Legislature tilting at windmills for revenue

The subject of wind energy taxes is blowing into the Wyoming Legislature again. On December 17, the Revenue Committee is meeting to discuss legislation for a new tax on wind energy.

Kara Choquette, Director of Communications and Government Relations for Power Company of Wyoming (PCW) LLC, is opposed to a new wind tax because she fears it will hurt areas where wind projects are being built and planned.

Choquette points out her company's business model is completely different from publicly regulated energy companies like Rocky Mountain Power and Black Hills Energy.

"Think of Rocky Mountain Power as a restaurant where you have to eat," Choquette said. "Think of it like maybe a Brush Creek Ranch that has its own greenhouse and other ways of growing their food supplies. If costs go up in the greenhouse to grow that lettuce, they will pass it on to the customer."

An independent company like PCW would be equated to a Sysco or Shamrock, which are food wholesalers to restaurants.

"If a restaurant that is like Brush Creek decides that it doesn't want to bother growing the lettuce any longer, then wholesalers like us are competing to get their business," Choquette explained. "The selection of a wholesaler will be based on price. So if one wholesaler says it can sell you lettuce for one dollar a pound and another says they can do it for 95 cents a pound, you are probably going to pick the wholesaler that charges five cents less."

She further elaborated on the analogy.

"Our company is like that wholesaler who can't be a restaurant," Choquette said. "We have to find a purchaser. The advantage for Rocky Mountain Power is that because they are regulated by the Public Service Commission (PSC), once they show a cost effective plan, they can go forward with service territory guaranteed and the wind project is owned by the utility. If costs go up, they go back to the PSC and show the increase, which the PSC allows to be passed on to the consumer. It is a regulated model."  

Choquette said although she could not speak for Rocky Mountain Power, she doubted they wanted to see any new tax on wind energy.

"A tax increase is important to them, but in a different way," Choquette said. "They don't want to see it, but it doesn't effect them in the manner as it does independent models like us"

Choquette said there are not many independent companies working on wind energy projects in Wyoming, whereas the independent model is more common in other states. She said the independent model has benefits for its host state.

"A wind energy company like us is Roundhouse Renewable Energy Project which is right outside Cheyenne," Choquette said. "They have contracted with Platte River Power in Colorado and it is a great example of another state buying energy that helps create jobs and tax revenue here in Wyoming."

Choquette believes that a new tax will deter any independent wind project company from looking at Wyoming as a viable state to produce energy. She said other states offer better environments for setting up wind farms as it is. A new tax could hurt areas like Carbon County, which is one of the ideal spots for wind projects, because new projects would not come.

She hopes representatives from Carbon County will go to the meeting on December 17.

"The first topic is to discuss imposing a new tax on the production of all types of electricity made in Wyoming," Choquette said. "This looks like the same idea that was discussed last year and defeated without even a motion being made at the November 2019 Revenue Committee meeting. It would be an enormous dis-incentive for the power generation industry to continue or to grow in Wyoming. Further, it would be duplicative taxation on Wyoming businesses and households, since all retail sales of electricity are already taxed up to six percent with the sales taxes applied on individual electricity bills."

Choquette said the second topic is to discuss Representative Tim Hallinan's (R - Gillette) individual bill which seeks to double the current tax on wind-generated electricity and remove the three-year period before the generation tax applies, itself another tax increase. She said this would make Wyoming wind power plants even more uncompetitive in the western renewable energy market. Choquette pointed out, of the 11 Western states examined by the University of Wyoming in their 2016 and 2019 economic studies, Wyoming's total state tax burden on wind energy is the highest of the interior western states that projects like PCW would compete against.

"This tax conversation scheduled for December 17 will be, at least, the 17th legislative committee meeting held since May 2016 where the topic/threat of further taxing wind energy will have been discussed," Choquette said. "Not counting the 2009, 2010-11 legislative discussions that led to the tax burden on wind power plants being doubled, starting in 2012."

At this revenue committee meeting, there will be discussion on draft legislation to impose an excise tax on the production of electricity or impose a tax on the annual gross earnings from the production of electricity and discussion of draft legislation to increase the $1 per megawatt-hour tax on wind produced electricity and repeal the three year exemption on this tax for new wind turbines.

Choquette provided the words that Representative Hallinan said at the end of the Revenue Committee meeting on August 25, 2020.  

