Opportunities for economic growth in Indian country — including the development of retail space, hotels and resorts, energy projects, data farms, and more traditional farming activities, to name a few — are tied to several recent tax-related developments. These developments include federal regulations regarding the taxation of on-reservation real property and improvements leased and/or owned by non-Indians, whether tribes can collect sales taxes for on-reservation transactions with non-Indians, and how treaties can impact taxation of certain off-reservation activities. The developments are important for both tribes and nontribal parties interested in investing in on-reservation economic growth and development.Read More
On December 20, 2018, the Federal Energy Regulatory Commission (FERC) announced a Notice of Proposed Rule Making (NOPR) designed to simplify the horizontal market power analysis necessary for electric power sellers to secure market-based rate authority in some wholesale power markets. Specifically, the NOPR eliminates the need to perform two indicative screens (the pivotal supplier screen and the wholesale market share screen) in capacity markets and wholesale power markets already subject to Commission-approved monitoring and mitigation rules. Notably, the Southwest Power Pool and California Independent System Operator wholesale markets are not subject to these monitoring and mitigation rules, so parties seeking market-based rate authority to sell capacity in those markets must still perform the two indicative screens. This simplification will relieve the added procedural burden of administering the indicative screens for parties seeking market-based rate authority in the other FERC-regulated markets.
The NOPR also proposes to remove the presumption that market monitoring or mitigation measures will adequately address indicative screen failures in organized wholesale power markets where the grid operator does not administer a capacity market. Rather, the NOPR proposes that in the event of an indicative screen failure in those markets, applicants submit a delivered-price test or other evidence demonstrating a lack of horizontal market power or that the applicant propose other mitigation for capacity sales in those markets.
K&L Gates attorneys will continue to monitor these developments and assist our clients navigating compliance with FERC rules and regulations.
In September 2018, the California Air Resources Board (CARB) approved several significant changes to California’s Low Carbon Fuel Standard (LCFS) that will take affect on January 1, 2019.  The LCFS is California’s “cap and trade” regime for transportation fuels, where fuels are assigned a Carbon Intensity (CI) that varies depending on their feedstock and how they are produced or manufactured. Producers of fuels with a CI under the annual cap (for 2018, 93.55 grams of CO2 equivalent per Megajoule) earn credits while producers of higher-carbon fuels like gasoline and diesel incur deficits and are required to buy offsetting credits to meet the annual average CI value. Credits are bought and sold in the secondary market, and the current LCFS credit price of nearly $200/Metric Ton is driving the development of many facilities that are able to produce transportation fuels with low CI scores.Read More
Leveraging the Opportunity Zones Tax Incentive to Improve Returns on Development and Operations in The Oil and Gas and Power Industries
A new federal tax incentive enacted in the 2017 tax reform package may provide a boost to many new facilities, repowering projects, and storage facilities. Qualified equipment could include a variety of energy and materials storage equipment, refining equipment, generating equipment, and extraction equipment.
The Qualified Opportunity Zones (“QOZ”) incentive provides attractive tax benefits for investors with capital gains to invest in property and businesses located in geographic areas that are designated as QOZ. Recently released regulations provide significant clarity and highlight how valuable the QOZ incentive can be for qualified investments. See our October 23 alert for a discussion of how the proposed regulations answer many important questions that provide the certainty investors, developers, and entrepreneurs in the energy and infrastructure industries need to proceed with QOZ investments and projects.Read More
On November 15, 2018, the Federal Energy Regulatory Commission (“FERC”) announced two major policy developments on the treatment of Accumulated Deferred Income Taxes (“ADIT”) in light of the recent reduction of the federal income tax rate in the Tax Cuts and Jobs Act of 2017. The proposed developments are intended to benefit utility customers by providing for a fair return of the tax savings created by the new law. First, FERC issued a Policy Statement that outlines FERC’s policy on the treatment of ADIT for both accounting and ratemaking purposes for public utilities, natural gas pipelines and oil pipelines in light of the recent reduction in income taxes. Second, in a notice of proposed rulemaking (“NOPR”), FERC proposes to require all public utility transmission providers to revise their transmission rates to account for the reduction in income taxes caused by the Tax Cuts and Jobs Act of 2017.
Policy Statement: Treatment of ADIT in Light of the Tax Rate Reduction
The Policy Statement, titled “Accounting and Ratemaking Treatment of Accumulated Deferred Income Taxes and Treatment Following the Sale or Retirement of Assets,” provides guidance on two questions FERC posed in its March 15, 2018, Notice of Inquiry (“NOI”).
First, FERC provides details on the specific accounts that public utilities and natural gas pipelines should use to record amortization of excess and deficient ADIT. FERC also explains how oil pipelines should treat deferred tax balances and provides that, for ratemaking purposes, FERC will continue the practice of amortization and removal of excess or deficient ADIT by reducing the returned allowed prior to grossing up for income taxes.
