NEW YORK – Con Edison Development, Inc., a subsidiary of Consolidated Edison, Inc. and one of America’s largest owners and operators of renewable energy infrastructure projects announced today its agreement to acquire a Sempra Energy subsidiary that owns 981 megawatts (MW) AC of operating renewable electric production projects, including its 379 MW AC share of projects that it owns jointly with Con Edison subsidiaries, and its development rights for solar production and battery storage projects. The purchase price for the acquisition is $1.54 billion (subject to closing adjustments, including working capital). The acquisition is expected to be completed near the end of 2018.

The Troutman Sanders team advising Con Edison was led by Capital Projects partner Craig Kline with support from Robert SchmickerVaughn Morrison and Felicia Xu. Additional support was provided by, among others, Daniel Anziska (Antitrust), Mason Bayler (Corporate), Carl Bivens and Michael L. Warwick (Real Estate), Jonathan Boyles (ERISA), Amie ColbyStuart Caplan and Jessica Lynch (FERC), Angela Levin and Morgan Gerard (Environmental), Roger Reigner (Tax) and James Schutz (IP).

Detailed information about the transaction can be found here.

On August 24, 2018, the Rhode Island Public Utilities Commission (“PUC”) adopted an amended settlement in the Narragansett Electric Company (“National Grid”) rate case. The approved plan provides for an annual step increase over three years resulting in a cumulative $28.9 million rate increase for electric operations and a cumulative $17.4 million rate increase for gas operations. The Rhode Island PUC approved several Power Sector Transformation, Vision and Implementation Plan (“PST Plan”) initiatives proposed by National Grid. This suite of foundational investments will kickstart an initial ramp up of efforts towards meeting Rhode Island policy objectives of (1) grid resiliency, (2) grid efficiency, and (3) distributed energy resource (“DER”) integration. The settlement provides for the following PST initiatives:

  • Foundational Grid Modernization Investments and Grid Modernization Plan: In addition to strategic grid investments to improve reliability and resiliency, National Grid will engage with stakeholders via the PST Advisory Group to develop a comprehensive Grid Modernization Plan
  • Electric Transportation Program: Includes: (i) Off-Peak Charging 6 Rebate Pilot; (ii) Charging Station Demonstration Program; (iii) Discount Pilot for 7 Direct Current Fast Charging (DCFC) Station Accounts; (iv) fleet advisory 8 services; and (v) Electric Transportation Initiative Evaluation
  • Energy Storage Program: Includes behind the meter and facing energy storage projects
  • Performance Based Incentives: National Grid will implement seven incentive mechanisms to advance state policy goals and drive benefits for Rhode Island customers

The PST Plan was developed at the direction of Rhode Island Governor Gina Raimondo. Governor Raimondo asked the PUC, the Rhode Island Office of Energy Resources and the Rhode Island Division of Public Utilities and Carriers to establish a new regulatory framework that will enable the state and its utilities to advance a cleaner, more affordable and reliable energy system for the 21st century.

The amended settlement culminates a comprehensive investigation with robust stakeholder input and participation: stakeholders participated early in the process and the settlement establishes an ongoing framework for stakeholders to develop additional measures over the next three years. Rhode Island PUC Administrator Macky McCleary said that “[t]oday’s PUC order is another significant step in Rhode Island’s journey to modernize the electric grid, so our residents, businesses, and communities can benefit from cleaner, lower-cost energy resources.”

Rhode Island joins California, New York, and Hawaii in leading the charge toward comprehensive grid modernization. The comprehensive and coordinated approach employed by Rhode Island proved successful in obtaining PUC approval.

On July 27, 2018, the U.S. Court of Appeals for the Federal Circuit issued an opinion reversing the decision of the Court of Federal Claims in Alta Wind I Owner-Lessor C, et al. v. U.S. The Federal Circuit held that goodwill and going concern value could attach to the assets of wind facilities that had not yet been placed in service and therefore that the Code Section 1060 residual method of allocating purchase price applied to the acquisition of the wind facilities. The Federal Circuit’s holding that goodwill and going concern value can attach to a wind facility, and the fact that it vacated the decision of the Court of Federal Claims (which included other holdings favorable to industry participants) could have significant implications for renewable projects.

