Time is Running Out on the Section 1603 Tax Grant Program for Renewable Energy Projects

In December 2010, the Department of Treasury Section 1603 tax grant program (“1603 Grant”) was extended through 2011.  The 1603 Grant offers renewable energy project developers cash payments in lieu of the investment tax credits (“ITC”).  The values of the awards are equivalent to 30% of the project’s total eligible cost basis in most cases.  Qualifying technologies include: biomass; combined heat and power; fuel cells; geothermal; incremental hydropower; landfill gas; marine hydrokinetic; microturbine; municipal solid waste; solar and wind. 

Another extension is not likely and so developers intending to take advantage of the 1603 Grant should be aware that construction must begin before 2012, i.e., developers must begin construction by December 31, 2011.  Developers must further file an application with Treasury no later than September 30, 2012, whether or not placed in service.  The purpose of submitting an application for a property that is not yet placed in service and will not be placed in service in 2011, is to demonstrate that construction has begun during the required time period in 2011. 

One common source of confusion is how to meet the construction test.  The Department of Treasury has provided guidance (http://www.treasury.gov/initiatives/recovery/Pages/1603.aspx) to use to determine whether construction has begun.  There are two ways to qualify: (1) “physical work of significant nature;” and (2) 5% safe harbor.  The safe harbor provision sets the beginning of construction at the point where the applicant has incurred or paid at least 5% of the total cost of the property, excluding land and certain preliminary planning activities.  While primarily an expenditure test, there are a number of pitfalls in satisfying the 5% safe harbor provision and developers should consult the Treasury or counsel to make sure that the test is satisfied.

It is important to note that even though time is running out on the 1603 Grant, developers still have time to take advantage if they can meet the construction test before December 31, 2011.

Western Grid 2050: Contrasting Futures, Contrasting Fortunes – A New Report For the Purpose of Informing Policy and Investment Decisions for the Western Electricity Sector

A new report, "Western Grid 2050: Contrasting Futures, Contrasting Fortunes" (the "Report") was issued today by the Western Grid Group ("WGG") with support from the Western Clean Energy Advocates ("WCEA"). The purpose of the Report is to inform policy and investment decisions for the Western electricity sector. Former Colorado Governor Ritter today joined advocacy groups in calling for western state leadership to work towards achieving the Report's vision.

The Report anticipates that the Western electricity sector will need to invest more than $200 billion by 2030 however, how this money is invested will significantly affect quality of life in the west. According to the report,

[s]ignificant investment will be required because coal, gas and nuclear facilities will need to be retired or replaced, population, economic growth, and electrification will drive gross electricity demand up, demand reduction efforts like energy efficiency programs will continue, new electric generation will be built and new transmission will be added. The question is not whether hundreds of billions will be invested but rather how they will be invested.

 To explore and evaluate the relative economic, environmental, energy security and public health consequences of the different investment choices, the report examined two trajectories: "Business as Usual" ("BAU") and "Clean Energy Vision" ("CEV"). In the study, the BAU trajectory focuses discretionary investment on retrofitting, repowering and adding coal generation and on meeting any incremental needs with new gas fired generation and the CEV trajectory focuses discretionary electricity resource investment on energy saving and renewable energy technologies.

One of the goals of the Report was to encourage an open dialogue on electricity system investment priorities in the West. In comparing the two trajectories, BAU and CEV futures will require different regulatory and policy mechanisms. The BAU paradigm is based on the existing infrastructure.

The utility regulatory structure in place today was chosen more than 50 years ago to induce utilities to invest in large, base load utility-owned generation. The cost based, rate of return regulation paradigm created incentives that are well-suited to the 5 to 10 percent annual growth in electric demand seen in the 1950s and 1960s. A BAU future is intertwined with the perpetuation of the 1950s regulatory paradigm, and thus no significant changes in institutions, regulations or policy are needed in the BAU future.

