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FERC Order 745 Affirmed by the United States Supreme Court

On Monday, January 25, 2016, the U.S. Supreme Court issued a decision in FERC v. Electric Power Supply Assn affirming the validity of FERC Order 745, which provides for compensation to consumers for using less power during peak demand periods.  The decision overturns the ruling in the D.C. Circuit case, EPSA v. FERC (May 27, 2014) that held that the FERC rule usurps state authority over retail electricity markets.

FERC Order 745, also known as the demand response rule, was issued in March 2011 with the goal of encouraging the participation of demand resources in wholesale markets administered by FERC. Such demand response participants, typically large consumers such as industrial consumers, factories, local utilities or large groups of electricity users, are compensated for reducing or abstaining from energy use during high demand periods by being able to bid such reduced energy consumption on the wholesale market at the same wholesale Locational Marginal Prices (“LMP”) as generating resources.  By allowing compensation of demand resources for reduced consumption, the wholesale market operates more competitively, thereby benefitting electricity customers and increasing the reliability of the grid.

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January 29, 2016   Comments Off on FERC Order 745 Affirmed by the United States Supreme Court

Renewable Energy Tax Credits Extended

On December 18, 2015, President Obama signed the $1.15 trillion omnibus spending agreement, the Consolidated Appropriations Act, 2016 (the “Act”), which provides multi-year extensions of the investment tax credit (“ITC”), the production tax credit (“PTC”), and bonus depreciation.  The Act can be found here.

Solar

The Act introduces a “beginning of construction” standard for determining when a solar project qualifies for the ITC and extends the applicable sunset dates.  Under the Act, solar projects that begin construction before 2020 qualify for the 30% ITC.  The ITC is reduced to (i) 26% for solar projects that begin construction during 2020 and (ii) 22% for solar projects that begin construction during 2021.  In each case, the solar project must be placed in service before 2024 to qualify for the applicable ITC.  Solar projects that begin construction after 2021 or are placed in service after 2023 are eligible for a 10% ITC.  The Act does not set forth the criteria for the “beginning of construction” standard, but the industry expects the IRS to follow the guidance applicable to wind facilities.

Wind

Wind projects that begin construction before 2017 will qualify for 10 years of the otherwise applicable PTC, which is indexed for inflation and was 2.3 cents per kWh in 2015.  The PTC is reduced by (i) 20% for projects that begin construction in 2017, (ii) 40% for projects that begin construction in 2018, and (iii) 60% for projects that begin construction in 2019.  Under the Act, there is no PTC for projects that begin construction after 2019.

An owner of a wind project may elect to claim the ITC in lieu of the PTC.  Wind projects that begin construction before 2017 will qualify for the 30% ITC.  The ITC for wind projects is (i) 24% for projects that begin construction in 2017, (ii) 18% for projects that begin construction in 2018, and (iii) 12% for projects that begin construction in 2019.

Other Renewable Assets

The Act also extends for two years the PTC and ITC for closed loop biomass, open loop biomass, geothermal, landfill gas, trash, qualified hydropower, and marine and hydrokinetic facilities.  Under the Act, the PTC or the ITC is available for such facilities that begin construction before 2017.

The Act did not extend the 30% ITC for combined heat and power projects, fuel cells, small wind projects, and certain other technologies.  However, Senate Minority Leader Harry Reid (D., NV) added to the Congressional Record a statement that the intent of the agreement reached with Majority Leader Mitch McConnell (R., KY) was to extend the ITC for all eligible technologies, not just solar, and that such oversight would hopefully be addressed in early 2016.

Bonus Depreciation

The Act also extended the sunset date for bonus depreciation.  Under the Act, otherwise eligible property qualifies for 50% bonus depreciation if placed in service before 2018, 40% bonus depreciation if placed in service in 2018, and 30% bonus depreciation if placed in service in 2019.  Under the Act, bonus depreciation is generally not available for property placed in service after 2019.

January 13, 2016   Comments Off on Renewable Energy Tax Credits Extended

NYPSC Seeks to Replace Net Metering, Create Methodology to Value Distributed Energy Resources

From the Washington Energy Report

On December 23, 2015, the New York Public Service Commission (“NYPSC”) issued a notice soliciting comments and proposals on an interim successor to net energy metering. The order also established a preliminary conference on January 7, 2016 to discuss the matter. The NYPSC’s notice was issued in accordance with prior NYPSC orders directing the establishment of a methodology for valuing distributed energy resources (“DER”). The notice indicates that the NYPSC is seeking to establish a new methodology and process for determining the full value of DER prior to December 31, 2016. [Read more →]

January 4, 2016   Comments Off on NYPSC Seeks to Replace Net Metering, Create Methodology to Value Distributed Energy Resources

