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

27 With the rules being separated, the comments addressing the rules as they apply to chapter 476B will be discussed first. Discussion regarding the rules as they apply to chapter 476C will follow. Because the comments reflect various views, often in conflict with the emergency rules, the Board will provide extensive summaries of some of the comments. Iowa Code 476B.5(1)"e" requires, among other things, that the applicant for tax credits provide "[a] copy of an executed power purchase agreement or other agreement to purchase electricity upon completion of the project." In the emergency rules and in the proposed rules, the Board interpreted this provision as requiring (a) a signed power purchase agreement (PPA) or (b) some other agreement, which may or may not be signed. Some commenters supported the Board s interpretation; others opposed it and said a signed contract was essential. Clipper believes that the phrase other agreement cannot be construed to allow substitution of either a statement of intended action, a perceived statutory obligation, or any document other than one that contains an offer, acceptance, and consideration for wind power to be purchased at a set price by designated parties. As far as the argument that a utility has Public Utility Regulatory Policies Act of 1978 (PURPA) requirements to purchase wind power from a qualifying facility, Clipper believes this is without merit. Clipper argues that federal law cannot create a de facto PPA, particularly given the significance of an executed PPA in establishing project economic viability. Additionally, Clipper notes that the Appendix Page 23

28 purchase obligation under PURPA may be terminated in certain circumstances under the Energy Policy Act of FPL believes the Legislature recognized that a signed PPA is the best indicator of a project s viability and likelihood of success. Therefore, the Board should not rely on anything less than that, such as a draft, affidavit, or market participant form from an independent system operator. FPL would consider an other agreement to pertain to a Purchase and Sale Agreement which is executed prior to the initiation of construction setting forth the terms and conditions that will govern the sale of the facility to the load-serving entity. A second form of an other agreement FPL would accept is an agreement which shows that a merchant plant plans at some time in the future to sell into a nodalbased congestion management system (i.e., Midwest Independent Transmission System Operator's (MISO) Day 2 market). FPL notes that a market participant form is an administrative form and does not capture the intent of either party regarding the construction of a wind energy facility. FPL believes it is clear that the Legislature intended the phrase at the completion of the project to describe when electricity was to be purchased and not to imply that the agreement was to be provided when the project was complete. Iowa Winds believes the Board has correctly interpreted the phrase other agreement to purchase electricity when it found that facilities meeting the definition of Qualifying Facility under PURPA satisfied the requirement. Iowa Winds also argues that any changes to the rules should not impact the existing queue. Appendix Page 24

29 IPL argues the Legislature added the other agreement to purchase electricity language only to assure that a contract not titled purchase power agreement would not be disqualified for lack of that specific title as long as the agreement bound a potentially qualifying facility to sell electricity and another party to buy electricity. IPL said the rules must be amended to reflect the legislative intent as articulated by the Committee. MREP states the following agreements would satisfy the other agreement to purchase electricity : an executed PPA prior to project completion; an executed facility purchase agreement prior to project completion; or, in the case of a merchant facility, a Market Participation Agreement combined with a generation asset registration confirmation code, which takes place 30 days prior to commercial operation. Additionally, it could include a Qualifying Facility PPA that was provided on or before commercial operation since it would take time to get a final agreement. Consumer Advocate maintained that the other agreement to purchase electricity was intended to include other agreements or power purchase obligations that may be different from more common purchase power contracts. Consumer Advocate believes the legislative intent was to extend eligibility beyond the traditional PPA to include a broad range of applicants and renewable energy projects. Although Consumer Advocate acknowledges that not requiring a PPA until the project is completed could frustrate the timely development and operation of alternative energy resources in Iowa, it disagrees that the solution is to require that the initial application include the executed PPA. Consumer Appendix Page 25

