Studying Potential Loss of 1603 Cash Grant, 1705 Loan Guarantee, ITC and PTC

What Happens When the Incentives Expire?
By Bruce Hamilton, Director of Energy, Navigant Consulting, Inc.,
Reproduced from RenewableEnergyWorld.com

May 17, 2011

Sacramento, CA, USA -- Wind projects, along with other renewable energy technologies, have benefitted in a variety of ways from federal incentive programs. The Section 1603 cash grant program, the Department of Energy Section 1705 Loan Guarantee program and the Bonus Depreciation schedule are among the federal programs that are scheduled to expire by the end of 2012. The Production Tax Credit (PTC) and Investment Tax Credit (ITC) are also scheduled to expire for wind projects at the end of 2012. In today's budget-cutting environment, it's possible that none of these incentives will be renewed.
The Section 1603 cash grant has been a popular and successful program and is generally credited for keeping the U.S. wind industry healthy during the 2009-2010 recession1. Since the program was initiated in 2009 through the first quarter of 2011, $5.6 billion in cash grants has been awarded for wind projects, representing more than 80 percent of all Section 1603 funding to date.
The DOE Section 1705 loan guarantee program has a current allocation of $2.5 billion that can support up to $30 billion of loan guarantees. As of April 2011, three wind plants have received commitments for loan guarantees totaling $1.5 billion, including $1.3 billion for Caithness's 845 MW Shepherd's Flat project.

Under the federal Modified Accelerated Cost-Recovery System (MACRS), wind and other renewable energy properties are classified as five-year property for depreciation purposes. Eligible property placed in service after Sept. 8, 2010 and before Jan. 1, 2012 qualifies for 100 percent first-year bonus depreciation, meaning that 100 percent of the project cost can be expensed in the first year. For 2012, a 50 percent bonus depreciation is still available. After Dec. 31, 2012, the allowable deduction reverts to the original five-year MACRS recovery. The value of the 100 percent bonus is estimated to be 40 percent of the value of the Section 1603 cash grant.

To determine the impact of the pending expiration of these programs, Navigant calculated the Levelized Cost of Energy (LCOE) for a 100 MW wind plant in various time frames with the following project finance structures:

•Case 1. Circa 2008, using the PTC, equity from the project sponsor (20 percent), and a tax equity partnership flip (80 percent).2

•Case 2. Circa 2011, using the cash grant (30 percent), equity from the project sponsor (20 percent), a DOE loan guarantee (40 percent) and a private loan (10 percent). 3

•Case 3. Circa 2013, using the PTC, equity from the project sponsor (20 percent) and a tax equity partnership flip (80 percent), assuming that the PTC will be renewed.4

•Case 4. Circa 2013, using the project sponsor's equity (70 percent) and a private loan (30 percent), assuming that the PTC is not renewed.5

Navigant also calculated the range of LCOE prices from natural gas fired power plants during these same time periods.6 The results of the four cases are shown in the graph.

The case studies show that wind plants are competitive with gas plants in Cases 1 and 2, which is consistent with the fact that many utilities have installed wind plants well in excess of their Renewable Portfolio Standard (RPS) requirements. In comparing Cases 1 and 2, the combined effect of the cash grant and the DOE loan guarantee cuts the cost of a wind farm nearly in half. In comparing Cases 1 and 3, increased return requirements from tax equity investors are a significant factor in driving wind LCOEs higher. In comparing the wind plant LCOEs of Cases 3 and 4 with their corresponding gas plant LCOEs, wind will not be competitive with gas in 2013, either with or without the PTC. Plenty of wind plants will still be built, but with the current cost structures in place and unless federal incentives are renewed or replaced, post-2012 U.S. wind markets will be driven primarily by RPS requirements rather than competing head-to-head with gas projects.

