Public power utilities that issue tax-exempt and taxable debt to finance projects would like the massive climate bill pending in Congress to include tax-exempt, as well as taxable, debt in its credit enhancement provisions. The bill, introduced May 15 and co-sponsored by Reps. Henry A. Waxman, D-Calif., and Edward J. Markey, D-Mass., would create a Clean Energy Deployment Administration that could provide credit support to taxable debt obligations sold by state, local, and private-sector entities to finance "clean energy" projects. The credit enhancement could take the form of direct loans, letters of credit, loan guarantees, insurance, or purchases of debt instruments. The bill is pending in the Senate.

The taxable debt obligations covered by the bill's provisions would be eligible for federal credit support if they were issued to "significantly increase the energy efficiency" of buildings or facilities or to "enable the deployment of energy storage applications for electric drive vehicles, stationary applications, and electricity transmission and distribution."

But public power utilities said they would like the provisions to be expanded so that they can fully participate in the credit enhancement program.

"Because the provision is only for taxable debt, and so much of the debt issued by municipalities is tax-exempt, this provision would be much more useful if they expanded it to tax-exempt debt," said Nick Braden, communications director for the American Public Power Association. "However, it is still useful for taxable debt and would be helpful for those issuing Build America Bonds or other taxable debt - though this restriction makes it a pretty narrow benefit."

Taxable bonds issued by public power utilities for renewable energy purposes include BABs as well as clean renewable energy bonds. CREBs comprise a small part of the muni bond market whereas BABs have become increasingly popular since they were created by the new stimulus law earlier this year.

Representatives from individual public power utilities responded to the legislation this week, saying that federal credit enhancement could help them sell taxable debt at more favorable prices than they currently pay when they enter the market. Public power officials were cautiously optimistic, saying that if the federal government took over the role that bond insurers used to play before the credit crisis resulted in insurer downgrades, they could restore the more favorable credit ratings their bonds received when they were insured.

But they questioned how broadly the provisions would apply, noting that it is unclear whether BABs would even qualify for the enhancement program since they are subject to many of the same rules as tax-exempt debt.

Credit enhancement or loans could be helpful for certain types of expenditures that utilities would not normally borrow for, such as making loans to customers for energy efficiency projects or entering into public-private partnerships to meet infrastructure needs, the officials said.

But they were still apprehensive about an overall benefit, since the broad credit and recipient categories could cause the funding to be spread too thinly across the public and private sectors.

The legislation also prompted worries that the federal government is favoring the private sector, which is a long-standing concern for public power when it comes to energy-related incentives from the federal government. Until there are comparable perks for publicly owned utilities, they must continue to partner with private entities and enter into purchase agreements that are financially favorable, one official said.

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