On September 14, 2016, Senate Finance Committee Chairman Orrin Hatch (R-UT) and House Ways and Means Committee Chairman Kevin Brady (R-TX) issued letters to seven companies requesting information about their financing of solar projects and use of the Section 1603 grant and other federal energy incentives. The letters do not appear to be publicly available through the Committees; however, several news organizations are reporting on the inquiry based on purported copies of the documents they obtained.
News reports say Senator Hatch and Representative Brady sent two different letters on behalf of the Committees. The first seeks information regarding yieldco ownership. This letter requests information concerning the organizational structure of each targeted company (including the ownership of any yieldcos), Section 1603 grant applications filed by the entity or any subsidiary, and whether any subsidiaries are in bankruptcy.
The second letter focuses on residential solar companies. The letter requests information concerning the use of solar energy incentives, financing of solar projects, methods for determining the basis of such solar projects, and use of tax loss insurance.
The news reports, and other Capitol Hill analysts, consider the letters as part of Senator Hatch’s committee’s ongoing investigation into the administration and use of Section 1603 grants. In March 2016, Senator Hatch sent a letter to the Treasury Department and the IRS asking for information about the grant application process and the communication and coordination between the Treasury Department and the IRS regarding the Section 1603 program. The March 2016 letter and a related press release are available here. In June 2016 Senator Hatch followed up with a further request for information. The June 2016 letters and a related press release are available here.
The primary issue addressed by the investigation—valuation in tax equity financings, yieldco transfers, and other related party transactions—is relevant in many solar transactions. It remains to be seen what the practical effect of the investigation will be, and this could depend in part on whether the Republicans retain control of the Senate after the November elections.
For more information, contact Adam Kobos, Roger Reigner, Craig Kline or John Leonti.