Bruce Hamilton (left) is Director of Energy at Navigant Consulting, Inc.
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Footnotes
1. According to the DOE's Preliminary Evaluation of the Impact of the Section 1603 Treasury Grant Program on Renewable Energy Deployment in 2009 (Bolinger, Wiser, and Darghouth, April 2010), the grant program may have helped directly motivate as much as 2,400 MW of wind capacity to be built that would not otherwise have come online in 2009.
2. Case 1 assumes a 6% annual return for tax equity investors, which was typical in 2008 when there were plenty of investors compared to the number of quality projects. The wind plant capital cost is assumed to be $2,000/kW for all cases.
3. Case 2 assumes a 2011 cost of debt of 4%/year plus a 2.5% up-front fee. The cost of tax equity is currently 9%/year, plus a 3% premium for projects with debt. Only Case 2 assumes bonus depreciation.
4. Case 3 assumes a 9% annual return for tax equity investors in 2013. If the number of tax equity investors does not significantly increase and new structures do not appear, the cost of tax equity will remain at the elevated 2011 levels.
5. Case 4 assumes that the cost of project debt in 2013 will follow inflation and return to 2008 levels of 6%/year plus a 2.5% up-front fee.
6. Natural gas prices are assumed to be $3.48 to $4.91/MMBtu in 2011 and $4.14 to $5.75/MMBtu in 2013.

Clean Energy Spared The Budget Axe - For Now. An Update from Politico

Alternative energy runs into headwind

By DARREN SAMUELSOHN, POLITICO.COM
Clean energy technology champions are scrambling to secure the tax breaks.  Photo by AP Photo

For the renewable energy sector, it’s a wonder either wind or solar power is still standing.

Austere budgets and small government have become Capitol Hill credos, and clean energy technology champions are scrambling to secure the tax breaks and loan guarantees they’ve depended on over the past decade to drive investments.

Cheap natural gas is beating renewables as the lowest-cost option for meeting the nation’s thirst for new electricity.

Scathing media reports have also raised questions about whether the Obama administration favored its green-tinted campaign contributors with federal stimulus dollars and wound up sending upward of three-quarters of the subsidies to companies that are now based overseas.

And when the industry does show signs of life, wildlife advocates and environmentalists have been making it difficult by blocking transmission lines to get the clean energy to urban centers.

Moderating an Import-Export Bank conference panel earlier last month alongside several top energy industry executives, Carol Browner, President Barack Obama’s former top energy adviser, bemoaned the lack of a long-term market signal to help renewables. Without private entrepreneurs, she said, the already small U.S. market could be swamped by foreign competitors.

“This is an industry evolving rapidly, whether it be on the supply or demand side,” Browner said. “From my perspective, on the public policy side, we need to do more to ensure there is demand for the technology. We are in danger of not being at the forefront of the industry. It’s because of people like this we’re at least able to hold on.”

John Denniston, a partner at venture capital firm Kleiner Perkins, sounded off on the disparity, too, ticking through the top 20 renewable energy companies in the world and noting that just four are American.

Exactly what the federal government can do is a question.

Obama promised to put solar panels on the White House roof last year and has continued to talk up renewable energy. During a visit earlier this month to a wind turbine manufacturer in suburban Philadelphia, Obama pledged to keep up the fight to make the renewable industry’s tax credits permanent — rather than leave them exposed to the often last-minute dash for renewal.

“I want to kick-start this industry,” the president said. “I want to make sure it’s got good customers, and I want to make sure the financing is there to meet that demand.”

But several market experts doubt Obama can live up to his promises. While the solar tax credits are secure through 2016, wind will see some of its most cherished benefits expire at the end of 2012, just after the presidential campaign.

“We’ve seen this movie a number of times,” said Rob Gramlich, senior vice president for public policy at the American Wind Energy Association.

Some of the long-term options are also no longer looked at so kindly on Capitol Hill, either.

Former Senate Energy and Natural Resources Committee Chairman Pete Domenici had once floated the idea of establishing a “green bank” that would put financial experts in place in the evaluation of clean energy projects. A similar idea is now a centerpiece of the Democrats’ energy plan, which makes it more likely to fall to partisan sniping.

“The Republicans are calling it a Fannie and Freddie for clean energy, but they don’t mean it in a nice way,” said Kevin Book, managing director of the Washington research firm ClearView Energy Partners.

Renewable advocates insist they long ago gave up on the idea of pricing carbon emissions as a way to get a toehold against their coal, natural gas and nuclear rivals. Now, they’ve put their eggs in another basket: the “clean” energy standard that Obama mentioned in January’s State of the Union speech.

But even here, their preferred policy approach appears to be stuck in congressional low gear.

“I think the door is cracked open and therefore worth pursuing,” Gramlich said.

