(Dow Jones) The U.S. Treasury and the Department of Energy Wednesday said federal investment grants for smart grid projects--artificially intelligent power grid systems--will be tax exempt.

Firms such as Duke Energy Corp. (DUK), FPL Group Inc. (FPL), Exelon Corp. (EXC) and Constellation Energy Group Inc. (CEG) have been awaiting the tax guidance from the government before moving ahead with their proposed projects.

The industry had warned that taxing the $3.4 billion made available through the smart grid investment grant program could result in the cancellation or downsizing of electric-grid projects. An official for the industry group, the Edison Electric Institute, said many companies weren't signing final agreements on the projects until the tax dispute had been resolved.

"This is an important step toward reaching the Administration's goal of a more reliable and efficient electrical grid," said Matt Rogers, Senior Advisor to the Secretary of Energy.

EEI President Tom Kuhn Wednesday said the decision "will give the green light to electric utilities eager to finalize grant agreements," and that "utilities will be able to proceed without delay."

The grants are funded through the stimulus package approved last year. The DOE said the program was the single largest energy grid modernization investment in the U.S.

A smart grid is essential for increasing the efficiency of the nation's power grid and to expanding renewable energy production.

"By clarifying the tax treatment of Smart Grid Investment Grants, we are ensuring that their full impact is felt in the communities where these investments are being made," Treasury Assistant Secretary for Management Dan Tangherlini said in a statement.

Many of the projects to increase reliability and energy efficiency were already being developed before the grant program started. And even with the tax rate as high as 40% on the handout, many companies still stand to receive tens of millions of dollars they wouldn't have otherwise. The projects are important to the earnings of utilities, which rely on increased infrastructure investment for growth.


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