30 Advocate notes that there are many reasons why developers may have difficulty obtaining a PPA and that even with an executed PPA, it is not certain the project will be operational in 18 months. On September 13, 2005, the Committee voted to object to the Board's emergency rules. The objection was issued on September 21, 2005; with respect to executed PPA issue, it provides as follows: The committee objects to paragraph 199 IAC 15.18(1)"d", relating to the required documentation to demonstrate a market for the wind energy, on the grounds that it is beyond the authority of the Utilities Board. House File 882 requires, in 166: "A copy of an executed power purchase agreement or other agreement to purchase electricity " The rule language states: "If the power purchase agreement or other agreement has not yet been finalized and executed, the board will accept a binding statement from the applicant that designates which party will be eligible to apply for the renewable energy tax credit; this designation shall not be subject to change." The committee believes that the language of the Act clearly demonstrates a legislative intent that only an executed power purchase agreement or other executed agreement that has a similar force and effect can be accepted in the application process. The Committee, which is a bipartisan, bicameral committee of the General Assembly formed pursuant to section 17A.8, interpreted the statute to require either (a) a signed power purchase agreement or (b) some other agreement, which must also be signed. The Board did not have the benefit of this legislative history at the time it was adopting the emergency rules and issuing the notice of proposed rule making, and the Board believes that, in light of the information available to it, the Board s original interpretation of the statute was a reasonable one. However, in light of this additional legislative history, the Board will amend the final rules to require that any application for 476B tax credits must Appendix Page 26

31 include "an executed power purchase agreement or some other executed agreement to purchase electricity. This leaves the question of defining "agreement" for purposes of the "other agreement" alternative. During the rule making proceedings, the Board asked the parties for additional comment regarding the appropriate interpretation of this language, that is, what other agreements should be sufficient to satisfy this requirement. The comments tended to fit into two categories: One group argued that only an agreement that is, in fact, a power purchase agreement (but fails to identify itself as such) can satisfy the requirement. At the opposite extreme, another group argued that just about any agreement that gives evidence of an intent to construct and operate a facility should be sufficient. The Board believes that neither of these extremes is appropriate for adoption in the final rules. The word "agreement" should be construed according to its ordinary legal meaning. Black's Law Dictionary defines "agreement," in relevant part, as follows: A coming together of minds; a coming together in opinion or determination; the coming together in accord of two minds on a given proposition. * * * Although often used as synonymous with "contract", agreement is a broader term; e.g. an agreement might lack an essential element of a contract. The bargain of the parties in fact as found in their language or by implication from other circumstances including course of dealing or usage of trade or course of performance. Black's Law Dictionary, Fifth Ed., p. 62 (1979). Thus, an agreement requires (a) at least two parties and (b) most, but not necessarily all, of the essential elements of a contract. Further, as discussed above, it must be executed. The Appendix Page 27

32 Board therefore believes that an executed other agreement must include each of the following elements: 1) execution by at least two parties; 2) the subject matter must include a commitment to purchase electricity from the facility upon completion of the project; and 3) it must include most, but not necessarily all, of the essential elements of a contract. The adopted rules will reflect this interpretation. The second major issue for the 476B rules is the ownership requirements. Many of the comments filed supported the notion that the Board should adopt strict ownership limitations in order to prevent any single person or other legal entity from owning, directly or indirectly, more than one or two of the approved projects. Clipper states that the Board should not be constrained by corporate legal fiction such as different LLC names or structures for each project, and recommends that the Board s rule focus on the equity holders or taxpayers receiving the ultimate direct benefit of the anticipated tax credit for purpose of determining any limitations on ownership of multiple facilities. Clipper suggests that in the amended rule, the Board strike the self-certification language and reword the information requirement on ownership to echo the provisions of Iowa Code section 476B.6(5) as amended to include the structure of the facility ownership, the participants in facility ownership who will have income tax responsibilities and tax credit benefits passed through to them for personal and corporate tax purposes, and the percentage of equity interest held by each participant in the facility ownership. Appendix Page 28

