Whether it is Run DMC finding Santa’s wallet filled with “hundreds of Gs” and trying to get it back to him in Christmas in Hollis, or the Queen of Christmas Mariah Carey pining, not for presents, but just “you” this Christmas, the season brings gratitude and giving to the fore. And amidst this gratitude and giving, it prompts thoughts about how the interestingly named Inflation Reduction Act gives so plentifully to customers in furthering the clean energy transition.

A wise scholar once taught us that there are two answers to every question: “It depends,” and “it depends on the tax treatment.” That second answer is the interesting one here. The tax treatment afforded by the IRA fundamentally changes the game for the electric sector, removing the uncertainty that persisted for years with expiration dates, particularly for tax credits.

We have made a choice as a country that our federal energy policy will be brought to you through the Internal Revenue Code as opposed to through other means. We can leave for another day whether the tax code is the optimal place for federal energy policy, understanding the attractive opacity of it to Congress. Moreover, while it may not be the preferred mode for stakeholders in certain quarters, when combined with state policy designed to reduce emissions and transition the electric sector, these policies work rather well together. 

The IRA offers much in the form of tax credit expansion for new technologies, through the availability of solar production tax credits, or PTCs, to create optionality in large-scale solar development, through the extension of the PTC and investment tax credits, or ITCs, with bonusing opportunities for certain characteristics, and by allowing for tax credit transferability. While it’s a simple concept, transferability is a game-changer that will have profound impacts on the ability to develop clean energy projects. Indeed, tax credit transferability is a topic worthy of its own focused, pop culture-oriented missive in these pages because it levels the playing field and will drive cost-effective projects for customers. But returning to the wise scholar that once guided us, we now know the tax treatment for the foreseeable future, providing a boon to project development.

Knowing the projects are coming, and with meaningful tax advantages, it raises an important question: how do we get the benefits of tax credits to customers most directly? The answer this holiday season is that we deliver those tax credits to customers through the regulated utility model.

The power business is a complex one: complex in operation, complex in regulation, and complex in defined terms/acronyms and the regulatory word salads that too often rule the day in regulatory litigation, regulatory technical conferences, and in regulatory panels where discussion flows on topics affecting the industry. But this tax credit delivery question can be boiled down pretty simply.

Take two structures, one a regulated utility structure and one a restructured so-called “retail choice” structure, the latter of which where the “choice” appears to be to pay more if you read reports across states that have made the ill-fated decision to “de-regulate” when that trend was all the rage 25-plus years ago. In the regulated utility market, the utility secures power supplies through utility-owned and independent power producer-owned generation assets. The tax credits, from PTCs to ITCs and beyond, are either: (1) flowed back to customers through rates such as fuel clauses; or (2) factored into power purchase agreement rates that the utility secures for the long-term. Accordingly, for this Christmas and every Christmas for the next decade-plus, customers get their tax credits in the regulated utility model. 

Others are not so lucky. In our second structure, one with a single clearing price auction (which we opined on previously with a strong assist from hip-hop legends Slick Rick and Doug E. Fresh), customers pay the market clearing price set based on an auction. That tax credit? Whether you actually see the benefit, in whole or in part, is all dependent on where the single clearing price lands. The vast majority of the time for these tax benefits, to quote a phrase you often here at baggage claim carousels in airports: “That’s not yours.”

As we propel into the home stretch of the holiday season, listening to Run DMC or Mariah Carey (or even Mannheim Steamroller just to show you our range), and we sit back with family on cold nights with fires reading blog posts that malign “monopolies” and levy other dramatic, over-simplified charges at regulated utilities, just remember: the regulated utility model puts tax credit benefits in your stocking or through whatever mode you get your holiday gifts. That happens because the regulated model delivers — to the customer — the low operating cost benefit of renewable resources at a price that accounts for what the taxpayer has already chipped in, as opposed to pretending the taxpayer has not already shelled out for the renewable, “commoditizing” electricity from whatever source derived, and requiring customers to pay again for the renewable as though it were any other form of generation. 

Juxtapose these outcomes and decide for yourself which outcome is most in the holiday spirit as the IRA rolls out in the coming years.