EPA rules - Tax issues concerning boiler MACT, utility MACT regulations 

January 10: Environmental Protection Agency (EPA) rules providing “maximum achievable control technology” (MACT) standards applicable to certain boilers (“Boiler MACT”) and power plants (“Utility MACT”) could raise some important tax issues that industry participants need to be aware of.
  • Boiler MACT generally requires certain mostly industrial boilers to meet specific emissions standards. To meet these standards, many coal-fired facilities will have to switch to natural gas as a compliance strategy.
  • Utility MACT places similar emissions standards on power plants, and most affected coal-fired plants will also have to switch to natural gas to comply with the standards.

In general, the implementation dates for facilities that would have to switch to natural gas to comply start in 2016 for both Boiler MACT and Utility MACT, notwithstanding certain exceptions, extensions, and delays that may apply.


For most of the affected facilities, conversion to natural gas will require changes, upgrades or new installation of equipment. In addition, the local gas utility will need to construct the necessary natural gas infrastructure.


Typically, the gas utility will require a reimbursement from the boiler or power plant operator for the costs incurred on the infrastructure construction work. Overall capital investment related to the conversion could be substantial depending on the size and scope of the operation and the number of boilers.


The reimbursement to the utility is likely to be a “contribution in aid of construction” under section 118(b)—and paid by the facility operator to the utility, is gross income in the hands of the utility and therefore subject to tax.


Read a January 2014 report [PDF 74 KB] prepared by KPMG LLP that considers the federal and state tax consequences.





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