At issue in Alta Wind was the appropriate amount of cash grants pursuant to Section 1603 of the American Recovery and Reimbursement Act of 2009 for several wind facilities. The Alta Wind plaintiffs purchased wind farms from a developer, placed them in service, and then applied to the Treasury Department for $703 million in Section 1603 grants. The Treasury Department awarded Section 1603 grants of approximately $495 million based on a determination that a portion of the purchase price for the wind facilities should be allocated to intangibles, potentially including going concern value and goodwill, using the residual method under Section 1060 of the Code.

As explained in our prior analysis, the Court of Federal Claims had focused on whether the wind farm acquisitions qualified as “applicable asset acquisitions” under Code section 1060 because of the presence of goodwill or going concern value. The court found as a matter of fact that neither goodwill nor going concern value could exist for a non-operational plant and therefore held that Section 1060 of the Code did not apply. With respect to goodwill, the court ruled that prior to beginning operations, no “expectation of continued patronage” could possibly exist under the terms of the PPAs, which is the sine qua non of a finding of the existence of goodwill. Regarding going concern value, the court cited United States v. Cornish, 348 F.2d 175 (9th Cir. 1965) for the proposition that going concern value, as distinguished from goodwill, is the “special value inherent in a functioning plant continuing to do business and to earn money with its staff and personnel.” Since the wind farms at issue were not functional at the time of acquisition, the court found that no separate intangible going concern value had yet been created. The Court of Federal Claims also held that location value, turnkey value, and any value attributable to above-market PPAs were inherent in the tangible property rather than separate intangibles.

The Federal Circuit disagreed with the Court of Federal Claims after applying a strict reading of the regulations under Section 1060 of the Code, which state that a group of assets constitute a trade or business requiring the use of the residual method if the “character” of the group of assets transferred is such that goodwill or going concern value could attach under any circumstances. Reg. 1.1060-1(b)(2)(i)(B) (emphasis supplied). According to the Federal Circuit, “[t]here is no need to show that a transaction had actual, accrued goodwill or going concern value at the time of the transaction” for the residual method to apply.

The Federal Circuit’s decision appears to leave open the debate as to whether a plant-specific, non-transferable power purchase agreement is an intangible asset separate and distinct from its underlying renewable energy facility. In 2012 the IRS issued PLR 201214007, in which it ruled that a facility-specific PPA was not separate from the underlying facility, citing a similar rule under Code section 168(c) for commercial real estate. The IRS subsequently revoked that ruling in PLR 201249013. The Federal Circuit addressed this issue in its analysis concerning one of the factors that could indicate the presence of goodwill and going concern value—viz., the presence of intangibles associated with the tangible property. Without much analysis, the court concludes that “the PPAs, or at least some portion thereof, may be characterized as customer-based intangibles” under Section 197 of the Code and accordingly appears to conclude that PPAs, or portions of the PPAs, could be separate intangibles. However, the court completely failed to address the substantive legal arguments for and against a holding that a facility-specific PPA is a separate and distinct asset from the underlying facility. If the Federal Circuit’s opinion can be confined to the initial determination of whether the residual method applies to a non-operational plant with a PPA, then the substantive issue of whether, as a matter of law, any value should be associated with an in-the-money PPA, or whether that value is inextricably intertwined with the value of the facility’s tangible asset, arguably remains to be decided another day.

The Federal Circuit opinion is a significant setback for industry participants in their attempts to assert that virtually all the basis in wind and solar projects is attributable to the tangible property, just as the trial court opinion was a significant setback for the government. However, it remains possible that the Court of Federal Claims on remand could conclude that there is in fact no goodwill or going concern value associated with the wind facilities, and we expect industry participants to take a similar position in the meantime.

Federal Energy Regulatory Commission (“FERC”) members on June 19, 2018, affirmed their commitment to regional energy market stability. Their remarks came in response to a leaked Trump administration draft plan and President Trump’s own June 1, 2018 public statement that Secretary of Energy Rick Perry “take immediate steps” to prevent coal and nuclear plant closures.

