Stimulus Package

On February 17, 2009, President Obama signed into law the

"American Recovery and Reinvestment Act of 2009" ("ARRA") and the "American Recovery and Reinvestment Tax Act of 2009" ("ARRTA").

The ARRA and the ARRTA contain provisions for stimulating various components of the nation’s economy.  We describe the energy and environmental provisions below.  The full text of the legislation, including non-energy and non-environmental provisions, is available here.

ENERGY

Appropriations

A. Energy Efficiency and Renewable Energy

Title IV of the ARRA allocates $16.8 billion to the U.S. Department of Energy ("DOE") for certain programs related to energy efficiency and renewable energy. First, $3.2 billion is allocated to energy efficiency and conservation block grants under the Energy Independence and Security Act of 2007, as amended ("EISA"), which provides block grants to states, local governments, and Indian tribes. Second, $5 billion is allocated to the Weatherization Assistance Program of the Energy Conservation and Production Act. Third, $3.1 billion is allocated to the State Energy Program of the Energy Policy and Conservation Act. Fourth, $2 billion is allocated to grants for the manufacturing of advanced batteries and components pursuant to guidelines to be promulgated by the Secretary of Energy. These grants will be used to fund manufacturers of advanced battery systems and vehicle batteries that are produced in the United States, including advanced lithium ion batteries, hybrid electrical systems, component manufacturers, and software designers.

B. Electricity Delivery and Energy Reliability

Title IV of the ARRA provides $4.5 billion to DOE for expenses necessary for electricity delivery and energy reliability. Within the appropriation, $100 million is to be used for worker training, $80 million is directed to the Office of Electricity Delivery and Energy Reliability for development of regional transmission plans, and $10 million is directed to the National Institute of Standards and Technology to implement the Smart Grid Interoperability Framework.

It is likely that most of the remaining $4.3 billion will be dispersed to Smart Grid projects under Title XIII of the EISA. The Smart Grid Program was designed to support modernization of the Nation's electricity transmission and distribution system and to maintain a reliable and secure electricity infrastructure that can meet future demand growth. The program accomplishes this in part by providing financial support to companies that develop projects that further the goals of the Smart Grid Program. As amended by the ARRA, the Smart Grid Program authorizes DOE to provide up-front grants to finance up to 50% of an eligible project's costs.

C. Renewable Energy and Electric Power Transmission Loan Guarantee Program

Title IV of the ARRA appropriates $6 billion to a new loan program within DOE's existing Innovative Technology Loan Guarantee Program, which was created under of the Energy Policy Act of 2005. The existing Innovative Technology Loan Guarantee Program was established to provide financial assistance for projects that (i) avoid, reduce, or sequester air pollutants or greenhouse gases and (ii) employ new or significantly improved technologies, as compared to commercially available technology. The program allows DOE to provide loan guarantees that cover up to 80% of an eligible project’s costs.

Under the new legislation, projects set to commence construction before October 2011 are eligible for the guarantees if they are (i) renewable energy systems that generate electricity or thermal energy, and facilities that manufacture related components; (ii) electric power transmission systems; or (iii) leading edge biofuel projects that will use technologies performing at the pilot or demonstration scale that the Secretary of Energy determines are likely to become commercial technologies and will produce transportation fuels that substantially reduce life-cycle greenhouse gas emissions compared to other transportation fuels. Importantly, projects meeting any of those three categorical descriptions qualify even if they already are commercial; under the prior program as defined by the Energy Policy Act of 2005, projects could be eligible only if they were innovative and not already commercial. Funding for projects under this new loan program will be limited to $500 million per project.

D. Bonneville Power Administration/Western Area Power Administration

Both the Bonneville Power Administration and the Western Area Power Administration, which provide energy transmission service in various western regions, are provided borrowing authority to fund construction and replacement of transmission equipment for up to $3.25 billion each.

E. Miscellaneous

$3.4 billion is appropriated to DOE for fossil energy research, development and demonstration; $390 million for the Uranium Enrichment Decontamination and Decommissioning Fund, of which $70 million will be used for the remedial action program at active uranium or thorium processing sites; $400 million to DOE for its Advanced Research Projects Agency, which was designed to overcome long-term and high-risk technological barriers in the development of energy technologies; and a total of $1.6 billion to DOE for what the legislation simply describes as "science."

Tax Provisions

A. Tax Incentives for Electricity Production

Production Tax Credit for Electricity Produced from Renewable Resources: The ARRTA extends the "placed in service" dates for purposes of the production tax credit for facilities producing electricity from certain domestic renewable resources. The placed-in-service dates for wind facilities have been extended for three years to December 31, 2012, and for closed- and open-loop biomass, geothermal, landfill gas, waste-to-energy, hydropower, and marine energy renewable facilities to December 31, 2013.

