Energy Industry Updates for July 2009

31 July 2009 Publication

Legal News: Energy Industry

New Guidance on Claiming Cash Grants in Lieu of Investment Tax Credits for Renewable Energy Facilities

Long-awaited guidance on the implementation of Section 1603 of the American Recovery and Reinvestment Act (ARRA), which authorizes the U.S. Department of the Treasury (Treasury) to make cash payments to eligible persons who place in service specified renewable energy property by a certain date, was issued by the Treasury on July 9, 2009. The ARRA expanded investment tax credits (ITC) under Section 48 of the Internal Revenue Code and allowed the elective conversion of production tax credits (PTCs) under Section 45 of the Code for renewable energy properties into ITCs. Additionally, Section 1603 of the ARRA provides an option for taxpayers to choose to receive a cash payment in lieu of the ITC (including those facilities eligible for PTCs for which taxpayers are able to elect to claim the ITC) in an effort to fill in the gap created by diminished investor demand for tax credits.

The guidance provides clarification on a number of issues affecting the grant program, including the application procedure, who is eligible to receive the grant, what property qualifies for the grant, treatment of units of property, recapture, and other issues. In particular, the guidance clarifies that a tax-exempt entity or a governmental entity could invest in a qualified project through a blocker “C” corporation without affecting the eligibility for the grant. Additionally, the guidance liberalized the recapture rule so that a grant recipient may be able to sell its interest in a qualified project without triggering the recapture rule as long as the transferee is not a disqualified person and other conditions are met. The guidance also states that a lessor who is eligible to receive a Section 1603 grant may elect to pass through such grant to its lessee if certain conditions are met.  

FERC Finds No Market Manipulation — Lake Erie Loop Flow

After a staff investigation into alleged manipulation in the New York Independent System Operator (NYISO) area regarding transmission flows in and around Lake Erie, FERC has concluded that there was no market manipulation. Highlights:

  • “Loop flow” is the difference between the actual and scheduled flows on a transmission line. While transmission schedules are based on the artificial convention of a “contract path” over which electricity could flow directly from a source to a sink, actual electricity flows according to the laws of physics along the path of least resistance at any given moment.
  • The Lake Erie region experiences significant loop flow involving four Regional Transmission Organizations (RTOs). Electricity flowing around the lake includes loop flow of as much as 2,000 MW in a clockwise direction, varying to 2,000 MW in a counter-clockwise direction with wide swings over a few hours. The NYISO market monitor noticed unusual loop flows causing congestion in NYISO, which prompted the allegations of manipulation and the referral to FERC.
  • Among other findings, FERC staff concluded that accurately predicting actual loop flow conditions was beyond the capabilities of individual market participants, let alone the RTOs. The actual schedules submitted were appropriate and responsive to price signals.

The matter however, is not fully closed. First, there were separate allegations regarding “wash transactions” into and out of New York that are still the subject of ongoing investigations. Second, FERC ordered the NYISO to deliver a report along with proposed tariff changes that would involve a comprehensive solution to the loop flow problem, including addressing interface pricing and congestion management. This report is due in six months. Of note, the order applies only to NYISO. However, it seems clear that any comprehensive solution is going to require the involvement, participation, and likely tariff changes by PJM Interconnection, Midwest ISO, and the Independent Electricity System Operator of Ontario. 

Cleantech: Patent Analysis Reveals That Robust Licensing and Transaction Opportunities Are Likely to Continue

With so many inventors, venture capitalists, and corporations racing to ride on the “green” wave, it is critical that participants in this space understand how technologies are being patented in order to discern realistic opportunities for sustaining competitive edge and revenue generation. Foley’s 2009 Cleantech Energy Patent Landscape Report Executive Summary highlights key findings from a review of nearly 600 granted U.S. patents specific to clean energy production, efficiency, and conservation technologies within nine focal categories:

  • Solar
  • Wind
  • Hydro
  • Geothermal
  • Biomass
  • Nuclear
  • Hybrid vehicles
  • Batteries for vehicles
  • Fuel cells for vehicles

This analysis offers insight on regional Cleantech activity, the specific technologies for which patent protection is being granted and who is obtaining these patents, focal points for venture capital investments, areas of patentable white space, and potential licensing availability for corporate entities. For example, particularly strong areas of interest include: photovoltaic solar cells, hybrid vehicles, and wind turbine technologies, yet venture capital activity suggests biomass and geothermal technology as valued interests.

Our report is the first in a series of annual analyses that identify and rank the specific Cleantech technologies that were patented in the United States throughout the year, for each of the nine focal categories. The analysis provides contrasting activity levels between corporate entities and individuals, compares venture capital funding for each category, and identifies the green technology areas where patentable white space may still exist.

U.S. Department of Energy Grants

The U.S. Department of Energy (DOE) continues to release new funding opportunity announcements (FOAs) for available grants under ARRA. In July, the DOE announced the following opportunities:

  • State Energy Efficient Appliance Rebate Program (SEEARP) (DE-FOA-0000119), which provides $296 million in grant funds. The application deadline is August 15, 2009.
  • Community Renewable Energy Deployment (DE-FOA-0000122), which provides $21.5 million in grant funds. The application deadline is September 3, 2009.
  • Development of Algal/Advanced Biofuels Consortia (DE-FOA-0000123), which provides $85 million in grant funds. The application deadline is September 14, 2009.
  • Baseload Concentrating Solar Power Generation (DE-FOA-0000104), which provides $15 million in grant funds. The application deadline is October 15, 2009.
  • Early Career Research Program (DE-PS02-09ER09-26), with an application deadline of September 1, 2009.
  • Local Energy Assurance Planning (LEAP) Initiative (DE-FOA-0000098), which provides grants ranging from $60,000 to $300,000. The application deadline is October 8, 2009.
  • Biological Systems Research on the Role of Microbial Communities in Carbon Cycling (DE-PS02-09ER09-25), with a pre-application deadline of August 25, 2009 and an application deadline of November 9, 2009.

Legal News is part of our ongoing commitment to providing legal insight to our energy clients and our colleagues.

Please contact your Foley Energy attorney if you have any questions about these topics or want additional information regarding energy matters. Authors and editors:

Ronald N. Carroll
Washington, D.C.

Thomas McCann Mullooly
Milwaukee, Wisconsin

Zhu (Z. Julie) Lee
Milwaukee, Wisconsin

John M. Lazarus
Milwaukee, Wisconsin

Trevor D. Stiles
Milwaukee, Wisconsin

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