This notice publishes the inflation adjustment factor and reference
prices for calendar year 2006 for the renewable electricity production credit
and the refined coal production credit under § 45 of the Internal
Revenue Code. The 2006 inflation adjustment factor and reference prices are
used in determining the availability of the credits. The 2006 inflation adjustment
factor and reference prices apply to calendar year 2006 sales of kilowatt-hours
of electricity produced in the United States or a possession thereof from
qualified energy resources and to calendar year 2006 sales of refined coal
produced in the United States or a possession thereof.
Section 45(a) provides that the renewable electricity production credit
for any tax year is an amount equal to the product of 1.5 cents multiplied
by the kilowatt hours of specified electricity produced by the taxpayer and
sold to an unrelated person during the tax year. This electricity must be
produced from qualified energy resources and at a qualified facility during
the 10-year period beginning on the date the facility was originally placed
in service.
Section 45(b)(1) provides that the amount of the credit determined under
§ 45(a) is reduced by an amount which bears the same ratio to the
amount of the credit as (A) the amount by which the reference price for the
calendar year in which the sale occurs exceeds 8 cents, bears to (B) 3 cents.
Under § 45(b)(2), the 1.5 cent amount in § 45(a), the
8 cent amount in § 45(b)(1), the $4.375 amount in § 45(e)(8)(A),
and in § 45(e)(8)(B)(i) the reference price of fuel used as feedstock
(within the meaning of § 45(c)(7)(A)) in 2002 are each adjusted
by multiplying the amount by the inflation adjustment factor for the calendar
year in which the sale occurs. If any amount as increased under the preceding
sentence is not a multiple of 0.1 cent, the amount is rounded to the nearest
multiple of 0.1 cent.
Section 45(c)(1) defines qualified energy resources as wind, closed-loop
biomass, open-loop biomass, geothermal energy, solar energy, small irrigation
power, municipal solid waste, and qualified hydropower production.
Section 45(d)(1) defines a qualified facility using wind to produce
electricity as any facility owned by the taxpayer that is originally placed
in service after December 31, 1993, and before January 1, 2008. See § 45(e)(7)
for rules relating to the inapplicability of the credit to electricity sold
to utilities under certain contracts.
Section 45(d)(2)(A) defines a qualified facility using closed-loop biomass
to produce electricity as any facility (i) owned by the taxpayer that is originally
placed in service after December 31, 1992, and before January 1, 2008, or
(ii) owned by the taxpayer which before January 1, 2008, is originally placed
in service and modified to use closed-loop biomass to co-fire with coal, with
other biomass, or with both, but only if the modification is approved under
the Biomass Power for Rural Development Programs or is part of a pilot project
of the Commodity Credit Corporation as described in 65 Fed. Reg. 63052. Section
45(d)(2)(B) provides that in the case of a qualified facility described in
§ 45(d)(2)(A)(ii), (i) the 10-year period referred to in § 45(a)
is treated as beginning no earlier than the date of enactment of § 45(d)(2)(B)(i);
(ii) the amount of the credit determined under § 45(a) with respect
to the facility is an amount equal to the amount determined without regard
to § 45(d)(2)(B)(ii) multiplied by the ratio of the thermal content
of the closed-loop biomass used in the facility to the thermal content of
all fuels used in the facility; and (iii) if the owner of the facility is
not the producer of the electricity, the person eligible for the credit allowable
under § 45(a) is the lessee or the operator of the facility.
Section 45(d)(3)(A) defines a qualified facility using open-loop biomass
to produce electricity as any facility owned by the taxpayer which (i) in
the case of a facility using agricultural livestock waste nutrients, (I) is
originally placed in service after the date of enactment of § 45(d)(3)(A)(i)(I)
and before January 1, 2008, and (II) the nameplate capacity rating of which
is not less than 150 kilowatts; and (ii) in the case of any other facility,
is originally placed in service before January 1, 2008. In the case of any
facility described in § 45(d)(3)(A), if the owner of the facility
is not the producer of the electricity, § 45(d)(3)(B) provides that
the person eligible for the credit allowable under § 45(a) is the
lessee or the operator of the facility.
Section 45(d)(4) defines a qualified facility using geothermal or solar
energy to produce electricity as any facility owned by the taxpayer which
is originally placed in service after the date of enactment of § 45(d)(4)
and before January 1, 2008 (January 1, 2006, in the case of a facility using
solar energy). A qualified facility using geothermal or solar energy does
not include any property described in § 48(a)(3) the basis of which
is taken into account by the taxpayer for purposes of determining the energy
credit under § 48.
Section 45(d)(5) defines a qualified facility using small irrigation
power to produce electricity as any facility owned by the taxpayer which is
originally placed in service after the date of enactment of § 45(d)(5)
and before January 1, 2008.
Section 45(d)(6) defines a qualified facility using gas derived from
the biodegradation of municipal solid waste to produce electricity as any
facility owned by the taxpayer which is originally placed in service after
the date of enactment of § 45(d)(6) and before January 1, 2008.
