Energy Tax Credit Teleconference Energy Improvement and Extension Act of 2008

1. Energy Tax Credit TeleconferenceEnergy Improvement and Extension Act of 2008 David S. Lowman, Jr. and Laura Ellen Jones Hunton & Williams LLP October 28, 2008

2. Overview • Energy Improvement and Extension Act of 2008 • Signed into law on October 3, 2008 • Section 45 • Section 48 • Section 48A/48B • Clean Renewable Energy Bonds • Section 45Q • Certain other provisions

3. Section 45 - Extension • Placed in Service Dates Extended • One year (before January 1, 2010) for wind and refined coal facilities • Two years (before January 1, 2011) for all other Section 45 facilities • Except Indian coal and solar facilities • Except marine/hydrokinetic facilities (before January 1, 2012) • No investment-based limitation on credit amount

4. Section 45 - Modifications • Marine and hydrokinetic energy added as a qualifying resource. Energy derived from • Waves, tides, and currents in oceans, estuaries, and tidal areas • Free flowing water in rivers, lakes, and streams • Free flowing water in an irrigation system, canal, or other man-made channel • Differentials in ocean temperature • Excludes energy derived from any source that uses a dam, diversionary structure or impoundment for power production (see hydropower facilities)

5. Section 45 - Modifications • Marine and hydrokinetic facility • Must be placed in service before January 1, 2012 • Must have a nameplate capacity of at least 150 kilowatts • One-half credit amount • Currently 1.0 cents/kWh • 10-year credit period • Category subsumes small irrigation facilities

6. Section 45 - Modifications • Refined Coal • Increased market value requirement deleted • Emission reduction requirement for sulfur dioxide or mercury increased from 20 to 40 percent • Steel industry fuel added as a refined coal • Fuel produced by liquefying coal waste sludge (tar decanter sludge and other coking by-products) and distributing it on coal • Fuel used as a feedstock for the manufacture of coke

7. Section 45 - Modifications • Steel industry fuel • $2.00 or $3.00 per barrel-of-oil equivalent? • Increased for inflation • Credit period begins on the later of • Date facility was (or modifications were) placed in service • October 1, 2008 • Credit period ends on the later of • December 31, 2009 • One year from the date the facility was (or modifications were) placed in service • Facility or modifications must be placed in service before January 1, 2010

8. Section 45 - Modifications • Hydropower - Definition of nonhydroelectric dam modified • Required to be operated for flood control, navigation, or water supply purposes • Project must be operated so that the water surface elevation at any given location and time be the same as would occur in the absence of the project • Treasury, in consultation with FERC will certify if a project meets this criteria

9. Section 45 - Modifications • Trash Combustion facilities – Definition modified • Clarifies that facilities that gasify municipal solid waste and then burn the gas to generate electricity are qualified facilities • Open- and Closed-Loop Biomass facilities • Allows expansions of existing facilities to qualify for the credit • Credit allowed for the amount of the increased electricity production due to the new unit

10. Section 48 – Extension • Placed in service date extended for 8 years (before January 1, 2017) • Credit may be used against the alternative minimum tax (AMT) • Public utility property exception deleted • Fuel cell credit limitation increased • From $500 per 0.5 kW to $1,500 per 0.5 kW

11. Section 48 – Additions • Combined Heat and Power System • Uses the same energy source for the simultaneous or sequential generation of electric power, mechanical shaft power, or both, in combination with the generation of steam or other forms of useful thermal energy (including heating and cooling applications) • Produces at least 20 percent of its total useful energy in the form of • Thermal energy not used to produce electrical or mechanical power, and • Electrical or mechanical power (or combination)

12. Section 48 – Additions • Combined Heat and Power System • Has an energy efficiency percentage that exceeds 60 percent • Total useful electrical, thermal, and mechanical power produced at normal operating rates, and expected to be consumed in its normal application, over • Lower heating value (LHV) of the fuel sources for the system • Determined on a Btu basis • Special rule for systems using at least 90% biomass • Placed in service before January 1, 2017

13. Section 48 – Additions • CHP property is eligible for the 10 percent credit • Limitations • Credit reduced for systems with an electrical capacity in excess of 15 MW or mechanical capacity in excess of 20,000 horsepower (or an equivalent combination of electrical/mechanical capacities) • Credit is not available for systems with an electrical capacity in excess of 50 MW or mechanical capacity in excess of 67,000 horsepower (or an equivalent combination of electrical/mechanical capacities)

14. Section 48 – Additions • Small Wind Property • Wind turbine that has a nameplate capacity of not more than 100 kW • Placed in service prior to January 1, 2017 • Eligible for the 30 percent credit • Limitation of $4,000 per taxpayer • Geothermal Heat Pump Systems • Equipment which uses the ground or ground water as a thermal energy source to heat a structure or as a thermal energy sink to cool a structure • Placed in service prior to January 1, 2017 • Eligible for the 10 percent credit

