Ray's Round Up: Proposed Legislation to Impact Cost of Utilities, Prescriptions

While the state budget impasse drags on, the work of the General Assembly in Harrisburg ramped up this week as the State House and State Senate were in session. Although the budget debate dominates the news, the General Assembly considered a number of other issues important to Pennsylvanians. The place where this work starts is in the Committees of the House and Senate. I wanted to highlight two particular Committee hearings held in the House of Representatives on legislation that could impact millions of consumers in the Commonwealth.

UTILITY TAXES

On Tuesday, September 29th the House Consumer Affairs Committee met to discuss House Bill 1436. On first glance this seems like a highly technical bill, as it deals with how utility companies report and recover the federal taxes they pay. But a closer examination reveals this legislation could result in increases in utility bills for all Pennsylvanians.

Utilities in Pennsylvania are made up of many different units. The unit to which you pay your water, electric, or gas bill each month deals directly with customers and is regulated by the Public Utility Commission. Other units are unregulated and may deal with financial services, natural resource exploration, or other functions. Each of these units owe federal taxes separately. But tax law allows them to consolidate their tax burden. The end result is that the unit dealing directly with customers has their federal tax burden reduced, as the other units are able to write-off much of their taxes.

On the surface that seems to be how business operate in the United States. But here’s where consumers could end up losing because of House Bill 1436. Utilities are able to recover the taxes they pay from consumers in the customers’ monthly bills. The utilities are claiming they should be able to recover the amount of taxes the unit that individual customers deal with owes, before the overall tax burden is reduced by consolidating what all the units owe.

In simple terms, utility companies want consumers to pay for taxes that the utilities hypothetically owe, instead of the reduced amount they actually pay.

This isn’t the first time this change has been proposed. But in court actions that eventually reached the Pennsylvania Supreme Court, the judiciary ruled in no uncertain terms that the Public Utility Commission could not allow utilities to charge consumers for taxes the utilities didn’t actually pay. The utilities are now asking the General Assembly to pass a law that would overturn the decision of the Pennsylvania Supreme Court.

Naturally, consumer advocates are outraged by this proposal. Numerous organizations, including AARP, wrote to the Committee in opposition to this bill, and Acting Pennsylvania Consumer Advocate Tanya McCloskey delivered strong testimony against this idea at the Committee hearing. Utilities, of course, strongly support the idea. The representative from Duquesne Light testified that the impact on Duquesne Light customers would be about 50 cents per month. What he didn’t say, however, was that would be a $6 increase in your electric bill each year, and that your water and gas bills would also increase by that amount, to the point where customers of the 7 largest utilities in Pennsylvania would pay an additional $51.7 million per year.

The utilities also noted that over 40 other states have allowed this tax change to go forward, but Ms. McCloskey pointed out in her testimony that most of these other states permit utilities to receive a much lower rate of return on equity than is allowed in Pennsylvania and that the utilities are not asking for that change to be made in Pennsylvania.

No votes have been taken on this legislation as of yet. But you can be sure utilities will be lobbying hard for this bill to become law. It will be up to consumer groups like AARP, and consumers like you, to try and stop it. Please call your representative and urge them to oppose House Bill 1436. You can find your representative here.

PRESCRIPTION DRUGS

On Wednesday, September 30th the House Aging and Older Adult Services Committee held an informational hearing on the PACE and PACENET prescription drug assistance programs as well as three bills that would make changes in the programs. Pennsylvania Secretary of Aging Teresa Osborne and PACE Director Tom Snedden testified and led this discussion.

Pennsylvania has provided prescription drug assistance to low income older Pennsylvanians for 31 years. PACE, which was supplemented in more recent years by PACENET, is funded entirely by revenues from the Pennsylvania lottery. PACE provides prescription drugs for individuals below an annual income of $14,500, or married couples with an income below $17,700, with a small co-pay for each prescription. PACENET also requires a monthly premium, but has income limits of $23,500 for an individual or $31,500 for a married couple. Assets are not counted toward this income limit.

The creation of the Medicare Part D prescription drug program in 2003 reduced the costs of the PACE and PACENET programs, but enrollees still pay less for prescription drugs than if they only were enrolled in Medicare Part D. Funding from the federal program has allowed PACE and PACENET to keep up with increases in the costs of prescription medications without needing increasing funding from the lottery.

The legislation before the Committee concerns slight expansions of PACE and PACENET eligibility. House Bill 777 would allow an individual to remain eligible for the programs if a Social Security cost-of-living increase resulted in their income rising over the income limits. House Bill 190 would exclude interest earned from United States savings bonds from counting toward income limits, while House Bill 493 would exclude certain state veterans’ benefits from counting toward income limits.

Secretary Osborne and Director Snedden testified that the financial impact from these bills would be minimal on the PACE and PACENET programs. But a discussion ensued about the potential of increasing the overall income limits for the programs and whether lottery revenue could support such an increase. The Department of Aging promised to develop a report by early 2016 that would detail the cost of increasing income limits as well as other ideas for expanding the program, such as a provision permitting eligibility once an individual has spent enough money on prescription drugs in a year that their remaining income would make them eligible.

Director Snedden did urge caution, however, as he noted the one unknown variable is the cost of prescription medications. PACE and PACENET do a remarkable job of controlling costs and providing an important benefit, but when prescription drug prices suddenly increase, the program may come under increasing financial pressure.

“Ray’s Round Up” features updates on current state and federal issues by Ray Landis, AARP PA’s Advocacy Manager.