W. Va. Code R. § 11-13-2o

Current through Register Vol. XLI, No. 50, December 13, 2024

Section 11-13-2o - Business of Generating, Producing or Selling Electricity on and After June 1, 1995; Definitions; Rate of Tax

2o.1. Definitions. - As used in this Section:

2o.1.1. "Average four-year generation" is the amount computed by dividing by four (4) the sum of a generating unit's net generation, expressed in kilowatt hours, for calendar years 1991, 1992, 1993, and 1994. For any generating unit which was newly installed and placed into commercial operation after January 1, 1991 and prior to the effective date of this Section, June 1, 1995, "average four-year generation" is computed by dividing the unit's net generation for the period beginning with the month in which the unit was placed into commercial operation and ending with the month preceding the effective date of this Section by the number of months in the period and multiplying the resulting amount by twelve (12) with the result being a representative twelve-month average of the unit's net generation while in an operational status;

2o.1.2. "Capacity factor" means a fraction, the numerator of which is average four-year generation and the denominator of which is the maximum possible annual generation;

2o.1.3. "Generating unit" means a mechanical apparatus or structure which through the operation of its component parts is capable of generating or producing electricity and is regularly used for this purpose;

2o.1.4. "Inactive reserve" means the removal of a generating unit from commercial service for a period of not less than twelve (12) consecutive months as a result of lack of need for generation from the generating unit or as a result of the requirements of State or federal law or the removal of a generating unit from commercial service for any period as a result of any physical exigency which is beyond the reasonable control of the taxpayer;

2o.1.5. "Maximum possible annual generation" means the product, expressed in kilowatt hours, of official capability times 8760 hours [i.e., the number of hours in a year];

2o.1.6. "Official capability" means the nameplate capacity rating of a generating unit expressed in kilowatts;

2o.1.7. "Peaking unit" means a generating unit designed for the limited purpose of meeting peak demands for electricity or filling emergency electricity requirements;

2o.1.8. "Retired from service" or "retiring from service" means the removal of a generating unit from commercial service for a period of at least twelve (12) consecutive months with the intent that the unit will not thereafter be returned to active service;

2o.1.9. "Taxable generating capacity" means the product, expressed in kilowatts, of the capacity factor times the official capability of a generating unit, [i.e., average four-year generation in kilowatt hours) 8760 hours] subject to the modifications set forth in Sections 2o.3.2 [new generating units] and 2o.3.3 [peaking units] of this rule. Taxable generating capacity is the measure of tax under Section 2o of this rule. In no event shall taxable generating capacity for any unit first placed in service prior to June 1, 1995 be recomputed or adjusted based upon post June 1, 1995 changes in net generation or consumption except insofar as the unit is retired or placed in inactive reserve;

2o.1.10. "Net generation" for a period means the "kilowatt hours of net generation available for sale that was generated or produced in this State" by the generating unit during that period less the following adjustments;

2o.1.10.1. Twenty-one twenty-sixths (21/26 or .8077) of the kilowatt hours of electricity generated at the generating unit and sold during that period to a plant location of a customer engaged in manufacturing activity if the contract demand at that plant location exceeds 200,000 kilowatts per hour in a year or where the usage at that plant location exceeds 200,000 kilowatts per hour in a year;

2o.1.10.2. Twenty-one twenty-sixths (21/26 or .8077) of the kilowatt hours of electricity produced or generated at the generating unit during that period by any person producing electric power and an alternative form of energy at a facility located in this State substantially from gob or other mine refuse; and

2o.1.10.3. The total kilowatt hours of electricity generated at the generating unit exempted from tax during that period by Section 2n.2 of this rule.

2o.1.10.3.1. Taxpayers paying under Section 2o of this rule who received any of the exemptions described in Section 2n.2 of this rule in calendar years 1991 through 1994 receive the exemption under Section 2o of this rule automatically when they calculate their "average four-year generation" values for calendar years 1991 through 1994. Therefore, no additional exemption is allowable for kilowatt hours generated in calendar years after 1994.

2o.1.10.4. "Net generation" for a period shall not be reduced by company use, line loss or any other use or loss or deduction, except station use, as defined in Section 1a of this rule; and

2o.1.11. "Twelve consecutive months" means a period beginning with the day the generating unit in question is removed from commercial service and ending on the day which is 364 days thereafter.

