• Energy Tax Extenders Package Passed
  • February 22, 2018 | Authors: Ram C. Sunkara; Dorothy Black Franzoni; Amish M. Shah; Susan G. Lafferty; H. Karl Zeswitz; David M. McCullough; Wes Sheumaker; Ellen McElroy; Maria M. Todorova; Jacob Dweck
  • Law Firms: Eversheds Sutherland (US) LLP - Atlanta Office ; Eversheds Sutherland (US) LLP - Washington Office; Eversheds Sutherland (US) LLP - Sacramento Office ; Eversheds Sutherland (US) LLP - Washington Office
  • Full Legal Alert

    The Bipartisan Budget Act of 2018 (2018 BBA) passed by Congress and signed into law on February 9, 2018, extends and changes tax credits for the renewable energy, alternative fuels and nuclear energy industries, and also makes other changes relevant to the energy sector. The energy-related tax provisions in the 2018 BBA closely track those proposed in late December by the Tax Extender Act of 2017 (Extenders Bill), but vary in material respects.1 The 2018 BBA provisions include:

    • Extensions of the production tax credit (PTC) and investment tax credit (ITC) for technologies not previously extended.
    • Extensions of the biodiesel and alternative fuel tax credits.
    • Extensions and favorable changes to the nuclear PTC, consistent with changes proposed by the House of Representatives in its November 2, 2017, version of the bill then known as the Tax Cuts and Jobs Act.
    • Extensions of many of the other energy tax credits and extensions of certain energy taxes and other provisions.

    This alert summarizes the principal provisions of the 2018 BBA that address energy tax provisions of the Internal Revenue Code.

    Eversheds Sutherland Observation: The House version of the recently passed tax reform legislation (P.L. 115-97), formerly known as the Tax Cuts and Jobs Act, included provisions that, if enacted, would have:

    • Eliminated the inflation adjustment amount for PTC for projects the construction of which began after the enactment of that legislation. As a result, those projects would have been entitled to a 1.5 cent per kWh credit as opposed to a 2.4 cent (with continuing adjustments for inflation) per kWh credit.
    • Potentially changed the beginning of construction rules. The House Plan stated that to be treated as having begun construction, there must be “a continuous program of construction” from the date on which construction begins until the project is placed in service. The addition of that language suggested that the begun construction requirement can be satisfied only through the actual physical work test and not through the 5% safe harbor.

    The 2018 BBA does not include either of these provisions and we believe that it is highly unlikely that future legislation will include these proposed changes.

    Background

    The 2018 BBA was passed as part of a major budget deal that ended a brief government shutdown. The 2018 BBA includes many of the same provisions as the Extenders Bill; however, some of the provisions proposed to be extended through the end of 2018 in the Extenders Bill were extended only retroactively through the end of 2017.

    Production Tax Credit (PTC)

    Under the 2018 BBA, the PTC under Section 45 (and ITC in lieu of PTC for facilities described in Section 45) is available, retroactive to January 1, 2017, for the following facilities if construction began by December 31, 2017:

    • Closed-loop biomass facilities,
    • Open-loop biomass facilities,
    • Geothermal energy facilities,
    • Landfill gas facilities,
    • Trash facilities,
    • Qualified hydropower facilities, and
    • Marine and hydrokinetic renewable energy facilities.

    The 2018 BBA did not impact the PTC for wind project since the PTC for wind was previously extended by the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act), which provided as follows for wind projects: