AMERICAN PUBLIC POWER ASSOCIATION CLEAN RENEWABLE ENERGY BONDS (CREBS) AND RENEWABLE ENERGY PRODUCTION WORKSHOP Presentation by: Dan Aschenbach, Senior Vice President February 9,2006 Presentation by: Dan Aschenbach, Senior Vice President February 9,2006

THE INVESTMENT COMMUNITY: HOW WALL STREET VIEWS THIS NEW FINANCIAL TOOL

QZABS And Now CREBS CREBS are based on the success of QUALIFIED ZONE ACTIVITY BONDS or QZABS. The QZABS have allowed public school districts to finance various infrastructure projects at a 0% interest rate.

Slow Market Acceptance Of QZABS Slow to gain market approval because of the unfamiliarity with this type of security. It took several years for QZABS annual federal allocation to be fully subscribed. Current law limits investor base to only banks, insurance companies and lenders.

The CREB Difference There is no limitation on investor base for CREBS. Any taxpayer can take the CREB tax credit. Qualified projects are: wind; closed and open- loop biomass; geothermal; solar; small irrigation power facility; landfill gas; trash combustion; a refined coal and hydro power unit. Refinancing of outstanding debt if incurred after August 8, CREPS are subject to arbitrage restrictions.

How CREBS Differ From Tax-Exempt Bonds Issuer doesn’t pay interest to bondholder; the federal government provides a tax credit. Treasury will set the rate of the credit on a daily basis, so issuance is EXPECTED to be without a discount and without interest cost to issuer. Bondholder can take credit against their regular income tax liability and alternative minimum tax. Bond principal is repaid to bondholder in equal payments each year of the term of the bond.

How CREBS Differ From Tax-Exempt Bonds The term of the bond will be based on a formula which results in a maximum maturity equal to the present value of the obligation to repay the principal equaling 50% of the face amount of the CREB. The maximum term for a CREB will be published daily by the Bureau of Public Debt on its State and Local Government web site.

There Will Be Some Bond Costs The bonds may sell at a discount depending on the perception of the market as to the credit of the issuer. Also, transaction costs have to be factored into the financing (95% of proceeds of CREB have to be spent on capital expenditures).

Wall Street Opinions “There needs to be an education process in terms of describing the benefits that the investor would derive from getting involved in these bonds. It may take time to catch on. “ Merrill Lynch analyst-Bond Buyer article

Wall Street Opinions “Based on demand for QZABS, the market appears to have capacity for CREBs. “Obviously there are a number of investors out there buying that paper at competitive prices.”

Wall Street Opinions The question remains on this product as to whether it is going to be accepted in the marketplace…. “ you just don’t know yet.” La Salle Bank Vice President-Bond Buyer Article

From A Moody’s Credit Perspective Credit analysis will still focus on the underlying credit strength of the issuer as well as the project being financed.

The Renewable Project Has To Work

THE PROJECT HAS TO WORK…..

Renewable Challenge Unproven or unreliable renewable technology could become an issue so the CREB security will be an important consideration. CREB statute is silent on what issuer pledges as bond security. Can be general obligation or revenue bonds.

Role For Financing Tools Like CREBS Appear To Be Here Of the top ten U.S. electric utilities in terms of customer participation rates for renewable energy sales, six are public power communities. Clean air restrictions, global warming debate, natural gas pricing, pressures on international commodity markets. Popular programs with public.

STATE RENEWABLE ENERGY STANDARDS TIMETABLE FIRMS UP

CONCLUSION Public education program will be important Credit quality will be dependent on project and bond security Appealing program to utility bond issuers due to 0% interest Program meets increasing U.S. concern Questions