Information on the Renewable Energy Tax Credit (Iowa Code Section 476C) Iowa Utilities Board

Transcription

1 Information on the Renewable Energy Tax Credit (Iowa Code Section 476C) Iowa Utilities Board Description: The Renewable Energy Tax Credit is available for a producer or purchaser of energy from an eligible renewable energy facility approved by the Iowa Utilities Board. A power-purchase agreement is signed between the purchaser and producer which sets forth which party will receive the tax credit. A renewable energy facility includes a wind energy conversion facility, a biogas recovery facility, a biomass conversion facility, a methane gas recovery facility, or a solar energy conversion facility. The facility must be located in Iowa and placed in service between July 1, 2005, and January 1, A producer or purchaser of renewable energy may receive renewable energy tax credit certificates for a 10-year period for each eligible renewable energy facility. Renewable energy tax credit certificates shall not be issued for renewable energy purchased after December 31, Participants in the program receive renewable energy tax credits equal to $0.015 per kilowatt-hour of electricity, or $4.50 per million British thermal units of heat for a commercial purpose, or $4.50 per million British thermal units of methane gas or other biogas used to generate electricity, or $1.44 per one thousand standard cubic feet of hydrogen fuel generated by and purchased from an eligible renewable energy facility. The credit may be claimed against corporate income, individual income, franchise, insurance premium, sales and use, and replacement taxes. Year Enacted: 2005 Effective Date: July 1, 2005 Legislative Act: Senate File 390 Code Citation(s): Section 476C, Section , Section J, Section (16), Section (8), Section E, Section (4), Section 437A.17B Sunset Date: December 31, 2022 Major Provisions: Awarded or Automatic Awarded Transferable Once Refundable No: individual income tax, corporate income tax, franchise tax, insurance premium tax; Yes: Sales tax, utility replacement tax Carry Forward Yes, seven years Benefits (including Return on Investment) and Costs: The tax credit program is in its fourth year of existence. According to the Iowa Department of Revenue, a tax credit program typically needs to be in existence for at least five years before a meaningful return on investment study can be conducted. These studies are normally conducted or overseen by the Iowa Department of Revenue. Accordingly, the Iowa Utilities Board has no information relating to the return on investment for this program. Regarding program benefits and costs based on current facilities: Benefits The Renewable Energy Tax Credit Program has so far contributed to the development of 35.7 MW of wind generation capacity and 17.5 MW of biomass generation capacity. Page 1

2 Costs For the 35.7 MW of wind generation capacity (assumed to generate at a capacity factor of 34%), the potential 10-year cost of renewable energy tax credits is $16,000, For the 17.5 MW of biomass generation capacity (assumed to produce at full capacity), the potential 10-year cost of renewable energy tax credits is $22,995,000 2 Information Currently Disclosed to the Public about the Tax Credit: The Iowa Utilities Board (IUB) has a Web page titled Renewable Energy Tax Credits, with information about the Renewable Energy Tax Credit program under Iowa Code Chapter 476C. 3 The Web page provides: A brief description of the 476C program, with a link to the current version of Iowa Code Chapter 476C; Information about applying for program eligibility, including a link to the Iowa Utilities Board s rules on the eligibility application processes under Iowa Code Chapter 476C (199 IAC 15.19); A link to the IUB s list of applicants with approved eligibility and those awaiting eligibility approval; Information about applying for the renewable energy tax credits, including a link to the IUB s rules on the tax credit application process under Iowa Code Chapter 476C (199 IAC 15.21). Oversight Responsibility and Description of Oversight/Regulation Process: Department of Revenue and Iowa Utilities Board. Iowa Utilities Board (IUB) staff conducts two separate reviews for the Renewable Energy Tax Credit program under Iowa Code chapter 476C. First, IUB staff reviews applications for program eligibility, based on the specific criteria set forth in the IUB s rules (199 IAC 15.19). Eligibility applications are processed in the order received. If the application and proposed facility meet the eligibility criteria, the applicant is notified of eligibility approval and provided additional information regarding statutory deadlines for facility completion. If an eligibility application is filed, but the program has reached its statutory capacity limit, the applicant is notified and placed on a waiting list. After the facility becomes operational and files an application for the wind or renewable energy tax credit, IUB staff reviews those applications, based on the specific criteria set forth in the IUB s rules (199 IAC 15.21). Following this review, staff prepares a memorandum for the Department of Revenue regarding: 1) the completeness of the application; 2) the facility s eligibility status; and 3) whether the reported energy production and sales seem accurate and eligible for tax credits. IUB staff then forwards the application and memorandum to the Department of Revenue for final processing. Once the application and IUB memorandum are submitted to the Department of Revenue, the IUB s involvement with the application ends, unless there are follow-up questions from the Department of Revenue. The Department of Revenue is responsible for determining tax credit amounts and issuing the tax credit certificates. A detailed description of the IUB s program eligibility and tax credit application processes is provided in Appendix A attached to this report 1 The calculation for the $16,000,000 is: 35.7 MW * 1,000 kw per MW * 8760 hours per year * 34% estimated generation capacity factor * $0.015 tax credit per kwh * 10 years of tax credit eligibility. 2 The calculation for the $22,995,000 is: 17.5 MW * 1,000 kw per MW * 8760 hours per year * $0.015 tax credit per kwh * 10 years of tax credit eligibility. 3 Page 2

