Glossary Terms

Pass-Through Entity

A business structure that allows tax credits and operating gains and losses to be allocated to the owners of the business rather than the business itself, which prevents the income of the business from being taxed twice. Some examples of pass-through entities that would qualify for the federal production tax credit include: limited liability companies, partnerships, sub-chapter “S” Corporations, and limited liability partnerships.

Passive Tax Appetite

Income from certain types of investments qualifies as passive income. Tax paid on this income is considered passive tax. To take advantage of the Federal Production Tax Credit (the PTC) and Modified Accelerated Cost Recovery System (MACRS), you or a project partner must be paying taxes that fit into this category of tax liability. For more information about what qualifies as passive activity see IRS Publication 925: Passive Activity and At-Risk Rules: http://www.irs.gov/publications/p925/ar02.html

Passive Income

Certain types of income, as defined by the IRS, such as rental income or income from businesses, in which the earner serves only as an investor and is not actively engaged in running the investment as defined by the IRS. See Passive Tax Appetite.

Network Resource

An electrical generator that can provide support to the system in terms of real or reactive power supply, spinning reserve, or other services that the system operator requires to keep the system operating in a safe and reliable manner. Generally wind projects can only qualify as an energy resource because of their non-dispatchable nature, i.e. they can only supply energy to the system when the wind is blowing and not when the system requires it.

Net Present Value

A common financial concept (and a critical component of Minnesota’s C-BED tariff), reflecting the idea that having a given amount of money today is more valuable than receiving the same amount of money in the future. C-BED requires utilities to determine the net present value of their rate schedule using the standard discount factor that they apply to their other business decisions. That means calculating the expected payments over the life of the contract and applying the discount to find the net present value of the series of payments. The net present value is then divided by the total energy produced over the 20 years, resulting in the “net present value rate” – the present value of every kilowatt-hour the project will produce over its lifetime. C-BED requires that the utility establish a tariff that provides for a rate schedule resulting in a net present value rate of up to 2.7¢/kWh.

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