Short-Term Reauthorization of FAA Programs Potentially Paves the Way For Omitted Energy Credit Extenders

As discussed in our post on March 16, the Congressional extension of the Production Tax Credit (PTC) under Internal Revenue Code (IRC) Section 45 and the Investment Tax Credit (ITC) under IRC Section 48 in December 2015 failed to include extensions for certain types of renewable energy property, including fuel cell power plants, stationary microturbine power plants, small wind energy property, combined heat and power system property, and geothermal heat pump property. Congressional leaders have stated that the omission was an oversight that would be addressed in 2016.

On March 30, 2016, President Barack Obama signed into law the Airway and Airport Extension Act of 2016 (H.R. 4721) (the Act), which extends certain Federal Aviation Administration (FAA) programs and revenue provisions only through July 15, 2016. Expiring in less than four months, the FAA extension was apparently crafted with an intentionally short timeframe to allow inclusion of the omitted PTC and ITC provisions in long-term FAA reauthorization legislation that will likely follow this summer.  Accordingly, while the Act does not directly address the energy tax provisions omitted from last year’s extenders package, experts hope that it paves the way to addressing the omission in a few months.

Senator Ron Wyden (D-WY) has said that he hopes to introduce a long-term FAA bill addressing the omitted energy tax credit extenders after the Senate returns this week. House Ways and Means Committee Chair Kevin Brady (R-TX) has expressed opposition to attaching energy credit tax extenders to the FAA reauthorization legislation. As developments occur, we will update this blog.

President Obama Signs Consolidated Appropriations Act

Renewable Energy Industry Seeks Additional Energy Credit Clarifications

On December 18, 2015, President Barack Obama signed into law the Consolidated Appropriations Act, 2016 (H.R. 2029) (the Act). The Act includes multi-year extensions of the Production Tax Credit (the PTC) under Internal Revenue Code (IRC) Section 45 and the Investment Tax Credit (the ITC) under IRC Section 48 for wind and solar projects—both of which are gradually phased out. The Act, however, did not extend the ITC for other types of renewable energy property, including fuel cell power plants, stationary microturbine power plants, small wind energy property, combined heat and power system property, and geothermal heat pump property. Read further discussion of the Act’s extension of renewable energy tax incentives. Continue Reading

Timing Is (Almost) Everything: FERC Implements D.C. Circuit Guidance on NEPA Review of Multiple Pipeline Construction Projects

In the wake of two recent D.C. Circuit decisions, the Federal Energy Regulatory Commission (FERC) has begun to implement its new policy concerning the review of natural gas pipeline construction proposals under the National Environmental Policy Act (NEPA). To decide whether a NEPA review must include other projects proposed by the pipeline, FERC will look at the timing and maturity of other proposals and the independence of the projects.

In the first decision, Delaware Riverkeeper Network, the U.S. Court of Appeals for the D.C. Circuit held that FERC failed to consider the cumulative environmental impact of four projects that had been separately proposed by the same pipeline. The D.C. Circuit held that the projects were not financially independent and were “a single pipeline” that was “linear and physically interdependent,” so the cumulative environmental impacts must be considered concurrently.

In the second decision, Minisink Residents for Environmental Preservation and Safety, the D.C. Circuit held that FERC had properly considered and rejected an alternative site to build a natural gas pipeline compressor station. Contrasting the decision to Delaware Riverkeeper, the court clarified that the “critical” factor in the previous decision was that all of the pipeline’s projects were either under construction or pending before FERC for environmental review at the same time.

In several recent orders, FERC has implemented the D.C. Circuit’s guidance in addressing claims of improper segmentation.  For example, FERC recently authorized Transcontinental Gas Pipe Line Company (Transco) to construct and operate the Leidy Southeast Project. The Leidy Southeast Project will include nearly 30 miles of new pipeline loop and four compressor stations to provide capacity from supply areas in Pennsylvania to various receipt points as far south as Choctaw County, Alabama. Opponents of the pipeline project (coincidentally Delaware Riverkeeper Network) claimed that FERC should have also considered in its NEPA review three other Transco projects—one already constructed and two proposed projects.

