An interesting development in the climate change debate occurred this summer in the U.S. Congress. It wasn’t the Senate’s work on the Lieberman-Warner Climate Security Act; that was a...
Congress pours tax benefits into efficiency and renewables.
be rate-base investment opportunities and valuable tax shelters, rather than just compliance costs and operational hassles. And to the degree this policy shift spurs major investments in solar capacity, it might prompt Congress to make utilities eligible for the broader renewable production tax credits—which conceivably could change the green-energy game in a fundamental way.
Additionally, the bailout bill creates a new carbon-sequestration tax credit, to the tune of $20 a ton for “secure geologic storage” and $10 a ton for enhanced oil and gas recovery. Because it only covers the first 75 million tons of CO 2 sequestered, the approximately $1.5 billion tax credit isn’t enough to build a carbon-sequestration industry. But it is a significant beginning, especially when combined with other DOE programs. And the provision might kick-start the regulatory process, by forcing DOE and EPA to define what “secure geologic storage” means for tax purposes.
Finally, Congress buried language in the bailout bill (Title III, Section 306) that might seem innocuous, but arguably makes smart meters and TOU rates the only defensible choices for U.S. utility companies.
Congress has been pushing time-of-use (TOU) pricing for decades (See “ PURPA Redirected ,” Fortnightly, February 2008) . In 2005, EPAct required states and utilities to consider implementing TOU pricing, and last year the Energy Independence and Security Act directed state regulators to consider ways to align utility rate structures with efficiency and conservation goals. While they didn’t actually require the states to change their policies, these federal statutes added significant momentum to the smart-metering and smart-pricing trend (See “ Putting Efficiency First ”).
Now, in the bailout bill, Congress is pressing the issue even further—this time encouraging investments by providing accelerated depreciation (10 years instead of 20 years) for smart-metering and smart-grid systems.
While accelerated depreciation might seem like a roundabout approach, the Section 306 provision directs utilities’ investment plans in a forceful way. Utilities can take advantage of the bailout bill’s sigzficant tax advantages only by installing meters and T&D systems that meet the law’s definition of “smart” equipment. In the case of meters, the statute says they must be capable of:
• Recording interval data at least 24 times a day;
• Communicating with suppliers to support dynamic pricing and demand response;
• Providing data to support electronic energy management capabilities; and
• Allowing net metering.
Similar to earlier policies, the Section 306 language doesn’t require utilities to change their services or pricing structures; it only says meters must possess the defined features to qualify for the tax benefits. The law leaves the retail rate-making authority where it belongs—with state regulators who are responsible for judging whether utilities’ investment plans are prudent, and whether their pricing structures serve their states’ policy goals.
To the degree accelerated depreciation improves the business case for smart metering, utilities will find it increasingly difficult to invest in any other type of meter. And given the rising status of efficiency and conservation in America’s policymaking arena today, smart utility pricing and rate structures seem sure to follow those metering investments.
As District of Columbia