33 Iowa Winds asserts that neither the statute nor public policy provides a basis for the Board to look past the legal or corporate status of the owner. By doing so, the application process will be needlessly complicated. Iowa Winds recommends that absent clear statutory guidance, the issue could be more adequately addressed and resolved by the legislature. IPL asks the Board to use the implied definition of owner as the equity owner, found in Iowa Code section 476B.5(1), and redraft the rules to clarify that an equity owner is limited by Iowa Code section 476B.5(5) to an ownership interest in no more than two qualified facilities. IPL notes that this view is consistent with the criticism of the Board s award of credits to five entities with the same equity owners in the last sentence of the Administrative Rules Review Committee s objection to 199 IAC 15.18(1)"b." MREP notes that although the five companies it represents have the same equity owners, the five companies are the individual owners of the wind facilities and have separate tax identification numbers. None of the five companies own more than two facilities. The Committee addressed the 476B ownership issues, saying: The committee objects to the provisions of paragraph 199 IAC 15.18(1)"b" on the grounds that it is unreasonable. The amendments to Iowa Code 476B.5(2), as provided in House File 882, state: [a]n owner shall not be an owner of more than two qualified facilities. Paragraph 199 IAC15.18(1)"b" requires only "...a statement that owners meeting the eligibility requirements of Iowa Code Section 476B.5 are not owners of more than two eligible renewable energy facilities." The committee feels the statutory language evidences a clear legislative intent that the board should consider both direct and indirect ownership interests and not rely solely on corporate business structures to determine ownership. The committee notes that of the seven projects awarded eligibility under the House File 882 program, Appendix Page 29

34 credits were awarded to at least five entities with the same equity owners. The Board is again guided by the interpretation of the Committee. Section 476B.5(1)"a" requires that an application include "information regarding the ownership of the facility including the percentage of equity interest held by each owner." Section 476B.5(2) then states that "an owner shall not be an owner of more than two qualified facilities." Taken together, these provisions indicate a legislative intent that the Board consider not only the legal entity that actually owns a facility, but when that legal entity is a corporation (or any other owner other than a natural person), that the Board also consider the equity owners of that legal entity when applying the two-facility limitation. The rules implementation in chapter 476B will be changed to reflect this requirement. Given these changes in the final rules, the Board must consider what to do with the existing queue of projects. Several of the commenting parties suggested that the Board should reject all pending 476B applications and start the process over. IPL stated that the previous determinations of eligibility were irremediably flawed by the unlawful rules and should be nullified. IPL further states that once lawful rules are in place, new applications should be accepted. Both Clipper and FPL believe that an applicant should not be placed in the queue until the Board has received a completed application including all supporting documentation. Others argue that the projects that have already been approved have some right and interest in that approval, which cannot be changed without giving them due process of law. In the "Objection to Application for Reconsideration" filed in Docket No. 199 IAC by Northern Iowa Windpower II, LLC, Barton Appendix Page 30

35 Windpower LLC, and Barton Windpower II, LLC, on August 26, 2005, the parties state, "The law allows only the applicant to appeal a determination, and only if the application is denied. The letter goes on to say that no appeal has been filed and the eligibility determination is final. The Board continues to believe that, based on the information available to it, the Board s original interpretation of the statute, as expressed in the emergency rules, was a reasonable one at the time it was made, although it is not the interpretation reflected in the final rules. As such, the emergency rules are valid and effective until March 21, 2006, or until replaced by the final rules, whichever comes first. For this reason, the Board will not reject the applications and start over; they were filed in compliance with the Board's valid rules at the time they were submitted and processed and that should not be undone. However, that is not the end of the analysis. Each of those who received preliminary eligibility is subject to reconsideration and the Board has docketed and suspended the approvals pending completion of this rule making. On September 13, 2005, the Board issued an "Order Granting Reconsideration" in Docket No. 199 IAC that granted the requests filed by IPL on August 19, 2005, and Endeavor Power Partners, LLC, on August 29, The Board did not establish a procedural schedule when granting the reconsiderations since the outcome of this rule making will affect the reconsideration request. Because the Board is conforming its rules to the statutory intent as explained by the Committee, applicants will have to amend or supplement their filings to comply Appendix Page 31