House Energy and Commerce Committee Chairman Fred Upton may be the biggest barrier to a “clean” energy standard. He opposes federal mandates and has shown no interest in responding to the issue, even if the Senate somehow were to come up with 60 votes on legislation.

In an interview, the Michigan Republican insisted that he wants to expand the nation’s renewable portfolio. But he quickly ticked through a number of the industry’s downsides.

“Solar would be dead without the extension of the tax credits about a year and a half ago,” he said. “So they continue to push out.”

Upton also took issue with local activists and environmentalists who have made it more difficult to get wind energy into the transmission system by challenging various transmission projects.

“That’s the dilemma,” he said. “You’ve got different groups challenging the building to improve the grid. It’s a problem.”

Despite the hurdles, industry officials see themselves in a strong light.

Wind produces about 2 percent of the nation’s electricity. That’s up from less than 1 percent in 2005, with turbines now churning out more than 40,000 megawatts of power — enough to supply electricity to more than 10 million homes.

Solar power is in its own camp. It still hovers below 1 percent of the nation’s energy pie. Its small size makes its growth look even bigger. Investments jumped from $3.6 billion to $6 billion last year. As of 2010, there’s more than 1,000 megawatts of installed capacity, up from 320 megawatts in 2008.

“We’re the fastest-growing industry in the United States, period,” said Rhone Resch, president of the Solar Energy Industry Association.

Indeed, both wind and solar can point to some useful figures as they try to sway political doubters. In 2010, 14 wind manufacturing plants opened, giving the industry 20,000 jobs stretched across 42 states. Fifty-eight new solar panel factories have opened in the past 18 months. Solar officials tout a similar number of jobs spread across 47 states.

Industry observers say wind and solar, while in different camps in terms of recent growth, can at least take heart in the policies they have been able to latch onto.

“It could have been worse,” Book said. “It could have been the case there was no stimulus to spend. It could have been the case that there was no grant program. It could have been the case there was no production tax credit.”

Wind Farm Finance Picks Up

Wind Farms Set Wall Street Aflutter

By RUSSELL GOLD

Associated Press

A new program offering cash rebates on renewable energy investments is sparking interest in wind farms. A worker atop a windmill in Maine.

After nearly a six-month lull, Wall Street is getting back into the business of financing new wind farms.

Morgan Stanley and Citigroup Inc. have invested $100 million each to finance separate wind farms this month, taking advantage of a brand-new federal program that is paying substantial cash grants to help cover the cost of renewable energy investments.

Bankers say this is the beginning of an active pipeline of new wind-farm financing, as well as investment in large solar installations and geothermal facilities. Project developers and Wall Street appear to be viewing the federal cash grant program as such a good deal, industry experts say, it may grow much larger than its Washington creators expected.

"The money is coming back," says Ethan Zindler, head of North American research at consultant New Energy Finance Ltd.

Under the program, the government will give a cash rebate for 30% of the cost of building a renewable-energy facility, awarded 60 days after an application is approved. Investors are also given valuable accelerated depreciation deductions, which help offset taxes.

The Energy and Treasury departments have said they expect to spend $3 billion on the program, which started July 31 and runs through the end of 2010, and was part of the stimulus bill. But a government spokesman says requests for $800 million in grants were submitted during the first four weeks.

Some Wall Street bankers say they expect applications to grow to $10 billion, based on projected wind-power installations.

"We see opportunities and we are pursuing them pretty actively," says Kevin Walsh, managing director of General Electric Co.'s GE Energy Financial Services division, which was a major financier of wind deals in the past.

The strong interest echoes the $3 billion cash-for-clunkers program that provided incentives to trade in older, lower-gas mileage cars, and which was quickly overwhelmed by demand. "We are concerned that this may evolve into a cash-for-clunkers version 2.0," says a spokesman for Rep. Darrell Issa, a California Republican.

But unlike the popular cash-for-clunkers programs, there is no spending cap on the renewable energy grants, and the government has committed to spending as much as is needed to keep renewable-energy investments flowing.

Under an earlier renewable energy program, the government gave companies tax credits over 10 years, which were attractive as long as financial firms believed they would be generating taxable profits for years to come. When Wall Street imploded last year, profits turned to losses and appetite for these investments disappeared quickly. Some of the companies most active in these deals -- including Lehman Brothers Holdings Inc. and American International Group Inc. -- were hobbled or destroyed by the turmoil.