3 Recommendation(s): None at this time. Award Details by Award Year (Source: Department of Revenue): Table 1. Renewable Energy Tax Credit Award Details Table Award Year Number Average Minimum Maximum Total $67,859 $12,853 $363,870 $1,492, $102,808 $6,237 $503,982 $2,570,197 Claims Tables by Tax Type for 2006 and 2007 Tax Years (Source: Department of Revenue): Table 2. Renewable EnergyTax Credit Claim Table for Tax Year 2006 Tax Type Number of Taxpayers Amount Carried Forward from Previous Tax Year Amount of New Tax Credits for Current Tax Year Total Amount of Tax Credits for Current Year Amount of Tax Credits Applied in Current Tax Year Amount of Expired Tax Credits Amount of Tax Credits Carried Forward to Next Tax Year Corporate Income Tax 2 $0 $960,970 $960,970 $960,970 $0 $0 Individual Income Tax 4 $0 $0 $0 $10,148 $0 $0 Total 6 $0 $960,970 $960,970 $971,118 $0 $0 Table 3. Renewable Energy Tax Credit Claim Table for Tax Year 2007 Tax Type Number of Taxpayers Amount Carried Forward from Previous Tax Year Amount of New Tax Credits for Current Tax Year Total Amount of Tax Credits for Current Year Amount of Tax Credits Applied in Current Tax Year Amount of Expired Tax Credits Amount of Tax Credits Carried Forward to Next Tax Year Corporate Income Tax 1 $0 $214,878 $214,878 $214,878 $0 $0 Franchise Tax 1 $0 $210,170 $210,170 $210,170 $0 $0 Individual Income Tax 12 $0 $2,862 $2,862 $17,297 $0 $535 Total 14 $0 $427,910 $427,910 $442,345 $0 $535 Historic Claims Table by Fiscal Year (Source: Department of Revenue): Table 4. Renewable Energy Tax Credit Historic Claims by Fiscal Year Fiscal Year Total 2007 $10, $264, $1,598,719 Page 3

4 Expected Future Claims by Fiscal Year (Source: Department of Revenue): Table 5. Renewable Energy Tax Credit Expected Claims by Fiscal Year Fiscal Year Total 2010 $3,886, $8,875, $9,579, $9,579, $9,579,166 Estimated Timing of Claims and Impact of Potential Law Change (Source: Department of Revenue): Award year claims are translated into fiscal year liabilities based on the timing of claims observed since tax year 2007 using data collected from the IA 148 Tax Credits Schedule which is filed with tax returns claiming tax credits. Claims are made in the same fiscal year of the award and several subsequent fiscal years because the credit is non-refundable and the seven year carry forward. In addition, the credits can be transferred or issued to fiscal year filers that may delay claims to a later fiscal year. Current estimates suggest 24 percent of claims for this credit are made in the same fiscal year as the award year, and 62 percent are made in the following fiscal year. The remainder of claims are assumed to be made within a four year window from the award year, with those claims equally distributed across years three and four at 7 percent. These numbers will change as more claims data becomes available. Therefore, 24 percent of the estimated fiscal impact of any legislative change to this credit for tax year 2010 will be attributed to fiscal year 2010, and 62 percent will be attributed to fiscal year Page 4

5 Appendix A Iowa Utilities Board (IUB) Staff Report: Program Eligibility and Tax Credit Application Processes for Wind Energy Tax Credit Program (Iowa Code 476B) and Renewable Energy Tax Credit Program (Iowa Code 476C) I. Background On June 15 and 16, 2005, the Governor signed two legislative acts identified as Senate File 390 and House File 882, which allowed state tax credits for the sale of wind energy and renewable energy. These statutes assigned the Board responsibilities for: 1) determining whether facilities were eligible for the wind and renewable energy tax credit programs, and 2) accepting and reviewing the tax credit applications and forwarding them to the Department of Revenue. On June 20, 2005, the Iowa Utilities Board (Board) issued an Order Adopting Rules without Public Notice and Participation and Providing for Immediate Effective Date in Docket No. RMU-05-7, and commenced a rule making in Docket No. RMU-05-8 to implement the same provisions on a permanent basis. The permanent rules, adopted January 26, 2006, set forth the processes and requirements for determining eligibility for the wind and renewable energy tax credit programs. 4 On November 22, 2006, the Board adopted rules In Docket No. RMU-06-7 addressing the Board s second responsibility, accepting and reviewing the applications for tax credits and forwarding the applications to the Department of Revenue for final processing. 5 Since then, the Board has revised its eligibility and tax credit application rules in Docket No. RMU-08-4 based on statutory changes to the wind energy tax credit program; 6 and in Docket No. RMU based on further statutory changes to both the wind and renewable energy tax credit programs. 7 4 Specifically, eligibility for the wind energy tax credit program under Iowa Code 476B (199 IAC 15.18) and the renewable energy tax credit program under Iowa Code 476C (199 IAC 15.19). 5 Specifically, the applications for wind energy tax credits under Iowa Code chapter 476B (199 IAC 15.20) and renewable energy tax credits under Iowa Code chapter 476C (199 IAC 15.21). The rule making also amended program eligibility requirements based on statutory changes to Iowa Code chapters 476B and 476C (Senate File 2399). 6 Specifically, changes to 199 IAC and 199 IAC based on statutory changes to Iowa Code chapter 476B (Senate File 2405). 7 Specifically, changes to 199 IAC and 199 IAC based on statutory changes to Iowa Code chapter 476B, and changes to 199 IAC and 199 IAC based on statutory changes to Iowa Code chapter 476C (Senate File 456). Appendix Page 1

