A key renewable energy tax break is facing stiff resistance as Congress begins to debate the fate of dozens of business tax breaks that expired at the beginning of this year, according to lawmakers, aides and outside stakeholders tracking the process, and its main beneficiary is rolling out an answer to the leading attack it is expected to face this year.
The future of the production tax credit (PTC) and other energy extenders will be decided in the coming months as Congress begins to craft legislation that could reinstate some of the more than 50 temporary provisions, collectively known as “tax extenders,” that expired at the beginning of this year.
A central focus of the extenders battle will be the effect on power markets of increased levels of wind energy, the PTC’s primary beneficiary. Namely, the question will be whether wind’s ability to sometimes give its power away for free or pay customers to take it is a boon to consumers or a threat to competing utilities that could jeopardize the reliability of the electric grid.
Negotiations over an extenders bill have been proceeding behind the scenes, and the process could take center stage as soon as next week, when the Senate Finance Committee hopes to begin debating its extenders bill, although there were not concrete agreements reached yesterday amid worries the schedule may slip.
The PTC stands a good chance of being included in whatever makes it out of committee, lawmakers and aides say, but it will face a much tougher time on the Senate floor and in the House, where opposition among rank-and-file Republicans has grown over the last two years.
Republicans working to end the PTC, which benefits wind and some other renewable electricity sources, are preparing two main lines of attack, according to a senior Senate GOP aide familiar with the process. Critics will argue that the PTC distorts electricity markets by allowing wind farms to pay customers to take their electricity under certain instances and that the expansion in eligibility for the credit when it was most recently renewed in early 2013 was sufficiently generous to let the wind industry continue to operate without the need for additional subsidies.
The wind industry yesterday rolled out a lengthy response to the first claim, which has been advanced for years by the utility Exelon Corp., which says the PTC allows wind to sell into competitive markets at negative prices, undercutting its fleet of nuclear reactors. A paper released by the American Wind Energy Association argues that Exelon has overstated the extent to which negative pricing occurs and says those situations can be blamed on factors other than the PTC, such as transmission bottlenecks. The association also argues that wind’s ability to reduce electricity prices is a boon for consumers.
“Wind energy’s impact on markets is positive, by displacing more expensive forms of energy,” AWEA analyst Michael Goggin, who wrote the study, said in a statement. “Moreover, this impact is entirely market-driven, is widely seen as beneficial, and occurs for all low-fuel-cost sources of energy, including nuclear.”
A senior Exelon executive questioned the premise of the AWEA study, saying it relied on day-ahead prices in the markets it studied rather than using real-time price data where negative pricing was more visible. Joseph Dominguez, the company’s senior vice president for governmental and regulatory affairs and public policy, said Exelon supports efforts to incentivize wind energy, as long as such incentives do not undercut the value of nuclear, which provides base-load electricity without carbon dioxide emissions.
“We’re explaining this situation to policymakers – more and more they understand it and recognize the problem with the current policy approach,” Dominguez said.
Goggin said he used day-ahead prices because that is what nuclear generators typically use when they bid into competitive markets. He said real-time prices were irrelevant to the concerns Exelon has raised.
Dominguez pointed to recent statements from Federal Energy Regulatory Commissioner John Norris and others echoing the utility’s concerns and worrying nuclear units may be forced to retire because of economic pressures.
The Finance Committee is expected to meet Wednesday to mark up its extenders package, although nothing had been decided as of yesterday evening. In a statement yesterday afternoon, committee Chairman Ron Wyden (D-Ore.) said he remained hopeful and pledged that this would be the last round of extenders before moving to comprehensive tax reform.
“I am hopeful that we can reach a bipartisan agreement on extenders in the days ahead. This means jobs and much needed certainty for families and businesses alike,” Wyden said. “But let me be clear – I’m determined that this is the last time we do extenders and would like to leverage this last extension to reform the broken tax code.”
Extenders are nominally temporary but have become seen as effectively permanent because they are so often renewed; however, lawmakers hope this year is when that changes and are drawing up lists of breaks they believe it is time to end. Congress most recently extended the tax breaks in January 2013, as part of the broader “fiscal cliff” deal enacted at the end of the previous session of Congress.
The breaks mostly expired in January, although they can be made retroactive. And in the case of the PTC, the immediate effect was largely muted because developers are still eligible for the credit as long as they started work on their projects or made at least a 5 percent investment by the end of last year. That expanded eligibility – compared with an earlier requirement that projects be up and running before the credit expires – helped the industry get back on its feet last year, despite few projects actually coming online. But it also has fueled arguments that another extension is not needed.
Near the top of many Republicans’ list for elimination is the PTC, the most expensive of the dozen or so energy-specific extenders that supporters have credited with bringing online tens of thousands of megawatts of wind power over the last several years.
Longtime critics of the credit such as Sen. Lamar Alexander (R-Tenn.) are just as vocal as they have ever been about its need to end. And even some previous Republican supporters have been less visible compared to the last time the credit was extended; Sen. John Thune (R-S.D.), who comes from one of the windiest states in the country, said earlier this year that he did not expect the credit would be extended unless there was some assurance that it would be phased out at the same time.
To be sure, the credit still enjoys some key GOP supporters, such as Iowa Sen. Chuck Grassley (R-Iowa), who wrote the first PTC law in 1992 and remains a senior member on Finance. But GOP aides suggest it will face stiff resistance on the Senate floor.
In the House, Ways and Means Chairman Dave Camp (R-Mich.) said he would not extend the credit as part of his comprehensive tax reform plan rolled out earlier this year, and the PTC is not expected to be among the extenders he will propose to make permanent in a parallel process that is just beginning to unfold in the lower chamber. Wind backers are hoping that sufficient support from business groups for the other pieces of an extenders package combined with an insistence from Senate Democrats and the White House on making the PTC part of the bill will be enough to get it across the finish line this year, an industry lobbyist said.
“Is it part of the package that’s going to forward? I don’t know yet,” Sen. Rob Portman (R-Ohio), a Finance member, said in response to a question on the PTC yesterday. He added, “I’ll probably support the package.”
Wyden has not divulged details of what will be included in the extenders bill he and ranking member Orrin Hatch (R-Utah) are preparing to present to the committee. A list circulating among staffers yesterday afternoon included the PTC as one of several breaks unlikely to make the cut – at least in the first iteration of an extenders bill. But Hatch said he expected it ultimately would make the cut, through an amendment in committee at the very least.
“I’m trying to scale back, and it’s awfully hard. But I suspect that one’s going to go in the package,” Hatch told reporters yesterday in response to a question on the PTC. “I think it always has, so the odds are that it could. Even if it’s not in there somebody could move to put it in.”
Sen. John Cornyn (R-Texas), the GOP whip and a Finance Committee member, said the PTC’s fate was the “$64,000 question” ahead of next week’s expected markup. He said the long history of the credit, which was first implemented in 1992, supported those who argue it is time for it to end. But he also noted that it was too soon to declare the PTC would sink the whole package.
“You know there’s 55 different provisions, and so I’m trying to analyze all those now,” he told E&E Daily. “So I’m not prepared to say there are any deal breakers.”
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