As Illinois politicians, citizens, and power companies across the state spar over whether to extend a nine-year freeze on electricity rates that is set to expire in January, they should consider the impact of taxes on electricity prices.
Taxes increase what consumers pay for their electricity by more than 10 percent in many areas of the state, and by more than 15 percent in Chicago.
Illinois charges an electricity tax of .33 cents per kilowatt hour, and part of everyone’s monthly customer charge also goes to the state for programs such as corporate subsidies, according to the Citizens Utility Board’s May 2006 CUBFacts.
With typical electricity rates between 6.618 and 8.84 cents per kilowatt hour, the .33 cents tax per kilowatt hour is essentially a tax rate of between 3.7 percent and 5 percent added to everyone’s electricity costs.
According to fiscal year 2007 tax revenue estimates produced by the Illinois’ Commission on Government Forecasting and Accountability, the state’s electricity tax revenues have increased by 15 percent since July 2005. Electricity tax revenues were $29 million higher in FY 2006 than they were in the previous year.
At the local level, municipalities often “double dip” by charging both a sales tax and a franchise tax. Franchise taxes are passed on to consumers simply for the privilege of being able to have and use electricity.
The City of Chicago’s franchise tax starts at .53 cents per kilowatt hour for the first 2,000 kilowatt hours used in a month. This amounts to a tax rate between 4.6 percent and 8 percent. Adeline, East Hazel Crest, and Ford Heights are the only other municipalities in Illinois charging more than 3 percent for franchise taxes.
Municipal sales taxes on electricity vary. Cicero has the highest at .632 cents per kilowatt hour, followed by Chicago and Bellwood at .628.
Many cities have no municipal tax on electricity, so it is unclear why these cities feel the need to tack on another 7 to 9.5 percent in taxes.
Nearly 18% in Taxes
Examining the September 2006 electric bill for my Chicago residence, I discovered I was being charged a $2.98 franchise tax, $1.86 state tax, $3.53 Chicago tax, and another $0.45 monthly fee, for a total of $8.82 in taxes.
My monthly customer charge was $2.94; my electricity used charge was $46.59. There was a $0.42 decommissioning adjustment, for a total of $49.95, not including taxes. Hence, I paid 17.7 percent in electricity taxes, and millions of Illinois families are paying similar tax rates on their electricity.
Chicago’s taxes alone totaled 13 percent of the bill.
Rate Freeze Ending
Nine years ago Illinois embarked on a deregulation program that forced electric utilities to sell their power generation plants, cut their rates for electricity by 20 percent in most cases, and live with those rates until 2007. In September a power auction was held, and rates in 2007 will go up as a result.
Most consumers will see their cost of electricity climb more than 20 percent, to about the level they experienced nine years ago. Others will see their rates climb 40 to 55 percent.
That hike would be a lot less painful if taxes and fees weren’t already adding significantly to the price of electricity.
Jeff Trigg ([email protected]) is executive director of the Illinois Taxpayer Education Foundation.