Expansion of Energy Investment Tax Credit to Renewable Resource Facilities: The ARRTA permits taxpayers to claim a 30% energy investment tax credit for the production of electricity from qualifying costs of certain renewable resource facilities, in lieu of claiming production tax credits. The credit is available for wind facilities placed in service during 2009 through 2012 and for closed- and open-loop biomass, geothermal, landfill gas, waste-to-energy, hydropower, and marine energy renewable facilities placed in service from 2009 through 2013. The election to take the credit is irrevocable and is unavailable if the production tax credit is claimed for the facility.

In addition, the ARRTA eliminates (as of January 1, 2009) the subsidized energy financing limitation on claiming the energy investment tax credit. As a result of this change, the tax basis of the energy property upon which the credit may be claimed no longer has to be reduced by financing provided by federal, state, or local governmental subsidies or by proceeds from private activity bonds.

Clean Renewable Energy Bonds: The Emergency Economic Stabilization Act of 2008 authorized a new type of clean renewable energy bonds ("CREBs"). These bonds may be issued by public power providers, cooperative electric companies, governmental bodies, certain lenders to cooperative electric companies and nonprofit electric utilities. All of the proceeds from the issuance of these bonds must be used by the governmental body, public power provider or cooperative electric company for capital costs of a wind, closed- or open-loop biomass, geothermal, small irrigation, landfill gas, waste-to-energy, hydropower, or marine energy renewables facility. The ARRTA increases by $1.6 billion the national limitation for CREBs.

Renewable Energy Grants: The ARRTA adds a federal grant program in lieu of the energy investment tax credit and the production tax credit described above. The amount of the grant is equal to 30% of the taxpayer's basis for qualifying wind, closed- and open-loop biomass, certain geothermal, landfill gas, waste-to-energy, hydropower, and marine energy renewable facilities, qualified fuel cell property, solar property, and small wind energy property. For equipment used to produce, distribute, or use energy derived from a geothermal deposit up to the electrical transmission stage, qualified microturbine property, combined heat and power system property, and geothermal heat pump property, the amount of the grant equals 10% of the taxpayer's basis in the property. The statute imposes certain limits on the grants that generally match the dollar limitations on the energy investment tax credit with respect to such property.

To qualify for the grants, property must be placed in service in 2009 or 2010; or, if construction began on the qualifying facility during 2009 or 2010, before January 1, 2013 (for wind facilities), before January 1, 2014 (for closed- and open-loop biomass, certain geothermal, solar, landfill gas, waste-to-energy, hydropower, and marine energy renewable facilities), or before January 1, 2017 (for other qualified facilities). In any case, grant applications must be submitted before October 1, 2011. The ARRTA indicates that the grant will be paid within 60 days after the later of the date of the application for the grant or the date the property is placed in service. The grant will not constitute taxable income to a recipient, but 50% of the grant will reduce the recipient's tax basis in the qualifying property. If a taxpayer previously claimed an energy investment tax credit with respect to progress expenditures for a taxable year ending before a renewable energy grant was made, the ARRTA requires such credit to be recaptured. The grant is not available for tax-exempt taxpayers, or for partnerships or pass-through entities any of whose partners or members consists of tax-exempt entities or governmental bodies.

B. Carbon Sequestration

The ARRTA amends the carbon dioxide sequestration credit, which was added to the Internal Revenue Code in the Emergency Economic Stabilization Act of 2008. The $10-per-metric-ton credit for carbon dioxide that is used as an injectant in certain enhanced oil or natural gas recovery projects is now available only if the carbon dioxide is disposed of in secure geological storage.

C. Plug-In Hybrid Vehicles

New Plug-In Hybrid Vehicles: The ARRTA amends the tax credit for new qualified plug-in electric vehicles, which was added by the Energy Improvement and Extension Act of 2008. Taxpayers receive a credit of $2,500 plus $417 for each kilowatt-hour ("kwh") of traction battery capacity in excess of 4 kwh, up to a maximum of $5,000, toward the placement of qualifying plug-in vehicles in service during the taxable year. In order to be covered by the credit, vehicles must be made by a manufacturer (as defined by certain Environmental Protection Agency regulations), used or leased by the taxpayer, have a total gross weight of less than 14,000 lbs, and be propelled to a significant extent by an electric motor with at least a 4 kwh rechargeable battery. The ARRTA phases out the tax credit as soon as the number of qualifying plug-in vehicles sold for use in the United States reaches at least 200,000.

The ARRTA allows a tax credit equal to 10% of the cost of certain two- or three-wheeled plug-in vehicles of a gross weight less than 14,000 lbs equipped with at least 2.5 kwh batteries. This credit is also applicable to certain plug-in low speed vehicles ("LSVs") – four-wheeled motor vehicles with a loaded weight of less than 3,000 lbs and a top speed of between 20 and 25 mph – with rechargeable batteries with a capacity of at least 4 kwh. The credit is only applicable to that portion of the cost of the LSV or two- or three-wheeled vehicle not exceeding $2,500. The tax credit expires at the end of 2011.

