Does the state have your money? By Jared Patterson | Rapid Power Management Amber News

Does the state have your money?

By Jared Patterson

Are you a manufacturer in the state of Texas? If so, are you paying sales tax? Do you realize that manufacturers in the state of Texas who use 50% or more of their load towards the manufacturing process do not have to pay sales tax? Do you realize that a manufacturer can go back 4 years and collect back sales tax? In order to receive these benefits, the state comptroller requires that a facility has to have a Predominant Use Study completed by an engineer and filed with the state.

Since 2002, Rapid Power Management has worked with customers to reduce energy costs and increase energy efficiency. In fact, we act as your company’s Energy Management Department on items such as Commodity Procurement, Power Factor Correction, Surge Protection, Lighting Retrofits and Predominant Use and other engineering studies.

During the depressed economy, the State’s budget has also been constrained. Over the past two years, we have seen a dramatic increase in the number of sales tax audits on manufacturers and other sales tax-exempt businesses and organizations. Such audits can be time consuming, costly and typically end with the customer having to obtain a Predominant Use Study signed, sealed and certified by an engineer.

For a Predominant Use Study, RPM follows the guidelines as set out in the Texas Administrative Code Rule £3.295 on State Sales and Use Tax for Natural Gas and Electricity.

Scope of Services:

List of every item that uses electricity or natural gas separated by processing and non-processing items
Detailed function descriptions of each item
Amperage, voltage or kilowatt rating and hours of operation for each piece of equipment
Color coded facility layout with identified exempt and non-exempt areas

Facilities eligible for exemption of sales tax include a cotton gin, agricultural, rolling stock and manufacturer. Predominant Use Studies are void if the company has changed their name, relocated the manufacturing site, or if the study was provided 3 years ago or longer.

The study provides supporting documentation for a sales tax exemption of energy costs and potentially a refund. Refunds can be obtained for the preceding four years of energy usage. RPM can also assist you with the process through correspondence with the State Comptroller and on-site. Don’t wait for an audit! You have the power to reduce your sales taxes by getting a Predominant Use Study from Rapid Power Management today!

Figure A:

Figure A to the right is a color-coded layout displaying exempt areas versus non-exempt areas. Please note that the state comptroller has changed the requirements on the scope for a Predominant Use Study. Many of the older Predominant Use Studies do not have this layout and therefore are not valid. We encourage you to give us a call and allow us to update your Predominant Use Study with the new requirements. Reference page 4 to review a case study on a recent Predominant Use Study provided by RPM and how much money the client received in back taxes.

Figure B:

To the left is a chart provided in a study that displays the quantity and percent of kWh per month that is used for non-exempt versus exempt functions. As you can see in the exempt percentage column, 94-95% of the manufacturer’s electricity (kWh) is used on exempt functions. Therefore, the client does not pay sales tax on their electricity bill for this meter.

Straight off the press

NRG Energy, Inc to build solar plant in Houston

NRG Energy, Inc. will build the state’s largest solar array in Houston and sell all of the power it produces to the city. NRG plans to build a 10-megawatt solar plant that will cost $40 million. The solar plant is large for it’s type, but tiny and pricey for a power plant. But building one the first such plants in Texas allows NRG to study the technology and decide whether to install more solar arrays. The solar panels make sense for NRG because they can build the system on land NRG already owns and near a power plant with grid connections. The City of Houston will pay a market rate of 8.2 cents while the general public will pay 19.8 cents per kilowatt-hour. The solar plant is scheduled to be online in the second quarter of this year.

Tres Amigas plan to expand transmission on the Texas-New Mexico border

Tres Amigas SuperStation in Clovis, New Mexico has proposed to build transmission lines that will help route energy from isolated wind and solar installations in Texas and other states to urban centers that consume the most power. The transmission hub will be located in Clovis due to its location in relation to the nation’s three power grids—called the East, West and Texas Interconnections—come closest together. Tres Amigas would build a triangular pathway of underground superconductor pipelines, combined with AC/DC converters that synchronize the flow of power between interconnections. This allows electricity to be transferred from grid to grid. Currently, all power generated in Texas is used by Texans. But with this new technology, Texas generated power could potentially used by other states. The transmission hub will have a 5-gigawatt capacity but will be built for an ultimate capacity of 30 gigawatts. The facility will cost an estimated $600 million to build its first phase. But locating and building the physical connection between the grid and Tres Amigas’ station would be under the jurisdiction of the states involved and no formal requests have been submitted to the FERC concerning this project as of the end of 2009.

