Renewable Energy Law Insider -

I wanted to drop in to quickly announce that the June edition of North American WindPower includes a cover article drafted by yours truly, Alan Claus Anderson and Britton Gibson of the Polsinelli Energy Group.  The article, entitled “On the Front Lines: Advocates Prevail in State RPS Fight,” provides an overview of the recent legislative battles that have occurred in Kansas in relation to the state Renewable Portfolio Standard.

As part of the combined legislative efforts of the wind industry, the Wind Coalition, the Climate and Energy Project, the Kansas Energy Information Network, and many other groups, Polsinelli and Scott White of KEIN prepared a report that detailed the economic benefits of wind generation for the state of Kansas.  We presented that report before several Kansas House and Senate Committees, as well as at a series of Business Leader Forums hosted by the Climate and Energy Project across the state to help educate business owners and community leaders about the numerous economic benefits of wind energy.

Ultimately, I’m happy to report that the efforts to repeal the Kansas RPS were unsuccessful.  However, there are numerous other states all across the United States that are facing very similar legislative challenges to RPS policies.  We believe that the lessons we have learned in Kansas can translate well into defending RPS policies in other states, and hopefully this article can serve as a template of sorts for organizing a successful defense of these important policy initiatives.

If you have any questions about the national or state-level attacks being raised against RPS policies, or about the economic benefits of the wind industry for a particular state or region, please feel free to write a comment, email me at lhagedorn@polsinelli.com, or call me at (913)234-7416.

As one of the final acts of the 2013 legislative session, on May 17th the Missouri legislature approved an amendment that will phase-out the Missouri solar rebate between 2014 and 2020. The approved amendment was based largely upon similar legislation that was supported by the Missouri solar industry trade group, MOSEIA, as well as the Missouri public utilities.

As background, pursuant to Proposition C, the voter intiative implementing Missouri’s Renewable Energy Standard, the state’s public utilities provide a rebate of $2.00 per watt for new or expanded solar systems on customers’ premises, up to a maximum of 25 kW per system (for a maximum total rebate of $50,000 per system), subject to a 1% annual cost cap for the utilities.

This rebate has been viewed as extremely effective in encouraging the development of the Missouri solar industry over the last few years. In light of this success, going into the 2013 legislative session both the solar industry and the public utilities believed that it was necessary to begin planning for the phase-out of the incentive over the next few years. To this end, a number of bills were introduced setting forth proposed phase-out schedules ranging from 4 to 6 years. Though none of the stand-alone bills garnered enough support to pass both chambers prior to the session end on Friday, an amendment to an existing utilities bill which included the phase-out language was successfully proposed and passed on the final day of the session.

As passed, the amendment sets forth the following phase-out schedule for the solar rebate:

• $2.00/watt before June 30, 2014;
• $1.50/watt between July 1, 2014 and June 30, 2015;
• $1.00/watt between July 1, 2015 and June 30, 2016;
• $0.50/watt between July 1, 2016 and June 30, 2019; and
• $0.25/watt between July 1, 2019 and June 30, 2020.

In addition to the phase-out, there are a number of other provisions included in the amendment that could potentially impact the Missouri solar industry and the public. If you have any questions about the solar rebate, this legislation, or the potential impacts on the solar industry or your company, please feel free to leave a comment or contact me at lhagedorn@polsinelli.com or (913)234-7416.

After several months of anxious anticipation, yesterday the IRS released guidance on its interpretation of certain provisions relating to Congress’ extension of the federal Production Tax Credit (“PTC”).

Specifically, the provisions in question relate to how far along in development a project will need to be in order to qualify for the PTC before the credit expires on January 1, 2014.  In January of 2013, Congress passed the American Taxpayer Relief Act of 2012.  Among the many provisions in that legislation, Congress agreed to extend the then-expired PTC so that it would include projects that have begun construction before January 1, 2014.  This represented a welcome departure from prior versions of the PTC statute, which required projects to be “placed in service” by the deadline, as opposed to having to “begin construction.”

