Skip to Content

Qualified Energy Conservation Bonds

QECBs Impacted by Sequestration

OEP would like to share the news that subsidy payments for direct pay Qualified Energy Conservation Bonds (QECBs) processed in fiscal year 2015 (October 1, 2014 – September 30, 2015) will be reduced by 7.3% because of sequestration. The cut was effective as of October 1, 2014 and was confirmed by the Internal Revenue Service on October 9th based on a report from the White House Office of Management and Budget (OMB) issued in March of this year.

The sequestration cut for QECBs subsidies began in March 2013. QECB sequestration was originally set to expire at the end of FY2021 but has since been extended twice, first through FY2023, and, under legislation passed in February 2014, through FY2024.

Payments processed on or after October 1, 2014 and on or before September 30, 2015 will be reduced by the FY2015 sequestration rate of 7.3 percent, irrespective of when the amounts claimed by an issuer on any IRS Form 8038-CP was filed with the IRS. The sequestration reduction rate will be applied unless and until a law is enacted that cancels or otherwise impacts the sequester, at which time the sequestration reduction rate is subject to change.

The IRS has yet to update its website following this announcement but guidance for Fiscal 2015 will be posted at http://www.irs.gov/Tax-Exempt-Bonds

View the full text of the OMB report on the whitehouse.gov site.

Any questions about this may be directed to bond counsel, or to the Office of Energy Programs.

Office of Energy Programs Releases Second Sub-Allocation for Energy Conservation Projects

Through the second RFP process, the QECB program has made the remaining $39 million available for qualifying projects. Entities eligible to participate in the program include all local jurisdictions in Tennessee. Proposals are due September 19, 2014.

Additional information on the QECB program, including questions regarding the proposal process, is available through TDEC’s Office of Energy Programs, at 615-532-0238 or pete.westerholm@tn.gov.

Timeline for Application

  • July 9, 2014 — Guidelines for RFP released
  • September 19, 2014 — Proposals due

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

QECBs are low-interest federal bonds (via subsidy) available for issuance for qualified energy projects for certain energy efficiency, renewable energy, and energy conservation capital projects. Tennessee’s QECB allocation totals $64,676,000. In June and July 2012, as required by Federal law, the State notified Large Local Jurisdictions (LLJs) of the amount of their allocations, which was based on their proportionate populations. The total amount identified for these fifteen cities and counties was approximately $36 million. LLJs choosing not to utilize their initial allocation were asked to reallocate their share to the State. These LLJ reallocations were combined with the State’s original allocation of $28.6 million for a total of $46,542,395. This amount was made available for qualifying projects through the competitive sub-allocation process outlined in this request for proposals. Entities eligible to participate in the program include all local government jurisdictions in Tennessee and public universities. Local governments can issue the bonds on behalf of a private project, with conditions.

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.

September 3-12, 2013

QECB Workshops

OEP conducts four workshops around the State (Nashville, Knoxville, Jackson, Chattanooga), providing overviews and case studies of QECBs.

October 31, 2013

QECB Sub-Allocation RFP Released

Initial Round of Competitive sub-allocation of unused QECBs begins.

January 9, 2014

QECB Webinar

Webinar providing overview of RFP for sub-allocation, including panel of experts on QECBs.

January 31, 2014

Deadline for QECB Sub-Allocation

Proposals for sub-allocation of unused QECBs due.

March 26, 2014

Presentation to TLDA

OEP recommends proposals to Tennessee Local Development Authority; TLDA concurs.

July 9, 2014

QECB Sub-Allocation RFP Released

Second Round of Competitive sub-allocation of unused QECBs begins.

August 1, 2014

Deadline for QECB Sub-Allocation

Proposals for second round of sub-allocation of unused QECBs due.


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

Energy Programs Consortium’s June 2014 QECB Overview

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 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.