36 with the adopted rules. If some applicants cannot comply, they will lose their position in the queue. Therefore, the Board believes that, as of the effective date of the new rules, applicants with approved applications that are subject to rehearing will have to file amendments or supplements to their applications, including an executed power purchase agreement or other executed agreement, as described above. Further, to the extent a single person or other legal entity holds an equity interest in more than two projects in the queue as of the effective date of the final rules, the Board will remove facilities involving that person or entity from the queue, beginning with those applications that were last filed, until that person or other legal entity holds an equity interest in no more than two projects. This arrangement will give those entities currently holding approved applications up to the effective date of the final rules to amend or supplement their filings to meet the new requirements. The Board believes this is a reasonable and adequate time to allow, particularly when it is combined with the time they have already had to negotiate a power purchase agreement or other agreement, that is, the time since their original application was approved in July or August of While chapters 476B and 476C are similar, they are not identical. For example, Iowa Code section 476C.3(1)"e" does not require an executed agreement, and the statute makes it clear that the purpose of requiring an agreement is to designate which party, the producer or purchaser, is eligible to Appendix Page 32

37 apply for tax credit certificates. There is no basis for requiring an executed agreement for chapter 476C applicants. In addition, chapters 476B and 476C differ on ownership criteria. Two commenters addressed the ownership issue for chapter 476C projects. Carroll County believes that the intent of the legislature is relatively clear, expecting at least 51 percent of qualifying projects to be owned by certain defined persons, who presumably would receive the benefits associated with that ownership. Carroll County submits that as long as both the formal structure and the underlying expected financial benefit stream meet the 51 percent standard, the project should be eligible for credits. This determination can be made when the investment terms are first negotiated and/or at completion of the project. With respect to ownership by family members, Carroll County asserts that the rules should not preclude eligibility simply because applicants are related. However, the rules should not allow an individual to acquire additional tax credit eligibility through ownership by a minor child or other dependents. Farm Bureau advocates that the Board s rules should facilitate local ownership of wind energy facilities and be consistent with chapter 476C requirements. They believe that Iowa Code 476C.1(6)"b" provides some guidance as to the intent of the legislature for ownership that is different from the requirements for an eligible facility in Iowa Code 476B.1(4). As previously discussed, chapter 476B establishes ownership limits and requires that applicants identify their equity owners. This indicates a legislative intent that the Board consider equity owners when applying the ownership limit. Appendix Page 33

38 Chapter 476C is different. It includes a limit on ownership and requires that an application include information regarding the ownership of the facility, but it also includes a specific list of eligible types of owners. Specifically, section 476C.3(5) provides that an "owner meeting the requirements of section 476C.1, subsection 6, paragraph "b" shall not be an owner of more than two eligible renewable energy facilities." Section 476C.1(6)"b" then provides that any eligible renewable energy facility must be at least 51 percent owned by one or more of any combination of the following: 1. A resident of this state; 2. Any of the following, as defined in section 9H.1: a. An authorized farm corporation; b. An authorized limited liability company; c. An authorized trust; d. A family farm corporation; e. A family farm limited liability company; f. A family trust; g. A revocable trust; or h. A testamentary trust; 3. A small business as defined in ; 4. An electric cooperative association organized pursuant to chapter 499; 5. An electric cooperative association that has members organized pursuant to chapter 499; 6. A cooperative corporation organized pursuant to chapter 497 or a limited liability corporation organized pursuant to chapter 490A and meeting other requirements; or 7. A school district. Thus, chapter 476C is quite specific in listing the entities that are eligible majority owners of qualifying projects. The Board finds no statutory authorization in this chapter to look through these listed entities to apply the ownership limits of section 476C.3(5) and the current ownership rules will be retained for chapter 476C projects. Appendix Page 34

39 Both chapters provide that if a project is not operational within 18 months after its approval, it shall cease to be an eligible facility. The Board requested comment concerning the possibility of adopting interim milestones so that nonviable projects could be eliminated sooner to open up new capacity in the queue. Several comments were received, but there was no consensus on appropriate milestones. In reviewing the comments, the Board is doubtful that a milestone approach would be easy to administer or significantly shorten the 18-month period for non-viable projects, particularly because the potentially non-compliant applicant would have to be given notice and an opportunity to show why the project should not be found ineligible. The Board will not adopt a milestone approach at this time for either chapter 476B or 476C projects. A final issue common to both chapters that the Board requested comments on is allocation of small capacity amounts among eligible applicants. In practice, the Board has withheld allocation of small amounts of remaining capacity, balancing the potential benefit of designating a small portion of an applicant s capacity as eligible, with the potentially greater harm of prematurely triggering the facility s 18-month period for becoming operational or losing eligibility. Several suggestions were received, but the administrative costs appear to outweigh any potential benefits. Rather than adopt a procedure in rules that will likely prove administratively cumbersome and costly, the Board will continue to withhold fractional capacity amounts (i.e., amounts less than the capacities of the nexteligible or next date applicants in the queue). However, if any of these nextdate applicants petition the Board to allocate the remaining capacity amount Appendix Page 35

