WASHINGTON Rep. Jim McDermott, D-Wash., soon plans to introduce legislation that would remove the cap on clean renewable energy bonds, following the transition of CREBs to a direct-pay system where issuers receive a 70% subsidy from the federal government to help with interest paid to bond holders.
The legislation is currently being drafted with help from the American Public Power Association and other interest groups, and is expected to be introduced as stand-alone legislation instead of as part of a climate change bill, according to McDermotts office.
The cap on CREB issuance is currently $2.4 billion, and the system by which the Treasury Department approves CREB allocations to public power utilities and co-operatives has kept issuers from participating in the program, advocates of the legislation claim.
CREBs allocations are currently made using a small-to-large methodology for electric co-operatives smaller issuances are approved before larger ones and a pro-rata methodology for public power utilities, in which applicants requests can be granted proportionately, meaning approvals can be smaller than requests. That discourages issuers from requesting CREB allocations for larger projects, according to Joe Nipper, senior vice president of government relations for the APPA.
Neither McDermotts office nor APPA have nailed down an estimate on how much bond issuance would increase, or how much it would cost the federal government if the allocations are unlimited. The Joint Committee on Taxation found that $800 million of new CREBs would cost $267 million over 10 years.
The appetite for unlimited CREBs is huge, Nipper said. It vastly exceeds, I can certainly say, the CREBs allocations that are available today, partly because the cost of projects has increased, he said.
The bonds previously were simple tax-credit bonds created by the Energy Policy Act of 2005. Since their creation, CREB issuance has not come close to what was legally available to issuers.
About $800 million was made available in the last round of funding. However, some utilities could have exhausted the entire national allocation on their individual projects, the APPA said.
The funding was boosted by the American Recovery and Reinvestment Act last year, which added $1.6 billion of CREBs divided evenly between public power utilities, rural electric co-operatives, and governments.
In March, the Hiring Incentives to Restore Employment Act allowed issuers to sell direct-pay CREBs, receiving a direct federal subsidy payment equal to 70% of their interest costs. Within a month, Washington states Grant County Public Utility District No. 2 went to market with $90 million of direct-pay CREBs a deal almost as large as the total amount of the energy bonds sold since 2007.
The large proportion of public power utilities in Washington state was partly what encouraged McDermott, who sits on the House Ways and Means Committee, to push for uncapping the CREB program, according to his office.
As of March 1, 2010, we have given $2.6 billion in direct payments through the successful and uncapped 1603 grant program which public power does not qualify for, said Ed Shelleby, a spokesman for McDermott.
As it stands public power has two options: either not invest in renewable infrastructure, or contract with private investors who can take advantage of the 1603 grants, Shelleby said. If public power needs capital to invest in renewable energy projects, Congress ought to provide them a reliable means to do so.
Peter Schroeder contributed to this story.