The goal: Get some Southern California electrical users to pick up Utah taxes.
The possible result: Laid-off Utah coal miners.The intricate workings of interstate electrical-power buying and selling, state politics and coal consumption may trip up a plan to make the Intermountain Power Agency pay an expanded gross-receipts tax, political leaders and IPA officials say.
In the balance could hang hundreds of Carbon and Emery county coal jobs, says state Sen. Mike Dmitrich, D-Price.
The issue is complicated. It boils down to this: When Utah lawmakers decided to give a $90 million property-tax cut this year, they also increased IPA's gross-receipts tax by about $8 million to offset what would be the huge power generator's property-tax reduction.
When Southern California cities - which buy 96 percent of the Intermountain Power Agency's electricity - learned of the tax change, their operators started buying or producing power elsewhere. That has led to a 20 percent drop in the amount of power IPA is generating. And that means less Utah coal burned to fuel the huge plant and less need to mine coal in the first place.
The domino effect, according to Dmitrich, could be real trouble. "We could loose 5 million to 8 million tons of coal production a year. We mine 22 million tons of coal (in Utah). IPA is keeping our coal mines open. It makes the difference. We can't lose that much coal," said Dmitrich, who in private life is a government-relations manager for a Carbon County coal company.
But Senate Majority Whip Leonard Blackham, R-Moroni, who sponsored the tax-cutting bill, said Dmitrich and others are overreacting. "There was no tax increase for IPA. They are paying just as much (tax) as ever, just part of it is a different tax. There's much more to IPA losing (power sales) than this tax shift. I'm as concerned about coal jobs as anyone; I live in and represent central Utah. But I'd caution that we wait a bit and see what happens."
IPA manager Reed Searle says it's no coincidence that two days after the Legislature adjourned March 1 the public utilities of Los Angeles, Riverside, Anaheim, Glendale, Burbank and Pasadena started cutting the amount of electricity they were buying from IPA's huge coal-fired power plant near Delta that's owned by a consortium of Utah cities. Ninety-six percent of power generated by the plant is sold to those Southern California cities, the other 4 percent goes to Utah Power, Searle said.
Since March 3, Los Angeles Water & Power, which traditionally buys 70 percent of IPA's power, has cut its IPA consumption by 20 percent, Searle said. "I think it's fair to say the entities that purchase our power are upset over this unfair (gross-receipts) tax," Searle said.
IPA sells $600 million a year in power, so $8 million isn't a big piece. But Searle says IPA pays 5 percent of its revenue in state and local taxes. "No other business I know of pays so much tax on its gross revenue."
Bruce Blowey, L.A. Water & Power assistant engineer for power operations, says the Utah Legislature's actions "triggered a reassessment" of the huge municipal power company's grid-buying system.
"The property tax we were paying is a fixed cost. The gross-receipts tax is a variable cost. The more power we buy from IPA, the more tax we pay," Blowey said. The reassessment by L.A. Water & Power led the utility to start buying more hydroelectric power from the Northwest, more coal-fired power from Arizona and even to start up some natural gas-fired plants it owns itself that were idle or little-used.
"We are buying 20 percent less from IPA," L.A. Water & Power engineer Chuck DeVore said. "The Northwest part of the country has had a great water year, and they're spilling (water) over their dams. We're getting that power for next to nothing."
Also, cool weather in Southern California this spring has dropped electrical demand. "And our continuing recession has driven some industrial and residential users out of the city or to alternative power sources," Blowey said.
But the Legislature's new gross-receipts tax "was a factor, one of several, that made us look at our power sources and make changes," Blowey said.
He couldn't say when L.A. Water & Power might buy more IPA power. If some factors don't change, it may not buy more IPA power than it is now. "Actually, IPA's cost isn't very competitive. It's a changing world out there."
"That's the real problem," Blackham said. "The energy market is shaking out, people buying from lower-cost sources. IPA is a very efficient coal-fired plant, but petroleum is a good buy right now. I think (L.A. Water & Power) will buy more from IPA." But even if it doesn't, "the tax shift is so minimal it can't affect the cost" of IPA power, Blackham said.
Searle says IPA is operating at 60 percent capacity, while it was operating at 80 percent to 90 percent this time a year ago. "Our coal pile is growing. We're ordering less coal." If L.A. Water & Power doesn't start increasing its power buys, "In a year's time, there could be $50 million forgone in coal and transportation costs."
That scares Dmitrich, who says a solution must be found. That may mean removing the gross-receipts tax from IPA and Utah Power, which would cost Utah taxpayers upward of $16 million a year. "But we could lose a lot more (in state revenue) if 200 or 400 coal miners are out of work and the mines shut down," Dmitrich said.
Searle says removing the tax would be fair. "Treat us like everyone else." He says IPA and Utah Power were "the only property taxpayers in the state not to get the tax cut."
Many Utah businesses sell 100 percent of their goods to out-of-state customers. "I imagine Hercules and Thiokol sell all (their products) out of state, yet they get a share of the tax cut. Which (Utah consumer) buys copper directly from Kennecott? Yet Kennecott gets the property-tax cut. Why single out our power purchasers, other than (legislators) didn't want to have news stories about Southern California power buyers getting a benefit? And that made our purchasers angry," Searle said.