40 according to 199 IAC 15.18(5) or 199 IAC 15.19(5), the Board will contact all next date applicants, inform them of the potential harm of triggering the 18- month deadline under 199 IAC 15.18(4), and allow them to opt out of the allocation while maintaining their place in the queue. The remaining capacity would then be allocated to all next date applicants except those who choose to opt out. Because the amendments are in response to the public comment and comments from the Committee, no additional notice prior to adopting these rules is required. The Board does not find it necessary to adopt a separate waiver provision in this rule making. The Board s general waiver provision in 199 IAC 1.3(17A,474,476,48GA,HF2206) is applicable to this rule. These amendments will become effective on March 22, These amendments are intended to implement Iowa Code chapters 476B and 476C (Supp. 2005). The following amendments are adopted. Item 1. Adopt the following new rule: (476,81GA,HF882) Certification of eligibility for wind energy tax credits under Iowa Code chapter 476B. Any person applying for certification of eligibility for state tax credits for wind energy pursuant to Iowa Code section 476B.5 as amended by 2005 Iowa Acts, House File 882, section 166, is subject to this rule. Appendix Page 36

41 15.18(1) Filing requirements. Any person applying for certification of eligibility for wind energy tax credits must file with the board an application that contains substantially all of the following information: a. Information regarding the applicant, including the legal name, address, telephone number, and (as applicable) facsimile transmission number and electronic mail address of the applicant. b. Information regarding the ownership of the facility, including the legal name of each owner, information demonstrating the legal status of each owner, and the percentage of equity interest held by each owner, and a statement that owners meeting the eligibility requirements of Iowa Code section 476B.5 as amended by 2005 Iowa Acts, House File 882, section 166, are not owners of more than two eligible renewable energy facilities. In determining whether the two facility limit is exceeded, the Board will consider not only the legal entity that owns the utility, if other than a natural person, but the equity owners of the legal entity. If the owner of the facility is other than a natural person, information regarding the equity owners must be provided. c. A description of the facility, including at a minimum the following information: (1) Type of facility (that is, a qualified facility as defined in Iowa Code section 476B.1 as amended by 2005); (2) Total nameplate generating capacity rating; (3) A description of the location of the facility in Iowa, including an address or other geographic identifier; Appendix Page 37

42 (4) The date the facility is expected to be placed in service (that is, placed in service on or after July 1, 2005, but before July 1, 2008, for eligibility under Iowa Code chapter 476B, as amended by 2005 Iowa Acts, House File 882). d. A copy of the executed power purchase agreement or other agreement to purchase electricity. If the power purchase agreement has not yet been finalized and executed, the board will accept as an other agreement an executed agreement signed by at least two parties that includes both a commitment to purchase electricity from the facility upon completion of the project and most of the essential elements of a contract. e. A statement regarding the type of tax credit being sought; that is, indicating that the applicant is applying for tax credits pursuant to Iowa Code chapter 476B as amended by 2005 Iowa Acts, House File 882, (1 cent per kwh, wind energy only tax credits) (2) Review and notification. Upon receipt of a complete application, the board will review it to make a preliminary determination regarding whether the facility is an eligible renewable energy facility. The board will notify the applicant by letter of the approval or denial of the application within 30 days of the date the application was filed. If the board fails to send the letter within 30 days, the application will be deemed denied. An applicant who receives a determination denying an application may file an appeal with the board within 30 days of the date of the denial, pursuant to the provisions of Iowa Code chapter 17A and Iowa Code Section 476B.5 as amended by 2005 Iowa Acts, House File 882, section Appendix Page 38