FERC rejected opponents’ request to conduct a joint NEPA review. FERC emphasized that (1) the first Transco project was approved nearly a year before Transco proposed the Leidy Southeast Project; (2) the other two Transco projects “were not fully defined ‘proposals’ at any time during the period that the Leidy Southeast Project was receiving consideration;” and (3) the Leidy Southeast Project was not “connected” to the other Transco projects, as it did not “rely on” other projects for its operation and “would have been built even if” the first project had not been constructed.

New York Staged to Begin Full Community Net Metering Program

Community net metering is relatively new to New York.  Last July, the New York Public Service Commission (PSC) issued an order establishing a “community distributed generation program” that allows multiple customers to net meter from a single solar generation facility.  Community net metering will implement principles that are part of New York’s sweeping energy policy reform efforts in the ongoing Reforming the Energy Vision (REV) proceeding.  In order to coordinate the community net metering program with the broader REV program, the PSC delayed full implementation of its community net metering program until May 1, 2016.

The goal of community net metering is to expand opportunities for participation in solar and other forms of clean distributed generation to utility customers that would not otherwise be able to access that generation directly.  Many utility customers, such as residents of multi-unit buildings, lack control over sites that can be configured into a location for a clean generation facility.

To be eligible for community net metering, a generation facility must meet the requirements for New York’s regular net metering program.  Instead of having one owner, a community net metering project is owned by 10 or more members, all of whom are located within the same load zone and within the same utility’s service territory.  Besides multiple owners, community net metering projects have a sponsor, which may be the generation facility developer, an energy service company, a municipality, a business or non-profit, or other another form of business or civic association.  The sponsor builds the generation facility, owns and operates the generation facility, and acts as the liaison between the community members and the utility.  Each member of a community net metering project owns or contracts for a proportion of the credits accumulated as a percentage of the facility’s output in excess of usage at the host site.  The project sponsor reports these percentages to the utility, and the utility is responsible for distributing the credits to the members in accordance with the sponsor’s instructions.

Due to the PSC’s desire to coordinate community net metering with the REV program, New York’s community net metering is being implemented in two phases.  Phase 1 lasts through April 30, 2016.  During this period, the PSC will permit community net metering projects only if (1) the project site is in a location that will bolster grid reliability or provide other locational benefits or (2) the project meets a threshold level of low-income customer participation.  According to the PSC, these requirements will “advance selected REV principles” above and beyond general clean energy goals.  Phase 2, beginning soon on May 1, 2016, has no such restrictions and will be open to all qualifying projects.

Key Energy-Related Tax Provisions in the 2017 Budget Proposal

President Obama’s recently released budget proposal for the 2017 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 On the Subject summarizes the key energy-related tax provisions contained in the budget proposal and detailed further in the US Department of the Treasury’s general explanation of the proposal.

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Implications of the Clean Power Plan Stay

Late in the day on Tuesday, February 9, the U.S. Supreme Court stayed, for at least a year and possibly longer, the implementation of the Clean Power Plan (CPP), the US Environmental Protection Agency’s (EPA’s) widely-publicized regulations governing greenhouse gas emissions from existing coal-, oil- and gas-fired power plants.  The stay means that the CPP’s requirements and deadlines are on hold, at least until resolution of the pending legal challenges to the CPP.  But what are the broader implications of the Court’s decision?

First, the stay decision bodes poorly for the ultimate fate of the CPP, even though the Supreme Court did not opine as to the CPP’s legality.  The stay decision signals, at a minimum, that a majority of the Supreme Court is sympathetic to the challengers’ claims that the CPP is unlawful.  Indeed, it signals more than that—a distrust of EPA’s assertions about the minimal burdens imposed by the CPP.  That said, the CPP may yet survive judicial review and, even if it does not survive, EPA may be able to promulgate a replacement regulation that achieves similar results, although such a replacement would surely take several years to develop.

