The Energy Policy Act of 2005 - or Public Law 109-58 - was signed
by President Bush on August 8, 2005. It included a number of
provisions affecting hydropower, which are detailed below. You may
view the Energy Policy Act of 2005 in its entirety by clicking
here.
Production Tax Credits (EPAct Sec. 1301)
EPAct 2005 established a tax credit under Section 45 of the IRS Code for
efficiency or capacity increases, placed in service between August 8, 2005 and
January 1, 2008, at existing hydropower facilities. The tax credit is valued at
0.9 cents per KwH of electricity produced and eligible projects can receive the
tax credit for ten years. See EPAct 2005:
Section 1301 Production Tax Credit.
The January 1, 2008 was a very tight a timeframe for most utilities to develop
qualifying hydropower. On December 9, 2006, Congress passed a package of tax
extensions, including the PTC.
Update! The placed in service date of the credit
(the date by which the power must be brought online) was moved from January 1,
2008 to January 1, 2009.
See also pending legislation that would extend the PTC.
Clean Renewable Energy Bonds (EPAct Sec. 1303)
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EPAct 2005 provided $800 million in new
Clean Renewable Energy Bond
authority to finance rural electric cooperative, municipal government
and tribal investment in renewable electricity projects. This bonding
option is for various renewable energy sources including certain
incremental hydropower. Unlike normal bonds that pay interest,
tax-credit bonds pay the bondholders by providing a credit against their
federal income tax. The bonds are estimated to have a maturity limit of
11 to 14 years. The IRS issued guidance regarding how it will allocate
the bonds and what projects would qualify. Bond applications were due to
the IRS April 26, 2006. The IRS notified successful applicants in
November, 2006. Eight municipal hydropower projects and six electric
cooperative hydropower projects received CREB allocations. Bonds must
have been
issued on or before December 31, 2007.
Update! In December 9, 2006, Congress passed a package
of tax extensions, including the CREBs. An additional $400 million ($250
million for governmental borrowers; $150 million for electric
cooperatives) will be made available to the program, which is now
authorized for an additional year to December 31, 2008. On March 15,
2007, the IRS released a new notice (Notice 2007-26) on the CREB
program. It requests applications for new CREB allocations pursuant to
the Congressional extension. Applications are due July 13, 2007.
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NEW: Treasury/IRS guidance 2007-26
(EPAct 2005)
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Treasury/IRS guidance 2005-98
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Treasury/IRS guidance 2006-7
See also pending legislation that would extend or expand the CREB program.
EPAct 2005 allows a license applicant, or any other party to
a licensing process, to propose an alternative to mandatory
conditions placed on hydropower licenses by federal resource
agencies (Departments of Interior, Commerce and Agriculture). If
the Secretary of an agency determines that the alternative meets
the statutory environmental and resource protection standards,
and the alternative provides significant cost or power savings,
the Secretary accepts the alternative. EPAct 2005 also allows
any party to a licensing proceeding to call for a single,
expedited trial-type agency hearing on disputed issues of
material fact concerning mandatory conditions.
Section 241
Alternative Conditions and Trial-type Hearings.
EPAct 2005 established incentive payments, subject to Congressional
appropriations, for the development of new hydropower at existing dams and
conduits. To quality, the new hydropower development must not require the
enlargement or construction of impoundment or diversion structures (other
than repair or reconstruction) during the installation of the
power-generating equipment. In addition, the incentive is available to
facilities owned or solely operated by non-federal entities. This appears to
include new hydropower development at federal dams if they are operated by
non-federal entities.
The incentive payment is 1.8 cents per Kilowatt hour and is available
when a facility is first eligible, but not more than for 10 fiscal years. To
be eligible, the new hydropower must be placed in service within ten years.
Payments are adjusted for inflation. No facility may receive more than
$750,000 per calendar year. The incentives program sunsets in 20 years, but
the section authorizes $10 million for each of FY2006 - FY2015. Congress
must appropriate funds to implement this program; it has not been addressed
in FY2007 appropriations bills. See Epact 2005:
Section 242 Hydroelectric Production Incentive.
EPAct 2005 establishes incentive payments for capital improvements at
hydroelectric facilities directly related to improving efficiency by at
least three percent. Incentive payments cannot exceed 10 percent of the cost
of the capital project, and only one payment may be made per facility. No
facility may receive a payment in excess of $750,000. The section authorizes
$10 million for each of FY2006 through FY2015. A payment to an individual
project cannot exceed $750,000. The program sunsets in 2015. Congress must
appropriate funds to implement this program; it has not been addressed in
FY2007 appropriations bills. See EPAct 2005:
Section 243 Hydroelectric Efficiency Improvement.
Alternative Energy and Alternate Use Program (EPAct Sec.
388)
Section 388 of the Energy Policy Act of 2005 granted the
Department of the Interior discretionary authority to issue
leases, easements, or rights-of-way for activities on the
OCS that produce or support production, transportation, or
transmission of energy from sources other than oil and gas,
and are not otherwise authorized by other applicable law.
The DOI delegated this authority to the MMS. Examples of the
general types of alternative energy project activities that
MMS could authorize include wave and ocean energy.
On March 21, 2007, the Mineral Management Service (MMS)
released a draft programmatic environmental impact statement
(EIS) for alternative energy development on the Outer
Continental Shelf. Click here to see the
programmatic Draft EIS. The draft EIS supports the
proposed Alternative Energy and Alternate Use Program and
associated rulemaking authorized under Section 388 of the
Energy Policy Act of 2005. Several public hearing have been
scheduled. Comments on the draft are due to MMS by May 21,
2007.
EPAct Sec. 931 requires DOE to conduct programs of renewable energy
research, development, demonstration and commercial application in FY2007,
FY2008 and FY2009. The hydropower element of the program would focus on cost
competitive technologies that enable development of new and incremental
hydropower capacity, including fish friendly large turbine and advanced
technologies to enhance environmental performance and yield greater energy
efficiencies. Congress must appropriate funds to implement this program.
See EPAct 2005:
Section 931 Renewable
Energy.
