Light and Power Businesses.
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.
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.
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.
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.
Washington State University Energy Extension Program.
The Washington State University Energy Extension Program (WSU Energy Program) has administered energy programs and provides 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.
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.
Under the program, an electric utility must 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.
Additionally, an electric utility must 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.
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 times of off-peak demand.
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.
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.
Program requirements include:
An electric utility may establish residential installer partners and equipment specifications.
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 WSU Energy Program and include certain information: including the name and address 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.
Before applying to the electric utility, qualified customers must submit a certification to the WSU Energy Program that includes certain information like what is required in the application to the electric utility. After receiving the application, the WSU Energy Program is to determine the customer's eligibility, and then must notify the customer within 30 days as to whether their system qualifies.
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. The environmental attributes of the renewable energy system belong to the applicant.
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.
Electric Utility Tax Credit.
An electric utility is allowed a PUT credit equal to:
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. Electric utilities must have incentive payments, and expenses and upgrades in any given year to claim a credit and the incentives must be at least equal to the expenditures for expenses and upgrades.
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.
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:
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. Recipients of tax credits or incentive payments must provide information as requested by the WSU Energy Program or JLARC to evaluate the tax preference performance. Failure to comply may result in the loss of a tax credit or incentive payment in the following fiscal year and the WSU Energy Program or JLARC must notify the DOR by June 30 of any year if a tax credit is suspended for such failure to comply.
As compared to the original bill, the substitute bill:
(In support) The recent bomb cyclone is a good reminder of the value of energy storage. Residential energy storage systems can help respond to peak electrical loads and outages, and can benefit everyone across the state because of the benefits to the grid. They reduce overall grid costs, including transmission buildout needs. The initial cost of these systems is a barrier. Similar tax credit programs have been very successful and this builds on that success. The language needs some work. This will help reach clean energy goals. There are a dozen companies doing this now and there are new and better products that are more recyclable. This would support renewable integration and ensure that excess wind and solar generation isn't wasted.
(Opposed) None.
(Other) There are concerns with implementation, especially regarding the time-of-use rates and the administration of incentive payments. There are concerns about time-of-use rates prior to Utilities and Transportation Commission approval. The bill needs work. There should be an offramp if a utility cannot meet the 40 percent low-income participation target. There should be language about emergency preparedness and about liability, for example, related to fires in homes. Customers should be compensated for all of the energy they produce.
(In support) Representative Victoria Hunt, prime sponsor; Gavin Tenold, Northwest Renewables; Eric Blatz, Western Solar; Jeremy Smithson, Puget Sound Solar; and Jon Lange, Sunergy Systems.
(Opposed) None.
The WSU Energy Program is allowed to increase the incentive payment cap for customers under the new program based on a review of market conditions. In addition, a customer can petition the WSU Energy Program for higher-than-authorized incentive payments. The incentive program is capped at $10 million per fiscal biennia. The WSU Energy Program is not required to follow the DOR requirements for electronic notifications when notifying a customer that the customer is eligible for an incentive.
(In support) The recent bomb cyclone storm and the widespread power outages that occurred last night are reminders of the value of energy storage. We need to increase energy storage to help communities and homeowners stay warm during these events. Because these batteries, which are on the consumer-side of the electric meter, are connected to the grid, utilities can use the power from them during peak load events. They can reduce grid costs, improve the functioning of the overall grid, reduce the need for transmission build-out, and limit the use of gas and other auxiliary power supplies, which saves money for utilities and ratepayers. The initial cost of these systems is a barrier, which is why the bill supports incentives for low- and moderate-income households. There is work being done to limit the size of the program and retain the benefits for all communities.
(Other) There is support for the intent of the bill, but there are significant concerns about a utility being able to participate because of the prescriptive time-of-use rates. This limits a utility's ability to design time-of-use rates to manage the grid and is done without the regular regulatory review process. When a utility reimburses at the retail rate, customers are paid for more than the electricity is worth, and that reimbursement is subsidized by the entire rate base. The bill incentivizes participants to sell rather than store power at peak times. A utility would really appreciate having this type of program for its customers. Generally, there is support for the public utility tax credit structure. There are a lot of implementation challenges, including timelines, compensation rates, and the ability to enroll low-income customers. Residential batteries have a 12-15 year lifespan, but when they are taken care of well, they can last up to 30 years.
(In support) Representative Victoria Hunt, prime sponsor; Bill Will, Washington Solar Energy Industries Association; and Gavin Tenold, Northwest Renewables.