Extension, modification, and expansion of credit for electricity produced from renewable resources and waste products

(a)

Permanent extension

(1)Paragraphs (1) and (2)(A)(i) of section 45(d) are each amended by striking , and before January 1, 2006. (2)Section 45(d)(2)(A)(ii) is amended by striking before January 1, 2006, is originally placed in service and and insert is. (3)Section 45(d)(3)(A) is amended— (A)by striking owned by the taxpayer, (B)by inserting owned by the taxpayer and in clause (i)(I) after is, (C)by striking and before January 1, 2006 in clause (i)(I), and (D)by striking originally placed in service before January 1, 2006 in clause (ii) and inserting owned by the taxpayer. (4)Paragraphs (4), (5), (6), and (7) of section 45(d) (relating to qualified facilities) are amended by striking and before January 1, 2006 each place it appears. (b)

Credit rate

(1)

Increase in credit rate

(A)

In general

Section 45(a)(1) is amended by striking 1.5 cents and inserting 1.9 cents. (B)

Conforming amendments

(i)Section 45(b)(2) is amended by striking 1.5 cent and inserting 1.9 cent. (ii)Section 45(e)(2)(B) is amended by inserting (calendar year 2004 in the case of the 1.9 cent amount in subsection (a)) after 1992. (2)

Full credit rate for all facilities placed in service after date of enactment

Section 45(b)(4)(A) (relating to credit rate) is amended by inserting and placed in service before the date of the enactment of the Renewable Energy Incentives Act after subsection (d). (c)

Full credit period for all facilities placed in service after date of enactment

Section 45(b)(4)(B)(i) (relating to credit period) is amended by inserting and placed in service before the date of the enactment of the Renewable Energy Incentives Act after subsection (d) (d)

Expansion of qualified resources

(1)

In general

Section 45(c)(1) (defining qualified energy resources) is amended by striking and at the end of subparagraph (F), by striking the period at the end of subparagraph (G) and inserting a comma, and by adding at the end the following new subparagraphs:

(H)incremental geothermal energy production, and (I)incremental hydropower production.

(2)

Definition of resources

Section 45(c) (relating to qualified energy resources and refined coal) is amended by adding at the end the following new paragraphs:

(8)

Incremental geothermal production

(A)

In general

The term incremental geothermal production means for any taxable year the excess of— (i)the total kilowatt hours of electricity produced from an incremental geothermal facility described in subsection (d)(9), over (ii)the average annual kilowatt hours produced at such facility for 5 of the previous 7 calendar years before the date of the enactment of this paragraph after eliminating the highest and the lowest kilowatt hour production years in such 7-year period. (B)

Special rule

A facility described in subsection (d)(9) which was placed in service at least 7 years before the date of the enactment of this paragraph shall commencing with the year in which such date of enactment occurs, reduce the amount calculated under subparagraph (A)(ii) each year, on a cumulative basis, by the average percentage decrease in the annual kilowatt hour production for the 7-year period described in subparagraph (A)(ii) with such cumulative sum not to exceed 30 percent. (9)

Incremental hydropower production

(A)

In general

The term incremental hydropower production means for any taxable year an amount equal to the percentage of total kilowatt hours of electricity produced from an incremental hydropower facility described in subsection (d)(10) attributable to efficiency improvements or additions of capacity as determined under subparagraph (B). (B)

Determination of incremental hydropower production

For purposes of subparagraph (A), incremental hydropower production for any incremental hydropower facility for any taxable year shall be determined by establishing a percentage of average annual hydropower production at the facility attributable to the efficiency improvements or additions of capacity using the same water flow information used to determine an historic average annual hydropower production baseline for such facility. Such percentage and baseline shall be certified by the Federal Energy Regulatory Commission. For purposes of the preceding sentence, the determination of incremental hydropower production shall not be based on any operational changes at such facility not directly associated with the efficiency improvements or additions of capacity.

(3)

Facilities

Section 45(d) (relating to qualified facilities) is amended by adding at the end the following new paragraphs:

(9)

Incremental geothermal facility

In the case of a facility using incremental geothermal to produce electricity, the term qualified facility means any facility owned by the taxpayer which is originally placed in service before the date of the enactment of this paragraph, but only to the extent of its incremental geothermal production. In the case of a qualified facility described in the preceding sentence, the 10-year period referred to in subsection (a) shall be treated as beginning not earlier than such date of enactment. Such term shall not include any property described in section 48(a)(3) the basis of which is taken into account by the taxpayer for purposes of determining the energy credit under section 48. (10)

Incremental hydropower facility

In the case of a facility using incremental hydropower to produce electricity, the term qualified facility means any non-Federal hydroelectric facility owned by the taxpayer which is originally placed in service before the date of the enactment of this paragraph, but only to the extent of its incremental hydropower production. In the case of a qualified facility described in the preceding sentence, the 10-year period referred to in subsection (a) shall be treated as beginning not earlier than such date of enactment.

(e)

Credit eligibility for lessees and operators extended to all facilities

Paragraph (6) of section 45(d) is amended to read as follows:

(6)

Credit eligibility for lessees and operators

In the case of any facility described in paragraph (1), (4), (5), (6), (7), (9), or (10), if the owner of such facility is not the producer of the electricity, the person eligible for the credit allowable under subsection (a) shall be the lessee or the operator of such facility.

