Background:
The City successfully received approval from the Internal Revenue Service (IRS) to sell up to $500,000 in CREBonds to erect a Solar Electric System on City facilities at 90 N. Mountain Ave. Approval from the IRS occurred about 4 months later than anticipated, which has delayed implementation of the project. Also, the revisions to the Oregon Business Energy Tax Credit (BETC) are currently being considered by the Oregon Legislature. These revisions, coupled with finding a business to purchase the credit, could provide an additional $300,000 for this project. Staff has worked with a financial advisor for 3 months on both the bond sale and BETC pass through purchase and we are close to proceeding on both fronts.
Bids have been solicited for the Solar System and we hope to have a portion of it installed before June 30, 2007, as authorized by this year's budget. The remainder of the system would be completed in late summer, and the proposed budget includes funds to complete this project. City staff, in conjunction with the Bonneville Environmental Foundation's staff, has developed the draft program description, which is attached to this communication. We wanted to share the draft program design with the Mayor and Council to get input and ultimately final permission to proceed before actual implementation begins.
Staff is seeking direction from the Mayor and Council on a number of policy issues that need to be decided before program design is finalized. The program description that is attached to this communication makes some assumptions about to handle these issue but we need to clarify the following areas:
1. Does the City want to limited the amount of equity shares that one citizen or business can purchase?
The program as described in the attachment is silent on this issue. One argument is that by limiting the numbers of shares that can be purchased by one entity more people will be able to buy into the program. However this could also result in not fully subscribing the system output. A middle ground might be to limit the initial purchase to a set number of shares but then allow people to purchase additional shares if they are still available after the initial offering.
2. Does the City want to subsidize this project or should purchasers pay the entire costs?
The attached version includes city subsidy of about $27,000 per year. Staff recommends this to try and improve the payback period to a point where it would be attractive for purchasers. This is accomplished by a direct City rebate upfront (just like we do currently for privately owned PV systems) and paying higher rates for produced solar kWh's than power we could purchase from BPA.
3. Should the City become a default purchaser of equity from a citizen or business that wants to sell its equity?
This is a complex decision which could impact the future operation and success of the program. The attached draft doesn't include that role for the City and would only rely on individual transactions between equity owners and sellers to provide a private market. If sufficient demand exists for these shares this could work quite well and we could learn a lot about the values that is placed on the solar equity. However, if the City accepts this role, the shares would always have a minimum value which could result in greater participation because there would be little risk that sellers wouldn't be able to sell their equity in the future. However, it will be quite challenging to create an equity floor purchase price that will assure people that there is a market for their share that does not encourage the sale back to the City for direct financial gain. | 