Such a directive could mean a policy of requiring regional grid operators to buy electricity from selected coal and nuclear plants, which, in turn, could undermine the current power markets developed with FERC assistance over recent decades. “Avoidance of any significant distortion in organized markets would very much be a concern of ours that we would keep an eye on as we proceeded with the rate matter,” said FERC Chairman Kevin McIntyre in response to a leaked draft plan from the White House. “I don’t see any reason why any of that should interfere with our ongoing consideration of the grid resilience issues and the very good input we’ve gotten on those issues.” Continue Reading White House Memo May Indicate Future Coal and Nuclear Subsidies

On June 22, 2018, the Internal Revenue Service (the “IRS”) issued Notice 2018-59, which provides long-awaited guidance on when construction of energy property will have begun for purposes of the Investment Tax Credit (“ITC”) under section 48 of the Internal Revenue Code (the “Code”).

The guidance is similar in many respects to the beginning of construction guidance issued for wind facilities and other facilities that are eligible for the PTC under section 45 of the Code or the ITC in lieu of the PTC (the “Prior Guidance”). Although the rules in Notice 2018-59 should be familiar to those who have worked with the Prior Guidance, this client alert covers the applicable rules in detail as they apply to solar PV projects.

To read more, click here.

 

Recently New Jersey and California took monumental steps to remain nationwide leaders in clean energy. New Jersey increased its Renewable Energy Standard to make it one of the most aggressive standards in the nation while at the same time supporting its nuclear industry and seeking to diversify its energy sources.  California implemented a first of its kind rule, requiring all newly built residences to have solar energy. Both of the states continue their track record of being leaders in clean energy.

New Jersey

On May 23, 2018, New Jersey Governor Phil Murphy signed into law Assembly Bill 3723 (the “Renewable Energy Law”).  This law reaffirms New Jersey’s commitment to being a leader in clean energy.  The Renewable Energy Law increases New Jersey’s renewable portfolio standard from 20.38% by 2021 to 50% by 2030 aligning with the standards in California and New York (and only surpassed by the 75% standard in Vermont and the 100% standard in Hawaii).  Further, the Renewable Energy Law provides for a wind down of the New Jersey Solar Renewable Energy Credit program (“SREC Program”) by 2021 and requires the Board of Public Utilities to study how best to replace the SREC Program.  Additionally, the Renewable Energy Law reduces the amount of energy required to come from solar technologies from 5.1% at the solar carve out’s peak in 2023 down to 1.1% by 2033.

In addition to the changes to the renewable portfolio standard, the Renewable Energy Law seeks to further diversify the state’s energy portfolio. To accomplish this, the Renewable Energy Law targets offshore wind and storage capacity as areas of growth over the next decade by increasing the state’s offshore wind requirement from 1,100 megawatts to 3,500 megawatts and setting, for the first time, an energy storage goal of 2,000 megawatts by 2030. The renewed commitment to offshore wind can already be seen in the Fisherman’s Energy wind project, which is a 24-megawatt project off the coast of Atlantic City that has been stalled for years, but New Jersey Assembly Bill 2485 is currently working its way through the legislative process, which would allow construction to begin on the project.  Finally, the Renewable Energy Law allows for additional avenues for individuals and communities to access renewable resources by creating a community solar program and doubling the state’s net metering cap.

In conjunction with the Renewable Energy Law, Governor Murphy also signed into law Senate Bill 2313 (the “Nuclear Law”) which provides $300 million in subsidies to New Jersey’s nuclear power industry. The Nuclear Law was passed and signed, in part, due to a report from Public Service Electric & Gas (“PSEG”) warning that without receiving additional government subsidies, PSEG would have to close both the Salem nuclear power plant and the Hope Creek nuclear power plant, which combined provide approximately 36% of New Jersey’s energy. In supporting New Jersey’s nuclear industry and reaffirming its commitment to renewable energy, New Jersey has recommitted to being a nationwide leader in clean energy.

California

Not to be outdone by New Jersey, the California Energy Commission (“CEC”) adopted its tri-annual new building standards (the “Standards”) on May 9, 2018.  The Standards which will take effect on January 1, 2020, require all newly built residences to include solar systems (the “Solar Standards”).  Additionally, the Standards update the required thermal envelope standards (i.e. the standards that govern the roof and walls of a building), ventilation requirements and nonresidential lighting requirements.  The CEC anticipates that the greenhouse gas emission reductions attributable to the Standards will be equivalent to taking 115,000 fossil fuel cars off the road. Additionally, the CEC estimates that the Standards will cost the average homeowner an additional $40 per month on a typical 30-year mortgage, but will save families on average $80 per month on electric bills.

