Connecticut has enacted legislation to jump start renewable energy in the state. Project developers are currently refining bids for renewable energy facilities for submission in response to the Connecticut Light & Power Company (CL&P) and United Illuminating Companies (UI) Request for Proposals for Low and Zero Emission Renewable Energy Credit Programs (the "LREC/ZREC Program"). Projects have to meet minimum criteria, and then will be accepted based on the requested ZREC or LREC price included in the bid, and the lowest bidders will be awarded 15-year contracts for REC purchase by the utilities at the bid price submitted.
It is expected that bid pricing will be very competitive. Once bids are submitted, selection, contact execution and a financial assurance deposit will all occur within a very short timeframe. Therefore, it is critical that developers nail down all the financial risks associated with a proposed project at the time of bid submission.
However, one critical issue that is essential for developing a firm bid has been left in flux. Property tax treatment for renewable energy facilities can be a source of confusion both for developers and for local assessors. Unfortunately, the Connecticut General Assembly’s recent effort to exempt business and industrial scale Class 1 renewables from property taxation failed.
Current state law exempts Class 1 Renewable Facilities used for operations from property taxes. (Conn. Gen. Stat. Section 12-81 (57)). A proposal before the legislature last week that would have extended this exemption to facilities installed for business and industrial use did not pass.
This issue will be particularly relevant because obtaining equitable tax treatment (or at least definitive tax treatment) is critical to determining costs necessary to submit a competitive bid. Quantifying with precision the property tax liability for a particular project is essential to a comprehensive bid strategy. Unfortunately, in many cases local tax assessors have limited experience with these types of facilities and may develop incorrect assessments or offer inconsistent information. In reality, it may be difficult to get a definitive determination of the local tax treatment in the timeframe needed to submit bids.
The tax treatment for renewable energy facilities can be complicated. Project developers must determine the appropriate valuation of the plant, select the relevant depreciation schedule and even consider negotiating tax-fixing agreements with the host municipality. We at Brown Rudnick have had success in working with local municipalities regarding taxation of power plants in Connecticut and can help guide you and a local assessor in an analysis of what ought to be the property tax treatment for such a facility.