6.1. ERMUSR 03-09-2010 - Laserfiche WebLink

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Background Two federal programs important to Minnesota municipal utilities should be addressed in any energy legislation passed by Congress: Clean Renew- able Energy Bonds (CREBs) and the Renewable Energy Production Incen- tive (KEPI). Relative to other utility programs, both CREBs and KEPI remain small but significant provisions for public power systems around the country. And, as Congress debates the merits of a federal renewable portfolio standard (RPS, or renewable energy standard or RES), CREBs and KEPI will become even more important to municipal utilities, and face a grow- ing demand on their limited federal resources. Minnesota municipal utilities have long embraced the use of renewable generation to meet the electric energy needs of their communities. "They have been motivated by the need to secure wholesale power that will result in reli- able and reasonably priced service to their customers. It was for that reason, more than 50 years ago, that municipal utilities in western Minnesota began making commitments to purchase wholesale power from federal hydro- electric dams at a time when power from conventional sources would have been less expensive and, it seemed, possibly even more reliable. It is with this same sense of responsibility that municipal utilities are approaching the effort to develop wind, solar, and other renewables in order to meet a portion of their electricity needs. In 2007 Minnesota enacted one of the most comprehensive renewable energy standards (RES) in the country. Patterned after a proposal developed by the Minnesota Municipal Utilities Association (MMUA) and passed with the support of utilities and envi- ronmentalists, the new law requires private or investor-owned utilities, generation & transmission coopera- tives and municipal power agencies to produce 7 percent of their electricity from renewable resources by the year 2010,12 percent by 2012,17 percent by 2016, 20 percent by 2020 and 25 percent by 2025. The significant expansion in the construction of renewable generation will be expensive. The total cost for developing all the renewables neces- sary to meet Minnesota's RES, com- bined with the cost of expanding the regional transmission grid to accom- modate new wind generation, could reach $20 billion. Federal investment incentives are needed to buffer the cost of constructing renewable facili- ties.One way to create such a buffer is through the creation of a production tax credit (PTC), the federal tax credit for electricity generated from qualify- ing renewable energy projects. However, production tax credits are available to privately-owned utilities and energy production companies, but not to publicly-owned utilities or rural electric cooperatives, which to- gether serve 25 percent of the nation's electricity load. With the passage of Minnesota's aggressive new RES law, federal support for renewable develop- ment by Minnesota municipal utilities is more essential than ever before. Congressional Action Clean Renewable Energy Bonds (CREBS) To address this lack of equity, Con- gress enacted the CREBs program in the Energy Policy Act of 2005 (EPAct05) for three different groups: municipal electric utilities; rural electric cooperatives; and other gov- ernmental bodies, such as housing or airport authorities, or Indian Tribes. CREBs is a debt instrument which can be offered for qualified renewable facilities under the U. S. tax code; the program is administered by the IRS under the supervision of the Depart- ment of Treasury. Investors receive credits against their federal income tax liability instead of the traditional in- terest 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 inter- est on the bond. The federal govern- ment essentially pays the "interest" in the form of tax credits. The CREBs program provides participants greater certainty and affordability in both planning and investing in renewable resources. After its passage in 2005 CREBs has been extended twice, most recently in last year's Emergency Economic Stabilization Act. That legislation provided $800 million to the program, to be split three ways, which was far Federal Support for Renewable Energy