What is the Preference?
The Legislature intended for this preference to provide an incentive for greater use of locally created renewable energy technologies. It also expressed intent to support and retain existing local industries and create new opportunities for renewable energy industries to develop in Washington.
The preference provides a tax credit to utilities to offset a portion of the public utility taxes (PUT) they owe on their total annual sales. Utilities are eligible for the credit if they administer a program that provides payments to their customers who produce their own power with renewable energy systems. The tax credit is equal to the amount the utilities pay their customers for the power they generate, regardless of whether they use the power or it flows back into the power grid.
There are several restrictions or caps on the amount of credit the utilities can receive:
- Overall, each utility may claim an annual credit up to 0.5 percent of its taxable power sales or $100,000, whichever is greater. The credit cannot exceed the amount of tax owed by the utility, and cannot be refunded or used toward future years.
- There are also caps for two specific types of projects.
- Payments to utility-owned community solar projects may only account for 25 percent of a utility’s total allowed credit. A utility-owned community solar project is a solar energy system that is owned by the utility but voluntarily funded by the utility’s ratepayers.
- Payments to company-owned community solar projects may only account for 5 percent of a utility’s total allowed credit. A company-owned solar project is a solar energy system that is owned by a limited liability company, cooperative, or mutual corporation.
If requests for payment from customers exceed the amount of funds available for the credit, the utilities must reduce the amount they pay their customers proportionately.
The table below illustrates how these caps would operate on different sized utilities:
(insert table)
Source: WAC 458-20-273.
The right of utilities to earn tax credits expires June 30, 2020. This is the last date for customers to benefit from the preference. Credits may not be claimed by the utilities after June 30, 2021.
Payments to Customers and Community Project Participants Vary based on Amount and Type of Power Generated
The Legislature established rates for utilities to pay their customers, and these rates vary by the type of renewable energysystem and whether it is locally made. Eligible customers create their own power using wind, solar or certain anaerobic digesters. The digesters are systems that process manure from livestock into biogas.
Customers are also eligible for payment if they are part of a community solar energy project. These projects may be owned by utilities or companies, or they may be owned by individuals, households, or nonprofit organizations. For utility and company-owned projects, their respective ratepayers or company owners receive a portion of the payments made to the project from the utility. Community solar projects use solar energy to generate up to 75 kilowatts of power.
The Legislature set higher payment rates for solar energy than for other types of energy sources. It also set higher rates for certain system components that are certified as Made in Washington (MIW) by the Department of Revenue. These include:
- For solar energy systems, solar panels.
- For wind systems, the blades.
- For both solar and wind systems, the inverters. Inverters are devices that convert electricity to a form that is compatible with homes, offices and the electric grid.
Utility payments to individual customers and community solar project participants are limited to $5,000 per year.
Incentive rates per kilowatt-hour vary by type of system and whether it is locally made
Source: JLARC staff analysis of WAC 458-20-273.