Section 45(d)(7) defines a qualified facility that burns municipal solid
waste to produce electricity as any facility owned by the taxpayer which is
originally placed in service after the date of enactment of § 45(d)(7)
and before January 1, 2008. A qualified facility burning municipal solid
waste includes a new unit placed in service in connection with a facility
placed in service on or before the date of enactment of § 45(d)(7),
but only to the extent of the increased amount of electricity produced at
the facility by reason of such new unit.
Section 45(d)(8) provides in the case of a facility that produces refined
coal, the term “refined coal production facility” means a facility
which is placed in service after the date of enactment of § 45(d)(8)
and before January 1, 2009.
Section 45(d)(9) defines a qualified facility producing qualified hydroelectric
production described in § 45(c)(8) as (A) any facility producing
incremental hydropower production, but only to the extent of its incremental
hydropower production attributable to efficiency improvements or additions
to capacity described in § 45(c)(8)(B) placed in service after the
date of enactment of § 45(d)(9) and before January 1, 2008, and
(B) any other facility placed in service after the date of enactment of § 45(d)(9)
and before January 1, 2008. Section 45(d)(9)(C) provides that in the case
of a qualified facility described in § 45(d)(9)(A), the 10-year
period referred to in § 45(a) is treated as beginning on the date
the efficiency improvements or additions to capacity are placed in service.
Section 45(e)(8)(A) provides that the refined coal production credit
is an amount equal to $4.375 per ton of qualified refined coal (i) produced
by the taxpayer at a refined coal production facility during the 10-year period
beginning on the date the facility was originally placed in service, and (ii)
sold by the taxpayer (I) to an unrelated person and (II) during the 10-year
period and the tax year. Section 45(e)(8)(B) provides that the amount of
credit determined under § 45(e)(8)(A) is reduced by an amount which
bears the same ratio to the amount of the increase as (i) the amount by which
the reference price of fuel used as feedstock (within the meaning of § 45(c)(7)(A))
for the calendar year in which the sale occurs exceeds an amount equal to
1.7 multiplied by the reference price for such fuel in 2002, bears to (ii)
$8.75.
Section 45(e)(2)(A) requires the Secretary to determine and publish
in the Federal Register each calendar year the inflation adjustment factor
and the reference prices for the calendar year. The inflation adjustment
factor and the reference prices for the 2006 calendar year were published
in the Federal Register on March 31, 2006 (71 Fed. Reg. 16420), and corrected
on May 9, 2006 (71 Fed. Reg. 27038).
Section 45(e)(2)(B) defines the inflation adjustment factor for a calendar
year as the fraction the numerator of which is the GDP implicit price deflator
for the preceding calendar year and the denominator of which is the GDP implicit
price deflator for the calendar year 1992. The term “GDP implicit price
deflator” means the most recent revision of the implicit price deflator
for the gross domestic product as computed and published by the Department
of Commerce before March 15 of the calendar year.
Section 45(e)(2)(C) provides that the reference price is the Secretary’s
determination of the annual average contract price per kilowatt hour of electricity
generated from the same qualified energy resource and sold in the previous
year in the United States. Only contracts entered into after December 31,
1989, are taken into account.
Under § 45(e)(8)(C), the determination of the reference price
for fuel used as feedstock within the meaning of § 45(c)(7)(A) is
made according to rules similar to the rules under § 45(e)(2)(C).
CREDIT AMOUNT BY QUALIFIED ENERGY RESOURCE AND FACILITY AND REFINED
COAL
As required by § 45(b)(2), the 1.5 cent amount in § 45(a)(1),
the 8 cent amount in § 45(b)(1), and the $4.375 amount in § 45(e)(8)(A)
are each adjusted by multiplying such amount by the inflation adjustment factor
for the calendar year in which the sale occurs. If any amount as increased
under the preceding sentence is not a multiple of 0.1 cent, such amount is
rounded to the nearest multiple of 0.1 cent. In the case of electricity produced
in open-loop biomass facilities, small irrigation power facilities, landfill
gas facilities, trash combustion facilities, and qualified hydropower facilities,
§ 45(b)(4)(A) requires the amount in effect under § 45(a)(1)
(before rounding to the nearest 0.1 cent) to be reduced by one-half. Under
the calculation required by § 45(b)(2), the credit for renewable
electricity production for calendar year 2006 under § 45(a) is 1.9
cents per kilowatt hour on the sale of electricity produced from the qualified
energy resources of wind, closed-loop biomass, geothermal energy, and solar
energy, and 1.0 cent per kilowatt hour on the sale of electricity produced
in open-loop biomass facilities, small irrigation power facilities, landfill
gas facilities, trash combustion facilities, and qualified hydropower facilities.
Under the calculation required by § 45(b)(2), the credit for refined
coal production for calendar year 2006 under section 45(e)(8)(A) is $5.679
per ton on the sale of qualified refined coal.
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