Powering Strong Communities

APPA Highlights Impact of Treasury Department’s Energy Communities Guidance on Public Power

The American Public Power Association on April 4 said it appreciates the Treasury Department’s release of guidance on energy communities.

APPA said it continues to review the guidance, but key aspects appear to provide clarity and reliability where needed. In turn, the energy community provision is a key element of the Inflation Reduction Act (IRA) and could provide substantial benefits to public power utilities, which serve customers in every state (except Hawaii), as they transition to clean technologies. 

In addition to extending and expanding a variety of critical energy tax incentives, the IRA created a refundable direct pay mechanism to ensure that all utilities can benefit from these incentives, including bonus credits for projects sited in energy communities.

Without such a mechanism, public power utilities and electric cooperative utilities — which both operate as non-profit, tax-exempt entities — would be effectively blocked from owning tax creditable energy projects.

These utilities collectively serve nearly 30 percent of U.S. customers, so allowing them to benefit from energy tax provisions for projects they own makes these tax incentives more effective, while also ensuring that no communities — including energy communities — are left behind. 

Since the IRA’s enactment, APPA has asked that implementing guidance be clear, simple, and certain. For example, Treasury’s guidance allows a safe harbor for entities which qualify as energy communities when project construction begins. This is a step in the right direction, which APPA appreciates.

APPA said it will continue to review the guidance, “but again appreciate the work being done here by the Treasury Department, Internal Revenue Service, and Department of Energy.”

While these are draft proposed regulations, Treasury said that the regulations are effective as of April 4. Treasury did not say when it would formally introduce the proposed regulations but that stakeholders can rely on the proposed regulations until final guidance is published.

Additionally, Treasury is seeking comments regarding possible data sources for determining a community’s fossil fuel tax revenues. Comments should be submitted by May 4, 2023. At this time, Treasury is not seeking comments on other issues covered by the draft regulations.

Treasury has also launched a "mapping tool" to help communities determine whether they qualify as an energy community.

First, the map shows the census tracts and directly adjoining tracts that have had coal mine closures since 1999 or coal-fired electric generating unit retirements since 2009. These census tracts qualify as energy communities.

Second, the map shows the metropolitan statistical areas (MSAs) and non-metropolitan statistical areas (non-MSAs) that have had 0.17% or greater direct employment related to extraction, processing, transport, or storage of coal, oil, or natural gas. Annual employment rates at the county level for 2022 will be released later this month and the map will be updated to show the MSAs and non-MSAs that meet both the 0.17% employment threshold and the unemployment rate requirement.

The map does not indicate which areas might have a qualifying brownfield site, but Treasury believes that guidance alone should be sufficient for a community to make that determination.