Groups Request Safe Harbor for Property Transferred to Utilities

We are writing to request a meeting to discuss the issuance of a notice which would provide a safe harbor for transfers of property from a renewable natural gas generation facility to a regulated public utility, used to facilitate the transfer of renewable natural gas into the utility's natural gas pipeline infrastructure, to be treated as a contribution to the capital of a corporation under § 118(a), and not a contribution in aid of construction (CIAC) under § 118(b).

The American Biogas Council's (ABC's) mission is to create jobs, environmental sustainability, and energy independence by growing the U.S. biogas industry. We represent biogas businesses in the US -- 220 organizations from across the renewable energy, agricultural, waste and wastewater management, and transportation industries. Our membership includes facility owners/operators, manufacturers of tanks, engines, and other equipment, engineering firms, project developers, legal and accounting firms, educational organizations and institutions, utilities, financiers and lenders, and local and regional governments.

The Bioenergy Association of California (BAC) is a non-profit association of more than fifty private companies, public agencies, local governments, investors and others working to convert organic waste to energy in California, including pipeline biogas, renewable electricity, transportation fuel and other forms of energy. BAC's members are working to achieve state and federal renewable energy, fuel diversity, climate change, waste reduction, wildfire reduction and other goals. Many BAC members seek to inject biogas from dairies, wastewater treatment and other facilities into utility pipelines, but the current tax treatment of their pipeline interconnection is a significant barrier.

The Coalition for Renewable Natural Gas (RNG Coalition) is a national not-for-profit association providing public policy advocacy and education for the RNG industry in North America. Our coalition members represent the full value chain of cellulosic waste feedstock conversion to electricity, heat, and transportation fuel. They produce 90% of all the RNG transportation fuel in North America as regulated under the Renewable Fuel Standard. Together, we are dedicated to the advancement and increased utilization of RNG so that present and future generations will have access to ultra-clean, green, alternative, and domestic energy and fuel.

Over the past five years, member companies of these organizations have developed renewable natural gas projects, in which biogas is upgraded to meet receiving utility pipeline standards. Renewable natural gas is recognized by the EPA and DOE as one of the most sustainable biofuels and especially valuable to our nation's energy future because it can be "dropped in" to the existing natural gas pipeline infrastructure without any modifications for the utility or consumers of the comingled gas.

Once comingled with the utility's other natural gas supply, the gas is consumed predominantly for power production. Similar to qualifying small power producers who convert biogas and generate electricity on site to feed into the electrical grid, these renewable natural gas facilities are required to bear the cost of the purchase and installation of any equipment required for the interconnection (intertie). Generally, the utility takes legal title to the intertie, which becomes part of the utility's pipeline network.

The renewable natural gas may be sold to the utility under a gas sales agreement, or the renewable natural gas may be wheeled to a third party for sale and use. In some cases, the intertie may be a dual-use intertie, where a small amount of natural gas is conveyed and sold to the renewable natural gas generator.

When the renewable natural gas is transferred and used offsite for electrical generation, even when comingled with other natural gas, the renewable natural gas production facilities are treated as Qualifying Facilities.

The interpretation by regulated utilities of tax liability for these interconnections has been inconsistent Recent cases where the tax liability was asserted include those across the nation:

• Four in California, two involving Southern California Gas Company and two involving Pacific Gas & Electric Company

• Four in North Carolina, three involving Piedmont Natural Gas Company and one involving TransCanada/ANR

• One in Nebraska, involving Northern Natural Gas Company

• One in Wisconsin, involving TransCanada/ANR

Both our members and the utilities would benefit from a notice which clearly establishes safe harbor for these transfers of property. On behalf of the ABC, BAC and RNGC, we respectfully request a meeting to discuss our request for a notice to establish safe harbor for transfers of property for renewable natural gas interties.