Low-Income Households Must Benefit From IRS Rules
PowerMarket's Comments on the Low-Income Communities Bonus Credit Program
The following are PowerMarket’s comments to the Proposed Rulemaking on Low-Income Communities Bonus Credit Program. We see these proposed rules as critical to the future of the community solar industry and we want to ensure these rules not only work well for community solar developers, but work especially for low-income households. We’ve made these comments public because we want you to be engaged and hope these comments spark your desire to provide feedback to Treasury as well. If these comments resonate with you, we give you full permission to copy and paste and submit to Treasury. The deadline to submit comments is this Friday, June 30, 2023. Submit electronic submissions via the Federal eRulemaking Portal at https:/www.regulations.gov (indicate IRS and REG-110412-23) by following the online instructions for submitting comments.
Dear Treasury/IRS,
We appreciate the opportunity to provide responses to the Request For Comments on the Proposed Rulemaking on Low-Income Communities Bonus Credit Program. Our responses are written through the lens of community solar and low-income participation. PowerMarket is a leading community solar administrator and manager of facilities across the country, with over 550 MW of capacity under management and over 70,000 subscribers. PowerMarket is also active in low-income communities, working tirelessly to ensure the benefits of community solar are realized by communities with the greatest need. We have enrolled over 10 MW of low-income residential and multi-family affordable housing in community solar, and nearly all of this in New York (for reasons that will be explained below). We want to ensure that the financial benefits that these rules intend to be delivered to low-income households and other allowable low-income beneficiaries can be done in the most efficient and effective manner, without placing undue risk or burden on these vulnerable communities. We therefore ask that for Category 4 Qualified Low-Income Economic Benefit Projects, Treasury allows for the financial benefit to be directly paid to low-income households in a nominal amount equal to the 20-percent bill credit discount rate, rather than through the application of credits on the low-income household’s utility bill. This would enable a “synthetic net-crediting” paradigm where the low-income household will receive the savings, without having to pay for the credit. For reasons set forth herein, by enabling the direct payment of the value equivalent to the 20% discount rate, we can ensure that the true intent of this program is realized, and low-income households will only see positive outcomes from their engagement with the solar industry.
Since community solar is enabled by the legislatures of individual states, you will find material differences in how community solar programs are administered, regulated, and ruled in those states. We believe that the real-world implementation of these programs across these diverse markets will pose great challenges to the delivery of “financial benefits” to low-income households as the Proposed Rules lays out. Community solar projects will be classified as Category 4 facilities under the Code with the intent to deliver economic benefits to qualified low-income households. While the proposed rules for Category 4 projects are well-intended, we unfortunately expect that unintended negative consequences will result and impact the very households the rules seek to benefit. We ask that Treasury and the IRS take the following comments and feedback into consideration as it finalizes the rules for the Low-Income Communities Bonus Credit Program.
Payment for Community Solar Credits
It is important to appreciate there are two distinct types of community solar markets; those states that have implemented “net crediting” or “consolidated billing” (used synonymously) for community solar, and those that have not. Net-crediting is a mechanism whereby the nominal dollar value of the discount rate/savings rate is directly applied to the participant’s utility bill without the need for the payment of a subscription fee. For example, instead of a low-income household paying $80 for the $100 credit applied to their bill, they would simply see a net $20 credit applied to their bill, representing their 20% discount for that month. No second bill and no payment required. The implementation of net crediting has been an absolute game-changer in the inclusion of low-income households in community solar as it eliminates many risks, both to the participant and solar developer. To date, net crediting has only been implemented in New York, with New Jersey, Maryland, and Illinois set to implement it in the coming years. There remain many community solar markets that have not implemented net crediting and therefore those risks remain for low-income participants in those states.
In those states that have not implemented net-crediting, the realization of financial benefit through community solar for participants is for the household to pay for the community solar credits that have been applied to their utility bill, but at a discount. The Proposed Rules describe as much in how the “bill credit discount rate” is defined, providing that it “can be calculated by starting with the financial benefit to the low-income household, subtracting all payments made by the low-income customer to the facility owner…”.1 The expectation is clear that the low-income household will realize their savings by paying for that value, but this payment requirement creates the greatest hurdle for low-income households actually realizing the savings benefit. This added transaction creates confusion for the customer and is fundamentally an inefficient way of delivering monetary benefits to low-income households.
In practical terms, in a non-net-crediting state, the participating low-income household will have a nominal dollar amount applied to their bill each month for which they will be asked to pay some portion of that amount. Since the value of the community solar credit each month is dependent on the amount of sun shining in a month or two prior, these monthly amounts can vary greatly. Assuming a 20% discount rate, as proposed by these rules, a household may expect to pay $80 for a $100 credit applied to their July bill, and pay $16 for a $20 credit applied to their January bill. Higher credit in the summer, lower credit in the winter, same 20% savings. Simple enough. For non-low-income households, the payment for these variable community solar credits is generally not an issue; they provide a credit card or bank account details to the community solar provider to allow for the automatic payment of these amounts and they realize their savings. However, when we apply the same fact pattern to low-income households that reside in states that have not implemented net-crediting, the results are unequivocally not the same. Low-income households may be negatively impacted by the volatility and variability in monthly credit payments and other factors that are inherent to community solar.
While Treasury cannot mandate states implement net-crediting in their community solar programs, by allowing the financial benefits to be directly paid to low-income households, Treasury would in effect enable a synthetic net-crediting mechanism that will allow for low-income households to realize the intended benefits without being subject to the challenges and risks we lay out herein which may otherwise cause a negative outcome for low-income households.
Unbanked and Underbanked
For starters, qualified low-income households may be unbanked or underbanked, meaning that they do not have credit cards, debit cards, or checking accounts to use for paying their community solar credits. With an inability to access financial instruments that are customarily used for the efficient processing of community solar subscription payments, low-income households and the community solar provider will be required to use other methods of payment that are more burdensome and more prone for risk of loss; i.e. requiring the low-income household to mail cash to the community solar provider or travel to a designated location to deposit payment. Asking these low-income participants to take some these actions add burden, cost, risk, and loss to the process making it an overall inefficient process for the low-income household to realize the financial benefit.
