House Passes Bill That Provides Public Power With Direct Access To Energy Tax Credits

August 13, 2022

by Paul Ciampoli
APPA News Director
August 13, 2022

The U.S. House on Aug. 12 passed the Inflation Reduction Act (IRA), which would extend and expand various energy tax incentives and give public power utilities direct access to such credits through a refundable direct payment tax credit.

The bill, which now goes to the White House for President Biden’s signature, also includes additional funding through various programs for renewables development and deployment, transmission projects, and federal permitting staff.

The American Public Power Association (APPA) applauded House passage of the IRA.

“In addition to extending and expanding a variety of critical energy tax incentives, this piece of legislation will ensure that all utilities can benefit from these incentives, which encourage the critical energy investments they need to continue to use cleaner generating technologies,” said APPA President and CEO Joy Ditto. “In the end, this makes these incentives fairer and more effective.”

The Joint Committee on Taxation estimates the value of energy-related tax incentives to be worth $25 billion in 2022 alone. However, because public power utilities are exempt from tax, they have not been able to take advantage of these incentives for projects they own. Rural electric cooperatives face a similar challenge. As a result, using the tax code to incentivize energy investments has excluded utilities serving nearly 30 percent of all retail utility customers in the United States.

Instead, to take advantage of these energy tax incentives, tax-exempt, community-owned utilities have had to enter power purchase agreements with third party developers — who often themselves would enlist a tax equity partner to monetize energy tax credits.

The result has been profound, APPA said. For example, recent surveys of public power utilities showed they own just two percent of the non-hydropower renewable energy used to serve their customers: the remaining 98 percent had to be secured through power purchase agreements.

The IRA corrects this by allowing tax-exempt entities to claim energy tax credits directly. APPA has long supported this approach, which will lead to lower costs, local jobs, and more equitable energy service for all customers.

Power purchase agreements will continue to be useful tools and many public power utilities will continue to use them to secure access to energy facilities, APPA said. “But having the option to own and operate their own facilities means public power utilities can make the best choices on behalf of the more than 49 million Americans and thousands of businesses they directly serve,” APPA said.

Efforts to ensure that community-owned utilities can benefit from energy tax incentives have enjoyed bipartisan and bicameral support from many Members of Congress, “and we greatly appreciate the work of all the Members and staff with whom we have worked on this issue for years,” APPA said.

APPA said it is particularly appreciative of the efforts of House Ways and Means Committee Chairman Richard Neal, Select Revenue Subcommittee Chairman Mike Thompson, Senate Finance Committee Chairman Ron Wyden, and Energy Subcommittee Chairman Michael Bennett. Finance Committee Member Maria Cantwell and Ways and Means Committee Member Earl Blumenauer were also steadfast champions, APPA said.

Senate Energy and Natural Resources Committee Chairman Joe Manchin’s “understanding of the positive energy policy implications of creating this comparable incentive for public power and rural electric cooperatives was critical to passage of this provision,” APPA said.

Manchin “also championed important work toward legislation to speed up siting and permitting of energy infrastructure, which is much needed given the need to maintain reliable and affordable electricity as we continue our evolution to cleaner technologies,” the trade group noted.

The likely date of enactment for the IRA remains uncertain, though some time this week seems possible. The date of enactment is of importance to public power because while much of the bill will take effect gradually over time a tax credit requirement for final assembly in North America for electric vehicles takes effect upon the date of enactment.

Also uncertain is the timing of a follow-on energy permitting and siting bill that Congressional leaders agreed to take up as part of a compromise that allowed the IRA to proceed in the Senate.

Such a bill could be added to a “continuing resolution” bill that Congress will have to take up before the beginning of the new fiscal year on October 1, but no schedule has been announced.