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Corporation Seeks Safe Harbor Extension for Federal Lands Projects

SEP. 8, 2020

Corporation Seeks Safe Harbor Extension for Federal Lands Projects

DATED SEP. 8, 2020
DOCUMENT ATTRIBUTES
  • Institutional Authors
    Anschutz Corp
  • Subject Area/Tax Topics
  • Jurisdictions
  • Tax Analysts Document Number
    2020-35787
  • Tax Analysts Electronic Citation
    2020 TNTF 179-25
[Editor's Note:

For the entire document, including attachments and the corporation’s safe harbor extension request to Treasury, see the PDF version.

]

EXTENSION OF SAFE HARBOR FOR PROJECTS MEETING CERTAIN CRITERIA

Prepared by:
The Anschutz Corporation
Power Company of Wyoming LLC
TransWest Express LLC
555 Seventeenth Street, Suite 2400
Denver, CO 80202

September 8, 2020


Contents

Introduction

Safe Harbor Extension

Wind and Transmission Project Descriptions and Schedules

Chokecherry and Sierra Madre Wind Energy Project

Project Description

Project Status

TransWest Express Transmission Project

Project Description

Project Status

Cradle to Commercial Operation — CCSM Project and TWE Project

Challenges and Complexities of Federal Lands Projects are Well-Known

Wind Projects are Rarely Sited on Federal Lands

Interstate Transmission development across federal lands takes double-digit timeframes

Complex Federal Lands Projects Deserve Parity with Private Lands Projects

Investors Deem Continuous Construction Method Uncertain

Treasury/IRS Can Fix a Problem with the Stroke of a Pen

Congressional Support for the Safe Harbor Extension

Treasury can Reap Economic Benefits and Further Policy Goals at No Cost

Conclusion


Introduction

The Anschutz Corporation (TAC), through two affiliates, is developing what will be among the nation's largest and most significant energy assets to be built in decades: a 732-mile high-voltage transmission line, and a wind energy generation project with a nameplate capacity of approximately 3,300 MW. Located in the Western U.S., these energy projects reflect a combined investment of over $8 billion in America's critical energy infrastructure. TAC is a privately held company that owns and operates a diverse portfolio of investments primarily in the fields of natural and renewable resources, transportation, communications, lodging, hospitality, real estate, leisure and entertainment, agriculture, media, and facilities ownership and management. TAC is an experienced developer of complex infrastructure projects in Wyoming, in the broader Western United States, and around the world.

TAC affiliate, Power Company of Wyoming LLC (PCW), is developing the Chokecherry and Sierra Madre Wind Energy Project (CCSM Project). The CCSM Project will have the wind turbines and electric infrastructure necessary to reliably and cost-effectively generate up to 3,300 megawatts of clean, sustainable electricity. It is situated on a combination of private and federal land that has some of the best winds in the country.

TAC affiliate, TransWest Express LLC (TransWest), is developing the TransWest Express Transmission Project (TWE Project). The TWE Project is a high-voltage interregional electric transmission system. The TWE Project is critical new infrastructure that will deliver electricity generated by renewable resources and will strengthen the power grid that serves the Western United States.

The permitting and development history of these Projects demonstrates the need for a longer safe harbor where, as here, the generation project has substantial facilities located on federal land and is reliant on construction of new interstate transmission facilities.

Safe Harbor Extension

In 2015 and 2019, Congress enacted legislation to incentivize investment in renewable energy projects through production and investment tax credits (PTC and ITC). These credits phase out, and 2020 is the last year to start construction on a project in order to qualify for the credits.

To receive the credits, a project not only must begin construction by the end of 2020 but also must meet a “continuity requirement” that can be satisfied by demonstrating continuous construction or by placing a project in service within four calendar years of the date that project construction began. This four-year period is commonly known as the “safe harbor” for meeting the continuity requirement. The IRS recently extended the safe harbor from four years to five years for certain projects due to the impact of COVID-19. This safe harbor time period is not set by statute. The IRS implemented guidance to establish the safe harbor time period, and the IRS has the authority to extend or shorten the period.

For projects located substantially on federal lands, completing construction in four calendar years was never possible to begin with. These projects are far more complex to complete and typically require the time-consuming permitting and construction of new interstate transmission facilities necessitating a longer safe harbor. In fact, interstate transmission projects typically take more than a decade to permit and build.

While projects involving federal lands can still qualify for the PTC/ITC under certain circumstances, they are lacking the bright line test provided by an adequate safe harbor. Allowing these projects a ten-year safe harbor will provide the investment certainty needed for these projects to continue moving forward, creating jobs, tax revenues and federal royalty payments without resulting in any new financial commitments by Congress. We are requesting that the IRS take the unique nature of federal projects into account and issue a new safe harbor Notice for projects substantially located on federal lands and relying on new interstate transmission.

