The Internal Revenue Service (IRS) has advised that the flip partnership guidelines under Rev. Proc. 2007-65, 2007-2 C.B. 967, do not apply to solar facilities or other projects claiming the Section 48 investment tax credit (ITC). The statement, made in in recently released CCA 201524024, was not surprising to practitioners in the solar arena as the revenue procedure expressly does not apply to ITC transactions.
The U.S. Supreme Court held this morning that the U.S. Environmental Protection Agency (EPA) acted unreasonably when it determined in 2000, and again in 2012, that it was “appropriate and necessary” to regulate mercury emissions from coal-fired power plants. The central flaw in EPA’s reasoning, the Court held, is that the agency failed to consider the cost of regulation when making the threshold determination that regulation was “appropriate.” Under Section 112 of the federal Clean Air Act, EPA must conclude that it is “appropriate” to regulate power plant mercury emissions before it can actually regulate those emissions.
The immediate effect of today’s decision is that the ongoing challenge to EPA’s mercury regulations will be remanded to the U.S. Court of Appeals for the D.C. Circuit, which previously upheld those regulations. The D.C. Circuit will then face a choice: Should it vacate the regulations, or should it leave them in place while giving EPA additional time to attempt to justify the agency’s threshold conclusion that the regulations are “appropriate.”
In the past, the D.C. Circuit has sometimes vacated environmental regulations that it found to suffer from threshold flaws, but it has also occasionally left those regulations in place pending agency revisions. For example, several years ago the D.C. Circuit found that EPA’s Clean Air Interstate Rule (CAIR) was fatally flawed but it nevertheless declined to vacate CAIR. Instead, it left CAIR in place pending promulgation of a replacement rule. It remains to be seen whether the D.C. Circuit will take such an approach here.
If the mercury regulations are vacated, today’s decision may have the ironic effect of helping EPA defend its forthcoming greenhouse gas (GHG) regulations for existing power plants. One of the principal legal objections to the forthcoming GHG regulations is that EPA allegedly lacks authority to issue them because power plants are regulated for mercury emissions. Thus, if the mercury regulations go away, one of the principal objections to the GHG regulations will be eliminated.
Nevertheless, today’s decision has to be considered a loss for EPA. The power plant mercury regulations took over two decades to promulgate and were anticipated to have significant environmental benefits, primarily in the form of reductions of particulate matter and sulfur dioxide emissions. Today’s decision creates some uncertainty about the future of those regulations. Equally important, today’s decision is another reminder that a majority of the Supreme Court remains deeply skeptical of EPA’s claims about the agency’s statutory authority.
If there is a silver lining for EPA in today’s decision, it is that the Supreme Court did not go so far as to dictate exactly how EPA is to consider costs. Instead, the Court concluded: “It will be up to the Agency to decide (as always, within the limits of reasonable interpretation) how to account for cost.”
Egypt has suffered from significant social and political unrest. This resulted in a drop in oil and gas production levels at the same time as domestic energy consumption was rising. Egypt was facing a serious energy crisis. The election of Abdel Fattah al-Sisi as president in June 2014 proved to be a turning point:
- There has been a substantial reduction in the level of fuel subsidies.
- Significant steps have been taken to repay debts owed to international oil and gas companies.
- There is ongoing diversification of energy sources, with more renewable power projects and increasing imports of liquefied natural gas (LNG).
The future looks positive. A number of agreements have recently been signed by international oil and gas companies and it seems Egypt is still a destination for international investment.
Italy is reported to have given formal notice to withdraw from the Energy Charter Treaty (ECT).
Rumours of Italy’s intention to leave the ECT had been circulating since last autumn. IAReporter now revealed that Italy has delivered its official notice of withdrawal in January 2015.
According to the journal, Italy’s decision to withdraw, is to save on costs associated with its membership. This is certainly an unusual justification for a developed country’s withdrawal from a multilateral investment protection treaty.
Pursuant to article 47 of the ECT, Italy’s withdrawal will take effect upon the expiry of one year after the date of notification, thus in January 2016. However, the provisions of the Treaty will continue to apply to investments made in Italy before such date for a period of further 20 years.
