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A PDF version of this publication is attached here: Infrastructure legislation: Clean power provisions (PDF 144kb)
At a glance

The transition to clean energy and a net zero economy continue to be at the forefront of discussions across the power & utilities sector, particularly with regard to a shift towards clean, renewable energy sources and the associated infrastructure needed to reduce greenhouse gases. The focus on renewable energy and infrastructure is gaining even more momentum in recent weeks as both areas are core tenets of legislation in Washington taking shape via the Senate-approved infrastructure bill and ongoing proposals within the budget reconciliation process.
This In depth presents an overview of (1) current key provisions within the Senate-approved infrastructure bill, (2) proposed legislation being discussed in budget reconciliation, and (3) initial accounting and financial reporting implications of the draft legislation.
This In depth reflects information current as of September 22, 2021. We will continue to monitor for significant changes and share perspectives as the final legislation unfolds.

Background
On August 10, the US Senate passed a $1 trillion infrastructure bill. The bill is a landmark piece of legislation focused on rebuilding the nation’s infrastructure. It also includes targeted funding to address climate change. The shift to clean energy and a net zero economy are top priorities for the Biden administration. The current bill addresses an array of infrastructure and climate-related projects that may have a direct impact on the power & utilities sector.
Senate-approved infrastructure bill provisions
The following table highlights the key provisions outlined in the current Senate-approved bill and potential impacts to power & utilities companies.
Funding
Targeted areas of investment
Improvements to the electric grid and grid modernization
$73 billion
The Senate bill includes key provisions to help stabilize the grid and make enhancements to the transmission system for future operations fueled by clean energy generating sources.
Additional provisions provide support for carbon capture and nuclear generation and expand FERC’s siting authority.
Impact: The expansion of FERC’s authority would allow it to override state objections to critical transmission projects (i.e., the ability to site interstate transmission lines) and provide additional operational oversight to facilitate expansion of transmission associated with the scale of renewable energy construction under the Biden administration’s clean energy goals.
Electric vehicles (EV)
$12.5 billion
The Senate bill includes specific funding of $7.5 billion and $5 billion for electric vehicle chargers and electric/hybrid powered school buses, respectively. The build out of charging station infrastructure would support the transition from gasoline and diesel powered vehicles to electric powered vehicles.
Impact: In the short term, the additional funding should accelerate EV infrastructure build-out. Longer term, as EVs become more prevalent, a shift in transportation from gasoline vehicles to EVs will cause an increase in demand for electricity. Electricity suppliers will need to assess the sufficiency of available supply and electricity procurement to meet the projected increase in demand.
Water and sewage
$55 billion
The Senate bill includes specific funding to address the aging and deteriorating water lines in many major US cities by replacing all lead water pipes and service lines. Additional funding included within this section of the bill focuses on increasing the quality of our water and eliminating harmful chemicals from water and sewage treatment plants.
Impact: Investments to update and replace water lines will likely result in an increased or accelerated level of capital expenditures for water utilities. Increased investment needs could also continue the market trend of municipal water companies selling interests to larger investor-owner companies. Further, companies should consider how the increased capital expenditures will factor into current and future rate cases and other regulatory filings.
From a tax standpoint, the current bill restores the non-taxability of contributions in aid of construction (CIAC) for water and sewage companies.
Public transportation
$39 billion
The bill includes specific funding to address various aspects of the public transportation system, including repair and replacement of aging buildings, vehicles, and rail systems. However, some of the funding is specifically allocated to allow governmental entities at the federal and state levels to invest in zero emissions vehicles.
Impact: These investments will accelerate a shift in vehicle fueling demand to electricity (and possibly hydrogen) for commercial and industrial consumers as well as residential consumers in the EV/zero emission vehicle space. Once again, a shift to increased reliance on EVs will impact utility companies’ load and customer demand.
Budget reconciliation provisions
This section provides an overview of current renewable energy and infrastructure provisions being discussed as part of the budget reconciliation process.
