Without resolution in sight, PTC remains stuck amid varying proposals, priorities

Source: Nick Juliano, E&E reporter • Posted: Friday, December 21, 2012

All year, the wind industry’s lobbying arm has been asking Congress for one thing: an immediate extension of its prized tax credit for wind farms that begin construction next year.

But a brief renewal of the production tax credit will not be all the support the industry needs over a longer time frame, and a growing mix of proposals is being floated on Capitol Hill to give the industry the certainty it says it needs.

The result is a cloudy picture of what the industry can expect lawmakers to deliver, as the narrow debate over wind remains overshadowed by the larger fight over the “fiscal cliff” and increasing fear that Congress will not meet the end-of-the-year deadline to avoid those sweeping tax increases and spending cuts.

At the same time, other industries that benefit from the PTC, such as biomass and geothermal, have different priorities and are making their own requests of Congress. All the industries seem mostly aligned in the short term but have different priorities for next year and beyond.

New proposal floated

The latest entry in the debate over wind’s future is a proposal floated by Xcel Energy, which delivers more electricity from wind than any other investor-owned utility.

Xcel lobbyist John O’Donnell is asking lawmakers to consider an alternative to renewing the 2.2-cents-per-kilowatt-hour PTC. Instead, he said, Congress should implement a combination of an investment tax credit and a “renewable integration credit” that would provide utilities with large concentrations of wind or solar power with tax credits ranging from 0.2 cents/kWh to 0.6 cents/kWh, depending on how much of their portfolio comes from those sources.

It is not clear how much traction the proposal could receive at this late stage in the game. Several lawmakers who have been closely involved in discussions around the PTC, including Rep. Pat Tiberi of Ohio, the House GOP’s lead negotiator on the subject, said yesterday they were unfamiliar with Xcel’s proposal. Whatever happens this year, the idea is likely to resurface if Congress embarks on comprehensive tax reform next year.

And some wind advocates are resisting the effort to insert new ideas into the conversation now, saying they have not been sufficiently vetted and they draw attention from the ongoing push for a PTC extension that already has won bipartisan backing from the Senate Finance Committee.

“We oppose switching horses at this point,” said Dave Hamilton, who has been lobbying for a PTC extension on behalf of the Sierra Club. “There’s a crisis in the wind industry that needs to be alleviated quickly, and the Finance package is going to do that.”

Hamilton said the Xcel idea would be better discussed next year in the context of tax reform.

O’Donnell says the alternative approach would provide something of an escape hatch in the event that lawmakers bristle at the cost of extending the PTC, which the Joint Committee on Taxation estimates would cost $12 billion over a decade. The integration credit, on the other hand, would only cost about $2.7 billion over a decade, according to a 2010 letter from JCT to Sen. Amy Klobuchar (D-Minn.), who has introduced legislation, S. 1291, that would establish the credit.

The credit is designed to compensate utilities with costs incurred to add large amounts of intermittent energy to the grid, such as providing backup generation when the wind is not blowing. The proposal was first reported by National Journal.

Xcel’s plan envisions combining that integration credit with an ITC, the level of which would be established by Congress. Solar projects already benefit from an ITC that covers 30 percent of project costs and is in place through 2016, while wind developers have the option of taking that credit at least through the end of this year. Xcel is not asking for a defined level of support through the ITC, O’Donnell said, but would be open to a lower level of support depending on what is politically viable.

The American Wind Energy Association supports the idea in general but is resisting its insertion into the year-end fiscal cliff talks.

“AWEA has supported a credit for purchasers of renewable energy, as a complementary policy to the PTC,” spokesman Peter Kelley said in an email yesterday. “However, immediate extension of the PTC for projects that start construction in 2013 remains critical in order to save 37,000 American wind jobs, many of them working in wind manufacturing, that will otherwise be lost by the end of the first quarter of 2013.”

O’Donnell defends the approach as better for purchasers of wind power, including utilities like Xcel, which has nearly 3,800 megawatts of wind power, more than 90 percent of which is under contract through power purchase agreements with developers. But he said AWEA is resisting the proposal in part because it is “dominated by developers,” which derive greater benefits from the PTC.

The combined ITC-integration credit approach, he added, also would “solve a lot of problems,” including high financing costs that divert significant PTC funds to banks or other financiers and the criticism lobbed at wind from Exelon, a nuclear-heavy utility that also distributes wind. Exelon has aggressively lobbied against extending the PTC, arguing that it allows wind farms to pay utilities to take their power, especially at night when the wind is blowing but demand is low.

But Exelon opposes the Xcel idea, too.

“A continued buildout of subsidized wind also poses a threat now to system reliability by driving reliable, dispatchable energy sources out of the market and discouraging new investment in other clean, more reliable generation resources,” Exelon spokesman Paul Elsberg said.