Proposed Language for Continuity Safe Harbor Extension:

In the case of a qualified facility a substantial portion of which is located on federal land and which is reliant on construction of new interstate transmission facilities, the facility will be considered to satisfy the Continuous Construction Test (for purposes of satisfying the Physical Work Test) or the Continuous Efforts Test (for purposes of satisfying the Five Percent Safe Harbor), if the calendar year during which the facility is placed in service is no more than ten calendar years after the calendar year during which construction of the facility began.

Extending the continuity safe harbor will provide the:

  • Certainty needed for our company to continue making the private investment necessary to finish developing $8 billion in critical generation and transmission infrastructure;

  • Parity of having the same bright-line test as competitive projects sited on private lands, tailored for a set of circumstances that justify a longer safe harbor; and

  • Simple, Efficient and Effective solution resulting in the creation of significant jobs and tax revenues as well as progress toward federal and state policy goals without new cost impacts to the federal government.

Wind and Transmission Project Descriptions and Schedules

Chokecherry and Sierra Madre Wind Energy Project

Project Description

PCW is developing the CCSM Project on portions of the 320,000-acre Overland Trail Ranch located south of the I-80 communities of Rawlins and Sinclair in Carbon County, Wyoming. The Ranch is owned and operated by The Overland Trail Cattle Company LLC with cattle and agricultural operations. The Ranch is situated within Wyoming's checkerboard of primarily private and federal land, with some state land interspersed.

The CCSM Project will include up to 896 wind turbine facilities with a combined nameplate capacity of approximately 3,300 MW. Although the CCSM Project has been designed as a single project, it was organized into two phases to support federal permitting and construction. See Figure 1. CCSM Project Overview. Most of the CCSM Project's construction facilities (including the quarry, construction camp, and most laydown yards) are sited in Phase I, along with the first 500 wind turbines, associated roads and electrical elements. The Phase I wind turbines are sited in the western portions of each of the two wind development areas, Sierra Madre and Chokecherry. These turbines are located in the highest overall wind resource areas of the CCSM Project. The Phase I layout is designed to accommodate turbines with up to 120 meter rotors on up to 100 meter towers.

Phase II includes the remaining 396 wind turbines and associated infrastructure in the eastern portions of the two wind development areas, Sierra Madre and Chokecherry. Phase II has been designed to accommodate turbines with up to 165-meter rotors on 120-meter towers to take advantage of expected near-term technological advancements in turbine design.

The CCSM Project, when complete, will be the largest single-development wind energy project in North America. The major elements of this innovative project include:

  • Up to 896 wind turbines rated at 3.60 MW (exact models to be selected)

  • About 500 miles of haul, arterial, and turbine roads

  • About 500 miles of underground/overhead medium-voltage electrical collection lines

  • Six collection substations connected to one common interconnection substation

  • Internal 230kV transmission line connecting the collection substations with the interconnection substation, which will gather all generation onto a single bus

  • An Operations Center and two maintenance buildings

  • 18 long-term meteorological (met) towers and water systems

CCSM Project Overview

Project Status

The CCSM Project is regulated under the jurisdiction of numerous federal, state, and local agencies. The CCSM Project has obtained permits from the U.S. Bureau of Land Management (BLM), U.S. Fish and Wildlife Service, Wyoming Industrial Siting Council, and Carbon County. If the CCSM Project did not involve federal lands, permitting could have been completed in 12 to 18 months. Instead, permitting the CCSM Project through the BLM took 12 years, not including the initial wind testing and monitoring grant from the BLM.

1. Federal BLM Permitting Summary — January 2008 to February 2020

Due to the mix of private and federal land on the CCSM Project site, from 2008-2012, the CCSM Project was extensively analyzed in a project-wide Environmental Impact Statement (EIS), prepared by the BLM. Wind development at the project site was approved in a Record of Decision (ROD) signed on October 9, 2012, by the Secretary of the Interior. The EIS and ROD set out a process for additional environmental analysis of site-specific plans of development for the CCSM Project to be submitted to the BLM by PCW.

The BLM has completed its environmental analysis for Phase I of the CCSM Project. On August 25, 2016, the BLM issued the right-of-way grant (Right-of-Way Grant or Permit) for the Phase I Infrastructure Components and a partial notice to proceed. See BLM WYW-167155-01 — Grant Phase I Haul Road. PCW received a notice to proceed from the BLM for the remainder of the Phase I Infrastructure Components on June 29, 2017. On August 17, 2017, the BLM issued the Right-of-Way Grant for the Phase I Wind Turbine Development. See WYW-167155 Type III Grant, Phase I Wind Turbine Development. On September 25, 2017, the BLM issued a partial notice to proceed and PCW began construction of the Phase I Wind Turbine Development components on September 27, 2017. On August 2, 2018, the BLM issued a second notice to proceed for the Phase I Wind Turbine Development. Civil construction of the Phase I Wind Turbine Development, including construction of roads, wind turbine foundations, and transmission structure foundations, is fully authorized.

