ENERGY EFFICIENT

LIGHTING AND INDUSTRIAL ENERGY EXPO

A F O R W A R D T H I N K I N G D I S T R I B U T O R W I T H F R E S H , N E W S O L U T I O N S

ENERGY EFFICIENT TAX AND UTILITY INCENTIVE UPDATES

TAX INCENTIVES OVERVIEW FOR LIGHTING E P A c t , B O N U S D E P R E C I A T I O N A N D 1 7 9 E X P E N S E E L E C T I O N

KEY CONSULTING PRACTICE AREAS Energy Efficiency Consulting Renewable/Alternative Energy Renewable Transportation Sustainability-Related Incentives (Grant Writing & Management)

TAX INCENTIVES OVERVIEW FOR LIGHTING O U R M A S C O T

TAX INCENTIVES OVERVIEW FOR LIGHTING E P A c t , B O N U S D E P R E C I A T I O N A N D 1 7 9 E X P E N S E E L E C T I O N

TAX INCENTIVES OVERVIEW FOR LIGHTING E P A c t , B O N U S D E P R E C I A T I O N A N D 1 7 9 E X P E N S E E L E C T I O N

TAX INCENTIVES OVERVIEW FOR LIGHTING E P A c t , B O N U S D E P R E C I A T I O N A N D 1 7 9 E X P E N S E E L E C T I O N

WELLS FARGO CULTURAL CAMPUS duke energy center

TAX INCENTIVES OVERVIEW FOR LIGHTING E P A c t , B O N U S D E P R E C I A T I O N A N D 1 7 9 E X P E N S E E L E C T I O N

THE TAX EXTENDERS BILL an overview

TAX INCENTIVES OVERVIEW FOR LIGHTING T H E T A X E X T E N D E R S B I L L – A N O V E R V I E W

KEY SUMMARY POINTS H.R. 5771 Signed into Law on 12/16/2014 55 Expired Tax Deductions Renewed for 2014 (only) EPAct and Bonus Dep’n Extended for 2014 Pressure From Industry Groups for 2015 Guidance

TAX INCENTIVES OVERVIEW FOR LIGHTING T H E T A X E X T E N D E R S B I L L – A N O V E R V I E W

KEY SUMMARY POINTS New Extension in Senate Finance Committee Passed in Summer 2015 Same 55 Expired Tax Deductions Renewed for 2015 & 2016 Pressure From Industry Groups for 2015 Guidance Action Expected in 2015 By Congress

TAX INCENTIVES OVERVIEW FOR LIGHTING T H E T A X E X T E N D E R S B I L L – A N O V E R V I E W

WHAT DOES IT ALL MEAN? TAKE A DEEP BREATH AND KEEP THE FAITH Lighting Upgrades and New Commercial Building Construction Projects Are Still Very Good Candidates for these Tax Incentives

TAX INCENTIVES OVERVIEW FOR LIGHTING

E N E R G Y E F F I C I E N T C O M M E R C I A L B U I L D I N G D E D U C T I O N -­‐ S E C T I O N 1 7 9 D / E P A c t

ENERGY EFFICIENT COMMERCIAL BUILDING DEDUCTION SECTION 179D / EPAct

TAX INCENTIVES OVERVIEW FOR LIGHTING

E N E R G Y E F F I C I E N T C O M M E R C I A L B U I L D I N G D E D U C T I O N -­‐ S E C T I O N 1 7 9 D / E P A c t

ENERGY EFFICIENT COMMERCIAL BUILDING DEDUCTION Efficiency Based on 3 Components: Lighting, Mechanical, & Bldng Env Qualifying Bldgs include: Commercial Bldgs, Parking Garages, Agri-Bldgs, Etc. Project Bldgs Must Be Certified by Unrelated Individual Efficiency Based on ASRAE 90.1-2001

TAX INCENTIVES OVERVIEW FOR LIGHTING B O N U S D E P R E C I A T I O N

BONUS DEPRECIATION

TAX INCENTIVES OVERVIEW FOR LIGHTING B O N U S D E P R E C I A T I O N

WHAT IS BONUS DEPRECIATION BONUS DEPRECIATION Allows ‘Acceleration’ of Cost Recovery (Tax Depreciation Expense) for Qualified Assets Used In Business.

(IRS Tax Code §168(k)) Claim Additional (i.e. Bonus) Depreciation In The First Year, Then Depreciate The Remaining Cost Basis of Asset Over Recovery Period of the Asset Class Category.

