SECTION 5. APPLICATION

.01 For federal income tax purposes, if an Up-front Payment is made pursuant to an Interconnection Agreement that satisfies all of the conditions of either section 5.02 or 5.03 of this revenue procedure, whichever is applicable, a Utility may treat that Up-front Payment as not being taxable income under § 61 of the Internal Revenue Code when received (the “safe harbor method”). In addition, a Utility that uses the safe harbor method is not entitled to any deduction for its reimbursements of the Up-front Payment. To the extent that FERC Interest is deductible, it must be properly allocated to the periods in which it accrues.

.02 For Interconnection Agreements entered into on or after December 20, 2004: (1) The Interconnection Agreement must entitle the Generator to receive reimbursement of an amount that is not less than the amount of the Up-front Payment;

(2) The Interconnection Agreement must require reimbursement of the Up-front Payment to be made in cash;

(3) The Interconnection Agreement must require that the Utility pay the Generator FERC Interest calculated in accordance with FERC Order No. 2003–B; and

(4) The Interconnection Agreement must require full reimbursement of the Up-front Payment, plus the FERC Interest calculated in accordance with FERC Order No. 2003–B, to be paid to the Generator no later than twenty (20) years after the Commercial Operation Date.

.03 For Interconnection Agreements entered into before December 20, 2004:

(1) Pursuant to the Interconnection Agreement, the Generator either has received, or must be entitled to receive, reimbursement of an amount that is not less than the amount of the Up-front Payment;

(2) The Interconnection Agreement must require reimbursement of the Up-front Payment to be made either in cash, assignable transmission credits, or a combination of both; and

(3) On July 11, 2005, the Utility must reasonably expect that under the terms of the Interconnection Agreement, full reimbursement of the Up-front Payment will be made no later than twenty (20) years after the Commercial Operation Date.