2o.2. Rates of tax. - Upon every person engaging or continuing within this State in the business of generating or producing electricity for sale, profit or commercial use either directly or indirectly through the activity of others, in whole or in part, or in the business of selling electricity to consumers, or in both businesses, the tax imposed by Section 2 of this rule is equal to:

2o.2.1. For taxpayers who generate or produce electricity for sale, profit or commercial use, the product of $22.78 multiplied by the taxable generating capacity of each generating unit in this State owned or leased by the taxpayer, subject to the modifications set forth in Section 2o.3 of this rule: Provided, That with respect to each generating unit in this State which has installed a flue gas desulfurization system, the tax imposed by Section 2 of this rule, on and after January 31, 1996, is equal to the product of $20.70 cents multiplied by the taxable generating capacity of the units, subject to the modifications set forth in Section 2o.3 of this rule:

Provided, However That with respect to kilowatt hours sold to or used by a plant location engaged in manufacturing activity in which the contract demand at that plant location exceeds 200,000 kilowatts per hour per year or if the usage at that plant location exceeds 200,000 kilowatts per hour in a year, in no event shall the tax imposed under W. Va. Code '11-13-1 et seq. and this rule with respect to the sale or use of the electricity exceed five hundredths of one cent (.054) times the kilowatt hours sold to or used by a plant engaged in the manufacturing activity; and,

2o.2.1.1. Taxpayers with a flue gas desulfurization system installed as of January 31, 1996 shall file a separate return at the new rate for that one (1) day, together with their return for January at the old rate reflecting only the previous consecutive thirty (30) days.

2o.2.2. For taxpayers who sell electricity to consumers in this State that is not generated or produced in this State by the taxpayer, nineteen hundredths of one cent (.194) times the kilowatt hours of electricity sold to consumers in this State that were not generated or produced in this State by the taxpayer, except that the rate shall be five hundredths of one cent (.054) times the kilowatt hours of electricity not generated or produced in this State by the taxpayer which is sold to a plant location in this State of a customer engaged in manufacturing activity if the contract demand at that plant location exceeds 200,000 kilowatts per hour per year or if the usage at that plant location exceeds 200,000 kilowatts per hour in a year. The measure of tax under this subdivision is equal to the total kilowatt hours of electricity sold to consumers in the State during the taxable year, that were not generated or produced in this State by the taxpayer, to be determined by subtracting from the total kilowatt hours of electricity sold to consumers in the State the net kilowatt hours of electricity generated or produced in the State by the taxpayer during the taxable year. The provisions of this subdivision shall not apply to those kilowatt hours exempt under Section 2n.2 of this rule. Any person taxable under this subdivision is allowed a credit against the amount of tax due under this subdivision for any electric power generation taxes or a tax similar to the tax imposed by Subsection 2o.2.1 of this rule paid by the taxpayer with respect to that electric power to the state in which the power was generated or produced. The amount of credit allowed shall not exceed the tax liability arising under this subdivision with respect to the sale of that power.

2o.2.3. EXAMPLE 1. Taxpayers subject to two or more rates shall segregate their average four-year generation by tax category. A generating unit's total net generation for calendar years 1991 through 1994 is 5 billion kilowatt-hours, of which 2.2 billion kilowatt-hours were subject to the lower rate for large customers (i.e., 200,000 kilowatts per hour per year) and for power generated from gob or other mine refuse. Taxable generating capacity at the lower rate would be 251,141.55 kilowatts (i.e., 2.2 billion kilowatt-hours) 8,760 hours.) Taxable generating capacity at the regular rate ($22.78) would be 319,634.70 kilowatts (i.e., 2.8 billion kilowatt hours) 8760 hours.)

2o.2.4. EXAMPLE 2. A taxpayer owns three generating units operating in the State during calendar years 1991 through 1994. The generating units produced gross electric power in billions of kilowatt hours ("B KWH") in accordance with the following table:

*SEE TABLE 1

The "official capability" of generating unit A is 2,100,000 KWH, of generating unit B is 1,500,000 KWH and of generating unit C is 1,000,000 KWH. During each year the taxpayer sold 2 billion KWH of electricity to a large industrial user that qualified for the reduced tax treatment (i.e. consumption of greater than 200,000 kilowatts per hour per year) from unit C in accordance with a binding contract.

