2017 Deloitte Renewable Energy Seminar Innovating for tomorrow November 13-15, 2017

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1 2017 Deloitte Renewable Energy Seminar Innovating for tomorrow November 13-15, 2017

2 Brian Americus, Senior Manager, Deloitte Tax LLP Gary Hecimovich, Partner, Deloitte Tax LLP Navigating DC: Regulatory developments, guidance, and process

3 Contents Introduction Update on recent regulatory guidance White House actions Priority guidance plan IRS guidance projects ITC begun construction ITC regulations Alta Wind 1603 case Energy storage Process for obtaining PLRs Process for commenting on guidance projects Updates and Q&A with Treasury Copyright 2017 Deloitte Development LLC. All rights reserved. 3 X

5 Overview of White House actions impacting the energy industry Presidential Memorandum on Regulatory Freeze Pending Review (January 20, 2017) Freeze on regulations Executive Order on Reducing Regulation and Controlling Regulatory Costs (Signed January 30, 2017) 2 for 1 Executive Order Executive Order on Identifying and Reducing Tax Regulatory Burdens (Signed April 21, 2017) Review of significant tax regulations Executive Order on Promoting Energy Independence and Economic Growth (Signed March 28, 2017) Reduce regulatory burdens Executive Order on Implementing an America-First Offshore Energy Strategy (Signed April 28, 2017) Encourage energy exploration and production Copyright 2017 Deloitte Development LLC. All rights reserved. 5

6 Priority guidance plan for Issued October 20, 2017 Re-aligned with Trump Administration s Objectives Burden Reduction Less Regulation Number of Projects Drastically Reduced Energy Projects Included/Not Included ITC Regulations ITC Begun Construction Notice Section 118 CIAC Notice Copyright 2017 Deloitte Development LLC. All rights reserved. 6

8 Begun construction Current trends and issues related to the beginning of construction for PTC Diligence surrounding M&A of projects and pipelines Transfer rules Physical work of a significant nature Binding written contracts Documentation Work started in a prior year Work by subcontractors Continuity provisions for 2020 projects Offshore wind considerations Solar ITC Begun Construction guidance SEIA meeting with government How will guidance differ from or impact PTC guidance? Timing? Copyright 2017 Deloitte Development LLC. All rights reserved. 8

9 Begun construction Summary of Recommendations for ITC Begun Construction Guidance: Provide a technology-neutral Continuity Safe Harbor that aligns with the statutory placed-in-service deadline; Confirm eligibility of property integral to the qualifying activity and provide examples Clarify the relevant unit of property and adopt a Single Project Election for units of solar energy property under the ITC; Clarify application of Inventory Rule; Provide specific examples of physical work of a significant nature on solar energy property; Adopt 5% Safe Harbor and incorporate a Scale-back Provision in recognition of cost over-runs that commonly occur in the project development process; Clarify requirements to preserve ITC eligibility when a project or solar energy property is transferred; and Provide Excusable Disruptions specific to solar project development. Copyright 2017 Deloitte Development LLC. All rights reserved. 9

10 Wind begun construction guidance after notice with retroactive fix 1/1/2017 1/1/2018 1/1/2019 1/1/2020 1/1/2021 1/1/2022 CY 2017 CY 2018 CY 2019 CY 2020 CY 2021 CY /1/2023 CY /1/2024 Continuity Safe Harbor Satisfied if Placed in Service before 1/1/19 Construction Begins in 2016 Placed in Service within Four Calendar Years 100% PTC Value / 30% ITC Facts & Circumstances Construction Begins in 2017 Placed in Service within Four Calendar Years 80% PTC Value / 24% ITC Construction Begins in 2018 Placed in Service within Four Calendar Years 60% PTC Value / 18% ITC Construction Begins in 2019 Placed in Service within Four Calendar Years 40% PTC Value / 12% ITC Copyright 2017 Deloitte Development LLC. All rights reserved. 10

11 Solar begun construction guidance after notice with retroactive fix 1/1/2019 1/1/2020 1/1/2021 1/1/2022 CY 2019 CY 2020 CY 2021 CY /1/2023 CY /1/2024 Continuity Safe Harbor Satisfied if Placed in Service before 1/1/2022 Construction Begins Before 1/1/ % ITC 10% ITC Construction Begins in % ITC 10% ITC Construction Begins in % ITC 10% ITC Construction Begins in % ITC Value Regardless of Placed-in-Service Date Copyright 2017 Deloitte Development LLC. All rights reserved. 11

12 ITC regulations update Public comment for new regulations on definition of qualifying energy property submitted in February of letters submitted SEIA meeting with government Project removed from skinny Priority Guidance Plan Possibility of PLRs? Notice Issued Comments Due Proposed Regulations Issued Final Regulations Issued October 2, 2015 February 16, 2016 Summer 2017 End of 2018 (optimistic projection) End of (projection) Taxpayers submit comments IRS / Treasury draft proposed regulations 60-day comment period IRS / Treasury review comments and finalize regulations Public hearing held approximately 3 weeks after 60-day comment window Copyright 2017 Deloitte Development LLC. All rights reserved. 12

13 ITC regulations update (cont d) SEIA Comment Letter Re-affirm integral property rule Re-affirm building component rule Re-affirm a storage device is qualifying ITC system property Revise the dual use equipment rule to provide flexibility and certainty to taxpayers Apply integral property and primary use standard to dual function property Clarify technical issues concerning energy property that includes a storage device Copyright 2017 Deloitte Development LLC. All rights reserved. 13