Second, FERC provides guidance on how public utilities, natural gas pipelines and oil pipelines should address excess and/or deficient ADIT that is recorded on their books after December 31, 2017, as a result of the sale or retirement of assets. The Policy Statement explains that in the case of a public utility or natural gas pipeline that continues to have an income tax allowance, any excess or deficient ADIT associated with an asset must continue to be amortized in rates even after the sale or retirement of that asset. If the rate treatment of the excess or deficient ADIT is disallowed, then the amounts should be written off in the year of the disallowance. In line with the existing Uniform System of Accounting for oil pipelines, FERC notes that for accounting purposes an oil pipeline’s ADIT balance will be reduced immediately by the full amount of the excess or deficient tax reserve. For ratemaking purposes, an oil pipeline would maintain the excess or deficient ADIT in the ADIT account and would continue to amortize those amounts when determining its income tax allowance as part of the ratemaking process after the assets are sold or retired.
The Policy Statement also states that, to provide greater transparency, public utilities, natural gas pipelines and oil pipelines should provide additional information regarding ADIT in their annual financial filings.
NOPR: Closing the Gap in Transmission Formula Rates of Public Utilities
The proposed reforms are intended to ensure ratepayers receive the benefits of the Tax Cuts and Jobs Act of 2017 and that transmission rates are just and reasonable following the enactment of the Tax Cuts and Jobs Act. As explained in the NOPR, the proposed changes fall into three categories and apply differently to transmission formula rates and stated rates. First, the NOPR proposes to require public utilities with formula rates to include a mechanism in their formula rate to deduct excess ADIT from or add deficient ADIT to their rate bases. Second, the NOPR proposes to require public utilities with transmission formula rates to include a mechanism in the formula rate that decreases or increases their income tax allowances by any amortized excess or deficient ADIT. The NOPR proposes to require that public utility transmission providers with stated rates to determine the excess or deficient ADIT caused by the Tax Cuts and Jobs Act based on the ADIT amounts approved in their last rate case and return or recover this amount from ratepayers. Finally, the NOPR proposes to require all public utility transmission providers with transmission formula rates to include a new permanent worksheet into their transmission formula rate that will track information annually related to excess or deficient ADIT.
In his remarks at FERC’s monthly meeting, Chairman Chatterjee emphasized that the NOPR does not prescribe a one-size-fits-all approach to make the required adjustments. Rather, the NOPR recognizes that multiple approaches to modify rate base may be just and reasonable.
All three Commissioners strongly supported the NOPR. Commissioner LaFleur stated, “My goal is to get tax savings back into the hands of the customers as quickly as possible. That’s not yet done, but this is an important first step.”
Comments are due within 30 days of publication of the NOPR in the Federal Register. We will continue to monitor the developments of this proceeding.
The tumultuous 2018 midterm election, characterized by many as the most consequential in a generation, ended as predicted: the Democrats took control of the House while the Republicans increased their hold in the Senate.
Indeed, it was a tale of two Houses. As of 10:00 a.m. ET on November 7, the Democrats have picked up 28 seats in the House of Representatives, with the prospects of gaining about seven more as the remaining close races are decided, mostly in the west. In the Senate, Democratic Senators in Missouri, Indiana, and North Dakota were defeated while a Republican lost in Nevada, resulting in a net gain of two Senate seats thus far for Republicans with three races too close to call.
To help you assess yesterday’s election, K&L Gates has prepared a comprehensive guide that summarizes the results and their impact on the 116th Congress, which will convene in January. The Election Guide lists all new members elected to Congress, updates the congressional delegations for each state, and provides a starting point for analyzing the coming changes to the House and Senate committees.
Please click here to download the most up-to-date version of the 148-page Election Guide, which will be updated on an ongoing basis as more of the close races are called and committees are finalized.
To view the complete guide online, click here.
Significant investment is flowing into private companies seeking long-sought-after breakthroughs to develop practical power generation solutions based on nuclear fusion reactions.  Fusion reactions have become relatively commonplace in the laboratory setting, but no one has developed a nuclear fusion reactor yet that produces more energy than the device uses to operate and maintain the reaction. Numerous private companies, in the United States and around the world, are attacking this challenge with a variety of approaches, with the goal of making the technology sustainable, practical, and commercial. These companies are receiving significant investment from backers who believe a solution is within reach.
In a closely watched battle between FirstEnergy Solutions (“FirstEnergy”) and the Ohio Valley Energy Corporation (“OVEC”) that could have significant implications for the U.S. power sector, the U.S. Bankruptcy Court for the Northern District of Ohio asserted its primacy over the Federal Energy Regulatory Commission (“FERC”) in deciding whether to allow FirstEnergy to repudiate certain FERC-regulated power purchase agreements (“PPAs”). In a decision with significant implications for all participants in rapidly evolving wholesale power markets, the bankruptcy court applied the highly deferential business judgment standard instead of the more stringent standard applied by FERC when evaluating proposed changes to PPAs featuring mutually agreed-upon filed rates. The court’s decision is now the subject of a direct appeal to the U.S. Court of Appeals for the Sixth Circuit, and the outcome may inspire additional action by Congress and the president.
