Colorado Division of Property Taxation Considers Proposed Tax Treatment of Transmission Lines
The Colorado Division of Property Taxation will hold an important open public meeting Thursday, January 14, 2010, to discuss the "tax treatment of transmission lines". Details of the proposed options will be posted on the Division's website under the "state assessed tab." In the notice provided by the Division, the agenda for the meeting will include addressing the following questions:
- Is the value of the transmission lines accounted for anywhere using the current valuation methodology?
- If not, how should this be accounted for?
- Pick up locally.
- Add to the value of the renewable energy facility determined by the state.
- Increase the capital cost threshold to account for the transmission line.
While the details of the proposed tax treatment have not been disclosed publicly, it is currently unclear how this will impact new and existing transmission lines, including gen-tie lines from renewable energy projects. The Division has provided a remote access opportunity to participate in the meeting. For those interested in attending in person, the meeting will be held at the Division of Property Taxation Office, 1313 Sherman Street, Room 419, Denver, Colorado 80203. It is anticipated that key parties involved in the development of renewable energy projects will be in attendance, along with representatives from the Interwest Energy Alliance.
To the degree that the proposed change in tax treatment increases the taxes borne by existing facilities--most of which have already entered into power purchase agreements--the experience underscores a topic that developers ought to consider when negotiating long term PPA's: if a tax or other charge imposed after the PPA's effective date materially increases a project's cost burden, does the developer have the right under the PPA to pass any or all of the costs onto the buyer? If not, does the developer have any right to renegotiate or terminate the PPA so as to reprice it to account for the unexpected tax burden? Or must the developer absorb the cost for its own account?
Utility pro forma PPAs rarely allow the developer to pass such "change of cost" risks through to the buyer, but the Seller should nonetheless carefully consider such risks (e.g., changes in taxes or integration charges) and its willingness to absorb all of those risks over the life of a long term PPA--it is sometimes possible to negotiate a sharing of unexpected costs that arise after the effective date of the PPA, especially if the utility offtaker is in a position to resist the imposition of such costs.
U.S. Wind Industry Breaks Records in 2008, Gets a Boost From Secretary Chu
Today, U.S. Department of Energy Secretary Steven Chu announced that 28 new wind energy projects will receive up to $13.8 million in funding for wind turbine research and testing and transmission analysis, planning, and assessments. Most of the $13.8 million comes from Recovery Act funds. Recognizing the struggles that Americans are facing in the current economic climate, Secretary Chu noted that the Recovery Act funds are intended to rebuild the fundamentals of the economy, in part by “spur[ring] a revolution in clean energy technologies.” Chu added that wind energy is a “critical factor” in achieving President Obama’s clean energy and job growth goals.
Secretary Chu’s funding announcement was coupled with the release of the Department of Energy’s 2008 Wind Technologies Market Report. As detailed in the report, the U.S. wind industry continues to reach impressive milestones. For the fourth year in a row, the U.S. boasted the fastest-growing wind power market. Also for the fourth consecutive year, wind power was the second largest new resource added to the electrical grid, contributing 42 percent of all new U.S. electrical generating capacity in 2008. As a result of increased demand for wind, the share of domestically manufactured wind turbine components increased dramatically in the last three years, with about 50 percent of these components now being manufactured in the U.S. In 2008, approximately 8,400 new domestic manufacturing jobs were added in the wind sector. Given these statistics, it is no wonder that cultivating a strong domestic wind industry is one of the keys to meeting the Obama Administration’s clean energy and economic recovery goals.
SHOW ME THE MONEY: $4.15 Billion Available for Smart Grid Projects
On June 25, 2009, the Department of Energy (“DOE”) issued a Funding Opportunity Announcement (“FOA”) to deploy over $4.15 billion from the American Recovery and Reinvestment Act (“Recovery Act”) to be used to fund smart grid projects. These funds are being deployed through two FOAs. The first FOA provides $3.4 billion to support the Smart Grid Investment Grant (“SGIG”) program and is related to projects that further one or more smart grid functions as listed in Section 1306(d) of the Energy Independence and Security Act of 2007 (“EISA”). The second FOA provides $615 million to support the Smart Grid Demonstration Program (“SGDP”) and is related to projects that demonstrate new and more cost-effective smart grid technologies.
For more information, see our latest client alert available by clicking here.
