Governors, state legislators and officials, and citizens increasingly recognize energy efficiency---the kilowatt-hours and gallons of water or gasoline that we DON'T use, thanks to improved technologies and practices--- as the cheapest, cleanest and quickest energy resource to deploy. (The 2010 State Energy Efficiency Scorecard--ACEEE) States continue to offer substantial financial incentives to help save consumers money, boost local economies by creating jobs, and improve the environment. An increasing number of states are raising energy efficiency budgets and funding levels; adopting energy efficient policies and improving building codes. Utility and public programs; combined heat & power applications, cash incentives, rebates and tax benefits are at an all time high level of availability. All of these contribute to improving the Return on Investment associated with new construction and major renovations. The time has never been more appropriate or more lucrative to incorporate energy efficiency and alternative energy resources into your energy portfolio.

1. “Section 179D – “Fiscal Incentive for
Building Owners in the New
Sustainable Economy”
California Center for Sustainable Energy
May 2011

2. “Section 179D – “Fiscal Incentive for Building
Owners in the New Sustainable Economy”
► Eric Scheidlinger, LEED AP
Manager, Reno Efficient Sustainable Practices (ESP)
► Terry Hudgins, Ernst & Young LLP
Senior Manager, Climate Change and Sustainability Services
Slide 2

3. Disclaimer
► Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited,
each of which is a separate legal entity. Ernst & Young LLP is a client-serving member firm of
Ernst & Young Global Limited located in the US.
► The Ernst & Young organization is divided into five geographic areas and firms may be members of
the following entities: Ernst & Young Americas LLC, Ernst & Young EMEIA Limited, Ernst & Young
Far East Limited and Ernst & Young Oceania Limited. These entities do not provide services to
clients.
► This presentation is © 2011 Ernst & Young LLP. All rights reserved. No part of this document may
be reproduced, transmitted or otherwise distributed in any form or by any means, electronic or
mechanical, including by photocopying, facsimile transmission, recording, rekeying or using any
information storage and retrieval system, without written permission from Ernst & Young LLP.
Any reproduction, transmission or distribution of this form or any of the material herein is prohibited
and is in violation of US and international law. Ernst & Young LLP expressly disclaims any liability in
connection with use of this presentation or its contents by any third party.
► Any US tax advice contained herein was not intended or written to be used, and cannot be used for
the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or
applicable state or local tax law provisions.
► These slides are for educational purposes only and are not intended, and should not be relied
upon,
as accounting advice.
► The views expressed by speakers at this event are not necessarily those of Ernst & Young LLP.
Slide 3

4. Green Building (LEED®)
► LEED is a green building certification.
► The LEED rating system is a voluntary, consensus-
based national standard for high-performance,
sustainable buildings.
► Members of the U.S. Green Building Council (USGBC),
representing all segments of the building industry,
developed LEED and continue to contribute to its
evolution
► The USGBC is not associated with the federal
government and is a non-profit organization
Slide 4

5. Four Levels of LEED®
Slide 5

6. Green Building (LEED®)
► Direct incentives for LEED certification
► Based upon the level (Certified, Silver, Gold, Platinum)
► Based upon the program (EB, NC, CS)
► Indirect incentives for aspects of LEED
► Energy efficiency
► Renewable energy
► Water conservation
► Match incentives to green building attributes.
► Reduce cost of going green!
Slide 6

7. Direct Incentives for LEED Certification
► Various forms: legislation, executive orders, resolutions,
ordinances, policies, and incentives
► 45 states
► 194 localities
► 130 cities
► 36 counties
► 28 towns
► 34 state governments
► 13 federal agencies or departments
► 17 public school jurisdictions
► 39 institutions of higher education
Slide 7

8. Direct Incentives for LEED certification
► Grants/Tax Incentives - States, counties, local jurisdictions
► Property tax credits/exemptions, grants equal to cost of LEED registration
with USGBC, state tax credits
► Virginia, Pennsylvania, Oregon, New York, New Mexico, Maryland, Illinois,
DC, Nevada, Ohio
► Example:
► City of Cincinnati offers property tax abatement for LEED certified
buildings
► 100% property tax abatement for 15 years (new construction) or 12 years
(existing building renovations)
► Owner must enter into an agreement with the local Board of Education
district to pay the board an amount equal to 25% of the avoided property
taxes
Slide 8