Second, environmentally, the stay is unlikely to have any immediate effect on emissions levels, primarily because the CPP itself does not require any immediate emissions reductions.  But that does not mean the stay has no environmental consequences.  The stay fosters uncertainty about the fate of the CPP, and one potential consequence of that uncertainty is that EPA will feel compelled to devote additional resources to reducing greenhouse gas emissions from other sources, especially the oil and gas sector.

The Obama administration has limited time to pursue such alternatives, but the next administration, if it shares President Obama’s commitment to addressing climate change, may focus much more intensively on addressing the carbon content of fuels, to make up for the delays and uncertainties created by the CPP stay decision.

The stay also raises questions about the fate of the recently secured Paris agreement, since some parties to that agreement may now be wondering whether the US is capable of meeting its commitment to reduce domestic greenhouse gas emissions 26 to 28 percent from 2005 levels by 2025.  If other countries doubt the reliability of the US commitment, they may be less bold about seeking emissions reductions themselves.  Indeed, it is precisely such doubts that may drive EPA to pursue more oil and gas regulations.

Finally, lurking in the Supreme Court’s action may be a deeper signal about the fate of the Chevron doctrine, a topic that should be of interest to all entities subject to regulation in the United States, not just to those subject to the Clean Air Act.  A recurring theme in the legal challenges to the CPP is that the CPP raises questions of such extreme economic and political significance that EPA is not entitled to deference as to how those questions should be resolved.  It is not clear what role that theme played in the Supreme Court’s stay decision—because the Court’s order does not explain the Court’s reasoning—but it is striking that the Court took the rare and generally unexpected step of staying the implementation of an agency regulation even before any lower court had ruled on the legality of that regulation.  If nothing else, the stay decision confirms that the Clean Air Act remains a central, if not the central, battleground in questions over the level of deference that courts owe to administrative agencies.

What Must Be Done for Wind and Solar Projects to Have “Begun Construction” under the New PTC and ITC?

With the recent extension of the federal income tax credits available for renewable energy projects, practitioners and industry participants have raised questions as to how the “begun construction” rules will apply under these new regimes.  The new regimes refer to the dates on which construction on projects began for purposes of determining qualification for the credits and also provide for a phaseout or reduction in the available credits over time. (For more information on these extensions, see our previous article on the extensions.)

Industry participants expect that the Internal Revenue Service will soon issue guidance detailing when a project will be determined to have “begun construction” and when continuous construction efforts are required.  It is expected that this guidance will be similar to the beginning of construction guidance summarized here for wind projects.  However, in light of the different considerations for different technologies and the reduction in the credit amount over time, which differs from the prior credit for wind that expired in its entirety, a number of questions have been raised by industry participants.  It is hoped that some of these questions will be answered by any guidance that is issued with respect to the credit extensions.  Some of these questions include:

  • Will the beginning of construction tests be the same as they currently are for wind (e., a physical work of a significant nature test and a 5 percent safe harbor test)?
  • Will continuous construction efforts be required under the new regimes?
  • What is the consequence of failing to maintain a program of continuous construction? Will the project still be eligible for a reduced credit, and how will that credit amount be determined?
  • Will there be a placed in service safe harbor? The wind guidance had provided that continuous construction efforts would be considered maintained so long as projects were placed in service prior to a specific date.  That date was two years after the end of the year in which the project was required to be placed in service.  Most industry participants believe this safe harbor will be extended to apply to wind projects beginning construction through 2016.
  • If there is a placed in service “safe harbor,” will it apply to all technologies in the same manner? That is, will the safe harbor period be the same for all renewable technologies?
  • Will the guidance address and provide examples of “physical work of a significant nature” for solar projects?
  • How would the physical work and safe harbor tests apply in the context of residential or commercial and industrial solar projects?
  • In the solar context, what will be considered a single “facility” for purposes of the beginning of construction tests?

