WASHINGTON — The climate bill approved by a slim majority in the House late last month, that is currently pending in the Senate, would create an energy administration that could provide credit enhancement for state, local and private entities’ taxable debt obligations.
Provisions in the bill would create a Clean Energy Deployment Administration that would be able to provide credit support to taxable debt obligations sold by state, local and private-sector entities to finance environmental retrofits of buildings or installation of renewable energy generating systems.
Any bonds that the state or the private sector issued would be eligible for the indirect credit support, according to a congressional aide who worked on the legislation. Although the aide said tax-credit clean renewable energy bonds would not generally be eligible, they are considered taxable debt by the Internal Revenue Service.
However, if a CREB issuer partnered with a state government on a project eligible for the credit support, it could receive some assistance, the aide said.
The credit enhancement could take the form of direct loans, letters of credit, loan guarantees, or insurance.
The administration also could buy, sell, or commit to buy or sell debt instruments, including subordinated securities, for the purpose of providing credit support to state, local, and private entities that have taxable debt obligations in their financial portfolios.
The Congressional Budget Office estimated that direct loans or loan guarantees would be provided for about 5% of projected investments, or a total volume of about $50 billion through 2019.
That would be in addition to “tens of billions of dollars authorized to be guaranteed under existing law,” according to the CBO.
The administration would also have the authority to facilitate certain financing deals in tax-equity markets and certain long-term energy purchasing agreements by state, local and non-governmental nonprofit entities.
The bill, sponsored by Rep. Henry A. Waxman, D-Calif., and Rep. Edward Markey, D-Mass., would require utilities to increase the renewable electricity share of their power supply and would establish a system for cap-and-trade, among many other things.
The 1,428-page bill was approved June 26 in the House by a vote of 219 to 212, and was introduced in the Senate on July 7.
The new energy administration would essentially be responsible for making clean-energy projects more attractive to the private sector by partnering with the private capital market “to promote access to affordable financing” for clean-energy technologies, according to the legislation.
The bill also would give the Treasury secretary the ability to issue $7.5 billion of federal “green bonds” at Treasury interest rates.
Reactions from market participants were generally positive, but came with a “wait and see” caveat.
Local governments and market participants said the bill could change substantially as it moves through Senate committees and on to full Senate consideration. The Senate could add regulatory burdens or place caps on the support.
In addition, regulations that are drafted for implementation of the bill’s credit provisions could change how much public power providers and state and local governments could benefit from the indirect credit support, they said.