Strategies for Tapping the West's Renewable Energy Potential
The Western Governors' Association ("WGA") gathered in Park City, Utah for its annual meeting, which was held on June 14-16, 2009. Attendees at the meeting included Governors Bill Ritter (Colo.); C.L. "Butch" Otter (Idaho); Brian Schweitzer (Mont.); Dave Heineman (Neb.); Bill Richardson (N.M.); Benigno Fitial, Northern Mariana Islands; Ted Kulongoski (Ore.); Mike Rounds (S.D.); Dave Freudenthal (Wyo.); and Jon Huntsman, Jr. and Lieutenant Governor Gary Herbert (Utah) , along with Canadian Premiers Ed Stelmach, Alberta; Gary Doer, Manitoba; and Brad Wall, Saskatchewan.
The morning session on Monday, June 15, 2009, was kicked off with the unveiling of the Western Renewable Energy Zones-Phase 1 Report, which was a product of a joint initiative between the WGA and the U.S. Department of Energy (the "WREZ Initiative"). The intention of the WREZ Initiative is twofold: (1) to identify Western Renewable Energy Zones in the Western Interconnection and (2) to facilitate the development of high voltage transmission to those areas with abundant high-quality renewable resources and low environmental impacts. Governor Schweitzer provided an overview of the WREZ Phase I report, which included a summary of the process for obtaining feedback from a diverse group of stakeholders to provide the analysis and tools for constructing a plan to facilitate the construction of new, utility scale renewable energy facilities and any needed transmission to deliver that energy across the Western Interconnection. The WREZ Initiative has developed a modeling tool for evaluating the relative economic attractiveness of costs of delivered renewable energy, including transmission costs, from specific renewable resource areas delivered to specific load centers.
With the WREZ Phase I Report as the backdrop, the Western Governors were joined by Secretary of Energy Steven Chu, Secretary of Agriculture Tom Vilsack, Secretary of Interior Ken Salazar, and FERC Chairman Jon Wellinghoff for an insightful and fulsome discussion on the current challenges faced by the Western states in developing renewable energy projects and building the necessary transmission infrastructure, along with policy recommendations to assist in overcoming those challenges through collaboration between the federal and state agencies.
Governor Freudenthal indicated that from his perspective, there were several major challenges to building transmission in the West, but that the largest hurdle was permitting transmission lines or other renewable energy projects on federal lands. Another issue of concern for Governor Freudenthal was in "right sizing" the transmission lines and how Stimulus monies could be used to jumpstart the process of transmission upgrades. Secretary of Interior Ken Salazar responded that the Department of Interior will be establishing renewable energy offices throughout the West, including one in Wyoming, that will be staffed by employees familiar with renewable energy project development. The goal is to be able to fast track renewable energy applications and to obtain quick decision making. Secretary of Energy Chu indicated that the Department of Energy would be announcing funding opportunities related to transmission, including:
- $80 Million for Regional and Interconnection Transmission Analysis and Planning
- $50 Million for Assistance to State Electricity Regulators
- Approximately $40 Million to Support Energy Assurance Capabilities for States
Secretary Chu also indicated that several of the federal agencies under his watch, including WAPA and BPA, are not moving in a timely manner in facilitating funding opportunities for renewable energy and transmission development. Secretary Chu expressly requested that the Governors contact him directly if any of these agencies are taking actions that will deter private investment in renewable energy and related transmission projects so that he can address these potential impacts immediately.
Overall, the presence of the three cabinet members from the Obama Administration, along with FERC Chairman Jon Wellinghof and Council on Environmental Quality Chairwoman Nancy Sutley at this conference was a strong indication of the Administration's desire to partner with the Western Governors to address the country's long-term energy challenges, create jobs, and to cut the country's carbon emissions by unlocking the enormous potential for renewable energy in the Western United States. The Western Governors passed Policy Resolution 09-1 (Energy Policy, Renewable Energy and Transmission for the West) with directives to WGA staff:
- To work with Congress, the Administration, and other appropriate entities to implement the policies contained in the resolution;
- To continue to implement the Western Renewable Energy Zones initiative and to report on the progress of the initiative at the next scheduled meeting;
- To work with the federal government as necessary to create and implement a long-term, comprehensive-energy policy that ensures that the WGA moves toward affordable and environmentally responsible energy security and independence;
- To work with WECC to establish future transmission scenarios;
- To work with Congress to extend the duration and amount of the U.S. Department of Energy (DOE) existing federal loan guarantee program and to expedite the issuance of loan guarantees in all energy sectors.
