Electric utilities come out as winners under gop-led nationwide tax reform – daily energy insider gas 66

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Tom Kuhn, president of the Edison Electric Institute (EEI), the Washington, D.C.-based organization representing the nation’s investor-owned electric companies, called final passage on Dec. 20 of the Tax Cuts and Jobs Act “a win for America’s electricity customers and for investment in critical energy infrastructure.”

The group is particularly pleased, Kuhn said, that the Tax Cuts and Jobs Act maintains the federal income tax deduction for interest expense for regulated electric companies and the federal income tax deduction for state and local taxes; provides for the continuation of normalization, including addressing excess deferred taxes resulting from a reduction in the tax rate; and keeps dividend tax rates low and on par with capital gains.

Considered the largest tax overhaul in 30 years, the legislation contains the biggest one-time reduction in the corporate tax rate in American history, dropping the tax rate for large corporations from 35 percent to 21 percent beginning Jan. 1, 2018.

Republicans say this reduction, which would total about $1 trillion in tax cuts for businesses over the next decade, will create a booming U.S. economy. Expected to be signed into law in late December or January, the legislation makes policy changes worth nearly $10 trillion over 10 years, including roughly $4 trillion of tax increases to partly offset the cost of $5.5 trillion of tax cuts, according to the American Public Power Association. And the Heritage Foundation projects that the bill will increase the nation’s gross domestic product by 2.2 percent over its 10-year budget window, translating into an almost $3,000 increase per U.S. household.

The decreased corporate tax rate is one such item. Existing customer rate structures could potentially remain the same since they’re set using the current 35-percent corporate rate, so electric utilities would be able to invest more funds in infrastructure under the tax reform.

NECA, which represents the $130 billion electrical construction industry bringing power, light and communication technology to buildings and communities across the United States, has long advocated for lower tax rates and a simpler tax code. The time and money NECA contractors spend to comply with the complex federal tax code, the group says, could be better spent on growing their businesses and creating jobs.

The final bill will give all pass-through firms, including those organized as trusts, a tax deduction of 20 percent, providing those companies with an effective tax rate of 29.6 percent, Giamberardino explained, a positive result that NECA thinks will allow all types of businesses to be treated more fairly.

NECA also fought to successfully include a provision in the bill that would allow companies to deduct up to 30 percent of their annual earnings before interest, taxes, depreciation and amortization. “Those are some of the wins NECA contractors all over the country will be able to take advantage of in the coming years,” he added.

Giamberardino also said there are a few areas in the tax bill that may make tax planning for NECA members more challenging. For example, NECA would have liked to have seen Congress provide “a more detailed plan to lay the groundwork for infrastructure investment,” he said.

The Conference Agreement also will repeal many other exemptions, deductions and credits for individuals in the pursuit of rate reduction, simplicity and fairness. Significantly, all of the individual tax provisions will expire at the end of 2025 — potentially leaving it up to a future Congress to extend them or make them permanent, according to NECA analysis.

Maintaining the federal income tax deduction for interest expense was also positive news for the American Gas Association (AGA), which represents roughly 200 local energy companies that deliver natural gas to some 69 million residential and business customers.

Jake Rubin, AGA director of public relations and executive communications, also told Daily Energy Insider that the organization’s priorities for the tax reform bill were the same as those held by EEI, which includes members that are companies using natural gas to generate electricity.

“Natural gas utilities are capital intensive industries and the Tax Cuts and Jobs Act supports the unique nature of the long-term investments that are at the heart of the safe and reliable service that our members provide,” said AGA President and CEO Dave McCurdy.

“Maintaining the federal income tax deduction for state and local taxes will avoid taxing local infrastructure investments twice,” said McCurdy. “As some of the biggest taxpayers across the country, this will help natural gas utilities maintain low costs for consumers.”

There was another win, too, according to the American Public Power Association (APPA), the nonprofit representing about 1,400 of the nation’s roughly 2,000 public power utilities, which in total provide electricity to 49 million people in 49 states.

The tax reform bill maintains the tax exemption for municipal bonds, which allows the interest paid to holders of municipal bonds to be taxed, and it was the No. 1 issue for APPA, John Godfrey, APPA senior government relations director, said in an interview.

Small-government conservatives, for example, wanted to increase the cost of financing public investments to create an economic incentive to privatize public facilities, he said, while Democrats worried that bonds that finance the nation’s roads, bridges, schools, airports, and public power infrastructure are owned by – and therefore benefit – upper-income bondholders.

“While diametrically opposed on the issue of whether bonds are too efficient or not efficient enough, the two sides agreed on the policy solution of imposing an unprecedented federal tax on bond interest,” Godfrey wrote in an APPA blog this week.

The American Wind Energy Association (AWEA), for instance, supports the bill’s preservation of the phaseout through 2019 of wind energy tax credits, which the group says will ensure the stability of American factories that build wind turbines and the investors who back new wind farms.

Likewise, the Solar Energy Industries Association (SEIA) also supports specific tax credits contained in the comprehensive tax reform legislation, such as maintaining the solar ITC for both commercial developers and homeowners is “a great victory for the solar industry and its 260,000 American workers,” said Abigail Ross Hopper, president and CEO of SEIA.