Though this modification was excellent news for the wind industry, replacing the “placed in service” requirement with a “begin construction” requirement created some ambiguities in how the statute would be interpreted and applied by the IRS.  What does it mean to “begin construction” in this context?  How much money will need to be spent?  What kinds of activities will qualify?  While there was some previous precedent for a similar “begin construction” requirement with the Section 1603 Grant program, there was no guarantee that the IRS would apply a similar rationale to the PTC extension.  Though it is impossible to measure the exact impact of this ambiguity, there is little doubt that the uncertainty about what it means to “begin construction” created some degree of a chilling effect on wind developments in the first quarter of 2013.

In an effort to resolve this issue, IRS has released Notice 2013-29, entitled “Beginning of Construction for Purposes of the Renewable Electricity Production Tax Credit and Energy Investment Tax Credit.”  Using the Section 1603 standards as a guide, IRS states that there are two methods for satisfying the “begin construction” requirement:

1.)    Starting physical work of a significant nature; or

2.)    Meeting a safe harbor threshold by paying or incurring 5% of more of the total cost of the facility and thereafter making continuous efforts to advance towards completion.

Physical Work of a Significant Nature

The first alternative is to begin construction before January 1, 2014.  The IRS Notice makes clear that “[c]onstruction of a qualified facility begins when physical work of a significant nature begins,” whether performed by the taxpayer or by other persons for the taxpayer under a binding written contract. 

Ultimately, the determination of whether activities qualify as “physical work of a significant nature” is a judgment call by the IRS based upon the relevant facts and circumstances of a particular project.  However, IRS does provide the following guidelines:

• Both on-site work (excavation of the faoundation, setting of anchor bolts, pouring of concrete pads) and off-site work (manufacturing of components if performed pursuant to a binding contract and not held in manufacturer’s inventory) may be taken into account;
• Production of property that is held or normally held in inventory by a vendor does not qualify; and
• Preliminary activities do not qualify, including the following:

Safe Harbor

The second alternative is to qualify for the PTC safe harbor by paying or incurring 5% or more of the total cost of the facility before January 1, 2014, and thereafter making continuous efforts to advance towards completion of the facility.

For the purposes of calculating the 5% threshold, all costs properly included in the depreciable basis of the facility are to be taken into account, not including the cost of land or any property not integral to the facility.

Additional Issues

Construction of Individual Portions of Larger Projects

Answering a question that has been posed by many industry insiders over the past few months, the IRS Notice specifies that, for the purposes of determining whether construction of a facility has begun, work on individual turbines that are part of a larger project can qualify as work on the entire project.  For example, a wind developer may commence work on some but not all of the planned turbines for a wind project and qualify as having begun construction for the entire project.  It is not necessary to have begun construction of each individual turbine within that larger project.  Whether a single facility will be deemed to be part of a larger project will be a question left to the discretion of the IRS, but the major factors considered are as follows: 

Integral Versus Non-Integral Property

Construction of a wind project involves numerous small tasks, some of which are integral to the production of electricity and some are not.  For the purposes of determining whether construction of a facility has begun, only tasks that are integral to the production of electricity will be counted. 

Continuous Construction & Continuous Efforts

Finally, in order to qualify the “physical work of a significant nature” standard, the taxpayer must engage in a continuous program of construction.  As with many of the other requirements discussed above, this is determined through a facts and circumstances analysis by the IRS. 