You might think this challenge has already been solved, since states like New Jersey and Maryland have community solar programs that require the inclusion of low- and moderate-income households while also requiring that savings be realized through the payment of credits. However, these programs have had broader eligibility criteria for participants that include moderate-income households. Community solar providers have therefore focused their efforts on the enrollment of moderate-income households as they are more likely than low-income households to have credit cards and bank accounts and have the ability to pay for credits. Further, both New Jersey and Maryland, have taken the experiences from its respective pilot community solar programs, to address these challenges by implementing “net crediting” or “consolidated billing” as part of its permanent community solar programs.2 The Staff of the New Jersey Board of Public Utilities recommended to the BPU “that customers would be better served having only a single bill to pay for their electricity services. Receiving separate bills for electricity from the utility and for a community solar subscription from the developer can result in confusion, decreased transparency, and increased risk of non-payment. Staff therefore recommends requiring the [utilities] to implement consolidated billing for community solar. The utility consolidated billing model allows for existing systems to be used to apply all charges and credits to subscribers using the [utilities’] experience, responsibilities, and regulations.”3 The Staff of the NJBPU recognized the challenges that low-income households face when having to pay for such community solar credits separately and have expressly shared these concerns with the BPU to ensure the permanent program addresses these issues.
The Department of Health and Human Services has recently chimed in on this very topic, stating that “[Community Solar] [p]rogram design should avoid requiring bank accounts or credit cards to participate in community solar, as many low-income households are unbanked.”4 Where stakeholders have had the public policy goal to deliver financial benefits to low-income households, those responsible for the day-to-day administration of the programs recognized the difficulties and risks such mechanisms created for low-income households. New Jersey and Maryland have taken those lessons learned and by implementing net crediting, codified them in its permanent community solar programs.
Treasury should not ignore these lessons learned and the actions taken by these states to ensure low-income households benefit from participation without the aforementioned frictions and risks. While Treasury cannot mandate all community solar markets implement net crediting, it can adjust the definition of “financial benefit” in the Proposed Rules to allow Applicants to directly distribute the financial benefit of their solar projects to low-income households in a similar manner that net crediting does, i.e. provide the savings, without the need for the low-income household to pay for such benefit.
Community Solar Incompatible with “Budget Billing” or “Balanced Billing”
Many utilities across the country have “budget billing” or “balanced billing” programs that allow households to pay a fixed amount each month to the utility for 12 months, regardless of how much energy they actually use. These programs provide a tremendous benefit to low-income and fixed-income households as it allows them to have the security of knowing the exact amount each electric bill will be each month. Fixing the amount owed provides stability, transparency, and administrative ease for those households.
Unfortunately, in most states, community solar is incompatible with these balanced billing programs. Whether it be technical limitations or other internal challenges, utilities are unable to accommodate the participation in both. A household that participates in a balanced billing program and also wants to subscribe to community solar typically has two choices: 1) They can unenroll from the balanced billing program where their monthly utility bill will no longer be fixed and will now be variable based on their usage and have community solar credits applied; or 2) Participate in both, but essentially pay double each month for their energy spend, paying the utility the predetermined fixed amount based on their historic usage, and then also pay for the value of the community solar credits applied to their account, but not actually adjusting their utility bill downward in that first year. In the second option, the participant will eventually realize the value of the credits when the utility reduces their fixed monthly balanced billing amount in consideration of the application of credits, though this process may take twelve (12) months. That said, we have found no participant, low-income or otherwise wishing to pay double for electricity for a year.
Both of these “solutions” do not work for low-income households. By nature of the Proposed Rules requiring the delivery of financial benefit through the payment of the bill credits, Treasury is unintentionally narrowing the pool of eligible low-income households to those that do not participate in balanced billing; otherwise, Treasury is essentially requiring the Applicant to convince low-income households to unenroll from balanced billing so they can participate in the community solar project in order to meet the criteria necessary to qualify the facility for the ITC benefit. We cannot fathom that this was Treasury’s intent, but it is a practical reality if the definition of “financial benefit” remains as is.
By allowing the Applicant to directly transfer the net savings/financial benefit to the low-income household, Treasury would allow for those low-income households to maintain their participation in balanced billing as well as realize the financial benefits of these solar projects. A simple win-win.
Treatment of Excess Credits
The inconsistency of procedural rules across community solar markets includes the differences in how certain states apply credits to participant utility bills, including how excess community solar credits are treated. In a state like New York, the amount of community solar credits that can be applied to a utility bill in any given month is capped at the nominal dollar amount of the bill for that participant in that month. Any community solar credits generated for that participant but that are in excess of their bill spend will be applied to that participant’s account as a bank of credits that will rollover on their account in subsequent months until such credits can be applied. This credit banking construct ensures that no matter how much sun might be shining, the participants payment liability will only be so much as their utility bill spend in that month.
The same cannot be said for states like Massachusetts or Maine, where the total amount of credits generated in a particular month are applied to the participant’s utility bill regardless of that participant's actual usage or bill spend in that month. This can result in that participant’s utility bill going negative. While on its face, a negative balance doesn’t sound like such a bad thing, appreciating that the negative balance would off-set future charges from the utility, but that’s assuming you can actually afford to pay for such credits in the months that it is generated. This issue becomes most pronounced during the summer months when the solar projects generate the most electricity and credits generated far exceed the participant’s monthly bill spend.
For example, if a low-income household’s utility bill is $100 in July, but there is great solar radiance and the total community solar credit applied to their July bill was $300, the participant will have a -$200 balance on their utility bill, and expected to pay $240 for the value of the $300 applied. This low-income household technically saved 20% on the value of that energy, but paid more in this month than they otherwise would have if they didn’t participate in community solar. For households on a fixed income, this can create a huge negative financial impact. It also creates frustration and distrust of the program where participants are simply comparing what they usually pay and what they did pay in a particular monthly period.
By this example, you can see the potential risk to the low-income household, where they have enrolled in a program to provide them savings (which it unequivocally will), but requires that they pay 80% the value of the credits in the month the credit were applied, no matter their actual utility cost. This potentially greater cost (even with savings applied) will be challenging for low-income households to pay. We are not asking Treasury to solve these state level programmatic issues, but rather allow for the flexibility in the distribution of financial benefits so that we deliver these benefits directly to the low-income household still meeting the intended goal of the Proposed Rules.
