IRS Audit Could Cost Progress Energy Nearly $1 Billion
Posted July 7, 2004 11:15 a.m. EDT
RALEIGH, N.C. — One of the state's largest power companies could be forced to pay back nearly $1 billion in tax credits after an Internal Revenue Service field audit uncovered an issue with some synthetic fuel facilities.
If Progress Energy does have to pay, it cannot pass that cost onto customers. Instead, stockholders are the ones who will feel it.
Progress Energy stock was down 95 cents Wednesday, ending the day at $43.15. Meanwhile, IRS field auditors said the company took $942 million in tax credits it may not have qualified for.
Progress Energy claims it inherited the tax credits when it acquired five synthetic fuel facilities through mergers. The IRS claims that four of the facilities were not in service for Progress Energy before July 1, 1998, the deadline for the tax credits.
If Progress Energy loses this fight, it would have to pay $229 million in cash for the back taxes. The rest of the loss would be on paper, affecting the company's credit rating.
"It's a big deal for the company," Progress Energy spokesman Keith Poston said. "Not catastrophic, but it would be significant.
"But, again, we've had issues raised before, and at the end, we've prevailed on them. We think the same thing will happen again."
Either way, the outcome will not affect your electric bill. Because this involves an investment, Progress Energy can not legally pass the bill onto consumers.
"We require them to operate, through our rules, through separate subsidiaries and make sure that those operations aren't subsidized by rate payers,." said Robert Gruber, of the Utilities Commission.
The IRS is not demanding any money for the time being. If it does, Progress Energy officials have said they will appeal.
The appeals process could take up to two years.