While the CEC trumpets the Standards, there are concerns that the added capacity will exacerbate the state’s “duck curve” – a reference to the steep drop in net load during midday hours, followed by a sharp ramp-up at dusk as solar generation fades and electricity consumption spikes.  California ISO predicted (prior to the Solar Standards passing) that in 2020 an approximately 13,000-megawatt daily ramp-up will be required to offset the lost energy from solar panels as the sun sets. With the Standards, the CEC included a compliance credit for energy storage which can be used to offset the amount of solar PV required by up to 25%.  It appears this storage option is intended to help mitigate the steep ramp-up otherwise required at the end of each day.

Previously several states and cities have thought about and even implemented solar requirements for newly constructed buildings.  The cities of Sebastopol, Santa Monica and San Francisco in California, as well as South Miami in Florida, have all required solar systems on newly built homes.  Washington D.C. and states such as New Jersey and Massachusetts have considered legislation requiring buildings to be solar-ready, but have not taken the step of mandating solar on buildings.  However, California is taking a historic first in requiring newly built residences to include solar systems.

The Standards require all new residences (which includes major renovations on buildings under three stories) to include a solar-power system of a minimum of 2 to 3 kilowatts, depending on the size of the structure.  Such solar systems can be provided either on each home individually or, if a home cannot support solar, through a larger community solar garden that serves multiple residences.

So far this year, New Jersey pulled its renewable energy standard in line with other clean energy leading states while seeking to expand wind and solar technologies and California created a first of its kind law, requiring solar on all residences starting in 2020.  What city or state will pass the next law to become a leader in clean energy?

 

 

 

 

No longer reserved for tech giants such as Google, Amazon, and Facebook, financial instruments such as synthetic power purchase agreements (PPAs) are becoming popular among smaller to mid-sized corporations as a tool to reduce energy cost volatility while meeting clean energy goals.  In what began as a movement to limit corporate carbon footprints and which initially took the form of the purchase of renewable energy credits, more and more companies are procuring renewable energy through the purchase of solar and wind power.  Last year, 43 companies spanning 10 different countries contracted roughly 5.4 gigawatts of clean energy – significantly surpassing global annual volume in 2016 and beating the prior record set in 2015.  [source: BNEF}

Corporate buyers procure renewables, in large part, through synthetic PPAs with terms of 10 to 20 years, akin in length to more traditional, physical PPAs.  These synthetic deals are often structured as contracts for differences whereby: (1) the parties set a strike price, (2) the power producer sells power into the market rather than directly to the corporate counterparty and (3) the price at which the power sells into the market is settled against the strike price.  If the sale price in the market is higher than the strike price, the corporate counterparty realizes the positive difference, while the power producer is protected from the downside if the power sells in the market at a price lower than the strike price.  These contracts for differences often, but do not necessarily, include the sale of renewable energy credits and allow corporations to effectively purchase renewable energy far away from where the companies may have demand for physically delivered power.

2018 is shaping up to be another banner year for these deals.  The Business Renewables Center tracks publicly reported corporate procurement in the United States. Year-to-date, BRC is reporting 21 U.S. deals totaling approximately 2.04 gigawatts, which puts 2018 on course to set a new record for U.S. annual corporate procurement.

BRC’s tracker also evidences a steady expansion of the companies participating in this market.  Technology companies such as Google, Amazon, and Facebook were early drivers and remain among the top corporate users of renewable energy in the world.  But the market is rapidly diversifying as more businesses seek predictable clean energy costs.

