Advanced Energy Perspectives

FEDERAL: Finally, Good News Out of Washington: IRS Clarifies Tax Credit; Court Upholds FERC Order

Posted by Tom Carlson

Aug 21, 2014 10:00:00 AM

    

us-capitolThe past couple weeks brought two federal regulatory victories for the advanced energy industry. First, on August 8, the Internal Revenue Service released new guidelines that will make it easier for projects to qualify for the renewable energy production tax credit (PTC), which is critical for the wind power industry and other renewable technologies. Then, on August 15, a federal appeals court unanimously affirmed the Federal Energy Regulatory Commission’s (FERC) Order 1000, which will change the way regional transmission projects move forward and ultimately lead to more advanced energy on the grid.

 

Although the PTC expired at the end of 2013, projects that had “commenced construction” by that time could still qualify, or elect to take the investment tax credit (ITC) in its place, as offshore wind projects are expected to do. In the new guidelines, the IRS clarifies that renewable energy projects will qualify as long as they incurred at least 3 percent of total project costs prior to January 1, 2014, down from the previous 5 percent threshold. However, credits will be reduced proportionally in value to the amount below the 5 percent threshold. Projects may also qualify under the “Physical Work test” if they begin work of a “significant nature” by the deadline. The new guidelines also clarify the activities that meet the Physical Work designation, which, for wind projects, include excavation for turbine foundations, custom-designed transformer construction, or laying roads for the project.

 

Tom Vinson, vice president of federal regulatory affairs at the American Wind Energy Association, told Politico that the guidance “should provide more certainty to help get projects to the finish line.” The guidelines will help investors and developers determine whether eligible renewable projects have already qualified or will qualify for the critical PTC (or ITC).

 

Even with this good news for certain projects in development, Congress needs to act now to extend a package of expired advanced energy tax credits to keep development going. Industry depends on predictability in tax treatment, and wind offers a clear example of what happens when there is uncertainty. AEE’s Advanced Energy Now 2014 Market Report showed that, after growing from $13 billion in 2011 to $25 billion in 2012, the U.S. wind industry’s revenue plunged to $2 billion last year. This was essentially due to the late extension of the wind production tax credit at the start of 2013. To ensure the United States does not cede the global advanced energy market due to precarious policymaking, Congress needs to extend expired credits now.

 

More good news came last Friday, when the U.S. Court of Appeals for the D.C. Circuit ruled unanimously to uphold FERC Order 1000, a 2011 measure that reformed electric transmission recovery and cost allocation. Under the rule, each public utility that owns and operates transmission lines is required to participate in regional transmission planning that “satisfies specific planning principles.”

 

A key component of the measure requires that planning take into account the impact of federal, state, and local laws and regulations. The court noted that FERC expects “many States will require construction of new transmission infrastructure to integrate sources of renewable energy, such as wind farms, into the grid and that new federal environmental regulations will shape utilities’ decisions about when to retire old coal-based generators. Plans that fail to account for such laws and regulations, […] would not adequately reflect future needs.”

 

As noted by Greentech Media, FERC Order 1000 could influence billions of dollars in transmission infrastructure investments in the coming decades. According to a 2008 Edison Foundation report, about $300 billion in new transmission investments could be required between 2010 and 2030 to maintain a reliable electric grid.

 

While opponents may take a challenge to the Supreme Court, former FERC chairman Jon Wellinghoff told Politico, “[the unanimous ruling] had a long, well-written order, a detailed order, and no dissent, so I think that tells you as well about the likelihood of this one succeeding on appeal.”

 

Wellinghoff also noted that the ruling “should inform” the D.C. Circuit decision in regards to the request for an en banc rehearing on Order 745. Order 745 established rules for compensating demand response providers in wholesale energy markets. In May, the U.S. Court of Appeals vacated FERC Order 745 by a vote of 2-1. AEE supportsFERC’s call for an en banc review of the court’s ruling on Order 745. Demand response is a critical component of advanced energy that saves consumers money and makes our electric power system more reliable and resilient.

 

Stay up-to-date on all state energy policy moving through state legislatures and regulatory dockets with AEE’s PowerSuite. Click below to sign up for a demo of this incredible tool.

 

 

Topics: Federal Policy Update

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