Default Risk and Psychological Impacts to Low-Income Households
The final risk to be highlighted when considering the requirement of payment for bill credits is that of default. Under the Proposed Rule, it is presumed that low-income households will realize the financial benefit after they timely pay for the variable bill credit each month, despite the fact they may be on a fixed income and in the face of all of the challenges detailed above. This risk of default is not a hypothetical one, but a real and actual risk exhibited through high default rates seen among low-income households in the early days of the New Jersey and Maryland community solar programs. When a community solar participant does not pay their subscription fee, they will be characterized as a defaulting participant, sent letters to request their payment, and provided notice that if they do not, they will be removed from the project. Once they are removed from the facility, they still maintain a debt to be paid.
The debt caused from defaulting on the community solar subscription fee may cause or exacerbate the anxiety, depression and other negative mental health outcomes that debt can create. Let us not create a program where there is any risk that the stain of default and nonpayment be placed on those low-income households. Community solar should be appreciated as program that delivers guaranteed savings to low-income households without risk or burden. But based on how these programs are administered in practice, we fear that community solar could become a psychological scar for low-income households due to their failure to pay for credits. This would only reinforce the fact that they are low-income and cannot maintain participation in a program that theoretically is crafted to benefit them. This cannot possibly be the outcome Treasury or the IRS seeks.
Impact to the Community Solar Industry
It is important to also look at these risks from the perspective of the Applicant and community solar developer. The reason community solar projects exist and that financial benefits may be delivered to participants is based on the necessity to collect payments for the value of bill credits delivered. The monetization of credits is the fundamental economic driver of community solar projects and allows the Applicant to pay its contractors, service its debt, and realize a return on the investment. If the community solar credits are not monetized, i.e. participants are not paying the 80% for the value of such credits, those participants must be removed from the community solar project and replaced with participants that will pay for their monthly credits. When we are forced to remove low-income households from community solar projects, the impact certainly effects that individual household, but it also effects the community solar industry as a whole. Providers like PowerMarket are eager to include low-income households in community solar, but not to their potential detriment. We want affordable housing providers, community organizations, and local non-profits to be championing community solar programs, but they have paused due to the risks outlined herein. The way we prove that we are listening to these communities is by making the distribution of financial benefits as easy as possible for these low-income households.
Low-income communities have been historically marginalized and taken advantage of by unscrupulous actors across industries. These communities have unequivocally been neglected and avoided by the clean energy industry where homeownership and high FICO scores were historic barriers to entry to participate in on-site solar and early community solar programs. These low-income communities come to community solar with great skepticism, especially when the value proposition being offered of guaranteed savings seems too good to be true. So when low-income households do buy-in, but then are subsequently removed from the project for failure to pay and are no longer eligible to receive that promised savings, the initial skepticism is validated. We see a simple solution that could effect meaningful change in low-income communities. We ask that Treasury include the ability for Applicants to directly distribute the financial benefits to low-income households.
Example of Recommended Solution in Practice
Our recommendation that Treasury allow for financial benefits to be directly paid to low-income households will be simple to implement in practice. There have been historic examples where the community solar developer is provided 100% of the credit value from the utility and directly distributes the discount credit value to participants. The same would hold true in this example. In one hypothetical, an Applicant offers community solar at a 0% discount to non-low-income households requiring those participants to pay 100% of the value of the credits, and upon collection of those funds, the Applicant distributes the nominal dollar equivalent of a 20% bill credit discount to low-income households as a direct payment, whether via check, direct deposit, gift card, or some other approved method. By marketing these projects as low-income benefit projects, we believe that non-LMI households and other financially viable participants would be eager to participate in a project like this, knowing that the benefits will be directly helping low-income households in their communities.
The low-income households that would receive these direct payments would still need to meet the eligibility criteria established under these rules (although we hope expanded per our additional recommendation below). This recommendation should generate comparisons to the recently proposed rules on direct-pay election of applicable tax credits under IRC section 6417. What we are suggesting here is fundamentally no different from what Treasury is seeking to implement with the direct-pay election. You have stakeholders that you wish to realize benefits, but there exists administrative burdensome processes that limit the benefit and create risk to those stakeholders. So to enable those stakeholders, whether they be tax-exempt taxpayers or low-income household, to see the true benefit of the rules, you allow for the direct pay of those benefits to them. This is what we are asking here. Please allow Applicants to collect the value of the credits and then directly distribute the financial benefit of their solar projects to low-income households, i.e. provide the savings, without the need for the low-income household to pay for such benefit.
Eligibility of Low-Income Household and Verification Criteria
Allow for Households Located in a Low-Income Community to Qualify
Asking low-income households to prove they are low-income can be a dehumanizing experience, for both the household and the community solar provider that is required to verify its participants as low-income. This is why states that require the inclusion of low-income households in community solar program have all expanded the eligibility criteria for low-income verification to include either geo-eligibility or self-attestation (or both). We ask that Treasury allow for households located in a “low-income community” as defined by section 45D(e) to qualify as a low-income household for purposes of a facility being treated as a qualified low-income economic benefit project
By taking this simple step of allowing households located in low-income communities to be qualified for purposes of section 48(e)(2)(c)(i) or (ii) will achieve the goal of including low-income households without such households needing to take an affirmative action to represent their “low-incomeness.” While obtaining the proof referenced in the Proposed Rulemaking, such as LIHEAP participation or SNAP benefits, may seem reasonable on its face, it can be incredibly humiliating for the person being asked to present such proof. Treasury has already identified these low-income communities for purposes of categorizing Category 1 facilities and such criteria should also be included as a method of verifying low-income households for Category 4 facilities.
The use of geo-eligibility to qualify low-income households is a method already being utilized within other state community solar programs. For example, in New York, NYSERDA enabled a geographical eligibility for community solar participants that reside within in a Disadvantaged Communities (“DACs”).5 DACs are those that bear the burdens of negative public health effects, environmental pollution, impacts of climate change, and possess certain socioeconomic criteria, or comprise high-concentrations of low- and moderate- income households. NYSERDA appreciated that a geographical eligibility criteria would accomplish its goals for ensuring LMI participation without placing onus on the LMI household to prove their income was below certain levels.
Further, its recent Information Memorandum on Community Solar and LIHEAP, the U.S HHS recommended that “[a] priority system for which households will be enrolled in community solar programs should be in place, if there are a limited number of households that can be served. It is recommended that grant recipients explore priority for environmental justice communities (as outlined in the Climate and Economic Justice Screening Tool).”6 To the extent broader than the definition of low-income community under section 45D(e), Treasury should include those households located in those census tracts that are overburdened and underserved as identified as being disadvantaged on the Climate and Economic Justice Screening Tool map.7
It is critical that Treasury include geo-eligibility in the list of eligibility criteria to allow inclusion of low-income households based on census tract, whether or not it allows for self-attestation.
