NARUC Cautions Feds: Don't Tax Smart Grid Grants

The government now wants to take back some of its stimulus funding by making it taxable. Far from stimulating activity, the Smart Grid recovery money has slowed things down. First everything paused while we waited for the grant winners to be announced. Then again while we waited for the rules and reporting requirements to be explained. And now again for a dogfight over taxing the awards.

The Treasury Department and the Internal Revenue Service have determined that Smart Grid stimulus grant awards are taxable. The National Association of Regulatory Utility Commissioners (NARUC) thinks it's a really bad idea. A really, really bad idea.

In letters to Treasury Secretary Timothy Geithner and Energy Secretary Steven Chu, NARUC President David C. Coen and NARUC Electricity Committee Chairman Garry A. Brown said that the determination "could result in increased ratepayer costs or preclude the execution of certain Smart Grid projects."

In other words, some if not many grant recipients could just say "No thanks" and walk away from their planned projects. And consumers who should benefit from projects that are completed won't be happy either, NARUC says in the letters dated late last month.

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"In simplest terms, taxing these funds threatens to add another burden on consumers. The Smart Grid Grants already require recipients to provide a 50% cost share for the projects. The regulated utilities that receive Smart Grid Grants are likely to ask our members, the State Public Utility Commissions, to pass the tax burden (in addition to the 50% cost share) onto ratepayers. The tax burden decreases the capital available for the projects (blunting the stimulus goals) and increases the cost of the investment," the letter continued.

Coen and Brown also said that if a commission chooses to approve the rate increases, the Smart Grid projects will be more costly to consumers at a time when they "can least afford it."

They also encouraged Treasury and the IRS to work with DOE to resolve the issue quickly to ensure that the grants are not taxed. The issue has been discussed at NARUC's winter meeting.

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