The BLM has also completed its environmental analysis for Phase II of the CCSM Project. On June 18, 2018, the BLM issued the ROW Grant and notice to proceed for the Phase II Haul Road and Facilities. The BLM amended the ROW Grant for the Phase I Infrastructure Components to include the Phase II Haul Road and Facilities under the same Right-of-Way Grant. See WYW-167155-01 Amendment 1 — Grant Phase II Haul Road. PCW commenced construction of the Phase II Haul Road and Facilities on June 19, 2018. On December 2, 2019, the BLM completed its environmental analysis for the Phase II Wind Turbine Development. The ROW Grant for the Phase II Wind Turbine Development was issued on February 14, 2020. The BLM amended the ROW Grant for the Phase I Wind Turbine Development to include the Phase II Wind Turbine Development. See WYW-167155 Amendment — Chokecherry Sierra Madre Phase II Wind Energy Project. The BLM issued the second notice to proceed for the Phase II Wind Turbine Development on May 21, 2020. Therefore, completing permitting through the BLM took 12 years. For the full permitting matrix for the CCSM Project including other federal agencies such as U.S. Fish and Wildlife, as well as state and local permits, see Attachment 1, CCSM Project Permit Matrix.

2. Project Construction

PCW began construction of the CCSM Project in September 2016, in order to preserve the full Production Tax Credit, and has maintained continuous construction on the CCSM Project since that date. The physical construction performed to date has been on the CCSM Project's civil infrastructure, specifically the construction of roads integral to construction and operation of the CCSM Project as well as turbine pads. The construction completed from 2016 through 2020 qualifies as physical work of a significant nature, because the roads that were constructed are all integral to the CCSM Project; they are necessary to operate and maintain it. From 2016-2019, PCW began construction on over 92 miles of roads, completing over 84 miles to subgrade and beginning aggregate placement, and completed interim reclamation on over 83 miles of roads. The road construction included the installation of hundreds of culverts, four large creek crossings, several laydown yards, and a complex water system. PCW spent a total of approximately $68.3 million on construction of the CCSM Project through 2019. In 2020, PCW will complete another 30 miles of road and about 60 turbine pads and spend another approximately $25 million.

Timeframes for construction on federal lands are significantly longer due to compliance with hundreds of requirements imposed by the BLM pertaining to wildlife and resources. Three examples include:

a. Frozen Soils

PCW's permits for the CCSM Project prohibit construction and other surface disturbing activities with frozen material. See BLM WYW-167155-01 — Grant Phase I Haul Road, Construction condition l at 12; WYW-167155 Type III Grant, Construction condition l at 12; WYW-167155-01 Amendment 1 — Grant Phase II Haul Road, Construction condition m at 10; and WYW-167155 Amendment — Chokecherry Sierra Madre Phase II Wind Energy Project condition ll at 4. This requirement is intended to avoid and minimize unnecessary adverse impacts to soils and cultural resources, as well as to avoid construction structural defects. During frozen soil conditions, soils cannot reliably be excavated in lifts of 6 inches or less due to frost binding the soil into larger clumps. Therefore, when soils are frozen, PCW cannot meet its permit requirements to segregate topsoil and subsoil and to identify and protect cultural resources and construction must be temporarily suspended.

b. Saturated Soils

Construction work on the CCSM Project must be suspended whenever soils are saturated to the point where construction activities will cause rutting in excess of four inches deep. The specific construction condition provides:

No construction or routine maintenance activities shall be performed during periods when the soil is too wet to adequately support construction equipment. If such equipment creates ruts in excess of four (4) inches deep, the soil shall be deemed too wet to adequately support construction equipment.

See BLM WYW-167155-01 — Grant Phase I Haul Road, Construction Condition f at 12; WYW-167155 Type III Grant, Construction Condition f at 12; WYW-167155-01 Amendment 1 — Grant Phase II Haul Road, Construction condition g at 9; and WYW-167155 Amendment — Chokecherry Sierra Madre Phase II Wind Energy Project condition dd at 4.

c. Wildlife Stipulations

Construction of the CCSM Project must respect and comply with numerous timing restrictions that are imposed to protect wildlife. These include, but are not limited to, greater sage-grouse, big game including mule deer, migratory birds including bald and golden eagles, other raptors and mountain plovers. See, e.g., WYW-167155 Type III Grant, Site Specific Terms and Conditions, Wildlife Resources at 8-10. The major timing restrictions protecting wildlife that disrupt or prevent construction of the CCSM Project during certain periods are discussed below.

