President Calls on Congress to Make Production Tax Credit Permanent and Refundable

February 14, 2013


On February 12, 2013, in conjunction with President Barack Obama’s State of the Union address, the White House released a fact sheet (“The President’s Plan for a Strong Middle Class & Strong America”)1 in which the President called on Congress to make the renewable energy production tax credit (the “PTC”) both permanent and refundable, as part of comprehensive corporate tax reform. The fact sheet notes that energy produced from wind and solar resources doubled during the President’s first term, and sets forth these proposed PTC changes as a means to once again double generation from certain renewable resources by 2020. If enacted into law, these changes to the PTC could significantly bolster investment in renewable energy projects in the United States.

Under current law, section 45 of the Internal Revenue Code of 1986, as amended, provides taxpayers with a tax credit for electricity produced from certain qualifying renewable resources (i.e., wind, open-loop and closed-loop biomass, geothermal, landfill gas, trash, hydropower, and marine and hydrokinetic), provided that construction of the generation facility begins prior to January 1, 2014. If the PTC is made permanent, qualifying facilities would be eligible for the PTC even if construction of the facility begins after this deadline.

In addition to making the PTC permanent, the President’s proposal would make the PTC “refundable”; although the specifics of the proposed refund are not laid out in the fact sheet, further elaboration will, presumably, be forthcoming from the White House in the coming weeks. The PTC modifications proposed in the fact sheet are substantially similar to proposals made in a joint report by the White House and the Department of Treasury (“The President’s Framework for Business Tax Reform”)2 released on February 22, 2012. This joint report also advocated making the PTC permanent and refundable.

Although these proposed modifications to the PTC were not mentioned directly by the President in his State of the Union address, these proposals reflect a continuing commitment on the part of the Administration to encourage the development of renewable energy in the United States.

[1] Available at http://www.whitehouse.gov/sites/default/files/uploads/sotu_2013_blueprint_embargo.pdf.
[2] Available at http://www.treasury.gov/resource-center/tax-policy/Documents/The-Presidents-Framework-for-Business-Tax-Reform-02-22-2012.pdf.

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Mark Caterini, an O'Melveny partner licensed to practice law in New York, Junaid Chida, an O'Melveny partner licensed to practice law in California and New York, Arthur Hazlitt, an O'Melveny partner licensed to practice law in New York, and Gregory Thorpe, an O'Melveny partner licensed to practice law in California, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

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