Wisconsin Public Utility Institute Utility Scale Solar Update March 5, 2019 Andrew C. Hanson Perkins Coie LLP
Overview • Status of Utility-Scale Solar in the Midwest • Transmission • Project Development and Construction • Regulatory Considerations • Recent Tariffs 2 Perkins Coie LLP | PerkinsCoie.com
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S trategic Energy Assessment: 2016 4
S trategic Energy Assessment: 2018 5
Transmission Perkins Coie LLP 6
https://api.misoenergy.org/PublicGiQueueMap/index.html 7 Perkins Coie LLP | PerkinsCoie.com
https://api.misoenergy.org/PublicGiQueueMap/index.html 8 Perkins Coie LLP | PerkinsCoie.com
https://api.misoenergy.org/PublicGiQueueMap/index.html 9 Perkins Coie LLP | PerkinsCoie.com
S trategic Energy Assessment: 2018 10
Transmission and Interconnection Interconnection Studies Deposits/Refunds Costs Network upgrades Timing Network upgrades E&P, FCA and MFCA Perkins Coie LLP | PerkinsCoie.com
MISO Interconnection Study Process • DPP1 ~ 140 days • DPP2 ~ 80 days • DPP3 ~ 135 days • GIA ~ 150 days • Total process ~ 505 days 12 Perkins Coie LLP | PerkinsCoie.com
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MISO DPP Schedule – East (ATC) • Reflects all generation (not just solar) • 2,200 MW - DPP2 – mostly solar • 3,725 MW - DPP start on April 2, 2019 – mostly solar Source: https://cdn.misoenergy.org/Definitive%20Planning%20Phase%20Estimated%20Schedule106547.pdf 14 Perkins Coie LLP | PerkinsCoie.com
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Project Development and Construction Perkins Coie LLP 1 6
What is the Target Project? 17 Perkins Coie LLP | PerkinsCoie.com
Solar Projects – Ideal Characteristics • Significant amounts of cleared land; • Flat topography to reduce construction cost and risk; • Geology sufficient to support mounting systems (e.g., embedment depth for driven piles); • Near transmission with an existing substation suitable for interconnection, with no or minimal network upgrades needed, or where the cost of upgrades is largely known; • Local landowner and community support; • No or minimal sensitive environmental resources in or near the project (e.g., parks, wetlands, waters, habitats). 18 Perkins Coie LLP | PerkinsCoie.com
What is the Deal Structure? Power Purchase Agreement Creditworthiness of off-taker Minimum output guarantee and replacement costs for curtailments Conditions precedent – fully developed interconnected project with milestones and completion date Develop-Transfer Asset Purchase - transfer of identified Project assets Assume only identified Project liabilities Consider contract assignability Purchase of Project Company (Equity Purchase) - acquire all assets of Project company Assume all liabilities of Project company Dissolution of entity post-closing Build-Transfer Developer develops, constructs, and transfers project to new owner 19 Perkins Coie LLP | PerkinsCoie.com
Federal Investment Tax Credit (ITC) ITC is a tax credit based on a % of the project tangible asset cost. The project owner claims the ITC in the year the project is placed into service. The ITC vests linearly over a 5 year period. If the project owner sells the project before the end of its 5th year of operation, the unvested portion of the credit will be recaptured by the IRS. Solar Energy Project – IRC Section 48(a)(3)(A)(1) To qualify for ITC at a level greater than 10%, project construction commences before 1/1/2022 and is placed in service by 12/31/2024. ITC % is based on the year the project construction commences: 2019 – 30%; 2020 – 26%; 2021 - 22%; and 2022 or later - 10%. Two methods to determine "commence-construction" date: (1) start physical work of a significant nature or (2) meet "5% safe harbor test" by incurring 5% or more of the total cost of the facility. 20 Perkins Coie LLP | PerkinsCoie.com
Project Development What does a “developed” project look like? Land Rights Permits Studies and Reports Contracts (Generator Interconnection Agreement, etc.) Site Plan Interconnection and Transmission Solar Data Environmental Attributes Intellectual Property (project name, data, reports) 21 Perkins Coie LLP | PerkinsCoie.com