43 166(2). In the absence of a timely appeal, the preliminary determination shall be final (3) Incomplete application and additional information. If an incomplete application is filed, the board may, upon request and for good cause shown, grant an extension of time to allow the applicant to provide additional information. Also, the board and its staff may request additional information at any time for purposes of determining initial or continuing eligibility for tax credits (4) Loss of eligibility status. Within 18 months following Board approval of eligibility, the applicant shall file information demonstrating that the eligible facility is operational and producing usable energy. If the board determines that the eligible facility was not operational within 18 months of board approval, the facility will lose eligibility status. However, the facility may reapply to the board for new eligibility (5) Allocation of capacity among eligible applicants. Iowa Code section 476B.5 as amended by 2005 Iowa Acts, House File 882, section 166(4), establishes the maximum amount of nameplate generating capacity of facilities eligible for the tax credits. In the event the board receives applications for tax credits that, in total, exceed the statutory limits, the board will rule on the applications in the order they are received, based upon the date of receipt. Because the board does not track the time of day that filings are made with the board, if the board receives more than one application on a particular date such that the combined capacity of the applications exceeds applicable statutory limits, the board will allocate the final eligibility determinations proportionally among all Appendix Page 39

44 applications received on that date. Alternatively, the board may withhold this allocation unless a petition for allocation is filed with the board by one of the applicants who filed its application on that particular date. If such a petition is submitted, the board will notify all applicants who filed on that particular date, allowing each applicant to opt into the allocation within 45 days of the date of the filing of the petition. Applicants who opt in must comply with 199 IAC 15.18(4) after receiving eligibility under the allocation or lose their eligibility status. Applicants who do not opt in will maintain their original application date. Item 2: Adopt the following new rule: (476,81GA,SF390) Certification of eligibility for wind energy and renewable energy tax credits under Iowa Code chapter 476C. Any person applying for certification of eligibility for state tax credits for wind energy or renewable energy pursuant to 2005 Iowa Acts, Senate File 390, section 9 (Iowa Code section 476C.3), is subject to this rule (1) Filing requirements. Any person applying for certification of eligibility for wind energy or renewable energy tax credits must file with the board an application that contains substantially all of the following information: a. Information regarding the applicant, including the legal name, address, telephone number, and (as applicable) facsimile transmission number and electronic mail address of the applicant. b. Information regarding the ownership of the facility, including the legal name of each owner, information demonstrating the legal status of each owner, and the percentage of equity interest held by each owner, and a statement that Appendix Page 40

45 owners meeting the eligibility requirements of 2005 Iowa Acts, Senate File 390, section 7 (Iowa Code section 476C.1), are not owners of more than two eligible renewable energy facilities. The legal status of each owner" refers to the ownership requirements of (2005 Iowa Acts, Senate File 390, section 7 (Iowa Code section 476C.1(6)"b")) which provides that an eligible renewable energy facility must be at least 51 percent owned by one or more or any combination of the following: (1) A resident of Iowa; (2) An authorized farm corporation, authorized limited liability company, or authorized trust, as defined in Iowa Code section 9H.1; (3) A family farm corporation, family farm limited liability company, or family farm trust, as defined in section 9H.1; (4) A revocable trust as defined in Iowa Code section 9H.1; (5) A testamentary trust as defined in section 9H.1; (6) A small business as defined in Iowa Code section ; (7) An electric cooperative association organized pursuant to Iowa Code chapter 499 that sells electricity to end users located in Iowa or has one or more members organized pursuant to Iowa Code chapter 499; (8) A cooperative corporation organized pursuant to Iowa Code chapter 497 or a limited liability corporation organized pursuant to Iowa Code chapter 490A whose shares and membership are held by an entity that is not prohibited from owning agricultural land under Iowa Code chapter 9H; or (9) A school district located in Iowa. Appendix Page 41

