228 A.3d 328
R.I.2020Background:
- ACP Land and Green Development (petitioners) operate solar/wind facilities that interconnect to National Grid’s (NG) distribution system; NG requires developers to fund interties that become NG property.
- NG treated those developer reimbursements as taxable contributions in aid of construction (CIAC) under 26 U.S.C. § 118 and charged an interconnection tax, passing the cost through to petitioners.
- IRS Notice 88-129 provided a safe harbor exempting certain interties to transmission systems; IRS Notice 2016-36 (2016 Notice) later addressed interties and included a sentence saying distribution interconnections “may” qualify, but its overall text arguably focused on transmission uses.
- NG sought private letter rulings (PLRs); the IRS closed NG’s PLR request and issued the 2016 Notice; NG consulted IRS counsel and obtained an Ernst & Young opinion concluding the 2016 Notice did not clearly extend the safe harbor to distribution interties; a Massachusetts PLR had reached the opposite conclusion pre-Notice.
- The Rhode Island PUC, by 2–1 vote, found NG’s continued collection of the tax reasonable (relying on the Ernst & Young opinion); petitioners sought certiorari to the Rhode Island Supreme Court, which limited review to whether NG’s belief that it owed the tax was reasonable (not the actual federal tax liability).
Issues:
| Issue | Petitioners' Argument | National Grid/PUC Argument | Held |
|---|---|---|---|
| Whether NG was reasonable in believing it owed an interconnection tax and in passing it to developers | 2016 Notice unambiguously extends the safe harbor to distribution interconnections; therefore NG’s charges are unlawful | 2016 Notice is ambiguous overall; reliance on tax advisers, Ernst & Young opinion, IRS contacts, and prior PLRs makes NG’s position reasonable | Court affirms PUC: NG’s belief was reasonable given legal uncertainty; charge upheld |
| Whether NG must refund taxes held in escrow or collected after Dec. 23, 2014, under the settlement proposal | Settlement required refunds once IRS clarified Notice 2016-36, so NG must refund collected taxes | Settlement conditioned refunds on a PUC decision (not IRS clarification); PUC found NG reasonable, so no refund required | Court holds settlement language unambiguous: refund triggered by PUC finding, not IRS action; no refund required |
| Whether the PUC unlawfully failed to hold NG to its burden of proof in imposing the charge | NG failed to prove tax liability; absent certainty, NG cannot impose the charge on developers | Statutory burden cited by petitioners (§ 39-3-12) applies only to proposed rate increases and is inapplicable; NG provided reasonable evidence given IRS uncertainty | Court rejects petitioners’ burden argument: § 39-3-12 not applicable here; NG need not definitively establish federal tax liability to be reasonable |
Key Cases Cited
- Portsmouth Water & Fire Dist. v. Pub. Utils. Comm’n, 150 A.3d 596 (R.I. 2016) (courts give great deference to PUC factual findings and discretion)
- In re Kent Cty. Water Auth. Change Rate Schedules, 996 A.2d 123 (R.I. 2010) (PUC orders must be supported by legal evidence; deference standard)
- In re Providence Water Supply Bd.’s Application to Change Rate Schedules, 989 A.2d 110 (R.I. 2010) (challenging PUC findings faces a difficult burden)
- Pascoag Fire Dist. v. Pub. Utils. Comm’n of R.I., 636 A.2d 689 (R.I. 1994) (same deference applies to mixed questions of law and fact)
- Grasso v. Raimondo, 177 A.3d 482 (R.I. 2018) (statutory provisions must be read in context; cannot isolate single sentences)
- Sophie F. Bronowiski Mulligan Irrevocable Tr. v. Bridges, 44 A.3d 116 (R.I. 2012) (clear and unambiguous contract language controls intent and remedies)