Merchant plant interties remain under study at the IRS

Merchant plant interties remain under study at the IRS | Norton Rose Fulbright

September 01, 2000 | By Keith Martin in Washington, DC

MERCHANT PLANT INTERTIES remain under study at the IRS.

Independent power companies must pay the cost of connecting their power plants to the utility grid. The power company usually reimburses the utility for the cost of the intertie and any system upgrades required. The utility owns this equipment. At least since 1988, the IRS has not taxed the utility on the value of the equipment.

However, Judith Dunn, the deputy IRS chief counsel, said in a letter to two congressmen the agency made public at the end of July that the IRS is studying whether this policy should continue to apply in “a deregulated marketplace where the producer’s power is not sold to the utility but is transported over the utility’s transmission lines into a ‘power pool’ where third-party buyers bid on the producer’s power.” Dunn said the concern is whether the generator is a “customer” of the utility. Payments by a customer to a utility are considered a payment for services and are taxable to the utility.

There have been two meetings this summer with IRS and Treasury officials. The IRS said it plans to issue a revenue ruling when the issues are resolved, but probably not before next year. IRS officials said they would continue to rule that utilities do not have to report interties as income in cases where the generator sells his power to the interconnecting utility under a long-term contract.

Keith Martin