6 II. Eligibility Application Review Process Board staff follows generally the same procedure for reviewing 476B and 476C eligibility applications, although the review for 476B eligibility is based on the specific criteria of 199 IAC and the review for 476C eligibility is based on the specific criteria of 199 IAC Following is a description of the eligibility review process. The process is also shown in flow chart form in Attachment A. 1. Applicants file eligibility applications based on the criteria specified in 199 IAC and 199 IAC Staff places applicants on the appropriate list of active applications, which is viewable from the Board s web site. 3. If program capacity is available and the application meets all eligibility criteria, staff writes a gray memo to the Board recommending approval. The applicant is then sent a letter, signed by the Board s Executive Secretary, which states the applicant s facility is an eligible wind or renewable energy facility, reminds them of their statutory operational deadline, and asks them to notify the Board of any changes in their application. The lists of active applications are updated as needed, showing applicants status, operational deadlines, and overall program capacity availability. 4. If program capacity is available, but staff determines the application is incomplete, the applicant is sent a letter, signed by the Board s Executive Secretary, outlining the application s deficiencies. The applicant is given 30 days to comply with the Board s request for additional information. If the additional information is received within the 30-day time limit, staff recommends eligibility approval as described above in Item 3. If the additional information is not received within the 30-day time limit, the applicant is sent a letter stating their application has been removed from the list of active applications for failure to provide the additional information in the time allowed. 5. If program eligibility has reached its statutory capacity limit, staff sends a letter to the applicant stating the application will be placed on the waiting list and reviewed when additional program capacity becomes available. The Board s web page for Renewable Energy Tax Credits includes links to Iowa Code 476B and 476C, the eligibility and tax credit application rules related to 476B and 476C, and a link to the lists of active applications (which includes the waiting lists of excess applications) for each tax credit program. (See: The web page is updated as needed to reflect statutory or rule changes, and changes is the lists of active applications (including changes in the status of applications). Appendix Page 2

7 The following table shows a summary of the eligibility applications for the Wind and Renewable Energy tax credit programs: Eligibility Application Summary (2005 to present) 476B 476C Wind 476C Other 476C Heat for Commercial Purpose Total # of Applicants # of Active Applicants Total Eligible Capacity 150 MW 330 MW 20 MW 167 Billion BTU Total Capacity of Active Applications 25.5 MW MW 27.8 MW 165 Billion BTU Approved Capacity 25.5 MW MW 17.5 MW 165 Billion BTU Remaining Capacity MW MW None 2 Billion BTU All eligibility applicants follow the Board s Records and Information Center s (Records Center) filing requirements when filing their initial application or supplemental information. Board staff maintains a complete record of all correspondence with applicants related to their applications, including letters sent and any additional information filed, and all memos to the Board related to the applications. If an applicant or potential applicant requests Board direction that requires an interpretation of Board rules, staff encourages the applicant to request a Declaratory Ruling pursuant to 199 IAC 4. III. Tax Credit Application Review Process Board staff follows generally the same procedure for reviewing 476B and 476C tax credit applications, although the review for 476B tax credits is based on the specific criteria of 199 IAC and the review for 476C tax credits is based on the specific criteria of 199 IAC Following is a description of the process for reviewing tax credit applications. The process is also shown in flow chart form in Attachment B. 1. Applicants file tax credit applications based on the criteria specified in 199 IAC and 199 IAC The tax credit applications are filed as confidential. 2. Staff reviews the tax credit application for completeness and clarity based on the criteria of 199 IAC and 199 IAC 15.21, and checks for consistency with the applicant s eligibility application. 3. Staff submits a memo to the Department of Revenue reviewing the tax credit application according to the rule criteria, noting the areas that are complete, and areas that are not complete or not clear. Staff also confirms the facility s eligibility status. Staff concludes with a calculation of the potential tax credit amount based on the information in the application Appendix Page 3

8 hypothetical example of a staff memo submitted to the Department of Revenue is provided in Attachment C. A redacted version of a staff memo submitted to the Department of Revenue as Attachment D. 4. In order to maintain confidentiality, the memos are hand delivered to the Department of Revenue along with a copy of the tax credit application. Department of Revenue date-stamps a copy of the memo and first page of the tax credit application at the time of delivery, which is kept with the Board s records. 5. The Department of Revenue reviews staff s memo. If there are no followup questions from Revenue, the Board s involvement with the tax credit application ends. 6. If the Department of Revenue has follow-up questions that staff is unable to answer satisfactorily, the Department of Revenue may request additional information from the applicant. 7. The Department of Revenue may request that Board staff review the additional information from the applicant. Staff reviews and submits a written opinion on the additional information and the process returns to Item 5 above. The Board memo submitted to the Department of Revenue is based on the rules in 199 IAC and 199 IAC Specifically, The board will forward the tax credit application to the department of revenue for review and processing. Along with each forwarded application, the board will provide staff analysis and opinion regarding: (1) The completeness of the application; (2) The facility s eligibility status under 199 IAC (476B); and (3) Whether the reported kilowatt-hours of electricity generated by the facility and sold or used by the owner for onsite consumption during the tax year seem accurate and eligible for wind energy tax credits. 8 The corresponding rule for 199 IAC 15.21(1) b (3) is slightly different stating, Whether the reported kilowatt-hours, standard cubic feet of hydrogen fuel, British thermal units of methane gas or other biogas used to generate electricity, or British thermal units of heat for a commercial purpose generated by and purchased from the facility during the tax year seem accurate and eligible for wind energy tax credits. The following table provides a summary of tax credit applications received for the Wind and Renewable Energy tax credit programs: IAC 15.20(1) b Appendix Page 4

