Light and Power Business.

Light and power businesses operate plants or systems for the generation, production, or distribution of electrical energy for hire or sale and/or for the wheeling of electricity for others.

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Public Utility Tax.

The gross income derived from the operation of publicly and privately owned utilities is subject to the public utility tax (PUT), unless otherwise exempt.? The tax is imposed in lieu of the Business and Occupation (B&O) tax and is applied only on sales to consumers.? Other income of the utility, such as the retail sale of tangible personal property, is subject to the B&O tax.? There are six different PUT rates, depending on the specific utility activity.? The rate on the generation or distribution of electrical power is 3.8734 percent.

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A taxpayer who engages in one or more businesses subject to the PUT is fully exempt from the tax if their total gross income is $2,000 or less per month.? Any taxpayer that has a total gross income greater than $2,000 per month does not receive an exemption or deduction under this provision.

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A business does not have to file an excise tax return for the PUT if the business does not owe other taxes or fees to the Department of Revenue (DOR) and has annual gross proceeds of less than $24,000.

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Washington State University Energy Extension Program.

The Washington State University Energy Extension Program (WSU Energy Program) has administered energy programs with the WSU Energy Program providing oversight over incentive payments. ?These programs include providing PUT credits, such as through the Community Solar Expansion Program, the Annual Production Incentive Certification, and the Renewable Energy System Cost Recovery Program.

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Tax Preference Performance Statement.

Tax preferences confer reduced tax liability upon a designated class of taxpayers.? These include tax exclusions, deductions, exemptions, preferential tax rates, deferrals, and credits.? There are over 700 tax preferences, including a variety of sales and use tax exemptions. ?Legislation that establishes or expands a tax preference must include a Tax Preference Performance Statement that identifies the public policy objective of the preference, as well as specific metrics that the Joint Legislative Audit and Review Committee can use to evaluate the effectiveness of the preference. ?All new tax preferences automatically expire after 10 years unless an alternative expiration date is provided.

New Battery Incentive Program.

The WSU Energy Program must administer a new residential battery incentive program (program) for qualified light and power businesses (electric utilities). ?Electric utilities with more than 100,000 retail electric customers must participate, while other electric utilities may participate.

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Under the program, an electric utility must:

1) Provide one-time battery incentives to qualified customers.

• Qualified customers are residential customers, nonprofit organizations, public entities, tribal governments, academic institutions, and multifamily housing tax equity investor partnerships with a controlling partner that is a nonprofit organization, public entity, tribal government, or academic institution.
• Incentives are for the installed battery storage capacity from a residential battery energy storage system, which is not an industrial-scale battery energy storage system, and may be for up to:
  • ?$765 per kilowatt hour (kWh), capped at 18 kWh, for low- and moderate-income customers; and
  • $450 per kWh, capped at 18 kWh, for all other customers.

2) Have a plan for using the batteries either by:

• allowing customers with batteries to be charged time-of-use rates for electricity; or
• incorporating the batteries into a utility-operated virtual power plant that financially encourages customers to manage their electricity use to their benefit so the utility can effectively manage the batteries collectively to benefit utility grid operations.

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A time-of-use rate means an electricity billing structure where the price of electricity varies based on the time of day it is used to encourage consumers to shift their energy use to less expensive times.

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A virtual power plant is an aggregation of connected distributed energy resources that can balance electrical loads and are coordinated to work together to provide utility grid services like a traditional power plant.

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Electric utilities must apply to the WSU Energy Program to establish a program.? The WSU Energy Program must evaluate an application based on whether it meets certain requirements. ?If the WSU Energy Program approves a program application, the electric utility may start the program. ?The WSU Energy Program must audit the electric utility's program at least every two years.?

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Program requirements include:

• At least 40 percent of the program must benefit low- and moderate-income households, low-income service providers, housing authorities, or tribal governments.
• The application for customers to apply for a battery incentive must require income verification for low- and moderate-income customers.
• Leases to customers are not allowed.
• The electric utility must use the program to lower the customer's annual electric utility expenses.
• All expenses and upgrades proposed for program implementation are documented.
• Electric utilities may not sell or aggregate data from customers in the program for any purpose beyond the direct operation of the program.

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An electric utility may establish residential installer partners and equipment specifications.

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Qualified customers may apply to their electric utility for a one-time battery incentive payment between July 1, 2026, and June 30, 2036. ?Customers must be connected to the electric utility's time-of-use rate program or virtual power plant to receive an incentive payment. ?This application must be in a form and manner prescribed by the DOR and include certain information: ?including the name, address and tax registration number of the applicant, and the kilowatt (kW) capacity of the residential battery energy storage system. ?The electric utility must notify the applicant within 60 days of receipt of the incentive certification whether the incentive payment will be authorized or denied.

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Before applying to the electric utility, qualified customers must submit a certification to the DOR and the WSU Energy Program that includes certain information like what is required in the application to the electric utility. ?After receiving the application, the DOR must consult with the WSU Energy Program to determine the customer's eligibility, and then must notify the customer within 30 days as to whether their system qualifies.

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Customers receiving incentive payments must keep records of incentives applied for and received for five years. ?If it appears that an incentive was paid in excess of the correct amount, the electric utility may assess against the customer the excess incentive amount and must add interest on the amount. ?The environmental attributes of the renewable energy system belong to the applicant.

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The Department of Commerce (Commerce) must produce nonbinding recommendations for electric utilities to help design virtual power plants for the program, and make the recommendations public on Commerce's website by December 1, 2025.

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Electric Utility Tax Credit.

An electric utility is allowed a PUT credit equal to:

• the battery incentive payments; and
• expenses and upgrades associated with their program, which must not be more than 20 percent of the total tax credit for any fiscal year, and include advanced metering infrastructure and subscription fees paid by the electric utility to operators of a virtual power plant.

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This tax credit may not exceed 1.5 percent of the electric utility's taxable Washington power sales generated in calendar year 2022, and may not exceed the tax that is otherwise due. Expenditures not used to earn a credit in one year may be used in subsequent years.? Tax credits may be earned from July 1, 2026, to June 30, 2036, and may not be claimed after June 30, 2038.

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Tax Preference Performance Statement.

It is the Legislature's objective to induce participating utilities to make incentive payments to utility customers who invest in battery energy storage on the customer-side of the meter, reduce the costs associated with installing and operating these storage systems, and create and retain jobs in the clean energy sector.

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The Joint Legislative Audit and Review Committee (JLARC) must review this tax preference as part of its 2030 tax preference reviews. ?The Legislature intends for JLARC to determine that the incentive achieved its desired outcomes if:

• fifty megawatt-hours or battery energy storage are installed under the program; and
• battery energy storage-related employment grows from 2025 levels, as evidenced by an increased per capita rate of related jobs in the state and an improved national ranking for battery energy storage-related employment.

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The WSU Energy Program must collect information from qualified customers and electric utilities under the program to be able to report on the number of participants, size of systems installed, dollars spent on incentives, and energy storage program load flexibility and demand response events.