The California Public Utilities Commission is something of a black box to most Californians.  So, when I saw that they might be charging something of a mysterious tax.  But what really bothered me when I actually read David Cay Johnston’s article on the “Imaginary tax” on tax.com wasn’t that the PUC was taking in some tax.  Nope, this “tax” is actually going straight to the corporate coffers of the owners of the Santa Fe Pacific Pipeline (SFPP), Kinder Morgan.

Simon is a securities lawyer whom Gov. Arnold Schwarzenegger (R) appointed to the California Public Utilities Commission (PUC). Simon wants to treat partnerships, which are exempt from corporate income taxes, as if they paid those taxes. The result would be to force customers of every rate-regulated monopoly that organizes itself as a partnership to shell out money to cover a corporate income tax that simply is not applicable.

There is a term to describe this: corporate socialism.

Even if the ultimate cost works out to only a quarter per Californian per year, it would mean an extra $11.1 million in profit to the Santa Fe Pacific Pipeline (SFPP). If the costs are higher, the extra profits would scale up accordingly. (tax.com)

It’s kind of a weird story, and you should probably read the full version. But long story short, SFPP was used to getting a fee to cover the corporate tax. Thing is, they weren’t actually paying a corporate tax.  A PUC Administrative Law Judge ruled against the fee, but the PUC is looking to continue the fee notwithstanding the ALJ’s ruling.

Simon’s alternative decision acknowledges a previous commission decision that “an allowance for tax expense is only a just and reasonable charge when there is likely to be an actual tax expense by the utility.”

But Simon wants to go much further. He wants to impose on consumers the corporate income tax even when the utility is organized as a partnership, which by law is exempt from the corporate income tax. (tax.com)

For years now, the PUC has been something of a backwater. It was originally intended to protect consumers, but has become so captured by the industries that it was supposed to be regulating that it has become meaningless.

Gov-elect Brown needs to take a thorough review of all of these commissions to make sure they are both serving their purposes, and to ensure that they haven’t been totally captured in a way that is hostile to their initial intent.