El Paso Electric officials this week began selling small chunks of solar power to customers as an alternative to rooftop solar systems.
Victor Calzada / El Paso Times
Mayor Oscar Leeser complained in a recent column in the El Paso Times that El Paso Electric was again seeking another rate increase to cover its operating expenses. He pointedly described the $3 million compensation to its CEO and $2.5 million to its 11 directors as unjustified. Leeser ended his comments by stating his opposition to El Paso Electric’s treatment of solar energy users.
The CEO responded that she felt the mayor’s comments did not reflect “the sentiment of all the people in El Paso.”
A normal person would be hard pressed to explain her tone-deaf response. I think I can.
A few years ago, I was invited to a dinner party attended by several members of El Paso Electric management. As the evening unfolded, some of those members spoke out in defense of rate increases in the face of specific management decisions that had cost the ratepayers of El Paso a great deal of money. Apparently, the company has a monopoly on electricity sales in El Paso, which guarantees it a rate of return.
Let me say that in a different way. I think what was being said is that no matter how poorly the company is run and how poor its investments might be, the company is and should still be guaranteed a profit. And according to Leeser’s comments, the operating expenses of the company include the cost of extravagant salaries and benefits paid to its CEO and directors.
Having these thoughts in mind, perhaps there are ways to reduce our reliance on electricity from the electric company. Today, let’s look at the tax benefits of acquiring alternative energy sources.
1. Residential energy credit
The federal tax code allows individuals who purchase qualified solar electric property to reduce their taxes by 30% of the cost of that solar property. This is called a residential energy efficient property credit. This 30% is a tax credit: a dollar-for-dollar reduction in taxes, and not merely a deduction.
So, the question is what kind of purchase qualifies for this credit. A simple description is equipment that uses the sun to generate electricity in a residence that is located in the U.S. and lived in by the individual.
What immediately comes to mind is a solar panel that fits on top of the roof and generates electricity for the house. These panels have become so sophisticated now that they can actually become part of the roof, but they qualify even if placed next to the home. Typically, the way this works is the solar panels produce enough electricity to cover electrical use during the day and any excess actually reverses the meter to the electric company. At night, when it’s not producing electricity, the excess electricity is made available to the homeowner for uninterrupted use.
Another type of property commonly used is a solar water heater, at least half of the energy usage of which is derived from the sun. Other such property includes wind energy, fuel cell, certain heat pumps and geothermal energy. There are conditions and requirements, but they are fairly straightforward for those who are willing to make the effort.
Because of the advances made in technology in recent years, these solar panels have become much less expensive. It is not uncommon for half of the cost of a solar panel system to be paid for by the federal tax credits and the rebates from the electric company and others. For some, this creates a seven-year rate of return for recovery of expenses, assuming the electric company keeps its rates the same (which is of course an unreasonable assumption).
Interestingly, El Paso Electric has offered rebates to people who buy solar panels, helping to further reduce the cost of installation. I find it odd that the electric company would incentivize the purchase of solar panels by offering cash rebates and then turn around and target such users for additional costs.
2. Business energy credit
There is also a solar energy credit for equipment that uses the sun to generate electricity to heat or cool business property. Again the credit is 30 percent of the cost of the solar property, commonly known as the solar panels.
I think monopolies are much like government bureaucracies — the citizens pay regardless of productivity.
So, friends, if you support “business as usual” concerning the cost of and access to energy, then this article is not for you. If, however, you support the mayor’s point of view, then you might consider alternative energy possibilities. My opinion is that using tax incentives to reduce our reliance on El Paso Electric might be a worthwhile undertaking.
David Leeper is a board certified federal tax attorney with 38 years of experience. He can be reached at 581-8748, by email at firstname.lastname@example.org or visit leepertaxlaw.com.