9 Tax Credit Application Summary Potential Tax Credit 9 Actual Tax Credit B Wind Energy $0 $0 $0 $0 476C Renewable Energy $1,495,500 $2,511,635 to $2,572,196 $1,492,898 $2,107,818 Tax credit applicants file their applications with the Records Center as confidential filings. Board staff maintains a complete record of all correspondence with the Department of Revenue related to each application, including the initial memo and any additional information requested by Revenue. IV. What Staff s Review Process Does Not Include The eligibility application review processes for 476B and 476C have different requirements. Under 476B, the underlying equity ownership of the facility s owners must be determined, to ensure that the equity owners do not own more than two eligible facilities. However, 476C does not require the Board determine the facility s underlying equity ownership. Therefore, staff s 476C eligibility review process does not include any review or inquiry regarding the equity ownership of the ownership entities listed in the application. 11 Staff has included the Board s Order Adopting Rule Making in Docket No. RMU-05-8, issued January 26, 2006 as Attachment E. Staff s tax credit application review process does not include a physical audit of the wind or renewable energy facilities, nor does it include verifying with the power purchaser the sales invoices submitted as part of the tax credit application. Staff s review relies on the attestation of the applicant that the documentation filed with the tax credit application is accurate, and that the facility described in the application is operating and producing electricity/energy as stated. Finally, it should be noted that the Board does not issue the tax credit certificates, but rather provides an opinion to the Department of Revenue as to the completeness of the tax credit applications. The Department of Revenue issues, tracks, and retires the tax credit certificates. 9 Based on information in the tax credit application as filed with the Iowa Utilities Board. 10 Iowa Department of Revenue, Tax Credit Contingent Liabilities Report, August 14, The reasoning for this policy difference is explained in the Board s Order Adopting Rule Making in Docket No. RMU-05-8, issued January 26, 2006, at pages 9-11 and Appendix Page 5

10 476B and 476C Eligibility Application Process (Attachment A) Applicants file eligibility applications based on the criteria in 199 IAC and Application placed on the appropriate list of active applications, which is viewable on the Board s Web site Is capacity available within the appropriate program eligibility limits? (476B or 476C) Yes Grey Memo to the Board recommending approval. Eligibility approval letter sent to applicant. Is application complete? No Yes Letter requesting additional information sent to applicant given 30 days to comply. No Applicant is sent a letter stating there is currently no available capacity within program eligibility limits, and that the application has been placed on the waiting list. The application will be reviewed in the order it was received when program capacity becomes available. Information received within 30-day time limit? Yes No Appendix Page 6 Applicant sent letter removing them from the list of active applications.

11 Iowa Utilities Board s 476B and 476C Tax Credit Application Process (Attachment B) Applicants file tax credit applications based on the criteria in 199 IAC and Board staff reviews tax credit application for completeness based on 199 IAC and and consistency with eligibility application. Board staff writes memo to the Department of Revenue noting areas that are complete and pointing out any areas that are not complete or not clear. Does Department of Revenue have any questions related to Board staff s memo? No Yes IUB s involvement with tax credit application ends. Board staff answers Dept. of Revenue questions Yes Questions Resolved? No IUB s involvement with tax credit application ends. Dept. of Revenue requests additional information from Applicant. No Has Dept. of Revenue requested Board that staff review additional information? IUB s involvement with tax credit application ends. Yes Appendix Page 7 Board staff reviews additional information and submits an opinion on that information to the Dept. of Revenue

12 Iowa Code 476C Tax Credit Application Energy, LLC January, 2009 CONFIDENTIAL IOWA UTILITIES BOARD Policy Development Section TO: FROM: Iowa Department of Revenue Brenda Biddle and John Pearce DATE: January, 2009 SUBJECT: Application for Iowa Code 476C Tax Credits (199 IAC 15.21) Filed by Energy, LLC I (1) b (1) Completeness of the application (1) a (1) A copy of the original application for facility eligibility under 199 IAC 15.19(476C), plus any subsequent amendments to the application. IUB Staff Comments: Complete. The facility eligibility application amendment dated / /08 did not change the owner of the wind generation facility, Energy, LLC. Since ownership of the facility did not change, the amendment was regarded as non-substantive, requiring no approval by the IUB (1) a (2) A copy of the board s determination approving the facility as eligible for tax credits under 199 IAC 15.19(476C). IUB Staff Comments: Complete. The facility received initial eligibility approval for MW on / / (1) a (3) A statement attesting that the owners have not received wind energy tax credits for the facility under 199 IAC 15.20(476B). IUB Staff Comments: Complete. Appendix Page 8

