In light of a recent IRS Private Letter Ruling addressing public utility property and loss disallowance rules, here are six key items to be aware of today in tax equity transactions for renewable energy projects owned by public utilities.
1. A recent IRS Private Letter Ruling (1) held a wind-powered electrical generation facility with a wholesale Power Purchase Agreement (“PPA”) would not be treated as public utility property on account of the fact that the facility has a revenue contract that is set at market-based rates rather than a revenue stream set on a regulated rate-of-return basis, and (2) declined (on the grounds that further legislation and/or regulation was necessary) to rule on whether the PPA, if between the utility and a tax equity partnership, would be subject to loss disallowance rules applicable to related party transactions. The facility intended to claim Production Tax Credits.
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