Allow for Self-Attestation for Low-Income Household Eligibility
PowerMarket is a champion for self-attestation to ensure access for all low-income households, including those that are sensitive to the fact they are low-income and do not wish to prove it. We are disappointed that Treasury explicitly excluded self-attestation without any commentary or reasoning, especially as states such as New Jersey and Maryland have recently incorporated self-attestation as a means of verifying eligibility. There has been no evidence in the industry that self-attestation policies have been taken advantage of and non-low-income participants have received benefits intended for low-income households.
We ask that Treasury head the guidance of the Staff of the NJ BPU when they recommended to their Commission to allow “a subscriber to qualify as LMI by providing a written attestation that their gross household income is below 80% of area median income, as defined by HUD. Staff believes that potential community solar subscribers should not be dissuaded from participation by having to produce a tax return, EBT card, or other documentation of income. Individuals may feel uncomfortable providing this personal information to subscriber organizations, and there is concern about subscriber organizations retaining such data. Self-attestation was recommended by a variety of commenters, including many community advocates, to ensure inclusion of overburdened communities, since the people with the highest need are often the least able and/or willing to provide the evidence that would otherwise be required."8
Self-attestation has also been included in the list of methods for providers to verify participant eligibility in the Maryland program; “Allow a Subscriber Organization or Subscription Coordinator to verify the income of a prospective subscriber for eligibility as an LMI subscriber under the Program by using one of the following methods: 1. Self-attestation by the prospective subscriber that does not need to be under oath or penalty of perjury.”9 We implore the IRS and Treasury to listen and learn from the policy makers in the states who have learned from their experiences in bringing low- and moderate-income households to community solar and recognized the challenges and have addressed those challenges by allowing for methods that eliminate the need for households to produce sensitive documents or otherwise prove they are low-income.
Eligibility of Master-Metered Low-Income Housing for Category 4 Facilities
By the inherent nature of using the term “low-income household” for purposes of this section, Treasury and the IRS are indicating that direct-billed low-income residents are the only eligible type of low-income household, thereby excluding low-income households that reside in master-metered residential properties or supportive housing residences where the individual resident is not billed directly by the utility. We do not believe it is Treasury’s intent to exclude a wide-subset of the low-income household population from receiving direct benefits simply because they are not direct-billed by the utility. Therefore, we ask that Treasury expand the definition of low-income household to include master-metered multi-family residential properties that are located in low-income communities or whose residents would otherwise qualify as low-income households, but for the property is master-metered. This clarification and adjustment in the definition would ensure the inclusion of residents that live in public or private affordable housing.
Eligibility of Low-Income Households Established Only At Time of Enrollment
Section G(2) – “Recapture of Section 48(e) Increase” provides for certain circumstances that would result in a recapture event, including if the property ceases to provide at least 50 percent of the financial benefits of the electricity produced to qualifying households as described under section 48(e)(2)(C)(i). We ask that Treasury confirms that there is no continual obligation to verify households as qualified low-income and that so long as such household was properly verified as low-income at the time of enrollment, such household will continue to categorized. For example, if a household at the time of enrollment produces a utility bill that shows they are a LIHEAP recipient, but three years later they may no longer be eligible for LIHEAP and are no longer a LIHEAP receipient, we ask that such change have no impact on such household’s qualification for bonus credit purposes. This position would be consistent with the policy in other states whereby the low-income household only needs to be validated once and any change thereafter will not have any impact on the eligibility of the project to receive additional incentives. It would also be a perverse outcome if the alternative was the policy whereby we punished a once low-income household by removing them from receiving benefits through community solar because they have potentially improved their financial condition. We appreciate Treasury’s explicitly providing this position so that Applicants do not need to fear a recapture risk by nature of a change in the financial position of low-income households over time.
Conclusion
PowerMarket truly appreciates the efforts of Treasury and IRS to craft rules that govern the facilities seeking the Low-Income Communities Bonus Credits. However, we ask that Treasury and IRS take a moment to look at is proposed rules from the perspective of the low-income household these facilities are intended to benefit. We have two material recommendations that we believe will deliver the fundamental goal of these rules; deliver the economic benefits of solar facilities to low-income households without placing any risk or burden on the very same low-income households. We ask that for Category 4 facilities, the Applicant can provide the nominal financial benefit as a direct payment to the low-income household and that households located within a low-income community as defined by section 45D(e) will be qualified without any further proof of low-income status needed. We hope you consider this feedback as you finalize the rules. If you have any questions regarding these comments, we’d welcome an opportunity to meet in person, or you can otherwise reach out to me at jason.kaplan@powermarket.io to discuss this further.
Footnotes
1 Additional Guidance on Low-Income Communities Bonus Credit Program, 88 Fed. Reg. 35795 (June 1, 2023) (emphasis added).
2 For Maryland, see Solar Energy Generating Systems Program under § 7–306.2(e) of the Public Utilities Article (effective July 1, 2023) providing for a subscriber organization to have a community solar project participate in consolidated billing.
3 Notice, In the Matter of the Community Solar Energy Program, Staff Straw Proposal for the permanent Community Solar Energy Program, pursuant to P.L. 2018, c.17 of the Clean Energy Act (Mar. 30, 2023), at 19 (emphasis added) https://www.nj.gov/bpu/pdf/publicnotice/Notice%20%20Community%20Solar%20Straw%20Proposal%20with%20Draft%20Rules.pdf.
4 U.S. Department of Health & Human Services, LIHEAP IM 2023-04 Community Solar and LIHEAP Considerations (June 15, 2023) at https://www.acf.hhs.gov/ocs/policy-guidance/liheap-im-2023-04-community-solar-and-liheap-considerations.
5 NYSERDA, Inclusive Community Solar Adder at https://www.nyserda.ny.gov/All-Programs/NY-Sun/Contractors/Dashboards-and-incentives/Inclusive-Community-Solar-Adder.
6 HHS, LIHEAP IM 2023-04 Community Solar and LIHEAP Considerations (June 15, 2023).
7 Explore the map, Climate and Economic Justice Screening Tool, https://screeningtool.geoplatform.gov/en/.
8 Notice, In the Matter of the Community Solar Energy Program, Staff Straw Proposal for the permanent Community Solar Energy Program, pursuant to P.L. 2018, c.17 of the Clean Energy Act (Mar. 30, 2023), at p. 16.
