On Thursday, December 16, 2011 Congress sent the National Defense Authorization Act of 2012 (NDAA) to the president to sign into law. While not usually a vehicle for energy tax policy, the 2012 NDAA surprisingly did include an amendment to the tax law.
Tucked into this almost 1,900 page Department of Defense authorizing legislation, Section 1096 amended a key energy tax provision for renewable energy project developers – the Department of the Treasury's "Payments for Specified Energy Property in Lieu of Tax Credits," authorized by the American Recovery and Reinvestment Tax Act of 2009, also known as the "Section 1603 Grant Program." Specifically, the language eases eligibility requirements for regulated public utilities seeking to utilize such grants.
The Section 1603 grant program directs the Treasury Department to award grants to builders and acquirers of certain renewable energy property equal to 30% of its cost. Through a series of complex provisions, certain rules that previously governed the old, pre-1990 investment tax credits continue to apply to Section 1603 grants. Prior to the enactment of the 2012 NDAA, one of those rules was a limit on the eligibility of public utility property if the owner's cost of service or rate of return for ratemaking purposes did not meet certain requirements.
The NDAA repeals the application of the public utility property restriction with regard to Section 1603 grants. Grant applicants must, however, continue to meet the many other prerequisites for the grant program, including that the energy property "begin construction" by December 31, 2011, and be placed in service before future deadlines that vary by the kind of energy property in question.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
