Editorial

Congressional oversight needed on Wind PTC rulemaking

After 20 years of tax credits, the production tax credit (PTC) was scheduled to expire at the end of 2012.

Neither the House nor the Senate saw fit to extend this overly generous corporate benefit when it was considered on its own merits and the PTC did, in fact, expire. Yet in the final hours of the fiscal cliff negotiations[1], a package of energy tax extenders[2] was surreptitiously added to the bill which assured the PTC a $12 billion, 1-year extension.

This move was done behind closed doors, without debate or opportunity for amendment and no obligation of the Congress to find a way to pay for it.

The abuse of the Public Trust did not end there.

With this extension, a critical change to the PTC was introduced that relaxed the eligibility requirements for the credit. Renewable energy projects now need only 'commence construction' by January 1, 2014 to qualify for the credit, instead of projects being 'placed-in-service' by that date.

Since the law did not define what it means to 'commence construction', the Internal Revenue Service (IRS) must determine the intent of the Congress and develop clarifying guidance.

Not surprisingly, this is leading potential PTC beneficiaries and wind energy proponents to pressure the IRS to accelerate its rulemaking process. In February, 30 members of the House Sustainable Energy and Environment Coalition (SEEC) sent a letter to the Internal Revenue Service (IRS) and Department of the Treasury encouraging them to act swiftly in issuing guidance on the eligibility qualifications for the credit. The American Wind Energy Association supports the IRS moving quickly to provide guidance that generally adheres to relaxed criteria adopted under the Section 1603 cash grant program. 

Since the law is silent on when a qualifying project must go into service, the incentives for gaming the 'commence construction' requirement are substantial -- especially given the potential value of the tax credits in scale and duration, and the anticipated expiry of the program itself at the end of this year. David Burton, partner at Akin Gump Strauss Hauer & Feld, has stated that developers who plan well and bank enough 2013 PTC-eligible component parts , "may be able to continue to construct PTC-eligible wind farms indefinitely." This particular form of regulatory 'gaming' would encumber taxpayers with subsidy obligations for projects that may not go into production for many years after the PTC provision has expired.

With the Treasury and the Department of Energy already under fire for their mishandling of the Section 1603 cash grants and Section 1705 loan guarantees, it is essential that Congress exercise its oversight responsibilities in this matter. Representative James Lankford, chair of the newly formed House Oversight Subcommittee on Energy Policy, Health Care and Entitlements has already stated that his Subcommittee will be watching the PTC and not leave the rule making in the hands of Government regulators.

Based on past actions by the wind industry, there are several criteria for defining "commence construction" that deserve consideration:

1. Institute an in-service date for projects.
- Current law only designates a start construction date.

2.  Require project financing and permitting to be secured.
- Projects must demonstrate evidence that all  local, state and federal permits are in place and project financing is secured.

3. Prohibit the safe harbor when determining start construction as used under the 1603 cash grant program.
- Prohibit the counting of monies expended for project components by the developer or by contacted vendors when determining  start construction.

4. Require available transmission.
- Projects must demonstrate available transmission before starting construction.

5. Proof of meaningful construction.
- Require a minimum percentage of project completion to be achieved by January 1, 2014 which includes a physical metric that is measurable. Project construction applies to the entire proposed site; individual wind turbines within a larger project will not be treated as projects independent of development plans.  Site preparation including land clearing is insufficient proof of 'commencing' project construction.

Time to Act

At the end of 2012, lobbyists for the wind industry teamed with the Senate and the Administration to push through this latest extension of the PTC with no debate or opportunity for amendment. They turned pressure to avoid the putative fiscal cliff to their advantage, while leaving American taxpayers to pay the price. Unless Congress intervenes, it appears likely that the problems associated with the extension of this subsidy may be compounded – not alleviated – in the IRS rulemaking process. 

This week, over two thousand American Taxpayers sent letters from nine different states with members on  Chairman Lankford's Subcommittee asking that they follow through on the Chairman's public statements to oversee the IRS rulemaking process for the PTC.

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[1] American Taxpayer Relief Act (P.L. 112-240)

[2] Energy tax extenders were part of the Senate Finance Committee mark-up of S. 3521 (112th): Family and Business Tax Cut Certainty Act of 2012 which was reported by the Committee but died with no vote or debate by the full Senate. 

MAR 20 2013
http://www.windaction.org/posts/36598-congressional-oversight-needed-on-wind-ptc-rulemaking
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