Annual Meeting of the Western Governors' Association: June 14-16, 2009, Park City, Utah
The Western Governors' Association ("WGA") will hold its annual meeting in Park City, Utah on June 14-16, 2009. Based on a review of the Agenda posted to the WGA's website, the focus of the meeting will be on developing regional and global strategies for addressing important issues related to energy resources, climate change and water. I will be attending the annual meeting this year and reporting on the outcome of discussions on the following topics:
On June 14, 2009, there will be a panel discussion on policies and technologies to address water use in an era of declining water supplies due to climate change. Panelists include: Dr. Peter H. Gleick, co-founder and president of the Pacific Institute; Professor Eilon Adar, Zuckerberg Institute for Water Resources, Ben-Gurion University of the Negev; Doug Miell, Principal, Miell Consulting; Cameron J. Brooks, Ph.D., Director of Solutions and Business Development for IBM Corporation's Big Green Innovations initiative.
On June 15, 2009, Secretary of Agriculture Tom Vilsack, Secretary of the Interior Ken Salazar, Secretary of Energy Steven Chu and FERC Chairman Jon Wellinghoff will provide their perspectives on developing large amounts of clean energy in the West and the transmission lines needed to bring it to market. Following their remarks, they and the Governors will have the opportunity to discuss what cooperation is needed between states and the federal government to accelerate progress. An outline of discussion points that might be expected from the Governors during this session could include topics addressed in the letter dated May 1, 2009 from the WGA to the Senate Energy & Natural Resources Committee.
In addition, there will be a panel discussion on international, U.S. and regional strategies for addressing climate change. Panelists for this discussion include: Robert B. Zoellick, President of The World Bank; Joan Ruddock, British Member of Parliament and Parliamentary Under Secretary of State for Energy and Climate Change; Steven Chu, Secretary of Energy; and Nancy Sutley, Chair of the White House Council on Environmental Quality. Attendees at the conference will also have the opportunity to hear a briefing from Dr. Jane Lubchenco, Administrator of National Oceanic & Atmospheric Administration, on "Creating a National Climate Service."
On June 16, 2009, Susan Shirk, Director of the University of California Institute on Global Conflict and Cooperation, University of California, San Diego, will be a Keynote speaker, followed by a panel discussion on ways national and subnational governments can cooperate to expedite the deployment of new technologies and policies to address energy and climate change. Panelists include: Eric Heitz, President of The Energy Foundation; Susan Shirk, Director of the University of California Institute on Global Conflict and Cooperation; Charles Freeman, Freeman Chair in China Studies at the Center for Strategic and International Studies.
The meeting is being hosted by Utah Governor and Western Governors' Association Chairman Jon M. Huntsman, Jr., and his wife Mary Kaye and Lt. Governor Gary Herbert. Expected at the meeting are eleven Western Governors and three Western Canadian Premiers and 500 attendees including Obama Administration officials, other VIPs and industry and non-governmental leaders from around the West, across the country and around the world.
Green Power Express Receives Green Light from FERC
On April 10, the Federal Energy Regulatory Commission approved a request for various transmission infrastructure investment incentives submitted by Green Power Express LP (GPE), a transmission-only partnership that proposes to build a 765 kV "green superhighway" consisting of three interconnected loops in North and South Dakota, Minnesota, and Iowa. GPE's proposal will also extend radially into Wisconsin, Illinois, and Indiana, making use of existing substations in some locations and constructing high voltage substations in others. In total, the project will include approximately 3,000 miles of transmission lines that reach 12,000 MW of wind and stored energy. GPE estimates the project's cost at $10-12 billion and hopes the project will be in service in 2020.
FERC's approved the following (non-exhaustive) key incentives that reduce GPE's exposure to risk in moving the project forward.
Abandoned Plant. FERC granted GPE's request to recover prudently incurred expenses if the project is abandoned for reasons outside of GPE's control. FERC stated that the recovery of abadonment costs is a means for encouraging transmission development, reducing the risk that GPE's investors may lose their entire investment.
Regulatory Asset. FERC will allow GPE to create initial and subsequent vintage regulatory assets in order to defer pre-construction, development, and start-up costs until GPE has customers from which it may later recover those costs. Such cost deferral will also help GPE attract financiers.
Construction Work in Progress. FERC approved GPE's request to include 100 percent of construction work in progress in its revenue requirement, allowing GPE to service its debt and reduce borrowing over the project's development--something that would otherwise be difficult for a $10-12 billion project with a 2020 in-service date.
The incentives granted to GPE, as well as other recent changes to FERC's transmission policies, show that the agency is becoming increasingly serious about spurring transmission development forward. If we are to reach the 62 GW of wind currently in the Midwest ISO interconnection queue, as well as other renewable resources elsewhere, transmission developers will need creative regulatory solutions to help attract financiers and gain firm commitments from generation developers. FERC continues to take positive steps forward.
