To amend the Internal Revenue Code of 1986 to modify and expand the credit for electricity produced from renewable resources and waste products, and for other purposes.

February 27, 2003

Mr. REID (for himself, Mr. SMITH, Ms. SNOWE, Ms. CANTWELL, Mr. HARKIN, Mr. LIEBERMAN, Mrs. FEINSTEIN, Mr. JEFFORDS, Mr. WYDEN, and Mr. COLEMAN) introduced the following bill; which was read twice and referred to the Committee on Finance

To amend the Internal Revenue Code of 1986 to modify and expand the credit for electricity produced from renewable resources and waste products, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.

(a) SHORT TITLE- This Act may be cited as the `Renewable Energy Incentives Act'.

(b) AMENDMENT OF 1986 CODE- Except as otherwise expressly provided, whenever in this Act an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1986.

SEC. 2. MODIFICATIONS TO CREDIT FOR ELECTRICITY PRODUCED FROM RENEWABLE RESOURCES AND WASTE PRODUCTS.

(a) INCREASE IN CREDIT RATE-

(1) IN GENERAL- Section 45(a)(1) is amended by striking `1.5 cents' and inserting `1.8 cents'.

(2) CONFORMING AMENDMENTS-

(A) Section 45(b)(2) is amended by striking `1.5 cent' and inserting `1.8 cent'.

(B) Section 45(d)(2)(B) is amended by inserting `(calendar year 2002 in the case of the 1.8 cent amount in subsection (a))' after `1992'.

(b) EXPANSION OF QUALIFIED RESOURCES-

(1) IN GENERAL- Section 45(c)(1) (relating to qualified energy resources) is amended by striking `and' at the end of subparagraph (B), by striking the period at the end of subparagraph (C) and inserting `, and', and by adding at the end the following:

`(D) alternative resources.'.

(2) DEFINITION OF ALTERNATIVE RESOURCES- Section 45(c) (relating to definitions) is amended--

(A) by redesignating paragraph (3) as paragraph (5),

(B) by redesignating paragraph (4) as paragraph (3), and

(C) by inserting after paragraph (3), as redesignated by subparagraph (B), the following:

`(4) ALTERNATIVE RESOURCES-

`(A) IN GENERAL- The term `alternative resources' means--

`(i) solar,

`(ii) open loop biomass,

`(iii) geothermal,

`(iv) incremental geothermal,

`(v) incremental hydropower, and

`(vi) landfill gas.

`(B) OPEN LOOP BIOMASS- The term `open loop biomass' means any nonhazardous, cellulosic waste material, which is segregated from other waste materials and derived from--

`(i) a forest-related resource, including mill and harvesting residue, precommercial thinnings, slash, and brush,

`(ii) an agricultural source, including orchard tree crops, vineyards, grain, legumes, sugar, and other crop by-products or residues, or

`(iii) a miscellaneous source, including waste pallets, crates, dunnage, and landscape or right-of-way tree trimmings, but not including--

`(I) municipal solid waste,

`(II) recyclable post-consumer wastepaper,

`(III) painted, treated, or pressurized wood,

`(IV) wood contaminated with plastic or metals, or

`(V) tires.

`(C) GEOTHERMAL- The term `geothermal' means energy derived from a geothermal deposit (within the meaning of section 613(e)(2)).

`(D) INCREMENTAL GEOTHERMAL PRODUCTION-

`(i) IN GENERAL- The term `incremental geothermal production' means for any taxable year the excess of--

`(I) the total kilowatt hours of electricity produced from a geothermal facility described in paragraph (5)(D)(ii), over

`(II) the average annual kilowatt hours produced at such facility for 5 of the previous 7 calendar years before the date of the enactment of this subparagraph after eliminating the highest and the lowest kilowatt hour production years in such 7-year period.

`(ii) SPECIAL RULE- A facility described in paragraph (5)(D)(ii) which was placed in service at least 7 years before the date of the enactment of this subparagraph shall commencing with the year in which such date of enactment occurs, reduce the amount calculated under clause (i)(II) each year, on a cumulative basis, by the average percentage decrease in the annual kilowatt hour production for the 7-year period described in clause (i)(II) with such cumulative sum not to exceed 30 percent.