i. Greater Sage-Grouse

PCW's permits for the CCSM Project prohibit “[c]onstruction, drilling, reclamation, and other potentially disruptive activities in Greater Sage-Grouse breeding, nesting and early-brood rearing habitat” within two (2) miles of an occupied greater sage-grouse lek for 4.5 months every year, from March 1 through July 15. Id. at Wildlife Resources condition f at 9. This restriction prevents PCW from engaging in construction of any kind, including the construction of roads or wind turbine pads on hundreds of acres of the CCSM project site each year.

ii. Big Game/Mule Deer

Certain areas in the northern portion of the CCSM Project Site are designated as crucial winter range for mule deer. Under the terms of PCW's permits, “[c]onstruction, drilling, reclamation, and other activities potentially disruptive to wintering wildlife are prohibited within big game crucial winter range during the period of Nov 15 to Apr 30 for the protection of big game winter habitat.” See, e.g., WYW-167155 Type III Grant, Wildlife Resources, condition e at 9. Therefore, during this period, PCW cannot perform construction activities within this area.

3. Project Schedule

These are just a few of the hundreds of requirements in PCW's federal BLM permits that impact the pace and schedule of construction of the CCSM Project. In addition, the completion of the CCSM Project has to be coordinated with the completion of the necessary transmission to deliver the renewable energy from Wyoming to customers in the Desert Southwest. Therefore, the TransWest Transmission Project is discussed below.

TransWest Express Transmission Project

Project Description

The TransWest Express Transmission Project is a high-voltage interregional electric transmission system developed by TransWest Express LLC. The TWE Project is critical new infrastructure that will deliver electricity generated by renewable resources and will strengthen the power grid that serves the Western United States. For example, the TWE Project can reliably deliver cost-effective renewable wind energy produced in Wyoming to the Desert Southwest region (California, Nevada, Arizona), providing much-needed zero-carbon electricity to millions of homes and businesses every year. Wyoming's high-capacity wind energy resources complement the Desert Southwest's renewables, offering geographic diversity to help this region not only save money but also achieve greenhouse gas emission reduction goals.

TransWest is developing the TWE Project consisting generally of the following three segments:

(1) the “WY-IPP DC” segment which is a 405-mile, 500kV, 1,500 MW initial capacity/3,000 MW ultimate HVDC system from Wyoming to a terminal near IPP in Utah;

(2) the “IPP-Crystal AC” segment which is a 278-mile, 1,500 MW, 500 kV HVAC line interconnected in Utah to the TWE Utah Terminal near IPP, and in Nevada to the Crystal 500 kV substation; and

(3) the “Crystal-Eldorado AC” segment which is a 49-mile, 1,680 MW, 500 kV HVAC line from the Crystal 500 kV substation to the 500 kV facilities located in the Eldorado Valley in southern Nevada (south of Las Vegas). See Figure 2.

Figure 2. TWE Project Overview

Project Status

1. Permitting November 2007 through January 2020

TransWest has secured the primary federal, state and local permits necessary to construct and operate the TWE Project. The route for TransWest crosses a spider-web of jurisdictions including four states, 14 counties, and federal lands managed by the 10 Bureau of Land Management field offices, two Bureau of Reclamation regions, and 3 National Forests managed by the U.S. Forest Service. A general development timeline is set out below. A detailed permit matrix for the TWE Project is included as Attachment 2. As shown in below and in Attachment 2, permitting for the TWE Project is estimated to be complete in 2021, 14 years after the initial Right-of-Way application was filed.

November 2007

Initial Right-of-Way Application Filed

July 2008

TransWest acquired the TWE Project.

December 2008

TransWest filed amended Preliminary ROW application with BLM.

January 2009

TransWest filed amended Preliminary Plan of Development with BLM.

Summer 2010

Western Area Power Administration joined BLM as joint lead agency for the preparation of the EIS.

January 2011

BLM/WAPA published the Notice of Intent to prepare an EIS on Jan. 4; initiated a 90-day public scoping period; held 23 public scoping meetings.

October 2011

Federal interagency Rapid Response Team for Transmission selected the TWE Project.

2008-2013

BLM/WAPA conducted studies and surveys; reviewed and developed alternatives; prepared Draft EIS.

July 2013

BLM/WAPA published the Notice of Availability of the Draft EIS on July 3; initiated a 90-day comment period; held 13 Draft EIS public meetings/hearings.

May 2015

BLM/WAPA published the Notice of Availability of the Final EIS on May 1, initiated a 30-day public availability period.

December 2016

BLM published its Record of Decision approving issuing rights-of-way for the TWE Project. BLM then published a Notice of Availability on Dec. 16.

