As for many businesses, the end of the year is a busy time at Groom Energy. Our engineering team is scrambling to satisfy the utility requirements, our back office is beginning our year-end closing process, and our customers are pushing us to complete projects.
With the EPAct tax deduction expiring on New Year’s Eve, 2013’s end-of-year push was even more harried. Starting last October, we began hearing customers ask us for confirmation that their projects would be EPAct eligible. To qualify, the projects had to be “in service” before the champagne bottles were popped. We even saw some stalled projects being approved in large part because companies thought EPAct was disappearing.
It seems like forever ago that EPAct went live. Originally introduced in August 2005, federal guidance for how to claim EPAct’s benefits weren’t even solidly defined until early in 2007. The act was a part of our last official U.S. national energy policy, authored by the Bush administration. It defined a deduction incentive of up to $1.80 per square foot of affected space for qualifying efficiency improvements in lighting, HVAC and building envelope improvements.
Since then, it’s been a bit bumpy, with the act having been criticized, but still extended as part of a flurry of stimulus measures in 2008′s economic meltdown. But this past year, customers had priced in the likelihood that Washington would not come to agreement that it should extend it yet again. Fracking and solar growth merited mention in this week's State of the Union address, but EPAct didn't. (Heck, the Secretary of Energy was even the one selected to “stay home.”)
Before the beginning of last year, some believed that Senator Snowe’s proposed Commercial Building Modernization Act (CBMA), with relatively unusual levels of bipartisan support, might successfully navigate the labyrinth of Congress.
The CBMA would have corrected some of the principal flaws inherent in the EPAct 179D incentive. It would have increased the value of the tax deduction from $1.80 per square foot to $4.00 per square foot, while allowing a sliding scale for initiatives that delivered less than 50 percent energy savings against ASHRAE 90.1 2001 standards. It would have also loosened rules around the beneficiary of the incentive, allowing a huge new pool of REIT-owned facilities to qualify for the deduction, whereas with owner-tenant buildings, investments made by tenants previously were not eligible for any EPAct incentives.
Unfortunately, the bill was sent to the scrap heap in the finance committee after Sen. Snowe announced in late 2012 that she would not run for reelection, citing the extremely partisan nature of the Senate.
A similar initiative, co-sponsored by Senators Portman (R-OH) and Shaheen (D-NH) in late 2011 (Shaheen-Portman (S. 761) has yet to gather a sizable level of interest.
With no national energy policy in the last six years and little hope for EPAct renewal in a harshly partisan Washington, there are few reasons to be optimistic that similar policy encouraging corporate energy efficiency investment will happen in the near term.
So let's dream for a minute and imagine that everyone in Congress got along for a day and did something to address energy efficiency. What kind of policy should they author?
Real estate owners of hotels and commercial offices want to see incentives that are assignable to their energy installation partners. Trying to allocate tax deductions across a wide range of limited partners is too complex. They’d also like to see scaling incentives for different levels of HVAC and building envelope improvements.
Obviously, moving from a tax deduction to a tax credit would provide a more direct incentive to a wider range of institutions. Manufacturing owners want this. During the capital budgeting processes, most management teams in manufacturing don’t acknowledge the EPAct effect on their investment. However, they do get credit for utility rebates and use the net payback in their internal budget requests. Clearly, cash back on a tax credit would work better than depreciation for them.
Our engineers also note that EPAct’s standards for HVAC and the building envelope were too complex (a full building software model was required for full credit). As a result, most companies taking EPAct credits only managed to qualify for the lighting deduction. As much as $1.20 of the $1.80 of incentives was left on the table.
So Washington could consider these and have our politicians do what they are supposed to do be good at doing: working to define forward-thinking policy that is straightforward to implement, and refines prior policies that were not as successful as had been hoped.
But let’s not forget: we were just dreaming.