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Utilities ask congressional leaders to lift cap on electric vehicle tax credit

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Utilities ask congressional leaders to lift cap on electric vehicle tax credit

Around three dozen U.S. utilities recently asked congressional leaders to lift a cap on income tax credits for individuals who purchase electric vehicles, but industry observers' opinions differed on whether the request would be granted.

Section 30D of the U.S. Internal Revenue Code provides that beginning in 2010, an individual purchasing a qualified plug-in electric vehicle, or EV, with at least 5 kWh of capacity can receive a credit of at least $2,500. For each kWh of capacity over that amount in such a vehicle, an individual can receive an additional $417 tax credit, with a maximum tax credit of $7,500.

However, those credits only apply to the first 200,000 EVs sold by any one manufacturer since 2010.

Some companies that have been building EVs for many years are likely to have accumulated sales totaling 200,000 or more this year, which would begin a one-year phase-out of income tax credits for their vehicles, according to a March 13 letter from dozens of electric utilities to leaders of the House and Senate from both major parties.

Companies that signed the letter include ALLETE Inc., American Electric Power Co. Inc., Duke Energy Corp., Edison International, Eversource Energy and Southern Co. Trade groups Edison Electric Institute and National Rural Electric Cooperative Association also signed.

Tax credit 'essential' to EV usage growth

"The EV credit is essential to foster the rapid adoption and deployment of electric vehicles, which in turn will boost our economic and national security and continue to create the next generation of well-paying American jobs," the letter states. "Maintaining the current cap will effectively raise the cost to consumers for certain vehicles, skewing car choices and sales just at the time when electric vehicle sales are beginning to climb and choices are expanding."

Electric utilities are working to develop and install the charging infrastructure that supports EV deployment and to educate consumers so EVs can achieve economies of scale, the letter stated.

"Eliminating the manufacturers' cap will provide certainty to both automakers and consumers," the letter said. "It will also allow the utility industry to enable an electrified transportation future that creates and sustains more American jobs, reduces our reliance on foreign oil, makes our air cleaner, and our communities more sustainable."

Mark Delucchi, a research scientist focusing on transportation at University of California at Berkeley's Energy Systems, Economics and Environmental Assessment program, said, "I believe that the 200,000 sales cap should be shelved, and the tax credit should be offered indefinitely, because the EVs have substantially lower total social costs than do [internal combustion engine vehicles], and thus warrant a significant social subsidy."

EV tax credit support 'not surprising'

Joshua Rhodes, a research associate at the University of Texas Energy Institute, said a surge in EV deployment could help counter the flat-to-negative electricity growth power companies have faced since 2011.

"If about 25% of light duty vehicle miles (500 billion electric from 2.1 trillion total) were electric, it would increase the annual amount of electricity demand by about 4% over 2017 values," Rhodes said in an email. "It is not surprising to see electric utilities wanting to try to spur new demand."

Matthew Cordaro, a former Midcontinent ISO CEO who now resides in New York, said, "With all the pressure being applied on Congress, it would not be surprising to see the cap lifted this year."

However, Cordaro in an email said EV development is still in too early stages to "make much of a difference one way or the other" on power demand or power prices.

"A couple of years from now, however, the whole story on this could change," Cordaro said.

Eric Smith, Tulane Energy Institute associate director, noted that the cap's "fundamental purpose ... is to limit the growth of these credits and their short-term impact on the federal budget."

"[Tax credit] supporters worry that this will crimp demand," Smith said in an email. "They are right. Given other higher priority demands for government expenditure, I don't see the caps being removed this year."

However, they could be "modified" to apply to all EVs sold in the U.S. in the aggregate, not with a separate cap for each carmaker, Smith said.

"Such a modified cap would be more helpful to established manufacturers who actually have meaningful employment, while discouraging the proliferation of small producers without meaningful employment support," Smith said. "So, perhaps a cap of 1,000,000 cars rather than a cap of 200,000 cars on each of five current producers."

Smith questioned the likelihood that EVs might make a difference on utilities' power sales.

"Right now, the aggregate power being used to fuel EVs is almost a rounding error," Smith said. "Further, depending on recharging patterns, all of these new EVs could actually exacerbate the California 'duck curve.'"

A phenomenon associated with California's widespread rooftop solar deployment, the "duck curve" results from suppressed power demand during the day, when it is usually highest in areas with little rooftop solar power, and substantially increased demand as the sun disappears in the West.

Mark Watson is a reporter for S&P Global Platts which, like S&P Global Market Intelligence, is owned by S&P Global Inc.