accounting for renewable energy tax and accounting issues financing wind power: the future of energy...
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acCOUNTing for Renewable Energy
Tax and Accounting Issues
Financing Wind Power: The Future of EnergyJuly 25-27, 2007
Eldorado Hotel and SpaSanta Fe, NM
Reznick Group Building Business Value 2
Reznick Group
Public Accounting, Tax, and Business Advisory Firm
Registered With the PCAOB SEC Practice for Public Companies Atlanta, Austin, Baltimore, Bethesda, Charlotte,
Chicago, Los Angeles, Sacramento
Reznick Group Building Business Value 3
Renewable Energy Related Services
Transaction Advisory Transaction Structuring Project Finance Advisory Due Diligence Compliance Mergers and Acquisitions Implementation
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Renewable Energy Related Services
Project Financial Feasibility Financial Projections and Analysis Investment Plan Development Analysis of Workflow Efficiency and Business
Processes
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Renewable Energy Related Services
Tax Credit Syndication Consulting Evaluation of Equity Investment Proposals Minimize Risk Timely Execution & Close
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What do Investors Want?
Investment that is managed like a publicly traded stock
Stable and predictable benefits stream like a bond
Make money Avoid negative press No surprises
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Benefits for Financial Investor
General business tax credit used to offset tax liability
Accelerated tax depreciation
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Risks
Business Issues/Risks– Wind does not blow– Sale of Electricity - Power Purchase Agreement– Project risk - construction, operations, maintenance,
warranties
Tax Issues/Risks – Partnership formation– Economic substance – Capital account issues related to front-loaded losses
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Financial Investment Structure
General Partner Corp.(Affiliate of Developer)
1%
Corporate Investor(Limited Partner)
99%
Project Partnershi
p(LP or LLC)
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Five Questions every CFO will ask
How do I record the transaction on my books? Will I have to consolidate the business on my
books? What happens when performance varies from
forecast? Do I have any future financial obligations or
risks? Does the structure or operation create tax risk
that impacts my books?
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Five Questions every CFO will ask
How do I record the transaction on my books? Methods of Accounting Equity Method
– Not in control but able to exert significant influence– Hypothetical Liquidation Book Value (HLBV)
Consolidation Method– Investor is the controlling party
Cost Method– No ability to exercise control over operating activities– Investments of more than 3% to 5% are not minor - SEC
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Five Questions every CFO will ask
Will I have to consolidate the business on my books?
Consolidation of Variable Interest Entities (VIE)– Equity at risk is insufficient to self finance activities– Equity holders lack any one of the following:
• Ability to make decisions about activities that significant impact
• Obligation to absorb losses• Residual ownership
– Varying voting rights
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Five Questions every CFO will ask
What happens when performance varies from forecast?
Impairment
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Five Questions every CFO will ask
Do I have any future financial obligations or risks?
Asset Retirement Obligations
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Five Questions every CFO will ask
Does the structure or operation create tax risk that impacts my books?
Accounting for uncertainty in income taxes– Whether transaction will more likely than not succeed
upon IRS audit assuming full knowledge
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To request a copy of Whitepaper: GAAP Considerations for Investing in Wind Power Partnerships
Matt FergusonPrincipal & Practice Leader of National Renewable Energy Reznick Group, P.C.8045 Leesburg PikeSuite 240Vienna, VA 22182(703) 744-7424matt.ferguson@reznickgroup.com
Paul S. MazurekManagerNational Renewable EnergyReznick Group, P.C.2002 Summit Blvd.Suite 1000Atlanta, GA 30319(404) 497-8954paul.mazurek@reznickgroup.com
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