*SEE TABLE 2

Average four year generation is 11 billion KWH for unit A, 6 billion KWH for unit B and 1,884,615,385 KWH for unit C (calculated by including 1.5 billion KWH not sold to the large industrial user plus 5/26 of the 2 billion (384,615,385) KWH of electricity sold to the large industrial user each year). The taxpayer's annual gross B&O Tax liability (before credits, and without taking into account other factors described in Section 2o.3) for such units is $49,120,514, assuming that (1) units A, B and C are not retired or placed in inactive reserve, (2) the taxpayer continues to own each of the units, and (3) none of the units have a flue desulfurization system installed and without taking into account the second proviso set forth in Section 2o.2.1 of this Rule (which provides that the tax on electricity sold to large industrial users shall not exceed 0.054 times such KWH sold):

2o.3. The following provisions are applicable to taxpayers subject to tax under Section 2o.2.1 of this rule:

2o.3.1. Retired units; inactive reserve. - If a generating unit is retired from service or placed in inactive reserve, a taxpayer is not liable for tax computed with respect to the taxable generating capacity of the unit for the period that the unit is inactive or retired. The taxpayer shall provide written notice to the Joint Committee on Government and Finance and to the Department of Tax and Revenue, as well as to any other entity as may be otherwise provided by law, eighteen (18) months prior to retiring any generating unit from service in this State;

2o.3.1.1. A generating unit shall be considered to be retired from service on the later of (1) the day specified in the 18 month notice described in subdivision 2o.3.1 of this section or (2) the day the unit is removed from commercial service, provided, that on that day the taxpayer intends that the unit will not thereafter be returned to service and the unit is not in fact returned to service for the next succeeding twelve consecutive months;

2o.3.1.2. A generating unit is considered to be placed in inactive reserve on the day occurring soonest with respect to the following events:

(1) the day the unit is removed from commercial service as a result of the lack of need for generation from the generating unit or as a result of State or federal law, provided that on the day the taxpayer intends that the unit will not thereafter be returned to service within the following twelve consecutive month period after the removal and the unit is not in fact returned to service for the next succeeding twelve consecutive months, or

(2) the day the unit is removed from commercial service as a result of any physical exigency which is beyond the reasonable control of the taxpayer. If a generating unit is placed in inactive reserve, that status shall continue until the day the unit is restored to commercial service;

2o.3.1.3. Units removed from commercial operation for less than twelve (12) consecutive months are neither retired from service nor in an inactive reserve status, and are taxable without proration or allocation pursuant to Section 2o.3.5 of this rule;

2o.3.1.4. Failure to provide notice may result in liability for tax for months in which notice was required.

2o.3.2. New generating units. - If a new generating unit, other than a peaking unit, is placed in initial service on or after June 1, 1995, the generating unit's taxable generating capacity shall equal forty percent (40%) of the official capability of the unit.

2o.3.3. Peaking units. - If a peaking unit is placed in initial service on or after June 1, 1995, the generating unit's taxable generating capacity shall equal five percent (5%) of the official capability of the unit.

2o.3.4. Transfers of interests in generating units. - If a taxpayer acquires an interest in a generating unit, the taxpayer shall include the computation of taxable generating capacity of that unit in the determination of the taxpayer's tax liability as of the date of the acquisition. Conversely, if a taxpayer transfers an interest in a generating unit, the taxpayer is not for periods thereafter liable for tax computed with respect to the taxable generating capacity of that transferred unit.

2o.3.5. Proration, allocation. -

(a) Since the Legislature intended to prohibit multiple taxation of the same taxable generating capacity, taxes shall be equitably (1) prorated for the taxable year in which a generating unit is first placed in service, retired or placed in inactive reserve, or in which a taxpayer acquires or transfers an interest in a generating unit; (2) allocated and reallocated among different generating units of a taxpayer with respect to adjustments to net generation; and (3) allocated among multiple taxpayers with interests in a single generating unit.

(b) To provide for an orderly transition with respect to the rate- making effect of this Section, those electric light and power companies which, as of June 1, 1995, are permitted by the West Virginia Public Service Commission to utilize deferred accounting for purposes of recovery from ratepayers of any portion of Business and Occupation Tax expense under W. Va. Code ' 11-13-1 et seq. and this rule shall be permitted, until such time that action pursuant to a rate application or order of the Commission provides for appropriate alternative rate-making treatment for that expense, to recover by means of deferred accounting the tax expense imposed by this Section to the extent that the tax expense imposed by this Section exceeds the level of Business and Occupation Tax allowed in rates as of March 11, 1995.

