1. Page 1 Renewable Energy Seminar Lee White Executive Vice President whiteml@gkbaum.com 303-391-5498 Financing Renewable Energy Projects: Bond Financing Alternatives S. 672 Windustry Renewable Energy Seminar Denver, Colorado June 1, 2007

2. Page 2 George K. Baum & Co. S. 672 Community Renewable Energy Bond Presentation Presentation Overview Lee White George K. Baum & Company George K. Baum & Company Current Federal Incentives: Production Tax Credit (PTC) & Accelerated Depreciation & Clean Renewable Energy Bonds (CREBs) Renewable Energy Finance Coalition Tax-Exempt Bond Financing: Senate Bill 672

3. Page 3 George K. Baum & Co. S. 672 Community Renewable Energy Bond Presentation George K. Baum & Company George K. Baum & Company has been engaged for the following renewable energy projects: –Two community wind projects –One tribal community wind project –Five Clean Renewable Energy Bond (CREB) applications/projects (two wind power, one solar and two hydro projects) –Tax exempt municipally owned solar and hydro projects –Financial Advisor to City of Chicago re solar thermal domestic hot water project Several colleges and universities have engaged George K. Baum & Company to investigate potential wind power projects: Both as a part of their endowment investments and as educational/environmental assets Baum is assisting the Renewable Energy Finance Coalition to identify and support additional financing vehicles for community renewable energy projects

4. Page 4 George K. Baum & Co. S. 672 Community Renewable Energy Bond Presentation Current Federal Incentives Production Tax Credit ( PTC) –1.9 cent per KWH federal income tax credit –10 years of project operation eligible for PTC credit –Reauthorized in 2005 Energy Bill for projects put in operation by December 31, 2007, renewed to 2008 –Owner of project only entity eligible to receive federal tax credit –Federal 10 year cost: $2.7 billion Accelerated MACRS Depreciation –5 year accelerated depreciation of wind equipment The combination of the PTC and MACRS provide most of the net cash flow for wind projects during the first 10 years of operation. Clean Renewable Energy Bond (CREBS): Coops, local governments, and Indian Tribes: Federal 10 year cost $411 million

5. Page 5 George K. Baum & Co. S. 672 Community Renewable Energy Bond Presentation Current Financing Models PTC Equity Investor “Minnesota Flip” –Tax motivated investor owns 99% of project for first 10 years then ownership flips to developer, land owner or other investors –Contracts with utility to sell the wind power and the Renewable Energy Credits ( RECS) via the PPA –Usually 60 % or less Loan to Value: Bank financing for loan portion Utility Owned: 10,000 MW in US at end of 2006 –Major utility finances project with cash/bank debt and uses PTC credits itself ( FPL, PPM, Mid America) - Over 40% of all privately owned wind projects are owned by one company ( FPL) and 67% by 5 companies ( Source: AWEA) Community/land owner model: Very little local ownership…less than 2% –Difficult to achieve since little appetite/ability to use substantial PTC federal tax credits –Land owner usually ends up with minor owner ship share (1%) and modest land lease revenues

6. Page 6 George K. Baum & Co. S. 672 Community Renewable Energy Bond Presentation The Difference Between Tax Credit Bonds and Tax-Exempt Bonds Tax Credit Bonds, e.g. CREBS –The Federal Government provides the bond holder a tax credit against their federal income tax liability equal to the interest rate they would have earned as a bond holder. –The Tax Credit bond holder derives 100% of their bond “interest” from the Federal government –The Coop or government that issues a CREB therefore only has to repay the principal of the CREB to the bond holder –This is a useful but expensive federal subsidy to a renewable project Tax Exempt Bonds, e.g. Rural Community Energy Bonds per S. 672 –Interest paid to a bondholder is exempt from federal and state income taxes –The bond investors will accept a lower interest rate since they do not have to pay taxes on the income –Still, interest must be paid to the bondholder by the bond issuer as well as repayment of the bond’s principal –The cost to the Federal government in lost taxes on interest income is more modest and therefore less expensive federal subsidy than a tax credit bond