PTC not registering on fiscal cliff radar screen

Meanwhile, AWEA and its allies are continuing to lobby for an immediate adoption of the Finance Committee language, which advocates keep hoping becomes part of a broader fiscal cliff deal.

But the chances of avoiding the Jan. 1 cliff have dimmed substantially this week, as negotiations between President Obama and House Speaker John Boehner (R-Ohio) apparently have broken down. The House last night was expected to vote on legislation Boehner referred to as “Plan B” to avoid the cliff by extending income and other tax cuts for people earning less than $1 million per year, but the lower chamber recessed last night after Boehner called off the vote after determining he didn’t have the support to pass his proposal. Senate Democrats vowed not to take up Boehner’s proposal, and the White House said Obama would veto it.

The broader cliff negotiations remain in flux with no immediate resolution in sight. Senate Majority Leader Harry Reid (D-Nev.) said the upper chamber would reconvene Dec. 27 with the hope of still reaching a deal before the new year. House leaders have not yet formally announced their schedule for next week

While the fate of the PTC has been closely watched in energy circles, it has barely registered in the broader debate over tax cuts and spending increases. Rep. Sander Levin of Michigan, the top Democrat on the House Ways and Means Committee, said the PTC and other “tax extenders” have largely fallen off the radar of top negotiators.

“There was some brief discussion, as I understand it, between the president and the speaker on the extenders,” Levin told E&E Daily in a brief interview yesterday afternoon. “But in view of what’s happened since then, it’s kind of all been put on hold or washed away. So we’re nowhere near that.”

Rep. Steve King (R-Iowa), a leading supporter of extending the credit, said he expected the House would return next week. Whether the PTC ends up in a cliff package remains to be seen, but if the end of the year comes and goes, attention would shift to enacting a retroactive extension, he said.

“The PTC would be one of those things that is out there on the table ready to be slid in if that’s what’s necessary,” King told reporters. “And if you resign yourself to not getting it done, then whatever we might decide we’re going to patch together and make retroactive, that’s where I would be trying to put it.”

Credit eligibility remains a sticking point

The extension the industry is seeking is not as simple as just changing the expiration date enshrined in current law. Wind and other renewable industry representatives also want to see the House accept the Senate Finance language changing eligibility for the credit from projects “placed in service” by the deadline to those that begin construction in time.

In the midst of the lame-duck deliberations, AWEA floated an outline of a six-year PTC extension, presented as an idea to be considered next year. The proposal was seen as boosting the industry’s credibility when it says it will not need the PTC forever, but it created some confusion among lawmakers when viewed alongside the industry’s parallel request for an immediate extension with the eligibility modification.

AWEA in its letter outlining the phaseout said it believes the construction-start language should be made applicable for projects that begin next year, reverting back to “in service” for a phaseout through 2018. But some Republicans are asking why the credit should be made available based on construction start times if the deadline would be pushed back multiple years anyway, according to sources familiar with the concerns.

Meanwhile, renewable sources that also rely on the PTC — such as biomass, geothermal, hydropower and waste-to-energy — also are lobbying for the Finance Committee language, but they say it should become a permanent fixture of the credit.

“We think it’s important to kind of decouple the placed-in-service issue from the issue of expiring provisions,” said Bob Cleaves, president and CEO of the Biomass Power Association.

Under current law, the PTC is available for other renewable projects that come into service by the end of next year. But the nonwind industries, which have loosely organized a “baseload renewables coalition,” say they already are feeling the effects of its looming expiration because of the multiyear construction timelines common to their industries

“We’re already hitting that cliff,” said Karl Gawell, executive director of the Geothermal Energy Association.

The baseload renewable industries are still formulating their strategy for next year’s expected tax reform debate, but a continuation of the construction language and extension to the PTC are expected to be among their top asks of Congress. But Cleaves said he also would be interested in ideas that allow his members to “get off the PTC roller coaster” marked by short-term extensions and looming expirations to the credit.

Simple extensions to the credit are not going to be the only idea discussed during tax reform. Another idea gaining steam would allow renewable energy companies to establish themselves as master limited partnerships to attract new investment. And incoming Senate Energy and Natural Resources Chairman Ron Wyden (D-Ore.), among others, has called for a holistic look at how the government supports all energy sectors.

Rep. Earl Blumenauer (D-Ore.) said he would be interested in making credits more responsive to the needs of particular industries, an idea that could gain traction once Congress makes it past the cliff.

“I think what we want to do is look at ways to make it performance-based,” he said this week. “And it’s one of the things I hope to do in this next Congress when we get out of the kind of emergency mode — Is this happening? Are you going home for New Year’s or not? — but that’s the kind of thing that I think people would welcome.”