Category: Uncategorized

1
Making Room for Electric Storage: RTOs/ISOs Propose Changes to Their Market Rules to Comply with FERC Order 841
2
FERC’s New ROE Math
3
The Blockchain Technology Revolution: Implications for the Energy Sector
4
Is Guidance on ITC-Qualified Storage Coming?
5
Join K&L Gates at DNV GL Energy’s Energy Storage Lenders Day
6
Nine States to Collaborate to Release a New Action Plan to Accelerate the Adoption of Electric Vehicles
7
ESA News Desk with K&L Gates
8
California Energy Storage Update – What’s In the Latest Procurement Plans?
9
GOP’s “Tax Cuts and Jobs Act” Trims Renewable Energy and Other Tax Credits
10
K&L Gates Blockchain Energizer – Volume 13

Making Room for Electric Storage: RTOs/ISOs Propose Changes to Their Market Rules to Comply with FERC Order 841

By Abraham F. Johns, William M. Keyser, and Toks A. Arowojolu

On December 3, 2018, the Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs) filed proposed market rule changes to provide energy storage resources with greater opportunities to participate in the wholesale markets as required by Federal Energy Regulatory Commission (FERC) Order No. 841. These widely anticipated FERC filings will likely provide the framework for how energy storage resources will be developed and used in the coming years.

In February 2018, FERC released Order No. 841, which requires each regional grid operator to revise its tariff to establish a participation model that allows energy storage resources to participate in the organized wholesale markets and sell the relevant products offered by each market. K&L Gates covered the details of this Order in a blog post and in the Energy Storage Handbook.

FERC set a deadline for each RTO/ISO to submit a compliance filing including tariff revisions by December 3, 2018. We have provided links to the compliance filings for each RTO/ISO below. The deadline for public comments on the filings is December 24, 2018 by 5 p.m. Each RTO/ISO has until December 3, 2019 to implement the changes. Considering the holiday season, some commenters may request an extension on this comment deadline. We will continue to monitor the development of these proceedings.

FERC’s New ROE Math

By: Donald A. Kaplan, William M. Keyser, and Abe F. Johns

On October 16, 2018, the Federal Energy Regulatory Commission (“FERC” or “the Commission”) issued an order (“Order”) that dramatically reforms the way it determines the just and reasonable return on equity (“ROE”) in rate cases. The new methodology abandons FERC’s exclusive reliance on its discounted cash flow (“DCF”) model and will now give equal weight to the DCF, capital-asset pricing model analysis (“CAPM”), and an expected earnings analysis (“Expected Earnings”) to determine if a ROE is unjust and unreasonable. FERC will add a fourth method, a risk premium analysis (“Risk Premium”), to determine the new ROE when it finds a challenged ROE unjust and unreasonable.

While the new method only applies to transmission owners in New England, considering FERC’s enthusiasm for uniformity, the policy will likely be applied to more rate cases in the future and could impact both the electric and gas industries.

I. Background: FERC’s Previous ROE Calculus

The Order on remand, from the DC Circuit Court of Appeals in Emera Maine v. FERC, 854 F.3d 9 (D.C. Cir. 2017), comes as the latest iteration of cases based on several complaints against the collective ROE of the transmission owners in ISO New England, Inc.

The ROE represents the allowed return on utility equity included their cost-of-service rates. Under the famous Hope and Bluefield standards, FERC must set utility rates and returns on investment commensurate with other enterprises of comparable risk and sufficient to attract capital and “assure confidence in the financial integrity of the enterprise . . . .”  FERC ratemaking also “involves a balancing of the investor and the consumer interests.” FPC v. Hope Nat. Gas Co., 320 U.S. 591, 603 (1944).

In these cases, FERC was called upon to address a challenge to the New England transmission owners’ ROE under Section 206 of the Federal Power Act (“FPA”). Under Section 206, FERC first determines if the existing allowed ROE is “unjust and unreasonable.”  If that first finding is made, it then must establish a new just and reasonable ROE to replace the existing rate.

