United States

United States

Better terms for utility ownership -- Tax changes for wind

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American utilities are primed to ease into increased wind project ownership, following a summer ruling by the US Department of the Treasury that reinterprets the federal production tax credit (PTC) and removes impediments to ownership by eliminating a utility exemption in the law. While many utilities already own wind projects that take advantage of the tax credit, the tax law had made it necessary to seek relatively complicated financial structures.

"What this means is it will be easier for utilities to arrange for ownership without jumping through a lot of hoops in the way that you structure the transaction," says Randy Swisher of the American Wind Energy Association. "This is not a revolution. But it is progress and a step in the right direction in terms of making it easier for utility ownership and utility financing of projects."

The drive to seek the reinterpretation was led by Puget Sound Energy (PSE), which serves a million customers in western Washington State. Pacific Gas and Electric, Xcel Energy and Alliant were among 14 other utilities that joined the push. The PTC is worth $0.02/kWh off the tax bill of a wind plant owner, but utilities are legally prevented from claiming credits for renewable energy produced to power their own industrial facilities rather than being sold to customers through the power grid.

"It was a case where the law and the interpretation were behind the times," says PSE's Andy Wappler. "But since we were producing power and people were using it to keep their homes and businesses energised, then of course we had a true customer."

Ahead of the pack

PSE had moved faster than many other utilities into being an owner of wind power plant and not just a purchaser of wind produced electricity. In 2007, it began working with a pair of elected federal officials from Washington, Senator Maria Cantwell and Congressman Jim McDermott, to build support in Washington DC among their colleagues for a changed tax ruling. The reinterpretation of the law was a matter of common sense, says Wappler. "Once the realisation became widespread, it was not too hard to pass it. But it took a lot of heavy lifting to get enough people to understand. The new interpretation will help any utility across the country moving into wind."

PSE, which owns 386 MW of wind power in Washington, connected its 228.6 MW Wild Horse project in Kittitas County in 2005 and brought its 149.4 MW Hopkins Ridge project online in Columbia County in 2006. The company is currently negotiating a pair of 20-year power purchase agreements for a combined 250 MW of wind power in Washington and Oregon. Wild Horse could be expanded by another 50 MW and the utility is looking at building more of its own projects.

While Washington state law requires utilities to reach 15% renewable energy of their total electricity production by 2020, Wappler says PSE is ahead of the target. The company estimates the new PTC interpretation could save its customers several hundred million dollars in the next decade.

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