"I think that we need to resolve this question as to whether we can raise that tax by $1. And I think that it would be appropriate that we have a bill that would be drawn up and dealt with at our next session, to see whether we would be in favor of a $1 increase in the tax on air, on uh, wind-generated electricity. And I think that the likelihood is that the $1 increase would not really affect these companies, and I think that we would get a dollar increase in our state budget, and we would not have any losses," said Hallinan. "The only loss that we could possibly have would be another company not coming here. But the companies that we have here now, they're going to be staying. So that $1 increase isn't going to affect them. So, I would like to have the LSO (Legislative Service Office) draw up a bill for our next session to increase the tax that is paid by these companies by $1." 

Hallinan further added that the Wyoming Legislature could then observe if the $1 tax on wind energy produced in the state would lead to additional projects coming to Wyoming. Additionally, Hallinan noted that, after one or two years, the Wyoming Legislature could examine raising the tax on wind energy by another dollar. The Gillette-based legislator stated that the incremental increase could be used a guidepost for the legislature to deal with future wind energy companies looking to come to Wyoming.

"I would summarize it as, let's tax wind power companies more, and if they manage to survive, we will tax them again," Choquette said. "At a time when Wyoming needs more new and retained businesses to provide good-paying jobs and help Wyoming prosper, I would suggest it is perhaps unwise to experiment with business survival."

Choquette is not sure legislators that want to tax wind get how it could hurt the wind energy companies like PWC.

"I don't think he understands the huge challenges and risks that we have as an independent power provider competing in the wholesale market, compared to Rocky Mountain Power or Black Hills Energy as a retail load serving utility," Choquette said.

Utility companies like Rocky Mountain Power and Black Hills Energy are not the standard throughout the United States. Most wind projects are independent and have the model like PWC.

"Most utilities don't own the wind farm, they contract for it," Choquette said. "So all these independent companies are bidding to be selected. It is a very competitive process and it means saving for the consumer."

She said most utility companies are looking to buy 20 year contracts. Choquette pointed out that, in an extremely competitive market, price is everything. A tax like Hallinan proposes can kill any chance of an independent company looking to build a wind project in Wyoming said Choquette.

She said states like Arizona, New Mexico, Texas and Utah all have wind projects that compete with the PWC business model.

According to Choquette, these states are getting more wind projects built than Wyoming.

Choquette admits PWC is trying to pioneer a business model in Wyoming for other independents to follow. But putting up a wind farm is expensive and can only be placed where there are transmission lines. She said the land to build has to be topographically correct and able to be permitted. Southeast Wyoming is ideal.

"Wyoming can produce more wind energy for other markets because its population can't use all that it can potentially produce," Choquette said. "We are harnessing the wind for other markets because the Wyoming market is already served. Another way to look at us is like the Sinclair refinery. It makes fuel for outside of Wyoming, but it creates jobs and tax base for the state. If more independent wind projects come to the areas where wind can be harnessed, it can be a huge boon for the county that hosts them. What people don't understand is that only about eight percent of Wyoming's land can be used for wind projects. Carbon County is a perfect example of a place where wind projects can thrive and be built."

This is why Choquette goes to meetings like Carbon County Council of Governments to ask for help in opposing any new tax on wind.

"Wind projects may look the same, but there are different business models," Choquette. "A new tax can really hurt the independent business model. What I find a little unfair; the legislators so keen to tax don't come from areas where wind projects will ever be built. Maybe if their town or county was going to lose the funds through sales tax and jobs created, they would not be so eager to tax wind."

It is a valid point.

Choquette encourages all Carbon County residents who think the tax will damage wind projects like PWC, to contact their representatives in towns, county and even the state, to make it clear, no new tax on wind should be brought forth.

"After the legislative meeting in August, I did some research to see what wind projects were being built around Wyoming," Choquette said. "I found 20 in states surrounding Wyoming and 18 of them had contracts. At best we have one or two projects going on in Wyoming. It is a ten-to-one difference with projects being built around Wyoming, but not inside Wyoming. Since November of 2010, there has been only one new wind farm that has gone into service until now. That is an astonishing gap of lack of investment when you look at all the new wind farms that have been built in other states around Wyoming in the past decade."

Choquette admits the wind industry is complicated. What is not complicated, if a product is taxed to where it is not competitive in the marketplace, it won't sell. If it won't sell, there is no need to build production facilities, There would be no revenue from sales tax on the building materials or new jobs created.

Choquette fears this would be the case for any new wind projects from independent companies like PWC if a new tax is tacked on. 

"Losing these wind projects to other states, is not good for Carbon County or Wyoming," Choquette concluded. "I do take solace that when these tax conversations start, many people from Carbon County go to these meetings and support us. I can't say enough how important that support is. I am so grateful."

Choquette hopes there will be supporters at the December 17 Revenue Committee meeting in Cheyenne. It will be online with an opportunity to comment in person if desired from the Capitol Complex, Room W53/54.