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Electric Companies Surprising Winners In New Tax Package
Originally published on Fri January 4, 2013 7:02 pm
AUDIE CORNISH, HOST:
From NPR News, this is ALL THINGS CONSIDERED. I'm Audie Cornish.
ROBERT SIEGEL, HOST:
And I'm Robert Siegel. The new last-minute tax deal cobbled together by Congress and the White House has produced at least one surprise winner, electric companies. That's because the two sides agreed not to increase the taxes that most people pay on dividends. NPR's Elizabeth Shogren explains why that is welcome news to the electricity business.
ELIZABETH SHOGREN, BYLINE: First, a little reminder about what a dividend is. Some stocks pay dividends. Some don't. Usually, people choose stocks that pay dividends because they want regular income from their stocks. In exchange for that reliable payout, they get a stock that might grow slower. Most electric company stocks pay dividends so these companies went all out to try to keep taxes low on the income people get from dividends.
They ran a nationwide campaign to get regular folks like this older couple riled up about the risk.
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UNIDENTIFIED MAN: The rate on our dividends would more than double.
UNIDENTIFIED WOMAN: But we depend on our dividends to help pay our bills.
SHOGREN: Members of Congress got hundreds of thousands of messages from constituents asking them not to raise dividend taxes. In the months leading up to the New Year's tax deal, CEOs from major power companies travel to Washington to make the case with members of Congress and top White House officials. Energy analyst Kevin Book says the strategy paid off big for electric companies.
KEVIN BOOK: They're the happy beneficiary of the perception on Capitol Hill that the dividend tax rate is all about fixed income seniors.
SHOGREN: Book says the electric companies, more than any other industry, rely on their relatively large dividends to attract buyers for their stocks.
BOOK: It's sort of abstruse, but if people couldn't get as much money from those stocks, then they wouldn't want to own those stocks and that, in turn, would take away the money the power utilities had to invest in generation and transmission equipment.
SHOGREN: Industry lobbyist Brian Wolff works for Edison Electric Institute, the utilities trade group. He says protecting retirement income for regular folks wasn't the only pitch that worked with members of Congress and the White House.
BRIAN WOLFF: This year alone, we're spending about $94 billion.
SHOGREN: That's $94 billion utilities are pumping into the economy. It's spent in communities all over the country to upgrade the grid, install pollution control equipment and repair damage done by big storms like Hurricane Sandy. Wolff says Congress and the White House didn't want to jeopardize the jobs that come with that kind of money.
WOLFF: So I think that that was the really important point that they understood.
SHOGREN: So if Congress made utility stock less attractive by raising the dividend tax, utilities would have less money to spend to help the economy recover. In the New Year's tax package, Congress made the 15 percent tax rate permanent on income from dividends for individuals who make less than $400,000 and couples that make less than $450,000.
The interest was increased slightly to 20 percent for people who make more than that. If the tax package hadn't passed and the Bush-era tax cuts had been allowed to expire, dividend income would have been taxed like regular income, up to 40 percent. Tom Williams from Duke Power says his company is tickled pink.
TOM WILLIAMS: It's a huge thing for our company.
SHOGREN: Duke is arguably the largest electric company in the country. It serves about 20 million people in six states, and its stock is worth $46 billion. Williams says the company's stock is so strong because shareholders get nearly 5 percent back in dividends. Nick Akins is the CEO of American Electric Power, another of the country's largest utilities.
He was one of the executive who trekked to Washington to plead with Congress and the White House.
NICK AKINS: It was scary and our stock value actually deteriorated in the industry before the end of the year in anticipation of some kind of imposition of a higher dividend tax rate.
SHOGREN: After the tax package was announced, American Electric Power stock jumped 2 percent. Akins says this was good news in an industry that had a tough year because demand for electricity still hasn't returned to pre-recession levels. Elizabeth Shogren, NPR News, Washington. Transcript provided by NPR, Copyright National Public Radio.