Land Rights Leased Land Preliminary Title Commitment Lease Terms and Conditions Survey Duration/Termination Rights Title Insurance – Endorsements Prior Encumbrances (SNDA) Recording Estoppel Certificates Owned (“Fee Simple”) Land Substation and O&M facility Rights of Way; Easements; Shared Rights Public and Private 22 Perkins Coie LLP | PerkinsCoie.com
Project Assets: Permits, Contracts, Studies and Reports Permits Studies and Reports Conditional Use Permit Avian, Wildlife Assessment Environmental (e.g. stormwater) Congestion and Curtailment Assessment Others Cultural Resource Study Non-appealable status Decommissioning Cost Analysis and Plan Interconnection Studies Phase I Environmental Site Assessment Contracts Preliminary Geotech Report Generator Interconnection Agreement Reactive Power Study Other interconnection related agreements Stability Analysis Consultant agreements for reports and Wetlands Assessment/Field Delineation studies Solar Analysis/Capacity/Net Capacity Factor Assignability Report Depreciable Life Studies and Degradation Analysis 23 Perkins Coie LLP | PerkinsCoie.com
Project Construction Responsible Party - Buyer vs. Developer EPC vs. BOP - selection of contractor and price Solar Panel/Equipment supply Schedule: mechanical completion, substantial completion and final completion ITC Requirements Warranty Period 24 Perkins Coie LLP | PerkinsCoie.com
Regulatory Considerations Certificate of Public Convenience and Necessity (CPCN) (Wis. Stat. 196.491(3) and PSC Ch. 111 • Required for large electric generating facilities > 100 MW • Application submitted at least six mos. prior to stating construction • Engineering Plan submitted at least 60 days prior to application • Application Filing Requirements • Not all requirements apply to wholesale merchant generators, but • Design and location must be in public interest • No undue adverse impact on environmental values • No interference with orderly land use and development plans • No adverse impact on competition in the relevant wholesale market 25 Perkins Coie LLP | PerkinsCoie.com
Regulatory Considerations • Certificate of Authority (CA) - Wis. Stat. 196.49(3) and PSCW Ch. 112 • Applies to public utilities • PSCW can decline to issue if the project will: • Substantially impair the efficiency of the service of the public utility. • Provide facilities unreasonably in excess of the probable future requirements. • When placed in operation, add to the cost of service without proportionately increasing the value or available quantity of service. 26 Perkins Coie LLP | PerkinsCoie.com
Recent Utility Tariffs Perkins Coie LLP 2 7
Recent Utility Tariffs WEPCO – Solar Now Designed for commercial and industrial customers who want to host a solar PV system on their property 2.25 MW nameplate capacity limit on each hosted solar PV system installation; Total participation cap of 35 MW, with 10 MW reserved for nonprofit or government entities; Monthly lease payment based on the value of capacity from the resource, in turn based on MISO’s CONE for the relevant Resource Adequacy Planning Year; WEC to retain ownership and responsibility for operation of each resource; All energy generated will be delivered to the distribution system; One of the purposes is to “[ i]dentify characteristics of optimal sites that can utilize distributed generating assets to avoid or defer future investments in the Company’s distribution system…” 28 Perkins Coie LLP | PerkinsCoie.com
Recent Utility Tariffs • WEPCO - Dedicated Renewable Energy Resource Pilot • Designed for customers wishing to purchase a portion of a large-scale renewable energy project located in Wisconsin; • 150 MW nameplate capacity limit of total customer participation; • WEC will retain responsibility for operation of the resource • Participating customer will pay all costs associated with the new resource subject to a service agreement, including depreciation, return on invested capital and O&M • Participating customers will receive: • Monthly market value of energy • Monthly capacity credit based on CONE or MISO zone 2 PRA auction, depending on WEC’s capacity position during the MISO Resource Adequacy Planning Year at the time the agreement is executed • Rights to all renewable energy attributes 29 Perkins Coie LLP | PerkinsCoie.com
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