For nearly 40 years, FERC used the DCF method to assess whether a ROE is just and reasonable for a public utility. Under the DCF method, FERC evaluates the expected dividend growth and market-determined yields of a group of comparable utilities with bond ratings the same as or close to the utility or utilities subject to the ROE complaint to generate a range of ROEs with an upper and lower bound, which FERC termed the “zone of reasonableness.”  FERC then identifies a point in that range as the just and reasonable ROE. FERC had been using the midpoint (for multiple utility ROEs) or median (for a single utility) until recently. In early stages of this case, it began looking at various other considerations to adjust the ROE upward. FERC essentially used the new ROE to satisfy both findings it must make under Section 206 of the FPA.

The Court of Appeals ruled that FERC must explicitly find that a ROE is unjust and unreasonable before it can establish a new rate. It was not sufficient for FERC to find that the new ROE it establishes under the DCF method differs from the existing ROE. Rather, the court held that a broad range of ROEs could be just and reasonable under the FPA (although this range was not the same as FERC develops under the DCF method) and that FERC must find that the existing ROE is not in this range before it establishes a new one.

II. FERC’s Decision: A New Calculus

FERC declared an end to its sole use of the DCF model to determine whether a ROE is just and reasonable. Instead, it will use the DCF with two other methodologies (CAPM and Expected Earnings) to determine whether a utility’s ROE falls within the zone of reasonableness. If it finds that it does not, it will then use these three methodologies plus a fourth, Risk Premium, to establish a new rate.

a. Three Additional Methodologies

FERC chose to incorporate the CAPM, Expected Earnings, and Risk Premium methodologies because, among other reasons, “investors use those models . . . to inform their investment decisions.” The basics of each methodology are worth understanding.

The CAPM evaluates risk and cost equity through a formula that adds a “risk-free rate” with a “market-risk premium,” multiplied by a “beta” of the security. The risk-free rate is a proxy number, often based on the yield of 30-year U.S. Treasury bonds. The beta is a measure of the stock’s risk compared to the market. The market risk premium is the difference between the risk-free rate and the expected return on that stock, which is found either by forward-looking estimates, backwards-looking estimates, or a review of investment academics’ and professionals’ estimates.

The Expected Earnings methodology determines the earnings an investor can expect to receive on the book value (the equity of a company’s capital minus the long-term debt) of a particular stock. The analysis either uses backwards-looking estimates, based on historical earnings on book value, or forward-looking estimates based on analysts’ forecasts of the company. The value of expected earnings helps investors gauge the opportunity cost of investing in a specific utility.

The Risk Premium methodology focuses on the investment in stocks, as they hold greater risk than investment in bonds. The methodology examines that “premium” value that a stock investment accrues over a bond investment. The Order noted that “investors’ required risk premiums expand with low interest rates and shrink at higher interest rates.” FERC will compare the interest rates and risk premiums and assess how “investors’ required rate of return have been impacted by the interest rate environment.”

To assess the first prong of the FPA’s Section 206 standard, three of the methodologies (DCF, CAPM, and Expected Earnings) will yield a composite zone of reasonableness from which a spread of presumptively just and reasonable ROEs for utilities with comparable risk profiles will be identified. FERC will establish an overall zone of reasonableness, then subdivide that zone into four “quartiles” centered on the overall midpoint, and upper and lower midpoints of the zone.

b. Comparing ROEs Based on a Utility’s Risk and Presuming ROE Lawfulness

FERC will use the overall midpoint and upper and lower midpoints to anchor three zones of reasonableness, one each for utilities of lower risk, average risk and higher risk utilities. If the subject utility falls with its appropriate zone, FERC will presume that it is just and reasonable. If not, FERC will move on to set a new just and reasonable rate.

For comparison to average risk utilities, the central tendency of DCF, CAPM, and Expected Earnings zones of reasonableness will determine the cost of equity. Those three midpoint/median figures will be averaged along with the Risk Premium number to calculate the ROE of average risk utilities. To assess ROEs for below or above average risk utilities, the midpoint/medians of the lower and upper halves of the zone of reasonableness will be used, respectively.

FERC will continue to determine a utility’s risk profile by two means. First, it compares the utility to a proxy group of companies with similar risk profiles, i.e., utilities within one “notch” of the subject utility’s credit rating. Second, FERC eliminates utilities from the proxy group based on specific circumstances may be unique, such as involvement in a merger or unusually high or low ROEs found under the four methodologies.

