Ruling 2000-6, Utility Company Gross Earnings Tax / Gross Earnings from Operations
FACTS:
A local gas distribution company ("LDC"), the principal business of which is the manufacture, sale or distribution of gas to be used for light, heat or power, distributes gas through its gas mains to end users located within its franchise area in Connecticut. Prior to 1996, the LDC made only "bundled" sales of gas. These sales consisted of the sale of gas and the transportation of that gas through its gas mains to end users located in Connecticut. In 1996, the Connecticut Department of Public Utility Control ("DPUC") decided that the LDC was thereafter required to provide unbundled transportation services to end users who chose to purchase gas from any person other than the LDC ("gas marketer"). However, because the LDC owns the gas mains within its franchise area, the LDC has continued to provide transportation of the gas in all cases. The LDC enters into a Firm Transportation Service Agreement with each end user choosing to purchase gas from a gas marketer and to purchase only transportation of the gas from the LDC. As a result of the DPUC decision, four different billing and service options are now available to end users in the LDC’s franchise area (the first three of which involve "unbundled" sales and are addressed in this Ruling). Each end user will choose the billing method that will be used.
1. Services Billed Separately. An end user will receive two bills--one bill from the LDC reflecting charges for the unbundled transportation services, and the other bill from the gas marketer reflecting charges for the gas (including any other charges defined by contract between the end user and the gas marketer). The end user will be financially responsible to the LDC for the charges for the transportation services, and will be financially responsible to the gas marketer for the charges for the gas.
2. Gas Marketer as Payment Agent. An end user will receive a single bill from the gas marketer reflecting both charges for the transportation services and charges for the gas (including any other charges defined by contract between the end user and the gas marketer). The bill may or may not be itemized. To the extent provided by the contract between the end user and the gas marketer, the end user will be financially responsible to the gas marketer for all charges reflected on the single bill. The LDC will send to the end user an invoice for the transportation services, but the invoice will be clearly marked that it is not a bill.
The gas marketer will receive a bill from the LDC for the unbundled transportation services. The gas marketer will be financially responsible to the LDC for the charges reflected on the LDC’s bill.
3. LDC as Payment Agent. An end user will receive a single bill from the LDC reflecting both charges for the transportation services, and charges for the gas (including any other charges defined by contract between the end user and the gas marketer). The bill may or may not be itemized. The end user will be financially responsible to the LDC for all charges reflected on the single bill.
The LDC will receive a bill from the gas marketer reflecting charges for the gas (including any other charges defined by contract between the end user and the gas marketer). The LDC will be financially responsible to the gas marketer for the charges reflected on the gas marketer’s bill.
4. Gas and Transportation Both Provided by LDC. An end user will receive a single bill from the LDC reflecting charges for the "bundled" sales of gas and the transportation of that gas. It is undisputed that the total charges by the LDC to the end user will be included in the LDC’s gross earnings that are subject to the utility company gross earnings tax.
ISSUES:
To what extent, under each of the first three billing methods described above, the LDC’s charges to an end user or to a gas marketer are included in its gross earnings that are subject to the utility company gross earnings tax.
To what extent, under each of the first three billing methods described above, the gas marketer’s charges to an end user or to the LDC are included in its gross earnings that are subject to the utility company gross earnings tax.
RULING:
1. Under the Services Billed Separately billing method, the total charges by the LDC to the end user will be included in the LDC’s gross earnings that are subject to the utility company gross earnings tax, and the total charges by the gas marketer to the end user will be included in the gas marketer’s gross earnings that are subject to the utility company gross earnings tax.
2. Under the Gas Marketer as Payment Agent billing method, the difference computed by subtracting the charges by the LDC to the gas marketer for the transportation services from the total charges reflected on the single bill that the gas marketer will send to the end user will be included in the gas marketer’s gross earnings that are subject to the utility company gross earnings tax. The charges by the LDC to the gas marketer for the transportation services will be included in the LDC’s gross earnings that are subject to the utility company gross earnings tax.