In regards to the “continuous efforts” standard for the 5% safe harbor, the IRS Notice provides the following list of factors which may be considered in determining whether there have been continuous efforts:

However, for both the Physical Work and theSafeHarboralternatives, the IRS does allow certain disruptions in construction that are beyond the taxpayer’s control, such as:

Cost Overruns

The IRS Notice briefly touches on one final point relating to situations where the costs of a single facility that is part of a larger project (i.e., a single wind turbine) ends up costing more than anticipated, and causes the total project cost to rise by the placed-in-service date such that the safe harbored funds no longer satisfy the 5% threshold.  In that event, the Notice state that IRS will allow the PTC to be claimed with regards to some, but not all, of the individual turbines, but the total aggregate cost of the individual facilities for which the PTC will apply cannot be more than twenty times the amount of safe harbor funds that the taxpayer claimed prior to January 1, 2014.

If you have any questions about the IRS Notice or the requirements discussed therein, please feel free to leave a comment below or contact the Polsinelli Energy Group at (913)234-7416 or lhagedorn@polsinelli.com.

It’s been a busy few months here at RELI, with major projects taking up a substantial amount of my time.  Hopefully, I’ll be able to provide some details on that work in the next few days, but for the time being I wanted to pass along an article that I wrote for the March edition of the Missouri Municipal League‘s publication The Review.  Enjoy!

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There can be no doubt about it.  Electric vehicles are on the way.  In his 2011 State ofUnionaddress, President Obama put forth a firm challenge for theU.S.automotive industry when he called for theUnited Statesto “become the first country to have a million electric vehicles on the road by 2015.” 

Though President Obama’s goal of 1 million electric vehicles (“EVs”) by 2015 is probably overly optimistic, there are signs that the EV market in theUnitedStateis gaining momentum.  In the span of one year, the market for EVs tripled from approximately 17,500 EVs sold in 2011, to approximately 53,000 new EVs in 2012.  This growth is particularly impressive when you consider that even the most mainstream EV offerings such as the Chevrolet Volt, Nissan Leaf, and Toyota Prius Plug-in Hybrid have often only been available in limited quantities in major markets.  Additionally, it is unlikely that the market penetration of EVs will continue to grow at a slow, incremental pace.  Instead, it is likely that the number of EVs on the nation’s highways will increase dramatically as consumers become more exposed to EV technology and manufacturers release a broader selection of makes and models of EVs that appeal to a wider range of consumers.

Being the “Show-Me” State, it is perhaps unsurprising that many Missouricommunities have delayed planning the local infrastructure and procedural processes that will be necessary to support wide-spread EV adoption.  Fortunately, in 2011 the U.S. Department of Energy awarded a grant to the MetropolitanEnergyCenterin Kansas City, MOto produce a regional plan that can be implemented by municipalities in Kansasand Missourito prepare public resources and secure the economic and environmental benefits of EVs.  This plan, which will be accessible at www.electrifyheartland.org, compiles expert analysis from EV industry participants, local communities, public utilities, and subject matter experts such as Black & Veatch and the law firm of Polsinelli Shughart to provide guidance to communities that are seeking to lay the foundation for widespread EV adoption. 

Among the numerous findings detailed in the plan,Missouricommunities should perhaps benefit the most from the discussion of the unique planning and regulatory efforts that will likely be required to accommodate EV adoption.  While at face value EV usage may not appear to require much attention, local governments should strongly consider taking the following steps before EVs start appearing on city streets: 

• First, an estimate should be prepared of exactly how many EVs might be purchased in the community in order to get a sense of the scope and timing of the planning efforts that should be undertaken. 
• Second, the municipality should examine its existing building codes to determine what standards should be applied to the installation of EV charging stations in residential and non-residential settings. 
• Third, the municipality should examine its current electrical permitting and inspection process to determine how it will ensure that EV charging stations installations are conducted in a safe and reliable manner without unduly burdening either the installers or the permitting office.
• Finally, the municipality should examine its existing parking and signage ordinances to determine how it will treat parking spots with electrical vehicle charging stations.

Projections for Missouri EV Adoption

When talking about long-term national goals, it can be easy to lose perspective on local impacts.  If theUnited Stateswere to reach its goal of 1 million EVs on the road, how many EVs could be expected in the average community inMissouri? 

