The IRA has new types of funding for public sector, tribal, and tax exempt organizations

The Inflation Reduction Act of 2022 (IRA) has some hidden gems for public sector, electric co-ops, and tribal organizations. Here we discuss how your organization can participate in some of provisions that we generally equate to the private sector.

Please add additional points and ideas in the comments section.

Key points to consider in tapping this funding source for your next renewable production or housing project

1. Utilities, co-ops, state and local governements, and Indian Tribal Governments can monetize tax credits under the IRA, receiving refunds for the tax credits.

2. Many programs and projects have bonus enhancers for using domestic steel and other products, paying prevailing wages, and locating projects in higher unemployment areas.

3. Details and more specifics can be found at the Environmental Protection Agency (EPA) website.

Renewable energy production project tax credits for public sector, tax-exempt, and tribal organizations

Persistence pays. Public power and electric cooperative organizations such as APPA, NRECA, and NCAI have sought for years to have public sector utilities, co-ops, tribal utilities treated more like the investor-owned providers when it comes to tax credits.

The IRA comes through in Section 13801, which allows certain tax-exempt entities to treat certain energy-related tax credit amounts as direct payments of tax. What does this mean and how does it work?

1. Tax credits can be monetized for projects placed in service after January 1, 2023 and before December 31, 2032.

2. Entities can elect to be treated as having made a tax payment equal to the value of the tax credit they would otherwise be eligible to claim. The entity can then claim a refund for the excess taxes they are deemed to have paid, making the tax credit refundable for these entities.

3. The Renewable Electric Production Tax Credit provides credits for projects over 1 mW that begin construction before January 1, 2025. These projects will receive a base tax credit of $0.05 kWh, with a 10% bonus for the use of domestic products and those located at (1) brownfield sites, (2) sites with unemployment over the national average, or (3) areas previously used for coal, oil, or natural gas extraction, or where a coal fired generating unit was located.

4. The Business Energy Investment Tax Credit provides a based tax credit of 6% with a 10% bonus for paying prevailing wages, using domestic steel, and other specifics.

5. The IRA adds an additional $40 billion of loan authority to the DOE under Section 1706 - Title 17 - the Energy Infrastructure Reinvestment Program.

6. Additional program funded include the Alternative Fuel Vehicle Refueling Property Tax Credit and Commercial Clean Vehicle Tax Credit.Accelerate capital projects where it makes sense

Building grants for efficiencies and resilience

The act also provides funding to DOE for grants to states and local governments. Under the program, grants must be used to

1. Adopt residential building codes for buildings that meet or exceed the 2021 International Energy Conservation Code

2. Adopt commercial building codes that meet or exceed the ANSI/ASHRAE/IES Standard 90.1--2019, or

3. Implement plans for the jurisdiction to fully comply with the codes. Funding shall remain available through FY2029.

What should you do next?

Review the program details on the EPA website to see if your potential project qualifies for these credits. Meet with your accounting and engineering design firms to properly plan the project and the credit process. Make sure your business processes are in-place to apply for grants, track grant spending and reimbursement requests, and be ready for grant audits when projects are completed. Finally, get insights into the program administration through attending webinars and reading articles (we'll help here).

About Russ Hissom - Article Author

Russ Hissom, CPA is a principal of Utility Accounting & Rates Specialists a firm that provides power utilities rate, expert witness, and consulting services, and online/on-demand courses on accounting, rates, FERC/RUS construction accounting, financial analysis, and business process improvement services. Russ was a partner in a national accounting and consulting firm for 20 years. He works with electric investor-owned and public power utilities, electric cooperatives, broadband providers, and gas, water, and wastewater utilities. His goal is to share industry best practices to help your business perform effectively and efficiently and meet the challenges of the changing power and utilities industry.  

Find out more about Utility Accounting & Rates Specialists here, or you can reach Russ at russ.hissom@utilityeducation.com

The material in this article is for informational purposes only and should not be taken as legal or accounting advice provided by Utility Accounting & Rates Specialists. You should seek formal advice on this topic from your accounting or legal advisor.