Posted on January 2, 1013 by GREG JENNER on the Stoel Rives RENEWABLE+LAW blog.

News reports have already alerted people to the fact that Congress has extended the Production Tax Credit ("PTC") for wind as part of its agreement to avoid the fiscal cliff. The bill - named the American Tax Relief Act of 2012 - extended the sunset date for wind through December 31, 2013. This extension gives wind parity with all other renewable resources covered by the PTC.

What hasn't been as widely reported, however, is that Congress also made a significant modification to the PTC as part of the same provision.

Previously, whether a facility qualified for the PTC depended on when the facility was placed in service for federal income tax purposes. That provision has now been changed so that a facility will qualify for the PTC if construction with respect to the facility begins on or before January 1, 2014. This change applies to all renewables (biomass, marine, and hydrokinetic, landfill gas, trash, hydropower) to which the PTC applies (not just wind), with the exception of refined coal and Indian coal. In other words, there is no longer a placed in service deadline for purposes of the PTC if construction begins before January 1, 2014.

For those of you acquainted with the 1603 grant, this "begun construction" requirement will seem very familiar. However, caution is required. First, the 1603 grant was administered by Treasury Department whereas the PTC will be administered by the IRS. The Treasury Department was generally viewed as favorably disposed to 1603 applicants. Second, we do not yet know how the IRS will interpret the term "begun construction." There is no requirement that the IRS interpret it consistently with section 1603. We do know, however, that the IRS included a 10% safe harbor as part of the bonus depreciation regulations (Treas. Reg. 1.168(k)-1(b)(4)(iii)(B)(2)), so it is possible that they may provide a safe harbor for the PTC as well.

It is also important to note that, along with extension and modification of the PTC, the legislation extended for one year the ability of taxpayers to elect the ITC in lieu of the PTC.

The modification of the PTC will likely make 2013 an interesting year, particularly as developers attempt to meet the "begun construction" requirements (however that term is eventually defined). If the IRS gives developers a safe harbor of some sort, it will be essential that they avoid the last minute, year-end rush we experienced in 2011 as we worked to qualify projects (mostly solar) for the "begun construction" requirements of the 1603 grant. A key gating item amy well be the extent to which utilities seek to procure wind and other renewable energy is Qs1-2, 2013.

We will keep you apprised of further developments and insights.

In the meantime, should you have any questions, please contact KEVIN PEARSON, ADAM KOBOS, CARL LEWIS, GREG JENNER or any other Stoel Rives attorneys.