Senate Finance Committee Proposal Includes Direct Payment Of Energy-Related Tax Credits

The Senate Finance Committee on Dec. 11 released updated text of the Committee’s title of the Build Back Better Act (BBBA) that includes a refundable direct payment of energy-related tax credits, mirroring the House-passed version of the BBBA.

Section 126104 of the tax title would create new section 6417 of the Internal Revenue Code allowing for “elective payment of applicable credits.” These credits include the:

• Section 30C credit for alternative fuel;
• Section 45 production tax credit;
• Section 45Q carbon oxide sequestration credit;
• Section 45V zero-emission nuclear power production credit;
• Section 45W clean hydrogen production credit;
• Section 48 investment tax credit, and
• Section 48D transmission tax credit.

The provision has been specifically written to allow public power utilities and rural electric cooperatives to claim this refundable direct payment tax credits. The Tennessee Valley Authority is also explicitly allowed to claim refundable direct payment tax credits.

In addition, the refundable direct payments would generally be reduced by 15 percent for facilities that are financed with tax-exempt bonds.

Additionally, the section 48 investment tax credit has been expanded to include energy storage technology, qualified biogas property, microgrid controllers, and hydropower environmental improvement property.

Under the bill, the term “hydropower environmental improvement property” means property the purpose of which is to: (1) add or improve safe and effective fish passage, including new or upgraded turbine technology, fish ladders, fishways, or other fish passage technology with respect to a qualified dam; (2) maintain or improve the quality of the water retained or released by a qualified dam, or (3) promote downstream sediment transport processes and habitat maintenance with respect to a qualified dam.

Senate Majority Leader Chuck Schumer, D-N.Y., has said he hopes to bring the bill to a vote in the Senate before December 25 and under the budget reconciliation process.

Under such a process, the bill would require only a simple majority to pass. It remains unclear whether Senate Energy and Natural Resources Committee Chairman Joe Manchin, D-W.Va, and Senator Kyrsten Sinema, D-Ariz., support the bill as currently drafted.