For 2014 (& 2015-16 When Approved), The Bonus Acceleration Is 50% For Qualified Assets Placed In Service. No Investment limit for bonus depreciation for Qualifying Assets.

Election for Bonus Depreciation is Automatic.

2015 Availability Pending (Currently Regular MACRS).

TAX INCENTIVES OVERVIEW FOR LIGHTING § 1 7 9 E X P E N S E E L E C T I O N

§179 EXPENSE ELECTION

TAX INCENTIVES OVERVIEW FOR LIGHTING § 1 7 9 E X P E N S E E L E C T I O N

WHAT IS THE §179 EXPENSE ELECTION? An Alternative To Bonus Depreciation Incentive Available to Qualifying Taxpayers Allows A Taxpayer To Elect To Deduct The Cost Of Certain Qualifying Property On Their Income Tax Return As An Expense, Rather Than Capitalizing And Depreciating.

For 2014, The Maximum Deduction Amount Available For The Election Is $500,000.

Limitation Of Annually Total Capitalized Asset Purchases Of $2,000,000 Or Less.

2015-16 Availability Pending (Currently $25,000).

TAX INCENTIVES OVERVIEW FOR LIGHTING T H E P A Y O F F – T H E B E N E F I T

OK, FINE .. BUT STILL, WHAT DOES IT ALL MEAN? Distinguish Yourselves with Value Add Services to Encourage Customers to Utilize Tax & Utility Incentives Where Available Shealy & Lucas Tax + Energy Can Assist You With Potential Projects As Far Back As 2006 Upgrades For Qualifying Projects We Welcome the Opportunity to Assist You

TAX INCENTIVES OVERVIEW FOR LIGHTING T H E P A Y O F F – T H E B E N E F I T

3 RECOMMENDED FOCUS GROUPS OF THE CUSTOMER BASE Large Accounts (Top 10, 5, etc.)

Rolling Accounts Targets Currently “On the Fence”

TAX INCENTIVES OVERVIEW FOR LIGHTING Q U E S T I O N S | C O M M E N T S

QUESTIONS, COMMENTS, ANSWERS?

THANK YOU FOR YOUR TIME

C O N T A C T I N F O R M A T I O N F O R A C O P Y O F T O D A Y ’ S P R E S E N T A T I O N :

Randy M. Lucas, CPA Phone: 704.968.5506 randy@lucastaxandenergy.com

UTILITY INCENTIVE UPDATES I N C E N T I V E S … W H Y ?

UTILITY INCENTIVE UPDATES I N C E N T I V E S … W H Y ?

in·∙cen·∙Ove : inˈsen(t)iv A thing that motivates or encourages one to do something A payment or concession to stimulate greater output or investment synonyms: inducement, motivation, motive, reason, stimulus, stimulant, spur, impetus, encouragement, impulse

UTILITY INCENTIVE UPDATES I N C E N T I V E S … W H Y ?

PSYCHOLOGY OF A SALE Customers buy with emotions, justify with logic The more choices someone has, the more regret they have about the choice they made Everyone wants a “good deal” An incentive helps make it “good”

UTILITY INCENTIVE UPDATES I N C E N T I V E S … W H Y ?

REGULATORY GOALS Serving 6 states, Duke Energy agrees to assist consumers in their energy efficiency improvements as part of their rate structure plans.

Regulatory Goals

SUSTAINABILITY We actively share our EE expertise with customers as a long term strategy towards fuel consumption, stricter building codes, emission controls and stewardship of the environment.

COST We According to ACEEE, $1 invested in EE returns up to $4.00 in benefits such as avoided energy and capacity costs

Cost

Sustainability

UTILITY INCENTIVE UPDATES I N C E N T I V E S … W H Y ?

PHRASING THE INCENTIVE “This product is eligible for a duke energy incentive” “This product qualifies for a duke energy incentive which means, it meets all the requirements and quality standards the utility requires for energy efficient equipment”

UTILITY INCENTIVE UPDATES W H Y M E N T I O N D U K E E N E R G Y ?

MARKET RESEARCH REVEALS 78% of our customers have not used, but would use incentives 88% believe Duke Energy is a reliable company 72% believe Duke Energy is a company they can trust

UTILITY INCENTIVE UPDATES I N C E N T I V E S … W H Y ?