January 2017

WAPA published its Record of Decision on January 13 selecting the TWE Project route. WAPA then published a Notice of Availability on April 3.

May 2017

USFS published its Record of Decision approving use of USFS land for the TWE Project on May 31.

June 2017

BOR published its Record of Decision approving issuing rights-of-use for the TWE Project on June 19.

June 2017

BLM issued the right-of-way grant for the TWE Project on June 23.

July 2017

BOR issued the right-of-use license for the TWE Project on July 6.

June 2018

USFS granted the Electric Transmission Line Easement for the TWE Project on June 26.

April 2019

State of Wyoming Industrial Siting Council unanimously approved a permit to construct and operate the transmission project on April 19. The permit was signed and granted May 29.

2017-2020

State and county permitting conducted, with the first county authorization received December 2018 and the last received January 2020.

2020-2021

Obtain remaining rights-of-way over private and state lands; complete natural resource and cultural surveys; submit Plan of Development to the BLM and obtain the BLM Notice to Proceed.

2022-2025

Estimated transmission line construction; commencement of construction to be determined after the BLM Notice to Proceed is issued, anticipated to occur by the end of 2021.

2. Project Schedule

Commencement of the TWE Project construction is contingent upon obtaining the final rights-of-way over the remaining private and state lands and the BLM Notice to Proceed

Cradle to Commercial Operation — CCSM Project and TWE Project

The initial right-of-way application for the TWE Project was filed in November 2007. TransWest anticipates commencement of construction in 2022 and commercial operation for the initial stage of the TWE WY-IPP DC Project at 1,500 MW on or before Q1 2025. The second stage of the TWE Project includes the TWE WY-IPP DC Project upgrade to 3,000 MW and the AC system segments, IPP-Crystal AC and the Crystal-Eldorado AC, with a commercial operation date in Q1 2026.

Construction on the CCSM Project started in September of 2016. Because it has focused on the civil construction, PCW can optimize turbine installation. PCW plans to install turbines beginning in 2024 to coincide with the initial stage of the TWE Project operational in Q1 2025. Additional turbines will be installed in 2025, 2026 and 2027 with final commercial operation date in 2027.

Therefore, from inception to full commercial operation, November 2007-December 2025, the TWE Project will have taken 18 years. Similarly, from inception to full commercial operation, 2008-2027, the CCSM Project will have taken 20 years. A combined project schedule is set out below in Figure 3.

Combined Project Schedule

Challenges and Complexities of Federal Lands Projects are Well-Known

Wind Projects are Rarely Sited on Federal Lands

The American Wind Energy Association (AWEA) has documented the scarcity of wind projects moving forward on federal lands. Based upon the most recent BLM data indicating there are 1,088 MW of operating wind projects on BLM land (BLM wind projects), and using the most recent AWEA data regarding national wind capacity installations of 107,443 MW of operating wind power capacity in the U.S., as of April 2020, only 1% of all U.S. wind capacity is currently operating on public lands. Recently, AWEA recognized this noting that “[t]o date, nearly 100 percent of wind projects are on state and private land with developments on federal land and in federal water bringing its own set of added challenges to navigate in the already lengthy process.”

The spreadsheets posted on the BLM website contain the most recent available information regarding BLM wind projects located on the public lands. According to the spreadsheet, there are only two wind projects pending construction on BLM lands. One of these projects is the CCSM Project. The only other project is the 300 MW Mohave County Wind Farm. This project is owned by NextEra and was renamed the White Hills Wind Project, according to a Federal Register notice published in May 2019. According to pre-COVID article in the local paper in March 2020, the Mohave County/White Hills project began construction in March 2020 and planned to be in service by the end of the year: http://www.mohavedailynews.com/news/wind-farm-under-construction-in-white-hills/article_b635274c-5eb0-11ea-8941-7bdc5795512a.html

In sum, developing and constructing wind power projects on federally owned land is possible in theory but very rare in practice. This is largely due to the widespread recognition that wind power projects on federal land require significant additional time to permit and construct and cost more to develop. In addition, with so much private and state land hosting vast amounts of high-quality wind and solar resources, there is simply no “need” to put wind and solar plants on federal land given the additional complexities.

The near-ABSENCE of wind projects on federal lands speaks louder to the problems and challenges than the rare presence of wind projects on federal lands.

Interstate Transmission development across federal lands takes double-digit timeframes

Developing, permitting and constructing an electric transmission line that involves federal lands takes a minimum of 16-18 years from inception to completion, as demonstrated by three transmission projects under development by other companies in the Western United States. Note that:

  • Each project includes 2-4 years of “pre-permitting” work such as initial routing, environmental planning, and developing the SF299 ROW application to the BLM, prior to each ROW application formally being filed with the BLM.

