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Power industry pushes priorities as US Congress crafts budget package

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Both chambers of the U.S. Congress approved a $3.5 trillion budget resolution that will allow Democrats to approve a massive spending program without Republican support.
Source: ak_phuong via Getty Images

The $3.5 trillion budget resolution that the U.S. House of Representatives passed Aug. 24 will open the door for Democrats to pursue a nationwide clean electricity program that encourages utilities to expand the amount of generation provided by carbon-free sources.

But with the text of the clean energy proposal still unreleased, power industry trade groups are making their priorities and concerns for the program known, particularly as President Joe Biden and Democrats maintain calls to decarbonize the U.S. power sector by 2035.

Despite rapid growth in renewable capacity in recent years, the U.S. still generates about 60% of its electricity from fossil fuels. That share is larger for some states and utilities, making the shift to a lower-carbon grid potentially harder for those stakeholders.

"There has to be a recognition that different utilities in different parts of the country are starting at different places," said Desmarie Waterhouse, vice president of government relations for the American Public Power Association.

Democrats plan to use the budget reconciliation process to advance a massive social spending program that will include major climate and clean energy initiatives. Reconciliation bills are not subject to the U.S. Senate's 60-vote filibuster threshold, making it easier for the upper chamber's narrow Democratic majority to pass such legislation.

Clean electricity payments

But the reconciliation process is limited to bills that affect the federal budget and do not contain extraneous policy measures. As a result, Democratic lawmakers are proposing to include a "clean electricity payment program" in the reconciliation package rather than a traditional clean electricity standard. Key lawmakers behind the effort have said the payment program would provide incentives to utilities that add clean generation and penalize those that do not satisfy the program's interim goals.

Ahead of the release of the reconciliation bills, which relevant committees were directed to submit by Sept. 15, trade groups are uncertain if the payment proposal will merely provide funding to expand clean energy generation or set binding targets. Democrats want the reconciliation package to put the U.S. on track to get 80% of its electricity from carbon-free sources by 2030. But whether the clean power payment program sets such a deadline or how individual utilities may be treated is unclear.

"Any program to try to facilitate a carbon transition needs to accommodate affordability and reliability," said Louis Finkel, senior vice president of government relations for the National Rural Electric Cooperative Association, or NRECA. With U.S. utilities still working to scale up new technologies that can get the sector to net-zero emissions, Finkel said reliability could be at risk if Democrats push for swift decarbonization timelines.

Any proposal to cut emissions "needs to have a realistic and reasonable, achievable timeline," Finkel said. "We do not believe that 80% by 2030 or 100% by 2035 are realistic."

Despite those reservations, clean energy boosters applauded the House's passage of the budget resolution. The vote came after the Senate approved the resolution on Aug. 11.

The House vote "sets the stage for Congress to finally take decisive action on the climate crisis," said Gregory Wetstone, president and CEO of the American Council on Renewable Energy.

Other priorities

The clean electricity payment program is not the only thing the power industry is watching for as the reconciliation process moves forward.

Senate Democrats directed committees to propose clean energy, manufacturing and transportation tax incentives for the reconciliation package. Although the Senate Budget Committee did not specify which tax breaks to include, clean energy advocates have urged Congress to align the legislation with Biden's call to extend existing renewable energy incentives by a decade. They also want new credits for stand-alone energy storage and high-voltage transmission projects and for Congress to allow direct cash payments in lieu of clean energy tax credits, including for public power producers and electric cooperatives that do not have tax obligations.

"A stable, long-term, full-value clean energy tax platform is foundational for decarbonizing the grid and will create millions of good-paying American jobs," Wetstone said. "Congress must act with clarity and conviction now to seize this once-in-a-generation opportunity to enact a comprehensive climate policy able to meet the challenge before us."

Clean energy groups have been pushing for a transmission investment tax credit, which could substantially boost renewable energy deployment if enacted.

"The growing momentum for a transmission ITC is grounded in the broadly recognized need for dramatically expanded high-voltage transmission to successfully decarbonize the grid," dozens of companies and organizations said in a recent letter to House Ways and Means Committee leaders. "A well-designed transmission ITC, with appropriate guardrails on eligibility and usable by all types of transmission developers, can spur needed investment in large-scale transmission necessary to cost-effectively decarbonize the electric grid."

Along with achievable timelines for decarbonizing the grid, the NRECA wants the reconciliation package to include a voluntary financial incentive program to help co-ops transition to lower-carbon technologies. The program, which the NRECA asked to be funded at a minimum of $30 billion, would provide loans and grants for carbon-reducing technologies and electricity sources, debt relief for premature closure of fossil fuel generation, and community-based energy efficiency programs.

The group is also pushing Congress to allow electric cooperatives to refinance debt from the U.S. Agriculture Department without prepayment penalties, a long-running priority for the NRECA.

Along with passing the budget resolution Aug. 24, the House agreed to vote by Sept. 27 on passage of the Senate's bipartisan infrastructure bill. The legislation, which the Senate passed earlier in August, contains a large number of energy-related measures, including provisions to ease transmission development, support nuclear plants at risk of early closure, and appropriate funds for research and development of hydrogen and other innovative energy technologies.

Though parts of the bipartisan infrastructure package could help with transmission projects in the U.S., some industry advocates said they are not relying on legislation to move forward with projects.

"I don't think there's a silver bullet, a one thing that's going to be done that's going to help transmission," said Larry Gasteiger, executive director of the international transmission trade association WIRES. "There's going to be a number of things probably required from federal, state regulators, some legislative changes, like we're seeing in the infrastructure bill. I think all of those things collectively are what's going to be needed in order to deal with some of these challenges that we have with getting transmission built."

Gasteiger said WIRES has not sought government funding to help with transmission build-out nor taken a position on an investment tax credit.

"Most of what we build doesn't require taxpayer dollars in order for it to happen," Gasteiger said. "The capital is there for investment in transmission ... There can be a lot of things done to make the environment for capital investment in transmission more favorable than it is, and I think that could be extremely helpful."

Ellie Potter is a reporter with S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.