Rallying behind normalization opt-out opportunities for storage, transmission
Including normalization opt out in a final clean energy package would allow utilities to pass the benefits of proposed energy storage and transmission investment tax credits on to customers now — a change to existing law that continues to gain traction in the power industry and on Capitol Hill.
Bill Fehrman, president and CEO of Berkshire Hathaway Energy (BHE), and U.S. Department of Energy (DOE) Deputy Secretary David Turk on Monday discussed such tax incentives during the Feb. 14 general session of the NARUC 2022 Winter Policy Summit being held in Washington, D.C., through Feb. 16.
Panel moderator Virginia State Corporation Commissioner Judith Jagdmann, who serves as the current president of the National Association of Regulatory Utility Commissioners (NARUC), asked Fehrman, Turk, and National Cyber Director Chris Inglis about how state public service commissioners could help defray ratepayer costs.
DOE’s Turk noted that there’s $62 billion available from the recently enacted, bipartisan Infrastructure Investment and Jobs Act, which he said provides DOE with “all kinds of new funding streams, authorities, [and] tools to help work in partnership with all of you,” he told NARUC attendees during the session entitled, “Protecting the Homeland: Cybersecurity Policy, Priorities, and the Infrastructure Investment and Jobs Act.”
But there’s also another piece of legislation still pending in Congress that Turk said could impact the affordability of technologies and what ratepayers are paying across the country.
“There’s a second piece of legislation — you can call it the reconciliation bill, you can call it Build Back Better, you can call it whatever you want — one of the key, key components is… all the available tax incentives,” he said.
The Build Back Better Act includes technology-neutral tax policies that provide optionality in choosing between the production tax credit (PTC) and investment tax credit (ITC) for solar, for example, as well as alternatives to normalization for regulated electric companies, among other provisions. But so far, it doesn’t give utilities a normalization opt out for storage and transmission projects.
Normalization in current law requires regulated utilities to keep some of the financial benefit of the ITC, meaning they may only pass along a portion of the tax savings to customers in small increments and over a long period of time.
“This has the effect of increasing the cost of clean energy projects by approximately 15 percent, undercutting the intent of providing credits to lowering transition costs to utility customers,” Pat Reiten, senior vice president of public policy for BHE, told Daily Energy Insider.
Because technologies such as storage and transmission primarily support grid reliability and resilience rather than produce electricity, the ability to incentivize them with the ITC, rather than the PTC, is extremely important, according to a Nov. 5, 2021 blog from RMI, an independent, non-partisan, nonprofit organization of experts working to accelerate the clean energy transition.
Sen. Ron Wyden’s (D-OR) Clean Energy for America Act includes these provisions. The bill passed out of the Senate Finance Committee and is essentially the Senate’s starting point on energy credits, so normalization will be an outstanding item to be reconciled between the House and Senate.
“We feel strongly that any clean energy package advanced by Congress also reflects this important change,” Reiten said. “If the goal is to pass a smaller but more effective clean energy bill that saves customers money and maximizes emissions reductions, opt-out has to be a part of that package. If not, you have to wonder why Congress would not move aggressively to capture those benefits.”
BHE’s Fehrman, who is also co-chairman of the Electric Sector Coordinating Council, reiterated that the normalization opt-out issue “needs to be fixed in these bills.”
“Utilities need to be able to opt out of the normalization clauses to allow that money to flow directly to customers,” Fehrman said. “For regulators that has to be core.”
In fact, independent analysis from RMI has shown that adoption of the Senate normalization opt-out language would save customers $1 billion per year, spurring more renewable energy deployment and reducing carbon emissions by 50 million metric tons a year, all while adding union jobs.
“That is why the Edison Electric Institute, seven major environmental groups, IBEW, and UWUA are all on record as supporting the so-called normalization opt-out provisions,” Reiten said.
Members of Congress also support normalization opt out. Recently, 15 House Democratic members — including progressive and moderate House Democrats from across the country — urged leadership to include normalization opt-out provisions for energy storage and transmission ITCs in the final Build Back Better Act to help meet the nation’s climate change goals.
“Designed to spur billions in clean energy investments, this legislation is an opportunity to transform our energy grid to facilitate lower emissions, build grid resilience, and create millions of high-quality clean energy jobs,” the 15 lawmakers wrote in a Jan. 18 letter sent to congressional leaders.
Also recently, the CEOs of several investor-owned utilities broached the topic with President Joe Biden during a meeting at the White House, pointing out that the Senate-stalled Build Back Better Act includes a normalization opt out for solar so a final bill should include an opt out for storage and transmission.
“We are pleased to see the issue is being discussed more broadly, including at last week’s White House meeting and [yesterday] at NARUC’s winter meetings,” said Reiten.
DOE’s Turk said congressional work continues on the bill. “I think it’s under-appreciated how much these tax incentives … can actually be helpful to consumers and also all of us during this time of high inflation,” he said during the NARUC session. “So there’s an urgency and we’re certainly working on that piece of legislation. I think this is part of the overall systemic solutions that are needed in this country for where we are going.”
And as state regulators help to implement the Infrastructure Investment and Jobs Act, Fehrman thinks they also might take a broader look to find every possible component that’s in the current bills or other opportunities to ultimately reduce costs for customers “and try to tie in those savings to the resiliency of the grid, particularly on the cyber side,” he said.
“Everything that can be done to help reduce costs for customers is key,” said Fehrman.
