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Montgomery County Energy Tax Hike - Update

April
30
2010


If what I heard during and after a Montgomery County Council joint meeting yesterday is any indication, I have to warn businesses and property owners in the county to get ready to open your wallets a lot wider than you already do now. Unless something happens behind the scenes in the next month or so, the Council is going to hike your energy rates. Big time.

Thursday's joint workgroup meeting of council's Management & Fiscal Policy committee and Transportation, Infrastructure, Energy & Environment committee attracted quite a few concerned businesspeople, officials from various Chambers of Commerce, and even Pepco officials. They came to hear council's reaction to County Executive Ike Leggett's proposal to increase the energy tax by 100% on each electrical kilowatt and natural-gas therm burned for both residential and commercial account holders. Other forms of energy, like coal, propane and heating oil, are also covered by the increase.

If you think that number is scary, there's more: Leggett's proposal would really hurt commercial account holders, because they already pay almost three times more in energy taxes than do residential customers.

All of these actions are understandably sending mixed signals to the business community in Montgomery County, as well as to companies thinking about moving here or investing here. An article in the Gazette spotlights this confusion. It also quotes Electric Advisors President Russell Lacey as saying these new costs would just be passed onto consumers, and would make it tough for businesses to hire employees.

Meantime, the signals coming out of yesterday's committee meeting were just as cloudy. A lot of the discussion centered around making the tax split between commercial and residential more fair and even. Several ideas were suggested; nothing was nailed down.

It must be pointed out that yesterday's meeting was just a worksession involving two of the council's committees. No vote could be taken, since it wasn't a full session of the council. What's more, there's going to be another hearing on the hike in May before the council even votes on it. And I'm sure much more information will be generated, exchanged and discussed behind council's closed doors in the meantime.

But from what Council President Nancy Floreen told a small group of us after the meeting, the splits being considered would still hit the commercial sector hard. The figures she mentioned would really put the hurt on businesses and property owners here in Montgomery County.

There's so much detail I'd love to get into here; if I did, though, this post would be much, much longer -- and it's getting really long already, right?One big detail I'll point out, though, is if a big energy tax hike is passed, Montgomery County would hold the dubious honor of having the highest energy taxes in the DC/Baltimore metro region. By far.

Some people might say, "Hey, Bob, won't your company benefit from this new tax? After all, if you can lower a businesses' or property owner's rates, you can actually soften the blow of these new taxes."

I cannot deny that we'd have the potential to see more business in Montgomery County. I'll leave the specific reasons out of this discussion for now, because we're not sure what will come of council's further discussions and investigations.

But I'd really, really hate to see new business come our way as a result of an onerous tax. Don't get me wrong. We'll absolutely help commercial account holders hedge against a huge increase in energy taxes. What I'd much rather do is assist them in lowering their rates, so they can have more cash in their pockets. That money can buy a lot of items and services to help a company grow, hire more people, and then grow even more. That's how an economy thrives.

Here's an example of both scenarios at work. I'm currently negotiating electricity rates for an office condo building in the county that is master metered; in other words, only one electric meter serves all of the tenants in the building. The property itself uses about one million kilowatt hours (kWh) of electricity per year.

The building's condo association currently pays Pepco 9.609 cents per kWh for electricity supply and transmission. I've quoted them pricing that's around 8.3 cents per kWh for a 2-year deal. With the building using 89,400 kWh of power (as shown on its March, 2010 statement), we would have lowered its power supply/transmission rate by 14%, or $1210, for that month. Pretty good, right?

Well, if the 100% Leggett-proposed rate hike were in place for that same billing period, the association's energy tax would be higher by $1265. The tax would have slightly more than canceled out our lower rate. Of course, the overall bill would still be lower, because of our negotiation. Yet the association would still be paying $1265 more in taxes.

If the tax would have been in place without our pricing? The association's original bill would have been even higher by that $1265 figure.

Meantime, here's another more-dramatic example, from the Gazette article:

Suburban Hospital in Bethesda spends about $342,000 annually on energy taxes, according to Leslie Ford Weber, senior vice president of government and community relations for the hospital. If the increase passes, the hospital will pay about $700,000.

If you are concerned about this new tax, and what it will do to county businesses, you can visit our "action" post of yesterday to find out how you can compute your own businesses' tax, and how you can "fight the power."

Next week, we'll look at the residential energy market. The actual dollar figures aren't nearly as dramatic, but there's no doubt that this new tax -- no matter what form it eventually takes -- will put the hurt on Montgomery County residents at home, too.

Tagselectricity, montgomery county, natural gas, tax, taxes

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