On March 26, 2021, Governor Baker signed Chapter 8 of the Acts of 2021, “An Act Creating a Next-Generation Roadmap for Massachusetts Climate Policy” (the “Climate Act” or “Act”). Many of the Act’s headline provisions involve greenhouse gas emission reduction targets, utility offshore wind energy purchasing requirements, and other items that are exciting and commendable as part of the Commonwealth’s quest to decarbonize but do not directly impact solar development in Massachusetts. The Act does, however, contain provisions relating to net metering and property tax matters that could have a significant impact on solar development. This post focuses on the provisions relating to property tax and PILOT matters. A companion post focuses on the net metering provisions.
Property Tax Exemption Eliminated for Some Facilities and Extended to Others
Until now, MGL c. 59, § 5, Forty-Fifth (“Clause Forty-fifth”) has allowed a 20-year property tax exemption for solar or wind energy systems utilized as a primary or auxiliary power system for the purpose supplying the energy needs of property subject to property tax. The Massachusetts Appellate Tax Board (the “ATB”) ruled in Quabbin Solar, LLC et al. v. Board of Assessors of Town of Barre (Nov. 2, 2017) and other cases that this exemption applied to solar facilities generating energy billing credits allocated to electric utility accounts serving taxable properties.
Section 61 of the Act completely reworks Clause Forty-fifth so that there will no longer be a property tax exemption based on the supply of energy or energy credits to taxable property. Under the new Clause Forty-fifth, the 20-year property tax exemption will still apply to solar systems (including those co-located with energy storage systems) but only if they meet certain size requirements. The revised exemption now applies to (1) systems that are 25 kW or less and (2) those that cannot produce more than 125% of the annual electricity needs of the underlying real property (which can include both contiguous and non-contiguous commonly owned real property in the same municipality).
As a result of this change in law, and depending in part on the application of the Act's transition provisions (discussed below), many solar facilities had been eligible for exemption under Clause Forty-fifth will no longer be eligible. One example would be a standalone ground mount solar facility supplying net metering credits to residential customers. Another example would be a large behind-the-meter rooftop solar facility that generates more than 200% of the annual load of the underlying building, meeting the host customer’s electricity needs and generating net metering credits allocated to other private businesses.
On the other hand, since the property tax exemption under Clause Forty-fifth will no longer turn on whether a facility supplies the energy needs of taxable property, the exemption will now be available to the many third party-owned solar facilities that serve buildings owned by nonprofits and public entities.
Note also that the amended Clause Forty-fifth does not require that a facility be installed behind a host customer meter in order to benefit from tax exemption or even that the electricity or energy billing credits be used onsite. The exemption speaks strictly in terms of the size of the facility and, for systems over 25 kW, the facility’s generating capacity in relation to the electricity needs of the underlying real property.
Continued Authorization of Solar Facility PILOT Agreements with Modified Guidelines
Massachusetts law will continue to authorize PILOT agreements for solar facilities, but the Act changes the locus of that statutory authority and modifies certain of the guidelines relating to solar facility PILOT agreements.
Until now, solar facility PILOT agreements had been authorized under MGL c. 59, s. 38H(b) (“Section 38H(b)”), a statute that authorizes PILOT agreements for any type of energy generation facility, including solar facilities. Prior to passage of the Act, Section 38H(b) had authorized municipalities to enter into PILOT agreements with a “generation company” or “wholesale generation company” and required that PILOT payments be “the equivalent of the property tax obligation based on full and fair cash valuation.”
Section 61 of the Act amends Section 38H(b) to provide that solar facilities are no longer among the “generation facilities” whose PILOT agreements are governed by this statute and provides that solar facilities may instead be the subject of a PILOT agreement under Clause Forty-fifth.
In turn, Section 63 of the Act amends Clause Forty-fifth to provide that a solar facility that is the subject of a PILOT agreement is entitled to a property tax exemption for 20 years (or longer if specified in the PILOT agreement). Under the revised statutory framework, there appears to be no requirement that the counterparty to a PILOT agreement be a generation company or wholesale generation company or any requirement that the agreed payments under the PILOT agreement be the equivalent of what property taxes would be in the absence of such an agreement.
The revised Clause Forty-fifth also provides that, where the system and the underlying land are in common ownership, a PILOT agreement must cover all personal property taxes on the system, all real property taxes attributable to the system, and all taxes associated with the land. Where the system and land are not in common ownership, the statute provides that the PILOT agreement may only cover personal property taxes attributable to the system. The prior statutory framework had language that could be interpreted in that manner but the new framework makes this explicit.
The Act also clarifies that a PILOT agreement can cover solar systems that are co-located with energy storage systems. In addition, there is language in the Act indicating that the legislature intended to clarify the authority for PILOT agreements in the case of standalone energy storage systems, although the language on this point is somewhat opaque and may require some interpretive guidance from the Division of Local Services of the Department of Revenue (“DOR”). It may be helpful to note that, even as amended by the Act, Section 38H(b) does not preclude a PILOT agreement for a standalone energy storage system owned as long as the system qualifies as a “generation facility” and is owned by a “generation company” or “wholesale generation company.”
Changes Applicable to Wind Energy Facilities
While this post is focused on solar facilities, the statutory changes described above relating to the property tax exemption and PILOT agreements also apply to wind energy facilities.
DOR Guidance Required
Section 105 of the Act requires that within 9 months after the effective date of the Act (i.e., by December 26, 2021), DOR, in consultation with the Department of Energy Resources (“DOER”), issue “guidance for municipalities and solar, wind and energy storage system owners that shall include, but not be limited to: (i) assessment of solar, wind and energy storage systems; (ii) standardization of agreement terms; and (iii) where feasible, standardization of tax policy when agreements for payments in lieu of taxes are not in place.” Given the tremendous variety and uncertainty that solar developers currently face in negotiating PILOT agreements and estimating how assessors will approach valuation of solar facilities across dozens of Massachusetts municipalities, there is a big opportunity for DOR and DOER to facilitate appropriate standardization throughout the Commonwealth. There is also a significant risk that guidance could emerge that would make solar development more difficult and imperil the Commonwealth’s ability to meet the greenhouse gas reduction goals set out in the Act. DOR and DOER should develop the required guidance via a transparent process with ample stakeholder input.
Effective Date of Changes
The Act provides that the changes to the Clause Forty-fifth property tax exemption will not take effect until 90 days from the date of the Act’s passage. As the Act was signed into law on March 26, 2021, the 90th day appears to fall on June 24, 2021. The Act also provides that solar facilities without an executed PILOT agreement that were deemed exempt from property tax prior to the effective date of the Act (i.e., March 26, 2021) and that are sized to no more than 150% of the annual load of the property on which they are located will remain exempt. At the same time, there are several provisions of the Act that have a bearing on how the change in law will be implemented, and it is not entirely clear how the amendment will apply to existing facilities that already qualified for the 20-year exemption under the prior version of the statute.
As applied to the changes in law relating to PILOT agreements, the Act’s transition provisions are not particularly clear. Solar developers should take care to obtain appropriate legal advice regarding the potential need to modify any PILOT agreement not fully executed before March 26, 2021.
FURTHER INFORMATION
For further information about these matters, please contact Courtney Feeley Karp at cfeeleykarp@klavenslawgroup.com or 617-502-6284, Jonathan Klavens at jklavens@klavenslawgroup.com or 617-502-6281, or Sarah Matthews at smatthews@klavenslawgroup.com or 617-502-6282.
DISCLAIMER
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