoping to salvage some of it, they have filed an appeal in Commonwealth Court. Arguments are expected this fall.
Pennsylvania is one of 18 states that have deregulated their electric industries since 1996. New Jersey is another.
So far, though, the Garden State has not been hit by tax appeals. Utility property is exempt from real-estate levies. The companies instead pay a business tax distributed in much the same way as Pennsylvania's PURTA funds.
New Jersey is not typical. In most other states that allow electric competition, utilities are battling tax collectors.
"Property taxes have become a big issue," said Matt Brown, a utility specialist with the Denver-based National Conference of State Legislatures.
When power companies were regulated, their billing rates were set by the state, thus guaranteeing profits. But in a free market, "suddenly one power generator was in competition with another," Brown said. "In this relatively low-margin business, [they] look to every type of cost saving that they can."
Exelon has fought taxes on an Illinois plant, and PP&L has filed several appeals in Montana. Centerior and Cinergy have contested assessments in Ohio; Niagara Mohawk, in New York. Other high-profile cases have unfolded in California and Connecticut.
"What happened with deregulation... is an example of what happens when the utility lobby gets focused on something," said attorney Weiss, who represented the Berwick schools in the Susquehanna case.
The companies were quick to see the opportunity, he said, and "were halfway round the world while the local governments were still in bed."
Who are the winners in the utility tax wars?
The ratepayers, the electric companies said.
As a result of increased efficiency and rate caps, PP&L's electricity costs about as much as it did in the mid-1980s, according to spokesman Biechler. Exelon is saving its 1.5 million customers in Southeastern Pennsylvania about $46 million a year, or slightly more than $30 each, said spokesman Ben Armstrong.
The bills do, however, include something extra for the utilities: $11.4 billion - awarded by the state but being paid by customers - for allowing the electricity market to be opened.
When deregulation was negotiated, the power companies argued that, with profits no longer guaranteed by the state, they could lose billions of dollars. Investments in equipment and facilities, they said, might not produce revenues as before.
The losses they projected were called stranded costs. Unless they were compensated, the companies contended, they could slip into bankruptcy.
So the state allowed seven utilities to pass $11.4 billion in stranded costs to customers over a number of years. Included were the plants' annual property taxes - at their 1997 peaks.
Not part of the calculation was the steep drop in taxes that would follow, said Irwin Popowsky, who as Pennsylvania's Consumer Advocate was at the negotiating table.
Nor was an adjustment made.
Take the Susquehanna plant:
From 2000 through 2009, PP&L is including in its customer billings $280 million in real estate levies, according to court records. In reality, the company pays only $3 million a year on the plant - an estimated 10-year windfall of $250 million.
"All we did was save the electric industry that money, and the people are still paying it," said Rep. Camille George (D., Clearfield), one of six lawmakers who voted against removing the plants from PURTA.
George said the state should find a way to put them back into the fund - particularly at a time when not only Harrisburg but communities and school districts are digging deeper into the pockets of ordinary taxpayers.
Consumer advocates say the utilities should cut their electric rates to match their tax savings.
To that, deregulation experts said forget it - the deals are legally binding. "Once these [stranded cost] numbers were established," said Popowsky, the state consumer advocate, "they became locked in stone."
Barring a legislative about-face, Epstein, the consumer activist, has only this advice:
"If you want to cut your property taxes, buy a power plant."