MAAO 2020Solar PILOT Agreements©

June 2020

M.G.L. c. 59, § 38H(b)

KP Law, P.C. This Presentation if for Informational Purposes and is Not Legal Advice

What is a PILOT?

• A PILOT is an “agreement for payments in lieu of taxes” • Not your more familiar non-profit PILOT

• A Solar PILOT is statutorily authorized (G.L. c. 59, § 38H(b))

• It is VOLUNTARY—you do not have to enter into a PILOT (a decision which has been complicated by recent ATB decisions)

• It is a CONTRACT• You can sue and be sued on the PILOT

• The PILOT sets forth the parties’ rights rights/obligations/remedies

• The PILOT sets forth how payments are determined and made

• The PILOT forth termination rights and remedies for default

What the Law Says

• “A generation company or wholesale generation company which does not qualify for a manufacturing classification exemption . . . may, in order to comply with its property tax liability obligation, execute an agreement for the payment in lieu of taxes with the municipality in which such generation facility is sited, and said company shall be exempt from property taxes, in whole or in part, as provided in any such agreements during the terms thereof. Any such agreement shall be the result of good faith negotiations and shall be the equivalent of the property tax obligation based on full and fair cash valuation. Any such negotiated amount shall be included in the tax base for purposes of determining the levy ceiling and levy limit . . . .” M.G.L. c. 38H(b).

What the Law Means

• What is a Generation Company or Wholesale Generation Company?• “‘Generation company,’ a company engaged in the business of producing,

manufacturing or generating electricity or related services or products, including but not limited to, renewable energy generation attributes for retail sale to the public.”

• “‘Wholesale generation company,” a company engaged in the business of producing, manufacturing or generating electricity for sale at wholesale only.”

• Why is this important?

• “. . . shall be the equivalent of the property tax obligation”: A PILOT Is not a vehicle to provide tax relief

• “. . . shall be included in the tax base”: PILOT payments are “taxes”; Valuation of project must be included on your LA-4 (Assessment Classification Report)).

First Steps• Get a Town Meeting vote

• Focus on the “assessing process”:• Treat solar project as any other taxable electric generating equipment

• Get the information you need to develop a valuation of the project

• Hot to classify—RE/PP? DOR: may classify as RE only if owner of land is also owner of solar project—IGR No. 17-26.

• Use accepted approaches to valuation

• Must be based on full/fair cash value, but the law allows negotiation

• What your neighboring municipality has done may not be correct

• Payments: Stipulated payments; stipulated valuations; or formula?

Can PILOT Include Land Tax?

• If your municipality owns the land (taxable to lessee, G.L. c. 59, § 2B)

• For private land, only if same taxpayer owns land and solar, according to DOR : “If the company does not own the land on which the plant or facility is located, the land may not be included in the tax agreement. The owner of the land will continue to be assessed real estate taxes.” IGR No. 17-26.

• Owner of commercial solar will ALMOST NEVER own the land. Thus, landowner will not likely qualify as “generation/wholesale generation company”

• Even if owner of land and owner of project are one-and-the-same, what if ownership “splits” after a PILOT is signed?—address in PILOT

• But since PILOT is voluntary for your community, why complicate: include only project tax in PILOT and tax land

PILOT Provisions—Start Date for Payments

• When will payments begin? • Project owners will push date “after commercial operations”—open ended

• Require a “no later than” date

• Remember: If project is there on January 1, it would have been taxable

• For example:• “Annual Payments will commence on the earlier of (i) August 1, 202_ or (ii)

the Quarterly Payment Date that falls on or immediately after (whichever is earlier) the date Developer files with the local electric utility written certification that the Project has been installed and is ready for commercial operations, a copy of which certification Developer shall simultaneously deliver to the City/Town.”

PILOT Provisions—Equal Installments?

