IRS Issues Guidance on Qualified Energy Conservation Bonds

by Ballard Spahr LLP
Contact

[authors: Daniel F. Albert, Darin Lowder, Linda B. Schakel]

The Qualified Energy Conservation Bond program was enacted by Congress in 2008 to provide state and local governments with low-cost funds for a variety of energy conservation programs. But according to the Energy Programs Consortium, to date only $650 million of the $3.2 billion set‑aside has been used. Issuance of QECBs has been hindered by the uncertainty surrounding two requirements: the 20 percent energy savings test for public buildings and the precise parameters for a “green community program.”

This week, the IRS clarified both of these points with its release of Notice 2012-44. The notice provides flexible and clear standards with respect to most of the questions raised by issuers regarding the interpretation and implementation of the 20 percent test and the green community program, but it leaves other questions unanswered.

The 20 Percent Energy Savings Test

Measurement Unit

Under the new guidance, issuers will be permitted to determine energy savings across a single building, multiple buildings, or isolated building system components of publicly owned buildings for components such as heating, ventilation, and air conditioning systems (HVAC); hot water systems; lighting; building envelope; or electricity plug load. For issuers intending to target one or more energy conservation efforts across several buildings, this means that the 20 percent test does not have to be met with respect to each building or each component. In each case, the building must be owned by a state or local government or any of its instrumentalities (as defined under federal tax law).

Measurement for Multiple Energy Sources

The notice provides that an issuer making improvements involving different energy sources, such as gas and electric, may combine the savings to meet the 20 percent test if a common unit of measurement (British thermal units, for example) is used.

Measurement Period

There had been some concern as to whether an issuer would be required to meet the 20 percent savings test for each year the QECB was outstanding. The notice provides comfort in this area by stating specifically that the issuer is not required (but is encouraged) to continue to measure savings throughout the term and by setting a minimum one-year measurement period for base data before capital expenditures are made and the period for measuring actual savings. An issuer may select a longer period of time if the length of the base period and the period for demonstrating actual savings of 20 percent are the same.

Verifying Savings

The notice states that an issuer must have a reasonable expectation of a 20 percent or greater reduction in energy consumption on the issue date of the QECBs that the capital expenditures to be financed with the bond proceeds. The IRS does not require a specific method for calculating the 20 percent, but the notice references tools and software that may be used by the issuer and provides a sample certification by an independent engineer.

The Green Community Program

Program Purpose Prong

The notice provides a general description of eligible program purposes, including a program promoting energy conservation, energy efficiency, or environmental conservation initiatives relating to energy consumption. The notice goes on to list more specific permitted program purposes, including energy-saving retrofitting initiatives for heating, cooling, lighting, water-saving, storm-water reducing; distributed generation initiatives; or transportation initiatives that conserve energy and/or support alternative fuel infrastructure (such as improvements to bicycle paths).

General Public Use/Availability Prong

A program meets the public use prong if it is available for general public use, including individuals and private businesses, or if it involves a loan or grant program that is broadly available to members of the general public, including individuals or businesses. The notice clarifies that the green community program does not need to affect the entire geographic area or all the individuals and businesses in the jurisdiction that implemented the program, but the program should broadly benefit the general public, residents, and businesses in the jurisdiction.

If you have questions on QECBs, please contact Linda B. Schakel at 202.661.2228 or schakel@ballardspahr.com, Kimberly C. Betterton at 401.528.5551 or bettertonk@ballardspahr.com, Darin Lowder at 202.661.7631 or lowderd@ballardspahr.com, or the member of the Public Finance Department or Energy and Project Finance Group with whom you work.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Ballard Spahr LLP | Attorney Advertising

Written by:

Ballard Spahr LLP
Contact
more
less

Ballard Spahr LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.