What investor-owned utilities need to know about prevailing wage and apprenticeship requirements

Investor-owned utilities (IOUs) are poised to benefit from the game-changing clean energy credits within the  Inflation Reduction Act (IRA). With their expansive portfolios, IOUs are likely to have projects that are eligible for IRA tax credits. To maximize the value of potential credits, it is vital that IOUs plan for how they and their contractors will comply with prevailing wage and apprenticeship requirements under the IRA. This isn’t Davis-Bacon. Read on to understand key considerations for IOUs pursuing IRA tax credits.

Complying with prevailing wage and apprenticeship (PW&A) can significantly enhance the value of tax credits with a five times multiplier. Contractors often assume PW&A is the same as Davis-Bacon, but compliance with PW&A requirements is complex and challenging to verify. While Davis-Bacon is a labor law, PW&A is a requirement of the IRA tax law, necessitating compliance submissions to the Internal Revenue Service (IRS) along with stringent, extended record-keeping requirements.

Some key considerations for IOUs seeking to comply with PW&A regulations include:

1. Standardization across a large portfolio with many geographies: Many IOUs have projects spread across a wide area and will likely have different internal and external partners working on projects. This makes having a standardized approach across all facilities challenging and very important when it comes to PW&A compliance.
2. Collecting and tracking payroll data: There is a delicate balance to strike between meeting the IRS requirements for record keeping and limiting the amount of employee personally identifiable information (PII) being stored. Sensitive personal data needs to be handled securely.
3. Minimizing risk through a conservative tax approach: Protecting your business and bottom line is important. That’s why many IOUs will also seek to maximize tax credits on eligible projects and avoid penalties through the recapture period.

Recapture is a 5-to-10-year period post-project completion when prevailing wages have to be paid to contractors and the IOU’s own employees for any alteration or repair. This can become an issue when, for example, plant personnel that aren’t tradespeople perform the work of an electrician or pipe fitter. IOUs must align these roles with Department of Labor classifications for any alteration or repair that is more extensive than regular maintenance because they must pay prevailing wages for these jobs.

How Baker Tilly can help

Baker Tilly’s advisory support and end-to-end technology solution simplifies PW&A compliance. Our compliance portal uses LCPtracker, a trusted payroll tracking system, to ingest and certify payroll. Through our portal, we help clients substantiate compliance with PW&A requirements while also providing transparency on possible penalties.

It’s not too late for IOUs to incorporate PW&A requirements on projects that are well underway. Baker Tilly can work to backflush data and correct non-compliance to ensure enhanced credit is received with minimal penalties.

Case study: Six figure savings for an IOU

Baker Tilly became involved with a Michigan-based investor-owned utility project contractor nine months after construction began. Their engineering, procurement and construction contractor (EPC) had provided prevailing wage rates to the contractors at the beginning of the project, but unfortunately, the contractor had submitted the state prevailing wage which was about 10% less than the federal prevailing wage. This resulted in the contractors underpaying all their workers. While Baker Tilly was able to remedy some of the more recent underpayments, not all were adjustable. The contractor ultimately owed about $7,500 in backpay and interest. Without our involvement, the potential penalties faced by the IOU were about $200,000. This is why having an advisor from the beginning of a project is critical to avoid incurring penalties.

Baker Tilly is here to help IOUs with PW&A compliance. Our team is not only specialized in IRA but we also have a dedicated power and utilities practice. We understand the uniqueness of the industry and both the regulated and unregulated sides of the business. Our team is experienced in navigating the complexities of utility organizations and their requirements, and paired with our experience in the construction industry, we aim to provide a seamless approach when it comes to preserving credits and maximizing value.