Stoel Rives Energy Law Alert - 12/12/06

Congress late last week passed the Tax Relief and Health Care Act of 2006, H.R. 6408 (the Act), which, among other things, extends the sunset dates for the production tax credit (the PTC) and the energy credit. Some of the noteworthy energy-related provisions of the Act include:

PTC Extension. The Act extends the PTC sunset date for one additional year. Pursuant to the Act, a facility must be placed in service on or before December 31, 2008 to qualify for the PTC. For most facilities, the PTC previously was set to expire on December 31, 2007. This extension applies to all types of facilities other than a refined coal production facility and an Indian coal production facility, which were already set to continue through December 31, 2008. This extension does not apply to solar energy facilities, for which the PTC expired on December 31, 2005. All other date restrictions related to the PTC, including any restrictions related to when the facility was first placed in service, remain unchanged.

Energy Credit Extension. The Act extends the energy credit sunset date for one additional year. Pursuant to the Act, a facility must be placed in service on or before December 31, 2008 to qualify for the energy credit. The energy credit, like the PTC, previously was set to expire on December 31, 2007.

Qualified Cellulosic Biomass Ethanol Plant Property. The Act creates a special first year depreciation allowance for qualified cellulosic biomass ethanol plant property. A qualifying facility would be eligible for a depreciation deduction in the year the facility is placed in service of up to 50% of its adjusted basis.

Coke and Coke Gas. The Act provides an exemption for coke and coke gas facilities from certain phase-out provisions applicable to the credit for producing fuel from a nonconventional source. This change is made retroactive to December 31, 2005.

Clean Renewable Energy Bonds. The Act increases dollar limitations applicable to clean renewable energy bonds. In addition, the Act extends the issuance date for clean renewable energy bonds to December 31, 2008.

Advanced Coal-Based Generation Technology. The Act modifies the performance requirement for the removal of sulfur dioxide for purposes of the qualifying advanced coal project credit.

Excise Tax for Qualified Methanol or Ethanol Fuel. The Act extends to January 1, 2009 the termination date for the reduction of the special fuels tax for methanol and ethanol fuels. The reduction previously was set to terminate on October 1, 2007. In addition, the Act extends for one year the discount in calculating the "applicable blender rate" for purposes of determining the reduction in the special fuels tax.

Energy Efficient Commercial Building Deductions. As part of the Energy Policy Act of 2005, Congress allowed a new deduction for the cost of certain energy efficient property. The lifetime amount of the deduction with respect to a building is limited to $1.80 per square foot. The Act extends this deduction, which previously was set to expire at the end of 2007, to property placed in service on or before December 31, 2008.

Energy Efficient Home Credit. As part of the Energy Policy Act of 2005, Congress allowed a new business tax credit for contractors that construct, reconstruct, rehabilitate or manufacture energy-efficient homes. The amount of the credit is $1,000 for a newly constructed or reconstructed home that meets certain certification requirements, but can be increased to $2,000. The Act extends this credit, which previously was set to expire at the end of 2007, to qualified energy-efficient homes acquired on or before December 31, 2008.

Residential Energy Efficient Property. As part of the Energy Policy Act of 2005, Congress allowed a new nonrefundable personal tax credit equal to 30% of the cost of purchasing and installing: (1) photovoltaic property, up to a maximum credit of $2,000 in any tax year; (2) solar water heating property, up to a maximum credit of $2,000 in any tax year; and (3) fuel cell property, up to a maximum credit of $500 for each 0.5 kilowatt of capacity. The Act extends this credit, which previously was set to expire at the end of 2007, to property placed in service on or before December 31, 2008. In addition, the Act replaces references to "qualified photovoltaic property expenditures" with "qualified solar electric property expenditures." President Bush supported the bill and is expected to sign the Act sometime in the near future. This summary describes only some of the most noteworthy energy-related provisions of the Act; the Act also includes a number of significant non-energy related tax provisions.