American Public Power Association CREBs and REPI Workshop

1. American Public Power AssociationCREBs and REPI Workshop Arlington, Virginia February 9, 2006

2. Legislative History of Comparable Incentives for Clean Energy for Public Power Joe Nipper Sr. Vice President, Government Relations, APPA APPA CREBs and REPI Workshop February 9, 2006

3. Overview • Background • Energy Policy Act of 1992 • PTC • REPI • Tradable tax credit proposal • Clean (Renewable) Energy Bonds and the Energy Policy Act of 2005

4. Background • Prior to EPAct 1992, Federal electricity policy to protect the environment focused on efficiency and conservation • National Energy Conservation Policy Act (95th Congress; 1978) includes provisions for demonstration of solar and photovoltaic applications at federal buildings • EPAct 1992 was the first law to significantly encourage and incent greater electricity generation from renewable technologies to offset pollution from fossil fuels and to address climate change concerns

5. Energy Policy Act of 1992 • Production Tax Credit (PTC) established. Provides privately-owned developers a 1.5 cents per kwh tax credit for electricity produced from wind and closed loop biomass • Also establishes the Renewable Energy Production Incentive (REPI) program as a comparable incentive for public power and coops. REPI provided a direct payment of 1.5 cents per kwh for electricity generated from solar, wind, biomass or geothermal energy • PTC is continuously available with no limit; REPI is dependent on annual appropriations.

6. Over Time... • The disparity between the two types of incentives grew • The annual budget request for REPI has never exceeded $5 million (usually $4 million), though most years we convinced congress to add $1 – 2 million • Meanwhile, backlogged REPI applications grew significantly with an approximate $80 million shortfall • Also meanwhile, there was a significant increase in the number of privately owned renewable projects receiving the PTC

7. Over Time... (Cont’d) • Thus, in the late 1990’s, it became apparent that REPI, while providing benefits to many public power systems, was not providing our sector overall benefits comparable to what the private sector receives with the PTC • So, we decided to develop “Plan B”

8. Tradable Tax Credits (“Plan B”) • Developed in conjunction with NRECA • Provides public power and coops with a tax credit equal to 1.5 cents per kwh on the output of eligible facilities; the tax credit could be sold, traded, etc. to a tax paying entity • Introduced in the Senate by Sens. Grassley (R-IA) and Baccus (D-MT) • Included in the Senate-passed energy bills in the 107th and 108th Congresses

9. Tradable Tax Credits (Cont’d) • Ultimately failed to garner enough support, and was deleted in conference in the 108th Congress • Opposition to not-for-profit entities receiving tax credits • Opposition to a new mechanism in the tax code

10. CREBs and the Energy Policy Act of 2005 • We went back to the drawing board (with NRECA) and developed the Clean Energy Bond proposal • Modeled on Qualified Zone Academy Bond program using “tax credit” bonds • Existing tax code mechanism • Tax credits go to federal taxpayers • Bonds are instruments familiar to and associated with public power

11. CREBs and EPAct05 (Cont’d) • Clean Energy Bond legislation introduced in 2005 by Sens. Grassley (R-IA) and Baucus (D-MT) • Applicable to renewables and clean coal; no cap • Included in Senate Finance Committee – adopted energy tax package, but capped at $1 billion each for renewables and clean coal • In conference committee negotiations on the final bill, clean coal deleted and renewables capped at $800 million • REPI reauthorization also included in final version of EPAct05