The latest chapter in the ongoing controversy of siting turbines on Vermont ridge line is unfolding in the House as lawmakers wrangle over setting a tax rate that wind farms will pay into the education fund.
At the heart of the debate is how far the state should go in using taxes as an incentive to spur wind development.
Testimony last week suggested that a stabilized tax rate would give developers the assurances they need to attract investors, get over permit hurdles, and help offset costs of building at remote sites.
UPC Wind Vice-President Steve Vavrik told members of the House Ways and Means Committee that he wanted a tax rate tied to the kilowatt hours (kWh) that will be produced in a year by the company’s Sheffield farm.
While approval for the farm is still pending before the Public Service Board (PSB), Mr. Vavrik said the 16-turbine farm would annually produce an average of 115 million kWh.
“A fixed rate gives me a very good rule of what we are going to pay,” he said, after noting that the Sheffield facility will cost $75-million to build.
However lawmakers are at odds over what that rate should be.
A broad energy bill introduced by the Committee of Natural Resources set a rate of “$0.003 per kWh on wind farms with a minimum capacity of five megawatts (MW). But an amendment offered by the Ways and Means Committee would double the rate.
Mr. Vavrik said he wanted a rate that would be independent of market conditions.
“We are proposing certainty, regardless of the price of gas and oil,” he said.
But his offer wasn’t greeted with open arms.
“How many other businesses enjoy that situation,” asked Michael Obuchowski of Rockingham, the chairman of the committee.
In terms of real money, under the lower rate, UPC would pay an estimated $345,000 in education taxes. But that sum would double to $690,000 if the amended rate of $0.006 is approved.
Either rate would give UPC a tax break compared to what other companies are paying.
If UPC paid a tax based on the fair market value of its Sheffield facility – estimated at $100-million – it would pay roughly $1.3-million into the education fund, according to testimony aired Friday.
Debate over the rate is expected to ramp up Wednesday, April 4, when the bill comes onto the House floor.
Although the town of Sheffield has not testified on the bill, the outcome could affect the contract it has with UPC, according to Selectman Max Aldrich.
“It’s just good business on our part to follow this bill,” he said in an interview Tuesday night.
Whether the state steps in and appraises the proposed facility could have a bearing on the annual payments UPC is pledged to make to the town, noted Mr. Aldrich.
The amount of those payments range from $400,000 to $550,000.
Presently, Vermont Yankee is the only electrical generating plant whose education taxes are tied to production. According to testimony, its taxes are calculated on a $0.001 rate.
Its municipal tax, however, is based on fair market value, making its property tax, in the words of one tax expert, a hybrid tax.
Currently, taxes on Searsburg, the only wind farm operating in Vermont, are based on fair market value of $5-million. This year its tax bill was $90,431, according to Steve Kimball, a lobbyist for Green Mountain Power which owns Searsburg. Under a fixed tax rate of $0.003 indexed to production, its taxes would have come in at roughly $53,000.
Mr. Kimball said if the bill passes, Green Mountain would not challenge the town’s appraisal since the facility is owned by a regulated monopoly and not by a merchant generator or a private developer. Also its taxes are being paid by the PSB-approved electric rates that it charges its customers.
A regulated utility, he added, is “a different breed of cat” from a merchant generator.
When it started ten years ago, Searsburg was an experiment funded in part with federal dollars. Testimony before the committee suggested that recent wind developers shop for a tax rate. When East Haven Windfarm was formed, it did a national survey and found that wind facilities were paying between $0.003 and $0.004, according to Andy Perchlik, the director of Energy Vermont. However, the Montpelier-based company was unable to get an agreement on how to tie its property taxes to income, he said.
One of the issues the bill proposes to address is how to appraise the value of wind facilities for tax purposes. Legislators are concerned that a rate tied to something other than a fair market value might cause the education fund to suffer.
But PSB Chairman James Volz testified that he could not imagine that any fluctuation in the energy market would have an impact on the fund. Because operating costs of a wind farm are so small, he said it is unlikely expenses will fluctuate once capital constructions costs have been paid off.
Moreover, he noted that a rate is not a contract, and that it could be adjusted as the price for power goes up and down.
While supporting the concept of tying or indexing a tax rate to kilowatt hours, Mr. Volz said a flat rate would serve as both an incentive and a stabilizer as a wind developer would know what he has left to sell after the tax has been taken out.
Turbines have an industry standard of running only 33 percent of the time, so the revenue they produce is always tied to how much wind will blow. Texas, California, and Colorado are currently the states where most of the wind farms are located. The way other states tax wind farms vary, but Rich Smith of the Department of Public Service said lawmakers could look at assets and the cost of putting turbines in place.
The projected cost for the Sheffield project is $75-million. But once it is up, Mr. Vavrik said his company would appraise it at $100-million.
Committee members repeatedly asked witnesses why Vermont is so appealing to wind developers. None had any definitive answer, but Mr. Perchlik suggested that power is expensive in New England and that the market for renewable energy credits is strong.
Most of the states in New England have renewable portfolio standards in place that require utilities to acquire a certain percentage of their power from renewable sources. And because demand is greater than the current supply, it is a seller’s market for merchant generators of renewable energy. On the open market, the energy is sold as renewable energy credits (RECs), and nowhere are the prices any higher than New England.
“The reason why we built the project in Mars Hills is the RECs in New England,” testified Mr. Vavrik, speaking of the company’s plant in northern Maine. “The reason why we’re building this project is the RECs,” he said, referring to Sheffield.
The Douglas administration supports the rate of $0.003, according to the testimony of Mr. Smith with the Department of Public Service, which functions as the public’s watchdog in ratepayer cases and other power related projects.
The strongest testimony against a fixed rate came from James Wilbur of Londonderry who is with the Vermont Energy Conservancy.
He called the bill’s rate “a generous subsidy” that would come at the expense of the school system and the private property owner whose taxes are constantly rising.
According to his testimony, wind developers enjoy a quick rate of return that comes during the first four or five years of a facility’s operation. A return, he added, that is aided by an “aggressive federal depreciation tax.”
When the committee is considering incentives, he said, “these high profits should be taken into consideration.”
There was a sense among some of the witnesses that once the state adopts a tax approach for privately owned wind farms, towns will follow its lead. But Mr. Aldrich, who supports the idea of tying a wind farm’s education taxes to the power it generates, disagreed.
“I don’t believe the town is going to change the way we tax things,” he said.
by Paul Lefebvre
4 April 2007
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