February 2022 - MPL Law Firm

Renewable Energy Update – Congress Moves at a Snail’s Pace

There are currently two pending alternative energy bills in the Pennsylvania legislature. House Bill 2104 (“HB2104”) in the Pennsylvania House of Representatives and Senate Bill 284 (“SB284”) in the Pennsylvania State Senate. Both bills attempt to regulate the decommissioning and/or bonding of alternative energy facilities in Pennsylvania, but both bills have their own unique flavor. HB2104 is more comprehensive, so we will review the specifics of that bill and then discuss how it differs or meshes with SB284.

HOUSE BILL 2104

On November 23, 2021, thirteen Pennsylvania House members introduced HB2104 to regulate the decommissioning of all alternative energy facilities in Pennsylvania. The bill was immediately referred to the House Committee on Environmental Resources and Energy for consideration. This bill is clearly a first draft, with many details to be filled in, as we will discuss.

The bill’s purpose is to provide state-wide standards for the removal (decommissioning) of alternative energy facilities (“AEFs”), defined as solar or wind energy facilities, and the amount, form and timing of financial assurance that must be provided by the owner of an AEF on leased property (referred as a grantee) for decommissioning. The Pennsylvania Department of Environmental Protection (“DEP”) is the agency designated to implement the bill. The bill requires all AEF agreements to provide that the grantee is responsible for decommissioning within 18 months after the AEF has ceased producing electricity, unless actively working to recommence electricity production after a disruption, such as a natural disaster.

The bill requires that a grantee provide a decommissioning plan (“DP”) and proof of financial assurance (e.g. a bond or an escrow account) from a licensed banking institution or credit union. Interestingly, the bill designates each county’s recorder of deeds (Recorder) as the agency with which the DPs and the financial assurances are filed. The decommissioning cost shall be determined by a third-party licensed professional engineer (“PE”), and must be at least $10,000 per megawatt as measured by “nominal nameplate capacity” for an AEF. At least thirty days before construction begins, the grantee must provide the Recorder with the DP and “proof of financial assurance” of 20% of the cost of decommission as determined by the PE. Every five years an updated DP must be filed with the Recorder, along with proof of financial assurance for an additional 20% of the decommissioning cost. Thus, in year five, the financial assurance would be 40%, 60% in year 10, 80% in year 15, and 100% in year 20.

The bill requires DEP to create temporary regulations “in consultation with the AEF industry” creating a provisional form for a decommissioning plan and financial assurance. Per bill, to facilitate prompt implementation, such regulations are temporary regulations, exempt from the usual regulatory review process, specifically the requirements for: public notice; receipt and consideration of public comments; approval of their legality by the Attorney General; and review by the state’s Independent Regulatory Review Commission. In short, the temporary regulations would be adopted by DEP without stakeholder input (except that DEP would “consult with” the AEF industry, but not be bound by their suggestions), or any other review or oversight. Likely, this would limit, if not preclude, challenges to the temporary regulations. The temporary regulations would remain in full force until permanent regulations following all of the required reviews take effect, and there is no timeline for that to happen (the bill says upon approval or two years, “whichever is later”). Thus, if the final regulations take more than two years, then the temporary regulations could go on indefinitely. History does not instill confidence that the state will act within two years.

The DEP forms DPs must include the financial assurance, and (unless the property owner agrees on an “alternative condition for restoring the property”): the removal of all equipment, conduits, structures, fencing and foundations down to at least three feet below grade and graveled areas and access roads (unless the property owner requests that they remain); restoration of the property to a “condition reasonably similar” to the property’s condition before construction, including “the replacement of top soil removed or eroded on previously productive agricultural land”, and the reseeding of “a cleared area” (unless the owner requested not to reseed for agricultural reasons). The DP filed on or before year twenty shall include an estimate of materials that will be salvaged, recycled, refurbished, or disposed of in a landfill (which is capped at 20% of the total combined mass). Most elements of an AEF, except cement support structures, are included in this calculation.

The bill exempts nonutility owners or operators of net metered distributed generation systems with nameplate capacity of not greater than 3,000 kilowatts, and owners or operators of farms who own and operate an AEF on the farm premises, regardless of location or consumption of the energy generated.

Full text of HB2104 can be found here.

SENATE BILL 284

On February 26, 2021, SB284 was referred to the Environmental Resources and Energy Senate Committee.

Definitions on Energy Facilities

The definitions of these terms are important because they dictate the general scope of each bill. HB2104 defines “Alternative Energy Facility” as the development or construction of a facility that utilizes solar energy or wind energy to produce or distribute alternative energy. SB284 defines “Alternative energy production project” in a much broader way. SB284’s definition is far reaching and includes waste coal, alternative fuels, biomass, solar energy, wind energy, geothermal technologies, etc. SB284 attempts to encapsulate the entire renewable energy sector, whereas HB2104 stick to solar and wind energy.