9. ACEEE State Energy Efficiency Scorecard
NH
WA 22
6 VT
MN
MT ND 5
10
33 51
OR MN
3 ID 8 MA 2
SD WI NY
26 MI
WY 39 11 4 RI 7
27
48 IA PA CT 8
NE 12 16
NV OH NJ 12
47 IL IN
19 UT 27
10.40 31 WV DE 27
CA 12 CO VA
19 KS KY 43 MD 16
1 MO 34
46 36
43 DC 19
NC
AZ OK TN 35 24
NM 43 AR SC
18
22 41 40
AL GA Ranks 1 - 10
MS
49 37
TX 50 Ranks 11 - 20
LA
32 Ranks 21 - 30
42
HI AK Ranks 31 - 40
12 37 FL
30 Ranks 41 - 51
Slide 9

10. Correlation between electric rates and
incentive programs
NH
WA 14.13
7.24 VT
MN
MT ND 14.13
14.81
8.72 7.28
OR MN
8.13 ID 9.02 MA 16.33
SD WI NY
6.35 MI
WY 8.01 10.26 17.05 RI 14.02
10.72
7.73 IA PA CT 18.67
NE 9.34 10.96
NV OH NJ 14.44
7.52 IL IN
11.82 UT 9.51
10.40 8.12 WV DE 13.17
CA 8.17 CO VA
KS KY 6.63 MD
14.37 9.18 MO 8.72
8.25 7.19 11.77
7.57 DC 11.17
NC
AZ OK TN 7.79 9.35
NM 8.59 AR SC
9.66
9.03 8.73 9.18
AL GA
MS Residential average
9.24 9.07
TX 9.40 price (Cents per KWh)
LA
12.41 6.35 to 8.01
9.38
HI AK FL 8.12 to 9.03
24.13 15.12 11.20 9.07 to 9.66
10.26 to 13.17
Slide 10 14.02 to 24.13

11. Direct Incentives for LEED certification
► Rebates – States, Utilities
► Cash incentives per sq ft LEED certified
► Washington, Nevada, New York, Oregon
► Example:
► Avista Utilities in Washington State LEED Certification Incentive
Program
► $1.25 per conditioned square foot (for LEED certified NC or EB
buildings)
► Must achieve a minimum of 4 points for optimized energy
performance and comply with all LEED whole building modeling
requirements
Slide 11

12. 24 states have Energy Efficiency Resources
Standard (EERS)
Four have pending regulations – four ► OH: 22% energy savings by ‘25; 8% ► DE: cut consumption 15%, peak 10%
have efficiency goals peak by 2018 by 2015
►WA: all cost-effective conservation ► ME: reduce use 30%, peak 100 MW ► PA: cut consumption 3%, peak 4.5%
(~10%) by 2025 by 2010 by 2013
►OR: save 256 aMW 2010-2014 ► VT: 2% annual, 11% cumulative ► MD: reduce electricity use, peak 15%
►CA:
energy reductions by 2011 by 2015
save 1,500 MW, 7,000 GWh;
reduce peak 1,537 MW: 2010-12 ► MA: 2.4% annual electric savings by ► VA: reduce electric use 10% by 2022
►NV:
2012
0.6% annual saving (~5%) to 2015; ► WV: EE & DR earn credits in A&RES
EE to 25% of RPS ► NY: reduce electric use 15% by 2015 ► NC: EE to meet up to 25% of RPS to
►UT: PUC examining 1% energy savings ► CT: 1.5% annual utility savings, 10% 2011
by 2020 peak ► FL: 3.5% cumulative energy savings
►AZ: at least 22% cumulative energy ► RI: cut consumption by 2019
savings by 2010; peak credits 10% by 2022
►NM: 10% electric savings by 2020 ► NJ: Energy Master
►OK:
Plan proceeding
EE up to 25% of renewable goal
►TX: 25% annual savings in 2012; 30%
in 2013 and beyond
►HI: 30% electricity reduction by 2030
►MN: 1.5% annual savings to 2015
►IA: 1.5% annual, 5.4% cumulative
savings by 2010
►WI: task force recommended 2%
annual savings EE as part of an RPS law or rule Voluntary standards or in renewable goal
Slide 12 EERS by regulation or law (stand-alone) EERS regulations pending
►IL: 2% energy reduction, 0.1% peak by
2015
►MI: 1% annual energy savings