Gas and Power Markets: 4th Quarter 2009

The West Texas Intermediate (WTI) crude oil spot price fell to $69 per barrel in October but rose to $80 per barrel in November as the economy showed signs of recovery. The WTI price, which averaged $62 per barrel in 2009, is expected to average about $80 and $84 per barrel in 2010 and 2011, respectively. Global oil demand declined in 2009 for the second consecutive year, the first time since 1983 that this had occurred. EIA expects this recovery to continue, contributing to global oil demand growth of 1.1 million barrels per day in 2010 and 1.5 million barrels in 2011. EIA expects that annual average OPEC crude oil production, which declined by almost 2.2 million barrels per day on average in 2009, will increase by an average of about 0.5 million barrels per year through 2011 as global oil demand recovers. OPEC met on December 2nd to reassess the situation and decided for the time being to keep its current oil production levels unchanged.

Working natural gas storage levels stood at 3,276 Bcf at the end of the fourth quarter of 2009. Current inventories are now at 2,607 Bcf, 56 Bcf below the 5-year average and 22 Bcf above the level during the corresponding week last year. Colder-than-normal temperatures in December 2009 contributed to an estimated storage withdrawal of 665 Bcf, 32 percent above the previous 5-year average December drawdown. The natural gas futures 12-month strip had a low just under $5.00 in late November and a high of $6.25 in mid October. Currently, the January 2010 contract is priced at $5.79 per MMBtu. The Henry Hub spot price averaged $5.50 per Mcf in December 2009, $1.73 per Mcf above the average spot price in November. The Henry Hub spot price is expected to average $5.36 per Mcf in 2010 and $6.12 per Mcf in 2011. Total natural gas consumption is projected to remain relatively unchanged in 2010 and 0.4 percent increase in 2011.

Projected carbon dioxide (CO2) emissions from fossil fuels, which fell by 6.1 percent in 2009, are expected to increase by 1.5 percent and 1.7 percent in 2010 and 2011 as the economic recovery contributes to an increase in energy consumption. However, even with the increases in 2010 and 2011, projected CO2 emissions in 2011 are still expected to be lower than annual emissions from 1999 through 2008. Coal leads the drop in 2009 CO2 emissions, falling 11 percent. The drop in coal consumption is the result of lower total electricity generation combined with fewer exports and higher coal inventories.

The U.S. economy grew more than expected in the 4th quarter of 2009 at an annual rate of 5.7 percent after a growth of 3.5 percent in the 3rd quarter. The expected GDP from October to December was stronger than the 4.7 percent growth economists were expecting. The growth in the fourth quarter was the highest since the third quarter of 2003. The two straight quarters of growth followed a record four quarters of decline. Still, the expansion in the fourth quarter was fueled by companies refilling depleted stockpiles, a trend that will eventually fade. An 18% jump in the value of exports also played a major role in the economy’s rebound, contributing nearly 2 percentage points of growth. Consumer spending, which accounts for two-thirds of the GDP, only grew at a 2% annual rate for the period. Federal spending on stimulus does not show up on any one line of the GDP report. In fact, government spending contributed nothing to growth by itself, however, tax cuts and spending by businesses that received stimulus dollars helped the growth in the 4th quarter. Over the past 12 months, the U.S. economy contracted 2.4 percent, the largest drop since 1946, compared to a 0.4 percent increase in 2008. And even though the economy grew in the 3rd and 4th quarter of 2009, economists are hesitant to say the recession is over. Technically the end of a recession is when the economy experiences growth over two consecutive quarters. The unemployment rate held at 10 percent in December.

Case Study on a Predominant Use Report

Scope of Service:

Survey and inventory customers facility to determine if the predominant use of electricity is for the process of goods for resale.

Challenge:

Due to nature of customer operation, it was unclear the amount of electricity used for manufacturing.Paid taxes on exempt meters since 2004 and needed to file report with the state to recoup the taxes paid.

Conclusion:

Provided a Predominant Use Study and the client is no longer paying sales taxes on electric bills
Filed a claim with the Texas Comptroller on behalf of the client to receive $18,000 in back taxes from several different retail electric providers for taxes paid from 2005 to 2007.
Filed a claim with the current retailer to receive $43,700 in back taxes paid from 2007 to 2009.
Total Savings $51,700.00