`(E) INCREMENTAL HYDROPOWER PRODUCTION-

`(i) IN GENERAL- The term `incremental hydropower production' means for any taxable year an amount equal to the percentage of total kilowatt hours of electricity produced from a hydropower facility described in paragraph (5)(D)(iii) attributable to efficiency improvements or additions of capacity as determined under clause (ii).

`(ii) DETERMINATION OF INCREMENTAL HYDROPOWER PRODUCTION- For purposes of clause (i), incremental hydropower production for any hydropower facility for any taxable year shall be determined by establishing a percentage of average annual hydropower production at the facility attributable to the efficiency improvements or additions of capacity using the same water flow information used to determine an historic average annual hydropower production baseline for such facility. Such percentage and baseline shall be certified by the Federal Energy Regulatory Commission. For purposes of the preceding sentence, the determination of incremental hydropower production shall not be based on any operational changes at such facility not directly associated with the efficiency improvements or additions of capacity.

`(F) LANDFILL GAS- The term `landfill gas' means gas generated from the decomposition of any household solid waste, commercial solid waste, and industrial solid waste disposed of in a municipal solid waste landfill unit (as such terms are defined in regulations promulgated under subtitle D of the Solid Waste Disposal Act (42 U.S.C. 6941 et seq.).'.

(3) QUALIFIED FACILITY- Section 45(c)(5) (defining qualified facility), as redesignated by paragraph 2(A), is amended by adding at the end the following:

`(D) ALTERNATIVE RESOURCES FACILITY-

`(i) IN GENERAL- In the case of a facility using alternative resources other than incremental geothermal or incremental hydropower to produce electricity, the term `qualified facility' means any facility owned by the taxpayer which is originally placed in service after the date of the enactment of this subparagraph.

`(ii) INCREMENTAL GEOTHERMAL FACILITY- In the case of a facility using incremental geothermal to produce electricity, the term `qualified facility' means any facility owned by the taxpayer which is originally placed in service before such date of enactment, but only to the extent of its incremental geothermal production.

`(iii) INCREMENTAL HYDROPOWER FACILITY- In the case of a facility using incremental hydropower to produce electricity, the term `qualified facility' means any non-Federal hydroelectric facility owned by the taxpayer which is originally placed in service before the date of the enactment of this subparagraph, but only to the extent of its incremental hydropower production.

`(iv) SPECIAL RULES- In the case of a qualified facility described in clause (ii) or (iii), the 10-year period referred to in subsection (a) shall be treated as beginning not earlier than the date of the enactment of this subparagraph.'.

(4) GOVERNMENT-OWNED FACILITY- Section 45(d)(6) (relating to credit eligibility in the case of government-owned facilities using poultry waste) is amended--

(A) by inserting `or alternative resources' after `poultry waste', and

(B) by inserting `OR ALTERNATIVE RESOURCES' after `POULTRY WASTE' in the heading thereof.

(5) QUALIFIED FACILITIES WITH CO-PRODUCTION- Section 45(b) (relating to limitations and adjustments) is amended by adding at the end the following:

`(4) INCREASED CREDIT FOR CO-PRODUCTION FACILITIES-

`(A) IN GENERAL- In the case of a qualified facility described in subparagraph (C)(i) or (D)(i) of subsection (c)(5) which has a co-production facility or a qualified facility described in subparagraph (A), (B), (C)(ii), (D)(ii), or (D)(iii) of subsection (c)(5) which adds a co-production facility after the date of the enactment of this paragraph, the amount in effect under subsection (a)(1) for an eligible taxable year of a taxpayer shall (after adjustment under paragraph (2) and before adjustment under paragraphs (1) and (3)) be increased by .25 cents.

`(B) CO-PRODUCTION FACILITY- For purposes of subparagraph (A), the term `co-production facility' means a facility which--

`(i) enables a qualified facility to produce heat, mechanical power, chemicals, liquid fuels, or minerals from qualified energy resources in addition to electricity, and

`(ii) produces such energy on a continuous basis.

`(C) ELIGIBLE TAXABLE YEAR- For purposes of subparagraph (A), the term `eligible taxable year' means any taxable year in which the amount of gross receipts attributable to the co-production facility of a qualified facility are at least 10 percent of the amount of gross receipts attributable to electricity produced by such facility.'.

