Question
From: (redacted)
Sent: Friday, May 30, 2008 1:58 PM
To: Verne, B. Michael
Subject: RE: NewFacilities exemption
Hi Mike-
I need to follow upwith you regarding a wind project that we discussed a couple of months ago.(Our original email exchange is below.)
The issue concerns therequirement under 802.2(a) that the new facility has not produced income. It isclear from PNO's informal opinions that incidental income produced by the windproject during testing and debugging would not cause the new facility to losethe exemption under 802.2(a). In this transfer, commercial operation of thewind project is a condition precedent to the transfer of the new facility.There is a possibility, however, that transfer of the new wind project to theacquiring party could be delayed after the achievement of commercial operationdue to unanticipated delays in obtaining a variety of regulatory approvals --oreven for other reasons once all of the regulatory approvals are obtained.Delays in transferring the wind project to the acquiring party could includethe following:
--Delay inobtaining a regulatory approval that would permit the acquiring party toacquire the wind project company or the selling party to sell the wind projectcompany, such as the approval of a federal or state regulatory body.
--Delay inobtaining a regulatory approval that would permit the selling party to acquireother assets --not related to the wind project --that constitute, at least inpart, consideration for the transfer of the wind project.
--Delay insatisfying other closing conditions as certain closing conditions may not becompleted at the time the wind project achieves commercial operation.
--Disputes betweenthe parties as to whether all closing conditions have been met, such as (i)disputes regarding whether the wind project in fact is complete andoperational, (ii) disputes regarding the satisfaction of conditions precedentunder material agreements relating to the wind project, (iii) disputesregarding whether the items on a punch list of requirements regarding the windproject have been satisfied, (iv) disputes regarding the permits acquired forthe wind project, and (v) disputes regarding whether all required regulatoryapprovals have been obtained.
The parties intendto transfer the new wind project to the acquiring party as a new facility assoon as it has achieved commercial operation, provided that all of theregulatory approvals have been obtained and the parties agree the all of theclosing conditions have been met. The parties expect that commercial operationof the facility will be the last closing condition to be met, but if anyregulatory approval takes longer than anticipated or any closing condition isnot met when anticipated, the wind project would continue to generateelectricity and therefore produce revenue after it has completed all testingand debugging and achieved commercial operation.
Would the revenuesgenerated by the wind project because the transfer of the project to theacquiring person is delayed due to (i) a delay in obtaining a regulatoryapproval, (ii) a delay in achieving the other condition precedent to thetransfer or (iii) a dispute between the parties as to whether all closingconditions had been met, cause the project to lose the exemption under802.2(a)? Informal Staff Opinion No. 0111022 (November 12, 2001) seems topermit a regulatory delay: "However, the closing could be delayed for upto 60 days after all of the turbines have achieved commercial operation due tocontinued debugging, insufficient wind for testing or delays in obtaining thenecessary approvals from the Federal Energy Regulatory Commission." Alater Informal Staff Opinion, however, while not addressing the issue of aregulatory delay, seems to indicate that if the wind project becomes"operational" before closing, the 802.2(a) exemption is notavailable: "The exemption is not compromised if the only income was fromthe sale of energy produced in testing, but if the project becomes operationalbefore closing, it is not available." Informal Staff Opinion No. 0609012(dated September 25, 2006).
As always, I reallyappreciate your help.
Thanks,