STATE OF VERMONT PUBLIC SERVICE BOARD

Transcription

1 STATE OF VERMONT PUBLIC SERVICE BOARD Petition of GMPSolar -Richmond, LLC for a Certificate ) of Public Good, pursuant to 0 V.S.A., authorizing ) the installation and operation of a.0 MW solar electric ) Docket No. generation facility off of Governor Peck Highway in ) Richmond, Vermont to be known as the GMPSolar ) Richmond Project ) PREFILED DIRECT TESTIMONY OF KIRK SHIELDS Summary: In this testimony, Kirk Shields addresses the proposed project s financing structure and the expected levelized cost of power associated with the project.

2 Page of Q. Please state your name, occupation and business address. Response: My name is Kirk Shields and I am Director of Business Development for Green Mountain Power Corporation ( GMP ). My business address is Merchants Row, Rutland, VT 00. Q. Please summarize your educational background and relevant professional experience. Response: During my eighteen years in the electric utility industry, I have worked for Vermont Electric Power Company, Central Vermont Public Service and am currently employed by GMP. My experience and background includes portfolio management, competitive resource solicitations and contract negotiation, risk mitigation structures and other activities generally related to serving customers cost-effectively through the wholesale bulk power markets. I have most recently worked with teams to develop new innovative product and service offerings for GMP customers, assisted Rutland City in achieving the distinction of becoming the Solar Capital of New England, and am also leading solar project development for GMP s power supply portfolio. I earned a Bachelor s degree in Finance from Southern Connecticut State University and a Master of Business Administration degree from College of St. Joseph. See Exhibit GRP-KWS- (Resume). 0 Q. Have you previously testified before the Vermont Public Service Board ( Board )? Response: Yes, I have provided pre-filed testimony to the Board in Dockets (Certificate of Public Good ( CPG ) application for the Granite Reliable Wind project) and 0 (CPG application for the Stafford Hill Solar Farm).

3 Page of Q. What is the purpose of your testimony? Response: The purpose of my testimony is to introduce proposed ownership and financing structures being used to finance the GMPSolar Richmond Project ( Project ), and to provide information on the expected levelized cost of power from the Project. 0 Q. Let s start with the proposed ownership structure for this project. Can you please describe the ownership and financing structure in more detail? Response: In order to maximize the cost effectiveness of this particular project for our customers, GMP is using a financing method called a Partnership Flip structure to make efficient use of the Investment Tax Credits ( ITC ). GMP created an affiliate company named GMPSolar Richmond, LLC ( GMPSolar ) to own and operate the project, again, specifically done to accommodate a tax equity partner. GMPSolar will be jointly owned by GMP and by a tax equity partner. The value of all of the products and attributes produced by the solar project will flow directly to GMP customers through a Power Purchase Agreement ( PPA ) between GMP and GMPSolar. Projects costs were modeled using a tax equity cost of service model provided to GMP by accounting firm Cohn Resnick to determine the levelized cost of the Project to customers under the Partnership Flip model. The total constructed cost of the Project will be about $.M and the levelized cost of the Project over years will be about $0. per kwh. The PPA price to GMP will be set at the same $0. per kwh levelized cost resulting from the cost of service model. Witness Smith will discuss the competitiveness of the levelized cost to customers in his testimony.

4 Page of Q. What is the purpose and effect of taking on a tax equity partner? Response: Solar projects are eligible for federal Investment Tax Credits ( ITC ) of up to 0% of the total project cost. Since GMP, as an electric utility, is required by FERC to normalize, or amortize, the federal ITC over the project life, a tax equity partner is necessary to make use of the ITC by contributing cash to the project upfront and receiving most of the cash flow, depreciation and ITC benefits from the project until their negotiated rate of return is realized from the Project, usually in - years. Q. What happens after the tax equity investor realizes its target rate of return? Response: In a Partnership Flip, GMP would contribute a negotiated amount between 0 and 0% of the project cost to GMPSolar and the tax equity investor would contribute the rest. Initially, GMP will have rights to % of the cash flows, depreciation and ITC from GMPSolar and the tax equity investor will have rights to the remaining %. After the tax equity investor has realized its pre-negotiated target rate of return, the flip occurs and GMP then assumes the right to % of both the cash flows and remaining depreciation from GMPSolar. The tax equity investor retains the rights to the remaining % of the cash flow and depreciation. After the flip and at various points thereafter during the life of the Project, GMP will also have the option to purchase the tax equity investor s interest in GMPSolar at fair market value. 0 Q. Are there risks associated with financing a project this way? Response: There are risks with any type of development activities and financing with tax equity is no exception. The risks specific to this type of financing are: a) ensuring the

5 Page of transaction is structured adequately so that the IRS maintains the expected tax treatment of the tax equity partnership; and b) timely completion of the Project to receive the 0% ITC. Since this ITC benefit is scheduled to expire after December, 0, it is imperative that the Project achieve commercial operation before the end of calendar year 0. These risks are being mitigated by using appropriate legal and consulting resources for structuring the transaction and through rigorous project management to ensure the Project is fully permitted and completed on time. Q. Is GMP seeking a determination regarding rate recovery with respect to any aspect of the proposed project, including, but not limited to, tax equity financing? Response: No. Issues regarding rate recovery will be addressed in the context of GMP s base rates. Q. Who will the tax equity investor be? Response: GMP is currently engaging with potential tax equity partners and we expect to have a partner identified and secured by fall of this year. Q. Does this conclude your testimony? Response: Yes it does.