  • Other than the first 140 miles of the Gateway West project under construction, neither the remaining ~800 miles of Gateway West nor any of the other transmission projects are yet able to begin construction, so future operations dates are only estimates.

Gateway West Transmission Project — High-voltage Alternating Current (HVAC) line extending approximately 1,000 miles from Wyoming into Idaho.

  • The initial right-of-way application was filed with the BLM in May 2007.

  • The BLM environmental analysis process was mostly concluded with the Final Environmental Impact Statement in April 2013 and the ROD at the end of 2013. However, this ROD authorized only 8 of the project's 10 total segments. The project was subject to additional supplemental environmental review; the final decision for all segments was published by BLM in April 2018. So, 11 years to get through federal environmental review.

  • The project proponent is seeking Notices to Proceed (NTPs) and then completing the project in segments, estimated to occur through 2024, according to their website. Only one, 140-mile segment in Wyoming is under construction.

  • From Gateway West inception to total operation would therefore take 17 years at the earliest.

Gateway South Transmission Project — HVAC line extending approximately 400 miles from Wyoming to central Utah.

  • The initial right-of-way application was filed with the BLM in December 2008.

  • The BLM environmental analysis concluded with the publication of the Final Environmental Impact Statement in early 2016, and the Record of Decision and the Right-of-Way Grant issued in December 2016. So, 8 years to get through federal environmental review.

  • The proponent is working on state and county permitting, environmental surveys, and other requirements in order to receive a BLM Notice to Proceed, anticipated to occur by the end of 2020.

  • The project proponent estimates completing construction from mid-2021 through 2024, according to their website.

  • From Gateway South inception to operation would therefore take 16 years at the earliest.

SunZia Southwest Transmission Project — HVAC or High-voltage Direct Current (HVDC) line extending approximately 520 miles from New Mexico to Arizona. (Final configuration TBD.)

  • The initial right-of-way application was filed with the BLM in September 2008.

  • The BLM Record of Decision was issued January 23, 2015, and the BLM right-of-way grant was issued on September 1, 2016. So, 8 years to get through federal environmental review.

  • The project proponent estimates completing construction from 2022-2024, according to their website. (An estimated Notice to Proceed date is not immediately locatable. A report from SunZia to utility regulators from March 2019 says that the Notice to Proceed had not yet been issued.)

  • From SunZia project inception to operation would therefore take 16 years at the earliest.

Staff of the Federal Energy Regulatory Commission have produced a “Report on Barriers and Opportunities for High Voltage Transmission” for Congress, pursuant to the 2020 Further Consolidated Appropriations Act signed in December 2019. Issued in June 2020, the FERC Report provides further evidence of how difficult and time-consuming it is to develop interstate transmission lines as well as the immense electrical and economic benefits such transmission lines can provide to America.

The FERC Report also underscores the need for an expanded PTC safe harbor period for renewable projects relying upon new interstate transmission, noting explicitly that the development time “can be in excess of a decade.”

. . . staff found that while opportunities exist, there are also barriers which make development of high voltage transmission challenging. For instance, siting of high voltage transmission, generally an area of state jurisdiction, requires navigating each state process or multiple state processes for an interstate high voltage transmission facility. Various other authorizations and reviews are also generally required at the federal, state, and local levels. Additionally, the time required to develop a high voltage transmission facility that meets mandatory Reliability Standards, maximizes system benefits, and strikes a balance among interested stakeholders (including states) can be in excess of a decade.

See Report on Barriers and Opportunities for High Voltage Transmission, Staff of the Federal Energy Regulatory Commission, June 2020, Executive Summary, at 3-4.

Complex Federal Lands Projects Deserve Parity with Private Lands Projects

Renewable energy projects sited on private lands do not face the same complex regulatory framework that more than doubles both the time and the cost of permitting and constructing projects on federal lands. Yet, private lands projects benefit from the 4-calendar year (now 5-calendar year for certain projects) safe harbor which is a bright-line test that gives investors certainty regarding a project's qualification for the PTC. Instead, developers who have taken on the extra time and expense of developing projects on federal lands are also subjected to a higher risk that they will not be able to attract investors due to the uncertainty created by the lack of a bright-line test.

Investors Deem Continuous Construction Method Uncertain

The uncertainty caused by using the facts and circumstances test of “continuous construction”, which is a look-back test to qualify for the PTC has been openly discussed by legal experts. In a recent Law360 article, tax partner Jeff Davis, Mayer Brown LLP stated “[n]obody knows what 'continuous means . . .

[o]nce you accept that you don't have to interpret 'continuous' to mean, literally, continuous, does that mean you have to make progression on a weekly basis? On a monthly basis? On a quarterly basis?”

