Dive Brief:
- The Treasury Department’s forthcoming guidance on the Section 45U tax credit should follow the IRA’s intent to support the United States’ existing nuclear reactor fleet, six House Democrats said in a recent letter to Treasury Secretary Janet Yellen. The effort was led by Rep. Alma Adams, D-N.C., and co-signed by Reps. Haley Stevens, D-Mich., Donald Davis, D-N.C., Wiley Nickel, D-N.C., Deborah Ross, D-N.C. and Ruben Gallego, D-Ariz.
- The legislators asked the Treasury Department to treat individual reactors sited at multi-reactor nuclear power stations as separate “facilities” under Section 45U and to define “gross receipts” to match the facility’s approved cost-of-service revenue requirement. That “has the benefit of being transparent and easier to audit,” the Nuclear Energy Institute said in a response to a Treasury request for comments on the rule.
- “The goal of the [Section 45U] credit was to ensure these reactors, the associated jobs, and the tax base they create are around for years to come,” the Democrats’ letter said, noting that nuclear power plants provide carbon-free electricity to more than 10.5 million customers and support more than 6,300 high-paying jobs in the signatories’ home states. “This is why a well-functioning production tax credit for regulated nuclear reactors is essential,” they said.
Dive Insight:
Section 45U authorizes a base federal tax credit of 0.3 cents/kWh for electricity produced by qualifying nuclear power facilities. It defines “qualifying nuclear power facilities” as those put in service before Dec. 31, 2023, and not qualifying as “advanced nuclear power facilit[ies]” under Section 45J.
Facilities that meet certain prevailing wage requirements see a fivefold increase in the base tax credit, to 1.5 cents/kWh initially, according to Morgan Lewis.
The Section 45U credit was intended “to prevent the premature closing of existing nuclear facilities,” especially in deregulated power markets, said Paul Gordon, a Morgan Lewis partner whose practice covers U.S. federal tax issues.
Multiple congressional offices did not respond to a request for comment on the letter’s intent. But Elina Teplinsky, global energy industry leader at Pillsbury Winthrop Shaw Pittman, said it’s “not surprising that representatives from [states] with a large nuclear capacity, like North Carolina, would lobby Treasury to ensure that the 45U credit is implemented” as Congress intended.
“The regulations implementing the IRA tax credits have been crucial to the ability of facility owners, developers and investors to take advantage of these credits,” she added, noting that “the debate over the 45V hydrogen production tax credit [shows that] implementation can potentially undercut the value of these credits.”
The Democrats’ letter is responsive to a 2022 Treasury Department request for comments on whether “guidance [is] needed to clarify the meaning of the term ‘gross receipts,’ especially as it applies to taxpayers receiving revenue through cost-of-service regulation or regulated contracts.”
Section 45U defines “gross receipts” as amounts “from any electricity produced by such facility (including any electricity services or products provided in conjunction with the electricity produced by such facility) and sold to an unrelated person.”
Under the statute, the gross receipts amount “determines the potential reduction in the credit amount, with higher gross receipts resulting in a greater reduction amount,” NEI Deputy General Counsel and Assistant Secretary Jonathan Rund said in an email.
As written, 45U “presuppose[s] a deregulated nuclear plant” participating in an ISO/RTO market, Gordon said. That is a potential concern for nuclear plant operators in regulated power markets, he said.
Operators in regulated markets “want to make sure that there is a reasonable method … that allows the operator to capture the payments they’re getting through the local utility commission,” he said. The way the term “gross receipts” is defined in the statute, there is uncertainty over whether those payments count.
In its response to the same 2022 Treasury request for comments, NEI called out “key challenges faced by U.S. nuclear power facilities in ISO/RTO markets, as well as those faced by regulated cost-of-service facilities.”
Noting that nuclear facility owners face a variety of “market differences and owner business practices that reflect these differences, NEI urged the department to “allow an owner to use any other reasonable method for determining gross receipts.”
For nuclear facilities earning revenue under a cost-of-service model approved by regulators, NEI suggested that the method be “based on, to the extent possible, publicly available data,” which “has the benefit of being transparent and easier to audit.” The method “would include, but not be limited to,” the facility’s regulator-approved revenue requirement. Facilities located in ISO/RTO markets could also use a method that included locational marginal pricing sales, hedges, PPAs, capacity auctions and ancillary service revenues in gross receipt calculations, NEI said.
“It would be extremely problematic if the [Section 45U] guidance did not address ISO/RTO markets,” Rund said. “[It] needs to reflect the diversity in how nuclear power plants generate revenue.”
NEI’s response further noted that nuclear plant owners use “a variety of financial transactions and long-term agreements,” such as forward hedges and power purchase agreements, to “de-risk exposure to spot electricity price volatility.” These maneuvers can “unnecessarily inflate” the gross receipts calculation, resulting in “an artificially low credit value [or] potentially missing out on the credit completely,” Rund said.
The 45U credit starts to phase out once a reactor’s gross receipts exceed $25/MWh and goes away completely at $43.75/MWh, Rund said.
The Democrats’ letter also echoes NEI’s comments on multi-reactor sites, which requested that “each individual unit of a multi-unit site be treated as a separate ‘qualified nuclear power facility.’”
More important than the specifics of Treasury’s 45U guidance is that the department issue it “in a timely manner,” Rund said. “Without this guidance, companies are unable to engage in credit transfer transactions and make capital allocation decisions, delaying investments.”