Posting of Bond

Under both of these bills, the energy facility will be responsible for posting a bond. HB2104 wants a decommissioning plan and a proof of financial assurance submitted to the county recorder of deeds office. HB 2104 also states that this must be done no later than 20 days before the commencement of construction. SB284 directs the energy facility to post a bond with the Department of Environmental Protection of the Commonwealth, such bond would be payable to the Commonwealth. SB284 is silent concerning timing. SB284 explicitly states that an energy facility which posts a bond sufficient to comply with the bill’s chapter shall not be required to post a separate bond for the permitted area under any other laws of this Commonwealth. These provisions may not directly conflict with each other, but the language in both of these bills needs to be tightened up.

Amount of Bond

HB2104 simply states that the amount of the bond will be equal to the cost of decommissioning, whereas SB 284 states that this amount may be based on any of the following: 1) potential hazardous liabilities, 2) decommissioning of the permitted area, 3) completing a reclamation plan for the affected site, 4) the proper recycling or disposal of the alternative energy production project and 5) any other factor as determined by the board. SB284 goes on to list even more criteria that may be considered when calculating this amount. To limit an exorbitantly high decommissioning bond, developers would favor the House Bill’s narrow definition of this amount.

Decommissioning

As stated above, HB2104 states that a grantee is generally responsible for decommissioning the grantee’s alternative energy facility no later than 18 months after the facility has ceased production. SB284 is silent on decommissioning, other than mentioning it as a factor to consider when calculating the facility’s bond amount. Developers should welcome standardized decommissioning language as long as it isn’t overly burdensome.

Solar Forced Labor Prevention

HB2104 is silent on this issue. SB284 seeks to create a Solar Forced Labor Prevention List where a solar panel manufacturer may submit an application to be placed on this list. To be included on this list, the applicant must:

“Certify via a signed statement from an executive officer of the applicant that the solar panel manufacturer does not use polysilicon sourced from the Xinjiang Province of Chine or with the use of forced labor from other regions, whether for products shipped to the United States or to any other country where the solar panel manufacturer does business.”

In order to do this, the applicant must meet at least on of the following standards:

1. The Validated Audit Program of the Responsible Business Alliance; or
2. The Electronic Product Environmental Assessment Tool (EPEAT) NSF 457 Sustainability Standard for Photovoltaic Modules and Inverters.

It is important to note that any Commonwealth entity seeking to own, procure, or otherwise participate in a solar project shall comply with these provisions. Additionally, any solar project receiving financial incentives from the Commonwealth shall comply with these provisions. In a competitive market like renewable energy, it would be wise to check if your respective manufacturer would be able to meet these requirements today.

Full text of SB284 can be found here.

Well, Where Does That Leave Us?

Both bills are still stuck in their respective committee. It doesn’t necessarily seem like either bill outright contradicts the other, but it is unclear if any of the gaps in either bills are intentional. If the bills do end up explicitly contradicting each other, they will need to go to a conference committee (temporary committee composed of House and Senate members) to reconcile these differences. We will keep an eye on both of these bills. The standardization of decommissioning and bonding requirements may be a net positive for alternative energy producers if done correctly, but we will have to wait and see.

If you have other specific questions about these renewable energy bills or anything related or unrelated, please don’t hesitate to call (717-845-1524) or email Andy Miller (amiller@mpl-law.com) or Cory Dillinger (cdillinger@mpl-law.com) with any questions or comments.

Visit our attorney profiles to learn more about Cory Dillinger and Andy Miller.

‘Til death do us part….or until I don’t want to work with you anymore…the importance of Buy-Sells.

I got a call earlier this week from a prospective client looking to start a business with a friend. They had a great idea and wanted to work together. After talking about the business and what may be appropriate structures, I asked them the following questions:

What happens if one of you dies?
What happens if one of you becomes incapacitated?
Who makes the decision if you both disagree?
What happens if one of you gets a divorce?
What happens if one of you hates the business?

As I asked these questions, the answer was the same: we are friends and neither of us would do anything to harm the other. Almost universally, across the board, whenever I hear that, I am positive that it won’t play out that way. It’s kind of like, well it is exactly like a marriage that ends in divorce. No one ever gets married thinking that they will eventually get divorced (unless you have an ungodly amount of money and you want to protect it with a prenup).

So, how do you address these matters if you have partners or other shareholders in your business? Well, a buy-sell agreement can certainly help. It will deal with situations like buy-outs, deaths, incapacitations, divorces, and so on. Below are some good articles detailing these critical, but often ignored documents:

Buy-Sell Agreement: What Is It and Do You Need One for Your Business? – NerdWallet
Considerations for Using Buy-Sell Agreements – The CPA Journal
What is a Buy-Sell Agreement and Why Your Small Business Needs One | SCORE
Funded buy-sell agreements bring powerful benefits | Accounting Today

Here are a few other things that may be of interest:

Helpful Coronavirus Resource Pages

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As always, please don’t hesitate to email myself (jsanders@mpl-law.com), Andy Miller (amiller@mpl-law.com), Christian Miller (cmiller@mpl-law.com), Erik Spurlin (espurlin@mpl-law.com) or anyone in our office with questions or comments.