46 c. A description of the facility, including at a minimum the following information: (1) Type of facility (that is, a wind energy conversion facility, biogas recovery facility, biomass conversion facility, methane gas recovery facility, or solar energy conversion facility, as defined in 2005 Iowa Acts, Senate File 390, section 7 (Iowa Code section 476C.1); (2) Total nameplate generating capacity rating, plus maximum hourly output capability for any energy production capacity equivalent as defined in 2005 Iowa Acts, Senate File 390, section 7 (Iowa Code section 476C.1); (3) A description of the location of the facility in Iowa, including an address or other geographic identifier; (4) The date the facility is expected to be placed in service; that is, placed in service on or after July 1, 2005, but before January 1, 2011, for eligibility under 2005 Iowa Acts, Senate File 390 (Iowa Code chapter 476C); and (5) For eligibility under Iowa 2005 Iowa Acts, Senate File 390 (Iowa Code chapter 476C), demonstration that the facility s combined MW nameplate generating capacity and maximum hourly output capability of energy production capacity equivalent (as defined in 2005 Iowa Acts, Senate File 390, section 7(7) (Iowa Code section 476C.1(7)), divided by the number of separate owners meeting the requirements of 2005 Iowa Acts, Senate File 390, equals no more than 2.5 MW of capacity per eligible owner. d. A copy of the power purchase agreement or other agreement to purchase electricity, hydrogen fuel, methane or other biogas, or heat for a commercial Appendix Page 42

47 purpose, which shall designate either the producer or the purchaser as eligible to apply for the renewable energy tax credit. If the power purchase agreement or other agreement has not yet been finalized and executed, the board will accept a binding statement from the applicant that designates which party will be eligible to apply for the renewable energy tax credit; that designation shall not be subject to change. e. A statement regarding the type of tax credit being sought; that is, indicating that the applicant is applying for tax credits pursuant to 2005 Iowa Acts, Senate File 390 (Iowa Code chapter 476C), (1.5 cents per kwh, wind and other renewable energy tax credits) (2) Review and notification. Upon receipt of a complete application, the board will review it to make a preliminary determination regarding whether the facility is an eligible renewable energy facility. The board will notify the applicant by letter of the approval or denial of the application within 30 days of the date the application was filed. If the board fails to send the letter within 30 days, the application will be deemed denied. An applicant who receives a determination denying an application may file an appeal with the board within 30 days of the date of the denial, pursuant to the provisions of Iowa Code chapter 17A, 2005 Iowa Acts, Senate File 390, section 9 (Iowa Code section 476C.3(2)). In the absence of a timely appeal, the preliminary determination shall be final (3) Incomplete application and additional information. If an incomplete application is filed, the board may, upon request and for good cause shown, grant an extension of time to allow the applicant to provide additional information. Appendix Page 43

48 Also, the board and its staff may request additional information at any time for purposes of determining initial or continuing eligibility for tax credits (4) Loss of eligibility status. Within 18 months following Board approval of eligibility, the applicant shall file information demonstrating that the eligible facility is operational and producing usable energy. If the board determines that the eligible facility was not operational within 18 months of board approval, the facility will lose eligibility status. However, the facility may reapply to the board for new eligibility (5) Allocation of capacity among eligible applicants Iowa Acts, Senate File 390, section 9(4) (Iowa Code section 476C.3(4)), establishes the maximum amount of nameplate generating capacity of facilities eligible for the tax credits. In the event the board receives applications for tax credits that, in total, exceed the statutory limits, the board will rule on the applications in the order they are received, based upon the date of receipt. Because the board does not track the time of day that filings are made with the board, if the board receives more than one application on a particular date such that the combined capacity of the applications exceeds applicable statutory limits, the board will allocate the final eligibility determinations proportionally among all applications received on that date. Alternatively, the board may withhold this allocation unless a petition for allocation is filed with the board by one of the applicants who filed its application on that particular date. If such a petition is submitted, the board will notify all applicants who filed on that particular date, allowing each applicant to opt into the allocation within 45 days of the date of the filing of the Appendix Page 44

49 petition. Applicants who opt in must comply with 199 IAC 15.19(4) after receiving eligibility under the allocation or loose their eligibility status. Applicants who do not opt in will maintain their original application date. January 26, 2006 /s/ John R.Norris John R. Norris Chairman Appendix Page 45