13 Iowa Code 476C Tax Credit Application Energy, LLC January, 2009 CONFIDENTIAL (1) a (4) A copy of the power purchase agreement or other agreement to purchase from the facility electricity, hydrogen fuel, methane or other biogas, or heat for a commercial purpose. The agreement shall designate whether the producer or purchaser of renewable energy will be eligible to apply for the tax credits and shall be consistent with the designation originally filed under 199 IAC 15.19(1) g. IUB Staff Comments: Complete (1) a (5) A statement attesting that the electricity, hydrogen fuel, methane or other biogas, or heat for a commercial purpose, for which tax credits are sought, has been generated by the eligible facility and sold to an unrelated purchaser. For purposes of the renewable energy tax credits, persons are related to each other if either person owns an 80 percent or more equity interest in the other person. IUB Staff Comments: Complete (1) a (6) The date that the eligible facility was placed in service (that is, between July 1, 2005, and January 1, 2012). IUB Staff Comments: Complete. The filed information indicates the facility was placed in service on / / (1) a (7) The total number of kilowatt-hours of electricity, standard cubic feet of hydrogen fuel, British thermal units of methane gas or other biogas used to generate electricity, or British thermal units of heat for a commercial purpose generated by the eligible facility during the tax year. IUB Staff Comments: Complete. Reported total generation is kwh. Appendix Page 9

14 Iowa Code 476C Tax Credit Application Energy, LLC January, 2009 CONFIDENTIAL (1) a (8) Invoices or other information that documents the number of kilowatt-hours of electricity, standard cubic feet of hydrogen fuel, British thermal units of methane gas or other biogas used to generate electricity, or British thermal units of heat for a commercial purpose generated by the eligible facility and sold to an unrelated purchaser during the tax year. IUB Staff Comments: Complete. The total reported sales units ( kwh) are documented by sales invoices (1) a (9) Information regarding the facility owners or designated eligible purchaser, including the name, address, and tax identification number of each owner or purchaser. If the application is filed by the facility owners, this shall also include the percentage of equity interest held by each owner during the period for which renewable energy tax credits will be sought under Iowa Code chapter 476C. This information shall be consistent with ownership information provided in the original application for facility eligibility, as amended, under 199 IAC 15.19(476C). IUB Staff Comments: Complete. The required information is provided for the owner of the wind generation facility, Energy, LLC. The applicant provides additional detail about the equity ownership of Energy, LLC, which was earlier provided in the facility eligibility application amendment filed / /08. As noted above, since ownership of the facility did not change (i.e., the facility is still owned by Energy, LLC), the amendment was regarded as non-substantive, requiring no approval by the IUB The facility owner is Energy, LLC, not the underlying equity owners of Energy, LLC. The equity configuration of the LLC has changed to include Company, but Energy, LLC is the entity that owns the facility, not Company and the other equity holders. The IUB would be concerned about the underlying equity configuration of the LLCs under Iowa Code 476B, but not under 476C. This difference is discussed in the attached IUB order adopting rules (RMU-05-8 Final Rules, issued 1/26/06 Attachment E, pages 29-35). In applying the ownership limits of Iowa Code 476C, the IUB does not "look though" the LLC entity to the LLC's equity holders. Therefore, when Rule uses the term "owner," it's referring to the LLC, not the equity holders of the LLC. Appendix Page 10

15 Iowa Code 476C Tax Credit Application Energy, LLC January, 2009 CONFIDENTIAL (1) a (10) The type of tax for which the credits will be applied and the first tax year in which the credits will be applied. IUB Staff Comments: Not Complete. The applicant states the tax credits will be applied to either taxes or taxes, BUT DOES NOT SPECIFY WHICH (1) a (11) Identification of any applicants that are eligible to receive renewable electricity production credits authorized under Section 45 of the Internal Revenue Code. This identification should include a statement from the applicant attesting to the applicant s eligibility and any available supporting documentation. IUB Staff Comments: Complete (1) a (12) If any of the applicants is a partnership, limited liability company, S corporation, estate, trust, or any other reporting entity all of whose income is taxed directly to its equity holders or beneficiaries for taxes imposed under Iowa Code chapter 422, division II or III, the application shall include a list of the partners, members, shareholders, or beneficiaries of the entity. This list shall include the name, address, tax identification number, and pro-rata share of earnings from the entity for each of the partners, members, shareholders, or beneficiaries of the entity. The renewable energy tax credits will flow through to the entity s partners, shareholders, or members in accordance with their pro-rata share of earnings from the entity. If the entity is also eligible to receive renewable electricity production credits authorized under Section 45 of the Internal Revenue Code, the entity may designate specific partners if the business is a partnership, shareholders if the business is an S corporation, or members if the business is a limited liability company to receive the renewable energy tax credits issued under Iowa Code chapter 476C and the percentage allocable to each. Such an entity may also designate a percentage of the tax credits allocable to an equity holder or beneficiary as a liquidating distribution or portion thereof of a holder or beneficiary s interest in the applicant entity. Otherwise, in the absence of such designations, the renewable energy tax credits will flow through to the entity s partners, shareholders, or members in accordance with their prorata share of earnings from the entity. Alternatively, the tax credits will be issued directly to the entity if the entity is a partnership, limited liability company, S corporation, estate, trust, or any other reporting entity, all of whose income is taxed directly to Appendix Page 11