As a consequence:
- With respect to past energy investments, investors can continue to bring their claims against Italy until January 2036. In particular, Italy’s withdrawal from the ECT does not prevent PV investors from bringing a claim for last year’s feed-in tariff cuts.
- With respect to future energy investments, investors should (i) either ensure the investment is made before January 2016 or (ii) consider to structure the investment so as to obtain protection under a suitable bi-lateral investment treaty (BIT).
Owners of early generation Conto Energia I photovoltaic (PV) plants are currently receiving letters from the Gestore dei Servizi Energetici (GSE) announcing that it will adjust the Feed-in Tariff (FiT) downwards and claim reimbursement of, or set-off with, the excess payments it made in past years. An example of one of these letters is attached here.
The Ministerial Decree of 28 July 2005 (the original version of the Conto Energia I) provided for an annual adjustment of the FiT to account for inflation. The Ministerial Decree of 6 February 2006 removed this adjustment for inflation with retrospective effect. This even applied to PV plants that had already qualified for the FiT under the original version of the Conto Energia I.
At first instance, in 2008, the Administrative Court of Milan and the Highest Administrative Court (Consiglio di Stato) ruled the Ministerial Decree of 6 February 2006 null and void, stating that it violated not only the general principle of legal acts not being retroactive (Article 11 of the preliminary provisions of Civil Code), but also the general principles of certainty of laws and legitimate expectation of the citizens (Regional Administrative Court of Milan, Sez. IV, 10 November 2006 n. 2125, as confirmed by Cons. Stato, Sez. VI, 4 April 2008 no. 1435). Based on these rulings, the GSE continued to publish the inflation-adjusted FiT rates for early generation Conto Energia I plants year by year until 2012.
In a parallel proceeding, however, the Consiglio di Stato decided not to follow its own 2008 decision and submitted the question to the Plenary Chamber. In May 2012, the Chamber ruled the opposite of the Consiglio di Stato’s 2008 decision and confirmed the legitimacy of the retrospective abolition of the inflation adjustment relating to early generation Conto Energia I plants. The Consiglio di Stato argued that the Ministerial Decree of 6 February 2006 did not actually modify a previous legal provision but only interpreted it in a different, and acceptable, manner (Cons. Stato, A.P., 4 May 2012, no. 9).
It took until 26 March 2013 for the GSE to react to the Plenary Chamber’s reversal of the Consiglio di Stato’s decision. On that date, it released the news bulletin, in which it stated it would no longer adjust the Conto Energia I FiT rates in line with inflation. The GSE did, however, continue to pay the increased rates that had already been generated by the inflation adjustments.
The GSE has now sent out the letters referred to above, informing early generation Conto Energia I plant owners that the GSE will i) readjust the FiT to its original amount, prior to any adjustment for inflation, and ii) claim reimbursement of, or set-off with, all excess payments made until now. The GSE also invites recipients of these letters to submit comments and observations within 10 days.
There are a number of questions that can be legitimately raised with respect to the GSE’s latest move:
- Could PV plant owners have legitimately relied on the inflation adjustment after the 2008 decision, at least until the second decision of the Consiglio di Stato in 2012 – meaning it might be illegal for the GSE to claim back the excess amounts paid until 2012?
- Could PV plant owners have also legitimately relied on the fact that the GSE would not claim back the excess amounts, after it only declared in 2013 that it would stop any further inflation adjustment and did not mention the prospect of PV plant owners having to reimburse the GSE?
- PV plant owners have paid taxes on the excess amounts that should now be reimbursed in full. How will these taxes be reimbursed to them?
In our opinion, PV plant owners who have received these letters from the GSE should respond to the GSE and should also consider whether or not to file an appeal before the Regional Administrative Court.
The introduction of retrospective tariff cuts to photovoltaic (PV) plants and the abolition of the Robin Tax by the Italian Constitutional Court, combined with simplified regulation and taxation of new forms of debt financing, have turned the attention of foreign investors from PV assets to other renewable energy sources (RES) assets.
