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As coal taxes decline, Republicans eye renewables

Citing a need to “level the playing field” on energy taxes, Montana’s majority Republican Legislature will consider raising taxes on wind and solar developments as the coal industry struggles.

The tax increase on renewables isn’t likely to replace all of the revenue lost to coal’s decline, but it would help, said state Sen. Duane Ankney, a Republican from Colstrip, home to a large, but struggling, coal-fired power plant and coal mine.

“I see it as a backfill for a lot of failed revenue,” Ankney said. “It’s no more than any other energy pays. It’s not a special high tax for renewables, it’s comparable to any other energy tax except for the severance tax.”

The plan is to eliminate especially low property tax terms that were created to encourage renewable energy projects more than 15 years ago. Now two decades in, renewable energy developments aren’t new, Ankney said. There’s no need for added incentive to develop renewable energy projects in Montana.

Tax increases on renewables were outlined in a list of Montana House Republican priorities published this fall. Included on the list was a $1 per megawatt hour tax on renewable energy, that observers say would likely make Montana renewable energy uncompetitive for sale out of state.

Ankney, who is chairman of the Senate Energy Committee said a tax on wholesale energy would be difficult, but truing up property taxes shouldn’t be.

Republican Gov.-elect Greg Gianforte signed the Americans for Tax Reform pledge to oppose and veto all efforts to raise taxes. Nonetheless, he indicates willingness to consider tax proposals from the Legislature.

“Gov.-elect Gianforte believes we need to have a level playing field for all types of energy,” said Brooke Stroyke, Gianforte’s press secretary.

Observers agree that energy development in the next five years will determine whether Montana continues exporting electricity to other states. There is a risk that a poorly crafted tax would discourage development.

“Transmission or delivery costs generally have been a real challenge for wind farms in Montana to move power into the Pacific Northwest. Currently there’s not a single wind farm in Montana that is for a Pacific Northwest utility,” said Jeff Fox of Renewable Northwest, a group that advocates for renewable energy development in Montana, Oregon, Washington and Idaho.

Three years ago, the cost of traversing a 90-mile segment of Bonneville Power Administration line between Townsend and Garrison was enough to price Montana renewables out of the Pacific Northwest. That price, which was eventually resolved, was less than the $1 per megawatt hour tax House Republicans included in their priority list.

Ankney, a former coal mine supervisor, said it’s important that taxes don’t make renewables uneconomical. He doesn’t think an increase in property taxes will. The future of the state’s energy economy depends on renewables because that’s what consumers in Oregon and Washington are willing to buy. Both states have been customers of Montana coal power for 40 years. They won’t be customers after 2025 if the state only has coal power to sell.

“If I had my way, we’d build another coal-fired power plant,” Ankney said. “My way ain’t the future. I’m going to fight like hell to keep these running as long as possible, but the fact remains that we do have transmission that a lot of places don’t and we can clearly get the energy out to where it needs to be. This (tax) ain’t going to stop any wind development.”

At the same time, the coal tax revenue is declining. Three of the four companies mining coal in Montana have filed for bankruptcy since 2018.

In a sign of things to come, Lighthouse Vice President of Finance Darin Adlard said in the company’s bankruptcy filing last week that coal for its Decker Mine in Montana cost more than its Detroit customer DTE Electric was paying. That’s because the volume of coal mined is no longer enough to cover fixed costs.

The “cost to produce coal from Decker Mine exceeds the sales price in the DTE sales agreement due to insufficient production volume to cover fixed costs. Continuing to operate Decker Mine is not economically feasible,” Adlard testified.

DTE will stop buying Decker coal early next year, which means not only an annual loss for Lighthouse of 2.5 million tons sold at $15.25 per ton, but also a loss of production tax revenue for Montana’s 5% gross proceeds tax on coal and the state’s 15% coal severance tax. The severance tax in the last fiscal year generated $46.7 million after averaging $56.8 million a year for a decade.

In counties where coal taxes pay the bills, mining companies are delinquent. Property owners in Big Horn County were put on notice this fall that taxes would be increasing as a result of the Navajo Transitional Energy Company and Decker Coal owing a combined $9 million in back taxes. Much of NTEC’s share was connected to previous Spring Creek Mine owner Cloud Peak Energy which went bankrupt in 2019.

Coal’s losses are intertwined with what should be five critical years for the development of renewable energy in Montana. Three big deadlines are spurring that growth. The first is the expiration of federal tax credits for the renewable energy development. The second deadline is Washington state’s 2025 law banning coal power from that state. The Washington law not only affects Colstrip Power Plant, which mostly generates power for customers in Washington and Oregon, but also the Colstrip transmission line. The third deadline is Oregon’s state law calling for a coal power phase out starting in 2030.

The federal tax credits that have been critical to renewable energy development since 2012. The federal production tax credit granted a 2.3 cent per hour benefit on renewable energy production for a decade of generation, provided the projects were under construction by the end of 2016.

There is also a 30% investment tax credit on the costs of developing solar projects. That tax credit is being stepped down to 10% by 2022.

Look no further than the Pryor Mountain Wind farm near Bridger to see the influence of the production tax credit’s full value being phased out. The Pryor Mountain project was started in late 2014, when a grader first excavated the area. Not much happened after that until 2019 when PacifiCorp bought the project with a late 2020 completion date in mind.

The $406 million wind farm will be Montana’s largest, with 114 wind turbines and 240 megawatts of installed capacity, enough to power 76,000 homes annually, according to PacifiCorp.

The $6 million in impact fees paid by PacifiCorp over three years are already helping the local school district and Carbon County, which has only one taxpayer larger than PacifiCorp’s wind farm and transmission line.

“It certainly helps everyone else. It lowers the tax burden on everyone else if they’re making up a bigger chunk of our revenue,” said Scott Blaine, Carbon County commissioner. “It especially has a bigger impact in Bridger School District. They’re actually going to build a new gym over there and the wind farm is going to pay a big chunk of that.”

Similarly, wind farms on neighboring Stillwater County financed a six-classroom portable building at a nearby school. Stillwater Wind is expected to contribute $18 million in taxes to the county over the next 25 years.

Washington state’s coal power ban at the end of 2025 receives most of the attention when the conversation about Colstrip Power Plant’s future comes up. The deadline is a hard stop on Montana coal power sold to the customers of Puget Sound Energy, Avista and PacifiCorp.

Discussed less is the Washington law’s influence on Colstrip Transmission Line. The state gives its Colstrip Owners until the end of 2025 to find replacement power for the transmission line. If they don’t find replacement power, then they cannot continue to bill their customers for the line.

Every Colstrip owner in Washington and Oregon has produced 20-year energy plans that include renewable energy generated by wind farms in Montana, but the power has to be competitive with renewables in those states.