15. Section 48A • Section 48A – Tax Credit for Advanced Coal Projects • Increased credit rate from 20 to 30 percent • Additional allocation of $1.25 billion in tax credits • No division of amount between IGCC and other? • New requirement to include equipment which separates and sequesters at least 65 percent of the project’s total carbon dioxide • 70 percent for reallocation applications • Highest priority in allocation awards given to projects with the greatest CO2 separation and sequestration • High priority for applicants which have a research partnership with an eligible educational institution

16. Section 48B • Section 48B – Tax Credit for Gasification Projects • Increased credit rate from 20 to 30 percent • Additional allocation of $250 million in tax credits • New requirement to include equipment which separates and sequesters at least 75 percent of the project’s total carbon dioxide • Highest priority in allocation awards given to projects with the greatest CO2 separation and sequestration • High priority for applicants which have a research partnership with an eligible educational institution • Adds “transportation grade liquid fuels” as an eligible entity

17. Clean Renewable Energy Bonds • Extension and modification of Clean Renewable Energy Bonds • One year extension of deadline to issue existing allocation awards of CREBs • $800 million in additional allocation to be split equally between • Public power providers • Governmental bodies, and • Cooperative electric companies • Numerous other changes to the program

18. Clean Renewable Energy Bonds • Qualified Energy Conservation Bonds created • $800 million to be allocated among the States in proportion to population • Projects related to reducing energy consumption in publicly-owned buildings • Implementing green community programs • Section 45 projects • Certain research facilities involving increasing energy efficiency or reducing fossil fuel consumption • Etc… • Detailed teleconference on CREBs and QECBs on Thursday

19. Section 45Q • New tax credit for carbon dioxide sequestration • $20 per metric ton of qualified carbon dioxide which is • Captured by the taxpayer at a qualified facility • Disposed of in secure geological storage • $10 per metric ton of qualified carbon dioxide which is • Captured by the taxpayer at a qualified facility • Used by the taxpayer as a tertiary injectant in a qualified enhanced oil or natural gas recovery project • Amounts are increased for inflation

20. Section 45Q • Qualified carbon dioxide • Carbon dioxide captured from an industrial source which • Would otherwise be released into the atmosphere as industrial emission of greenhouse gas • Is measured at the source of capture and verified at the point of disposal or injection • Includes the initial deposit of captured carbon dioxide used as a tertiary injectant • Excludes carbon dioxide that is re-catpured, recycled and re-injected as part of the enhanced oil and natural gas recovery process

21. Section 45Q • Qualified facility is any industrial facility • Owned by the taxpayer • At which carbon capture equipment is placed in service • Which captures not less than 500,000 metric tons of carbon dioxide during the taxable year • Capture and disposal or use must occur within the United States (or a possession) • Treasury, in consultation with the EPA shall establish regulations for determining secure geological storage

22. Section 45Q • Tertiary injectant has the same meaning as when used in Section 193 • Qualified enhanced oil or natural gas recovery project has the same meaning as the term in section 43(c)(2) • Credit is attributable to the person that captures and physically or contractually ensures the disposal or use of the carbon dioxide • Credit applies to qualified carbon dioxide before the end of the calendar year in which Treasury (in consultation with EPA) certifies that 75,000,000 metric tons of qualified carbon dioxide have been captured and disposed of or used

23. Other Provisions • Section 25D - Residential energy efficient property tax credit extended for 8 years (before January 1, 2017) • Limitation for solar electric property removed for property placed in service after December 31, 2008 • Credit may be used against AMT • Numerous other changes/additions • Income and gains from “industrial source carbon dioxide” included as “qualifying income” for publicly traded partnerships • Income and gains from “transportation or storage” of certain renewable fuels included as “qualifying income” for publicly traded partnerships

24. Other Provisions • Section 30D – New tax credit for qualified plug-in electric drive motor vehicles • Section 30C – Alternative fuel vehicle refueling property tax credit extended for one year (end of 2010) • Section 179C – Expensing of qualified refinery property extended for two years; fuel derived from shale and tar sands included • Section 25C – Nonbusiness energy property tax credit extended and modified • Section 179D – Deduction for energy efficient commerical buildings extended for 5 years (end of 2013)

25. Other Provisions • Sections 40A and 6426 - Credits for biodiesel and renewable diesel • Credit extended for one year (end of 2009) • Biodiesel credit increased to $1.00 • Various other modifications • Credits for fuels (ethanol, biodiesel, etc.) are clarified to provide that only fuels produced or used within in the United States are eligible for the credit • Section 6426 – Credit for alternative fuels • Credit extended for three months (end of 2009) • Compressed or liquefied gas derived from biomass included as alternative fuel • Credit allowed for use of fuel in aviation

26. Questions? • Questions? • Contact Information: Laura Ellen Jones David S. Lowman, Jr. (804) 788-8746 (202) 419-2070 ljones@hunton.com dlowman@hunton.com Hunton & Williams LLP www.hunton.com • Please contact us if you would like to be added to our Section 45, 48 48A/48B or CREB e-mail alert distribution lists.