MPL General Counsel Corner – If your BOD is me, myself and I, you may want to think about expanding

Running a business can be one of the most exciting, scary and loneliest things that a person can do. Many fall into the trap of thinking that asking questions of others is a sign of weakness. Moreover, some even think they have all the answers and only rely on themselves and the person they see in the mirror for input.

From my own personal experience, I can share that each of these decision-making approaches led me to the wrong answer more times than not. That is not to say that I did not consider or think about the right decision. However, whenever I relied solely on myself, I usually overanalyzed the situation and missed an opportunity or just made a bad a choice.

After making some my particularly dumb decisions, I finally came to the realization that maybe I should reach out to other people and get some varying perspectives. Surprisingly enough, when I engaged in this process, I made better decisions. It is such a simple concept that is too often ignored.

If this is an approach your considering, I would strongly encourage you to identify and develop your own personal Board of Directors. This can be professional advisors (business attorneys, business accountants, financial advisors), other business owners, mastermind groups (e.g., Vistage), mentoring organizations (e.g., SCORE, SBDC), and so on.

When you talk with them, make sure to remember that you have two ears and one mouth and to use them in proportion. At the end of the day, if your own personal Board of Directors is me, myself and I, you may want to think about expanding it.

Below are some articles that also may help:

Here are a few other things that may be of interest:

Helpful Coronavirus Resource Pages

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Private Equity in 2022 is like Alabama Football – They don’t rebuild, they just reload

I recently attended an M&A networking event. We heard from three private equity professionals about their outlook for 2022. Across the board, it was unanimous that there is plenty of capital to deploy and the funds are on the hunt for investments. It’s kind of like what we hear about Alabama football on a yearly basis, they don’t rebuild, they just reload. I don’t know if this will be the case forever, but it clearly means that the M&A world in the near term is still on the move. I thought it would be good to refresh our note from a few months back.

“Over the last few weeks, I have received repeated inquiries from clients that are looking to invest in manufacturing businesses (not to run them, but to invest in them). Keep in mind, I would consider the people that are reaching out to be in the “sophisticated investor” class. When I ask why manufacturing, their response is that they believe the next wave of capital investment for companies will be an expansion of the domestic footprint because of the supply chain issues.

What does this mean if you are a domestic manufacturing business looking for capital? For starters, there appears to be a lot of interest from third-party investors. What should you be doing right now to position yourself for this trend? Well, your company’s leadership team, your mentors and professional advisors are all good resources to plug in with when developing your plan to raise capital. Below are some talking points/questions and articles to consider:

Talking Points/Questions
- When is the last time you looked at your corporate documents?
- Do you have up to date corporate records?
- How often do you update your financial reports?
- Do you have a good financial forecast?
- If you were to receive $100,000, $1,000,000 or more, what would you do with it?
- If someone gave you capital, what kind of return could you offer them?
- What are the risks of investing in your company?
- Do you want to take on debt or give equity to the third-party investor?
- What do you think your company is currently worth?
Articles
- 9 Factors You Must Weigh Before Raising Capital – Inc.com
- Be Prepared Before Raising Capital – Forbes.com
- Everyone You (Don’t) Want to Know About Raising Capital – HBR.org”

Here are a few other things that may be of interest:

Helpful Coronavirus Resource Pages

Please see all of our prior updates at this link or if you would like to be added to our email list, please click here.

MPL General Counsel Corner – Employees, employees, wherefore art thou employees?

When I owned a business, not in the legal industry, one of the biggest challenges I faced was finding and keeping qualified employees. Today, as many of you know, that challenge still exists and if anything has only amplified. On the low end of the pay scale, you can lose an employee or candidate to as little as a few quarters per hour. On the high end you compete with not only higher salaries, but more comprehensive benefit packages which can be offered by larger organizations. Employees, employees, wherefore art thou employees?

However, putting all that aside, let’s say you are ready to extend an offer to the perfect candidate. How do you hire them? What is the difference between a W-2 employee and a 1099 contractor. If you think you can onboard someone as a 1099 and they are really a W2 employee, you are putting your company at risk if an audit were to occur. On the flipside, if you have a true 1099 contractor and you don’t memorialize that arrangement with certain contractual protections, you are also jeopardizing your firm as well.

I am not trying to dissuade you from bringing more staff on board. Your employees are the lifeblood of your organization. However, some due diligence and thought into your hiring process is needed to protect your company’s interests. Below are some helpful tips to consider when you are on the hunt for additional staff.

Best of luck with this process and don’t forget that your professional advisors, business mentors and existing staff can be some of your best sources for advice.

Here are a few other things that may be of interest:

What is the outlook for Commercial Real Estate (eisneramper.com)
Webinar: Managing, Monetizing & Protecting Your Intellectual Property (Part I) (eisneramper.com) – 02/23/2022 12-1pm
NFIB Guide to Federal Employment Law

Helpful Coronavirus Resource Pages

Please see all of our prior updates at this link or if you would like to be added to our email list, please click here.