In light of a recent IRS Private Letter Ruling addressing public utility property and loss disallowance rules, here are six key items to be aware of today in tax equity transactions for renewable energy projects owned by public utilities.
Continue Reading Tax Equity for Public Utilities
On May 21, 2020, the Federal Energy Regulatory Commission (“FERC” or “Commission”) approved two orders by 3-1 votes revising its methods to estimate electric, natural gas and oil utilities’ returns on equity (“ROE”).[1] Return on equity is one of the most contentious issues in cost-of-service proceedings before FERC, and FERC’s guidance is unlikely to alter that. In many important ways, the guidance significantly deviated for electric utilities and pipelines, which raises a number of issues regarding whether such deviations are supported by each industry’s risks.
Continue Reading FERC Issues Revised Guidance Regarding Return on Equity Calculations
On May 1, 2020, President Trump issued Executive Order 13920 (“Executive Order”), which prohibited certain transactions involving bulk-power system electric equipment manufactured or supplied by persons owned by, controlled by, or subject to the jurisdiction of a foreign adversary that poses an undue risk of catastrophic effects on the security or resiliency of U.S. critical infrastructure or the national security of the U.S. The Executive Order poses several potential problems for electric industry participants, particularly renewable generation owners, developers and investors, which will likely cause uncertainty in equipment procurement decisions. The Executive Order and its potential issues are discussed below.
Continue Reading Securing the U.S. Bulk Power System: An Assessment of Executive Order 13920
The Federal Energy Regulatory Commission (“FERC” or “Commission”) issued on April 16, 2020 two orders[1] largely denying requests for rehearing of its prior decisions that, among other things, subjected to minimum offer price thresholds energy resources participating in PJM Interconnection, L.L.C.’s (“PJM”) capacity market which receive so-called “State Subsidies”.[2] FERC reaffirmed that a resource within broadly-defined categories (e.g., renewable resources) receiving State Subsidies must offer capacity in PJM’s forward capacity market at or above an administratively-established price floor (i.e., the minimum offer price rule, or “MOPR”), regardless of such a resource’s actual incremental costs. Potential and likely ramifications of the Commission’s actions, arguments opponents of the April 16 Orders are likely to raise and potential paths forward for industry market participants are set forth below. Additionally, the most promising arguments that could be used to invalidate the April 16 Orders, some of which are discussed below, have not been raised before or addressed by FERC.
Continue Reading FERC Reaffirms Controversial Energy Capacity Decisions: Insights and Analysis
Members of the Sheppard Mullin Energy, Infrastructure and Project Finance Team wrote an article published in the March 16, 2020 edition of Tax Notes Federal regarding the practical impacts on tax equity financing for renewable energy projects of a private letter ruling (“PLR”) published by the IRS in late 2019. The PLR addressed normalization and loss disallowance rules applicable to public utilities. These rules have posed significant challenges to public utilities that want to own renewable energy generation facilities, make efficient use of the tax benefits they provide (via the tax equity market) and recover their costs from ratepayers.
Continue Reading Walking the Path of Utilities’ Ownership of Wind and Solar
Last week the Federal Energy Regulatory Commission (“FERC”) continued to issue orders, notices, and guidance related to the current novel coronavirus pandemic, the health and safety of FERC and energy industry employees, and the continued reliability of the U.S. energy sector. A summary of FERC’s relevant actions are provided below, including information regarding FERC’s operating status, extensions for filing deadlines and efforts to ease regulatory burdens during this crisis.
Continue Reading FERC Orders, Notices, and Other Guidance Regarding the Novel Coronavirus
On February 20, 2020, the Federal Energy Regulatory Commission (“Commission” or “FERC”) issued several orders narrowing New York Independent System Operator, Inc.’s (“NYISO”) buyer-side market power mitigation rules in its mitigated capacity zones,[1] including NYISO’s proposal to exempt up to 1,000 megawatts (“MW”) of renewable resources from NYISO’s buyer-side market mitigation rules in a capacity auction year (“NYISO Renewable Exemption Order”). The Commission’s actions will significantly impact renewable resources in NYISO, PJM Interconnection, L.L.C. (“PJM”), and potentially other organized markets. Rejection of the proposed MW exemption will hinder renewable resources’ participation in NYISO’s capacity auction by: (i) requiring them to bid no lower than an established price floor, regardless of their actual incremental costs; and (ii) tightening currently-available mitigation exemptions.
Continue Reading FERC Continues to Squeeze Renewable Resources Participating in Wholesale Electric Capacity Markets
The Federal Energy Regulatory Commission (“FERC”) requested comments on a proposed rulemaking to revise its regulations under the Public Utility Regulatory Policies Act of 1978 (“PURPA”). The Notice of Proposed Rulemaking (“NOPR”), among other things, would diminish benefits that have been afforded to Qualifying Facilities (“QFs”), including the availability and value of the “PURPA-put.” The proposed changes also could potentially block certain wind and solar projects that previously would have qualified as small power production facilities from receiving that designation. The NOPR presents uncertainty for renewable developers, as well as other non-utility generators. Adoption of the proposed changes may hinder the development of some renewable energy projects. Comments on the proposed rulemaking are due within 60 days of its publication in the Federal Register.
Continue Reading FERC Proposes Major Changes to PURPA Regulations Impacting Qualifying Facility Rates and Requirements; Throwing Roadblocks in the Path of Renewable Energy Development