SECTION 4. SAFE HARBOR

.01 Safe harbor . If an ESPC ESA entered into between an ESCO and a FA satisfies all of the requirements of section 4.02 of this revenue procedure, the Service will not challenge the treatment of the ESPC ESA as a service contract under § 7701 (e)(3). .02 Requirements . The ESPC ESA must satisfy the following requirements: (1) Term. The total term of the ESPC ESA cannot exceed 20 years in length. The term must be consistent with and appropriate for the scope and scale of the renewable project. (2) Other Federal guidance . The ESPC ESA must satisfy the requirements of 42 U.S.C § 8287 and OMB Memorandum M–12–21. (3) Operation of Alternative Energy Fa- cility. Under no circumstances will the FA attempt to operate the renewable energy generation asset. In the event of a shutdown or mechanical issue, FA will immediately notify the ESCO or its designated contractor. (4) Risk . The ESCO bears all financial risk for non-performance, except to the extent such non-performance is attributable to a temporary shut-down of the facility for repairs, maintenance, or capital improvements. (5) Reduced Costs. The contract price for electricity will not be reduced if operating costs should diminish. (6) Equipment Purchase. The FA may have the option to purchase, or may be

February 13, 2017 914 Bulletin No. 2017–7

required to purchase, the renewable energy generation asset at the end of the contract term, for its fair market value (FMV) at the time of the purchase.