9 Maryland House Bill 908 – Community Solar Energy Generating Systems Program and Property Taxes, Chapter 652 at p. 12 (Passed May 16, 2023).
Dear Treasury/IRS,
We appreciate the opportunity to provide responses to the Request For Comments on the Proposed Rulemaking on Low-Income Communities Bonus Credit Program. Our responses are written through the lens of community solar and low-income participation. PowerMarket is a leading community solar administrator and manager of facilities across the country, with over 550 MW of capacity under management and over 70,000 subscribers. PowerMarket is also active in low-income communities, working tirelessly to ensure the benefits of community solar are realized by communities with the greatest need. We have enrolled over 10 MW of low-income residential and multi-family affordable housing in community solar, and nearly all of this in New York (for reasons that will be explained below). We want to ensure that the financial benefits that these rules intend to be delivered to low-income households and other allowable low-income beneficiaries can be done in the most efficient and effective manner, without placing undue risk or burden on these vulnerable communities. We therefore ask that for Category 4 Qualified Low-Income Economic Benefit Projects, Treasury allows for the financial benefit to be directly paid to low-income households in a nominal amount equal to the 20-percent bill credit discount rate, rather than through the application of credits on the low-income household’s utility bill. This would enable a “synthetic net-crediting” paradigm where the low-income household will receive the savings, without having to pay for the credit. For reasons set forth herein, by enabling the direct payment of the value equivalent to the 20% discount rate, we can ensure that the true intent of this program is realized, and low-income households will only see positive outcomes from their engagement with the solar industry.
Since community solar is enabled by the legislatures of individual states, you will find material differences in how community solar programs are administered, regulated, and ruled in those states. We believe that the real-world implementation of these programs across these diverse markets will pose great challenges to the delivery of “financial benefits” to low-income households as the Proposed Rules lays out. Community solar projects will be classified as Category 4 facilities under the Code with the intent to deliver economic benefits to qualified low-income households. While the proposed rules for Category 4 projects are well-intended, we unfortunately expect that unintended negative consequences will result and impact the very households the rules seek to benefit. We ask that Treasury and the IRS take the following comments and feedback into consideration as it finalizes the rules for the Low-Income Communities Bonus Credit Program.
Payment for Community Solar Credits
It is important to appreciate there are two distinct types of community solar markets; those states that have implemented “net crediting” or “consolidated billing” (used synonymously) for community solar, and those that have not. Net-crediting is a mechanism whereby the nominal dollar value of the discount rate/savings rate is directly applied to the participant’s utility bill without the need for the payment of a subscription fee. For example, instead of a low-income household paying $80 for the $100 credit applied to their bill, they would simply see a net $20 credit applied to their bill, representing their 20% discount for that month. No second bill and no payment required. The implementation of net crediting has been an absolute game-changer in the inclusion of low-income households in community solar as it eliminates many risks, both to the participant and solar developer. To date, net crediting has only been implemented in New York, with New Jersey, Maryland, and Illinois set to implement it in the coming years. There remain many community solar markets that have not implemented net crediting and therefore those risks remain for low-income participants in those states.
In those states that have not implemented net-crediting, the realization of financial benefit through community solar for participants is for the household to pay for the community solar credits that have been applied to their utility bill, but at a discount. The Proposed Rules describe as much in how the “bill credit discount rate” is defined, providing that it “can be calculated by starting with the financial benefit to the low-income household, subtracting all payments made by the low-income customer to the facility owner…”.1 The expectation is clear that the low-income household will realize their savings by paying for that value, but this payment requirement creates the greatest hurdle for low-income households actually realizing the savings benefit. This added transaction creates confusion for the customer and is fundamentally an inefficient way of delivering monetary benefits to low-income households.
In practical terms, in a non-net-crediting state, the participating low-income household will have a nominal dollar amount applied to their bill each month for which they will be asked to pay some portion of that amount. Since the value of the community solar credit each month is dependent on the amount of sun shining in a month or two prior, these monthly amounts can vary greatly. Assuming a 20% discount rate, as proposed by these rules, a household may expect to pay $80 for a $100 credit applied to their July bill, and pay $16 for a $20 credit applied to their January bill. Higher credit in the summer, lower credit in the winter, same 20% savings. Simple enough. For non-low-income households, the payment for these variable community solar credits is generally not an issue; they provide a credit card or bank account details to the community solar provider to allow for the automatic payment of these amounts and they realize their savings. However, when we apply the same fact pattern to low-income households that reside in states that have not implemented net-crediting, the results are unequivocally not the same. Low-income households may be negatively impacted by the volatility and variability in monthly credit payments and other factors that are inherent to community solar.
While Treasury cannot mandate states implement net-crediting in their community solar programs, by allowing the financial benefits to be directly paid to low-income households, Treasury would in effect enable a synthetic net-crediting mechanism that will allow for low-income households to realize the intended benefits without being subject to the challenges and risks we lay out herein which may otherwise cause a negative outcome for low-income households.
Unbanked and Underbanked
For starters, qualified low-income households may be unbanked or underbanked, meaning that they do not have credit cards, debit cards, or checking accounts to use for paying their community solar credits. With an inability to access financial instruments that are customarily used for the efficient processing of community solar subscription payments, low-income households and the community solar provider will be required to use other methods of payment that are more burdensome and more prone for risk of loss; i.e. requiring the low-income household to mail cash to the community solar provider or travel to a designated location to deposit payment. Asking these low-income participants to take some these actions add burden, cost, risk, and loss to the process making it an overall inefficient process for the low-income household to realize the financial benefit.
