Published on October 22, 2020
U.S. nuclear plant licensees are required to provide financial assurance for Nuclear Regulatory Commission (NRC) Radiological Decommissioning while a facility is operating. Nuclear Decommissioning Trusts (NDTs), which for an investor-owned utility are funded through rates and invested for future decommissioning, are the most common method of satisfying this requirement. NDTs have very long investment horizons, and trust managers generally employ a portfolio approach to investing these funds. Given the long-term holding period of NDTs, Qualified Opportunity Fund investments offer NDT managers an investment vehicle with potential tax advantages. Given the potential for increases in taxes, these advantages are particularly compelling for investors able to benefit from them in 2020.
The median NRC license life of the nation’s 95 operating nuclear reactors is approximately 18 years. Subsequent License Renewals (SLRs) are granted by the NRC and allow reactors to operate an additional 20 years beyond their license lives. Four reactors, Turkey Point Units 2 and 3 and Peach Bottom Units 2 and 3, have received SLRs. Investment horizons for these reactors extend to 2055.
Qualified Opportunity Zone Investments
The Tax Cuts and Jobs Act of 2017 created the Opportunity Zones tax incentive to spur economic development and job creation in distressed communities. 8,764 communities have received certification as Qualified Opportunity Zones (QOZs).
QOZs provide potentially substantial tax benefits to investors who re-invest long-term capital gains into a Qualified Opportunity Fund (QOF). Investors in a QOF may benefit from:
- Tax on capital gains invested in QOFs may be deferred until at least December 31, 2026.
- The tax basis of the QOF investment increases by 10% of the deferred gain if the QOF investment is held for at least five years.
- The tax basis is further increased to 15% if the QOF investment is held for at least seven years.
- If the QOF investment is held for at least 10 years, the investor may adjust the basis of the investment to fair market value when the investment is exchanged or sold.
For more information on NDTs and related QOF investment opportunities, please contact Daniel Dane, Senior Vice President, CE Capital Advisors, (617) 515-3739, firstname.lastname@example.org and Lisa Quilici, Senior Vice President, Concentric Energy Advisors, (617)872-0248, email@example.com.
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All views expressed by the authors are solely the authors’ current views and do not reflect the views of Concentric Energy Advisors, Inc., its affiliates, subsidiaries, or related companies. The authors’ views are based upon information the authors consider reliable. However, neither Concentric Energy Advisors, Inc., nor its affiliates, subsidiaries, and related companies warrant the information’s completeness or accuracy, and it should not be relied upon as such.