Energy Company Suggests Expanding Definition of Wind Energy Property

June 3, 2021

Internal Revenue Service
Attention: Emily M. Lesniak,
Office of the Associate Chief Counsel (Procedure and Administration),
CC:PA:LPD:PR (Notice 2021-28) Room 5203
P.O. Box 7604
Ben Franklin Station
Washington, D.C. 20044

Re: IRS Notice 2021-28, Priority Guidance for 2021-2022

Ms. Lesniak,

Thank you for the opportunity to submit a recommendation for consideration in preparing the 2021-2022 Priority Guidance Plan. I recommend the Priority Guidance Plan include an update to Treasury Regulation §1.48, the definition of Internal Revenue Code section 38 property. In particular, Treasury Regulation 1.48-9(e) that defines wind energy property should be expanded to include the unique nature of offshore wind projects. Discussed below, an update to the Regulations should specifically address the open question of whether or not export cables and the associated on-shore substation and transformer qualify as property eligible for an investment tax credit.

Public Service Enterprise Group (PSEG) is a publicly traded diversified energy company headquartered in New Jersey, and is one of the 10 largest electric companies in the U.S. PSEG employs approximately 13,000 people and is ranked 317 on the Fortune 500 list for 2020. PSE&G’s regulated distribution business provides gas to approximately 1.9 million customers and electricity to approximately 2.3 million customers.

Alternative energy projects are highly dependent on receiving an investment tax credit. Although offshore wind generation is in the early stages of development in the United States, these projects play an important role in meeting President Biden’s goal of getting the nation to 100 percent clean electricity by 2035. In addition, to achieve the President’s larger goal of transitioning the entire US economy to clean energy by 2050 the President plans to scale up offshore wind energy capacity from just 42 megawatts today to 30,000 by 2030. Uncertainty in this area is not only complicating financings, but it is also creating uncertainty about how much these projects are able to bid to supply electricity and to secure sites in federal auctions of offshore sites. Updating the Regulations and expanding them to include offshore wind projects will provide much needed clarity and certainty to these projects and assist in achieving the President’s clean energy goals.

The current Regulations do not address the question whether export cables are wind energy property under Treasury Regulation 1.48-9(e) eligible for an investment tax credit. As an example, assume an offshore wind project has the following fact pattern: Several offshore turbines connect directly to an offshore electrical services platform. The offshore services platform is a central collection point that pools the electricity from the offshore turbines and then steps up the voltage so that the electricity can be pushed through an export cable to shore and allow for line losses of electricity that occur along the way. The voltage required to push the electricity through an underwater cable approximately 15 miles to shore is higher than the on-shore transmission grid allows. The export cable connects on land to a substation belonging to the project where another transformer (that is located within the substation) steps down the voltage to a rate that is acceptable to the transmission grid. The on-shore substation also conditions and synchronizes the electricity before it is transmitted to the transmission grid. Whether the export cable and on-shore substation qualify for an investment tax credit is a material issue for the offshore wind industry. To provide certainty for the burgeoning offshore wind industry, the Regulations should address this and similar types of fact patterns.

Sincerely,

Cliff Pardo
Vice President and Assistant Controller — Tax
Public Service Enterprise Group Inc.
Neward, NJ