3. Under the LDC as Payment Agent billing method, the difference computed by subtracting the charges by the gas marketer to the LDC for the gas from the total charges reflected on the single bill that the LDC will send to the end user will be included in the LDC’s gross earnings that are subject to the utility company gross earnings tax. The charges by the gas marketer to the LDC for the gas will be included in the gas marketer’s gross earnings that are subject to the utility company gross earnings tax.
DISCUSSION:
Conn. Gen. Stat. §12-264(a) provides in part:
(a) Each ... (2) company the principal business of which is manufacturing, selling or distributing gas ... to be used for light, heat or power ... and (3) company required to register pursuant to section 16-258a shall pay a quarterly tax upon gross earnings from such operations in this state. Gross earnings from such operations under subdivisions (1) and (2) of this subsection shall include (A) all income classified as operating revenues by the Department of Public Utility Control in the uniform systems of accounts prescribed by said department for operations within the taxable quarter .... Gross earnings from such operations under subdivision (3) of this subsection shall be gross income from the sales of natural gas....
Service Billed Separately billing method
The gross earnings from operations of the LDC include "all income classified as operating revenues by the Department of Public Utility Control in the uniform systems of accounts prescribed by said department." Conn. Gen. Stat. §12-264(a). "Income classified as operating revenues ... in the uniform systems of accounts" includes charges by the LDC to an end user for the unbundled transportation services that are provided by the LDC. The Operating Revenue Accounts prescribed for Gas Utilities include Account 489, Revenues from Transportation of Gas of Others. "This account shall include revenues from transporting gas for other companies through the production, transmission, and distribution lines, or compressor stations of the utility." Id. Therefore, under the Services Billed Separately billing method, the gross earnings from operations of the LDC include its charges to an end user for the unbundled transportation services.
The gross earnings from operations of a gas marketer are its "gross income from the sales of natural gas." Conn. Gen. Stat. §12-264(a). Charges by the gas marketer to an end user for the gas are included in the gas marketer’s "gross income from the sales of natural gas." Therefore, under the Services Billed Separately billing method, the gross earnings from operations of the gas marketer include the gas marketer’s charges to the end user for the gas.
Gas Marketer as Payment Agent billing method
The gross earnings from operations of the LDC include "all income classified as operating revenues by the Department of Public Utility Control in the uniform systems of accounts prescribed by said department." Conn. Gen. Stat. §12-264(a). "Income classified as operating revenues ... in the uniform systems of accounts" includes charges by the LDC to the gas marketer for the unbundled transportation services that are provided by the LDC. Uniform System of Accounts prescribed for Gas Utilities, Account 489, Revenues from Transportation of Gas of Others. Therefore, under the Gas Marketer as Payment Agent billing method, the gross earnings from operations of the LDC include its charges to the gas marketer for the unbundled transportation services.
The gross earnings from operations of a gas marketer are its "gross income from the sales of natural gas." Conn. Gen. Stat. §12-264(a). Charges by the gas marketer to an end user for the gas are included in the gas marketer’s "gross income from the sales of natural gas." Therefore, under the Gas Marketer as Payment Agent billing method, the gross earnings from operations of the gas marketer include the gas marketer’s charges for the gas.
On the other hand, "gross income from the sales of natural gas" does not include the gas marketer’s charges to an end user for the unbundled transportation services that are provided by the LDC. Therefore, under the Gas Marketer as Payment Agent billing method, the gross earnings from operations of the gas marketer is the difference computed by subtracting the charges by the LDC to the gas marketer for the transportation services from the total charges reflected on the single bill that the gas marketer will send to the end user.
LDC as Payment Agent billing method
The gross earnings from operations of a gas marketer are its "gross income from the sales of natural gas." Conn. Gen. Stat. §12-264(a). Charges by the gas marketer to an end user for the gas are included in the gas marketer’s "gross income from the sales of natural gas." Therefore, under the LDC as Payment Agent billing method, the gross earnings from operations of the gas marketer include the gas marketer’s charges to the LDC for the gas.