(6) QUALIFIED FACILITIES LOCATED WITHIN QUALIFIED INDIAN LANDS- Section 45(b) (relating to limitations and adjustments), as amended by paragraph (5), is amended by adding at the end the following:

`(5) INCREASED CREDIT FOR QUALIFIED FACILITY LOCATED WITHIN QUALIFIED INDIAN LAND- In the case of a qualified facility described in subsection (c)(5)(D) which--

`(A) is located within--

`(i) qualified Indian lands (as defined in section 7871(c)(3)), or

`(ii) lands which are held in trust by a Native Corporation (as defined in section 3(m) of the Alaska Native Claims Settlement Act (43 U.S.C. 1602(m)) for Alaska Natives, and

`(B) is operated with the explicit written approval of the Indian tribal government or Native Corporation (as so defined) having jurisdiction over such lands,

the amount in effect under subsection (a)(1) for a taxable year shall (after adjustment under paragraphs (2) and (4) and before adjustment under paragraphs (1) and (3)) be increased by .25 cents.'.

(7) Conforming amendments-

(A) The heading for section 45 is amended by inserting `and waste products' after `resources'.

(B) The item relating to section 45 in the table of sections subpart D of part IV of subchapter A of chapter 1 is amended by inserting `and waste products' after `resources'.

(c) ADDITIONAL MODIFICATIONS OF RENEWABLE RESOURCES AND WASTE PRODUCTS CREDIT-

(1) TREATMENT OF PERSONS NOT ABLE TO USE ENTIRE CREDIT-

(A) IN GENERAL- Section 45(d) (relating to additional definitions and special rules) is amended by adding at the end the following new paragraph:

`(8) TREATMENT OF PERSONS NOT ABLE TO USE ENTIRE CREDIT-

`(A) ALLOWANCE OF CREDIT-

`(i) IN GENERAL- Except as otherwise provided in this subsection--

`(I) any credit allowable under subsection (a) with respect to a qualified facility owned by a person described in clause (ii) may be transferred or used as provided in this paragraph, and

`(II) the determination as to whether the credit is allowable shall be made without regard to the tax-exempt status of the person.

`(ii) PERSONS DESCRIBED- A person is described in this clause if the person is--

`(I) an organization described in section 501(c)(12)(C) and exempt from tax under section 501(a),

`(II) an organization described in section 1381(a)(2)(C),

`(III) a public utility (as defined in section 136(c)(2)(B)), which is exempt from income tax under this subtitle,

`(IV) any State or political subdivision thereof, the District of Columbia, any possession of the United States, or any agency or instrumentality of any of the foregoing, or

`(V) any Indian tribal government (within the meaning of section 7871) or any agency or instrumentality thereof.

`(B) TRANSFER OF CREDIT-

`(i) IN GENERAL- A person described in subparagraph (A)(ii) may transfer any credit to which subparagraph (A)(i) applies through an assignment to any other person not described in subparagraph (A)(ii). Such transfer may be revoked only with the consent of the Secretary.

`(ii) REGULATIONS- The Secretary shall prescribe such regulations as necessary to ensure that any credit described in clause (i) is claimed once and not reassigned by such other person.

`(iii) TRANSFER PROCEEDS TREATED AS ARISING FROM ESSENTIAL GOVERNMENT FUNCTION- Any proceeds derived by a person described in subclause (III), (IV), or (V) of subparagraph (A)(ii) from the transfer of any credit under clause (i) shall be treated as arising from the exercise of an essential government function.

`(C) CREDIT NOT INCOME- Any transfer under subparagraph (B) of any credit to which subparagraph (A)(i) applies shall not be treated as income for purposes of section 501(c)(12).

`(D) TREATMENT OF UNRELATED PERSONS- For purposes of subsection (a)(2)(B), sales among and between persons described in subparagraph (A)(ii) shall be treated as sales between unrelated parties.'.

(B) CREDITS NOT REDUCED BY TAX-EXEMPT BONDS OR CERTAIN OTHER SUBSIDIES- Section 45(b)(3) (relating to credit reduced for grants, tax-exempt bonds, subsidized energy financing, and other credits) is amended--

(i) by striking clause (ii),

(ii) by redesignating clauses (iii) and (iv) as clauses (ii) and (iii),

(iii) by inserting `(other than any loan, debt, or other obligation incurred under subchapter I of chapter 31 of title 7 of the Rural Electrification Act of 1936 (7 U.S.C. 901 et seq.), as in effect on the date of the enactment of the Renewable Energy Incentives Act, or proceeds of an issue of State or local government obligations

the interest on which is exempt from tax under section 103)' after `project' in clause (ii) (as so redesignated), and

(iv) by striking `TAX-EXEMPT BONDS,' in the heading and inserting `CERTAIN'.

