Amendments Affect Rural Wind Farm Eligibility for Sales Tax Exemption and Protection From Eminent Domain

Amendments to Nebraska’s Rural Community-Based Energy Development Act will affect whether new wind farm projects qualify for tax benefits and could potentially put future projects at risk for taking by eminent domain. The amendments, passed under LB 916, take effect October 1, 2008.

The Act (Nebraska Revised Statutes Sections 70-1901 – 1909) subjects such developments, known as Community-Based Energy Development (C-BED) projects, to strict local ownership requirements designed to keep revenues in the communities where the projects are located and in the state generally. To that end, the Act requires that at least 33 percent of gross payments that an electric utility makes to a C-BED project pursuant to a power purchase agreement flow to “qualified owners” or to the local community in which the project was developed. The Act defines “qualified owner” generally as Nebraska residents or partnership comprised of Nebraska residents. Likewise, to qualify as a C-BED project, no single investor can “directly or indirectly” own more than 15 percent of the project. Prior to the 2008 amendments, a  C-BED project investor’s “indirect” ownership interest did not count against this maximum 15 percent ownership limitation. 

The 2008 amendments also require that C-BED project developers notify an electric utility that has entered into a power purchase agreement if the project ceases to qualify for C-BED status, i.e., if the ownership structure changes such that the project no longer meets the statutory criteria. Typically, an electric utility enters into an agreement with a C-BED project to purchase wind-generated power for a period of 10 years or more. The Act permits electric utilities that have entered into such agreements with a C-BED project to waive their power of eminent domain, guaranteeing that investors enjoy long-term protection from a taking of the wind farm by the utility. However, the new notification requirement suggests that existing C-BED projects could become subject to taking by eminent domain if they cease to qualify for C-BED status. 

Projects that qualify for C-BED status also receive an exemption from state sales tax, up to $5,000,000. However, if a project initially qualified as a C-BED project but then the ownership structure changed such that it no longer qualified, it is not clear whether the State of Nebraska would also try to recoup any sales tax that had previously been forgiven. The new notice requirement does not mention notice to the State, but it is not clear what the State’s remedy would be if it otherwise discovered that a project that initially qualified as a C-BED project no longer qualifies.

Finally, the amendments also state that C-BED projects may be required to file with the Nebraska Department of Revenue certain contracts, organizing documents and proof of compliance with statutory requirements. The Tax Commissioner is required to notify an electric utility that has entered into a power purchase agreement if a project ceases to qualify for C-BED status.

The legislature amended the statute in other, non-substantive ways as well.

For additional information on C-BED project development, contact David Levy.