Energy Companies

Energy Companies

January 01, 2006

Energy companies are jostling for awards of scarce new energy tax credits.

A new energy bill that became law on August 8, 2005 authorizes an array of new tax credits for investing in energy projects in the United States, but many of the credits are limited in amount.

For example, Congress authorized up to $800 million in tax credits to be claimed on new IGCC (integrated gasification combined cycle) power plants.  Credits can be claimed on only part of such a plant — the equipment that is “necessary for the gasification of coal, including any coal handling and gas separation equipment.” The credit is 20% of the cost of such equipment.  The Internal Revenue Service must decide how to allocate the credits among companies that apply for them.

The lobbying has already started.

Mitch Daniels, governor of Indiana, wrote a letter in December to the US Treasury secretary on behalf of Cinergy, a large utility with operations in his state.  Cinergy wants a share of tax credits for an IGCC plant the company plans to build.  Daniels was head of the US budget office during the Bush first term.

Ken Kies, a high-profile Republican tax lobbyist, wrote the most senior tax policy official at Treasury in December asking for a meeting on behalf of SCANA Corporation, the parent of the South Carolina Electric & Gas Company.  SCANA plans to build one or more nuclear power plants and is interested in a share of “production tax credits.” The energy bill authorized anyone building a new advanced nuclear plant to claim tax credits of 1.8¢ a kilowatt hour on the output during the first eight years after the plant is put into service.  However, there is a limit on the total number of projects that can qualify for credits of 6,000 megawatts.  Kies is pressing Treasury to limit the credits to plants that file license applications with the US Nuclear Regulatory Commission by December 2009 and start construction by December 2015.  Credits would be allocated ratably among eligible plants.  The allocations would be made annually to plants that are operating during the year.

Agrium, Inc., a large Canadian fertilizer manufacturer, sent the IRS a memo in late December alerting the agency that it hopes to qualify for a tax credit on a new coal gasification facility that the company plans to build next to an existing fertilizer plant in Alaska.  Agrium hopes to claim a 20% investment tax credit on the cost of the gasification facility.  The energy bill limited the total dollar amount of such credits to $350 million.  The memo comments on a number of technical issues that come up when trying to apply the statute.

Keith Martin