A utility tax equity filing with the Public Service Commission of Wisconsin reveals interesting data points about the current tax equity market.

The Wisconsin Power and Light Company asked the commission for permission in late May, and updated the filing in August, to acquire the rights to six utility-scale solar projects from Geronimo Energy, NextEra Energy Resources, Ranger Power and Savion with a total capacity of 675 megawatts. The utility plans to build 1,000 megawatts of solar by the end of 2023.

The projects will be acquired before construction. The developers may or may not see them through construction.

All of the projects were considered under construction for tax purposes in 2019 so that they qualify for 30% investment tax credits. The utility will liquidate the existing project companies and take possession of the projects directly, but then sell the projects to new special-purpose project companies that will be owned by one or more tax equity partnerships before mechanical completion. The sales may step up the tax bases on the projects for calculating investment tax credits to fair market value.

The utility said in the filings that it has term sheets from three tax equity investors and is projecting flip yields of between 6% and 7%.

The tax equity investors will take 15% to 35% of the cash before the flip and 5% after.

Tax equity is expected to account for 35% to 45% of the capital stack.

The electricity will be sold into MISO. The utility will enter into contracts for differences with the project companies to put a floor under the electricity price.

It plans to put its investment in the tax equity partnerships into rate base and recover the rate base investment over 30 years. It told the commission the tax equity partnerships will save its customers $129 million on a present-value basis.

Utilities in California, Missouri and Indiana have received regulatory approval to do tax equity transactions as regulated utilities. The Northern Indiana Public Service Company received approvals in 2019 and 2020 for tax equity deals involving two wind farms. The Empire District Electric Co. in Missouri received regulatory approval in 2019. Liberty Utilities received approval from California in 2017.

Wisconsin Power and Light said that it has been driven into the tax equity market because the 100% depreciation bonus has put it in a net operating loss position through 2023. It expects to be unable to use tax credits from any new solar projects for even longer because it must work through tax credits in first-in-first-out order.

While it must ordinarily share the benefit from tax credits with its customers over the 30-year life of solar projects, it said this “normalization” does not apply to tax credits claimed by a partnership in which it is a partner. However, it said its customers will be better off because they will benefit immediately from the cash flow the utility will be distributed by the partnership without having to wait until it can use tax credits several years in the future. It said it will use the cash or expenses incurred as an offset to its normal utility cost of service when determining its revenue requirement for setting rates.