16 Iowa Code 476C Tax Credit Application Energy, LLC January, 2009 CONFIDENTIAL its equity holders or beneficiaries for taxes imposed under Iowa Code chapter 422, division V, or under Iowa Code chapter 423, 432, or 437A. IUB Staff Comments: Not Complete. The applicant does not provide a Tax ID Number for the entity Energy, LLC. II (1) b (2) Facility s eligibility status under 199 IAC 15.19(476C). IUB Staff Comments: The wind generation facility currently has a total eligible nameplate generation capacity of MW. III (1) b (3) Whether the reported kilowatt-hours of electricity, standard cubic feet of hydrogen fuel, British thermal units of methane gas or other biogas used to generate electricity, or British thermal units of heat for a commercial purpose generated by and purchased from the facility during the tax year seem accurate and eligible for renewable energy tax credits. IUB Staff Comments: The reported generation units seem accurate, and the sales units seem eligible for tax credits of $0.015 per kwh. The total reported generation units ( kwh) generally seem within the limits of the facility s MW eligible nameplate generation capacity. 13 The total reported sales units ( kwh) are documented by sales invoices. The total reported sales units of kwh can be multiplied by a credit of $0.015 per kwh, for a total tax credit amount of $. 13 Based on this capacity limit (i.e., MW, equivalently expressed as MWH per hour, or kwh per hour) and the total number of hours in the identified billing periods (8,784 hours), the maximum production capability of Energy, LLC s wind generation facility would have been limited to MWH, or kwh. Thus, the reported total sales of kwh seem reasonable and well within the limits of Energy, LLC s MW eligible generation capacity. Appendix Page 12

17 Iowa Code 476C Tax Credit Application , LLC xxxxxxxx x, 2009 IOWA UTILITIES BOARD Policy Development Section CONFIDENTIAL TO: FROM: Iowa Department of Revenue Brenda Biddle DATE: xxxxxxxx XX, 2009 SUBJECT: Application for Iowa Code 476C Tax Credits (199 IAC 15.21) Filed by , LLC I (1) b (1) Completeness of the application (1) a (1) A copy of the original application for facility eligibility under 199 IAC 15.19(476C), plus any subsequent amendments to the application. IUB Staff Comments: Complete. The rule citation listed in the initial eligibility application (199 IAC 15.18) was accurate at the time of application, and was later superseded by rule 199 IAC The separate application for additional capacity eligibility of X.XX MW, filed X/XX/XX and approved X/XX/XX, effectively increases the total eligible capacity of the wind generation facility to X.X MW. The application amendment dated X/XX/XX did not change the owner of the wind generation facility, , LLC. Since ownership of the facility did not change, the amendment was regarded as nonsubstantive, requiring no approval (1) a (2) A copy of the board s determination approving the facility as eligible for tax credits under 199 IAC 15.19(476C). IUB Staff Comments: Complete. The facility received initial eligibility approval for X.X MW on X/XX/XX, and for an additional X.XX MW on X/XX/XX, effectively increasing total eligible capacity to X.X MW as of X/XX/XX. Appendix Page 13

18 Iowa Code 476C Tax Credit Application , LLC xxxxxxxx x, 2009 CONFIDENTIAL (1) a (3) A statement attesting that the owners have not received wind energy tax credits for the facility under 199 IAC 15.20(476B). IUB Staff Comments: Complete (1) a (4) A copy of the power purchase agreement or other agreement to purchase from the facility electricity, hydrogen fuel, methane or other biogas, or heat for a commercial purpose. The agreement shall designate whether the producer or purchaser of renewable energy will be eligible to apply for the tax credits and shall be consistent with the designation originally filed under 199 IAC 15.19(1) g. IUB Staff Comments: Complete (1) a (5) A statement attesting that the electricity, hydrogen fuel, methane or other biogas, or heat for a commercial purpose, for which tax credits are sought, has been generated by the eligible facility and sold to an unrelated purchaser. For purposes of the renewable energy tax credits, persons are related to each other if either person owns an 80 percent or more equity interest in the other person. IUB Staff Comments: Complete (1) a (6) The date that the eligible facility was placed in service (that is, between July 1, 2005, and January 1, 2012). IUB Staff Comments: Complete. The filed information indicates the facility was placed in service on X/XX/XX (1) a (7) The total number of kilowatt-hours of electricity, standard cubic feet of hydrogen fuel, British thermal units of methane gas or other biogas used to generate electricity, or British thermal units of heat for a commercial purpose generated by the eligible facility during the tax year. IUB Staff Comments: Complete. Reported total generation is X,XXX,XXX kwh. Appendix Page 14

19 Iowa Code 476C Tax Credit Application , LLC xxxxxxxx x, 2009 CONFIDENTIAL (1) a (8) Invoices or other information that documents the number of kilowatt-hours of electricity, standard cubic feet of hydrogen fuel, British thermal units of methane gas or other biogas used to generate electricity, or British thermal units of heat for a commercial purpose generated by the eligible facility and sold to an unrelated purchaser during the tax year. IUB Staff Comments: Complete. The total reported sales units (X,XXX,XXX kwh) are documented by sales invoices (1) a (9) Information regarding the facility owners or designated eligible purchaser, including the name, address, and tax identification number of each owner or purchaser. If the application is filed by the facility owners, this shall also include the percentage of equity interest held by each owner during the period for which renewable energy tax credits will be sought under Iowa Code chapter 476C. This information shall be consistent with ownership information provided in the original application for facility eligibility, as amended, under 199 IAC 15.19(476C). IUB Staff Comments: Complete. The required information is provided for the owner of the wind generation facility, , LLC. The applicant provides additional detail about the equity ownership of , LLC, some of which was earlier provided in the eligibility application amendment filed X/XX/XX, and some of which was not (1) a (10) The type of tax for which the credits will be applied and the first tax year in which the credits will be applied. IUB Staff Comments: Not Complete. 14 Xxx xxxxx xxxxxx xxxxxxxxxxxx xxx xxx xxxxxx xxxxxxxxxxx xxxxxx: xxxxxxxxx xxx xxxxxxxxxx xxxxxxxxxxx xx xxx xxx xxxx xx xxxxx xx% xx xxx xxxxxxxxx xxxxxxxx xx xxx xxxxxxxx xxxx xxx xxxxxxxx xxxx xxxx xxxxxx xx xxx xxxxx xxxx xxxxxx, xx xxxxxxx xx xxxxxxx xxxxxxxxx. Xx xxxxx xx xxxxx xxxx xxxx xxxxxxxxxxxxxx xxx xxxx xx xxx xxxxxxxxx xx xxxx xx xx xxxxxxx xxxxxxx xxx xxxxxxxxxxx xxxxxx (xxxxxx xx. xxx-xx-x). xx xxx xxxxx xxxxx xxxxxx x/xx/xx, xxx xxx xxxxxxxx xx xxxxx x xxxxxxxxxxx xxxxxx xxxxxxxxx xxx xxxxxxxx xx xxxx xxxxxxxxx. Appendix Page 15