A Superconductor Pipeline for Renewable Energy
Among all the interesting presentations at this month's AWEA transmission and wind workshop, American Superconductor's presentation about developments with superconducting transmission lines was particularly noteworthy. Superconducting direct current lines offer greater efficiency, as well as siting and aesthetics benefits, but have historically fallen victim to much higher costs when compared to traditional overhead transmission lines. However, with talks of extra-high voltage "green superhighways" transmitting renewable energy from the nation's interior to load zones, it appears from American Superconductor that the costs of a 5 GW, 200 kV superconductor line are nearly equivalent to 765 kV overhead lines when built on a 1,000 mile scale. Perhaps we will see a superconducting pipeline instead of an extra-high voltage overlay.
For more information about the viability of superconducting transmission lines, look for American Superconductor's White Paper in the near future.
FERC Rejects MISO's Market Coordination Service Proposal, Approves Anchor Tenant Merchant Transmission
From our colleague and FERC guru, Jason Johns:
MISO’s Proposed Market Coordination Service:
The Federal Energy Regulatory Commission today rejected the Midwest ISO’s proposed Market Coordination Service that would have given certain transmission owners access to the ISO energy and operating reserve markets without requiring those owners to hand over control of facilities or share in transmission development costs. Although the proposal was an innovative approach to expanding the ISO’s market footprint, FERC worried that the proposal would harm consumers and cause the ISO to unravel as transmission owners opt out of full membership to avoid transmission cost-sharing. FERC also questioned whether the proposal would attract more wind energy into the ISO market because, by leaving pancaked transmission rates intact, wind resources could face higher transmission rates as ISO members withdraw in favor of Market Service. The Midwest ISO must remove all Market Service language from its tariff within the next 30 days.
Renewable Energy Transmission Project Rates:
In other news, FERC accepted a request for waiver of criteria traditionally used to evaluate merchant transmission projects. In their applications, the Zephyr and Chinook merchant transmission projects proposed to presubscribe 50% of the projects’ 3,000 MW capacity to an “anchor tenant” wind developer in order to defray upfront development costs, and then allocate the remaining 50% through a traditional open season process. The proposal was intended to avoid the “chicken-and-egg” scenario often associated with merchant transmission, i.e.,resources will not develop without assurances that transmission is available, and likewise transmission projects will not move forward without assurances from resource developers. FERC’s acceptance of this modified approach to merchant transmission expressly opened the door to similar proposals in the future. “Anchor tenant” merchant transmission is the new standard.
Upper Midwest Transmission Development Initiative Created
On September 18, 2008, the Midwest states of Minnesota, Iowa, Wisconsin, North Dakota and South Dakota announced creation of a regional transmission planning effort that will "promote regional electric transmission investment and cost sharing" among the states. Several entities, including MISO (which is currently conducting transmission planning studies in the region) and ITC, have issued press releases in favor of the initiative. The initiative, scheduled to have its first planning meeting in October, will coordinate efforts among entities involved in transmission matters, including state regulatory agencies, transmission companies, utilities, independent generation owners and other key stakeholders.
Client Alert: FERC's Conditional Approval of MISO Queue Reform
Check out our client alert on FERC's recent conditional approval of MISO's revised large generator interconnection process. It provides highlights of the ruling and identifies next steps that MISO must take in order to flesh out some issues, including certain milestones that generators must meet in order to move towards getting their project interconnected.
Beth Soholt, executive director of Wind on the Wires, believes that the ruling is pretty consistent with what those in the industry expected, and that the intent was to give generators a more clear picture up front of what the actual costs are for carrying a project through to interconnection. She thinks that we'll have to wait and see how MISO interprets the clarification requirements, and how generators respond to the new process, to really understand what the impact will be and whether this will result in a material change in the number of projects entering the queue.
Stay tuned!
FERC Rules on MISO Queue Reform Proposal
On August 25, FERC issued its ruling on the Midwest Independent Transmission System Operator (MISO) plan to reform the generator interconnection queue process - the method by which transmission requirements for generators wishing to connect new projects to the grid in the Midwest are reviewed and approved. FERC conditionally accepted the proposed tariff revisions, with an effective date of August 25, 2008, and directed MISO to make a compliance filing within 30 days of the Order. Major changes include addition of a Pre-Queue Phase, addition of a Fast Track Process, revisions to the amount and timing of deposits, revisions to the milestones projects must meet to move forward, and limitations on the ability to suspend.
Watch for a client alert shortly!
