Mr. Kiesner

Eco-Friendly Practices

Getting Tax Credits, Where Credits Are Due

By Steve Kiesner, Director of National Accounts, Edison Electric Institute

American innovation, science and technology continue to transform the way our country produces and uses energy. During the past 30 years, our nation's economy grew three times faster than its energy consumption. America created more than 55 million jobs. It cut air pollution by 50 percent. The efficient use of energy, through sustained technology development, has played a large role in this progress-we are doing more with less.

Looking ahead, continued efficiency gains are part of the reason why the nation's energy intensity, measured as energy use per dollar of gross domestic product (in 2000 dollars), is projected to continue dropping, falling an average of 1.8 percent per year through 2030. As America has become more energy efficient, it has also increased its use of electricity. This trend is expected to continue. Over the next 25 years, the nation's electricity use is projected to grow by nearly 50-percent.

To help meet this demand for electricity, EEI and its member electric utilities across the country are offering hotels and all utility customers a variety of energy efficiency programs and services. We are also encouraging you to take advantage of the many the federal tax deductions and tax credits offered through the Energy Policy Act of 2005 (EPAct).

As I commented in my previous columns this year, EPAct contains a variety of initiatives and incentives to boost your company's overall energy efficiency. This information is worth repeating. Combining a utility's efficiency services with the tax incentives will give you a powerful tool for getting the most value from your energy dollar.

One way the new energy law will help you is by creating higher energy-efficiency standards for a variety of commercial equipment. These products include:

For commercial refrigerators, freezers, and commercial icemakers, new efficiency standards will go into effect January 1, 2010 (standards for door-less refrigerators and freezers will go into effect by January 1, 2012). Electric heating and cooling equipment (packaged air conditioners and heat pumps) will also see new efficiency standards by January 2010.

The energy law also includes tax deductions, but please note that you only have the rest of this year and next to claim them. EPAct offers a tax deduction of $1.80 per square foot for hotels, motels, and other commercial buildings that save 50 percent or more in energy costs compared to a reference building defined by American Society of Heating Refrigeration Air Conditioning Engineer's (ASHRAE) 90.1-2001 standards.

If your new facility does not use 50 percent less energy than the reference building, you can still earn federal tax deductions. EPAct gives a $0.60 per square foot tax deduction for each of these three sub-systems: interior lighting; heating, cooling, ventilation, and hot water systems; and the building envelope (essentially everything that separates the inside from the outside). These sub-systems must exceed the energy efficiency of a "baseline" sub-system in the ASHRAE 90.1-2001 building code.

To get the deductions, the U.S. Department of Energy (DOE) has to determine the energy and cost calculation requirements (based on the guidelines of the 2005 California Nonresidential Alternative Calculation Method Approval Manual). DOE has to approve of "qualified computer software" to use for these calculations. There is also a certification process that must be defined by DOE, which will include inspection and testing by qualified individuals.

ASHRAE has published new commercial building codes: 90.1-2004 Standards. The International Code Council also updated its Energy Conservation Code in 2003 (IECC 2003). At least 20 states have adopted ASHRAE 90.1-2004 or IECC 2003. And both are more stringent than 90.1-2001.

If you are operating in states that have already adopted the 2003 or 2004 codes, you should try to obtain tax deductions first because in those states the buildings are already more efficient. You should also try to combine the federal tax incentives with any incentives being offered by the states, electric utilities, or both.

For managers of small facilities in particular, a good strategy is to combine the tax deduction under the new federal energy law with the existing federal tax provisions for first year expensing under Title 26 of the IRS Code, Section 179. This provision has a sunset of December 31, 2009. Note that building/structural improvements, air conditioning and heating units do not qualify. They do qualify, however, for the new $1.80/sq. ft. tax credits.

Also eligible are computers, commercial refrigerators/freezers, "off the shelf" software, vending machines, cooking equipment, icemakers, and other business/process machines or equipment. It is best to consult with your own tax advisor for the latest updates.

EEI is a member of the Commercial Building Tax Deduction Coalition, a broad-based coalition of business, trade, government, energy efficiency, and other groups and organizations that is working to ensure that these energy-related tax incentive provisions are implemented smoothly. This coalition also promotes awareness and information about its benefits, and energy efficiency improvements in commercial buildings. For the latest tax incentive information, visit EEI's website at www.eei.org/na. The U.S. Internal Revenue Service has also issued guidelines on how to apply for the tax deductions.

Besides tax deductions, federal tax credits are also available through EPAct for hotels and other commercial buildings. These credits apply to photovoltaic/solar thermal panels, microturbines, and fuel cells that are installed this year and next. Note that systems for heating swimming pool water are not eligible for the tax credit.

The solar power credit is 30 percent of the cost in the installation year with no cap. For microturbines with a maximum capacity of 2000 kilowatts (kW), the credit is a maximum of $200.00 per 1 kW produced, up to 10 percent of the cost. And fuel cells that generate at least 0.5 kW using an electrochemical process are eligible for a maximum of $500.00 per 0.5 kW produced up to 30 percent of the cost.

The window for these incentives is scheduled to close on December 31, 2007, although discussions are underway that will likely extend it. [For more detail, please see my earlier column: "Keeping Electricity Affordable and Reliable."]

As with the other tax credits, you should try to combine the federal credits with any applicable state or electric utility incentives. You can find the latest list of electric utility incentive programs at:
http://www.eei.org/industry_issues/retail_services_and_delivery/wise_energy_use/programs_and_incentives/progs.pdf

To help prioritize investments, the top ten states (by budget) for incentive programs are:

Two good web sites that also show state programs are: DOE's Energy Efficiency and Renewable Energy site;
(http://www1.eere.energy.gov/femp/program/utility/utilityman_energymanage.html),
and the Consortium for Energy Efficiency
(www.cee1.org/com/bldgs/bldgs_ps2005.pdf).

I also encourage you to call or check out the Web sites of the electric company or utilities that service your company. You will find them to be a great resource for free advice on using energy more efficiently. Many electric companies also have a range of no- or low-cost electric utility energy management programs to help you. EEI's National Accounts Directory of Utility Contacts can assist you in learning more about these programs: www.eei.org/na-necan.

The time to make sure your company is getting the most value from every energy dollar is now. With EPAct, you can even earn dollars for doing so. The return will be greater profitability for your company, and a future with more reliable, affordable and environmentally sustainable energy supplies for everyone.

Steve Kiesner is Director of the Edison Electric Institute’s National Accounts Program. Based in Washington, D.C., Edison Electric Institute (EEI) is the association of United States shareholder-owned electric companies, international affiliates and industry associates worldwide. Our U.S. members serve approximately 90 percent of the ultimate customers in the shareholder-owned segment of the industry, and nearly 70 percent of all electric utility ultimate customers in the nation. They generated almost 70 percent of the electricity generated by U.S. electric utilities. Mr. Kiesner can be contacted at 202-508-5000 or skiesner@eei.org Extended Bio...

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