December 01, 2002 | By Keith Martin in Washington, DC

California reduced the tax grossup rate that utilities are authorized to collect on “contributions in aid of construction.”

The reduction is temporary. It will apply from July 1 this year and not back to September 11, 2001 as was requested.

California allows utilities that receive contributions in aid of construction from developers to charge the developers additional income taxes the utilities have to pay upon receiving such contributions. The amount of such charges varies between 34% and 37% of the contribution — the so-called “grossup rate” — depending on the electric utility receiving it.

In May this year, four California utilities lowered the grossup rate they have been using temporarily to 27%. The reduction was attributed to the lower tax burdens the utilities experienced as a result of the bonus depreciation the Bush administration has made available to them for certain investments made after September 11, 2001. The utilities have made this lower grossup rate effective as of July 1, 2002.

The Bay Area Rapid Transit District requested that the lower grossup rate apply retroactively to September 11, 2001 since investments made after that date qualify potentially for the depreciation bonus. The utilities have advanced various reasons, including administrative difficulty, for why the July 1, 2002 effective date should not be changed.

BART put its proposal on the agenda for a California Public Utilities Commission meeting in November. However, the commission failed to act on the proposal and, according to CPUC staff, it is expected to be withdrawn.