Pathfinder Wind proposes nameplate capacity tax
As the Wyoming legislature looks at a new tax structure for wind in the 2011 General Session, Pathfinder Renewable Wind Energy, LLC has proposed a strategy to the Wind Revenue Tax Committee and members of the legislature that they think will work for the state, counties and the wind energy industry.
During the 2010 legislative session the Wyoming legislature passed a wind generation tax of a dollar per megawatt hour of wind produced, holding at a steady rate, and a property tax is also on the books, which declines over the years like any other property tax.
For the 2011 session, Mark Doelger of Pathfinder Wind says there have been a number of considerations and proposals made, and there’s at least one bill currently being drafted.
“The revenue committee had taken this up as an interim topic, and they considered at least three bills that I’m aware of,” says Doelger. “None passed out of committee in their final meeting in December. Now any bill would have to be sponsored by individuals or a groups of legislators.”
Of the 2010 legislation, Doelger says, “In 2010 the Governor urged the legislature to come up with a generation tax, and what they passed with the Governor’s support was a one dollar per megawatt hour tax, and that’s what’s currently in place. That was really done as a placeholder – to have something on the books for this year’s legislature to take up with a more serious and in depth discussion.”
Pathfinder’s Wyoming Tax Impact Study was commissioned to identify what is needed to reach tax level parity with competing Western states, and to identify tax alternatives for Wyoming that allow it to attract wind development while maximizing long-term job and economic growth. It introduces the concepts of nameplate capacity taxes, which they say provide a greater level of revenue certainty, and community impact fees, which would deliver revenues up front when infrastructure spending is needed.
“What we’ve suggested is that a county receiving revenue from property taxes would rather have a nameplate capacity tax, which means it would be an increasing revenue line over the period of the project, as opposed to the decreasing revenue line of a property tax,” says Pathfinder Wind managing partner Jeff Meyer of the proposed megawatt nameplate capacity tax, as opposed to sales taxes, generation taxes and property taxes.
“At Pathfinder our goal would be to provide a steady and increasing revenue stream over the long term life of a project, which would be similar to a generation tax but based on the nameplate capacity,” notes Doelger. “In other words, Pathfinder and its co-developers, with a 3,000-megawatt wind farm, would be taxed on that 3,000 megawatts regardless of what they generate.”
“The idea would be to have a nameplate capacity tax that’s certain, and not based on generation or depreciation. It would be a certain amount the county would receive over the lifetime of the project, which would go up perhaps every five years,” explains Meyer of the ascending curve. “For a county to grow and to be able to plan over the long term, we think there are many positives with an ever-increasing tax base, as opposed to an ever-decreasing tax base.”
In addition, Doelger says a generation tax is more difficult from an accounting perspective because it’s based on actual generation and production, not nameplate capacity.
Of the concern from some counties that they wouldn’t receive property taxes with the nameplate capacity tax, Meyer says, “That’s not true. Our plan would call for the state to allocate property taxes back to the counties in the same way they currently allocate them.”
Meyer says the other important point in the proposed structure is the nameplate capacity megawatt impact tax.
“There are impacts to counties that will take place several years before generation happens, so we’ve included the nameplate capacity megawatt impact tax in our model, where the county receives money prior to the operation of the wind farm to pay for impacts during the construction period,” he explains.
“We’d expect to settle up with the county where we’re located – for Pathfinder that’s Platte County – to provide the funds they need for mitigation of impacts related to a lot of workers coming in, and the infrastructure needed to support the project and those workers,” adds Doelger.
“What we’ve tried to do is help the state understand what we think is a fair amount of taxation that can be extracted from wind that would also be beneficial to the state and support the growth of wind,” says Meyer. “We realize that if we don’t contribute our fair share to the state, our industry will not grow. Since we have all the numbers from our project in southeast Wyoming, we’ve suggested an alternative to sales, generation and property taxes. If we all can’t grow together, we won’t to grow at all.”
“What we need to avoid is heavy taxation up front, because developers can’t get the financing for a project if they get the big spike in tax right up front with a sales tax,” says Doelger. “We would support dropping a sales tax and replacing the property tax with the generation tax, or preferably a nameplate capacity tax. That’s good for a county and the state because that ensures a revenue stream.”
Doelger says a tax structure friendly to wind developers is crucial to development in Wyoming.
“Wind projects have a very narrow margin,” he says. “The Pathfinder wind farm itself is a $7 billion or so project, and the transmission that has to be built is another $3 billion. These are huge costs, and a huge project, and it runs on a very narrow margin, so that’s where the concern comes in. To have burdensome taxes, particularly those that might be up front like a sales tax, would seriously impact or even cause a project to be canceled. We’re just trying to find a way for everybody to come out of this ok and get what they need so at the end of the day we’ve all survived.”
“We’ve suggested what we think is a fair way to tax wind,” says Meyer.