You might think this challenge has already been solved, since states like New Jersey and Maryland have community solar programs that require the inclusion of low- and moderate-income households while also requiring that savings be realized through the payment of credits. However, these programs have had broader eligibility criteria for participants that include moderate-income households. Community solar providers have therefore focused their efforts on the enrollment of moderate-income households as they are more likely than low-income households to have credit cards and bank accounts and have the ability to pay for credits. Further, both New Jersey and Maryland, have taken the experiences from its respective pilot community solar programs, to address these challenges by implementing “net crediting” or “consolidated billing” as part of its permanent community solar programs.2 The Staff of the New Jersey Board of Public Utilities recommended to the BPU “that customers would be better served having only a single bill to pay for their electricity services. Receiving separate bills for electricity from the utility and for a community solar subscription from the developer can result in confusion, decreased transparency, and increased risk of non-payment. Staff therefore recommends requiring the [utilities] to implement consolidated billing for community solar. The utility consolidated billing model allows for existing systems to be used to apply all charges and credits to subscribers using the [utilities’] experience, responsibilities, and regulations.”3 The Staff of the NJBPU recognized the challenges that low-income households face when having to pay for such community solar credits separately and have expressly shared these concerns with the BPU to ensure the permanent program addresses these issues.
The Department of Health and Human Services has recently chimed in on this very topic, stating that “[Community Solar] [p]rogram design should avoid requiring bank accounts or credit cards to participate in community solar, as many low-income households are unbanked.”4 Where stakeholders have had the public policy goal to deliver financial benefits to low-income households, those responsible for the day-to-day administration of the programs recognized the difficulties and risks such mechanisms created for low-income households. New Jersey and Maryland have taken those lessons learned and by implementing net crediting, codified them in its permanent community solar programs.
Treasury should not ignore these lessons learned and the actions taken by these states to ensure low-income households benefit from participation without the aforementioned frictions and risks. While Treasury cannot mandate all community solar markets implement net crediting, it can adjust the definition of “financial benefit” in the Proposed Rules to allow Applicants to directly distribute the financial benefit of their solar projects to low-income households in a similar manner that net crediting does, i.e. provide the savings, without the need for the low-income household to pay for such benefit.
Community Solar Incompatible with “Budget Billing” or “Balanced Billing”
Many utilities across the country have “budget billing” or “balanced billing” programs that allow households to pay a fixed amount each month to the utility for 12 months, regardless of how much energy they actually use. These programs provide a tremendous benefit to low-income and fixed-income households as it allows them to have the security of knowing the exact amount each electric bill will be each month. Fixing the amount owed provides stability, transparency, and administrative ease for those households.
Unfortunately, in most states, community solar is incompatible with these balanced billing programs. Whether it be technical limitations or other internal challenges, utilities are unable to accommodate the participation in both. A household that participates in a balanced billing program and also wants to subscribe to community solar typically has two choices: 1) They can unenroll from the balanced billing program where their monthly utility bill will no longer be fixed and will now be variable based on their usage and have community solar credits applied; or 2) Participate in both, but essentially pay double each month for their energy spend, paying the utility the predetermined fixed amount based on their historic usage, and then also pay for the value of the community solar credits applied to their account, but not actually adjusting their utility bill downward in that first year. In the second option, the participant will eventually realize the value of the credits when the utility reduces their fixed monthly balanced billing amount in consideration of the application of credits, though this process may take twelve (12) months. That said, we have found no participant, low-income or otherwise wishing to pay double for electricity for a year.
Both of these “solutions” do not work for low-income households. By nature of the Proposed Rules requiring the delivery of financial benefit through the payment of the bill credits, Treasury is unintentionally narrowing the pool of eligible low-income households to those that do not participate in balanced billing; otherwise, Treasury is essentially requiring the Applicant to convince low-income households to unenroll from balanced billing so they can participate in the community solar project in order to meet the criteria necessary to qualify the facility for the ITC benefit. We cannot fathom that this was Treasury’s intent, but it is a practical reality if the definition of “financial benefit” remains as is.
By allowing the Applicant to directly transfer the net savings/financial benefit to the low-income household, Treasury would allow for those low-income households to maintain their participation in balanced billing as well as realize the financial benefits of these solar projects. A simple win-win.
Treatment of Excess Credits
The inconsistency of procedural rules across community solar markets includes the differences in how certain states apply credits to participant utility bills, including how excess community solar credits are treated. In a state like New York, the amount of community solar credits that can be applied to a utility bill in any given month is capped at the nominal dollar amount of the bill for that participant in that month. Any community solar credits generated for that participant but that are in excess of their bill spend will be applied to that participant’s account as a bank of credits that will rollover on their account in subsequent months until such credits can be applied. This credit banking construct ensures that no matter how much sun might be shining, the participants payment liability will only be so much as their utility bill spend in that month.
The same cannot be said for states like Massachusetts or Maine, where the total amount of credits generated in a particular month are applied to the participant’s utility bill regardless of that participant's actual usage or bill spend in that month. This can result in that participant’s utility bill going negative. While on its face, a negative balance doesn’t sound like such a bad thing, appreciating that the negative balance would off-set future charges from the utility, but that’s assuming you can actually afford to pay for such credits in the months that it is generated. This issue becomes most pronounced during the summer months when the solar projects generate the most electricity and credits generated far exceed the participant’s monthly bill spend.
For example, if a low-income household’s utility bill is $100 in July, but there is great solar radiance and the total community solar credit applied to their July bill was $300, the participant will have a -$200 balance on their utility bill, and expected to pay $240 for the value of the $300 applied. This low-income household technically saved 20% on the value of that energy, but paid more in this month than they otherwise would have if they didn’t participate in community solar. For households on a fixed income, this can create a huge negative financial impact. It also creates frustration and distrust of the program where participants are simply comparing what they usually pay and what they did pay in a particular monthly period.
By this example, you can see the potential risk to the low-income household, where they have enrolled in a program to provide them savings (which it unequivocally will), but requires that they pay 80% the value of the credits in the month the credit were applied, no matter their actual utility cost. This potentially greater cost (even with savings applied) will be challenging for low-income households to pay. We are not asking Treasury to solve these state level programmatic issues, but rather allow for the flexibility in the distribution of financial benefits so that we deliver these benefits directly to the low-income household still meeting the intended goal of the Proposed Rules.
Default Risk and Psychological Impacts to Low-Income Households
The final risk to be highlighted when considering the requirement of payment for bill credits is that of default. Under the Proposed Rule, it is presumed that low-income households will realize the financial benefit after they timely pay for the variable bill credit each month, despite the fact they may be on a fixed income and in the face of all of the challenges detailed above. This risk of default is not a hypothetical one, but a real and actual risk exhibited through high default rates seen among low-income households in the early days of the New Jersey and Maryland community solar programs. When a community solar participant does not pay their subscription fee, they will be characterized as a defaulting participant, sent letters to request their payment, and provided notice that if they do not, they will be removed from the project. Once they are removed from the facility, they still maintain a debt to be paid.