• If stipulated payments are used (rather than stipulated valuations or a formula approach to determining payments) PILOT invoices may not match up with stipulated payments, so some end-of-year reconciliation may be required:

• “Notwithstanding the foregoing payment provisions or anything to the contrary in this Agreement, in the Town’s reasonable discretion in order to conform payments under this Agreement to the Board of Assessor’s valuation of the Project, the Town may invoice Developer for differing amounts. In such event, the total Annual Payment invoiced for a given year may be slightly more or less than the total Annual Payment due for such year according to Exhibit B to this Agreement; and the Parties agree, therefore, that the Town will, in such instance, to the extent permitted by applicable law, before or at the end of such year reconcile the difference by abating any overage or sending Developer an invoice in the case of an underassessment, as applicable.”

PILOT Provisions—Adjustments to Payments

• Include a provision for adjustments to payments for addition or replacement of equipment

• Consider adjustments based on “nameplate capacity changes”—DC or AC, or both—e.g., if solar panels are added/removed, the DC nameplate capacity changes; if inverters are added/removed, AC nameplate capacity changes

• Alternatively, you may require a new inventory every year, and adjust payments for new equipment according to a process to be spelled out in the PILOT

PILOT Provisions—Other

• Remedies:• 14 percent interest for late payments (as with late paid taxes)

• Default provisions with limited rights to cure

• Attorneys’ fees if default not cured

• Right to terminate if default not cured . . . then tax project

• Assignment:• Typical that agreement will be assigned during life of project

• Include provision that assignments only valid if made to qualifying parties—e.g., generation/wholesale generation company

• Require cure of all defaults upon assignment

Clause 45Exempt or Not Exempt—that is the Question

• “Any solar or wind powered system or device which is being utilized as a primary or auxiliary power system for the purpose of heating or otherwise supplying the energy needs of property taxable under this chapter; provided, however, that the exemption under this clause shall be allowed only for a period of twenty years from the date of the installation of such system or device.” G.L. c. 59, § 5(45)

• What does this mean? The meaning depends on the outcome of an interpretive exercise (and some would say, the interpreter!): To ascertain, and then enforce, the legislature’s underlying intent, discerned generally from the words used in the law and the context of its enactment

• Ok . . . so what did the legislature intend?

DOR v. ATB• DOR (pre-ATB decisions, below): Project must be located on the property

for which the it is being used as a “primary or auxiliary power system for the purpose of heating or otherwise supplying the [property’s] energy needs.”

• ATB Disagreed: Legislature did not expressly limit application to specific property or as to the ultimate user of the electric generation (Forrestall Enterprises v. Board of Assessors of the Town of Westborough (December 4, 2014); KTT, LLC v. Board of Assessors of the Town of Swansea (October 13, 2016)); effectively, all private solar is exempt (but see below)

• Other ATB Decisions of Note: United States Corp. of America v. Board of Assessors of the City of Framingham (May 29, 2020), and Pelleverde Capital, LLC v. Board of Assessors of the Town of West Bridgewater (May 29, 2020): No exemption if ouput/credits sold to tax-exempt entities

Is ATB Wrong?• Maybe

• Net Metering did not exist when Clause 45 enacted—ATB acknowledges this in Forrestall (n. 3) but does not address the apparent conundrum presented: If net metering did not exist, how can the legislature be deemed to have intended such a broad reach of Clause 45 as the ATB contends?

• Forrestall and KTT seem to ignore the words “for the purpose of heating or otherwise supplying the energy needs of property” in Clause 45, contrary to an important tenet of statutory interpretation. These appear to be “words of limitation.”

• Now, facilities selling electric generation to cities/towns cannot use the exemption, seemingly dis-incentivizing what DOER incentivizes—sale to public entities?

Practical Considerations

• Get the Schedule Z for the project—who is buying power?

• Developers of private facilities will use ATB decisions as leverage, but they have same risk of loss on an appeal of an ATB ruling

• Consider exercising your appeal rights—ATB does NOT have final say

• Developers will still sign a PILOT for “certainty”

• If you exempt one, you must exempt all?

• What if your project sells output to private parties and public agencies?

Questions

Richard T. Holland, Esq.

KP Law, P.C.

617-556-0007