U.S. Rep. Judy Chu (D-Calif.) and other House Democrats are urging the Department of Treasury and the Internal Revenue Service to finalize rules that will enable not-for-profit entities like community-owned utilities to benefit from the clean energy tax credits created by the Inflation Reduction Act .
“The IRA created historic incentives for the clean energy transition by providing for enhanced tax credits for projects that meet domestic content thresholds in order to support American manufacturing and strengthen supply chains,” wrote the Members in a letter to Secretary of the Treasury Janet Yellen and IRS Commissioner Daniel Werfel. “The IRA also created a new elective payment option that will allow community-owned utilities to claim tax credits directly.”
Thirty percent of retail customers receive their power from community-owned utilities. Before the IRA, these public and not-for-profit entities could not claim federal energy tax credits -- instead relying largely on power purchase agreements with private developers who qualified for the tax credits to build clean energy facilities and then passed savings to tax-equity investors.
Under the new IRA framework, community-owned utilities and other tax-exempt entities can claim energy tax credits for their own projects and pass those savings to the residents and businesses they service.
“For our clean energy transition to be successful, community owned utilities will need to make record-breaking investments in new clean energy projects while also keeping electricity rates affordable. Elective payment has the potential to provide substantial savings to their customers that will mitigate the increasing cost pressures in the electricity sector and benefit all grid users by incentivizing faster adoption of new, clean energy sources,” the lawmakers said in their letter.
“While we appreciate the Treasury and IRS efforts to finalize the elective pay regulations in March, the current uncertainty regarding the pending domestic content regulations is hindering the ability of community-owned utilities to make informed decisions on new clean energy investments. Pursuant to the IRA, not meeting domestic content standards quickly phases out IRA elective pay incentives for public power utilities,” the letter said.
And if clean energy projects do not meet the statutory thresholds for domestically produced steel, iron, and manufactured products used in their projects and construction begins after December 31, 2025, community-owned utilities are completely ineligible to receive the clean energy direct pay tax incentive. However, the start of construction on a new clean energy project can take years based on supply chain constraints, environmental review, permitting, and interconnection backlogs.
“Without the domestic content regulations clarified, it’s nearly impossible for community-owned utilities to determine today whether a project that will break ground in the future will qualify for an IRA tax credit. And without that certainty, fewer projects will be determined to be cost-effective, and entities cannot begin planning their own community-owned renewable projects,” a news release from Chu’s office said.
“We urge the Treasury to finalize the domestic content regulations, including those regarding phaseout of elective pay incentives, as soon as possible,” the lawmakers said. “We appreciate the work Treasury and the IRS have done to work with stakeholders on this issue to date. We strongly encourage you to continue to work with public power utilities, rural electric cooperatives, and labor stakeholders as you finalize domestic content regulations and waivers to ensure the final rules provide the clarity, certainty, and simplicity necessary for this new important tool to work as Congress intended.”
Other signers of the letter include Reps. Nanette Barragán (CA-44), Donald Beyer (VA-08), Jamaal Bowman (NY-16), Danny K. Davis (IL-07), Lloyd Doggett (TX-37), Jimmy Gomez (CA-34), Doris Matsui (CA-07), Jerrold Nadler (NY-12), Grace Napolitano (CA-31), Alexandria Ocasio-Cortez (NY-14), Bill Pascrell (NJ-09), Raul Ruiz (CA-25), Linda Sánchez (CA-38), Adam Schiff (CA-30), Bradley Schneider (IL-10), Greg Stanton (AZ-04), Mark Takano (CA-39), and Jill Tokuda (HI-02).
The letter received significant support from stakeholders in clean energy technology in public utilities and electric cooperatives, Chu’s office noted.
“We have appreciated the effort that Treasury and the IRS have put into implementing the elective pay provisions of the Inflation Reduction Act. Elective payment could be game changing for public power ownership of wind, solar, storage, geothermal, carbon capture and other energy technologies that Congress is seeking to incentivize through the tax code. But time is of the essence: we need guidance on the domestic content requirements for elective pay now,” said Scott Corwin, President & CEO of the American Public Power Association. “And, so, we greatly appreciate the letter being sent today and the message it sends: Congress, our members, and other community-owned utilities want and need the clarity that such guidance will provide.”
“The IRA has tremendous potential to support community-owned electric utilities build the clean energy projects needed to achieve a carbon-free electricity grid at affordable costs for electricity customers,” said Daniel E Garcia, executive director for the Southern California Public Power Authority, a public agency that consists of 12 publicly owned electric utilities that serve 16% of California’s energy needs. “We deeply appreciate Rep. Chu and the other signatories to her letter to the Treasury. It is crucial that the final IRA rules on clean energy incentives are workable for our utilities as we make aggressive investments to deliver clean, reliable, and affordable energy to our customers.”
“The City of Pasadena is thankful to Rep. Chu for her leadership on this critical issue,” said David Reyes, Pasadena Water and Power Acting General Manager. “Our city has its own publicly owned utility, Pasadena Water and Power, and has set a policy goal to source 100% of its electricity from carbon-free resources by the end of 2030. Regulatory certainty on the Inflation Reduction Act direct pay domestic content provisions will help Pasadena as we make progress toward our clean energy future.”