13. Indirect Incentives for LEED Certification
► Energy Efficiency - Utilities or State programs
► Based upon technology installed
► Lighting ($ per lamp or fixture)
► HVAC system efficiency ($ per ton)
► Motor efficiency ($ per hp)
► Appliance purchases (Energy Star)
► Roofs with reflective coating or added insulation ($ per sq ft)
► Variable Frequency drive ($ per kW)
► Example:
► APS in Arizona
► Rebates cover up to 90% of the project cost,
► Program pays the rebate directly to the contractor,
► The customer’s return on investment is less than one year for most
projects.
Slide 13

14. Federal tax deduction
► Section 179D – energy-efficient buildings deduction
► $0.30 to $1.80 a square foot of the building up to the total costs of
the energy-efficient property placed in service
► Accelerated depreciation of property that would otherwise be
treated as 39-year property
► Property installed meets energy efficiency targets for:
► Interior lighting systems
► Heating, cooling, ventilation and hot water systems
► Building envelope
► Effective 1 January 2006 through 31 December 2013
► The deduction for a government-owned building can be allocated
to the designer of the building
Slide 14

15. Federal tax deduction
► Government-owned building allocations
► Federal, State, or local government or a political subdivision
thereof
► Able to be allocated a designer
► designer is a person that creates the technical specifications for
installation of energy efficient commercial building property
► A designer may include, for example, an architect, engineer,
contractor, environmental consultant or energy services provider
who creates the technical specifications for a new building or an
addition to an existing building
► Miscellaneous deduction
► Required form, format, assignment letter
Slide 15

16. Section 179D deduction
► The deduction will be allowed to the designer for the
taxable year that includes the date on which the property
is placed in service
► An allocation of the § 179D deduction to the designer of a
government-owned building must be in writing
► The owner has discretion to allocate the deduction among
several designers
► Can take this deduction for years 2006 - 2013
Slide 16

17. Federal Tax Benefits
► Tax deduction equal to the cost of energy efficient building
property
► Maximum amount of $1.80/sq ft
► Part of lighting system, HVAC or building envelope as
defined by ASHRAE 90.1-2001, which is “certified” to
reduce energy costs by 50% or more in comparison to
reference building as defined by ASHRAE 90.1-2001
► Partial deduction of $0.60 per sq ft by meeting 16 2/3%
reductions for lighting, HVAC or envelope systems
seperately
Slide 17
17

18. Brief overview and background of utility
markets
NH
VT
MA
RI
CT
NJ
DE
MD
DC
AS
GU
MP
PR
Meets or exceeds ASHRAE Standard Meets or exceeds ASHRAE Standard State has adopted a new code
90.1- 2007 or equivalent 90.1 - 1999-2001 or equivalent VI
to be effective at a later date
Meets or exceeds ASHRAE Standard No statewide code or precedes ASHRAE
NOTE: These maps reflect only mandatory 90.1 - 2004 or equivalent Standard 90.1 - 1999
statewide codes currently in effect.
Slide 18

19. Benchmark
► ASHRAE 90.1 – 2001 Energy efficiency standard for
commercial buildings
► The standard has “prescriptive” requirements
► This standard is the basis for most building codes
► The 2001 version is older so buildings built to newer
(more stringent) standards have a better chance of
qualifying
Slide 19
19

20. Standards and Codes
► ASHRAE (American Society of Heating Refrigeration and
Air-conditioning Engineers) sets the standards which
become the basis for most building codes
► Building codes define the “worst building that can legally
be built”
► Many buildings use technology to achieve energy
efficiency results above code
Slide 20
20

21. Federal Tax Benefits
► Energy-efficient commercial building property is defined
as depreciable property
► Light fixtures and controls, not light bulbs
► New or replacement HVAC systems and controls
► New buildings or replacements windows, roofs and doors
► Example:
► a building with a total square footage of 100,000 square feet could
have a maximum deduction of approximately $180,000.
► The deduction is allowed in the year in which the property is
placed in service and reduces the basis of the property at issue,
consistent with Section 179D(e).
Slide 21
21

22. Additional Lighting Requirements
Such as ….
► Bilevel switching requirement - defined as manual or
automatic control (or a combination thereof) that provides
two levels of lighting power in a space (not including off)
OR
► Automatic Lighting controls such as occupancy sensors
Screw-in lamps do not qualify, must be fixture changes – real
depreciable property
Slide 22
22

