AWEA meeting to probe details of possible PTC phaseout, long-term policy needs

Source: Nick Juliano, E&E reporter • Posted: Thursday, October 18, 2012

Wind industry representatives will gather today to discuss the long-term economic implications of their key tax break, including how and whether it could be reduced or phased out and what policy mechanisms could replace it, according to sources familiar with the meeting.

The two-day, closed-door meeting being convened by the American Wind Energy Association, the industry’s primary trade association, is separate from the industry’s long-standing push for an immediate extension of the production tax credit, which expires at the end of this year for wind.

Several months ago, AWEA established three working groups to examine long-term policy issues, and those groups are nearly complete with their task, spurring this week’s meeting.

One group focused on analyzing the economic impacts of various PTC phaseout designs to determine what would be optimal for the industry, another group focused on the political realities of what could make it through Congress, and a third examined other policies that could supplement or replace a PTC if it expired, such as renewable portfolio standards or master limited partnership status for renewable energy companies.

The overarching goal is to determine “what does the industry need to stay alive, basically,” said one industry lobbyist familiar with the meeting who, like others who spoke to Greenwire for this article, requested anonymity to discuss internal deliberations.

The industry has been buffeted by thousands of layoffs in recent months, mostly among component manufacturers, as virtually no equipment orders have been placed for next year because of uncertainty surrounding the tax credit. AWEA says 37,000 jobs will be lost without an extension of the credit.

“We have meetings all the time analyzing PTC options as well as markets and technology,” said Ellen Carey, an AWEA spokeswoman. “That should come as no surprise given the policy uncertainty we continue to experience.”

Congress is expected to address the immediate fate of the PTC during a lame-duck session, although the future of the credit and myriad other issues largely hinge on the outcome of the elections, industry lobbyists and congressional aides say.

As AWEA has lobbied for an extension of the credit, its representatives have stressed that they are not asking for the credit to be continued indefinitely, and some industry backers have suggested phasing out the credit over a number of years (E&E Daily, June 12).

But the industry as a whole has struggled to come to a consensus on the details of a phaseout. That, among other factors, has limited the scope of discussions between the industry and Capitol Hill, creating some frustration among the lawmakers and congressional staffers who would write legislation to address the issue. At least two companies have met with staff on the House Ways and Means Committee in recent weeks to discuss phaseout proposals, according to sources familiar with the meetings, although it remains unclear how detailed those discussions have been.

“Ways and Means would like specifics so they can craft a deal,” a second industry lobbyist said, referring to the House tax-writing committee.

It remains to be seen whether Congress will take up an “extenders” bill before the end of the year, with the presidential election likely to determine how much lawmakers attempt to accomplish in November and December. If President Obama is re-elected, most observers expect a busy lame-duck session, but if Republican Mitt Romney wins the White House, Congress is expected to put off most of its work until after the new president is inaugurated.

A House aide said the industry would benefit from getting details to the Hill sooner rather than later.

“Wind is rapidly becoming the next ethanol, and it is tough to imagine how sitting on the sidelines to see which way the political winds blow on Election Day will be seen as anything other than just that — political,” said the aide, who requested anonymity. “Working in good faith and fulfilling commitments that have been made to members and staff are critical to determining next steps — and those steps will be determined sooner rather than later.”

Hopes for a PTC extension received a boost in August, when the Senate Finance Committee gave bipartisan backing to an extenders bill that would prolong and modify the tax credit (E&E Daily, Aug. 3). That bill could hit the Senate floor soon after Congress returns the week after the elections.

More detailed discussion of a phaseout could happen between staff and lobbyists and within the industry over the next few months, although specific proposals are not expected to be made public until and unless Congress approaches comprehensive tax reform.

If Congress embarks on an effort to overhaul the tax code for the first time since 1986, targeted tax breaks such as the PTC are seen as likely candidates for elimination to offset lower rates for individuals and businesses. It is not just renewable energy companies that are wary of what such reform could mean for their bottom lines, as tax credits and deductions enjoyed by oil and natural gas producers as well as various other energy sectors also could get the ax in a streamlined tax code.

Several variables are at play in determining whether the industry could survive without the PTC, including how long persistent low natural gas prices will continue, the pace at which turbine technology costs continue falling and what other policies would remain in place to drive wind development.

Low gas prices have been an especially key concern over the past few years because they make it more difficult for wind to compete with cheap, gas-fired electricity. And demand for new wind projects has fallen as state-level renewable energy mandates are being met. Because of these factors, analysts expect the industry to struggle next year, regardless of what happens with the PTC, although losing the tax credit would make the situation even worse (ClimateWire, Oct. 9).

A relatively novel idea has been gaining traction in Washington as a way to help the wind industry by allowing it to use a financing model that has long been enjoyed by oil, gas and mining companies. A bipartisan group of senators earlier this year offered legislation that would let renewable energy companies, such as wind developers, structure themselves as master limited partnerships, which would allow them to split income, taxes and tax credits among numerous investors to eliminate their corporate tax bills (Greenwire, June 7)

Today’s AWEA meeting is not expected to produce a consensus position on the longer-term phaseout question, a third industry lobbyist said, noting that it is not a formal meeting of AWEA’s board. But it should give participants a better idea of the economic and political implications of various approaches that could get more attention as part of a comprehensive tax reform debate next year.

“I think at the end of the day, industry has come to grips with the notion this benefit can’t be unfettered over time,” a fourth wind lobbyist said.