The debt caused from defaulting on the community solar subscription fee may cause or exacerbate the anxiety, depression and other negative mental health outcomes that debt can create. Let us not create a program where there is any risk that the stain of default and nonpayment be placed on those low-income households. Community solar should be appreciated as program that delivers guaranteed savings to low-income households without risk or burden. But based on how these programs are administered in practice, we fear that community solar could become a psychological scar for low-income households due to their failure to pay for credits. This would only reinforce the fact that they are low-income and cannot maintain participation in a program that theoretically is crafted to benefit them. This cannot possibly be the outcome Treasury or the IRS seeks.
Impact to the Community Solar Industry
It is important to also look at these risks from the perspective of the Applicant and community solar developer. The reason community solar projects exist and that financial benefits may be delivered to participants is based on the necessity to collect payments for the value of bill credits delivered. The monetization of credits is the fundamental economic driver of community solar projects and allows the Applicant to pay its contractors, service its debt, and realize a return on the investment. If the community solar credits are not monetized, i.e. participants are not paying the 80% for the value of such credits, those participants must be removed from the community solar project and replaced with participants that will pay for their monthly credits. When we are forced to remove low-income households from community solar projects, the impact certainly effects that individual household, but it also effects the community solar industry as a whole. Providers like PowerMarket are eager to include low-income households in community solar, but not to their potential detriment. We want affordable housing providers, community organizations, and local non-profits to be championing community solar programs, but they have paused due to the risks outlined herein. The way we prove that we are listening to these communities is by making the distribution of financial benefits as easy as possible for these low-income households.
Low-income communities have been historically marginalized and taken advantage of by unscrupulous actors across industries. These communities have unequivocally been neglected and avoided by the clean energy industry where homeownership and high FICO scores were historic barriers to entry to participate in on-site solar and early community solar programs. These low-income communities come to community solar with great skepticism, especially when the value proposition being offered of guaranteed savings seems too good to be true. So when low-income households do buy-in, but then are subsequently removed from the project for failure to pay and are no longer eligible to receive that promised savings, the initial skepticism is validated. We see a simple solution that could effect meaningful change in low-income communities. We ask that Treasury include the ability for Applicants to directly distribute the financial benefits to low-income households.
Example of Recommended Solution in Practice
Our recommendation that Treasury allow for financial benefits to be directly paid to low-income households will be simple to implement in practice. There have been historic examples where the community solar developer is provided 100% of the credit value from the utility and directly distributes the discount credit value to participants. The same would hold true in this example. In one hypothetical, an Applicant offers community solar at a 0% discount to non-low-income households requiring those participants to pay 100% of the value of the credits, and upon collection of those funds, the Applicant distributes the nominal dollar equivalent of a 20% bill credit discount to low-income households as a direct payment, whether via check, direct deposit, gift card, or some other approved method. By marketing these projects as low-income benefit projects, we believe that non-LMI households and other financially viable participants would be eager to participate in a project like this, knowing that the benefits will be directly helping low-income households in their communities.
The low-income households that would receive these direct payments would still need to meet the eligibility criteria established under these rules (although we hope expanded per our additional recommendation below). This recommendation should generate comparisons to the recently proposed rules on direct-pay election of applicable tax credits under IRC section 6417. What we are suggesting here is fundamentally no different from what Treasury is seeking to implement with the direct-pay election. You have stakeholders that you wish to realize benefits, but there exists administrative burdensome processes that limit the benefit and create risk to those stakeholders. So to enable those stakeholders, whether they be tax-exempt taxpayers or low-income household, to see the true benefit of the rules, you allow for the direct pay of those benefits to them. This is what we are asking here. Please allow Applicants to collect the value of the credits and then directly distribute the financial benefit of their solar projects to low-income households, i.e. provide the savings, without the need for the low-income household to pay for such benefit.
Eligibility of Low-Income Household and Verification Criteria
Allow for Households Located in a Low-Income Community to Qualify
Asking low-income households to prove they are low-income can be a dehumanizing experience, for both the household and the community solar provider that is required to verify its participants as low-income. This is why states that require the inclusion of low-income households in community solar program have all expanded the eligibility criteria for low-income verification to include either geo-eligibility or self-attestation (or both). We ask that Treasury allow for households located in a “low-income community” as defined by section 45D(e) to qualify as a low-income household for purposes of a facility being treated as a qualified low-income economic benefit project
By taking this simple step of allowing households located in low-income communities to be qualified for purposes of section 48(e)(2)(c)(i) or (ii) will achieve the goal of including low-income households without such households needing to take an affirmative action to represent their “low-incomeness.” While obtaining the proof referenced in the Proposed Rulemaking, such as LIHEAP participation or SNAP benefits, may seem reasonable on its face, it can be incredibly humiliating for the person being asked to present such proof. Treasury has already identified these low-income communities for purposes of categorizing Category 1 facilities and such criteria should also be included as a method of verifying low-income households for Category 4 facilities.
The use of geo-eligibility to qualify low-income households is a method already being utilized within other state community solar programs. For example, in New York, NYSERDA enabled a geographical eligibility for community solar participants that reside within in a Disadvantaged Communities (“DACs”).5 DACs are those that bear the burdens of negative public health effects, environmental pollution, impacts of climate change, and possess certain socioeconomic criteria, or comprise high-concentrations of low- and moderate- income households. NYSERDA appreciated that a geographical eligibility criteria would accomplish its goals for ensuring LMI participation without placing onus on the LMI household to prove their income was below certain levels.
Further, its recent Information Memorandum on Community Solar and LIHEAP, the U.S HHS recommended that “[a] priority system for which households will be enrolled in community solar programs should be in place, if there are a limited number of households that can be served. It is recommended that grant recipients explore priority for environmental justice communities (as outlined in the Climate and Economic Justice Screening Tool).”6 To the extent broader than the definition of low-income community under section 45D(e), Treasury should include those households located in those census tracts that are overburdened and underserved as identified as being disadvantaged on the Climate and Economic Justice Screening Tool map.7
It is critical that Treasury include geo-eligibility in the list of eligibility criteria to allow inclusion of low-income households based on census tract, whether or not it allows for self-attestation.