Based upon motor vehicle registration data gathered by the U.S. Federal Highway Administration,Missourihad a total of just over 5 million vehicles registered in the state in 2011, or roughly 8 vehicles for every 10 people in the state.  As Figure 1 below illustrates, assuming that the 1,000,000 nation-wide EVs are distributed proportionally with population among the states, Missouri could expect a total of just over 20,500 EVs, or about one EV for every 300 people in the state. For a community of 10,000 people, this equals roughly 34 EVs, or roughly 340 EVs for a community of 100,000.

Of course, the real challenge for municipal governments lies not in the vehicles themselves, but with the infrastructure necessary to charge the vehicles, known as Electric Vehicle Supply Equipment (“EVSE”) or simply as “charging stations.” 

It is probably safe to assume that every person who purchases an EV will also purchase a charging station for their home, so they will be able to charge their vehicles overnight.  Additional charging stations will likely be installed by local businesses, by potential third-party suppliers of electricity, and by the municipalities themselves.  Taking these additional charging stations into account, it can be estimated that roughly 1.5 charging stations will need to be permitted, installed and inspected for every EV located within a community.  Figure 2 below extrapolates this estimate across the state to show the projected number of charging stations that will be required.

Updating Building Codes to Address Charging Stations

Once local planners have a sense of how many EVs can be expected in their jurisdiction, the question raised is what changes should be made in the local ordinances and policies to accommodate this influx of new vehicles and charging stations.  Because there is no state-wide authority for building codes inMissouri, it will be necessary for local communities to review their building codes to ensure that EV charging stations will be safely integrated into new and existing structures.  As with any revisions of building codes, the main goal of the process is to incorporate as much flexibility as possible while still maintaining the highest level of safety for installers and citizens.

Specifically, there are a number of revisions that communities can make to their building codes that will significantly improve the processing time and effectiveness of their planning efforts for EV charging stations, a few of which are described below:

• To ensure safe and up-to-date practices are utilized during installations, adopt the most current version of the National Electrical Code (“NEC”), or at least Article 625 of the NEC which includes best practices for wiring methods, equipment construction, control and protection, and equipment locations for EV charging stations.
• Require all new, reconstruction and renovation building projects to ensure that the electrical room and all conduits leading to the electrical room in new multi-unit, commercial or industrial developments are appropriately sized to accommodate future electrical equipment necessary for charging stations, as well as the voltage and amperage capabilities of the accompanying infrastructure.
• Require that all newly permitted construction or renovation projects install sufficient conduits, junction boxes, wall space, electrical panels and circuitry capacity in locations that could potentially serve EVSE sites in the future, such as garages and parking facilities.

Update Electric Permitting Ordinances to Address Charging Station Installations

For most municipalities acrossMissouri, the primary logistical hurdle for EV adoption is how to design a permitting and inspection process for EV charging stations that will allow for safe and reliable installations without unduly burdening their administrative staff.  Currently, when faced with an electrical permit for the installation of an EV charging station, most municipalities default position is to either follow the pre-established procedure for miscellaneous electrical permits, or fail to permit the installations at all.  Both scenarios present unsatisfactory results and fail to consider the particular complexities of installing an EV charger.  This puts the public confidence in EVs and EVSE at risk unnecessarily.

When designing these inspection programs, one of the easiest ways to minimize the administrative burden while efficiently allocating resources is to recognize the fact that communities will face a wide spectrum of potential scenarios for charging station permits, and there is no single permitting process that would be appropriate for all occasions.  For example, significantly less regulatory scrutiny will be needed for installation of a small charging system in a residence than would be required for a large commercial entity that wants to install numerous charging stations for use by customers and employees. As discussed more thoroughly below, in order to accommodate these different needs and allocate resources appropriately, many communities across the country are adopting a multi-tiered process that applies different levels of scrutiny to projects based upon the project’s complexity. 

