Last week Mayor Leeser complained in an El Paso Times story that El Paso Electric was again seeking another rate increase to cover its operating expenses. He pointedly described the $3 million dollar compensation to its CEO and $2.5 million to its 11 directors as unjustified. He ended by opposing its targeting of solar users.
The CEO responded that she felt his column 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 it to a dinner party attended by several members of El Paso Electric management. After a couple of hours it was clear that they had way too much to drink , started talking way too much and saying all the wrong things. In particular, they defended several poor management decisions that had cost the ratepayers of El Paso a great deal of money, arguing they were entitled to a profit. Apparently the company has a monopoly on electricity sales in El Paso which guarantees them a rate of return on their investment.
Let me say that a different way. They were arguing that no matter how poorly the company is run and how poor it’s investments may be, it was still guaranteed a profit. And according to Mayor Leeser this profit includes the cost of extravagant salaries and benefits paid to its CEO and Directors.
So today were going to talk about the tax benefits of acquiring alternative energy sources so that we don’t have to buy so much electricity from the electric company and thereby support its guaranteed profit margins and lavish compensation.
- 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 US and lived in by the individual.
What immediately comes to mind is a solar panel which 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 that 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, geothermal energy, etc. There are lots of conditions and requirements to satisfy but they are fairly simple and easy to meet.
Because of the advances made in technology, 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 rate the same (which is of course an unreasonable assumption).
Interestingly, the El Paso electric company 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.
- 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% of the cost of the solar property, commonly known as the solar panels.
So folks, here’s the deal. If you support the compensation packages of the monopolistic electric company, then this article is not for you. However, if you support the Mayor’s point of view then you might consider reducing your support and look at a solar system for your home or business.
The point of all this is a monopoly is much like a salaried government bureaucrat-we pay regardless of productivity.
David Leeper is a Board Certified federal tax attorney with 38 years experience. He can be reached at 915-581-8748, by email at firstname.lastname@example.org, or visit leepertaxlaw.com