Additionally, FERC will use a “composite zone of reasonableness” based on the DCF, CAPM, and Expected Earnings to create a limit to a utility’s total ROE (base ROE plus incentives). Using this composite zone, FERC will dismiss complaints against ROEs that are within that zone, which are seen as presumptively just and reasonable ROEs, unless that presumption is adequately rebutted.

III. Industry Impact: New England and Beyond

The new calculation for ROEs is considered favorable for public utilities. Under the new calculation, there will be less need to account for anomalous market conditions because four distinct methodologies are used. The calculation is expected to identify a more accurate and healthy ROE for utility investors infrastructure investment.

The Order concludes that the new calculus will work to produce more precise ROEs from inception, allowing for less litigation and fewer complaints. During the Commission Meeting on October 18, 2018, Commissioner LaFleur commented positively about the new methodology, noting that it “could help mitigate pancake complaints (i.e., complaints filed while prior cases are still unresolved)” that have created uncertainty in the industry and “add clarity . . . [to] better inform potential litigants” about existing ROEs, as well as “mitigate some of the concerns . . . on the thinness of the survey that underlies the IBES (institutional brokers’ estimate system) growth rates . . . .”

Currently, the new method only applies to the litigation over the ROE for the New England transmission owners. However, given FERC’s desire for uniformity, the future policy could eventually be applied to all rate cases for electric utilities and gas pipelines subject to FERC’s jurisdiction.

The Blockchain Technology Revolution: Implications for the Energy Sector

Please Join K&L Gates and use our Speaker Discount Code!

Join K&L Gates’ Buck B. Endemann and Benjamin L. Tejblum, along with an expert panel in New Orleans, LA for a two-day conference that will discuss the business use cases of blockchain technology within the energy industry, cutting through the hype to focus on realistic applications of blockchain that many companies are already integrating.  Diverse content experts will present actual data, case studies and pilot projects involving blockchain to showcase what this technology can actually do for energy companies, while evaluating the longer-term implications for business and blockchain’s relationship to the evolving electric grid and other emerging technologies. This program will maintain an objective perspective of blockchain, addressing concerns about the technology, and evaluating if it is actually appropriate for every application it is being looked at for.

Click here to learn more about the event and to register.

K&L Gates is pleased to offer a registration discount to colleagues and friends of the firm. Simply enter discount code BLOCK18SPK when registering.

Is Guidance on ITC-Qualified Storage Coming?

By: Elizabeth C. Crouse

State level energy storage incentives have been proliferating in recent months, but it is still not clear exactly when the federal investment tax credit (“ITC”) is available in respect of storage assets. While certain aspects are well known, the industry has been waiting for several years for additional guidance from Treasury on this matter. On September 20, Senators Tim Scott (R-SC) and Michael Bennet (D-Co) sent a letter to Treasury Secretary Mnuchin nudging him to provide that guidance, particularly in regard to whether storage assets installed at operating ITC-eligible facilities qualify for the ITC.

Many readers will recall that earlier this year the Internal Revenue Service released a Private Letter Ruling concluding that the Code Section 25D credit–which bears striking similarities to the ITC–is available in respect of a battery installed after residential solar panels became operational. In our blog post and Energy Storage Handbook section describing that ruling, we noted that similar logic supports an argument that storage assets installed at an operating ITC-eligible facility should also qualify for the ITC. There are also arguments that the ITC should be available in respect of storage assets installed at a facility that produces power that qualifies for the production tax credit, at least if that facility would also qualify for the ITC.

Although storage has caught on or is taking off in many locations, a green light from Treasury regarding ITC qualification could help the industry and lawmakers accomplish many important and increasingly urgent goals, from flattening the duck curve(s) to increasing reliability in rural areas. We look forward to additional action by Treasury on this matter and hope to share it in the new version of our Energy Storage Handbook, which will be released soon.

Join K&L Gates at DNV GL Energy’s Energy Storage Lenders Day

Discover new approaches to energy storage investment decisions

DNV GL Energy’s
ENERGY STORAGE LENDERS DAY
October 17, 2018
10:00 am – 4:30 pm
Law Offices of K&L Gates
599 Lexington Avenue (at 53rd St.)
New York, NY 10022-6030

Attend DNV GL’s Energy Storage Lenders Day – and see where energy storage technologies, brands, and manufacturers stand on the spectrum of product discover qualification. At the event, graciously hosted by K&L Gates, you’ll explore an overall approach to due diligence for energy storage—and key in on the issues that affect your storage investment decisions.