In the case of all three classes of motor vehicles covered by the plug-in credits established by the ARRTA, the credit is not applicable to depreciable property subject to a general business credit. The credit is not permitted to exceed a taxpayer's total liability under regular and alternative minimum taxes after applicable tax credits. Taxpayers can also receive the credit by purchasing new qualifying plug-in vehicles for tax-exempt organizations and government entities. Also, if the vehicles to which a credit has been applied ever cease to become eligible for the credit, the taxpayer will be liable to refund the benefit received through recapture.

Plug-In Conversion Credit: The ARRTA extends the alternative motor vehicle credit by establishing a plug-in conversion credit equal to 10% of the cost under $40,000 of converting any motor vehicle to a qualified plug-in electric drive motor vehicle. The credit also applies to taxpayers who lease certain plug-in battery modules with capacity of greater than 2.5 kwh. If a vehicle owner modifies a vehicle to make it eligible for the plug-in conversion credit and that modification causes the vehicle to become ineligible for any other alternative motor vehicle credit under Internal Revenue Code § 30B, then the vehicle owner will not be liable for refunding the benefit received from the previously-applicable credit. The plug-in conversion credit is set to expire at the end of 2011. Under the ARRTA, the alternative motor vehicle credit may now be applied as a personal credit against tax liability incurred under the alternative minimum tax.

D. Credit for Investment in "Advanced Energy Projects"

The ARRTA adds a new advanced energy project credit equal to 30% of a taxpayer’s capital expenditures with respect to qualifying projects. The national limitation on the advanced energy project credit is $2.3 billion, and within 6 months of the ARRTA's enactment, Treasury is to establish certain criteria for awarding the advanced energy project credit.

The advanced energy project credit is available for projects that re-equip, expand, or establish a manufacturing facility for the production of (i) property which is designed to produce energy from the sun, wind, geothermal deposits, or other renewable resources, (ii) fuel cells, microturbines, or an energy storage system for use with electric or hybrid vehicles, (iii) electric grid development to support the transmission of intermittent sources of renewable energy, (iv) property designed to capture and sequester carbon dioxide emissions, (v) property designed to refine or blend renewable fuels or to produce energy conservation technologies, (vi) new qualified plug-in electric drive motor vehicles, qualified plug-in electric vehicles, or components which are designed specifically for use with such vehicles, including green motors, generators, and power control units, or (vii) other advanced energy property designed to reduce greenhouse emissions.

ENVIRONMENTAL AND NATURAL RESOURCE PROVISIONS

In addition to the foregoing energy provisions, the stimulus legislation contains sizable appropriations to different federal agencies to fund pre-existing programs. Although these funds will not be directly available to private entities, they will result in significant spending increases in several key areas.

A. Department of the Army Corps of Engineers

The Army Corps of Engineers receive $4.6 billion to fund pre-existing projects. Most of the funding ($3.9 billion) is for Corps construction projects or operational and/or maintenance costs of pre-existing Corps projects.

B. Department of the Interior

The Department of the Interior's Bureau of Reclamation is allocated $1.4 billion for the management, development, and restoration of water and related natural resources such as wetlands and canals. The Bureau of Land Management also is allocated $330 million for various land management and construction projects including managing land to reduce the risk of fire. The Fish and Wildlife Service is allocated $275 million for resource management and construction costs. The National Park Service is allocated $747 million for operational expenses related to the national park system with a heavy emphasis ($589 million) on construction costs. The United States Geological Service is allocated $135 million for surveys, investigations, and research. The Bureau of Indian Affairs is allocated $572 million with an overwhelming emphasis ($522 million) on construction projects.

C. Department of Energy

DOE is allocated $483 million for non-defense related environmental cleanups. DOE is allocated $5.527 billion for the cleanup of defense-related contamination, which normally involves facilities engaged in the production of nuclear-weapons related material.

D. Environmental Protection Agency

The Environmental Protection Agency ("EPA") is allocated $6.4 billion for water projects with $4 billion earmarked for capitalization grants under EPA’s Clean Water State Revolving Fund to protect and provide better access to clean water while $2 billion is set aside for capitalization grants under EPA’s Drinking Water State Revolving Fund to protect and provide better access to drinking water. At least 15% of the funds appropriated for revolving funds must go towards green infrastructure, water efficiency improvements, or other environmentally innovative projects. The EPA also is allocated $600 million for the federal Superfund, which is used by the EPA to fund the cleanup of sites that it has identified as meriting special concern. The EPA is allocated $200 million for the Leaking Underground Storage Tank Program to assist states in responding to leaking underground storage tanks that threaten drinking water.

E. Department of Agriculture

The Forest Service is allocated $650 million for capital improvements and maintenance that includes remediation of abandoned mine sites. The Forest Service receives an additional $485 million to reduce the risk of catastrophic wildfires, of which $260 million is available for work on state or private land.