Single-Family Residential Installations

By far the easiest EV charging alternative for most consumers is to utilize an existing 120-volt outlet located in the garage.  Obviously, in these cases an electrical upgrade is not required, so no permit is needed.  In cases where a dedicated 120V or 240V receptacle and circuit is desired for a charging station, a minor electrical permit likely needs to be issued, though it can easily be handled under the city’s existing permitting requirements. 

However, in cases where the resident’s existing electrical panel cannot safely meet the increased electricity needs, then an additional permit will be required in order to either upgrade the electrical panel or install a new panel and meter.  In order to gather all of the information needed to properly assess the safety of the installation, many municipalities across the country are adopting a stand-alone permitting form for these installations.  Often, these permits are based in large part upon a form permit application that has been prepared by the U.S. Department of Energy’s Alternative Fuels and Advanced Vehicles Data Center, available at http://www.afdc.energy.gov/pdfs/EV_charging_template.pdf.

Beyond adopting a specialized stand-alone permit, there are other steps that a community can take to streamline the permitting process.  For example, if the non-minor permit application has been submitted by a certified electrician that has received training in the installation of EV charging stations from an nationally-recognized training program, the local government can have some comfort that the installation is safe and therefore can adopt less stringent inspection processes, such as inspecting one out of ten installations or foregoing inspections altogether.  Where the installation was conducted by an electrician that has not been trained in EVSE, then many local governments have made it a priority to inspect the projects as soon as possible.  For example, many municipalities across the country have committed to conducting inspections within 24 hours of the installation of the charging station equipment.

Large Single-Family Residential, Multi-Family Residential and Commercial Installations

While small single-family residence installations likely present relatively few safety risks, charger installations in larger settings can be significantly more complex and thus require more significant oversight from local permitting bodies.  As an example, compare the installation of a new 120V / 1.8 kilowatt outlet in a residential garage to the installation of ten quick-charge stations outside of a movie theatre or grocery store, each of which are capable of handling 240V and up to 20 kilowatts of electricity.  For these more complex projects, communities should consider requiring applicants to fill-out a specialized permit and provide significantly more scrutiny to these types of installations.

EV Signage and Parking Marking Plans

Though we seldom stop and think about their impact, street signs can serve three important functions to facilitate the adoption of EVs in a community. First and most obviously, they can direct EV drivers to the nearest public charging stations.  Second, they serve to educate non-EV drivers about the availability of charging stations, and thus promote confidence that, should they decide to purchase an EV, there will always be a charging station readily-available.  Finally, they can publicize premium reserved parking spots, should the government choose to utilize the parking locations as an incentive for EV drivers.

Given the potential importance of signage to the public’s perception of EVs, it is perhaps not suprising that a significant amount of debate has occurred at the national level regarding the adoption of a uniform standard for EV charging station signs.  Currently, roadway signage is regulated by the U.S. Department of Transportation, Federal Highway Administration (“FHWA”).  Specifically, approved signage requirements are contained within the Manual of Uniform Traffic Control Devices (“MUTCD”).

In its current form, the MUTCD does not contain any requirements for EVSE signage.  However, there is a process by which state transportation agencies may submit a request for so-called “experimental” signage.  If approved, the experimental signs may be used within the state subject to certain requirements and restrictions.  By way of example, in 2011, the Departments of Transportation for the States of Washington andOregonsubmitted a request for the FHWA to consider an EV Charging General Service symbol, displayed as Figure 3 below. The FHWA granted those states an interim approval to use the signs to designate charging station locations.

In order to promote consistency,Missouricommunities should seriously consider adopting this FHWA-approved signage, and encourage the Missouri Department of Transportation to submit a request and obtain approval from the FHWA to utilize the symbols in the State.  These symbols have already been thoroughly evaluated by the FHWA and were found to be highly visible and comprehensible by a large segment of the population.  Additionally, adopting a symbol that is being utilized in other jurisdictions across the country increases the effectiveness of the symbols by promoting uniformity and recognizability.