At DNV GL’s Energy Storage Lenders Day, you’ll learn more about:

  • Insurance
  • Product qualification programs
  • Field monitoring
  • Performance guarantees, capacity guarantees, and how they vary by battery type

Plus, you’ll be the first to see results of the 2018 Battery Performance Scorecard, DNV GL Energy’s authoritative and in-depth report on energy storage products and their qualification results.

Register today! Space is limited.

Nine States to Collaborate to Release a New Action Plan to Accelerate the Adoption of Electric Vehicles

By William M. Keyser and Toks A. Arowojolu

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
  • dealerships

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.

I. Background

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.

Light-Duty Fleets

  • 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.

Dealerships

  • 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.

ESA News Desk with K&L Gates

K&L Gates was recently the News Desk Host #ESACon18. The Energy Storage Association’s Annual Convention was held April 18-20 in Boston, MA.  As News Desk Host, we had the opportunity to interview representatives from the organizations that are making an impact on the energy storage industry.

K&L Gates interviewers included Portland partner Bill Holmes, Boston associate Mike O’Neill, Washington D.C. partner Will Keyser and counsel Jim Wrathall. Organizations represented included Sungrow Samsung SDI, Dynapower Company, Ingersoll Rand, WRISE, ESA, Fluence, GE Power, National Grid, NEC Energy Solutions, NEXTracker, and Powin Energy.

To view the interviews, click here.

 

 

 

California Energy Storage Update – What’s In the Latest Procurement Plans?

By Buck B. Endemann and  Kristen A. Berry

Just as Prometheus hid fire in a fennel stalk to gift it to the unaware ancients, the pioneers of energy storage technology seek to harness and store energy in increasingly novel ways. Transforming captured energy into storable and consumable power stands at the forefront of this century’s revolution in green energy technology. In 2017, the United States deployed 431 MWh of energy storage capability, largely spurred by state-specific energy storage mandates.[1] California’s state legislature has continued to lead the nation and spread Prometheus’s “secret spring of fire.”

While the concept of storing energy is centuries-old, new battery technologies promise to mitigate California’s infamous duck curve and provide the low carbon, flexible ramping resources necessary to accommodate the state’s increasing penetration of solar power. The Union of Concerned Scientists estimates the United States’ total current storage capacity at 23 gigawatts (GW), which approximates the capacity of 28 coal plants.[2] Ninety-six percent of this capacity, however, derives from pumped hydroelectric storage, most of which was built in the 1960s and 1970s and is increasingly vulnerable to drought and other environmental risks. More recently, energy storage developers have focused their efforts on battery technologies, with lithium-ion batteries in particular making great strides in terms of duration and cost-effectiveness. Market watchers have projected that by 2020 the price of battery storage could decline to $200 kWh, compared to today’s market price of approximately $340/kWh.[3]

As detailed in the K&L Gates Energy Storage Handbook (Version 2.0), California’s two landmark energy storage bills require California’s Investor-Owned Utilities (IOUs) to procure and install nearly 2 GW of storage by 2024.[4]  Under AB 2514, the California Public Utility Commission (CPUC) required California’s IOUs to procure by 2020 1,325 MW of storage capacity split among the transmission, distribution, and customer domains.  In AB 2868, the legislature set an additional procurement target of 500 MW for distributed-connected energy storage systems, with individual 166 MW goals established for Southern California Edison (SCE), Pacific Gas & Electric (PG&E), and San Diego Gas & Electric (SD&E). Under both laws, California’s IOUs must submit periodic procurement plans to show progress toward each law’s targets.  In February and March 2018, SCE, PG&E, and SDG&E submitted their 2018 energy storage procurement plans, which lay out each IOU’s strategy to meet its energy storage goals in its respective service territory.

SCE proposes to procure a total of 60 MW of energy storage by 2018 in two separate procurements of 20 MW and 40 MW.  The 20 MW of procurement would respond to an additional legislative directive, SB 801, under which SCE is required to deploy energy storage in response to the natural gas shortages caused by the Aliso Canyon gas storage facility’s well failure.  For the remaining 40 MW, SCE plans to launch programs and investments to solicit utility-owned storage, as mandated under AB 2868. SCE’s procurement plan also seeks CPUC approval to allocate $9.8 million to install energy storage at low-income, multi-family dwellings.