COMPETING PRIORITIES

LACK OF STAFF TIME

CHALLENGES PURSUING EE PROJECTS

LACK OF TRUSTED INFORMATION

LACK OF TECHNICAL EXPERTISE

UTILITY INCENTIVE UPDATES L A C K O F S T A F F T I M E

YOU BECOME THE STAFF Provide the expertise Uncover the opportunity & create the need Fill the need and why it is the right decision – emotionally & financially

PRESENT IN THEIR BUSINESS ACUMEN Remember: increase profitability & easier to manage business

UTILITY INCENTIVE UPDATES L A C K O F T E C H N I C A L E X P E R T I S E

LACK OF TECHNICAL EXPERTISE Who are the leaders or peers in their segment, what are they doing and why?

Leary of “new” technologies – what phone do they use and why?

Don’t get in the weeds, if they don’t ask the question

UTILITY INCENTIVE UPDATES L A C K O F T R U S T E D I N F O R M A T I O N

LACK OF TRUSTED INFORMATION Duke’s incentives, energy star, DLC ratings, on-line calculators from the manufacturer…

Recommendations from EIA, BOMA, Energy Star, trade associations Case studies & white papers

UTILITY INCENTIVE UPDATES C O M P E T I N G P R I O R I T I E S

COMPETING PRIORITIES Everybody is busy: ! Hiring, firing, ordering, receiving, marketing, selling, maintenance, accounting – essentially, running the business How can your solution help alleviate some of the above and let them concentrate on growing their business?

UTILITY INCENTIVE UPDATES T H E E N E M Y – 2 Y E A R P A Y B A C K

3%

>4 YEARS 4YEARS

5%

3 YEARS

22%

2 YEARS

34%

1 YEAR

25%

<1YEAR

10% 0%

5%

10%

15%

20%

25%

30%

35%

40%

UTILITY INCENTIVE UPDATES 2 Y E A R P A Y B A C K = 5 0 % R O I

>4 YEARS

3%

< 25% 5% 25%

4YEARS

33%

22%

3 YEARS

50%

2 YEARS

34%

1 YEAR

25%

<1YEAR

10% 0%

5%

10%

15%

20%

25%

30%

35%

40%

UTILITY INCENTIVE UPDATES T H E E N E M Y – 2 Y E A R P A Y B A C K

UTILITY INCENTIVE UPDATES

5 Y E A R D O W J O N E S I N D U S T R I A L A V E R A G E 9 . 6 %

>10 YEARS

9.6%

>4 YEARS

3%

< 25% 5%

4YEARS

25%

33% 50%

22%

3 YEARS

34%

2 YEARS 25%

1 YEAR 10%

<1YEAR 0%

5%

10%

15%

20%

25%

30%

35%

40%

UTILITY INCENTIVE UPDATES I N C E N T I V E S … W H Y ?

HOTEL LOBBY LIGHTING Convert 100 fixtures from 90 watt incandescent to 17 watt LED @ $70 each w/labor = $7,000 investment 8,760 annual burn hours = 63,948 kwh saved = $5,116 annual energy savings

UTILITY INCENTIVE UPDATES I N C E N T I V E S … W H Y ?

TERRIFIC INVESTMENT 73% return on investment Positive cash flow in 16 months!

If you added a $15 per light incentive you get…

UTILITY INCENTIVE UPDATES I N C E N T I V E S … W H Y ?

A REALLY TERRIFIC INVESTMENT 93% return on investment Positive cash flow - 13th month 10 year net present value of $29,717 Equivalent to: 50¢ added to ADR, increased NOI, asset value, etc.

UTILITY INCENTIVE UPDATES O U T D O O R L I G H T I N G

INCENTIVES FOR Parking lot lighting Parking garage lighting Wall packs Bollards Canopy Lighting LED Motion Sensors $ Depends on existing/new product wattage & type

UTILITY INCENTIVE UPDATES I N D O O R L I G H T I N G

INCENTIVES FOR LED ceiling panels - $40 per panel Track lighting - $35 per fixture LED lamps (replacing incandescent) - $10 each LED down lighting - $15 each Track lighting - $35 per fixture (not lamp) High & low bay lighting Motion sensors

UTILITY INCENTIVE UPDATES I N C E N T I V E S … W H Y ?

CUSTOM-­‐TO-­‐GO For non-prescriptive products For small to medium size projects Project has > 1 year simple payback Calculators for: lighting, HVAC, compressed air & vfds

UTILITY INCENTIVE UPDATES I N C E N T I V E S … W H Y ?

5 BENEFIT CATEGORIES Convenience – saves time Adds to profitability Business is easier to manage Refreshed appearance Fun or enjoyment

THANK YOU FOR YOUR TIME

T O D A Y ’ S S P E A K E R A N D P R E S E N T A T I O N W A S F R O M :

Charles Holcomb Energy Efficient Market Segment Manager