At the same time Duke Energy is facing scrutiny for a coal ash spill from one of its North Carolina power plants that’s polluted the Dan River and Kerr Lake, the company is getting attention for avoiding federal taxes.
This week Citizens for Tax Justice (CTJ) and the Institute on Taxation and Economic Policy (ITEP) released “The Sorry State of Corporate Taxes,” a comprehensive five-year study of 288 consistently profitable Fortunate 50 companies that found 26 of them — including North Carolina-based Duke Energy — paid no federal corporate income taxes during that time.
In fact, Duke — the nation’s largest electric utility — had a negative effective tax rate of -3.3 percent during the five-year period. The investor-owned company earned over $9 billion in profits during those years but received tax rebates totaling $299 million.
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“This nation faces important questions of how to fund pressing priorities, from education and health care to infrastructure and retirement security,” said Rebecca Wilkins, CTJ’s senior counsel for federal tax policy. “Reforming our tax code is necessary to ensure to we have a just tax system that raises the revenues we need.”
Overall, the effective federal income tax rate of the 288 companies studied was just 19.4 percent — far less than the on-the-books rate of 35 percent.
Gas and electric utilities enjoyed the lowest effective federal corporate tax rate during the study period, at 2.9 percent. And indeed, the companies with the very lowest tax rates were all electric companies: Pepco Holdings of Washington, D.C. (-33 percent), PG&E of San Francisco (-16.7 percent), NiSource of Indiana (-13.6 percent), and Wisconsin Energy (-13.5 percent).
Duke Energy came in 13th on the list of companies with the lowest tax rates, among other utilities including CenterPoint Energy of Houston (-8.5 percent), American Electric Power of Ohio (-5.8 percent), FirstEnergy of Ohio (-3 percent), NextEra Energy of Florida (-1.6 percent), Consolidated Edison of New York (-1.1 percent), CMS Energy of Michigan (-1.1 percent), and Northeast Utilities of Connecticut (-0.7 percent). The low rates were due largely to the companies claiming accelerated depreciation tax breaks on capital investments, which is a way to defer taxes.
But while Duke Energy and other utilities were successfully avoiding federal taxes, they were imposing significant costs on the public through their reliance on coal and other dirty energy sources.
Almost half of the electricity Duke Energy generates — 45 percent in 2011 — comes from burning coal. While the company plans to reduce its use of coal and has been converting some of its old coal-fired plants to burn natural gas, it still expects coal to account for 29 percent of its generation capacity by 2031. And coal power has steep external costs — that is, costs imposed on third parties that they did not choose to incur — that result from both coal mining and coal burning. Among the external costs associated with pollution from coal mining and coal burning are reduced life expectancy, increased hospital admissions for respiratory problems, congestive heart failure, chronic bronchitis, asthma attacks, loss of IQ from mercury, degradation of buildings, reduction of crop yields, ecosystem loss, and global warming.
What do those external costs add up to? In 2009 the U.S. National Research Council released a report that attempted to place a dollar value on coal power’s hidden costs and came up with a figure of $62 billion for 2005 alone just from the sulfur dioxide, nitrogen oxides, and particulate matter emitted from the 406 coal-fired power plants then operating in the United States. It also found that while burning natural gas generated less damage than burning coal, it was still significant: A sample of 498 natural gas-fired plants, which accounted for 71 percent of gas-generated electricity at the time, produced $740 million in total non-climate damages in 2005.
A 2010 study that estimated the costs of the health damage caused by Duke Energy power plants in North Carolina and elsewhere came up with a figure of $6.94 billion for deaths, $817.1 million for asthma attacks, $257.2 million for chronic bronchitis, $158.1 million for heart attacks, and $16.2 million for hospital admissions.
Duke Energy is also a major water polluter — and the problem goes far beyond the acute crisis of the Dan River coal ash spill, the third-largest in U.S. history. The coal ash pits at Duke’s 14 power plants across North Carolina are all chronically leaking toxins into the groundwater. Meanwhile, a recent study found that pollution from coal ash pits at one Duke plant in eastern North Carolina is killing more than 900,000 fish and deforming thousands more each year in Lake Sutton, a popular fishing spot near Wilmington, N.C. The replacement cost for the lost fish in Lake Sutton is more than $4.5 million a year — a total of $112 million over the last 25 years. Add to that the replacement costs of fish that the company’s coal ash pollution killed and otherwise harmed in four other North Carolina lakes and the total comes to $1.76 billion.
So what can be done to ensure big polluters like Duke pay their fair share of federal taxes? The report from CTJ and ITEP offers a number of recommendations for reform that include repealing the accelerated depreciation tax loophole and reinstating a strong corporate Alternative Minimum Tax to ensure a certain level of taxation for profitable corporations.
The groups’ findings come as Congress considers a Republican plan to overhaul the tax code. Put forth by Rep. Dave Camp (R-Mich.), chair of the House Ways and Means Committee, the proposal would, among other things, lower the corporate tax rate to 25 percent while closing some loopholes.
But CTJ has criticized the Camp proposal, noting that while it ends some special breaks and loopholes it gives the saved revenue back to corporations through the rate reduction.