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Who benefits? A carnival of characters. But the most stunning numbers have been posted by big companies that wanted to boost their bottom line. The hotel chain Marriott International Inc., which has 2,500 lodging properties worldwide, bought four synfuel plants in October 2001. The next year, the first full year of production, Marriott's new synthetic-fuel operations generated $159 million in tax credits. Marriott had paid $46 million in cash for the facilities, meaning the tax credits gave the company a return of 246% on its investment in just one year. It was a welcome boost for the company at a time when the average room revenue from Marriott's traditional lodging business fell 4.8%. Moreover, the company's effective income tax rate plunged to 6.8% in 2002 from 36.1% in 2001, "primarily due to the impact of our synthetic-fuel business," according to its annual report. Consequently, Marriott paid federal income taxes at a rate below that paid by individuals and families earning less than $20,000 a year.
Rex Stores Corp., with headquarters in Dayton, Ohio, is a chain of some 250 retail electronics and appliance stores in 37 states--and two synthetic-fuel facilities. While sales of the company's main products have declined, its synthetic-fuel sideline has thrived. Stuart Rose, Rex's CEO, told stock analysts in June that "it's an asset that's still returning unbelievable returns for our investment." Echoed Douglas Bruggeman, Rex's vice president for finance: "We feel real good about that whole part of our business right now."
Even when a company's operating income goes down, its profits can still go up if it has tax credits on tap. PPL Montana LLC, a subsidiary of PPL Corp., the holding company for such utilities as Pennsylvania Power & Light and Montana Power, reported that "although operating income from synfuel operations declined in 2002 compared to 2001, the synfuel projects contributed $7 million more to net income after recording tax credits."
Electric utilities that have a stake in synthetic-fuel plants and burn their own product have achieved stunning financial results. Through 2002, Progress Energy Inc., a holding company for public utilities that generate electricity in North Carolina, South Carolina and Florida, raked in $897 million in tax credits from the program. SCANA Corp., the holding company for South Carolina Electric & Gas, reported that it received $58 million in tax credits from an investment of "approximately $2 million" in synthetic-fuel partnerships. That works out to a return of 2,800%. Think of the numbers this way: if you invested $4,000 on Jan. 1, you would collect $116,000 the next New Year's Day.
DTE Energy, the diversified energy company based in Detroit that is the parent of Detroit Edison Co.--which provides electricity to 2.1 million customers in southeast Michigan who lost their power on Aug. 14--has profited richly, generating $425 million in credits in the past three years from nine synfuel plants in eight states. Yet the cash flow did not seem to help DTE prepare for crunch time in its main business. It lagged behind utilities in New York and Ohio and took three days to restore power to all its customers after the blackout. And it plans to charge consumers for the $30 million to $40 million that it lost during the shutdown.