Short-term PTC extension gaining momentum as bridge to phaseout

Source: Nick Juliano, E&E reporter • Posted: Friday, November 16, 2012

The push to extend a key wind industry tax break maintains solid bipartisan support, but several senators see a short-term extension expected to pass before the end of this year as a bridge to phase out the credit over the next three to five years.

The production tax credit for wind energy is scheduled to lapse Dec. 31, although the industry has been aggressively lobbying for an extension and has collected an impressive number of supporters on both sides of the aisle. While the credit’s immediate fate largely depends on the outcome of larger year-end negotiations, several key lawmakers are beginning to look ahead to where the PTC will fit into broader tax reform discussions expected to occupy Congress and the Obama administration next year.

The wind industry has long said it does not expect to need the $22-per-megawatt-hour tax credit forever, and industry officials have been exploring ways to phase out the credit over a number of years. No specific phaseout proposals have been put forward by the American Wind Energy Association, the industry’s primary trade group, which maintains its laser-like focus on the immediate effort to win an extension before the end of this year.

Rep. Pat Tiberi (R-Ohio), who has been spearheading the House review of tax extenders, said it is “extremely important” for the wind industry to come to a consensus on what kind of phaseout it could live with before the end of the year, although he stopped short of saying the credit would not be renewed without such an agreement.

“I would never say ‘line in the sand,'” Tiberi told reporters in the Capitol yesterday evening. “I think the sooner you have that language come together and have the consensus, the better shot you have of getting it done, and they’ve been told that. … I think they’re getting closer.”

While the specific structure of a phaseout remains in question, industry supporters and economists say it would likely work best over three to five years. Over that time, natural gas prices are expected to rise and wind costs are expected to fall — improving wind’s ability to compete against gas-fired power — and demand is expected to increase as states pursue tightening renewable portfolio standards.

Two key Republican senators yesterday echoed those expectations, saying that a longer-term path weaning the industry off the credit would provide the industry with the certainty it needs to plan new development. The idea could be applied to other energy tax credits that are scheduled to expire over the next few years, such as the investment tax credit for solar that is in place through 2016.

“What we need to look at critically is if we’re going to have a production tax credit for wind, maybe you’ve got to schedule that for five years, say it’s in place. But then it phases out slowly,” said Sen. Lisa Murkowski (R-Alaska), the top Republican on the Senate Energy and Natural Resources Committee. “There’s got to be some kind of a path, rather than this yo-yo effect that I think has really hampered the industry.”

Murkowski was speaking yesterday at an energy policy briefing hosted by CQ-Roll Call. Also appearing was Sen. Ron Wyden (D-Ore.), the incoming chairman of the Energy committee.

Wyden, who also sits on the Senate Finance Committee and has demonstrated an interest in broader tax reform, said it is critical to extend the PTC immediately because of the jobs at risk amid uncertainty over whether it will continue. At least 4,000 workers already have been laid off, and AWEA estimates 37,000 jobs will disappear if the credit is not extended.

An extension of the PTC gives Congress room to “segue from there into the debate about tax reform,” Wyden said, where the goal for energy-related tax incentives should be equity among various sources. He noted that there are long-standing benefits for fossil fuel companies that are permanently included in the tax code, while renewable companies have to return to Congress year after year to lobby for extension of their support.

“My guess is the focus is going to be on trying to get a level playing field, and probably it’s going to be ratcheted down, but if it’s a level playing field, that again supports, I think, the kind of balanced approach that would get bipartisan support,” Wyden said.

Sen. John Hoeven (R-N.D.), appearing at a separate event yesterday sponsored by Politico, predicted the PTC would be extended this year as part of a larger tax-and-spending package to create a “bridge” to comprehensive reform next year. At that point, the phaseout will be the focus, he said

“If we could come up with a pay-for and a phaseout approach that AWEA would agree to, I think that’s the other possibility,” Hoeven said. “I think you could get enough Rs and Ds together and pass something over, say, a three- or four-year timeline that would phase out” the credit.

For the time being, the immediate fate of the PTC is intertwined in broader negotiations over larger tax and spending issues collectively known as the “fiscal cliff.” If the White House and Congress can reach a deal on whether to extend tax cuts implemented in 2001 and 2003 and decide how to address across-the-board spending cuts that would kick in in January, lawmakers and lobbyists say the PTC is a strong contender to be included in that package.

The Senate Finance Committee in August approved a tax extenders bill that included the PTC for wind projects that commence construction next year. That bill never made it to the floor, and Senate Finance Chairman Max Baucus (D-Mont.) said this week it would be difficult to bring it up separate from the fiscal cliff package.

The House Ways and Means Committee never produced its own extenders package and is not expected to separate it from the fiscal cliff talks. Tiberi, who chairs the Ways and Means Subcommittee on Select Revenue Measures, said a House extenders package at this point would distract from the larger fiscal cliff negotiations.