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

for elimination.

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.