• Office of Energy Programs
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• Qualified Energy Conservation Bonds
  Introduction | Eligible Projects | Financing Mechanics | Formula Allocations | Oversight of LLJF Formula Allocations | Key Events and Webinars | Forms and Documents

Introduction

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

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

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

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

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

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

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

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

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

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

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

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In order to communicate the intent to use formula allocations, ECD requests that LLJs have an official sign the Notice of Intent form and submit it to ECD prior to October 5, 2012. If an LLJ is using the form to reallocate the formula allocation to the State, a resolution of the governing body must accompany the Notice of Intent form. The purpose of the Notice of Intent form is to allow ECD and TLDA to determine what amount of the formula allocations will be used by LLJs and what amounts will revert back to the State for use in the State’s QECB program.

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

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

Notice of Intent form for Large Local Jurisdiction formula allocations

Project Information form for Large Local Jurisdiction formula allocations

August 16, 2012 LLJ QECB Webinar Announcement

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

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

Database on State Incentives for Renewable Energy

OMB report regarding sequestration of Federal funds

Comments or Questions

For questions or more information, contact Katie Southworth or Molly Cripps of the ECD Energy Division at: 615-741-2994. If you wish to receive periodic program information and updates through the Energy Division’s QECB email listserve, please send your contact information and email address to: Katie.Southworth@tn.gov.

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