Sequestration

Sequestration

February 01, 2013

Sequestration will take a bite out of Treasury cash grants paid on renewable energy projects on or after March 1, 2013, unless Congress delays the start further.

Automatic spending cuts of $984 billion over nine years were scheduled to take effect on January 2. On January 1, Congress delayed the start by two months and agreed to $24 billion in specific spending cuts and tax increases to pay for the delay.

The US Office of Management and Budget said last September that Treasury cash grants will be subject to a 7.6% haircut if sequestration goes into effect.

The haircuts will not apply to any grant considered an “obligated balance” before sequestration starts. Based on past precedent, a grant would become an “obligated balance” only when a letter or email is sent by Treasury informing a company that its grant has been approved for payment.

Developers complain that it is unfair for the government to have held out a carrot for companies to engage in economic activity during the period 2009 through 2011 when projects had to be under construction to qualify for grants, and then reduce the size of the carrot after companies have already done what the government wanted.

Wind companies are urging the Office of Management and Budget to exempt projects that were in service before sequestration from the cuts. This would remove delays at Treasury in processing grant applications as a factor in where the cuts fall.

by Keith Martin