WASHINGTON — The Internal Revenue Service is seeking applications from issuers for unused volume cap of new clean renewable energy bonds.
The application requirements and volume-cap allocation process are detailed in IRS Notice 2015-12, which was released on Tuesday. Guidance on New CREB reallocations was one of the items on the IRS' and Treasury Department's 2014-2015 priority guidance plan. This is the fourth tax-exempt bond item on the list to be completed.
Public power lobbyists said they were pleased to see the guidance.
"It's good news," said John Godfrey, government relations director for the American Public Power Association. President Obama has said he wants to find ways to boost infrastructure investment, and the guidance shows that the administration has cast a wide net to encourage infrastructure financing, he said.
Susan Collet, president of H Street Capitol Strategies, called the chance to apply for unused New CREB volume cap "a really great opportunity" and said that the bonds are "affordable financing that these projects really do need." Collet lobbied for New CREBs on behalf of the National Rural Electric Cooperative Association and the APPA as the program was being established.
New CREBs can be used as either traditional taxable tax-credit or direct-pay bonds to finance capital expenditures incurred by governmental bodies, public power providers and cooperative electric companies for renewable energy facilities. Governmental bodies include state and local governments and Indian tribal governments.
The Energy Improvement and Extension Act of 2008 provided a volume cap of $800 million for New CREBs, and the American Recovery and Reinvestment Act of 2009 increased the volume cap to $2.4 billion. The total volume cap is to be divided evenly among governmental bodies, public power providers and cooperative electric companies.
The IRS initially allocated the volume cap in October 2009, January 2010 and March 2011. But the agency said issuers had to issue New CREBs within three years of it sending them letters about their allocations. Otherwise, the unused allocations would revert back to the agency. Unused allocations expired and reverted back to the IRS no later than March 4, 2014.
There is nearly $1.4 billion of unused volume cap of New CREBs. Roughly $516.57 million of volume cap is available to be reallocated to projects owned by public power providers, $597.13 million is available for projects owned by governments and $280.78 million is available for projects owned by electric co-ops, according to the notice.
The IRS is seeking applications for New CREB volume cap from qualified issuers, which include public power providers, electric co-ops, governmental bodies, clean renewable energy bond lenders and not-for-profit electric facilities with loans or loan guarantees under the Rural Electrification Act.
The method for allocating the volume cap is different for projects owned by governments and electric co-ops than it is for projects owned by public power providers.
For governmental and electric co-op projects, volume cap will generally be given to the entities in the amount that they requested on a first-come, first-served basis, the IRS said. This method differs from how New CREB volume cap was previously allocated to these types of projects. In the past, New CREB allocations for these entities were given from the smallest project to the largest project.
There will be a maximum amount of volume cap that any governmental or electric co-op owner of a project can receive. Applications for volume cap for projects owned by governments or cooperative electric companies can be submitted beginning March 5, and applications submitted before then will be treated as being filed on that date, the IRS said.
Vicky Tsilas, a partner at Ballard Spahr in Washington and a former Treasury associate tax legislative counsel, said that the change to a first-come, first-serve allocation method mirrors a 2012 notice about tribal economic development bond volume cap allocations.
For public power providers, the IRS will allocate volume cap for projects in the amount requested as long as the total amount requested by all providers is less than the total amount of remaining cap. If the amount requested exceeds the available cap, then projects will get a pro-rata share of the cap, the IRS said. Applications for volume cap for projects owned by public power providers have to be submitted by June 3.
The IRS will send letters to applicants informing them of their allocations, and the applicants will have 180 days from the date of the letter to issue their bonds. Any allocations that are unused after that time will revert back to the IRS and will be available to be reallocated.
Collet said she thinks there will be "a good number of applicants."
Godfrey said that public power providers now have more knowledge of New CREBs and more realistic expectations of what allocations they will get. But because the subsidy payments will be subject to federal spending cuts known as sequestration, the subsidy amounts will be less and the issuers' bond documents will likely include extraordinary redemption provisions, which will increase the cost of borrowing.
Applications should be prepared in substantially the same format as a form that is an appendix to the notice, the IRS said. They should specify the amount of volume cap requested and have to include a description of the project, it said.
The applications need to describe the facilities that would be financed with the bond proceeds, provide a certification that each facility will be a "qualified renewable energy facility" as defined in the tax code, and give the expected dates that construction will start and the facilities will be placed in service. An independent, licensed engineer will need to certify that each facility in a project will meet certain requirements and is reasonably expected to produce electricity once it is placed into service, according to the notice.
Applications have to identify the project's expected owner and need to certify whether the owner is a government, a public power provider or a cooperative electric company. They also need to describe the project's reasonably expected costs, location, and plan of financing, the IRS said.
Additionally, applications will need to state that required governmental approvals for the projects and their financings have been obtained. Alternatively, if required approvals have not been obtained, the applicant will need to certify that it reasonably expects to get all required approvals in time for the bonds to be issued before the volume cap allocation expires. The applicant also must certify that it reasonably expects the proposed bonds will meet federal tax law requirements and that it reasonably expects to issue the proposed bonds before the requested volume cap would expire, the IRS said.
Applications have to be signed and dated by an applicant's authorized official and must designate at least one person with knowledge of the project as a contact person for the IRS. They have to be submitted by hard copy and accompanied by a CD with the application in PDF format. They should be sent to the Internal Revenue Service, SE:T:GE:TEB:CPM, Attention: Kenneth Stengel, 1122 Town & Country Commons, Chesterfield, MO 63017.