23. Qualifying Pathways
Property Energy Efficiency Benefit
Lighting (Interim Method) 25 – 40% LPD reduction Scaled $0.30 - $0.60 per sq foot
Lighting (Permanent Method ) 16 2/3% energy cost reduction modeled No Scaling – $0.60 per sq ft if target met
HVAC/HW 16 2/3% energy cost reduction modeled No Scaling – $0.60 per sq ft if target met
Building Envelope 16 2/3% energy cost reduction modeled No Scaling – $0.60 per sq ft if target met
Lighting + HVAC/HW 33 1/3% cost reduction modeled No Scaling – $1.20 per sq ft if target met
Lighting + Envelope 30% cost reduction modeled No Scaling – $1.20 per sq ft if target met
HVAC/HW + Envelope 30% cost reduction modeled No Scaling – $1.20 per sq ft if target met
Lighting + HVAC/HW +Envelope 50% cost reduction modeled No Scaling – $1.80 per sq ft if target met
Slide 23

24. Certification Requirements
► Energy modeling
► Model the building with the minimum requirements of
ASHRAE Std 90.1-2001 then compare to actual
installation to calcualte % reduction in energy costs
► 3rd party site inspection
► after the property has been placed in service
► confirming that the building has met, or will meet, the
energy-saving targets contained in the design plans
and specifications
► Letter of certification
► By “an engineer or contractor that is properly licensed
in the jurisdiction in which the building is located”
Slide 24
24

25. Qualifying Pathways
1. Interim Lighting Methodology: 25 – 40% LPD reduction
Scaled benefit $0.30 - $0.60 per sq foot
2. Permanent Lighting: 16 2/3% cost reduction modeled
3. HVAC/HW: 16 2/3% cost reduction modeled
4. Building Envelope: 16 2/3% cost reduction modeled
Options 2-4: No Scaling – benefit is $0.60 per sq ft if target met
5. Lighting + HVAC/HW: 33 1/3% cost reduction modeled
6. Lighting + Envelope: 30% cost reduction modeled
7. HVAC/HW + Envelope: 30% cost reduction modeled
Options 5-7: No Scaling – benefit is $1.20 per sq ft if target met
► All systems: 50% cost reduction modeled, benefit $1.80
Slide 25

26. Best building types
► Parking garages, warehouses, distribution centers or
manufacturing
► WHY – single light fixture type – large spaces
► Significant improvement in high-bay lighting since 2001
► Hospitality
► WHY - Multiples of the same layout
► Transition to CFL’s (ballasted cans)
► Renovations on a regular schedule
► Retail
► WHY – Multiples of a similar design
► Lighting retrofits en mass
Slide 26

27. California example—City of San Diego
Sustainable Building Policy
► New City and major renovations—
► LEED Silver certification +15% better than Title 24
► Qualifies for Savings by Design Program: SDG&E, SCE and
PG&E
► All newly constructed City facilities:
► Minimum 15% self-generation
► Power Purchase Agreement (PPA) takes advantage of federal,
state and any local incentives (Sec 45/48)
► 179D Government Assignment for prime/designer
Slide 27

28. California example—private development
► New and major renovations—
► LEED Silver certification +10% better than Title 24
► Qualifies for Savings by Design Program: SDG&E, SCE and
PG&E
► Stacking Federal, State and Local incentives:
► Federal Section 45/48, 1603 Grant Opportunity for self generation
► Utility Self-generation incentives from fuel-cells (Wal-Mart; Kaiser
Permanente, Safeway)
► 179D deduction for energy efficiency
Slide 28

29. Government projects
► Government contracts
► Energy efficient property must be installed “…on or in property
owned by a Federal, State, or local government or a political
subdivision thereof”
► Able to be allocated a designer
► “designer is a person that creates the technical specifications for
installation of energy efficient commercial building property (or partially
qualifying commercial building property for which a deduction is
allowed under § 179D). A designer may include, for example, an
architect, engineer, contractor, environmental consultant or energy
services provider who creates the technical specifications for a new
building or an addition to an existing building”
Slide 29

30. Government projects
► The deduction will be allowed to the designer for the
taxable year in which the property is placed in service
► An allocation of the § 179D deduction to the designer of a
government-owned building must be in writing
► The owner has discretion to allocate the deduction among
several designers
► Can take this deduction for years 2006 – 2013
► Applies to “…property owned by a Federal, State, or local
government or a political subdivision thereof…”
► Public secondary schools; public or state universities buildings;
airports; stadiums; arenas; city parking garages; corrections
institutions (jails)
Slide 30

31. Questions
Slide 31

32. Thank you
for your participation and feedback!