The U.S. Department of the Treasury has issued its proposed rule for the direct-pay tax credits that electric cooperatives will soon be able to use to deploy new energy technologies, including renewables, carbon capture, nuclear power, energy storage and more.

The Treasury Department is calling the incentives “elective pay" credits.

NRECA is still reviewing the 108-page rule, but it includes many important provisions sought by electric co-ops, the association's Government Relations team said. There is a 60-day comment period that began when the proposed rule was published in the Federal Register on June 14.

Among the key provisions:

  • The direct federal incentives paid to co-ops to deploy new energy technologies will not affect co-ops' tax-exempt status. To maintain that status, co-ops are required to receive at least 85% of all income from their members. The elective pay credits will not count as non-member income.

  • The amount of project funding eligible for a credit should not be reduced by the amount of any grants or forgivable loans allocated to that project. This means elective-pay tax credits can be claimed on the total original cost of the project, resulting in maximum value for co-ops—especially when coupled with new infrastructure and U.S. Department of Agriculture funding opportunities.

  • To claim the direct-pay credits, co-ops will be able to use the familiar IRS Form 990-T for tax-exempt businesses, making it simpler and more straightforward for co-op staff.

“Collectively, this is a transformative win for electric co-ops," NRECA CEO Jim Matheson said. “The proposed rule by Treasury levels the playing field for co-ops as they seek to bolster investment in innovative energy technologies."

Congress passed the direct-pay tax credits last year as part of the broader Inflation Reduction Act. The legislation allows electric cooperatives—for the first time—to have direct access to energy tax credits that had previously been available only to for-profit companies.

Without direct federal payments, co-ops had to partner with for-profit businesses that were eligible for tax credits. That will no longer be the case now that co-ops can receive the credits themselves. Co-ops will now be able to own the facilities they create, resulting in more local jobs under local control.

NRECA, which made direct-pay incentives its top legislative priority in 2022, will continue to review the proposed rule and provide updates and member resources to co-ops in the coming weeks. NRECA's policy experts will be filing formal comments in response to the proposed rule.

The Treasury Department will publish a final rule later this year after reviewing public comments. Meanwhile, it has posted a list of frequently asked questions about the proposed rule.