IRS Announces Application Procedures for New Clean Renewable Energy Bonds (NCREBs) Volume CapFebruary 23, 2015 – Articles
Congress established the NCREBs program in the Energy Improvement and Extension Act of 2008 to finance qualified renewable energy facilities owned by governmental bodies, public power providers and cooperative electric companies with a national total volume cap of $800 million to be divided evenly among governmental bodies, public power providers and cooperative electric companies. NCREBs are based on the Clean Renewable Energy Bonds program (CREBs) initially created in 2005 and extended in 2006. The American Recovery and Reinvestment Act of 2009 increased the NCREBs volume cap to a total of $2.4 billion, of which there is nearly $1.4 billion unused which includes previously allocated but forfeited amounts that automatically reverted to the Internal Revenue Service (IRS) three years after the initial allocations in October 2009, January 2010 and March 2011. Of the $1.4 billion of unused NCREBs volume cap, approximately $597.13 million is available for projects that will be owned by governmental bodies, $516.57 million is available for projects that will be owned by public power providers and $280.78 million is available for projects that will be owned by cooperative electric companies. IRS Notice 2015-12 provides guidance on certain matters relating to the eligibility for receiving an allocation of volume cap. NCREBs have the following characteristics:
- Authorization: NCREBs may be issued pursuant to section 54C of the Internal Revenue Code of 1986, as amended (the “Code”).
- Qualified Issuers: Qualified issuers of NCREBs include: (a) public power providers; (b) cooperative electric companies; (c) governmental bodies (States or Indian Tribal Governments or any political subdivisions thereof); (d) clean renewable energy bond lenders; and (e) not-for-profit electric utilities that have received loans or loan guarantees under the Rural Electrification Act.
- Qualified Purposes: NCREBs may be issued to finance capital expenditures incurred by governmental bodies, public power providers or cooperative electric companies for one or more “qualified renewable energy facilities”. Qualified renewable energy facilities must be owned by a governmental body, a public power provider or a cooperative electric company, and generally include the following types of facilities operated to produce electricity: (a) Wind facilities; (b) Closed-loop and open-loop biomass facilities; (c) Geothermal and solar energy facilities; (d) Small irrigation power facilities; (e) Landfill gas facilities and trash combustion facilities; (f) Qualified hydroelectric facilities; and (g) Marine and hydrokinetic renewable energy facilities.
- Designation: A qualified issuer must designate its obligations as NCREBs, but such designation cannot exceed the qualified issuer’s NCREB volume cap it has received from the IRS.
- Application: A form of application for an allocation of volume cap is attached to Notice 2015-12 and must be submitted to the IRS. As part of the application process which requires a detailed description of qualified renewable energy facility or facilities constituting the project to be financed by the NCREBs, a qualified issuer (applicant) must provide a certification of an independent, licensed engineer stating (a) that the project will meet the requirements for a qualified renewable energy facility under section 54C(d)(1) of the Code (i.e., a “qualified facility” under section 45(d) of the Code except for Indian coal and refined coal production facilities and without regard to placed in service requirements) and (b) that the project is reasonably expected to produce electricity (a form of the certificate is attached as an exhibit to the application). The application also requires that the qualified issuer certify that it expects to issue its NCREBs before its volume cap expires which is 180 days after receiving the allocation from the IRS. The project financed with NCREBs must comply with the project described in the application, and only “insubstantial deviations," as detailed in Notice 2015-12, or “substantial deviations,” as detailed in Notice 2015-12 that do not change the category of the qualified owner of the project, are permitted provided that certain other conditions are satisfied. Among other requirements the application must identify the (a) expected “qualified owner” (public power provider, a governmental body or a cooperative electric company within the meaning of Code section 54C(d)(2), (3) and (4), respectively); (b) project cost and location; (c) a reasonably detailed description of the plan of financing, including (i) expected amount of NCREBs to be issued; (ii) other expected sources of financing for the project; and (iii) independent third party documentation regarding expected marketability of the NCREBs before the expiration of the volume cap; and (d) the dollar amount of NCREB volume cap requested. The application must state that all required Federal, State and local approvals for the project and the proposed NCREBs, and any other required financing for the project, have either been obtained or the applicant reasonably expects to receive all required approvals in time to permit the issuance of the NCREBs before the expiration of the volume cap. The application must include a certification that the applicant reasonably expects that the proposed bonds will meet the applicable requirements of NCREBs and that the applicant has engaged bond counsel to render an opinion to that effect. The applicant must either (a) certify that no previous forfeitures or expirations of volume cap occurred with respect to volume cap allocated under Notice 2015-12 or (b) identify any allocation of volume cap previously received under Notice 2015-12 and if any portion expired or was forfeited, an explanation of the reasons for such forfeiture or expiration.
- Due Date: For projects to be owned by public power providers, an applicant must submit an application on or before June 3, 2015. There is no deadline for applications for projects to be owned by governmental bodies and cooperative electric companies, but all applications received prior to March 5, 2015 will be treated as being submitted on that date.