20 CONFIDENTIAL Iowa Code 476C Tax Credit Application , LLC xxxxxxxx x, 2009 The applicant states the tax credits will be applied to either taxes or taxes, BUT DOES NOT SPECIFY WHICH (1) a (11) Identification of any applicants that are eligible to receive renewable electricity production credits authorized under Section 45 of the Internal Revenue Code. This identification should include a statement from the applicant attesting to the applicant s eligibility and any available supporting documentation. IUB Staff Comments: Complete (1) a (12) If any of the applicants is a partnership, limited liability company, S corporation, estate, trust, or any other reporting entity all of whose income is taxed directly to its equity holders or beneficiaries for taxes imposed under Iowa Code chapter 422, division II or III, the application shall include a list of the partners, members, shareholders, or beneficiaries of the entity. This list shall include the name, address, tax identification number, and pro-rata share of earnings from the entity for each of the partners, members, shareholders, or beneficiaries of the entity. The renewable energy tax credits will flow through to the entity s partners, shareholders, or members in accordance with their pro-rata share of earnings from the entity. If the entity is also eligible to receive renewable electricity production credits authorized under Section 45 of the Internal Revenue Code, the entity may designate specific partners if the business is a partnership, shareholders if the business is an S corporation, or members if the business is a limited liability company to receive the renewable energy tax credits issued under Iowa Code chapter 476C and the percentage allocable to each. Such an entity may also designate a percentage of the tax credits allocable to an equity holder or beneficiary as a liquidating distribution or portion thereof of a holder or beneficiary s interest in the applicant entity. Otherwise, in the absence of such designations, the renewable energy tax credits will flow through to the entity s partners, shareholders, or members in accordance with their pro-rata share of earnings from the entity. Alternatively, the tax credits will be issued directly to the entity if the entity is a partnership, limited liability company, S corporation, estate, trust, or any other reporting entity, all of whose income is taxed directly to its equity holders or beneficiaries for taxes imposed under Iowa Code chapter 422, division V, or under Iowa Code chapter 423, 432, or 437A. IUB Staff Comments: Not Complete. Appendix Page 16

21 CONFIDENTIAL Iowa Code 476C Tax Credit Application , LLC xxxxxxxx x, 2009 The applicant does not provide a Tax ID Number for xxxxx x. Xxxxxxxxxx. II (1) b (2) Facility s eligibility status under 199 IAC 15.19(476C). IUB Staff Comments: The wind generation facility currently has a total eligible nameplate generation capacity of X.X MW. III (1) b (3) Whether the reported kilowatt-hours of electricity, standard cubic feet of hydrogen fuel, British thermal units of methane gas or other biogas used to generate electricity, or British thermal units of heat for a commercial purpose generated by and purchased from the facility during the tax year seem accurate and eligible for renewable energy tax credits. IUB Staff Comments: The reported generation units seem accurate, and the sales units seem eligible for tax credits of $0.015 per kwh. The total reported generation units (X,XXX,XXX kwh) generally seem within the limits of the facility s X.X MW eligible nameplate generation capacity. 15 The total reported sales units (X,XXX,XXX kwh) are documented by sales invoices. The total reported sales units of X,XXX,XXX kwh can be multiplied by a credit of $0.015 per kwh, for a total tax credit amount of $XX,XXX.XX. 15 Based on this capacity limit (i.e., X.X MW, equivalently expressed as X.X MWH per hour, or x,xxx kwh per hour) and the total number of hours in the identified billing periods (8,784 hours), the maximum production capability of , LLC s wind generation facility would have been limited to xx,xxx.xx MWH, or xxx,xxx,xxx kwh. Thus, the reported total sales of X,XXX,XXX kwh seem reasonable and well within the limits of ,, LLC s X.X MW eligible generation capacity. Appendix Page 17

22 (Attachment E) STATE OF IOWA DEPARTMENT OF COMMERCE UTILITIES BOARD IN RE: CERTIFICATION OF ELIGIBILITY FOR WIND ENERGY AND RENEWABLE ENERGY TAX CREDITS DOCKET NO. RMU-05-8 ORDER ADOPTING RULE MAKING (Issued January 26, 2006) Pursuant to the authority of Iowa Code 17A.4, Iowa Code chapter 476B.5 (Supp. 2005), and Iowa Code chapter 476C (Supp. 2005), the Utilities Board adopts the rules attached hereto and incorporated herein by reference. These rules add new rules and 15.19, and are designed to implement House File 882 and Senate File 390, which assign to the Board the duty of determining whether a facility is eligible for new state tax credits for wind energy production and renewable energy. These rules replace rules that were adopted on an emergency basis on June 20, 2005, in Docket No. RMU The emergency rules were published in the Iowa Administrative Bulletin on July 20, 2005, as ARC 4342B. On September 13, 2005, the Administrative Rules Committee voted to object to the provisions of the emergency rule as it related to the implementation of House File 882 only. The Page 18

