Wyoming considers raising an already unique wind tax

Legislators say wind needs to pay its fair share, but critics fear a higher tax could drive energy—and revenue—away.

 

For years, wind energy developers have eyed Wyoming, which has some of the best on-shore wind resources the United States has to offer. But the state has another distinguishing feature when it comes to wind: tax. The state levies the only tax on wind energy production in the nation. In May, facing major economic woes that include the decline of the coal industry, Wyoming lawmakers proposed ratcheting the wind tax even higher.

Some fear the tax hike could deter wind investment in the state, ultimately costing the state revenue instead of bolstering it. And, with the grim outlook for the fossil fuels that Wyoming’s fiscal health depends on, that could mean a self-inflicted setback to an otherwise promising part of its economy, an economy that desperately needs a boost.

Wind turbines dot the landscape in Uinta County, Wyoming. The state has the nation's only tax on wind production and has proposed raising it higher amid fiscal trouble.

The measure was proposed by the state legislature’s Joint Revenue Committee in a bid to secure school facility funding, which has taken a hit as fossil fuel revenues have plummeted. Not only has severance tax revenue from coal and oil extraction been diminished, but bonuses from federal coal leases – which could approach $300 million per year – have evaporated entirely over the last few years. After a federal coal lease moratorium was announced in January, those bonuses will not reappear in the foreseeable future.

“We’re looking for revenue in absence of being able to lease coal and (with) the growing popularity of wind turbines, we thought that was a place to look,” said Rep. Michael Madden, the House Revenue Committee chairman and a Republican from Buffalo, Wyoming.

Madden says the tax rate needs to be adjusted so that the wind industry pays a fair share, relative to other players in the energy sector. Although the specifics of the potential tax hike have not been finalized, Madden expects the new rate to settle in the ballpark of $3 to $4 per megawatt, up from the current rate of $1, which is split between the state and local governments. If passed, local governments would still get the same cut of $0.60 per megawatt, while only the state would receive the additional revenue. Given Wyoming’s current wind capacity, that would mean an influx of only about $10-20 million annually, though that revenue total would grow with future wind facilities.

The suggested increase is upsetting to wind proponents, especially The Power Company of Wyoming, which is developing the largest wind farm in North America: the Chokecherry and Sierra Madre Wind Energy Project near Rawlins. The $5-billion, 1,000-turbine project has already undergone a nine-year planning process and is set to begin construction later this year. An accompanying transmission project would then distribute its power to consumers as far as the West Coast.

“Whether our projects can be built, or built to their full potential, depends on a number of factors,” says Kara Choquette, a spokesperson for the Chokecherry and Sierra Madre project. She says that imposing additional state taxes threatens to erode the viability of new wind energy and transmission developments in Wyoming.

Project developers dispute the assertion that the wind industry is not pulling its weight. To the contrary, they argue that wind actually pays higher Wyoming tax rates than fossil fuels. They insist that the numbers used in the committee’s analysis do not take all revenue streams associated with wind energy into account, ignoring property taxes and a sales-and-use tax. Some independent analysts agree. Rob Godby, the chair of the Department of Economics at the University of Wyoming, says that the numbers given to the committee by the Legislative Service Office are questionable. In addition to leaving out a couple wind-related revenue streams, he says the analysis also inflates the tax contributions from fossil fuels by overstating their current market value.

The proposed tax hike has added an unwelcome dose of uncertainty to a business model the company has been counting on. “It comes down to affecting the project economics and the price of the product you’re trying to sell,” Choquette says.

A tax increase could also undermine their ability to compete with other renewable energy sources targeting consumers on the West Coast, where states like California are ramping up requirements for renewable energy consumption. Choquette says Wyoming needs to keep itself on a level playing field with renewables from other states. She remains hopeful, she says, that adjusted numbers will be taken into account when lawmakers revisit the proposed tax in September.

Wyoming needs the money to shore up its budget, especially with ominous signs that the crisis facing coal and oil isn’t a typical downturn in energy markets.

“It doesn’t look like a normal commodity cycle,” says Godby. “It looks like a structural change in the market.” With bleak near- and medium-term outlooks for the state’s finances, officials will pursue “every source of revenue (they) can get,” he says.

Madden says the state heard similar opposition when the existing wind tax was introduced, but that it was absorbed without inflicting lasting damage to the industry. Although no new projects have come online since the tax was implemented, it may not be entirely to blame, since a bottleneck in transmission capacity is an issue within the state.

Yet some worry that ramping up the tax on wind could backfire. After all, the tax would only bring in a modest annual return if approved, a payoff that could be vastly outweighed by the risk of losing wind operators and their long-term revenue streams. The Chokecherry and Sierra Madre project, for instance, is projected to generate more than $1 billion in tax revenue and royalties over its first 30 years, across county, state and federal levels.

Wyoming legislators may be accustomed to levying taxes on their terms, as out-of-state energy consumers had no alternative to a resource like the cheap, low-sulfur coal from the Powder River Basin, Godby says. But wind is different. “We’re not the Powder River Basin of wind,” Godby says, warning that wind producers don’t necessarily need to suck up the tax as a cost of doing business in Wyoming. “They can go elsewhere.”