Clean Energy for America Act
Introduced by Senate Finance Committee Chairman Ron Wyden (D-OR), the Clean Energy for America Act is one of the prominent pieces of climate change legislation being proposed as part of the budget reconciliation process. The key tenets of the proposed legislation focus on supporting clean energy in a targeted manner via certain credits. Additionally, the package consolidates all current renewable energy tax incentives into the outlined measures within the proposed legislation. The incentives are meant to be long term, but not permanent. The proposed legislation would include phase out provisions once the target reduction in greenhouse gases of 50% is achieved. The following are the main provisions of the proposed legislation that could impact power & utilities companies.
Budget reconciliation provisions
Summary of key incentives
Clean energy incentives
Proposed incentives are aligned around a progressive tax credit for producing clean energy. The proposed credit would not focus on a specific technology (e.g., fossil generators are eligible); however, in order to qualify, a generating asset has to have a greenhouse gas emissions rate equal to zero. The credit would be available as either (1) a production tax credit of up to 2.5 cents per kWh or (2) an investment tax credit of up to 30% for qualifying energy property investments (as specified in the bill). The proposed credits are also expected to have a direct pay option, meaning that companies would not need to have taxable income to utilize them. This in turn could impact the level of tax equity investing and the associated tax equity financing transactions that are common in renewable asset portfolios.
Energy conservation
Proposed incentives seek to create a progressive, performance-based tax credit for energy efficient homes and a tax deduction for energy efficient commercial buildings, benefitting residential home and commercial real estate owners. Additionally, both new construction and existing houses/buildings would be eligible.
Repeal of certain tax incentives
The proposed legislation would terminate or sunset existing tax incentives linked to fossil fueled-generating assets.
Clean Energy Payment Plan
Another piece of legislation that has been proposed through the budget reconciliation process is the Clean Energy Payment Program (the CEPP). The CEPP is a form of a clean energy standard (CES); however, it differs from traditional CES programs in that it does not set specific standards, but rather provides federal incentives/investments to suppliers of electricity to incentivize the expansion of renewable energy sources. The overarching goal of the CEPP is to create an incentive for energy suppliers that would be measured based on the ratio of each company’s share of renewable and zero carbon contribution to its customer load, the intent being to meet a nationwide 80% clean energy goal by 2030. The following is a brief summary of the key aspects of the proposed program.
What assets are eligible?
Any renewable, zero carbon, or low carbon emitting generation source qualifies. This includes assets such as traditional wind and solar facilities as well as nuclear and hydropower plants.
How does a utility achieve the intended CEPP goal?
Per the proposed CEPP provisions, energy suppliers would need to demonstrate an increased amount of renewable or zero carbon generating sources to supply customer load on an annual basis. This could be achieved via owned or contracted generation, as well as through procuring power on the spot/day-ahead market or long-term power purchase agreements. The proposed program would have stated annual thresholds established at a federal level. Energy suppliers that have demonstrated an increased share of clean energy on an annual basis will receive the incentive payments (intended to offset the cost of obtaining the clean energy). Underperforming suppliers will be assessed penalties if they do not meet the annual thresholds.
Accounting considerations
Based on the proposed legislation included in the Senate-approved bill and potential provisions that may come out of the budget reconciliation process, companies should begin to assess potential impacts related to accounting and financial reporting. Depending on the final form of the proposed provisions, companies may need to consider various accounting models, including those for government grants, investment tax credits, and production tax credits. In addition, companies will need to evaluate the specific features of any proposed tax incentives. In some instances, tax credits may, in substance, be a government grant, and would be outside the scope of ASC 740. For example, if companies have the option to receive direct payments in lieu of tax credits, there is no direct linkage to the entity’s tax liability. In these instances, accounting for the tax incentives as government grants would generally be the most appropriate model.
A summary of key considerations in accounting for government grants as well as broader financial reporting considerations follows.
Government grants
There is no US GAAP that specifically addresses the accounting by business entities for government assistance. Thus, determining the proper accounting treatment for government incentives by business entities can be challenging and will likely depend on an analysis of the nature of the assistance and the conditions on which it is predicated.
ASC 105, Generally Accepted Accounting Principles, describes the decision-making framework when no guidance exists in US GAAP for a particular transaction. Specifically, ASC 105-10-05-2 instructs companies to first look for guidance for a similar transaction or event within US GAAP and apply that guidance by analogy. If no guidance for similar transactions is identified, a company may consider nonauthoritative guidance from other sources (for example, guidance issued by other standard-setters). In this context, IFRS includes a specific standard, IAS 20, Accounting for Government Grants and Disclosures of Government Assistance, that may be relevant.