2o.3.5.1. When calculating the average four year generation for a generating unit first placed in service after January 1, 1991 and prior to June 1, 1994; retired or placed in inactive reserve; or in which a taxpayer acquires or transfers an interest in the generating unit, net generation (including adjustments) for the month in which that event occurs on a day other than the first day of the month shall be computed by dividing net generation during that month by the number of days in that month in which the generation occurred, and multiplying the resulting amount by the total number of days in that month.

2o.3.5.1.1. A generating unit shall be considered first placed in service on the day when all of the following conditions have been satisfied:

(1) all necessary permits and licenses to operate the unit have been approved;

(2) critical testing of the unit has been completed and it is reasonably anticipated that the unit will perform in the intended manner; and

(3) electricity generated by the unit has been synchronized into the power grid.

2o.3.5.2. The amount of tax liability among multiple taxpayers with interests in a single generating unit shall be allocated between them in direct proportion to the percentage interest owned by each taxpayer.

2o.3.5.3. When a taxpayer acquires an interest in a generating unit on any date other than the first day of the month, the acquiring taxpayer is liable for tax only for those days of the month in which it owns the interest. The tax liability for that month is allocated between acquiring and transferring taxpayers by multiplying taxable generating capacity for the entire month by a fraction, the numerator of which is the number of days during the month the taxpayer owned the interest, and the denominator of which is the total number of days in the month. For tax purposes the interest transferred shall be considered to have been owned for the entire day on which the transfer occurred.

2o.3.5.4. Adjustments to net generation available for sale pursuant to W. Va. Code '11-13-2o(a)(10) and Section 2o.1.10 of this Rule shall be entirely allocated to a unit or units designated specifically by contract for the 1991 through 1994 period to supply a customer whose usage or demand resulted in the adjustment. However, to the extent there is no unit designated by contract during that time or to the extent usage exceeds the total generation from the unit or units, the adjustments to net generation available for sale as set forth in W. Va. Code '11-13-2o(a)(10) and Section 2o.1.10 of this Rule shall be allocated among all West Virginia units owned by the taxpayer pro rata based upon official capability.

2o.3.6. Electricity generated by manufacturer or affiliate for use in manufacturing activity. - When electricity used in a manufacturing activity is generated in this State by the person who owned the manufacturing facility in which the electricity is used and the electricity generating unit or units producing the electricity so used are owned by the manufacturer, or by a member of the manufacturer's controlled group, as defined in Section 267 of the Internal Revenue Code of 1986, as amended, the generation of the electricity is not taxable under W. Va. Code '11-13-1 et seq. and this rule. Any electricity generated or produced at the generating unit or units which is sold or used for purposes other than in the manufacturing activity shall be taxed under this Section and the amount of tax payable shall be adjusted to be equal to an amount which is proportional to the electricity sold for purposes other than the manufacturing activity.

2o.4. Beginning June 1, 1995, electric light and power companies that actually paid tax based on the provisions of Section 2d.3.3 or 2m of this rule as then in effect for every taxable month in 1994 shall determine their liability for payment of tax under W. Va. Code '11-13-1 et seq. and in accordance with Subdivision 2o.4.1 and 2o.4.2 of this Section. All other electric light and power companies shall determine their liability for payment of tax exclusively under this Section beginning June 1, 1995 and thereafter.

2o.4.1. If for taxable months beginning on or after June 1, 1995, liability for tax under this Section is equal to or greater than the sum of the power company's liability for payment of tax under Sections 2d.3.3 and 2m of this rule, then the company shall pay the tax due under this Section and not the tax due under Sections 2d and 2m of this rule. If tax liability under this Section is less, then the tax shall be paid under Sections 2d and 2m and the tax due under this Section shall not be paid.

2o.4.2. Notwithstanding Section 2o.4.1, for taxable years beginning on or after January 1, 1998, all electric light and power companies shall determine their liability for payment of Business and Occupation tax exclusively under this Section.

W. Va. Code R. § 11-13-2o