We will provide additional updates as we get more information, so please stay tuned.

Extension of Renewable Energy Tax Incentives

On December 18, 2015, President Barack Obama signed into law the Consolidated Appropriations Act, 2016 (H.R. 2029) (the Act), which included welcomed extensions to a number of energy tax incentives. The legislation includes multi-year extensions of the Section 45 Production Tax Credit (the PTC) and the Section 48 Investment Tax Credit (the ITC) for wind and solar projects tempered by a gradual phase out of the total credit available.

Read the full article.

EPA’s New Refinery Rule—Next Generation Compliance in Action

The U.S. Environmental Protection Agency (EPA) signed a new air pollution rule in September that illustrates how EPA is implementing its next generation compliance ideas.  The rule governs hazardous air emissions from petroleum refineries, but features several “next gen” tools that are relevant to other types of facilities, especially chemical plants and oil and gas storage facilities.

Next Gen Tools Found in the New Refinery Rule

EPA’s next generation compliance initiative seeks to modernize the agency’s regulations and enforcement efforts.  The initiative encourages the use of new technologies for detecting air emissions, aims to incentivize compliance and emissions reductions, rather than relying primarily on the threat of enforcement, and also encourages greater public disclosure of environmental data.  Many of these ideas are on display in the new refinery rule.

First, the rule requires “fenceline monitoring” of benzene concentrations and corrective action if benzene levels are detected above a baseline level.  This is the first time EPA has required fenceline monitoring and related corrective action measures on such a large scale.

Second, the rule requires electronic reporting of the fenceline monitoring data.  That is important not simply because it will enhance EPA’s ability to bring timely enforcement actions, but also because it is a prelude to public disclosure of the monitoring data.  EPA has explained that it intends to develop a publically accessible database of the fenceline monitoring results.

Third, the rule illustrates EPA’s evolving approach toward so-called “upset” or “malfunction” events.  Historically, many EPA air regulations excused compliance during periods of equipment malfunction.  EPA has begun rolling back those malfunction exceptions and, in the new refinery rule, the agency adopts an approach to malfunction events that it will likely seek to apply to other industrial facilities going forward, especially those that use flares and pressure relief devices (PRDs).  The new rule aims to minimize the use of flares and PRDs, in part because of recent studies suggesting that flares and PRDs can themselves be large sources of air pollution.  The rule limits the number of flaring and PRD events that are permitted, requires refinery operators to develop flare management plans (to reduce flare use) and requires certain corrective actions to be taken after each flaring or PRD event.

Fenceline Monitoring Issues

The rule’s fenceline monitoring and corrective action requirements deserve special attention.  Those features of the rule are intended to improve the control of so-called “fugitive” emissions, emissions that, generally speaking, leak out of industrial equipment rather than being expelled out an exhaust stack where they can be more easily subjected to pollution control devices.  Many other types of facilities experience fugitive emissions, including chemical plants, distilleries, oil and gas storage terminals, and wastewater treatment plants.  Thus, the new refinery rule provides a glimpse of a possible regulatory future for many other industrial activities.

A critical issue in this context is how the fenceline monitoring data will be used.  Do high levels of a hazardous air pollutant, standing alone, establish a violation, or is something more required?  In the new refinery rule, mere detection of high benzene levels does not itself constitute a violation, but a violation may occur if the refinery owner or operator fails to take prompt action to reduce the high levels after detecting them.

Conclusion

The new refinery rule appears to be EPA’s most extensive illustration of the agency’s next generation compliance ideas to date.  Companies that own or operate industrial facilities should pay special attention to how the rule is implemented in the coming years, since the rule’s implementation will likely provide important insights into how well EPA’s next generation ideas function in practice.

IRS Confirms that Flip Partnership Guidelines Do Not Apply to Solar Projects

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.

Read the full article.

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