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Qualified Energy Conservation Bonds

Requests for Proposal Available for Competitive Sub-Allocation for Energy Saving Capital Projects

Office of Energy Programs announced the release of the state’s Qualified Energy Conservation Bond (QECB) Program’s Request for Proposals (RFP), which will detail how local governments and public universities can apply for low-interest bonds to finance qualified energy saving projects.

Entities eligible to participate in the program include all local government jurisdictions in Tennessee, along with public universities. Local governments can issue the bonds on behalf of a private project, with conditions.

Timeline for Application

  • October 31, 2013 — Guidelines for RFP released
  • January 31, 2014 — Proposals due
  • TBD — Office of Energy Programs recommends QECB allocations to qualified applicants to TLDA

Documents

Introduction

Qualified Energy Conservation Bonds (QECBs) were first authorized by Congress in October 2008. At that time, Congress allowed a maximum of $800 million in QECB volume cap nationwide. In the February 2009 American Recovery and Reinvestment Act (ARRA), Congress increased the volume cap to $3.2 billion.

QECBs may be issued by state, local and tribal governments to finance qualified energy conservation projects. A maximum of 30% of the aggregate bonds may be used to finance private activity projects.

Qualified projects are defined broadly. Examples of qualified projects include energy efficiency capital expenditures in public buildings, green communities, renewable energy production, various research and development, efficiency/energy reduction measures for mass transit, and energy efficiency education campaigns. Note that a "green community program" (Eligible Project Type I.b. below) would not be considered a private activity project. Examples of such a program include loan programs to finance residential and commercial building energy efficiency retrofits and renewable energy systems.

Under Tennessee statute, TDEC's Office of Energy Programs (OEP) serves as the coordinator and administrator of the State’s QECB program, in partnership with the Tennessee Local Development Authority (TLDA). The authority to allocate Tennessee’s QECB capacity is delegated to the TLDA (Tenn. Code Ann. §4-31-102).

QECB Eligible Projects

  1. Capital Expenditures incurred for the purposes of
    1. Reducing energy consumption in publicly-owned buildings by at least 20%
    2. Implementing green community programs (including loans, grants, or other repayment mechanisms)
    3. Rural development involving the production of electricity from renewable energy resources
    4. Any qualified facility [as determined under section 45(d) of the Tax Extenders and Alternative Minimum Tax Relief Act of 2008 without regard to paragraphs 8 and 10 thereof and without regard to any placed in service date]
    5. Demonstration projects designed to promote the commercialization of
      1. Green building technology
      2. Conversion of agricultural waste to fuel
      3. Advanced battery manufacturing technologies
      4. Technologies to reduce peak use of electricity
      5. Technologies for the capture and sequestration of carbon dioxide produced from making electricity
    6. Mass commuting and related facilities that reduce energy consumption and pollution
  2. Research facilities, research grants and supporting research in
    1. Development of cellulosic ethanol or other non-fossil fuels
    2. Capture and sequestration of carbon dioxide produced by fossil fuels
    3. Increasing the efficiency of existing technologies for producing non-fossil fuels
    4. Automobile battery technology or other fossil-fuel reduction technology in transportation
    5. Technologies to reduce energy use in buildings
  3. Public education campaigns to promote energy efficiency

QECB Financing Mechanics

QECBs were originally structured as tax credit bonds. However, the March 2010 HIRE Act (H.R. 2847 (Sec. 301)) changed QECBs from tax credit bonds to direct subsidy bonds similar to Build America Bonds (BABs). The QECB issuer pays the investor a taxable coupon and receives a rebate from the U.S. Treasury. An example diagram of a hypothetical Net Interest Cost transaction is provided below for illustrative purposes.

Formula Allocations to Large Local Governments

Tennessee’s QECB allocation is $64,676,000. Federal statute directs states to allocate a portion of each state’s cumulative allocation to Large Local Jurisdictions/Governments (LLJs) with populations over 100,000. LLJ formula allocations are based on their proportionate populations. For example, if a Tennessee municipality represents 10% of the state’s population, it receives 10% of the State’s bond cap allocation. This formula is illustrated in the table below, which provides respective LLJ populations, the corresponding LLJ percentage of the overall State population, and the corresponding LLJ QECB allocation derived using the LLJ population relative to the state population.

Tennessee Large Local Governments under IRC Section 54D

                     

Entity

 

Gross Pop.

Net Pop.

 

Percentage

 

Allocation

Public Use

Private Use

Memphis

 

 

 

674,028

 

0.1085

 

7,014,356

4,910,049

2,104,307

Metro Nashville

 

 

 

619,026

 

0.0996

 

6,441,971

4,509,380

1,932,591

Knoxville

 

 

 

183,546

 

0.0295

 

1,910,094

1,337,066

573,028

Chattanooga

 

 

 

169,884

 

0.0273

 

1,767,919

1,237,543

530,376

Blount County

 

 

 

119,855

 

0.0193

 

1,247,286

873,100

374,186

Hamilton County

 

330,168

 

160,284

 

0.0258

 

1,668,015

1,167,611

500,405

Knox County

 

423,874

 

240,328

 

0.0387

 

2,501,003

1,750,702

750,301

Clarksville

 

 

 

119,284

 

0.0192

 

1,241,344

868,941

372,403

Rutherford County

 

 

 

241,462

 

0.0389

 

2,512,804

1,758,963

753,841

Shelby County

 

