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Energy Alert: New Florida law encourages renewable energy production

The Florida Legislature recently passed House Bill 7117, which contains provisions on energy efficiency and conservation, renewable electric energy, and renewable and alternative fuels for motor vehicles. Effective July 1, 2012, this legislation changes Florida law governing renewable energy production by increasing the financial incentives for companies pursuing energy efficiency and renewable energy projects. Specifically, HB 7117 provides tax incentives for renewable energy production, provides cash incentives for property owners who make energy efficient improvements to their property, changes the renewable fuel portfolio by expanding the definition of “alternative fuel” and includes training requirements that provide opportunities for government contracting. Among its most important changes are the expansion of the definition of renewable fuels beyond ethanol and the extension of qualified targeted industry tax refund incentives to suppliers of alternative fuels, even if they supply alternative fuels to utilities, which historically have been excluded from the program. Both of these changes are a boon to Florida’s biofuel industry and are expected to make Florida more attractive to alternative fuel developers and providers. Other changes will reduce regulatory barriers to the provision of renewable energy sources, such as electric charging stations.

Florida Commissioner of Agriculture and Consumer Services Adam Putnam led the effort to assemble the various proposals adopted in the bill, which passed both chambers overwhelmingly. On April 13, 2012, Governor Rick Scott allowed the bill to become law without his signature.

Tax Incentives – Benefits for Renewable Energy Industry

Sales and use tax exemption for renewable energy technologies

HB 7117 expands the sales tax exemption for equipment used in distribution of biodiesel, ethanol, and other renewable fuels. The total cap is $1 million per state fiscal tax year. This law also reinstates the biofuel portion of the sales and use tax exemption for another four years. The definition of “renewable fuel” includes fuels in addition to ethanol, such as biobutanol.

The Department of Agriculture and Consumer Services (“DACS”) and the Department of Revenue will jointly administer the program, and the DACS must determine and regularly publish on its website the amount of sales tax remaining each fiscal year.

Renewable energy technologies investment tax credit

HB 7117 provides a renewable energy technologies investment tax credit against the corporate income tax based on investment in equipment to be used in production, storage, and distribution of renewable fuels. The cap is $1 million per corporation and $10 million total per state fiscal year. The definition of “renewable fuel” includes fuels in addition to ethanol, such as biobutanol.

This credit can be used for tax years beginning on or after January 1, 2013 in an amount equal to the eligible costs incurred between July 1, 2012 and June 30, 2016. If a corporation has insufficient tax liability, the unused amount may be carried forward and used until December 31, 2018. DACS and the Department of Revenue will jointly administer the program, and DACS must determine and regularly publish on its website the amount of sales tax remaining each fiscal year.

Renewable energy production credit

HB 7117 creates a renewable energy production credit against the corporate income tax based on $0.01 per kilowatt hour of renewable energy produced. The cap is $1 million per corporation and $5 million for state fiscal year 2012-2013, which is increased to $10 million for 2013-2014 through 2016-2017, with provisions for prorating credits if claims exceed the annual cap.

This law reinstates and modifies the Florida Renewable Energy Production Credit for electricity produced and sold on or after January 13, 2013, through June 30, 2016. This credit remains available for a new renewable energy facility that was operationally placed in service after May 1, 2006, and will become available for a Florida renewable energy facility that has an expansion operationally placed in service after May 1, 2006, and whose cost exceeded 50 percent of the assessed value of the facility immediately before the expansion. A new facility’s credit will now be based on the taxpayer’s sale of the facility’s entire electrical production, while an expanded facility’s credit will now be based on the increases in the facility’s production achieved after May 1, 2012, rather than after May 1, 2006.

Responsibility for certifying applicants for the renewable energy corporate income tax credits now belongs to DACS, which must prepare an assessment on the use of the Sales and Use Tax Exemption For Renewable Energy Technologies, the Renewable Energy Technologies Investment Tax Credit, and the Renewable Energy Production Credit.

Cash Incentives for Homeowners – Benefits Contractors and Suppliers

Local Government Infrastructure Surtax

HB 7117 authorizes local government to use discretionary sales surtax proceeds to provide funding to residential property owners who make energy efficiency improvements to their residential property if done pursuant to referendum. It expands the list of authorized uses of the proceeds of the Local Government Infrastructure Surtax. Pursuant to this law, this surtax may also be used to provide loans, grants, or rebates to residential and commercial property owners who make energy efficiency improvements to their residential or commercial property, if a local government ordinance authorizing such use is approved by referendum.

The law defines the term “energy efficiency improvement” as any energy conservation and efficiency improvement that reduces consumption through conservation or a more efficient use of electricity, natural gas, propane, or other forms of energy on the property, including but not limited to: air sealing; installation of insulation; installation of energy-efficient heating, cooling or ventilation systems; installation of solar panels; building modifications to increase the use of daylight or shade; replacement of windows; installation of energy controls or energy recovery systems; installation of electric vehicle charging equipment; and installation of efficient lighting equipment.