On the other hand, the report provides that the CEV trajectory will require different infrastructure, different planning and different regulation to support it.

A CEV future depends on aggressive amounts of electricity demand reduction, customer demand response and customer sited distributed generation. The cost of service, rate of return paradigm does not induce investor owned utilities to invest in customer side of the meter resources thus the regulatory paradigm must change in a CEV future. Furthermore, a CEV trajectory requires much greater regional coordination and cooperation to build the infrastructure that access and efficiently utilize the best renewable resources in the West. Conventional regulation does not adequately induce investor owned utility participation in regional projects, and so once again the regulatory paradigm must change. While Publicly Owned Utilities (POUs) do not profit from generation and grid investment in the same way that investor owned utilities do, POUs have also focused on developing resources within their own

boundaries to serve their own need and efficient implementation of a CEV trajectory will require these POU policy choices to change.

The Report is the first in a series of planned reports by the WGG and WCEA. In September, the WGG and WCEA intend to release the second phase of the report, "Clean Energy Vision Policies" describing mechanisms that can be used to guide transition to the CEV trajectory.

The Western Grid 2050 report can be found here: http://www.cleanenergyvision.org/wp-content/uploads/2011/08/WG2050_final_rev082211.pdf

SB11-045: First Meeting of the Colorado Transmission Siting Task Force

In Colorado, siting for transmission facilities is decentralized. Under the current system, all transmission lines require local government permits.  The process however, can vary from county to county which is only one of many challenges that can delay a project.  In recognition of the need for transmission development in the state, the Senate passed SB11-045 directing formation of a task force to study barriers to transmission siting and permitting in the state.  The task force is comprised of 17 members representing different stakeholder groups with an interest in the siting and permitting process for transmission in Colorado. The first meeting of the transmission task force pursuant to SB 11-045 was held on Thursday, August 19th at the Colorado Public Utilities Commission (the "Commission") and Chaired by Commissioner Tarpey. 

http://www.dora.state.co.us/puc/projects/TransmissionSiting/SB11-45/SB11-45.htm

1041 permitting at the county level for transmission lines arose out of the Areas and Activities of State Interest Act (“AASIA”).  In 1974, the AASIA was introduced in the General Assembly as HB 1041 to “encourage” local governments to designate certain geographic areas and specified activities as matters of state interest.  Under the AASIA, among other things, counties can designate construction of major facilities of a public utility as activities of state interest.  Once a county makes a designation under AASIA, the county must develop guidelines or “1041” regulations to control development of land resources within the designated area or that area affected by the designated activity. Prospective developers then must apply to the local government for a permit in order to develop in these designated areas.

Alamosa County adopted 1041 regulations in 2009 and Juan Altamirano, Community Coordinator that oversees all 1041 regulations for the Alamosa County Planning Department, provided an overview of the regulations that govern utility infrastructure projects in Alamosa County.  Mr. Altamirano noted that projects are generally approved within 3-6 months.  To save time up-front, the Alamosa regulations require submittal of a preliminary application to assess general feasibility and identify any major problems and issues in order to direct data gathering to accompany the final application. The regulations further provide for significant interaction between the permitting authority and the applicant under predefined timelines.  The purpose of the meetings and timelines are to determine submission requirements for the final application and to ensure targeted data collection for the final application.  The largest CPV solar project in the world and the San Luis – Calumet – Comanche line both touch Alamosa County. 

According to Mr. Altamirano, the 1041 regulations are important because the local jurisdictions are in the position to address: mitigation of project impacts, community development, community communication and community relationships.  A significant number of Colorado counties have identified development of transmission infrastructure as a key factor in their economic development efforts. One concern of the counties is that a one-size-fits-all approach, for example, a statewide siting authority, would preclude meaningful input from the county level and thereby minimize the county’s ability to mitigate any potential impacts of a project.

