Windy Wyoming debates excise tax for wind energy

A proposal in Wyoming to impose the nation's first state excise tax on wind energy production is generating debate over how the state should handle the arrival of massive wind farms to its wind-swept plains and plateaus.

Gov. Dave Freudenthal made the wind energy tax a centerpiece of his legislative agenda, drawing surprise and alarm from some in the state's fledgling wind industry. The proposal cleared its first hurdle Thursday when the state House voted to introduce the bill.

Freudenthal said wind can be a beneficial industry for Wyoming, but doesn't deserve special treatment.

"It can help keep people in agriculture. It can help people have jobs, and hopefully it can lead to some manufacturing facilities in the state," he said. "Having said all that, they are not entitled to a free ride. This is the first opportunity that this state has had in my lifetime to actually diversify its tax base."

The Wyoming tax proposal contradicts what most states are doing to compete for renewable energy industries. They are offering tax breaks or incentives, according to national wind and solar energy associations.

"It is very disturbing to hear that one of the great states for resources wants to tax the industry and discourage the development of jobs in their state," said Denise Bode, head of the American Wind Energy Association.

Supporters of the tax proposal say the wind industry is already subsidized by the federal government. Serious developers won't be discouraged by the tax, supporters argue, and the state and counties need revenue to handle industrial scale wind development.

"I appreciate the fact that people can say it has great environmental benefits, but that's people who don't live next to them, or who's wildlife habitat isn't being disrupted, or the bird population isn't being effected, or who's view isn't being altered," Freudenthal said.

The proposal would impose a $3 per megawatt hour excise tax on commercial wind energy generation, which works out to a roughly 5 percent tax. Revenues would be split 60-40 between the state and counties where turbines are located.

The governor's office estimated the tax would raise about $11.5 million annually at existing production rates.

As a coal, natural gas and uranium state, Wyoming is accustomed to dealing with energy industries but is figuring out how to govern the influx of developers hoping to harness its wind to export green energy to populous markets in the west and southwest.

Wyoming's wind energy generation capacity nearly quadrupled in 2008 and 2009, pushing the state to about 1,100 megawatts, the American Wind Energy Association says. The state ranks 12th in the nation for its existing wind capacity and seventh in potential capacity, according to the association.

Legislators have introduced a handful of proposals to strengthen state and county oversight of the wind industry, but the tax bill is the most politically contentious.

Ed Werner, chairman of the county commission in Converse County, the state's leading wind energy producer, said he supports a wind tax but worries the governor's proposal could be too much for wind developers in the early stages of a project. He prefers phasing in a production tax once a farm is operating.

"Even though it definitely comes back to benefit us in our hometowns and counties, if you run them all off, there's nothing to share," he said.

With the sunset of a sales tax exemption at the end of this year, Wyoming will have no tax incentives for wind development. The industry will be subject to a 6 percent sales tax and 11.5 percent property tax. Wyoming has no income tax.

The Wyoming Power Producers Coalition, a group of 14 independent wind developers, argues that Wyoming is already at a competitive disadvantage because of its tax burden and vast distance from markets. The excise tax would only make the state more inhospitable, the group says.

Most surrounding states offer wind developers some sort of incentive, such as sales tax exemptions for turbines in Colorado and Utah.

"We have some majorly grave concerns about the enormity of the (excise) tax," said Cheryl Riley, the group's executive director. "We think that the potential for wind to bring substantial wealth to the state is great, and we think that this sends a really negative message to developers."

All sides in the debate agree that it's hard to compare wind with mineral resources.

As a renewable resource, wind isn't subject to severance tax and wind farms don't have ongoing fuel costs. Wind farms have large capital costs _ an estimated $2- to $4 million per turbine _ and take a heavy hit upfront on sales taxes.

Rob Hurless, an energy adviser in the governor's office, said Wyoming's resource industries are too different to try to apply numerical tax comparisons. The excise tax proposal is an attempt to set a reasonable rate for the wind industry's participation in the state economy, he said.

"In a way we are breaking ground and we understand that, but we also want to say, 'OK how do you do this in a way that people participate in a fair way relative to other economic activities in the state,'" he said.