Groups press for access to direct payment refundable energy tax credits

May 17, 2021

by Paul Ciampoli
APPA News Director
May 17, 2021

Public power utilities and rural electric cooperatives should be allowed to receive direct payment refundable energy tax credits, leaders of the American Public Power Association (APPA), National Rural Electric Cooperative Association (NRECA) and Large Public Power Council (LPPC) told congressional leaders in a May 14 letter.

While refundable credits have for several years been one option under consideration for providing comparable incentives to energy tax credits, the letter is the first joint statement specifically citing them as the preferred approach.

The letter, which was sent to House Speaker Nancy Pelosi, D-Calif., Minority Leader Kevin McCarthy, R-Calif., Senate Majority Leader Charles Schumer, D-N.Y., and Senate Minority Leader Mitch McConnell. R-Kentucky, was signed by APPA President and CEO Joy Ditto, NRECA CEO Jim Matheson and LPPC President John Di Stasio.

The letter notes that earlier this year, President Biden set ambitious targets for reducing greenhouse gas emissions from power generation, transportation, and other sources. “Reaching these goals will be a daunting challenge, but our members have been and continue to be committed to reduce greenhouse gas emissions,” wrote Ditto, Matheson and Di Stasio.

“However, for community-owned electric utilities, all the increased costs associated with drastically reshaping our generation profile will be borne by our customers and consumer-owners. As such, we cannot afford inefficient or ineffective policies. If the goal is to move toward a cleaner energy grid by providing tax incentives for developing clean energy generation, storage, transmission, and electric vehicle (EV) recharging infrastructure, federal incentives must be made available to all electricity providers,” the three association leaders said.

They argued that one of the most significant shortcomings of federal energy tax policy is that not-for-profit and tax-exempt community-owned electric utilities have been excluded from being able to directly claim these credits. “The result is that our utilities only indirectly benefit from energy-related tax incentives.”

This is typically done through long-term power purchase agreements (PPAs) with taxable project developers and their tax equity partners, which claim these credits. “PPAs are complex and expensive, and much of the value of the credits flow to the project developers and their investors rather than to the not-for-profit utilities and their customers,” wrote Ditto, Matheson and Di Stasio.

“Further, to qualify for the credit, the project developer and tax-equity investors must retain ownership of the facility and our utilities may only later purchase the facilities by paying the owner the fair market value of the facility. This increases the cost and inefficiency of the present system and means that the purchasing utility is denied the substantial operational benefits that flow from direct ownership.”

Allowing public power utilities and rural electric cooperatives to receive these tax credits in the form of direct payments for building clean energy infrastructure “would ensure that all utilities serving all Americans would have equal access to these federal resources. The direct payments would be used to help offset project costs — increasing the incentive for further investments — and would enable public power utilities and rural electric cooperatives to own these facilities directly. It would also mean more local projects, with local jobs, under local control. Having direct ownership as an option will help our members develop a generation mix that best suits the needs of the customers.” 

The President and Congress “have ambitious climate goals that cannot be met by leaving nearly 30 percent of the nation’s electric utility customers without access to incentives and support,” the letter said. To that end, Ditto, Matheson and Di Stasio urged Congress to provide direct pay for credits to public power utilities and rural electric cooperatives.  

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