To some extent, this diversification is the natural evolution of a maturing marketplace.  But there are three important drivers further fueling that growth:

  • The U.S. announcement of its intent to withdraw from the Paris Climate Agreement has spurred hundreds of companies to ratchet up their clean energy goals, including through initiatives such as We Are Still In. The RE100, a coalition of companies committed to go 100% renewable, now touts 131 partner companies – more than doubling the number in the last two years.  As more and more companies set increasingly robust sustainability goals, additional business are employing offsite corporate procurement as a strategy to reduce emissions and source clean energy.
  • Increasingly, in regulated markets, utilities are stepping up to provide green tariffs that allow corporate customers to source renewable energy directly from projects in the same service territory. While synthetic PPAs are well-suited for deregulated wholesale electricity markets, corporate customers have demanded greater clean energy sourcing options from vertically integrated utilities. Since the first green tariff was proposed in 2013 by NV Energy, the World Resources Institute now reports 21 green tariffs across 15 states either in place or under negotiation.
  • New deal structures are emerging to open the market up to smaller corporate purchasers. During the last 18 months, we have seen several innovative structures to enable greater participation by companies that themselves may not have appetite for the entire offtake of a project.  Structuring options include syndication of the PPA to a purchaser’s suppliers and partners, as well as a consortium approach that allows otherwise unrelated parties to aggregate their renewable energy demand while preserving the simplicity of a single counterparty to the PPA.

No longer just the domain of tech giants seeking to green their enormous energy consumption, the corporate renewable energy market has grown dramatically in recent years.  With 2018 U.S. deal volume on track to be the highest ever, the maturing market is fast expanding to new participants, including smaller consumers and increasingly those in vertically integrated territories.

On April 19th, a bipartisan group of lawmakers introduced the “Protecting Solar Jobs Act” (H.R. 5571) in the House Committee on Ways and Means.  The proposed bill is in response to President Trump’s imposition of a 30% tariff on imported crystalline-silicon solar cells and modules – his first major trade action of 2018.  The bipartisan group was made up of Representatives from Nevada, California and South Carolina with the bill being filed by Representative Jacky Rosen of Nevada.

In introducing the bill, Representative Rosen defended the move by stating that the “[s]olar energy’s success throughout Nevada has led to new jobs, cheaper power bills, and the growth of a new industry that is diversifying [the] state’s economy…[The] Administration directly threatened the stability and financial well-being of [Nevada’s] local solar industry when the President decided to impose a 30 percent tariff on imported panels….[The] new bill will reverse this damaging decision.”  Another supporter of the bill, Rep. Mark Sanford of South Carolina, noted that “[s]olar power is one of the cheapest and fastest-growing renewable energy sources, and if we are really focused on becoming energy independent, now is no time to slow its growth. … [O]ver 7,000 South Carolinians who work in the solar industry could lose their jobs because of these tariffs.  This bill is about sustaining solar as a renewable and key energy source toward jobs, clean energy, and energy independence.”

The House Committee on Ways and Means will now have to decide if the Protecting American Solar Jobs Act will be released to the floor for a vote.  If the bill passes a vote by a simple majority, then the bill will move on to the Senate and then to the President for approval.  If the President vetos the bill, it will then return to the Senate and Congress where it must pass by a two-thirds majority to override the President’s veto.

Hydropower partner Chuck Sensiba is published in the April 2018 edition of The Environmental Law Reporter for a byline he coauthored titled, “Deep Decarbonization and Hydropower.” The article is excerpted from a soon-to-be-published book, Legal Pathways to Deep Decarbonization in the United States, by Michael B. Gerrard & John C. Dernbach.

In his article, Sensiba writes about hydropower’s role in reducing the United States’ dependence on carbon and examines challenges that can be addressed through specific legal and policy reforms. He writes, “Realizing the full potential of hydropower and maintaining the current hydropower fleet will likely depend on overcoming a number of impediments, including lengthy and complex regulatory requirements, failure of electricity markets to adequately compensate hydropower generators for the grid benefits they provide, environmental opposition to new hydropower, and interest in dam removal.” Read the full article here.

Originally posted on Troutman Sanders’ Washington Energy Report 

On April 2, 2018, FERC denied a complaint alleging that the interconnection process under Midcontinent Independent System Operator, Inc.’s (“MISO”) tariff was unjust and unreasonable because certain wind generators were experiencing delays in the process, such that those customers would not receive a Generator Interconnection Agreement (“GIA”) in time to receive Federal Production Tax Credit (“PTC”) benefits.  In doing so, FERC found that there was no evidence that MISO was not making reasonable efforts to meet interconnection deadlines, as required by its tariff.  FERC added that prior precedent does not require MISO to ensure wind generators receive their GIA in time to receive full PTC benefits. Continue Reading FERC Holds that MISO Interconnection Process Need Not Ensure that Interconnection Customers Receive PTC Benefits