On the flip-side however, inconsistencies in the county regulations and a lack of communication and coordination across multiple jurisdictions can effectively stall a project.  Tom Dougherty, a consulting attorney to Tri-State and the Colorado Rural Electric Association, described the lengthy regulatory process that Tri-State worked through in order to obtain approvals for its Nucla-Sunshine and E-470 transmission line projects.  The timeline for the Nucla-Sunshine line approximates 17 years from identification of need.  In short, the objective/subjective considerations at the local level can challenge project progress.

The remainder of the meeting identified "choke points" and who the task force would like to have present in subsequent meetings. Choke points identified: (1) inconsistencies in the county regulations; (2) delays in the court system in appealing decisions; (3) delays in the PUC executing its backstop authority; and (4) delays introduced by sequential CPCN/siting processes.

Discussion relating to a statewide authority for siting will come later in the process.

Cleantech SBA Roundtable - Hosted by CREED and CCIA in Golden, CO

On Thursday, August 11, 2011, the Colorado Center for Renewable Energy Economic Development (CREED) (http://www.nrel.gov/news/press/2011/1450.html); the Colorado Cleantech Industry Association (CCIA) (www.coloradocleantech.com); Dr. Winslow Sargeant, Chief Counsel for Advocacy of the U.S. Small Business Administration's Office of Advocacy (http://www.sba/gov/advocacy/858/3177); Mike Landweber, Director of Regional Affairs for the Office of Advocacy; and John Hart, Region VIII Advocate for the Office of Advocacy covering the states of CO, WY, UT, MT, ND and SD, hosted a small business round table at CREED's facility in Golden, CO.  The sole purpose of the meeting was to provide a forum to discuss regulatory challenges facing small business in this region. 

The Office of Advocacy was established to represent the views of small entities before federal agencies and Congress and is an independent office within the U.S. Small Business Administration in order to give small entities a voice in the rule making process.  Dr. Sargeant, a co-founder of a start-up that was eventually acquired, is particularly well suited for this role as he brings the small business perspective to the table. His experience with and passion for small business was apparent in his responses to each of the challenges highlighted by the participants.

Three general themes were consistently expressed by the businesses present: (1) lack of access to capital; (2) the need to streamline and update regulations to address current issues and new business models; and (3) the competitive disadvantage created by federal agency matching requirements relating to how the regulations define the criteria for matching contributions and whether the SBA could be used to fill in any gaps to level the playing field for the small business in competing against large business.  Among other things discussed, one suggestion was to provide carve outs for small businesses for government solicitations.

Dr. Sargeant acknowledged that long latencies in the regulatory process hinder progress and they are acutely aware of the need to find a safe way to bring products to market.  The Office noted that through Executive Order 13563, the Obama administration directed a retrospective analysis of existing rules in order to consider how best to promote analysis of rules that may be outmoded, ineffective, insufficient, or excessively burdensome, and to modify, streamline, expand, or repeal them in accordance with what has been learned. The Executive Order exemplifies the problem facing cleantech small business in that the regulations need to catch up to innovation in addition to being clear, certain and predictable so that businesses can succeed.  Through Mr. Hart and this region's Office of Advocacy, small businesses in this region have the opportunity to participate in identifying outmoded or inefficient regulations specific to their business models. 

Another recurring theme throughout the discussion as emphasized by Mr. Hart, was the need for companies to have a certification mechanism to provide a tool that emerging technologies can use to prove commercial scale marketability.  For example, China promotes commercialization by providing "Competency Centers."  These Centers provide the infrastructure for companies to test their product under commercial conditions in order to provide the data that these companies need to take steps towards market acceptance and actual market integration.

From my perspective, one thing was clear from the round table discussion: The Office of Advocacy was on a fact finding mission to learn first-hand from small business the regulatory challenges that they are facing.  The time was spent listening to small business and comments from the Office were focused on discussing efficient pathways to use to effect change.  The next step is to identify and advocate for solutions.