House Tax Bill Trims Wind Tax Credit; Extends Nuclear Provision

November 2, 2017 03:20 PM

(Bloomberg) -- Tax credits cherished by the wind and solar industry remain under a rewrite of the tax code revealed by House Republicans, but the measure would trim the wind energy’s production tax credit by more than a third.

The bill, unveiled by House GOP leaders Thursday, also extends an estimated $6 billion tax credit for the nuclear industry, which would benefit Southern Co. Without the extension, the credit may have gone unused before the 2021 deadline. Southern’s Vogtle project in Georgia faces construction delays and is not on track to be completed before the deadline.

The bill also adds tax credits for other energy sources, such as geothermal, small-scale wind and fuel cells that were left out of a 2015 budget and spending deal.

The House tax overhaul cuts the wind industry’s 2.3-cent-per-kilowatt hour tax credit to 1.5 cents. The solar industry’s 30 percent tax credit remains unchanged. Under that 2015 deal the wind credit begins phasing down this year before expiring in 2020 and the solar industry’s credit winds down before expiring in 2022. Those phaseouts continue as planned, but projects would now need to be completed by those dates to qualify.

"We have more work to do on clean energy policy in tax reform, but I am pleased with this baseline because we worked hard to preserve those tax credits for renewables," said Florida Representative Carlos Curbelo, a member of the tax-writing Ways and Means Committee.

House Republican leaders began rolling out a tax bill Thursday that contains sweeping changes for business and individual tax rates, including a measure to cut the corporate tax rate to 20 percent.

The legislation would end a $7,500 tax credit provided for consumers who purchase electric vehicles. Also, a 10 percent investment tax credit for the solar and geothermal industries would end in 2027. In addition, it ends some minor tax breaks received by the oil industry, including a tax credit for marginal wells. 

That credit, which only applies when prices dip below certain levels, allows companies to claim a $3-per-barrel credit for the first three barrels of daily production from marginal, low-production wells -- generally those that produce fewer than 15 barrels per day. It also applies to natural gas from marginal wells, with a 50 cent credit for the first 18 thousand feet of daily gas production. Also eliminated is a tax credit for so-called enhanced oil recovery, which involves pumping water or carbon dioxide to help get more oil out of depleted or aging reservoirs. 

But the oil industry would keep it’s largest targeted tax measures, as the bill would preserve the intangible drilling cost deduction, which allows for accelerated deduction of drilling costs, and the special accounting rules known as "last-in first-out," which allows oil stockpiles and other inventories to be valued at the most recent price when calculating net profit and taxable revenue.

It’s possible the bill could change quickly as Representative Kevin Brady, the Texas Republican who chairs the Ways and Means Committee, indicated he may rewrite the bill ahead of a Monday committee vote, where amendments making further changes could be adopted. Also, in the changes to the wind credit could face opposition in the Senate, where Iowa Senator Chuck Grassley has been a staunch defender of it.

To qualify for the investment tax credits, developers of wind, solar, geothermal and fuel cell energy properties will need to show continuous activity from the time construction begins until it’s complete. That could introduce uncertainty for some projects.

©2017 Bloomberg L.P.

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