National Grid Improper Charges for Taxes Not Owed Class Action

This class action alleges that National Grid USA Services Co., Inc. and Niagara Mohawk Power Corporation (which does business as National Grid) are undermining the ability of renewable energy companies to compete in providing energy in New York. It claims that, when they charged two renewable energy companies for connections to their grid, they required the two to pay an extra charge for taxes on their payments. The complaint claims that National Grid does not owe and does not pay taxes on the payments because they are not classified as income.

The two plaintiffs bringing this case are renewable energy generators, Sunvestment Energy Group NY 64, LLC and Saranac Lake Community Solar, LLC. National Grid connects them with the existing electrical grid under the New York State Standardized Contract for Interconnection of New Distributed Generation Units (SCI) and afterwards buys energy that they generate.

The renewables companies must pay National Grid for any upgrades or modifications to its grid that are required for their connections. These modifications, such as new power lines or substations, then become the property of National Grid. The connections are called interties.

The complaint alleges that National Grid claims to have to pay taxes on the payments for the interties and so charges the renewables companies a “tax gross-up” or a pass-through tax charge. But the complaint alleges that federal law and IRS Notices show that no tax is owed on these payments, because they are interconnection payments that contribute to National Grid’s capital rather than “contributions in aid of construction” (CIACs).

What’s the difference? CIACs, the complaint alleges, are for interconnections that would be made in order for customers to buy electricity from the grid; they would then be considered advance payments from the customers who would buy the electricity. They would be taxable because they represent future income.

But the renewables companies are not buying electricity to pass on to customers, the complaint alleges; they are selling electricity to National Grid. Because the renewables companies are electricity generators, the complaint alleges, the connection payments fall within a safe harbor defined by the IRS.

In 2013, the complaint alleges, the Edison Electric Institute, an industry association for utilities owned by investors, decided that utilities had to protect themselves from losing their positions. “Specifically,” the complaint alleges, “the Edison Electric Institute suggested that utilities take steps to disincentivize independent generation by imposing greater costs on it.” The complaint alleges that this is what is behind the purported pass-through tax charges assessed by National Grid.

The class for this action is all individuals or entities living or located in New York who entered into SCIs (mandatory standardized form agreements) with Niagara Mohawk, whose projects meet the requirements of the Internal Revenue Service’s (IRS’s) safe harbor, and whom the defendants in this case wrongfully charged a tax gross-up that was not owed.

Article Type: Lawsuit
Topic: News
Tags: Breach of the Covenant of Good Faith and Fair Dealing, Improper Other Tax Charges, Tax Charges, Unjust Enrichment