Tax reform, the big issue on Capitol Hill these days, could spell trouble for PacifiCorp’s bid to spend billions on wind power in the next three years.
The Portland-based utility’s “Energy Vision 2020” proposal calls for 999 megawatts of retooled wind turbines in several states including Oregon, 1,270 megawatts of new wind in Wyoming, and a 140-mile transmission line also in Wyoming, all at cost of around $3.2 billion.
The proposal is built around an expiring federal incentive called the production tax credit, “a time-limited opportunity to provide substantial customer savings,” as the utility put it in an Oregon regulatory filing early last week.
But PacifiCorp faces the possibility that the PTC rug will be pulled out from under it by the tax reform effort.
It’s far from a done deal, but the House bill unveiled last Thursday would change the qualification requirements for the PTC while stripping away an inflation adjustment – provisions that could significantly diminish the PTC’s value for PacifiCorp.
PacifiCorp spokesman Bob Gravely declined to speculate on the possible impact of tax reform, but acknowledged the stakes were high.
“There’s no doubt that the availability of federal tax credits make our new wind and the repowering (economically beneficial) for our customers,” Gravely said. “So we would be very concerned if there were changes made to those tax credits.”
PacifiCorp is seeking “acknowledgement” of the Energy Vision 2020 proposal by Oregon regulators – as well as those in Wyoming, Utah and Idaho – as part of its 2017 integrated resource plan. The utility can do the projects without acknowledgement, but that could heighten the risk that regulators don’t eventually allow it to recover the investment through rates.
Oregon PUC staff have recommended against acknowledgement, arguing that the utility doesn’t need the wind power for years to meet Oregon’s renewable energy mandate, and that various underlying assumptions could go sour, turning ratepayer savings into subsidies.
One big assumption PacifiCorp is making is that the wind projects qualify for the full value of the PTC because they were “under construction” in 2016. That’s vital because the PTC is being phased out, and is 20 percent less valuable for projects begun in 2017, and another 20 percent less valuable for those begun in 2018.
A common way to qualify projects in a given year is to purchase the turbines, and PacifiCorp did that for its repowering projects late last year. But the House proposal would require “a continuous program of construction,” and it’s unclear if the PacifiCorp projects – which only recently went out for bid – would still qualify.
Speaking generally, Kevin Pearson, a Stoel Rives partner who works on energy tax law, said the change “may undo what some people were relying on to satisfy beginning of construction.”
The House plan would also remove an inflation adjustment for the PTC, dropping its value from the current 2.4 cents per kilowatt-hour to 1.5 cents per kilowatt-hour.
In their comments in the IRP process, PUC staff had noted that “if the IRS were to stop inflation-adjusting the value of the PTC … the value of the PTCs for these projects would fall by almost $100 million.”
Along with the caveats that the tax reform is a work in progress and hardly guaranteed to pass, Pearson added that much would depend on how the IRS interpreted changes to the law.
Still, Bloomberg New Energy Finance estimates that the House bill as presented last week would cut overall U.S. wind deployments by half through 2020, from 38 gigawatts to 19 gigawatts.
The hopeful news for wind backers is that wind power is a rare issue that has pretty solid bipartisan support in Washington. Iowa Republican Sen. Chuck Grassley, a tax reform supporter and member of the Senate Committee on Finance, is vowing to protect the PTC from tinkering. And the American Wind Energy Association is lobbying hard on the issue.
“It’s very early in the process,” PacifiCorp’s Gravely said. “We’ve already seen a strong reaction to the House proposal, and a lot can change.”