While the FHWA approval process is being pursued, local communities can also begin to present this signage as an option for local businesses to utilize on private property, similar to what many businesses use currently for “Pregnant Mother” parking spaces.  Of course, such signage would be unofficial and entirely without the force of law, but its adoption would signal that the business recognizes and supports the needs of its EV-driving clientele.

Incentives or Penalties for EV Charging Station Parking

Finally, once the stations are installed and the signs are put up, public and private parking facility owners will need to determine whether, and to what extent, such signs will be enforced. 

InMissouri, the enforcement of street signs on public property is currently a prerogative of local governments, and thus each community will need to determine the level of enforcement that is appropriate for its populace.  However, when setting these enforcement policies, it is important that communities carefully weigh several competing interests.  First, during the early years of EV adoption, parking spots with EV charging stations may be vacant for large periods of time.  It is possible that a negative sentiment could develop if these spots are located in high-traffic areas and parking by non-EVs is prohibited and strictly enforced.   On the other hand, the availability of these charging locations is critically important for fostering range confidence for EV drivers.

To successfully balance these concerns, local communities might consider promoting the placement of EVSE in locations that are convenient and accessible, but not necessarily in the most desired or prominent parking locations.  Additionally, if the community is considering adopting punitive actions for non-EVs parked in an EV spot, the community might consider foregoing enforcement of those penalties until the level of EV adoption in the community is strong enough to ensure that the spots are filled a significant amount of the time.

Proper Planning Will Lead to a Smooth Transition to EVs

There can be no doubt about it, EVs are on the way.  By taking a few relatively minor steps to prepare for this influx of new vehicles and the infrastructure needed to support those vehicles, local communities will be able to minimize logistical and administrative burdens and ensure that local residents across the state are able to enjoy their new vehicles safely.

Late last night, President Obama officially signed into law legislation to avoid the “fiscal cliff.”  The adoption of this measure, which was approved overwhelmingly by the Senate and by a vote of 257 to 167 in the House of Representatives, is excellent news for advocates of renewable energy, as it includes an extension of the vitally important Production Tax Credit for wind facilities. 

There has been some confusion by the various media outlets covering the PTC over exactly how much additional time this extension buys for wind developers.  Prior to this fiscal cliff deal, IRC 45(d) (the section of the Internal Revenue Code setting forth the PTC) stated that qualifying wind facilities had to be placed in service before January 1, 2013, meaning that the projects have to be fully constructed and capable of generating energy.  Over the last few months, this requirement has forced many developers to aggresively ensure that their projects were placed in service by Monday, December 31st.  With the new deal, this provision has been amended by replacing the deadline of “before January 1, 2013″ with “the construction of which begins before January 1, 2014.”  Thus, as amended, IRC 45(d) will read in pertinent part as follows:

In the case of a facility using wind to produce electricity, the term “qualified facility” means any facility owned by the taxpayer which is originally placed in service after December 31, 1993, and the construction of which begins before January 1, 2014.

Thus, effectively, the extension grants wind project developers another year to design, procure equipment, and break ground on new projects. 

It is important to note that this is more time than might have been granted had the legislation followed the current statutory language and required the projects to be placed in service by December 31, 2013.  Such a measure would have been significantly more onerous on the industry, as wind projects typically require more than a year to  engineer, acquire the necessary land rights, locate potential offtakers for the power generated, and complete construction.

This is certainly excellent news for renewable developers across the country, and credit should be given to all of the lawmakers who fought for this vital incentive to be included as part of the fiscal cliff package.  A special thanks should be extended to President Obama for his insistence that the wind PTC be included in any final deal.

If you have any questions or comments about the Production Tax Credit or the wind industry, please feel free to leave a comment below or contact me directly at lhagedorn@polsinelli.com or (913)234-7416.