In July 2005, the United States Congress passed the Energy Tax Incentives Act of 2005 which was signed into law on August 8, 2005. Among other things, the Act allows for the issuance of Clean Renewable Energy Bonds (CREBs), an innovative new security that can be used to fund renewable energy generation facilities. CREBs are a new type of bond, the interest on which is paid as a credit against investors' Federal income tax. Because the borrower is not required to pay interest, CREBs represent a form of zero-interest financing.

CREBs are a response to municipal and cooperative utilities' need for a financial vehicle to support their renewable energy projects since they cannot take advantage of the Production Tax Credit, a Federal renewable energy subsidy that can only be used by an entity with tax liability.

The 2005 Act made available a total of $800 million in CREBs to be issued by qualified issuers, of which governmental entities are limited to issue a maximum of $500 million. Qualified issuers for CREBs include state and local governments; CoBank, ACB; mutual or cooperative electric utilities as described by Internal Revenue Code; U.S. territories and possessions; Indian tribal governments; the National Rural Utilities Cooperative Finance Corporation; and nonprofit electric utilities that have received a loan or loan guarantee under the Rural Electrification Act. Qualified issuers and projects were required to apply for allocation of CREBs to qualified projects by April 27, 2006. Below are financial features of CREBs which borrowers should consider.

• Pricing - The amount of the tax credit will be fixed by the Treasury. It is anticipated that the level at which the credit is fixed will permit the offering of CREBs at par. In the past the market has required offering discounts of up to 20 percent on other similar tax credit bonds, such as Qualified Zone Academy Bonds ("QZABs"). It is credit quality of the project, issuer and pledge.
• Use of Proceeds - The Act stipulates that CREBs must be issued by December 31, 2007 and 95 percent of the bond proceeds must be spent within five years of the issuance, though extensions may be requested.
• Amortization and Term - CREBs must be amortized as level principal, and the term will be set by applying a present value formula such that the present value of principal payments is at least 50 percent of the face amount of the issuance.

George K. Baum & Company is committed to providing underwriting and financial advisory services for CREB financings. We have recently been selected to serve as underwriter for four CREB financings in Massachusetts, Colorado, and North Dakota. In the past, George K. Baum & Company has served as underwriter for Qualified Zone Academy Bond ("QZAB") financings, a program similar in structure to CREBs that provide tax credit bonds for school renovation and upgrades in certain qualified school districts. Our team's experience underwriting utility issues and our work with QZABs has positioned George K. Baum & Company as a knowledgeable advisor and underwriter for CREB financings.

It has been reported that the Treasury received over $1.2 billion of applications for over 700 projects. The Treasury will allocate the bonds based on project size, allocating CREBs to the smallest projects first until the $800 million is fully allocated. Allocations are expected to be made in October 2006.