Italian plants producing energy from RES other than PV have been supported by public incentive schemes since 1999, and have not been hit by the tariff cuts introduced by legislative decree 91/2014 (the so-called “spalma incentivi”). It is, however, easy for foreign investors to become confused by the complex set of rules governing the incentives granted to RES plants.
This Special Report provides a complete and updated overview on the Italian regulation of incentives given to RES plants. It will help investors find their way through the jungle of rules and identify and understand the incentives that apply to a potential investment.
The Federal Energy Regulatory Commission (the Commission) issued an order on Thursday, March 19, 2015, refusing to allow the abandonment of certificated working gas capacity when the reason for the request was unrelated to the physical characteristics of the storage facility and unsupported by engineering or geological data. The applicant had sought the abandonment authorization for the sole purpose of reducing its lease payments, which are largely based on the certificated working gas capacity of the facility.
The order, Tres Palacios Gas Storage LLC, 150 FERC ¶ 61,197 (2015), was issued following an application by Tres Palacios Gas Storage LLC (Tres Palacios) for authorization to abandon a significant amount of its certificated working gas storage capacity in a salt dome storage facility in Matagorda and Wharton Counties, Texas. Tres Palacios claimed that abandonment was justified because market conditions were such that it could not sell the capacity at rates that it considered acceptable.
In denying the application, the Commission ruled that Tres Palacios’s request was inconsistent with Commission policy, which requires specific facility parameters for each cavern, such as cushion gas capacity, working gas capacity and minimum pressures, and was inconsistent with Tres Palacios’s certificate authority, which authorizes specific parameters for each cavern. In addition, the Commission explained that no geological or engineering data was submitted to support the change. The order reaffirmed that certificated capacity is based on the physical attributes of a facility and that certificated working gas capacity is “unrelated to the amount of working gas capacity the storage company is able to sell.”
Karol Lyn Newman and Jessica Bayles represented the lessor, Underground Services Markham, LLC, in the proceeding before the Commission.
The Internal Revenue Service issued Notice 2015-25 on March 11, 2015, to provide further guidance on meeting the beginning of construction requirements for wind and other qualified facilities. The Notice extends the date by which a facility can meet the beginning of construction deadline to correspond with the extension of Code Section 45 passed by Congress at the end of 2014.
President Obama’s recently released budget proposal for the 2016 fiscal year repeats many of his past energy-related tax proposals, including a permanent extension of the renewable energy production tax credit and a provision making it refundable. Making the production tax credit permanent and refundable signals the administration’s continued strong support for renewable energy. This Special Report offers a summary of the key energy-related tax provisions contained in the budget proposal and discussed further in the U.S. Department of the Treasury’s general explanation of the proposal.
On Tuesday, December 16, 2014, the U.S. Senate passed the tax extenders bill by a vote of 76-16, extending a number of energy tax incentives through the end of the year. The Senate’s passage of H.R. 5771 followed the U.S. House of Representatives’ (House) approval earlier this month (see our post on December 8), and the bill is expected to be signed into law by President Obama as early as this week.
The $42 billion bill includes extensions through the end of the year of nearly $10 billion in energy tax incentives, including the New Market Tax Credit in Section 45D, the Production Tax Credit in Section 45 (the PTC), and the bonus depreciation rules in Section 168(k).
Many were disappointed that some of the tax incentives – including the PTC – were extended retroactively only through the end of the year, meaning that tax payers have just a few weeks left to take advantage of them. There would have been far more certainty for companies looking to invest in renewable energy projects if the tax incentives were extended for one or more years beyond the end of 2014. Several lawmakers suggested that the two week extension was better than nothing, but the short extension period means that Congress has merely punted the need for greater tax reform in this area into 2015. As it stands, the energy tax incentives extended by this bill will have expired by the time Congress returns to Washington, D.C., on January 6, 2015, following its winter break. That means that Congress may be in the same place again next year under pressure to pass a year-end bill – instead of focusing on more comprehensive reform and a possible phase-out of the PTC.