(f)

Qualified facilities with co-production

Section 45(b) (relating to limitations and adjustments) is amended by adding at the end the following:

(5)

Increased credit for co-production facilities

(A)

In general

In the case of a qualified facility described in any paragraph of subsection (d) (other than paragraph (8)) which adds a co-production facility after the date of the enactment of this paragraph, the amount in effect under subsection (a)(1) for an eligible taxable year of a taxpayer shall (after adjustment under paragraph (2) and before adjustment under paragraphs (1) and (3)) be increased by .25 cents. (B)

Co-production facility

For purposes of subparagraph (A), the term co-production facility means a facility which— (i)enables a qualified facility to produce heat, mechanical power, chemicals, liquid fuels, or minerals from qualified energy resources in addition to electricity, and (ii)produces such energy on a continuous basis. (C)

Eligible taxable year

For purposes of subparagraph (A), the term eligible taxable year means any taxable year in which the amount of gross receipts attributable to the co-production facility of a qualified facility are at least 10 percent of the amount of gross receipts attributable to electricity produced by such facility.

(g)

Qualified facilities located within qualified Indian lands

Section 45(b) (relating to limitations and adjustments), as amended by subsection (f), is amended by adding at the end the following:

(6)

Increased credit for qualified facility located within qualified Indian land

In the case of a qualified facility described in any paragraph of subsection (d) (other than paragraphs (1), (2) and (8)) which— (A)is located within— (i)qualified Indian lands (as defined in section 7871(c)(3)), or (ii)lands which are held in trust by a Native Corporation (as defined in section 3(m) of the Alaska Native Claims Settlement Act (43 U.S.C. 1602(m)) for Alaska Natives, and (B)is operated with the explicit written approval of the Indian tribal government or Native Corporation (as so defined) having jurisdiction over such lands, the amount in effect under subsection (a)(1) for a taxable year shall (after adjustment under paragraphs (2) and (5) and before adjustment under paragraphs (1) and (3)) be increased by .25 cents.

(h)

Additional modifications

(1)

Treatment of persons not able to use entire credit

Section 45(e) (relating to additional definitions and special rules), as amended by subsection (a)(2), is amended by adding at the end the following new paragraph:

(11)

Treatment of persons not able to use entire credit

(A)

Allowance of credit

(i)

In general

Except as otherwise provided in this subsection— (I)any credit allowable under subsection (a) with respect to a qualified facility owned by a person described in clause (ii) may be transferred or used as provided in this paragraph, and (II)the determination as to whether the credit is allowable shall be made without regard to the tax-exempt status of the person. (ii)

Persons described

A person is described in this clause if the person is— (I)an organization described in section 501(c)(12)(C) and exempt from tax under section 501(a), (II)an organization described in section 1381(a)(2)(C), (III)a public utility (as defined in section 136(c)(2)(B)), which is exempt from income tax under this subtitle, (IV)any State or political subdivision thereof, the District of Columbia, any possession of the United States, or any agency or instrumentality of any of the foregoing, or (V)any Indian tribal government (within the meaning of section 7871) or any agency or instrumentality thereof. (B)

Transfer of credit

(i)

In general

A person described in subparagraph (A)(ii) may transfer any credit to which subparagraph (A)(i) applies through an assignment to any other person not described in subparagraph (A)(ii). Such transfer may be revoked only with the consent of the Secretary. (ii)

Regulations

The Secretary shall prescribe such regulations as necessary to ensure that any credit described in clause (i) is assigned once and not reassigned by such other person. (iii)

Transfer proceeds treated as arising from essential government function

Any proceeds derived by a person described in subclause (III), (IV), or (V) of subparagraph (A)(ii) from the transfer of any credit under clause (i) shall be treated as arising from the exercise of an essential government function. (C)

Credit not income

Any transfer under subparagraph (B) of any credit to which subparagraph (A)(i) applies shall not be treated as income for purposes of section 501(c)(12). (D)

Treatment of unrelated persons

For purposes of subsection (a)(2)(B), sales among and between persons described in subparagraph (A)(ii) shall be treated as sales between unrelated parties.

(2)

Credits not reduced by tax-exempt bonds or certain other subsidies

Section 45(b)(3) (relating to credit reduced for grants, tax-exempt bonds, subsidized energy financing, and other credits) is amended— (A)by striking clause (ii), (B)by redesignating clauses (iii) and (iv) as clauses (ii) and (iii), (C)by inserting (other than any loan, debt, or other obligation incurred under subchapter I of chapter 31 of title 7 of the Rural Electrification Act of 1936 (7 U.S.C. 901 et seq.), as in effect on the date of the enactment of the Renewable Energy Incentives Act, or proceeds of an issue of State or local government obligations the interest on which is exempt from tax under section 103) after project in clause (ii) (as so redesignated), and (D)by striking

tax-exempt bonds,

in the heading and inserting

certain

. (3)

Credit allowable against minimum tax without limitation

Clause (ii) of section 38(c)(4)(B) (defining specified credits) is amended to read as follows:

(ii)the credit determined under section 45 to the extent that such credit is attributable to electricity or refined coal produced at a facility which is originally placed in service after October 22, 2004.

(4)

Treatment of qualified facilities not in compliance with pollution laws

Section 45(d) (relating to qualified facilities), as amended by subsection (d)(3), is amended by adding at the end the following:

(11)

Noncompliance with pollution laws

For purposes of this subsection, a facility which is not in compliance with the applicable State and Federal pollution prevention, control, and permit requirements for any period of time shall not be considered to be a qualified facility during such period.

(i)

Effective date

The amendments made by this section shall apply to electricity and other energy produced and sold after the date of the enactment of this Act, in taxable years ending after such date.