PG&E’s procurement plan focuses on the 166 MW of energy storage under AB 2514 that it is required to procure in the 2018-2019 procurement period.  To meet that target, PG&E proposes an energy storage request-for-offers framework. To achieve its AB 2868 target, PG&E outlined its four categories of distribution-connected storage investments: (1) researching the role of distributed energy storage in wildfire safety, particularly within the context of the North Bay Wildfire rebuilding efforts, (2) launching a behind-the-meter storage program for up to 5 MW of thermal storage, (3) identifying and seeking immediate CPUC approval (via a Tier 3 advice letter) for storage investments up to 166 MW, and (4) requesting authorization for additional investments beyond the categories identified in the 2018 application.

SDG&E’s filing proposes seven utility-owned micro-grid projects, all of which would exist at the distribution circuit level. These projects would provide services to entities that contribute to public safety, like police stations and firehouses, by providing storage capabilities separate from the main grid.  SDG&E argues that these distributed storage systems will provide a wide-range of benefits, including grid resiliency, wholesale market revenues, and reduced dependency on non-renewable energy sources by minimizing the need for back-up generators.  SDG&E also plans to contribute $2 million toward a pilot energy storage incentive program for non-profit facilities, such as nursing homes.

Each of these utilities will roll out its initiatives over the remainder of 2018 and beyond.  K&L Gates will continue to monitor energy storage developments and provide updates.

[1] GTM Research / ESA, U.S. Energy Storage Monitor, https://www.greentechmedia.com/research/subscription/u-s-energy-storage-monitor#gs.KZIlnzQ (2017).

[2] Union of Concerned Scientists, How Energy Storage Works, https://www.ucsusa.org/clean-energy/how-energy-storage-works#.WtAsTq2otD8 (2013).

[3] McKinsey & Company, The New Economics of Energy Storage, https://www.mckinsey.com/business-functions/sustainability-and-resource-productivity/our-insights/the-new-economics-of-energy-storage (August 2016). Energy Storage Report, Study: Flow Batteries Beat Lithium Ion, http://energystoragereport.info/study-flow-batteries-beat-lithium-ion/#sthash.c07jCAVv.gXdjY17t.dpbs (July 2017).

[4] K&L Gates, Energy Storage Handbook, http://www.klgates.com/epubs/Energy-Storage-Handbook-Vol2/ (April 2018).

GOP’s “Tax Cuts and Jobs Act” Trims Renewable Energy and Other Tax Credits

By Mary Burke Baker, Elizabeth C. Crouse, Rachel D. Trickett, Charles H. Purcell

On November 2, 2017, the House Ways and Means Committee unveiled its much anticipated tax reform bill titled the “Tax Cuts and Jobs Act” (the “House Plan”). The House Plan is a significant step by Republican lawmakers to fulfill a campaign promise to reform the United States tax code. Significantly, for solar, wind, and other renewable energy companies that have been scrambling to predict how proposed tax reform might affect their industries, the House Plan includes substantial modifications to existing renewable energy tax credits including the production tax credit (“PTC”) and the investment tax credit (“ITC”). Many other energy-related tax incentives were also cut, including the Code Section 199 Domestic Production Activities Deduction and credits for Enhanced Oil Recovery and Producing Oil and Gas from Marginal Wells. Two other credits that are often used in conjunction with the ITC on small solar developments, the New Markets and Historic Rehabilitation Tax Credits, were also cut.

THE PTC

The House Plan would permanently reduce the maximum PTC rate from 2.4 to 1.5 cents per kilowatt-hour–with no inflation adjustments going forward–for all projects that did not begin construction prior to the date the House Plan is enacted. It is possible that this reduction may be retroactive for projects that commence construction on or after November 2, 2017, the day on which the House Plan was released. Under current law, the PTC is scheduled to sunset in 2020; this schedule would remain unchanged in the House Plan.

