Accounting Rules for Energy Tax Credits Divide Utilities, Solar Producers

A bill in Congress to boost investments in renewable energy is exposing a rift between some utilities and solar energy companies over changes it would make to decades-old accounting rules.

At issue is how utilities account for clean energy tax credits, a component of the Biden administration’s push for green power. The legislation, which was introduced by Senate Democrats, would consolidate credits for renewable energy and apply them across a wider range of technologies. It would also give utilities an opportunity to avoid an accounting requirement known as normalization that forces them to pass along tax savings to customers over time to keep rates steady. 

Under current normalization rules, utilities must spread out the value of certain tax benefits, including credits for solar energy investments, over the life of an asset—for example, a power plant. The Senate bill would let them opt out of normalization for certain investments in energy transmission or storage if a state commission agrees, a move aimed at encouraging them to develop more renewable energy projects.

Some utilities, under pressure from investors and state governments to go green, say the current rules create a hurdle for investments in renewable power. The current solar tax credit allows companies to defray a portion of development costs. Unlike utilities, independent solar producers can immediately incorporate tax savings into their prices when they receive a credit. That means they can make better offers on state proposals to build new solar facilities, executives said.

Steve Young, CFO of Duke Energy.


Duke Energy

Duke Energy Corp.

is one of several utilities that has advocated for making changes to normalization. “We’re great at building infrastructure. This is good for customers to have us in this game,” said

Steve Young,

chief financial officer at the Charlotte, N.C.-based utility. The company, which plans to triple its renewable energy capacity by 2030, operates 35 solar plants, which are subject to normalization rules, as well as 150 plants in a separate commercial unit that sells green power to businesses and governments.

The Senate bill, sponsored by Finance Committee Chairman

Ron Wyden

(D-Ore.), would give companies an option to claim a production tax credit for solar energy, which isn’t subject to normalization, instead of an investment tax credit, which is. The bill, known as the Clean Energy for America Act, has been introduced in previous years but hasn’t become law yet. This year’s Senate version of the bill is the first to include changes to normalization. Another proposal in the House doesn’t include such a provision.

Xcel Energy Inc.,

a Minneapolis-based utility, is another that supports making changes to normalization rules. “Having the right policies in place to help us achieve this transition as [quickly] as possible is important,”

Brian Van Abel,

the company’s chief financial officer, referring to the U.S.’s shift to cleaner energy.

The Solar Energy Industries Association, which has previously opposed changes to normalization, said it plans to push for changes to the Senate bill, without giving details. “We look forward to continuing to work with the chairman and his staff on further refinement of policies that will support a competitive solar market,” Erin Duncan, SEIA’s vice president of congressional affairs, said.

Utilities and solar producers, which sometimes compete when bidding for production assets, also rely on each other. Utilities often buy power from independent solar producers to meet state renewable-energy targets.

“Many independent power producers basically favor normalization because it has created a market for them,” David Burton, a partner at Norton Rose Fulbright US LLP, said.

The push to opt out of normalization marks a reversal of sorts for the utility sector. Utilities initially lobbied for the accounting requirement, and it has been a boon to their revenue, allowing them to pass along tax savings slowly, while keeping customer rates steady. In addition to investment tax credits, utility companies also normalize tax savings they receive when they purchase equipment and other assets.

Allowing utilities to selectively opt out of the accounting rules for clean energy, where they face competition, while they benefit from normalization on other assets, is unfair, said Dan Nelson, vice president of tax at 8Minute Solar Energy LLC, a solar-energy producer in Los Angeles that sells power to utilities in California.

“The proverbial allowing someone to have their cake and eat it too is really what that reminds me of,” Mr. Nelson said.

Investors have been pouring more money than ever into renewable energies such as solar and wind. WSJ looks at how the pandemic, lower energy costs and global politics have driven the rally–and whether it can last. (Video from 12/31/20)

Write to Kristin Broughton at [email protected]

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