FERC Grants Petition for Declaratory Order Disclaiming Jurisdiction Over Passive Interests Under Section 203 and Market-Based Rate Requirements

From the Washington Energy Report

The Federal Energy Regulatory Commission (FERC) has issued an order granting a petition for declaratory order in Starwood Energy Group Global, Docket No. EL15-87-000, 153 FERC ¶ 61,332 (2015). The order found that transfer of certain passive interests would not require FERC authorization under section 203 of the Federal Power Act (FPA), such passive interests do not create affiliation requiring inclusion in certain market-based rate filings under FPA section 205, and holders of those passive interests alone would not result in the entities being considered public utilities under FPA section 201 or holding companies under the Public Utility Holding Company Act of 2005 (PUHCA). [Read more →]

January 4, 2016   Comments Off on FERC Grants Petition for Declaratory Order Disclaiming Jurisdiction Over Passive Interests Under Section 203 and Market-Based Rate Requirements

FERC Disclaims Jurisdiction over Certain Passive Interests

The Federal Energy Regulatory Commission (FERC) has issued an order granting a petition for declaratory order in Starwood Energy Group Global, Docket No. EL15-87-000, 153 FERC ¶ 61,332 (2015).  The order found that transfer of certain passive interests would not require FERC authorization under section 203 of the Federal Power Act (FPA), such passive interests do not create affiliation requiring inclusion in certain market-based rate filings under FPA section 205, and holders of those passive interests alone would not result in the entities being considered public utilities under FPA section 201 or holding companies under the Public Utility Holding Company Act of 2005 (PUHCA).

As described in its petition, Starwood Energy Group manages several Starwood Funds that in turn invest in various energy projects, some of which are FERC-jurisdictional, including several transmission lines and exempt wholesale generators.  Starwood Energy Group created Limited Partnership (LP) Interests in the Starwood Funds with specifically enumerated limited rights and sought a declaratory order regarding FERC’s jurisdiction over the LP Interests on the issues noted above.

According to Starwood Energy Group, the LP Interest rights are limited to veto and consent rights necessary to protect the LP Investors’ economic interests, generally regarding incurrence or forgiveness of debt, changes to the business, the disposal of substantially all of the assets of the business, the filing of a petition for bankruptcy, and other actions of a similar business, financial or organizational nature.  The LP Investors’ rights provide no authority to manage, direct or control the activities of a jurisdictional asset.  FERC also noted that no LP Investor has a principal business of producing, selling, or transmitting electric power, and no LP Investor directly or indirectly controls or is affiliated with any public utility other than through the Starwood Funds.  LP Investors may receive annual and quarterly reports, access to books and records, periodically appraise the assets owned by the relevant investor, and amend the valuation plan presented by the general partner.

In its order, FERC stated that, based on the facts in the petition, and as conditioned in the order, current and future LP Interests with specific limited rights that do not allow the LP Investors to manage, direct, or control the activities of FERC-jurisdictional public utilities are passive investments. Accordingly, FERC disclaimed jurisdiction under FPA section 203 as to transfers regarding current and future LP Interests, specifically disclaiming jurisdiction as to case-specific transactions for LP Interests to co-invest in jurisdictional facilities, or for Starwood Energy Group to sell future LP Interests.  FERC also provided that, to the extent relevant, acquisition of LP Interests under FPA section 203(a)(2), which relates to the ability to “purchase, acquire, or take any security,” will qualify for the blanket authorization relating to non-voting securities provided by 18 C.F.R. section 33.1(c)(2)(i).

FERC stated that the declaratory order would also apply to future LP Investors, so long as there are no material changes in the rights and obligations of the LP Investors.  FERC stated that the declaratory order will not apply to any circumstance in which an LP Investor has taken an active role in an investment in a jurisdictional facility or where LP Investors have removed the general partner with or without cause.  Moreover, Petitioners must inform FERC of any material change in circumstances that would reflect a departure from the facts FERC relied upon in the declaratory order.

Further, FERC found that because LP Investors are passive, the Starwood Funds and their affiliates (including Starwood Energy Group) do not need to identify the LP Investors in any future section 205 market-based rate application, updated market power analysis, or notice of change in status.  Similarly, LP Investors need not be identified as energy affiliates in any future application under section 203 filed by the Starwood Funds or their affiliates (including Starwood Energy Group).

Finally, FERC stated that LP Investors, as they have been found to be passive investors as noted above, are neither “public utilities” under FPA Section 201(e), nor holding companies under PUHCA.

A copy of the order can be found here.

 

January 4, 2016   Comments Off on FERC Disclaims Jurisdiction over Certain Passive Interests