Nebraska Power Association
Opposition Statement - LB 405
February 6, 2013
Chairman Hadley, Members of the Revenue Committee, my name is John
McClure. I am the Vice President of Governmental Affairs and General
Counsel for Nebraska Public Power District, and I am testifying today on
behalf of the Nebraska Power Association (NPA) in opposition to LB 405.
The NPA is a voluntary organization representing all segments of
Nebraska's power industry: municipalities, public power districts, public
power and irrigation districts and cooperatives engaged in generation,
transmission, or distribution of electricity within our state.
Nebraska is the only state in the U.S. where every home and business is
served by a consumer-controlled utility.
Let me begin by commending the Governor for his leadership in focusing
on Nebraska's long term economic development. He has been steadfast in
promoting a stronger Nebraska economy though a variety of initiatives. As
we all know production agriculture is fundamental to Nebraska's economic
vitality. A diverse economy with strong manufacturing, financial services,
health services, education, ag processing and professional and retail
services are all essential for our long term success.
NPA is opposed to the elimination of the sales tax exemption for fuel used
in generation which is currently provided for in 77-2704.13. Elimination of
this exemption will cause a double taxation on fuel, increase the cost of
energy and decrease the competitiveness of Nebraska farmers,
manufacturers and businesses.
Nebraska utilities currently do not pay sales tax on fuel they purchase and
use in generation when more than 50% purchased is used directly in the
generation of electricity.
Under LB 405, a tax will be assessed on fuel purchased and used in
generation. A second taxation of this fuel will occur when the final product
(electricity) is sold to the end consumer. Loss of this tax exemption will
create a direct and immediate rate increase to utility customers.
Nebraska utilities have one source of revenue--and it is from our
customers--whether fixed income retirees living in a modest residence, or a
major steel manufacturer like Nucor. If sales tax is assessed on fuel used
for generation, this will create a direct and immediate rate increase to
customers. The range of impact is from less than 1% to over 1Y2%.
LB 405 also eliminates the sales tax exemption on electricity consumed in
agriculture, processing and manufacturing. This is a substantial cost
increase for these customers, many of whom are very large consumers of
electricity. For example, Nucor Steel consumes approximately twice as
much electricity annually as double the amount of electricity used by the
entire City of North Platte.
LB 405 puts Nebraska farmers, manufacturers and ag processors at a
significant competitive disadvantage compared to nearly all other states in
our region who have in their states the sales tax exemption being proposed
In addition to paying tax on the fuel used to make the electricity, these
farmers, manufacturers, and ag processors will now be required to pay tax
on their electric bill, further decreasing their competitiveness. The products
they manufacture are then taxed at the time of sale, resulting in a triple tax.
In summary, we support continued dialogue on future tax policy in
Nebraska and appreciate the Governor's initiative to look at the tax policies
in our state. While the intended aim of LB 405 is to improve the state's
competitiveness through tax reform, the net impact of the double taxation
on fuel purchases, will work against this intended goal.