On November 2, 2017, the House Ways and Means Committee released the initial draft of, H.R. 1, the “Tax Cuts and Jobs Act” with the aim of lowering taxes and amending the Internal Revenue Code. The draft legislation lowers the corporate tax rate and restructures personal income tax brackets while also making structural changes to taxing businesses including energy companies, state and local entities, and owners and issuers of tax exempt qualified bonds.
Under the House bill, state and local entities can continue to rely on the tax exempt status of municipal bonds. However, other types of bonds that are issued by private entities that have some public purpose would be eliminated under the bill. Private activity bonds (PABs), which are utilized by state and local governments to help private entities raise money for development projects, will be cut. The bill also eliminates qualified tax credit bonds, which state and local governments often rely upon to help finance projects such as school construction, energy efficiency or renewable energy projects. Private bond holders rely on the federal tax credits in lieu of interest payments from state and local issuers, including Tribal governments and public power utilities.
Another credit that some pubic power utilities have relied on for their own grid operations or for their customers’ participation in energy storage or time-of-use policies is the $7,500 credit for electric vehicles. The House bill proposes to eliminate this tax credit.
The bill retains the solar investment tax credit (ITC) phaseout plan that was passed as part of bipartisan budget legislation in December 2015. The phaseout of this tax credit continues as scheduled: the ITC drops from 30% to 10% in 2022 with a plant in service date of January 1, 2024. Projects that start construction by 2019 will receive the current 30% ITC, while projects that begin construction before January 1, 2021 will receive 26% and those that begin construction before January 1, 2022 will receive 22%. The House proposal also extends the tax credit previously phased out in 2016 for other generation sources, including combined heat and power, fuel cells, geothermal, and qualified small wind projects. For residential solar systems, a similar tax credit phase-out applies until December 31, 2021, after which the tax credit ends. However, the deduction for commercial buildings energy efficiency costs has not been extended beyond 2016. The wind production tax credit has been diminished by a reduction of the inflation adjustment factor to 1.5 cents/kWh from the current 2.3 cents/kWh, which would take effect upon enactment of the bill.
There will likely be significant opposition in the Senate to prevent any cuts to the previously-agreed to phaseouts of the PTC and ITC. Already, some Republican senators have voiced opposition to any changes to the PTC or ITC.
For nuclear generators, the tax credit for advanced nuclear facilities will be extended beyond the current sunset of December 31, 2020. This extension will be used to ensure that the Vogtle nuclear facility in Georgia and the Summer nuclear facility in South Carolina, currently under construction, will be able to utilize the tax credit and progress toward completion. The credit is capped at 6,000 megawatts of national capacity from qualifying nuclear facilities.
The House bill also allows businesses to "immediately" write-off the full cost of new equipment which could potentially benefit a wide range of businesses, including energy firms.
The House Ways and Means Committee Chairman intends to start mark-up of the bill in committee starting on Monday, November 6, 2017. A copy of the draft bill is available here
. As the bill goes through mark-up, the Senate plans to take up parallel tax legislation, with every provision potentially subject to change. For more information on these issues and other developments on Capitol Hill, please contact Jeffrey C. Genzer