- Methodology for Allocating Volume Cap: $516,565,691.35 of volume cap will be allocated among projects that will be owned by public power providers, $597,134,963.60 of volume cap will be allocated among project that will be owned by government bodies and $280,778,469.00 of volume cap will be allocated among projects that will be owned by cooperative electric companies. For qualified projects that will be owned by public power providers, the Secretary of the Treasury will allocate the full amount of volume cap requested, otherwise if the aggregate amount of volume cap requested for all qualified projects to be owned by public power providers exceeds the actual amount of volume cap available, the amount of volume cap allocated to a project for a public power provider will bear the same proportion to the national volume cap allocated to public power providers as the amount of volume cap requested for that project bears to the total amount of volume cap requested for all projects to be owned by public power providers. For qualified projects owned by governmental bodies or cooperative electric companies, the Secretary of the Treasury will allocate volume cap in an amount equal to the amount requested in the application on a first-come, first-served basis by order of submission date provided that such allocation cannot exceed the allocation limitation discussed below. The IRS will send an allocation letter to the applicants receiving volume cap.
- Allocation Limitation: No qualified owner that is a governmental body or cooperative electric company (including any entities that are members of the same controlled group) may receive an aggregate allocation of volume cap greater than the published “volume cap limit” in effect for the period that includes the application submission date. The published “volume cap limit” for any period is the greater of (a) 20% of the amount of available volume cap for projects to be owned by governmental bodies or cooperative electric companies as of the first day of such period; or (b) $40 million. The IRS will update the “volume cap limit” and the available amounts on its website approximately every 60 days until the applicable volume cap is fully allocated.
- Insufficient available volume cap: If an applicant for a project to be owned by a governmental body or cooperative electric company requests volume cap in an amount that is within the published “volume cap limit” but that exceeds the amount of volume cap that is then available for allocation on the submission date due to application activity since the most recent publication of the “volume cap limit," the applicant will have the opportunity to receive an allocation of up to the available volume cap. In such a situation the IRS will notify the applicant and Notice 2015-12 sets forth detailed alternatives including immediate acceptance of the lesser amount of allocation or a delayed acceptance of the allocation for up to 90 days from the submission date to determine if additional volume cap might become available. After the expiration of 90 days the applicant will be given 30 days to notify the IRS if it accepts the available amount, otherwise the application will be considered withdrawn. If the aggregate amount of volume cap requested for all qualified projects to be owned by public power providers exceeds the actual amount of volume cap available for allocation to such projects, each applicant will be notified by the IRS of its pro-rata allocation and given 30 days to notify the IRS whether it will accept or decline the reduced amount. If the applicant does not accept the lesser amount, the application will be treated as withdrawn. If a governmental body, cooperative electric company or public power provider applicant accepts an amount that is less than the amount requested in the application, Notice 2015-12 sets forth required supplemental certifications and information that must be submitted to the IRS.
- Expiration of Allocation: Applicants who receive allocation letters have 180 days from the date of the letter to issue the NCREBs. Allocations for any portion of the NCREBs not issued within the 180-day timeframe will be treated as forfeited and revert to the IRS and will be available for reallocation. The IRS does not expect to grant extensions to the expiration date.
- Forfeitures and Withdrawals: If an applicant determines that it does not intend to use any part of its allocation of volume cap, it must notify the IRS in writing of its intention to forfeit such part of the allocation. The forfeited amount will be available for reallocation. A governmental body or a cooperative electric company that has withdrawn or is deemed to have withdrawn its application or that received an allocation that expired or was forfeited, may file a new application for volume cap, but it will be required to explain why its previous volume cap expired or was forfeited. A public power provider that has withdrawn or is deemed to have withdrawn its application or that received an allocation that expired or was forfeited may not reapply for another allocation pursuant to Notice 2015-12, but must wait for future administrative guidance from the IRS before reapplying for volume cap.
- Information Reporting and Notice of Issuance: The qualified issuer must file IRS Form 8038-TC, subject to updated IRS information reporting forms or procedures, in connection with the issuance of the NCREBs. Within 15 days of NCREBs issuance, the qualified issuer must send the IRS a Notice of Issuance with certain required information. If the IRS has not received a Notice of Issuance within 15 days of the scheduled expiration of an allocation, the IRS may request that the qualified issuer submit the Notice of Issuance or confirm that the allocation was forfeited.
- Reallocations: Allocations that the IRS makes under Notice 2015-12 for projects to be owned by governmental bodies and cooperative electric companies that the qualified issuer forfeits or that otherwise revert to the IRS will be available for reallocation. Allocations under Notice 2015-12 for projects to be owned by public power providers and that the qualified issuer forfeits or that otherwise revert to the IRS are expected to be reallocated as part of an allocation process to be announced by the IRS in future guidance.
If you have questions about New Clean Renewable Energy Bonds, or if you have questions about other tax credit bonds or tax-exempt bonds, please contact your Dinsmore & Shohl public finance attorney.