Tax refund program for qualified target industry businesses

HB 7117 expands the tax refund program for qualified target industry businesses by enabling renewable energy producers who only sell electricity to a utility at wholesale, and who therefore are not licensed as electric utilities, to qualify for this tax refund program. Specifically, this law clarifies that an electric utility company that is excluded from the definition of target industry business is one that meets the definition of an electrical utility under Florida law. “Electric utility” is defined as any municipal electric utility, investor-owned electric utility, or rural electric cooperative which owns, maintains, or operates an electric generation, transmission, or distribution system within the state. Previously, renewable energy producers that sold energy to utilities were unable to obtain qualified target industry tax refunds because they were believed to be “utilities” within the meaning of the exclusion. The amendment will enable alternative energy producers in Florida to receive the refunds.

Changing renewable fuel standard – Going beyond ethanol

HB 7117 revises the Renewable Fuel Standard (RFS) to include “other alternative fuel,” which will allow additional fuels besides ethanol to qualify as an alternative fuel under the RFS. As a result of this expansion, future renewable products such as biobutanol and other products that can compatibly blend with gasoline will qualify as an “other alternative fuel” so long as they meet the specifications adopted by DACS. This expansion applies only to gasoline, and therefore does not include biodiesel or biomass-based diesel, as these fuels do not blend with gasoline.

The law clarifies prior legislation on the RFS by specifying that the state’s RFS does not apply to retailers to prohibit them from selling or offering to sell unblended gasoline. The law directs DACS to compile a list of retail dealers that sell or offer to sell unblended gasoline in the state and to post this list on its website. Florida boaters will applaud this clarification and list, as boaters have been complaining for years about the perceived effects of ethanol-blended gas on their fuel tanks and systems.

Interestingly, this expansion will take effect while great debate surrounds the benefits, if any, of blending ethanol in gasoline. Ethanol proponents contend that the market has not had adequate time to respond to the new standard and that ethanol is a better alternative than pure gasoline. Ethanol opponents’ main contention is that ethanol can be highly corrosive and can damage certain types of engines. Additionally, opponents contend that the crop production required to satisfy the demand of the ethanol industry will increases prices for many products.

Training requirements – Opportunities for government contracts

The training requirements of HB 7117 focus on the long-term goal of developing “certified energy managers” (“CEM”) by the Association of Energy Engineers. The legislature determined that training of CEMs is required because qualified energy managers are essential to the goal of effectively reducing energy consumption and costs. These training requirements provide an opportunity for government contracting in certification courses.

Additional Provisions

House Bill 7117 also accomplishes the following:

  • Exempts electric vehicle charging stations from regulation by the Public Service Commission (“PSC”), requires DACS to adopt rules related to sales at electric vehicle charging stations, and directs the PSC to conduct a study on the potential effects of electric vehicle charging stations on energy consumption and the electric grid;
  • Appropriates $250,000 in nonrecurring money for the 2012-2013 fiscal year from the PSC Regulatory Trust Fund for the PSC to use, in consultation with DACS, to contract for an independent evaluation of the Florida Energy Efficiency and Conservation Act to determine whether it remains in the public interest. The review must consider: the cost to ratepayers; the incentives and disincentives associated with the act’s provisions; whether the programs create benefits without undue burden on the customers; and the models and methods used to determine conservation goals;
  • Amends the definition of “local government” to facilitate Property Assessed Clean Energy projects by local governments by including separate legal entities created by interlocal agreements in this definition, permitting local governments to coordinate their bonding capacity and pool tax resources;
  • Revises the ten-year site plan process to specifically require electrical utilities to provide information concerning actual and planned renewable energy production;
  • Includes algae in the DACS’ permitting of nonnative plants so they can be used on a large-scale as feedstocks for renewable fuels, allows consideration of experience and research in exempting plants from permitting requirements and in decreasing bonding requirements, and revises financial assurance requirements;
  • Requires DACS to conduct a statewide forest inventory analysis, which will help determine what biomass is available;
  • Requires DACS to develop and maintain a webpage containing cost and benefit information on energy efficiency and conservation measures to educate consumers; and
  • Requires coordination between the Department of Management Services and DACS in further developing Florida’s energy management plan for state buildings over 5,000 square feet.
  • Repealed the law requiring the Public Service Commission to present a Renewable Portfolio Standard to the legislature.

The attorneys of the McDonald Hopkins Energy Practice Group have been advising clients in the energy industry for decades. For more information or to learn about how McDonald Hopkins can assist you and your business, please contact:

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© 2012 McDonald Hopkins LLC All Rights Reserved. This Alert is designed to provide current information for our clients, friends and their advisors regarding important legal developments. The foregoing discussion is general information rather than specific legal advice. Because it is necessary to apply legal principles to specific facts, always consult your legal advisor before using this discussion as a basis for a specific action.