910,100

 

236,072

 

0.038

 

2,456,712

1,719,698

737,014

Sullivan County

 

 

 

153,519

 

0.0247

 

1,597,614

1,118,330

479,284

Sumner County

 

 

 

152,721

 

0.0246

 

1,589,310

1,112,517

476,793

Washington County

 

 

 

116,657

 

0.0188

 

1,214,005

849,804

364,202

Williamson County

 

 

 

166,128

 

0.0267

 

1,728,832

1,210,182

518,650

Wilson County

 

 

 

106,356

 

0.0171

 

1,106,807

774,765

332,042

Large Local
Government Total

 

 

 

 

 

 

 

35,998,072

25,198,650

10,799,422

Amount to be
sub-allocated by State

 

 

 

 

 

 

 

28,677,928

20,074,550

8,603,378

Tennessee total

 

 

 

6,214,888

 

 

 

64,676,000

45,273,200

19,402,800

* LLJ actual population figures were used to arrive at the LLJ allocations noted in this table. The rounded population percentages contained in this table are provided for informational purposes only.

LLJs may issue QECBs themselves or may designate another unit of government, either State or local, to issue bonds from their formula allocation, providing the project financed is fully within the jurisdiction of the LLJ. For example, a county may request a State issuer, such as the TLDA, or an Economic Development Corporation as a conduit issuer, to issue a QECB on behalf of the county. The county may also choose to support a city’s project by allowing the city to issue from the county’s allocation, assuming the city’s project falls completely within the county’s jurisdiction.

In these and similar situations, the LLJ (e.g. the county in the above examples) will be responsible for providing OEP and TLDA with documentation of how they intend to use their formula allocation or allow another issuer within their jurisdiction to use it. Please note that there is no statutory deadline for LLJs to issue QECB at this date; however, Congressional action may be taken to enact such a deadline.

The remainder of the state's total QECB capacity ($28,677,928) is retained by the State. If an LLJ is not able to or chooses not to use its formula allocation, or does not offer it to another issuer within its jurisdiction, its authority may be reallocated to the State for use in the State QECB program.  Such authority may then be sub-allocated by OEP and TLDA. The State QECB sub-allocation program is currently under development.

OEP Oversight of LLJ Formula Allocations

In order to communicate the intent to use formula allocations, OEP requests that LLJs have an official sign the Notice of Intent form and submit it to OEP prior to June 30, 2013. If an LLJ is using the form to reallocate the formula allocation to the State, a letter from the executive or a resolution of the governing body must accompany the Notice of Intent form. The purpose of the Notice of Intent form is to allow OEP and TLDA to determine what amount of the formula allocations will be used by LLJs and what amounts will revert back to the State for use in the State’s QECB program.

In addition, if an LLJ intends to issue QECB from its formula allocation, OEP requests that the LLJ submit a Project Information form at least two weeks prior to QECB issuance. The primary purpose of the Project Information form is to ensure that the 70/30 public-private use limitation requirement is being followed. It will also be used by OEP and TLDA to record the types of projects selected at the local level.

QECB Key Events and Webinars

DATE

EVENT

DETAILS

June 22, 2012

LLJ formula allocations approved by TLDA

LLJ allocations recommended by OEP to TLDA in accordance with IRC Section 54D, as outlined in above table “Formula Allocations to Large Local Governments”

June 26, 2012

Notice of formula allocations provided to LLJs

Letters mailed to LLJs providing notice, along with background materials and resources (available for download on this site).

October 5, 2012

Notice of Intent forms requested by OEP

 

The purpose of the Notice of Intent form is to allow OEP and TLDA to determine what amount of the formula allocations will be used by LLJs and what amounts will revert back to the State for use in the State’s QECB program. In addition, if an LLJ intends to issue QECB from its formula allocation, OEP requests that the LLJ submit a Project Information form at least two weeks prior to QECB issuance. The primary purpose of the Project Information form is to ensure that the 70/30 public-private use limitation requirement is being followed. It will also be used by OEP and TLDA to record the types of projects selected at the local level.

Download the Notice of Intent form here.
Download the Project Information form here.

March 28, 2013

Notice of QECB Intent forms sent to LLJs

Follow up letters sent to the 15 Large Local Jurisdictions to determine intention to participate.

Download the Notice of QECB Intent here.

June 30, 2013

Deadline for QECB Intent

LLJs must indicate their intention to utilize their QECB allocations by this date.

October 2013

QECB Sub-Allocation

Competitive sub-allocation of unused QECBs begins


QECB Forms and Documents

August 16, 2012 Tennessee Qualified Energy Conservation Bonds Information Session- Presentation Slides

Notice of Intent form for Large Local Jurisdiction formula allocations

Project Information form for Large Local Jurisdiction formula allocations

QECB Resources and Background Materials

26 USC § 54A
26 USC § 54D
26 USC § 6431
IRS Notice 2009-29
IRS Notice 2010-35
IRS Notice 2012-44

National Association of State Energy Officials (NASEO) – State Financing Energy Resources

Database on State Incentives for Renewable Energy

OMB report regarding sequestration of Federal funds

Comments or Questions

For questions or more information, contact Pete Westerholm or Katie Southworth of the TDEC's Office of Energy Programs at: 615-741-2994. If you wish to receive periodic program information and updates through OEP's QECB email listserve, please send your contact information and email address to: Pete.Westerholm@tn.gov.