Interest grows in Senate for phaseout of production tax credit

Source: Nick Juliano, E&E reporter • Posted: Wednesday, March 28, 2012

Amid growing pressure to extend a key wind industry tax credit, a growing number of senators are saying they would like to see the credit phased out over several years — a proposal the wind industry said yesterday it could support.

The immediate focus for wind industry lobbyists and their supporters on Capitol Hill is still to secure an immediate extension of the credit beyond its Dec. 31 expiration, but increased attention to a phaseout over three years or so is likely to inform conversations around energy tax policy through the rest of this year and into next.

The most pressing issue now is finding room in the budget to accommodate an extension of the wind production tax credit (PTC), which provides a tax discount of 2.2 cents per kilowatt-hour for turbine-farm owners. The credit for wind, and similar incentives for other renewable energy sources, cost the government $1.4 billion in fiscal 2011, according to a Congressional Budget Office report released this month.

“The issue is not whether or not you can get agreement on the phaseout; the issue is whether you can find a way to pay for it that is acceptable,” said Sen. Jeff Bingaman (D-N.M.), who chairs the Energy and Natural Resources Committee as well as a Senate finance subcommittee charged with energy tax policy

No phaseout legislation is currently being drafted, according to Bingaman and Finance Committee Chairman Max Baucus (D-Mont.), and details on the pace at which the credit would disappear are key to determining whether such a policy could pass muster in Congress.

“It all depends on the details in the phaseout, but, yeah, that’s something that’s on the table,” Baucus said in an interview.

At a hearing before Bingaman’s subcommittee yesterday, two witnesses whose companies manufacture wind turbine components said they would welcome the certainty of a two- to three-year phaseout of the tax credit as a better alternative to the on-again, off-again nature of current tax policy.

“I can’t tell you specifically, not knowing what that ramp-down would be, but in general, yes, a longer-term view would help,” said John Purcell, vice president for wind energy at Leeco Steel, during the hearing of the Senate Finance Subcommittee on Energy, Natural Resources and Infrastructure.

The tax credit was first offered in 1992 and has been extended numerous times since then, but generally in just one- or two-year increments and sometimes retroactively. The scenario creates unpredictable swings in the industry and makes it harder for companies to make long-term plans, witnesses said. Wind installations fall dramatically when the credit is allowed to lapse and often surge just before its expiration as developers rush to reap its benefits.

John Ragan, vice president of business development and government affairs for TPI Composites, which manufactures turbine blades, made a similar point. He noted that his company manufactures blades based on received orders, which are in turn dependent on wind developers getting power purchase agreements from utilities that use tax incentives to set competitive rates.

“We can’t just turn our manufacturing off and back on the way other industries can,” Ragan said, so a longer-term PTC would be more valuable than “the on-again, off-again” approach.

Sen. John Thune (R-S.D.), who has said he would support a tax-credit extension this year, posed the question about an eventual phaseout, and he said more input from the industry on the details of such an approach would be helpful when Congress tackles broader tax reform, as it is expected to do next year.

“But I think anybody that can come forward with a specific proposal that would have that sort of a wind-down in it is going to be well placed relative to those discussions about tax reform,” Thune said during the hearing. “And so far, we have not seen any proposal that would do that. I know there are many of us who would be interested in working with people who would be able to advance that kind of an idea.”