(2) COORDINATION WITH OTHER CREDITS- Section 45(d), as amended by paragraph (1)(A), is amended by adding at the end the following:

`(9) COORDINATION WITH OTHER CREDITS- This section shall not apply to any qualified facility with respect to which a credit under any other section is allowed for the taxable year unless the taxpayer elects to waive the application of such credit to such facility.'.

(3) CREDIT ALLOWABLE AGAINST REGULAR AND PORTION OF MINIMUM TAX-

(A) IN GENERAL- Section 38(c) (relating to limitation based on amount of tax) is amended by redesignating paragraph (4) as paragraph (5) and inserting after paragraph (3) the following:

`(4) SPECIAL RULES FOR RENEWABLE ELECTRICITY PRODUCTION CREDIT-

`(A) IN GENERAL- In the case of the renewable electricity production credit--

`(i) this section and section 39 shall be applied separately with respect to the credit, and

`(ii) for purposes of applying paragraph (1) to such credit--

`(I) 75 percent of the tentative minimum tax shall be substituted for the tentative minimum tax under subparagraph (A) thereof, and

`(II) the limitation under paragraph (1) (as modified by subclause (I)) shall be reduced by the credit allowed under subsection (a) for the taxable year (other than the renewable electricity production credit).

`(B) RENEWABLE ELECTRICITY PRODUCTION CREDIT- For purposes of this subsection, the term `renewable electricity production credit' means the credit allowable under subsection (a) by reason of section 45(a).'.

(B) CONFORMING AMENDMENTS-

(i) Subclause (II) of section 38(c)(2)(A)(ii) of such Code is amended by inserting `or the renewable electricity production credit' after `employee credit'.

(ii) Subclause (II) of section 38(c)(3)(A)(ii) of such Code is amended by inserting `or the renewable electricity production credit' after `employee credit'.

(4) EXPANSION TO INCLUDE ANIMAL WASTE- Section 45 (relating to electricity produced from certain renewable resources), as amended by paragraphs (2) and (4) of subsection (b), is amended--

(A) by striking `poultry' each place it appears in subsection (c)(1)(C) and subsection (d)(6) and inserting `animal',

(B) by striking `POULTRY' in the heading of paragraph (6) of subsection (d) and inserting `ANIMAL',

(C) by striking paragraph (3) of subsection (c) and inserting the following:

`(3) ANIMAL WASTE- The term `animal waste' means manure and litter and other animal wastes, including--

`(A) wood shavings, straw, rice hulls, and other bedding material for the disposition of manure, and

`(B) byproducts, packaging, and other materials which are nontoxic and biodegradable and are associated with the processing, feeding, selling, transporting, and disposal of such animal wastes.', and

(D) by striking subparagraph (C) of subsection (c)(5) and inserting the following:

`(C) ANIMAL WASTE FACILITY-

`(i) IN GENERAL- Except as provided in clause (ii), in the case of a facility using animal waste (other than poultry) to produce electricity, the term `qualified facility' means any facility of the taxpayer which is originally placed in service after the date of the enactment of this clause.

`(ii) POULTRY WASTE- In the case of a facility using animal waste relating to poultry to produce electricity, the term `qualified facility' means any facility of the taxpayer which is originally placed in service after December 31, 1999.'.

(5) TREATMENT OF QUALIFIED FACILITIES NOT IN COMPLIANCE WITH POLLUTION LAWS- Section 45(c)(5) (relating to qualified facilities), as amended by paragraphs (2) and (3) of subsection (b), is amended by adding at the end the following:

`(E) NONCOMPLIANCE WITH POLLUTION LAWS- For purposes of this paragraph, a facility which is not in compliance with the applicable State and Federal pollution prevention, control, and permit requirements for any period of time shall not be considered to be a qualified facility during such period.'.

(6) PERMANENT EXTENSION OF QUALIFIED FACILITY DATES- Section 45(c)(5) (relating to qualified facility), as redesignated by subsection (b)(2)(A), is amended by striking `, and before January 1, 2004' in subparagraphs (A) and (B).

(d) EFFECTIVE DATE- The amendments made by this section shall apply to electricity and other energy sold after the date of the enactment of this Act.

END