Effective for all tax years–including years beginning prior to, on or after enactment of the House Plan–the House Plan would require a “continuous program of construction” from the date a facility begins construction to the date it is placed in service. The “continuous program of construction” requirement exists under current law and has been interpreted by the Department of the Treasury (the “Department”) to permit several “safe harbor” time periods. At present, it is unclear whether the House Plan, if enacted, would effectively eliminate those safe harbors or whether the Department may issue them unchanged or substantially unchanged.

THE ITC

The House Plan would align the expiration dates and phase-out schedules for different qualified energy properties and extend the ITC to certain other technologies. Solar energy, fiber-optic solar energy, qualified fuel cell, and qualified small wind energy property would be eligible for a 30% ITC if construction begins before 2020 and would be phased out for construction that begins before 2022 using the same schedule currently applicable to solar energy property. Qualified microturbine, combined heat and power systems, and thermal energy property would be eligible for a 10% ITC if construction begins before 2022. The permanent 10% ITC available for solar energy and geothermal property would be eliminated for all facilities if construction of such facility begins after 2027.

Similar to the PTC, the House Plan would also require a “continuous program of construction” until a facility is placed in service to meet the “beginning of construction” requirement to qualify for the ITC. Existing Department guidance regarding the continuous program of construction is currently applicable only to wind facilities intended to qualify for the PTC. As with regard to the PTC, it is not clear whether the Department will apply the same standard to projects intended to qualify for the ITC if the House Plan is enacted.

The good news for the renewable power industry is that the PTC and ITC survive under the House Plan, albeit with changes that may have a significant impact on the industry. Other tax incentives did not fare as well. For example:

Section 199 Domestic Production Activities Deduction

The Code Section 199 domestic production activities deduction or “DPAD” would be repealed effective for tax years beginning after 2017. This affects a variety of domestic manufacturers of a number of items, including solar panels, construction equipment, and software, as well as oil and gas producers.

Enhanced Oil Recovery Credit

The enhanced oil recovery credit would be repealed effective for tax years after 2017.

Credit for Producing Oil and Gas from Marginal Wells

The credit for producing oil and gas from marginal wells would be repealed effective for tax years after 2017.

New Market and Historic Rehabilitation Tax Credits

Two other credits that are often seen in conjunction with small solar installations were also cut. The New Market Tax Credit for development in designated low-income areas of the country would be eliminated effective for tax years after 2017, but credits that would have already been allocated may be used over the course of up to seven years as contemplated under current law. Similarly, the Historic Rehabilitation Tax Credit for expenses incurred to rehabilitate old and/or historic buildings would be repealed. Under a transition rule, the credit would continue to apply to expenditures incurred through the end of a 24-month period of qualified expenditures that would have to begin within 180 days after January 1, 2018.

CONCLUSION

The House Plan is far from final, but it is moving very quickly. The House Ways and Means Committee Chair, Kevin Brady, has indicated that the House Republicans plan to pass the House Plan by Thanksgiving. Taxpayers impacted by these proposed changes must engage immediately in order to have any impact on the final legislation. For any questions on these issues, please contact one of the following members of our Tax and Federal Tax Policy Teams.

K&L Gates Blockchain Energizer – Volume 13

By Molly Suda, Buck B. Endemann, and Ben Tejblum

There is a lot of buzz around blockchain technology and its potential to revolutionize a wide range of industries from finance and healthcare to real estate and supply chain management. Reports estimate that over $1.4 billion was invested in blockchain startups in 2016 alone, and many institutions and companies are forming partnerships to explore how blockchain ledgers and smart contracts can be deployed to manage and share data, create transactional efficiencies, and reduce costs.

While virtual currencies and blockchain technology in the financial services industry have been the subject of significant debate and discussion, blockchain applications that could transform the energy industry have received comparatively less attention. Every other week, the K&L Gates’ Blockchain Energizer will highlight emerging issues or stories relating to the use of blockchain technology in the energy space. To subscribe to the Blockchain Energizer newsletter, please click here.

IN THIS ISSUE

  • Trusted IoT Alliance Launches to Foster Interoperability Across Blockchain Platforms
  • New York Energy Service Company Using Blockchain Technology to Lower Customer Bills
  • HyperLedger Composer Demo Explores Creation of Decentralized Energy Networks

To view more information on theses topics in Volume 13 of the Blockchain Energizer, click here.

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