Elias Hinckley, a partner at K&L Gates LLP added, “[w]hen you're out negotiating an arms-length transaction with someone who is there for the expected tax benefits, that's hard . . . [y]ou have this ambiguous construct in the middle of all of it that's fundamental to whether these tax benefits exist.”

The article concludes that “[a]ll of those variables create a level of uncertainty that dissuades tax equity investors from committing money to a project.” See, Tax Credit Delay May Be Life Saver For Wind Projects — Law360, 5/11/2020.

The Anschutz Corporation has experienced the effect this uncertainty can have on investors first-hand. Recently, a major investor withdrew from an executed contract to participate in the projects based mainly on: (1) PTC risk and uncertainty — despite overwhelming documentation regarding how the CCSM Project had been continuously constructed to date; and (2) Transmission Risk — as the economics of the projects largely depends on the PTC. Providing the certainty of a bright-line test could mean the difference between the projects being able to attract investors and move forward or failing to attract sufficient tax equity.

Treasury/IRS Can Fix a Problem with the Stroke of a Pen

There is no question that the Internal Revenue Service has the authority to address the federal regulatory delays caused by the complexity of developing projects on federal lands by amending or modifying an existing safe harbor. And, there is precedent for this very act as set out in a legal memorandum prepared by Scott R. Lilienthal, Partner, Hogan Lovells. The memorandum states in part:

For example, in 2019, the IRS modified the Continuity Safe Harbor to provide for an extension of the regular four-year period for a specific category of projects in light of circumstances warranting a longer period. IRS Notice 2019-43, 2019-31 I.R.B. 487, provided that the Continuity Safe Harbor can be tolled and extended for a period of time to account for delays that result from pursuing a modification to a development plan to mitigate significant national security concerns raised by the U.S. Department of Defense. The Notice provided relief not only for delays relating to development and construction of the electricity generating facility itself, but also for delays relating to the construction or installation of additional equipment that is necessary to connect the facility to the energy grid or to customers (such as a distribution or transmission line or other interconnection equipment). Thus, in IRS Notice 2019-43, the IRS determined that it was appropriate to extend the four-year period in the Continuity Safe Harbor for a category of projects which are subject to circumstances that justify a longer development and construction period.

See Attachment 3, Memorandum, PTC Continuous Construction Safe Harbor, dated April 21, 2020.

Congressional Support for the Safe Harbor Extension

Moreover, this request is not one that is controversial. In fact, it has documented Congressional support. Letters from the Western Caucus and Senator Moran supporting the safe harbor extension are included as Attachment 4.

Treasury can Reap Economic Benefits and Further Policy Goals at No Cost

Merely ensuring that the CCSM Project and TWE Project can move forward and that investors can continue to invest private funds will provide significant economic benefits while furthering stated federal and state policy goals.

The CCSM Project has been recognized for its potential, due to its size and scale, to make a meaningful contribution to the growth of renewable energy in the United States and energy independence. In November 2011, the BLM named the CCSM Project to its list of “2012 Renewable Energy Priority Projects.” According to then-Secretary of the Interior Ken Salazar, the CCSM Project was selected because this project has “great potential to grow our nation's energy independence, drive job creation, and power economies across the west.” In October 2012, the CCSM Project was cited in a Department of Interior news release as being the project that allowed the Department to “reach the President's goal of authorizing 10,000 megawatts of renewable power on public lands,” a goal also set out in the Energy Policy Act of 2005.

The CCSM Project will create significant direct and indirect jobs, including:

  • At the peak of construction, on-site jobs will reach 945 per year, with construction estimated to take ten years. The infrastructure construction work that began in 2016 has created 50-120 new, good-paying jobs in Wyoming every year.

  • Over 5.52 million craft labor man-hours anticipated to be created during construction.

  • Once fully built, the CCSM Project will create at least 114 permanent operations and maintenance jobs for skilled workers in rural south-central Wyoming, making it one of the county's largest employers.

  • NREL's Job and Economic Development Impact Wind Energy Model indicates that in total, over 12,500 direct and indirect jobs will be created by the CCSM Project's construction, and over 500 direct and indirect jobs will be created during operating years throughout the value chain.

  • Over 60 percent of a modern wind farm's value is made in America by 21,000 factory workers, such as those at the three Colorado wind manufacturing plants operated by Vestas Americas, or the components made and engineered at GE's plants in South Carolina and Florida.

  • Project development and permitting efforts have already created approximately 53 full-time equivalent positions, including wind testing and monitoring, engineering, design, resource evaluation/monitoring, and biological/wildlife studies.

