Bonds and Financing

Bill allows public power to receive refundable direct payment for energy tax credits

The Clean Energy for America Act (CEA), which includes a provision to allow public power to receive refundable direct payment for energy tax credits, is headed to the Senate floor after debate and amendment on May 26 by the Senate Finance Committee.

As amended, the CEA provides $260 billion in tax relief over the next decade and would replace the current investment tax credit (ITC) and production tax credit (PTC) with technology neutral ITCs and PTCs. As part of these revisions, the bill would allow merchant power generators, investor-owned utilities, public power utilities, rural electric cooperatives and Indian tribal governments to receive refundable direct payments of the ITC and PTC. The Joint Committee on Taxation estimates that roughly $50 billion of such payments would be made over the next decade.

The original bill would have denied access to refundable tax credits to public power utilities, rural electric cooperatives, and Indian tribal governments.

However, the American Public Power Association, the Large Public Power Council (LPPC), and National Rural Electric Cooperative Association (NRECA) joined in advocating for their inclusion. As a result, committee member Sen. Michael Bennet, D-Colo., offered a direct pay amendment that was eventually adopted as part of a broader package of amendments to the original version of the bill.

“We should make these tax incentives accessible to electric coops, public power companies, and tribes,” Bennet said during markup of the bill. “They are doing yeoman’s work to transition to clean energy and drive opportunity in rural America and we should support them.”

In a May 26 letter to Bennet, Joy Ditto, President and CEO of APPA, Jim Matheson, CEO of NRECA, and John Di Stasio, President of the LPPC, praised his amendment.

As drafted, the CEA “allowed some utilities to immediately receive the benefit of certain energy tax credits. With the inclusion of your amendment, it now also would allow public power utilities, rural electric cooperatives, and Indian tribal governments to do so. That would mean more local projects, with local jobs, under local control. Having direct ownership as an option also will help our members develop a generation mix that best suits the needs of the customers,” wrote Ditto, Matheson and Di Stasio.

Inclusion of refundable direct payment tax credits in the CEA means that leading proposals in the House (H.R. 848, the GREEN Act) and Senate are now in agreement on the issue. If enacted into final law, this would be the first time in the history of energy-related tax credits that public power utilities would truly have equal access to such credits.

Bennet’s amendment retains current law prohibitions on receiving tax credits for projects receiving “subsidized” financing, including tax-exempt financing. While final legislative text is not available, it appears the intention is to preclude the use of tax-exempt financing for a project that also receives energy-related refundable tax credits. But analysis done by APPA and others shows that the value of the investment tax credit and production tax credit substantially exceeds the cost of losing the ability to issue tax-exempt debt to finance such projects.

In addition, “Chairman’s Modifications” to the CEA from Sen. Ron Wyden, D-Ore., Chairman of the Senate Finance Committee, struck a provision that would have allowed public power utilities and rural electric cooperatives to issue taxable direct payment Clean Energy Bonds (CEBs). While such bonds could have been highly valuable for long-lived assets, many of the assets that utilities will invest in in the near term – including battery storage and wind turbines – have shorter useful lives.