23 objection was published in the Iowa Administrative Bulletin on October 12, 2005, at page 619. The adopted rules take into account objections raised by the Administrative Rules Committee and comments received. The reasons for adopting these rules are set forth in the attached notice of intended action, which is incorporated into this order by reference. IT IS THEREFORE ORDERED: 1. A rule making proceeding, identified as Docket No. RMU-05-8, is adopted. 2. The Executive Secretary is directed to submit for publication in the Iowa Administrative Bulletin a notice in the form attached to and incorporated by reference in this order. UTILITIES BOARD /s/ John R. Norris ATTEST: /s/ Judi K. Cooper Executive Secretary /s/ Diane Munns /s/ Curtis W. Stamp Dated at Des Moines, Iowa, this 26 th day of January, Appendix Page 19

24 UTILITIES DIVISION [199] Adopted and Filed Pursuant to Iowa Code section 17A.4, 2005 Iowa Acts, Senate File 390 (Iowa Code chapter 476C (Supp. 2005)), and 2005 Iowa Acts, House File 882 (Iowa Code chapter 476B (Supp. 2005)), the Utilities Board (Board) gives notice that on January 26, 2006, the Board issued an order in Docket No. RMU-05-8, In re: Certification of Eligibility for Wind Energy and Renewable Energy Tax Credits, Order Adopting Rules. The Board is adopting new rules 199 IAC 15.18(476,81GA,HF882) and (476,81GA,SF390). The new rules adopt procedures and filing requirements to facilitate the Board s determination of whether an energy facility is eligible for the wind energy production tax credits under Iowa Code chapter 476B (Supp. 2005) or renewable energy tax credits under Iowa Code chapter 476C (Supp. 2005). The Governor signed the legislation creating a new chapter 476C (2005 Iowa Acts, Senate File 390) on June 15, 2005, and the legislation amending chapter 476B (2005 Iowa Acts, House File 882) on June 16, This rule making was initiated concurrently with an emergency rule making adopting the rules as initially proposed. The emergency rule making was identified as Docket No. RMU The emergency rules were adopted on June 20, 2005, and published in IAB Vol. XXVIII, No. 2 (7/20/05) p. 106, as ARC 4342B. In compliance with Iowa Code section 17A.4(2), the Board found in Appendix Page 20

25 its Order that notice and public participation were impracticable because of the immediate need for a new rule to implement Senate File 390 (chapter 476C), citing the fact that the Board s staff had already been contacted by several persons who were interested in applying for a determination of eligibility and those persons wanted to know what information should be included in their applications to determine eligibility. Rather than attempting to inform only those who inquired on an ad hoc basis, the Board adopted emergency rules applying to both 476B and 476C applications. The Notice of Intended Action for Docket No. RMU-05-8 was published in IAB Vol. XXVIII, No. 2 (7/20/05) p. 98, as ARC 4341B. On August 9, 2005, the Board received written statements of positions. On September 21, 2005, an oral presentation was held. On September 30, 2005, the Board issued an Order Requesting Additional Comments from the participants. On October 14, 2005, additional comments were received. Comments have been received from Carroll County Projects (Carroll County), Clipper Windpower, Inc. (Clipper), FPL Energy, LLC (FPL), Iowa Farm Bureau Federation (Farm Bureau), Iowa Winds, LLC (Iowa Winds), Interstate Power and Light Company (IP&L), the Consumer Advocate Division of the Department of Justice (Consumer Advocate), and Midwest Renewable Energy Projects, LLC (MREP), which represents Northern Iowa Windpower II LLC, Northern Iowa Windpower III LLC, Winnebago Windpower LLC, Barton Windpower LLC, Barton Windpower II LLC, and Winnebago Windpower II LLC. Consumer Advocate filed additional comments Appendix Page 21

26 on October 17, 2005, and Edward Woolsey (Woolsey) ed comments on October 1 and 19, In addition to the public comment received, the Administrative Rules Review Committee (Committee) voted to object to the provisions of the emergency rules as those rules implement chapter 476B; the Committee did not object to the rules as they implemented chapter 476C. The objection was published in IAB Vol. XXVIII, No. 8 (10/12/05) p The objection, which will be discussed in greater detail below, addressed the issues of an executed purchase power agreement, the use of the emergency rule making procedure and the adoption of the rules prior to the effective date of the statute, and direct and indirect ownership. Overall, Iowa Code chapters 476B (for large wind energy projects) and 476C (for smaller renewable energy projects) are very similar, sufficiently similar that the Board adopted a single set of emergency rules to implement both statutes and proposed to adopt a single set of final rules in this docket. However, several of the commenters pointed out various small differences in the language of the two chapters and argued that those differences are significant. FPL and Clipper both recommended that specific rules be adopted for each chapter and the Committee s objection only went to the rules as they applied to chapter 476B projects. The Board will adopt this recommendation. The rules for chapter 476B projects will be in 199 IAC and the rules for chapter 476C projects will be in 199 IAC In addition to clarifying the rules, this separation will make the process easier for proposing and considering future amendments that may apply only to small or large projects, but not both. Appendix Page 22