7. Page 7 George K. Baum & Co. S. 672 Community Renewable Energy Bond Presentation Renewable Energy Finance Coalition Goal is for Congress to encourage local renewable project ownership. Modify tax code to allow privately owned wind projects to be financed with tax-exempt bonds: A compliment to PTC & CREBs and not a replacement for these incentives Formed in 2005 by members of the renewable energy industry Seeking congressional and gubernatorial support Much Grassroots Support : Windustry, farm and environmental group, rural banks Tax-exempt bond financing is among the least expensive forms of long-term capital Incentive would decrease cost of capital of deliverable renewable energy Tax exempt bonds will have a reduced net negative federal budget consequence compared to PTC Would result in more community owned renewable energy projects with enhanced local economic benefits www.REFCoalition.com

8. Page 8 George K. Baum & Co. S. 672 Community Renewable Energy Bond Presentation Tax-Exempt Bond Financing: S. 672 Introduced by Sen. Salazar ( D-C0) and Sen. Smith (R-Or) Objective: Permit more of the economic benefits of renewable projects to remain in the community Private Purpose tax-exempt Bonds ( a 15 th category) which provide the lowest cost of capital available for privately projects 40 mw or smaller projects and at least 49 % locally owned: Not targeted toward large utility scale projects ( e.g. 100 mw and up) Not designed to compete with the PTC but to provide another federal renewable incentive for community scale projects Borrower benefits from low tax-exempt interest rates (now about 5%) but must forego 50% of PTC Secured by Power Purchase Agreement (PPA) with a credit-worthy utility Typical amortization is 15-20 years to match PPA

9. Page 9 George K. Baum & Co. S. 672 Community Renewable Energy Bond Presentation Bond Financing for Renewable Energy Projects After S. 672 Taxable and tax-exempt bond financing available Taxable with 100% PTC Tax exempt with 50% PTC Access lower cost of capital bond market as contrasted to commercial bank loans Secured by a Power Purchase Agreement (PPA) with a credit-worthy utility/power purchaser A 15-20 year mortgage-style amortization to correspond to the duration of the PPA Smaller projects may be “pooled” –Combined project cost of at least $10 mm –Otherwise bond issue is not cost effective due to cost of issuance Two primary types of borrowers –Private developers who could qualify for either taxable debt or tax-exempt bonds –Governmental entities and 501(c)(3) borrowers who are eligible borrowers of tax-exempt bonds

10. Page 10 George K. Baum & Co. S. 672 Community Renewable Energy Bond Presentation Lee White Executive Vice President LEE WHITE is an executive vice president and manager for George K. Baum & Company at its Denver Public Finance office. He has been in the investment banking business for more than 20 years and is responsible for underwriting over $6 billion of municipal bonds. Mr. White has assisted numerous state and local governments and private corporations finance their infrastructure needs. Mr. White has served as the lead or co-lead banker on a number of major utility financings including $79.5 million Pollution Control Revenue Refunding issue for Public Service of Colorado. Other electric utility issues in which he has been involved in recent years include: $16 million Cheyenne Light Fuel and Power, $20 million Wyoming Municipal Power Agency, $60 million City of Colorado Springs and $324 million City of Colorado Springs. He is actively involved in financing renewable energy projects. Mr. White received a Masters of Business Administration from Harvard Business School, a Masters of City Planning from the Massachusetts Institute of Technology, and a Bachelor of Science in Mechanical Engineering from Rensselaer Polytechnic Institute.

11. Page 11 George K. Baum & Co. S. 672 Community Renewable Energy Bond Presentation George K. Baum & Company Founded in 1928, George K. Baum & Company is one of the nation’s oldest privately held investment banking firms. –Underwriting of fixed rate and variable rate tax-exempt bond financings –Refundings –Rating Agency presentations –Assistance in obtaining credit enhancement –Variable rate remarketings –Derivative products Since 1990, Baum has been involved with more than 5,470 municipal bond issues, totaling more than $179 billion In 2006, our firm served as underwriter or financial advisor for 33 utility issues – including both water and sewer and public power transactions – totaling $892 million George K. Baum & Company maintains public finance offices in 16 U.S. cities