Lawmakers Probe Tax Incentives Received by Solar-Energy Firms
September 15 2016 - 4:10PM
Dow Jones News
Congressional lawmakers have launched a formal investigation
into whether solar-energy companies improperly received billions of
dollars in tax incentives from the Obama administration.
The Senate Finance Committee and the House Ways and Means
Committee on Wednesday sent letters to seven foreign and domestic
companies in the solar industry, expanding a more limited probe
started earlier this year.
The recipients included three firms in the residential solar
industry, SolarCity Corp., Sunrun Inc. and Sungevity Inc., and four
solar utility companies—SunEdison Inc., Abengoa SA, NextEra Energy
Inc. and NRG Energy Inc.
A spokesman for SolarCity said the "answers to the questions
posed are fairly straightforward, and we will provide them as
requested."
Officials at SunEdison, Abengoa and NRG Energy declined to
comment. NextEra, Sunrun and Sungevity didn't respond to requests
for comment.
Congressional investigators are examining the use of tax
incentives for solar-power companies, third-party financing and how
the companies determine the value of the credits.
The probe is being run by Sen. Orrin Hatch (R., Utah), the
chairman of the Senate Finance Committee, and Rep. Kevin Brady (R.,
Texas), the head of the Ways and Means panel.
Earlier this year, Mr. Hatch began looking into the roughly $25
billion in cash grants that solar and other "green energy" firms
have received during the Obama administration. He concluded that
the Treasury Department and the Internal Revenue Service—which are
also examining the valuations—don't have adequate controls over the
program.
At issue is a Treasury Department policy that gives solar firms
a 30% investment tax credit on the cost of acquiring a system. The
tax credit provides a dollar-for-dollar reduction in income taxes
otherwise owed by a taxpayer; the companies could also opt to get a
grant instead of a credit.
But the 30% calculation isn't always straightforward because of
the economics of the industry. Solar-energy developers don't
necessarily have the income to use the credits or the funds to buy
and install solar energy systems. So they routinely enlist big
investors and transfer the tax benefits. Some also lease systems to
homeowners and businesses.
So there is debate over the fair market value of the solar
energy systems—the price paid by a buyer, whether it is a homeowner
or an institutional investor. Those calculations are made by
independent appraisers, solar firms say, following IRS
guidelines.
Staff at the Senate Finance Committee said the Treasury
Department and the IRS don't have a long-term method for
identifying companies that received the cash grants in the past to
ensure they don't apply for other tax incentives in the future for
the same investments.
The Treasury Department's inspector general had recommended the
creation of such a tracking system. Congressional investigators
found that the IRS had taken some steps toward doing so, but hasn't
put in place a system to track the grant recipients in the long
term.
Some investment tax credits can be carried on a company's books
for decades, so there is a worry that the IRS wouldn't catch
companies that were double dipping in the federal tax
incentives.
A Treasury Department spokeswoman declined to comment, citing
pending litigation.
The Treasury Department in 2012 began asking solar firms for
more information on their calculations about the fair market value
of solar energy systems that have been built, according to public
filings by solar firms. And the IRS has said it was weighing
whether the valuations have been inflated. The inquiries are
ongoing.
"If the Internal Revenue Service or the U.S. Treasury Department
were to object to amounts we have claimed as too high of a fair
market value on such systems, it could have a material adverse
effect on our business, financial condition and prospects," Solar
City wrote in a recent federal financial filing.
The firm has said that its valuations are correct, and even
below Treasury Department guidance about where they should be. But
it has said that its results could be affected if its position is
disputed by a federal audit, the outcome of the Treasury
investigation, or changes in guidelines. This could force them to
reimburse some institutions that buy their tax credits as
investments.
Solar City received about $501.1 million in credits through Dec.
31, 2014, so even a 5% adjustment downward "would obligate us to
repay approximately $25.1 million to our fund investors," the
company wrote.
The green energy tax program was launched in 2009 as part of
President Barack Obama's plan to stimulate the U.S. economy and
promote investments in renewable energy in the aftermath of the
financial crisis.
Write to Brody Mullins at brody.mullins@wsj.com, Ianthe Jeanne
Dugan at ianthe.dugan@wsj.com and Richard Rubin at
richard.rubin@wsj.com
(END) Dow Jones Newswires
September 15, 2016 15:55 ET (19:55 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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