But the new cash grants are offering the potential for attractive returns. Several bankers interviewed said they expected deals to provide an annual return of anywhere from 9% to 15%.

Most of the investments are expected to go to wind projects, because the industry is more mature and in a better position to capture limited funds. "I would not be surprised if the program is ridiculously successful and spurs a huge amount of development," says Liz Salerno, director of industry analysis for the American Wind Energy Association.

More

• Duke Energy Makes More Investments in Wind Farms

Even capital-constrained financial giant Citigroup has been drawn to wind power. In August, it made a $120 million investment in a large wind farm under construction in the rolling hills of northern Pennsylvania. The project, called Armenia Mountain by developer AES Corp., will deliver about 100.5 megawatts of power-generation capacity from 67 turbines, each the size of a 20-story building.

The quick returns provided by the cash grant "made it an attractive investment option," said Sandip Sen, Citi's global head of alternative energy.

It's not just Wall Street banks that are attracted. Iberdrola SA, a Spanish company that is the world leader in renewable energy by capacity installed, said in July that it expects to tap $500 million in cash grants for U.S. wind projects. "We've been in contact with the Treasury Department and we think the $3 billion is a minimum-type number," said Ralph Curry, chief executive of Iberdrola's U.S. business unit.

The Treasury Department didn't return calls seeking comment.

Additional financing from the grants would potentially benefit major wind-farm developers such as Florida utility FPL Group Inc. and large-scale solar developer Edison International. It could also give a boost to manufacturers who make the turbine blades and solar panels, such as Vestas Wind Systems A/S and First Solar Inc.

Morgan Stanley recently made a $120 million investment in a Montana-based wind farm developed by Grupo Naturener SA. "The cash grants are a good deal for both developers and financial backers," says Martin Torres, a Morgan Stanley vice president who worked on the deal.

"If we have a quick recovery and we're going like gangbusters again, you could easily get to $10 billion in two years," says Kevin Book, managing director of ClearView Energy Partners LLC, a Washington consultant.

Write to Russell Gold at russell.gold@wsj.com

ITC vs. PTC vs. Cash Grant

Renewable Project Finance Options: ITC, PTC, or Cash Grant?

Norbert Richter, Power Magazine

(Click here to review the white paper from The National Renewable Energy Laboratory

Dozens of institutional investors in U.S. renewable energy projects pulled out of the market when the nation’s liquidity reserves dried up late last year. Some left the renewable market sector in search of more lucrative investment opportunities. Others found themselves unable to take advantage of the attractive tax credits because they themselves lacked profits against which to use the credits. The American Recovery and Reinvestment Act of 2009, approved February 13, changed the investor ground rules — again.

The American Recovery and Reinvestment Act of 2009 (ARRA) gives investors, owners, operators, and financiers a choice of government credits that may help push forward renewable projects that otherwise might be turned down. The purpose of this article is to provide a summary of the ARRA as it affects federal support for renewable energy projects as well as an explanation of how the renewable investment rules of the road have changed with the stimulus incentive package.

Large insurance companies and investment banks that engage with project developers provide the bulk of renewable energy project financing. The ARRA offers to those financiers a number of very useful incentives for renewable energy projects that can be tailored to individual project needs. By using complex financial models and structures that are designed to leverage the federal government’s support for renewable technologies, investors can use accelerated depreciation and tax credits to offset tax liabilities. Now, with the expanded variety of production tax credits (PTC), investment tax credits (ITC), and cash grants to choose from, investors must consider the benefits of each incentive for their respective projects (see sidebar).

