TAX POLICY

Conservative groups bring out the knives for renewable energy incentive ahead of broader reform debate

Comprehensive tax reform has become a back-burner issue in Congress as attention has turned lately to high-profile fights over government spending and deficits. But opponents of a key renewable energy incentive are taking early steps to ensure it does not win another extension.

Two dozen conservative groups, including Americans for Prosperity, Heritage Action and FreedomWorks, yesterday sent a letter to lawmakers urging an end to the wind production tax credit when it expires at the end of this year.

"If Congress is serious about comprehensive tax reform that lowers rates for everyone, then special provisions like the PTC that clutter the tax code should be first on the chopping block," they wrote.

It remains to be seen what tax reform could mean for companies across the energy sector that benefit from targeted incentives, from wind developers that claim the wind PTC to oil and gas companies that rely on their ability to deduct "intangible drilling costs." However, the wind PTC is the only one actively being targeted for elimination by the conservative groups, according to members of the coalition.

The Senate Finance and House Ways and Means committees have been working all year on introducing legislation to overhaul the tax code, with the goal of reducing individual and corporate tax rates by eliminating a bevy of special deductions.

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Both committees have released numerous white papers, including drafts prepared for Finance and Ways and Means members outlining energy-specific options (E&E Daily, April 26; E&E Daily, May 7).

No formal legislation has been introduced, but aides say the committees hope to mark up tax reform bills this fall. Comprehensive tax reform remains the main vehicle for efforts to extend or phase out the PTC and other targeted tax breaks, but a smaller "tax extenders" package could be considered this year to renew a slate of frequently renewed incentives, such as the research and development tax credit.

The House Oversight and Government Reform Committee also is planning on getting into the mix. Rep. James Lankford's (R-Okla.) Subcommittee on Energy Policy, Health Care and Entitlements is planning an Oct. 2 hearing on the PTC featuring testimony from an Internal Revenue Service official and other stakeholders, according to a source familiar with the committee's plans who requested anonymity because the hearing has not been formally announced.

When the $23-per-megawatt-hour PTC was extended in January, it was modified to apply to eligible renewable energy projects that commence construction by the end of this year or whose developers make at least a 5 percent "safe harbor" investment by then. The IRS this month said projects meeting those criteria that are completed before 2016 will qualify for the credit (Greenwire, Sept. 23).

The modification eased some of the need for another quick extension, although industries are expected to ramp up their lobbying for another short-term extension or multiyear phaseout before the end of next year.

"Extension of the production tax credit will let our businesses plan and invest in further improvements in wind technology, and keep bringing consumer costs down," Peter Kelley, a spokesman for the American Wind Energy Association, said in an email, pointing to ongoing comprehensive tax reform discussion as the group's main focus.

"But if tax reform does not pass in this Congress, we should not prematurely sunset clean energy tax credits, since that would destroy investors' expectations for many projects currently being planned and destabilize already fragile markets," Kelley added.

Wind is the PTC's biggest beneficiary by far, but the credit also applies to geothermal, biomass, waste-to-energy and certain hydroelectric projects.

The conservative groups are getting into the fight early in an effort to avoid being caught flat-footed as some felt they were last year, when Congress renewed the PTC as part of an eleventh-hour deal to avoid the "fiscal cliff" of expiring individual tax cuts. The PTC extension was included in legislation that passed the Finance Committee in August 2012 and then stayed largely unnoticed until being inserted into the cliff bill.

"We didn't want that to happen again, so we wanted to start early," said James Valvo, Americans for Prosperity's policy director.

The groups also are rounding up signatures from representatives of state and local organizations for another anti-PTC letter they hope to send soon, and individual organizations are planning their own efforts for the coming weeks.

The American Energy Alliance, another group that signed the letter, is planning on focusing much of its advocacy in October on an anti-PTC campaign, said Benjamin Cole, a spokesman for the group. Efforts could include advertisements in selected congressional districts and other publicity efforts in the run-up to Halloween painting the PTC as a "zombie" because of its tendency to frequently be renewed just as it is set to expire.

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