DECEMBER 20, 2017
The law is a win for utilities, oil companies and electric vehicles, while renewables sustain a bruise.
President Trump and Republicans secured a long-anticipated win on Wednesday as the House passed a revised version of the final tax bill, sending it to the president’s desk for approval. The president called it "a big, beautiful tax cut for Christmas." After he signs it, the changes take effect on New Year’s Day. The huge $1.5 trillion bill offers a great deal of help to big business and corporations, which will receive most of the aforementioned cuts. Though the final legislation scraped up the clean energy industry some, other sectors of the energy industry got lucky. Tax experts are still picking apart the recently released text - here’s what we know so far.
Though the bill wasn’t all positive for utilities, the pros outweigh the cons. The bill keeps a federal income tax deduction on interest expense and on state and local taxes, and continues normalization for regulated utilities. Utilities said those savings will be passed off to customers. It also prevents future use of prepaid power contracts and requires developers in those agreements to report payments as income. Utilities in the past used that mechanism to help finance projects, such as renewable developments, or to lock in gas supply at a low price. Due to the lower corporate tax rate, which lawmakers slashed by 14 percent, utilities will have more spending money in the upcoming year. That could go to customers in reduced rates or to infrastructure updates. A “100 percent expensing” rule allows developers, excluding publicly regulated utilities, to deduct the full cost of a project’s equipment upfront.
Fossil fuel companies, which will pay much less tax under the new corporate rate, saw the bill as a victory. The American Fuel & Petrochemical Manufacturers, a trade association, said the law would create jobs and help the U.S. beat international competition. The bill is better for some fossil fuel companies than others, though, as the corporate cuts won’t apply to companies operating at a loss. Some coal companies, such as bankrupt Peabody Energy Corp., won’t reap the benefits of the lower rate. A controversial portion of the bill also opens up a section of Alaska’s Arctic National Wildlife Refuge to oil and gas drilling. It’s a defining moment for Alaska Senator Lisa Murkowski, who called the provision a victory in a “multigenerational fight” to open the area. It contains an estimated 10.4 billion barrels of oil. Murkowski said the new drilling forms the “single most important step” for U.S. energy independence. But environmentalists said the move would harm hundreds of animal species and impact over a million acres of wilderness. As the bill passed, Democrats promised to fight the provision by keeping a watchful eye on Interior Secretary Ryan Zinke during the backlash from environmental groups and indigenous leaders who hope to see the area protected.
The final bill did not include a continuation of nuclear tax credits for nuclear projects brought on-line after 2020. This could negatively impact the Vogtle Nuclear Project in Georgia, the only nuclear project currently under construction in the country. The state's Public Service Commission will decide the fate of that project on Thursday. If the two-reactor project expansion moves forward, construction is slated for 2022. Lobbyists said they would push for inclusion of nuclear credit extenders included in later bills.
While the final tax bill left the Investment Tax Credit and the Production Tax Credit in place, the Base Erosion Anti-Abuse Tax (BEAT) provision made it through the final version. An amendment keeps 80 percent of the value of both the ITC and the PTC. Clean energy organizations and investors are now crunching the numbers to assess just how much the loss of 20 percent will impact tax equity investment. Tax lawyers seem optimistic that the market will bounce back.
“It’s possible the investors will become a little bit more conservative on what they pay to juice their returns a little bit,” said Michael Masri, a partner at Norton Rose Fulbright. “But I don’t think it will have any significant impact on deals continuing to flow.” But those representing clean energy companies and entrepreneurs said uncertainty surrounding BEAT still runs high. “It is encouraging to see congressional leaders listened to some of the concerns of the renewable industry,” said Troy Van Beek, CEO and founder of Iowa-based solar supplier Ideal Energy Inc. “But without real long-term confidence in the credit market, it will become increasingly difficult for solar and clean energy developers to get investor buy-in for new projects. According to Keith Martin at Norton Rose Fulbright, the change in the corporate tax rate, from 35 to 21 percent, may also impact tax equity investment as it lowers the value of depreciation for tax credits (26 cents at the 35 percent rate). A shift in utilities' prepaid power contracts, which have offered up a good deal of funding to some renewables developers, could hurt another financing mechanism. But the “100 percent expensing rule,” a boon to utilities, could benefit renewables developers as well. The bill also kept the $7,500 tax credit for EVs. Congress did not extend credits for other advanced energy technologies. But they could address those in later bills. “Despite progress on reducing the corporate tax rate, the final tax bill now before Congress is a missed opportunity to promote growth and provide market certainty for advanced energy businesses,” said Malcolm Woolf, senior vice president for policy and government affairs at Advanced Energy Economy, who added he hopes those credits will make their way into other legislation. By; EMMA FOEHRINGER MERCHANT
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