Renewable Project Tax Credit Options The American Recovery and Reinvestment Act of 2009 (ARRA) gives developers of renewable power generation projects the option to select an investment tax credit, a production tax credit, or a cash grant. Previously, there was no cash grant option, the tax credits were directly linked to particular technologies, and renewal was always problematic. The rules have changed. The production tax credit (PTC) was originally authorized by the Energy Policy Act of 1992 to provide a 10-year, inflation-adjusted tax credit based on the energy produced by qualified wind, closed- and open-loop geothermal, biomass, and small hydroelectric projects, among other technologies. The PTC has been renewed several times since the original legislation. Generally, wind and closed-loop geothermal projects received the entire credit of $21/MWh (as of 2008) and other eligible technologies received half the credit. The PTC rules also continue to require that electricity sales be to an unrelated party, and limitations related to eligibility with other public sector grants, tax-exempt bonds, and other federal tax credits remain. The ARRA extends the credit for wind projects placed in service prior to the end of 2012 and for other technologies through 2013. The investment tax credit (ITC) continues to provide a tax credit for commercial energy projects such as solar, fuel cell, and small wind up to 30% of the project’s qualifying costs and for other geothermal, microturbine, and combined heat and power projects up to 10% of the project’s qualifying costs. The ITC for fuel cells and microturbines has a cap; the others do not. Also, the ITC must be taken in the year that the project enters commercial operation, but it vests over a five-year period. If the project is sold within the first five years of operation, the Internal Revenue Service will recapture a portion of the credit. What’s new is that the ARRA extends the credit for projects placed in service prior to the end of 2016, although credits for geothermal projects have no expiration date. The solar tax credit is currently slated to drop to 10% at the end of 2016. Perhaps the most significant new element is that those eligible for either the PTC or ITC may elect to receive a cash grant of equivalent value. The grant is excluded from gross income of the company, and the depreciable basis of the property must be reduced by one-half of the grant amount. Generally, the PTC or ITC make more economic sense for companies that can use the entire credit.

Good News for Renewables

The ARRA has several finance-based provisions that renewable stakeholders can now consider. These changes will influence how financing decisions are made on both qualitative and quantitative issues. The key changes include these:

• The PTC in-service deadline is extended through 2012 for wind projects and through 2013 for open- and closed-loop biomass, geothermal, municipal solid waste, qualified hydroelectric, and marine hydrokinetic facilities.

• Project financiers may now elect the ITC in lieu of the PTC. The ARRA allows PTC-qualified facilities installed in 2009 through 2013 (2009 through 2012 in the case of wind) to elect a 30% ITC in lieu of the PTC. If the ITC is chosen, the election is irrevocable and requires the depreciable basis of the property to be reduced by one-half the amount of the ITC.

• Project financiers may also elect a cash grant in lieu of the ITC. This new program provides grants that cover up to 30% of the cost basis of qualified renewable energy projects that are in service in 2009 – 2010 or that commence construction during 2009 – 2010 and are in service prior to 2013 for wind, 2017 for solar, and 2014 for other qualified technologies. The grant is excluded from gross income, and the depreciable basis of the property must be reduced by one-half of the grant amount.

• The ITC-subsidized energy financing penalty is removed, allowing projects that elect the ITC to also utilize "subsidized energy financing" (such as tax-exempt bonds or low-interest loan programs) without suffering a corresponding tax credit basis reduction. This provision also applies to the new cash grant option.

• Bonus depreciation of 50% is extended (that is, the ability to write off 50% of the depreciable basis in the first year, with the remaining basis depreciated as normal, according to the applicable schedules) to qualified renewable energy projects acquired and placed in service in 2009.

• The loss carrryback period is extended from two to five years for small businesses (those with average annual gross receipts of $15 million or less over the most recent three-year period). This carryback extension can only be applied to a single tax year, which must either begin or end in 2008.

• ITC dollar caps are removed, eliminating the preexisting maximum dollar caps on residential small wind, solar hot water, and geothermal heat pump ITCs. The dollar cap on the commercial small wind 30% ITC is also eliminated, and credits may be claimed against the Alternative Minimum Tax.

• The existing loan guarantee programs to cover commercial projects are expanded to include support of up to $60 billion to $100 billion in loans, depending on the risk profiles of the underlying projects.

• Clean renewable energy bonds (CREB) get more funding: $1.6 billion in new CREBs is added for eligible technologies owned by governmental and tribal entities, municipal utilities, and cooperatives. Combined with the $800 million of new CREB funding added in October 2008, new CREB funding totals $2.4 billion.

Pick Your Poison

Cash flow model studies funded by the Department of Energy have been developed to help quantify the benefit of PTC and ITC incentives. Given installed project costs and expected capacity factors — along with assumed federal and state tax rates — the models calculate the present value of the ITC, PTC, and cash grant at nominal discount rates of 5%, 7.5%, and 10%. Depending on the project type and constraints, your tradeoff choice between the federal incentives may be clear or marginal.