Allow for Self-Attestation for Low-Income Household Eligibility
PowerMarket is a champion for self-attestation to ensure access for all low-income households, including those that are sensitive to the fact they are low-income and do not wish to prove it. We are disappointed that Treasury explicitly excluded self-attestation without any commentary or reasoning, especially as states such as New Jersey and Maryland have recently incorporated self-attestation as a means of verifying eligibility. There has been no evidence in the industry that self-attestation policies have been taken advantage of and non-low-income participants have received benefits intended for low-income households.
We ask that Treasury head the guidance of the Staff of the NJ BPU when they recommended to their Commission to allow “a subscriber to qualify as LMI by providing a written attestation that their gross household income is below 80% of area median income, as defined by HUD. Staff believes that potential community solar subscribers should not be dissuaded from participation by having to produce a tax return, EBT card, or other documentation of income. Individuals may feel uncomfortable providing this personal information to subscriber organizations, and there is concern about subscriber organizations retaining such data. Self-attestation was recommended by a variety of commenters, including many community advocates, to ensure inclusion of overburdened communities, since the people with the highest need are often the least able and/or willing to provide the evidence that would otherwise be required."8
Self-attestation has also been included in the list of methods for providers to verify participant eligibility in the Maryland program; “Allow a Subscriber Organization or Subscription Coordinator to verify the income of a prospective subscriber for eligibility as an LMI subscriber under the Program by using one of the following methods: 1. Self-attestation by the prospective subscriber that does not need to be under oath or penalty of perjury.”9 We implore the IRS and Treasury to listen and learn from the policy makers in the states who have learned from their experiences in bringing low- and moderate-income households to community solar and recognized the challenges and have addressed those challenges by allowing for methods that eliminate the need for households to produce sensitive documents or otherwise prove they are low-income.
Eligibility of Master-Metered Low-Income Housing for Category 4 Facilities
By the inherent nature of using the term “low-income household” for purposes of this section, Treasury and the IRS are indicating that direct-billed low-income residents are the only eligible type of low-income household, thereby excluding low-income households that reside in master-metered residential properties or supportive housing residences where the individual resident is not billed directly by the utility. We do not believe it is Treasury’s intent to exclude a wide-subset of the low-income household population from receiving direct benefits simply because they are not direct-billed by the utility. Therefore, we ask that Treasury expand the definition of low-income household to include master-metered multi-family residential properties that are located in low-income communities or whose residents would otherwise qualify as low-income households, but for the property is master-metered. This clarification and adjustment in the definition would ensure the inclusion of residents that live in public or private affordable housing.
Eligibility of Low-Income Households Established Only At Time of Enrollment
Section G(2) – “Recapture of Section 48(e) Increase” provides for certain circumstances that would result in a recapture event, including if the property ceases to provide at least 50 percent of the financial benefits of the electricity produced to qualifying households as described under section 48(e)(2)(C)(i). We ask that Treasury confirms that there is no continual obligation to verify households as qualified low-income and that so long as such household was properly verified as low-income at the time of enrollment, such household will continue to categorized. For example, if a household at the time of enrollment produces a utility bill that shows they are a LIHEAP recipient, but three years later they may no longer be eligible for LIHEAP and are no longer a LIHEAP receipient, we ask that such change have no impact on such household’s qualification for bonus credit purposes. This position would be consistent with the policy in other states whereby the low-income household only needs to be validated once and any change thereafter will not have any impact on the eligibility of the project to receive additional incentives. It would also be a perverse outcome if the alternative was the policy whereby we punished a once low-income household by removing them from receiving benefits through community solar because they have potentially improved their financial condition. We appreciate Treasury’s explicitly providing this position so that Applicants do not need to fear a recapture risk by nature of a change in the financial position of low-income households over time.
Conclusion
PowerMarket truly appreciates the efforts of Treasury and IRS to craft rules that govern the facilities seeking the Low-Income Communities Bonus Credits. However, we ask that Treasury and IRS take a moment to look at is proposed rules from the perspective of the low-income household these facilities are intended to benefit. We have two material recommendations that we believe will deliver the fundamental goal of these rules; deliver the economic benefits of solar facilities to low-income households without placing any risk or burden on the very same low-income households. We ask that for Category 4 facilities, the Applicant can provide the nominal financial benefit as a direct payment to the low-income household and that households located within a low-income community as defined by section 45D(e) will be qualified without any further proof of low-income status needed. We hope you consider this feedback as you finalize the rules. If you have any questions regarding these comments, we’d welcome an opportunity to meet in person, or you can otherwise reach out to me at jason.kaplan@powermarket.io to discuss this further.
Footnotes
1 Additional Guidance on Low-Income Communities Bonus Credit Program, 88 Fed. Reg. 35795 (June 1, 2023) (emphasis added).
2 For Maryland, see Solar Energy Generating Systems Program under § 7–306.2(e) of the Public Utilities Article (effective July 1, 2023) providing for a subscriber organization to have a community solar project participate in consolidated billing.
3 Notice, In the Matter of the Community Solar Energy Program, Staff Straw Proposal for the permanent Community Solar Energy Program, pursuant to P.L. 2018, c.17 of the Clean Energy Act (Mar. 30, 2023), at 19 (emphasis added) https://www.nj.gov/bpu/pdf/publicnotice/Notice%20%20Community%20Solar%20Straw%20Proposal%20with%20Draft%20Rules.pdf.
4 U.S. Department of Health & Human Services, LIHEAP IM 2023-04 Community Solar and LIHEAP Considerations (June 15, 2023) at https://www.acf.hhs.gov/ocs/policy-guidance/liheap-im-2023-04-community-solar-and-liheap-considerations.
5 NYSERDA, Inclusive Community Solar Adder at https://www.nyserda.ny.gov/All-Programs/NY-Sun/Contractors/Dashboards-and-incentives/Inclusive-Community-Solar-Adder.
6 HHS, LIHEAP IM 2023-04 Community Solar and LIHEAP Considerations (June 15, 2023).
7 Explore the map, Climate and Economic Justice Screening Tool, https://screeningtool.geoplatform.gov/en/.
8 Notice, In the Matter of the Community Solar Energy Program, Staff Straw Proposal for the permanent Community Solar Energy Program, pursuant to P.L. 2018, c.17 of the Clean Energy Act (Mar. 30, 2023), at p. 16.
9 Maryland House Bill 908 – Community Solar Energy Generating Systems Program and Property Taxes, Chapter 652 at p. 12 (Passed May 16, 2023).
