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.