The CCSM Project will provide a significant boost to Wyoming's tax base and to the U.S. Treasury, including:

  • About $850 million paid in state property taxes, sales/use taxes, and electricity taxes over the project's construction and first 20 years of operation. These taxes largely fund Wyoming schools, county and state government, and a variety of citizen services.

  • About $140 million paid in royalties and fees to the federal government over the construction and initial operations period, because the project has wind facilities sited on federal BLM lands.

Similarly, the TWE Project will create significant direct and indirect jobs, including:

  • Thousands of direct, indirect and induced jobs anticipated to be created by the construction of the TWE Project transmission line, terminals, substations and related infrastructure.

  • Over 5 million craft labor man-hours anticipated to be created during construction in total.

  • An estimated 8,000-15,000 direct and indirect jobs to be created by the transmission line's construction throughout the value chain. Indirect/induced jobs are those triggered by the need for manufacturing parts and supplies, the need for transportation and shipping, and the need for hotel and restaurant services.

  • Development and permitting have created about 51 full-time equivalent positions, including engineering services, design, resource evaluation/monitoring, and biological/wildlife studies.

In addition, TransWest will pay property taxes in every state and county that the transmission line traverses, augmenting local budgets. Assuming the counties' average tax rates and 2017 mill levies, TransWest estimates nearly $900 million will be paid in property taxes over the initial project life.

 

Estimated cost

Estimated property taxes paid over 50 years

Wyoming

$1.19 billion

$260 million

Colorado

$118 million

$31 million

Utah

$1.32 billion

$477 million

Nevada

$365.3 million

$123 million

Total

$2.9 billion

$891 million

The purchase and delivery of construction materials, substation equipment and transmission towers will generate about $113.5 million in total sales and use tax revenue.

 

Estimated sales/use taxes paid

Wyoming

$53.5 million

Colorado

$1.8 million

Utah

$47 million

Nevada

$11.2 million

Total

$113.5 million

These millions of dollars in tax revenues do not include the millions in sales/use tax payments that may be spurred by other existing or new businesses investing in new equipment or services to support the construction of this transmission line, or the additional sales/use/lodging tax revenues spurred by non-local workers in the project area.

Finally, FERC's recent report to Congress outlines the benefits of high voltage transmission and the TWE Project is the only transmission project cited by name in the report.

  • FERC finds high-voltage transmission delivers multiple benefits:

High voltage transmission can improve the reliability and resilience of the transmission system by allowing utilities to share generating resources, enhance the stability of the existing transmission system, aid with restoration and recovery after an event, and improve frequency response and ancillary services throughout the existing system. High voltage transmission also provides greater access to location-constrained resources in support of renewable resource goals.

  • FERC finds high-voltage transmission can help states fulfill their goals: The TransWest Express Transmission Project serves as the Report's only example of a specific State Policy Opportunity project, as summarized on page 11:

High voltage transmission can help states achieve their renewable portfolio standards (RPSs) and renewable portfolio goals . . . These regulatory mandates and voluntary targets are contributing to the build-up of renewable energy resources (e.g., solar, wind, hydropower, and geothermal) that are often located in remote areas far from population centers. Transmission developers have proposed numerous high voltage transmission projects in the United States that could integrate renewable energy resources onto the grid and connect them to regions with high electricity demand. For example, the proposed TransWest Express Transmission Project (TransWest Express) would eventually provide 3,000 MW of transmission capacity to deliver wind energy generated in southern Wyoming to consumers in Arizona, Nevada, and southern California. . . . If constructed, the TransWest Express could help deliver the renewable energy needed for Arizona, Nevada and California to achieve their RPSs . . .

Conclusion

Treasury/IRS has a unique opportunity to keep a critical segment of America's energy sector moving forward, along with the vital jobs and economic growth it fosters. By addressing the regulatory delays caused by the involvement of federal lands, eligible renewable energy generation projects and the associated interstate transmission can continue to go forward and attract private investment.

The certainty of the PTC is critical to the economics of private-capital-backed generation and interstate transmission lines, particularly when involving federal lands. These projects bear a much higher level of risk than those pursued by traditional rate-regulated utilities, which both enjoy guaranteed markets and guaranteed rates of return, making it possible to fund their projects by spreading the costs among ratepayers over time.

Moreover, a safe harbor extension would not extend the PTC/ITC itself, it would not impact the phase-out provisions, it would not allow new ineligible renewable energy projects to jump in line, and it would not impose any additional costs on taxpayers. Fixing a broken safe harbor for federal projects will only help contribute to economic growth by providing continued certainty to developers and tax equity investors.

DOCUMENT ATTRIBUTES
  • Institutional Authors
    Anschutz Corp
  • Subject Area/Tax Topics
  • Jurisdictions
  • Tax Analysts Document Number
    2020-35787
  • Tax Analysts Electronic Citation
    2020 TNTF 179-25
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