5.3. ERMUSR 02-12-2008 - Laserfiche WebLink

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incentives are needed to encourage the construction of these facilities. The federal government has determined that tax policy is a viable mechanism to encourage renewables and provides private developers with the Production Tax Credit (PTC), a federal tax credit for electricity generated from qualifying renewable energy projects. However, investment tax credits made available to privately-owned utilities and energy production companies do not create incentives for the publicly-owned or rural electric cooperative utilities that serve 25 percent of the nation's electricity load. With the passage of Minnesota's aggressive new RES law, federal support for renewable development by Minnesota municipal utilities is more essential than ever before. Clean Renewable Energy Bonds (CREBs). To address this lack of equity, Congress enacted the CREBs program in the Energy Policy Act of 2005 (EPAct 2005). CREBs is a debt instrument which can be offered for qualified renewable facilities under Section 45 of the tax code; the program is administered by the IRS under the supervision of the U.S. Department of Treasury. Investors receive credits against their federal income tax liability instead of the traditional interest that is usually paid by the issuer. The municipal utility or cooperative is liable for the face value of the bond and saves money by owing no interest on the bond. The federal government essentially pays the "interest" in the form of tax credits. The CREBs program will provide public power systems greater certainty and affordability in both planning and investing in renewable resources. However, due to the statutory program cap and the Treasury allocation methodology that selected smallest projects first, the awards for governmental entities were capped at $3.2 million -with the vast majority of funded projects being proposed by non-utility governmental entities such as schools and libraries. Consequently, the program fell short of providing an effective financing tool to utility-scale investments. These problems were corrected, however, when a bipartisan effort in the House, led by Reps. Jim McDermott (D-WA) and Jim Ramstad (R-MN), developed energy tax legislation last year. The measure, which ultimately passed both the House and Senate, proposed a higher $2 billion cap on CREBs and called for the appropriation to be equally divided among three groups (municipal utilities, rural coops, and other governmental bodies). The proposal also included an improved allocation methodology. Unfortunately, like all other energy tax provisions, CREBs was left out of the energy bill. In order to win final passage, the Senate dropped the energy tax title from the Energy Independence and Security Act of 2007. MMUA urges Congress to support the new CREBs program along with production tax credits and investment tax credits for the for-profit utility sector. Renewable Energy Production Incentive (KEPI). The KEPI program was created by the Energy Policy Act of 1992 and reauthorized in 2005. It authorizes the U.S. Department of Energy (DOE) to make direct payments to publicly and cooperatively- owned electric utilities at the rate of 1.5 cent/kWh (indexed for inflation) for electricity generated from solar, wind, and certain geothermal and biomass electric projects. KEPI has been the only incentive available on the federal level for these utilities to make new Minnesota Municipal Utilities Association February 2008