Should Rooftop Solar Leasing Companies Be Treated as Utilities?

[kristopher]

Should Rooftop Solar Leasing Companies Be Treated as Utilities?

Keith Martin and Amanda Forsythe, Chardbourne & Parke
June 10, 2013

A solar rooftop company that entered into a long-term contract to supply electricity to a city building in Dubuque, Iowa from solar panels it mounted on the roof is not making retail sales of electricity, an Iowa court said.

The decision could open a hole in retail sale restrictions that prevent rooftop solar companies from entering into power purchase agreements with customers in other states if the logic the Iowa court used were to be adopted more widely. The court said the solar company is really in the business of making energy efficiency improvements that reduce the amount of electricity a customer takes from the grid rather than selling the customer electricity.

Many solar companies retain ownership of rooftop systems and lease them to customers. The customers pay rent that is roughly 85 percent of what they pay the local utility for power. However, it is not a good idea to lease a solar system to a government or tax-exempt entity because equipment leased to such an entity does not qualify for a 30 percent investment tax credit and accelerated depreciation. The only way to preserve the tax benefits is to enter into a power contract rather than a lease with such a customer. A special provision in the US tax code allows an agreement to be written in such a way that it is close to a lease in substance, but is still treated for tax purposes as a power contract. The key is to avoid four “foot faults” in how the agreement is drafted.

Eagle Point Solar signed a power contract to supply electricity to a city building in Dubuque. Interstate Power & Light Company, a regulated utility, has a monopoly to supply electricity to retail customers in the area. Eagle Point asked the Iowa Utilities Board for a declaratory order that it would not violate state law by entering into the arrangement. (Ironically, the power contract was drafted in a way that would have prevented Eagle Point from claiming any tax benefits on the solar system.)

The board said Eagle Point will become a public utility if it enters into the arrangement and will infringe on the IP&L monopoly as the sole authorized retail electricity supplier in the area...

http://www.renewableenergyworld.com/rea/news/article/2013/06/should-rooftop-solar-leasing-companies-be-treated-as-utilities?cmpid=SolarNL-Tuesday-June11-2013