Electric interties continue to absorb IRS time.

Electric interties continue to absorb IRS time | Norton Rose Fulbright

October 01, 2002 | By Keith Martin in Washington, DC
ELECTRIC INTERTIES continue to absorb IRS time.

Independent generators connecting their power plants to the grid must usually reimburse the local utility that owns the grid for the cost of the equipment required to interconnect. The IRS repeated last December that utilities ordinarily do not have to report such interconnection payments from generators as income. The notice applies to interconnection arrangements completed after December 26, 2001. However, the IRS said it would issue private rulings, when asked, confirming that the same rules apply to past payments.

The agency had received seven such ruling requests through late September. (Chadbourne drafted five of them.) One of the seven rulings has been issued. Another was expected as the NewsWire was going to press. Rulings in this area take approximately five months.

The one ruling already issued is interesting. The IRS told an electric cooperative that it did not have to report as income the value of a transmission line that was paid for by a private generator. The coop owns the line. The generator wanted to put its power on the grid in two places. One of the two delivery points was in another state and required construction of a long transmission line. A nearby coop could use eminent domain to get the land rights to build the line. It had no use for the line for its own purposes. The generator plans to retain title to the electricity passing over the line, but to pay the coop nothing for wheeling the electricity over the line. Intertie payments to a utility do not have to be reported as income by the utility, but only if the generator is not a customer of the utility for wheeling or other services. In this case, the IRS concluded there was no customer relationship. Electric coops are exempted from US income taxes, but must be careful that any income comes from the right sources to retain their tax exemptions.

In another development, Wildflower Energy, LP, an independent generator that connects to the Southern California Edison Company grid, asked the Federal Energy Regulatory Commission to order Edison not to collect a “tax grossup” in addition to charging it for the costs of interconnection. Edison maintains that the tax treatment of interconnection payments from Wildflower is unclear. FERC said it could not settle a tax dispute and directed Wildflower to ask the IRS for a ruling. However, it ordered Edison to refund the tax grossups with interest in the event a favorable ruling is received. Edison has not been offering generators to pay interest.

Keith Martin