To read the full alert, click here.
Advancing President Trump’s campaign promise to end the “war on coal,” on August 21, 2018, the U.S. Environmental Protection Agency (“EPA”) proposed a new rule to replace the Obama administration’s Clean Power Plan (“CPP”). Unlike the CPP, the proposed Affordable Clean Energy Rule (the “ACE Rule”) does not set numerical standards or targets for greenhouse gas (“GHG”) emissions. Instead, the ACE Rule would give states flexibility to set their own standards of performance for existing coal-fired power plants. EPA asserts that the ACE Rule will eventually reduce GHG emissions to a similar extent as the CPP would have; however, according to EPA, the ACE Rule would reduce GHG emissions by 1.5% by 2030, compared to 32% by 2030 under the CPP. Interested parties will have 60 days from the date of publication in the Federal Register to comment on the ACE Rule.
To read the full alert, click here.
On June 20, 2018, the Multi-State Zero Emission Vehicle (ZEV) Task Force released an Action Plan designed to accelerate the adoption of electric vehicles in the United States. The Action Plan presents 80 strategies and recommendations for states, automakers, charging and fueling infrastructure companies, utilities, and other partners to achieve rapid ZEV market growth in five core areas:
- consumer education and outreach;
- charging and hydrogen fueling infrastructure;
- consumer purchase incentives;
- light-duty fleets; and
The Action Plan’s recommendations reflect transportation-focused efforts to combat climate change for the future. By promoting the adoption by mainstream consumers of ZEVs, which include plug-in hybrid, battery electric, and hydrogen fuel cell vehicles, the goal is to achieve “near-and long-term” greenhouse gas (GHG) reduction targets that have been implemented in various states.
The Multi-State ZEV Task Force includes nine states—California, Connecticut, Maryland, Massachusetts, New York, Oregon, Rhode Island, Vermont, and New Jersey that collectively comprise one-third of the U.S. vehicle market. The Task Force was formed in 2013 under a Memorandum of Understanding (MOU) signed by the Governors of California and the initial seven states that adopted California’s ZEV regulations, which are more stringent than the federal vehicle emission standards. New Jersey joined the Task Force in 2018.
The Multi-state ZEV Task Force released its first Action Plan in May 2014 to support the implementation of the states’ new ZEV regulations. The 2014 Action Plan focused on eleven key initiatives, including adopting financial incentives and education programs that have been implemented by various states.
II. The New Action Plan
The new Action Plan builds on the early successes of the 2014 Action Plan by “redoubling state efforts” and “establishing clear priorities for action for the next critical period in the evolution of the market.” Promoting transportation electrification promises to deliver “substantial energy security and economic benefits as cleaner electricity derived from renewable energy and other low-carbon sources replaces imported gasoline and diesel as transportation fuels.”
Among the 80 ideas, key recommendations from the five priority areas include the following:
Consumer Education and Outreach
- States should support local grass roots efforts to increase consumer experience with ZEVs, such as ride and drives, rental programs, and pop-up ZEV show rooms.
- Automakers and dealers should increase brand-specific advertising as new ZEV models become available and fund brand-neutral consumer awareness campaigns, such as Drive Change. Drive Electric.
- Utilities should include funding for consumer education in transportation electrification program proposals submitted to public utility commissions (PUCs).
Charging and Hydrogen Fueling Infrastructure
- States should develop plans to guide the deployment of electric vehicle supply equipment (EVSE) to support the broad portfolio of charging needs at home, work, around town, at destination locations, and on the road.
- States should open PUC proceedings to consider alternative demand charge rate designs, waivers or other options for public charging to provide the least burdensome price signals to EVSE hosts.
Consumer Purchase Incentives
- States should collaborate with automobile manufacturers, dealers, utilities, other parties to advocate for the continued availability of federal tax credits.
- States should continue to offer and promote existing state rebates, income tax credits, and sales and excise tax exemptions.
- Automakers and dealers should continue to engage with state and local ZEV and EVSE incentive programs regarding monetary and non monetary incentives such as preferential parking, discounted tolls, and High Occupancy Vehicle lane access.
- States should advance the electrification of public fleets by offering financial incentives to state and local government fleets for acquisition of ZEVs and EVSE.
- Fleet Manager Associations should provide information and guidance to members about the benefits of ZEVs and charging/fueling technologies and costs through ZEV-focused information sessions and trainings.
- States should highlight dealerships with successful ZEV practices and engage with dealers through the Task Force Dealership Workgroup to identify collaboration opportunities that could support sales.
- Dealerships and dealership associations should commit to increasing ZEV sales by identifying and adopting best practices to overcome the challenges of selling ZEVs to new consumers.
The full Multi-State Zev Action Plan is provided here. K&L Gates lawyers will continue to monitor these developments as the United States rolls to a cleaner transportation future.