15 Alta Wind 1603 case Basis issue from sale of wind projects via sale leaseback Cash grant requested based on 30% of purchase price allocated to eligible property Treasury reduced grant award to 30% of Alta s cost to build wind projects Court awarded $206 million in damages 20 plaintiffs, 8 complaints Service s expert witness testimony dismissed Appealed to Federal Circuit: Government brief filed in April; Response Brief filed in June; Reply to Response Brief filed in August Potential for settlement? Copyright 2017 Deloitte Development LLC. All rights reserved. 15

16 Alta Wind 1603 case Court rejected government s arguments holding: Section 1060 does not apply No goodwill or going concern value could attach PPAs not separate intangible assets with value independent of tangible property Wind projects had Turn-Key Value No peculiar circumstances indicating inflated purchase prices such as: Unduly manipulating purchase price Entering into separate agreements Causing purchase price to be highly inflated Sale-leaseback NOT per se peculiar circumstances Pro-rata allocations are reasonable Copyright 2017 Deloitte Development LLC. All rights reserved. 16

18 Energy storage Recurring Tax Technical Issues for ITC eligibility Storage eligible? (Integral vs. Functionally Interdependent) Eligibility of Storage Property Added to Existing Energy Project Separate Ownership of Qualifying Energy Generation and Storage Property Dual Use Equipment Rule Compliance Drawing the box to identify relevant property Uncertainty around measurement methodology Storage as part of transmission stage? (see Treas. Reg (d)(3)) Copyright 2017 Deloitte Development LLC. All rights reserved. 18

19 Energy storage and ITC regulations Industry Recommendations (SEIA and ESA) Introduce energy storage technologies and market applications Emphasize regulations should re-affirm positions concerning: Eligibility of energy storage device generally Storage added to existing energy property Separate ownership Residential energy property divided between IRC sections 48 and 25D Proposal for application of Primary Use standard to Dual Use Equipment Copyright 2017 Deloitte Development LLC. All rights reserved. 19

20 Moving ahead in energy storage Options for taxpayers without additional guidance or PLRs Taxpayers should comprehensively document on the front-end relevant eligibility issues, including: Technical configurations Metering for Dual Use Equipment Legal relationships of the parties Do contracts really integrate solar and storage? Utility contracts - control of charging/discharging? Procedures to mitigate risk over recapture period Copyright 2017 Deloitte Development LLC. All rights reserved. 20

22 Private letter rulings What is a private letter ruling (PLR)? Taxpayer specific guidance, non precedential Filing fee Types of issues to be addressed Hypotheticals No rule list (e.g., Begun Construction, Section 48 ITC) Interests of sounds tax administration Process of obtaining a PLR Pre-submission conference Adverse conference Players Timing Copyright 2017 Deloitte Development LLC. All rights reserved. 22

23 Internal Revenue Code Legally binding statute IRS definition of guidance Treasury (tax) Regulations Legally binding interpretation of statute Internal Revenue Bulletin Revenue Ruling Revenue Procedures Notices Announcements Taxpayers can rely on it as authoritative and as precedent because IRS is bound by it Written Determinations Privacy letter ruling Technical advice memoranda Binding on the IRS as to the specific taxpayer and facts and can only be relied on as authoritative and as precedent by addressee taxpayer Other IRS Publication and Information Forms and publications News releases and facts sheets FAQs Online help and resources Videos Source of general information, but taxpayers should not cite to sustain a position as authoritative as a precedent Source: GAO analysis of IRS documents GAO Copyright 2017 Deloitte Development LLC. All rights reserved. Copyright 2017 Deloitte Development LLC. All rights reserved

24 Commenting on guidance What are the different types of guidance? Regulations, Revenue Rulings, Revenue Procedures, Notices, CCAs, GLAMs, TAMs, FAAs, LB&I Directives Ranges of specificity and precedence Types of issues to be addressed Formal requests for industry comments Informal requests for clarification Process of developing guidance Maze of approvals Process of providing input on guidance Players Timing Clearance Chain for IRS Guidance Publication Drafting attorney Branch reviewer Associate Chief Counsel Deputy Chief Counsel (Technical) or Deputy Chief Counsel (Operations), as appropriate Chief Counsel Assistant to the Commissioner Commissioner/Deputy Commissioner for Services and Enforcement Treasury Attorney-Advisor Tax Legislative Counsel, Benefits Tax Counsel, or International Tax Counsel, as appropriate Assistant Secretary (Tax Policy) Copyright 2017 Deloitte Development LLC. All rights reserved. 24

26 Discussion with Treasury Hannah Hawkins, Attorney Advisor, Office of Tax Policy, Department of Treasury Focus on Energy and Excise Taxes Background Updates on Regulatory Guidance Impact of Tax Reform Q&A Copyright 2017 Deloitte Development LLC. All rights reserved. 26

27 This publication contains general information only and is based on the experiences and research of Deloitte practitioners. Deloitte is not, by means of this publication, rendering business, financial, investment, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte, its affiliates, and related entities shall not be responsible for any loss sustained by any person who relies on this publication. About Deloitte Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee ( DTTL ), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as Deloitte Global ) does not provide services to clients. Please see for a detailed description of DTTL and its member firms. Please see for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting. Copyright 2017 Deloitte Development LLC. All rights reserved.

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