For example, a wind project that uses a discount rate of 7.5%, costs $2,000/kW installed, and with an expected capacity factor of 30% results in a 1.3% net value advantage for using the ITC instead of the PTC. Using the same assumptions, but with a project cost of $1,700/kW and an expected capacity factor of 40%, yields a 10.4% increased value for the PTC.

Generally, wind projects with lower installed costs and higher capacity factors find that the PTC provides greater benefit than the ITC. Because a higher capacity factor results in more production, the PTC seems to have higher project value for projects that can operate near the plant’s rated output for more hours each year.

Consider another example of an open-loop biomass project, the same discount rate, a capacity factor between 60% and 90%, and a project installed cost ranging from $3,000/kW to $5,000/kW. Using these parameters and several other assumptions (depreciation schedules and PTC applicability to biomass projects), calculations show that the ITC produces more financial benefits for the project than the PTC.

More Details to Consider

The relative value of each federal credit is among the most important considerations when deciding among the PTC, ITC, and cash grant. However, there are other qualitative considerations that may affect a manager’s decision, such as those that follow, especially when the quantitative differences between the PTC and ITC are slim.

Subsidized Energy Financing. The stimulus package removed the "double-dipping" penalty for the ITC, but not for the PTC. As a result, any PTC-eligible project that can secure "subsidized energy financing" may be better off electing to take the ITC (or equivalent cash grant) rather than sticking with a diminished PTC. Prior to the stimulus bill, the values of both the ITC and the PTC were reduced proportionally (with the PTC reduction limited to a maximum of 50%) by the amount of a project’s installed costs that was financed using "subsidized energy financing" (such as government-sponsored low-interest loan programs).

Option to Elect Equivalent Cash Grant. The ARRA not only enables PTC-eligible projects to elect a 30% ITC, but it also allows projects eligible for a 30% ITC to elect a cash grant of equivalent value instead. The availability of a U.S. Treasury – backed cash source might drive some PTC-leaning projects toward the 30% cash grant option, even if the PTC promises a higher expected value.

Owner/Operator Requirement. The ITC does not require the owner and operator to be the same entity, which opens the door to a variety of leasing structures, including sale/leasebacks and inverted pass-through leases. With the exception of biomass projects, the project owner must also operate the project in order to claim the PTC.

Performance Risk. Receiving ITC or cash grants is not dependent on project performance, whereas the PTC is dependent on asset output. The certainty offered by the ITC over the performance risk inherent in the PTC — even if the PTC promises a higher expected value — may make the ITC more attractive.

Power Sale Requirement. The ITC does not impose a power sale requirement, making it a more widely applicable incentive. In order to be PTC eligible, the qualifying renewable power must be sold to an unrelated party.

Tax Credit Demand. Tax equity investors rely on having a tax base that can fully absorb all of a project’s tax benefits over the coming decade before they invest in a 10-year PTC project. Even though depreciation deductions still occur for a multi-year period, the ITC greatly reduces the need for future tax shelter because the full credit is realized in the project’s first year. This also means that to fully absorb the ITC, an investor must have a larger tax base (compared to the PTC) during the first year of the project. Should a project elect to take the 30% cash grant instead of the ITC, the importance of tax equity investors and the tax credit demand is reduced (though it may still be needed in order to maximize allowable depreciation deductions).

Liquidity. The fact that the ITC, or equivalent cash grant, is selected in the project’s first year leads to a relatively more illiquid investment. Potential buyers of the project no longer have access to the credit once the project owner realizes the ITC. Consequently, the ITC vests linearly over a five-year period, forcing the investor to hold on to the project for at least five years in order to fully realize the ITC value. With the PTC, credits are realized in real time over a 10-year period as the project generates power. The sale of a PTC project can then occur at virtually any time (ignoring the influence of depreciation recapture), whereupon any remaining PTCs transfer to the new owner.
—Norbert Richter (norbert.richter@duke.edu) is an industry consultant specializing in renewable energy project evaluation and finance.

For More Information

An excellent reference source on the American Recovery and Reinvestment Act of 2009 and the modeling techniques described in this article is found in "PTC, ITC, or Cash Grant? An Analysis of the Choice Facing Renewable Power Projects in the United States" published in March by Lawrence Berkeley National Laboratory and the National Renewable Energy Laboratory. The entire report is available at http://eetd.lbl.gov/EA/EMP/reports/lbnl-1642e.pdf.