AcCOUNTing for Renewable Energy Tax and Accounting Issues Financing Wind Power: The Future of Energy July 25-27, 2007 Eldorado Hotel and Spa Santa Fe,

acCOUNTing for Renewable Energy

Tax and Accounting Issues

Financing Wind Power: The Future of EnergyJuly 25-27, 2007

Eldorado Hotel and SpaSanta Fe, NM

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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

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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) [email protected]

Paul S. MazurekManagerNational Renewable EnergyReznick Group, P.C.2002 Summit Blvd.Suite 1000Atlanta, GA 30319(404) [email protected]