The gross earnings from operations of the LDC include "all income classified as operating revenues by the Department of Public Utility Control in the uniform systems of accounts prescribed by said department." Conn. Gen. Stat. §12-264(a). "Income classified as operating revenues ... in the uniform systems of accounts" includes charges by the LDC to an end user for the unbundled transportation services that are provided by the LDC. Uniform System of Accounts prescribed for Gas Utilities, Account 489, Revenues from Transportation of Gas of Others. Therefore, the gross earnings from operations of the LDC include its charges to an end user for the unbundled transportation services.
On the other hand, "income classified as operating revenues ... in the uniform systems of accounts" does not include charges for the gas that is purchased by the end user from a gas marketer. This is the case for several reasons. The Operating Revenue Accounts prescribed for Gas Utilities include Account 480, Residential Sales, and Account 481, Commercial and Industrial Sales. Account 480 provides in part: "This account shall include the net billing for gas supplied for residential or domestic purposes." Account 481 provides in part: "This account shall include the net billing for gas supplied to commercial and industrial customers." As their title indicates, Accounts 480 and 481 pertain to sales of gas by an LDC. The gas that an end user has purchased from a gas marketer and that is transported by the LDC is not, for purposes of Accounts 480 and 481, "gas supplied" by the LDC. Otherwise, Account 489, Revenues from Transportation of Gas of Others, would be superfluous.
The Uniform System of Accounts prescribed for Gas Utilities has been adopted as a regulation. See Conn. Agencies Regs. §16-27-3. "It is obvious, that inasmuch as a regulation is a written instrument the general rules of interpretation apply." 1A J. Sutherland, Statutory Construction (5th Ed. Singer) §31.06. "Our rules of statutory construction apply to administrative regulations." Preston v. Department of Environmental Protection, 218 Conn. 821, 829 n.9, 591 A.2d 421 (1991). "Agency regulations, appropriately issued, have the force and effect of a statute. See Fusco-Amatruda Co. v. Tax Commissioner, 168 Conn. 597, 604, 362 A.2d 847 (1975); Hartford Electric Light Co. v. Sullivan, 161 Conn. 145, 154, 285 A.2d 352 (1971). We therefore construe agency regulations in accordance with accepted rules of statutory construction. 1A J. Sutherland, Statutory Construction (4th Ed. Sands 1985) §3l.06. Just as it is accepted that the legislature does not enact superfluous statutes; State v. Ellis, 197 Conn. 436, 472-73, 497 A.2d 974 (1985); Amsel v. Brooks, 141 Conn. 288, 295, 106 A.2d 152, appeal dismissed, 348 U.S. 880, 75 S. Ct. 125, 99 L. Ed. 693 (1954); the same is true of administrative regulations." Gianetti v. Norwalk Hospital, 211 Conn. 51, 60, 557 A.2d 1249 (1989). See also 2A J. Sutherland, Statutory Construction (5th Ed. Singer) §46.07.
Therefore, under the LDC as Payment Agent billing method, the gross earnings from operations of the LDC is the difference computed by subtracting the amount billed by the gas marketer to the LDC for the gas from the total charges reflected on the single bill that the LDC will send to the end user.
It bears mentioning that Conn. Gen. Stat. §12-264(b)(2), as amended by 2000 Conn. Pub. Acts 174, §27, provides that "[no person, firm, corporation or municipality that is chartered or authorized by this state to transmit or sell gas within a franchise area shall transmit gas for any person that sells gas to be used for light, heat or power to an end user or users located in this state, unless such seller has registered with the Department of Revenue Services for purposes of the tax imposed under this chapter." The exceptions to this prohibition are noted in SN 2000(13), 2000 Legislation Affecting the Utility Company Gross Earnings Tax. Gas marketers that have registered with the Department of Revenue Services for purposes of the tax imposed under chapter 212 are identified in AN 2000(5), List of Registered Gas Marketers.
LEGAL DIVISION
December 11, 2000