ASC 958-605 contains the US GAAP on grant accounting, including guidance on evaluating whether government grants are exchange or nonexchange transactions. However, ASC 958-605 excludes from its scope transfers of assets from governments to business entities. As a result, forms of government assistance provided to business entities would not be in the scope of ASC 958-605, but entities may apply this guidance by analogy. Alternatively, companies may look to IAS 20.
Within the power & utilities sector, practice generally analogizes to IAS 20, which provides guidance on recognition and measurement, presentation, repayment, and disclosure for the following types of government grants:
  • Grants related to assets — government grants requiring an entity to purchase, construct, or otherwise acquire long-term assets
  • Grants related to income — government grants other than those related to assets
In general, initial recognition of a government grant should occur once a reporting entity believes it is probable that it will comply with the grant conditions and that the grant will be received. This may occur at various points in the process, potentially even after the funds are received, depending on the specific criteria of the grant and the reporting entity’s individual facts and circumstances.
Under the IAS 20 model, income statement recognition is driven by the nature of the grant and timing of the grant is matched to the recognition of the related costs. Grants related to income are recognized immediately in income while grants that require an entity to purchase, construct, or acquire long-term assets are deferred and recognized over the same period as the related asset is depreciated.
Certain grants may contain multiple elements that relate to different types of costs. As the nature of the related costs determines the grant recognition period, companies may need to bifurcate certain grants and recognize part on a capital basis and part on an income basis.
Regulated utilities
For regulated entities, the accounting may depend on how the regulator treats the grant. If the regulator treats the grant as a reduction of utility plant to be recovered through rate base, we believe the reporting entity should generally follow the model for asset-based grants. In such cases, the grant should usually be recognized as a reduction to the utility plant account, effectively reducing depreciation over the life of the property. Alternatively, the regulator may continue to provide for full recovery of the utility plant, while requiring separate return of the grant to the ratepayers. Return of the grant may occur over the same time period as recovery of the related plant or it may be accelerated. In such cases, the regulator is effectively treating the benefit of the grant as a liability owed to customers, separate from the capital asset. If the regulator separates return of the grant from recovery of the plant, we believe the grant should be treated as a separate unit of account and accounted for under a separate recognition model. In these instances, because of the intervention of the regulator, we generally believe the grant would be subject to regulatory accounting as a regulatory liability; however, the actual accounting will depend on the facts and circumstances specific to the grant.
Financial statement disclosures
Given the broad impact of the proposed legislation, companies should begin to assess the level of potential impact to their business and financial results now. Specifically, companies may want to consider disclosures within management’s discussion and analysis in their quarterly/year-end financial reports to foreshadow potential material impacts as a result of proposed legislation. Companies should continue to update this initial analysis as more information becomes available related to the structure and underlying details of the legislation.
On the standard setting front, the FASB has completed redeliberations on the long-awaited Accounting Standards Update, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. A final standard is expected before the end of the year. The new guidance will require disclosure of government assistance that (1) improves the content, quality, and comparability of financial information and financial statements and (2) is responsive to the emerging issues in the changing financial and economic environment in which reporting entities operate.
The new disclosure requirements are expected to apply to a business entity that has accounted for a transaction with a government by analogizing to a grant or a contribution accounting model (e.g., IAS 20 or ASC 958). The amendments are expected to be effective for fiscal years beginning after December 15, 2021 for all business entities.
What’s next?
Congress continues to work through the mechanics of getting the Senate-approved bill up for vote in the House of Representatives, and negotiations around what will or will not come out of budget reconciliation remain ongoing. A final resolution could be available within the next month, although a definitive timeline for a final vote has not been set by Congress.
We will continue to monitor for significant changes and share perspectives as the final legislation unfolds and will update this In depth as warranted.
To have a deeper discussion, contact:
Lucas Carpenter
Trust Segment Team Technical Accounting Leader - Power & Utilities
Email: lucas.m.carpenter@pwc.com
Gavin Hamilton
Trust Segment Team Leader - Power & Utilities
Email: gavin.s.hamilton@pwc.com
Jillian Pearce
Partner, National Quality Organization
Email: jillian.pearce@pwc.com
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