Can we find an equitable wind tax?

The pursuit of a sensible public policy for wind power in Wyoming has become an unsettled, decade-long saga. Most other states in the region have already figured out how to appropriately regulate and tax wind resources, but it seems Wyoming inherently deals with a more complex set of circumstances.

We can trace this, in large part, to the perceived conflict between wind and the state’s primary breadwinner — the mineral industry. Coal, oil and natural gas together have combined as the basic economic engines and financiers of public services in Wyoming for generations. Anything interfering with that pecking order is naturally going to receive a lot of complicating attention.

The nationwide expansion of wind power has been seen as a threat to coal. Other market dynamics like the growth of natural gas use by electric utilities are at least as responsible for pressures in the coal industry, but the connection between growth in wind generation and the contraction of coal is foremost in many Wyoming minds.

Another factor that makes the wind debate different in Wyoming is the lack of economic and fiscal diversification compared to other states. The mineral industry accounts for about 70 percent of state and local government revenue. More diversified states with a growing wind generation industry do not contend with the notion that growth of one industry means contraction in another.

Wyoming’s fraught relationship with wind is reflected in the pattern of wind legislation going back to 2009. There have been dozens of bills proposed in the last decade — most have simply blown away, but some have reemerged in successive sessions and succeeded.

The first attempt to generate revenue from wind power — House Bill 275 – Wind turbines-royalty fee in 2009 — called for a 3 percent tax on the value of electricity generated from wind. The bill failed, partially because of the complex interface between the tax rate with the federal production tax credit.

In the same session, House Bill 215 – Tax exemption for renewable resources [Enrolled Act No. 70] repealed the sales and use tax exemption for wind power equipment and materials. This repeal was in part deemed necessary because counties needed revenue to pay for roads and other infrastructure during construction of wind farms. The characteristic two-year payment lag of ad valorem taxes prevented that revenue source from being practical for this purpose.

Finally, in 2009, a task force on wind was formed via a footnote in the budget bill. This task force was charged with looking at wind taxation policies and appropriate regulatory structures.

Wind legislation reached its high point in 2010 with regulatory standards and the first wind energy production tax. The new regulations required that wind farm developments be reviewed by the Industrial Siting Council.

The wind energy production tax was enacted after much debate. Initially drafted as $3 per megawatt hour with the proceeds going to the state General Fund, the tax was premised on a consultant’s finding that the superior quality of wind in Wyoming could sustain it. Quite simply put, since the Wyoming wind blows so dang much, it is economically possible to assess a generation tax.

Ultimately lawmakers lowered the rate to $1 per megawatt hour and apportioned 40 percent of the revenue to the General Fund and 60 percent to the counties containing the wind facility. The tax is effective upon the third year of facility operation.

A few bills dealing with wind tax revenue have been drafted since, but all have failed. The tax and revenue distribution system created in 2010 is the same one in force today.

The Legislature also in 2010 halted wind developers invoking eminent domain to place windmills and extended the work of the wind energy task force, asking them to focus on eminent domain, wind rights and ownership and entitlements of compensation to landowners.

Then, for about five years, wind received little legislative attention. With the state’s fiscal picture looking stable it wasn’t on top of many minds.

But with mineral prices falling in 2016 the Joint Revenue Committee was assigned the topic of finding a new revenue source for school construction. New coal lease income — the previous source of school building money – was drying up. Suddenly raising the wind tax started getting a lot more attention as an alternative.

Significantly, this was the first year we utilized actual committee research to determine what a fair and equitable wind tax rate would be. The research demonstrated that the effective megawatt hour taxes that the state received from electricity produced from coal and natural gas ranged between $3 and $5 per megawatt hour.

We got to those figures by looking at the revenue the state was receiving from coal and gas and how much of those fuels respectively were required to produce a megawatt hour of electricity. New wind tax proposals since have been based on equity with the rates for oil and gas generated electricity. That way the state is not picking favorites.

Heated debate ensued. Predictable opposition to a rate hike came from the wind industry. Land owners, fearing that a higher state tax would increase the difficulty of negotiating land leases with operators, were also opposed as were environmentalists and the Wyoming Business Council. As the interim between the 2016 and 2017 sessions came to a close every wind tax bill died in committee.

Even though no committee legislation was forthcoming in 2017, Rep. Scott Clem (R-Gillette) filed a bill calling for a $5 per megawatt hour tax. It failed in the committee on a split vote. A similar bill calling for a $4 dollar tax was drafted in 2018, but also failed.

Interest in equitable wind taxation expanded significantly this session. Three individual bills were filed calling for a tax of $4, $5 and another that would have phased in a tax starting at $0.50 and rising to $5 in the fifth year of operation of a wind facility. Surprisingly, House leadership did not refer any of these bills for committee action much to the frustration of sponsors and cosponsors.

There’s no telling what’s next for wind taxation. However, it is clear when looking at the number of sponsors and cosponsors of wind tax bills, more and more legislators are willing to consider wind as a significant revenue generator for the state. Polls, too, suggest a growing public appetite for wind taxes in Wyoming’s fiscal structure. And the continued decline of coal revenue will virtually ensure that there will be future discussions of wind as a meaningful revenue contributor.

Support informed commentary with a tax-deductible donation

Aside from the equity argument described above, those who favor a wind tax point to the fact that the energy sprawl associated with wind turbines upon the Wyoming landscape will have far reaching impacts within other economic sectors. These impacts should therefore be mitigated. Moreover, wind turbines are growing in size and thereby will have increased impacts on the aesthetic character of the state. Another argument that more and more citizens point to is that nearly all generation taxes are paid by non-Wyoming residents who prefer power from renewable sources.

Opponents in future discussions will suggest that any additional taxes on wind power will stifle growth and development of future wind projects. Another argument is that renewable energy sources such as wind should be encouraged and therefore not taxed in the interest of long-term environmental benefits.

The most recent development surrounding the future of wind taxes involves a grassroots plan, led in part by Sen. Cale Case (R-Lander) and former Carbon County Rep. Jeb Steward of Encampment. They will seek a ballot initiative calling for additional wind taxes.

The fact that meaningful debate on this subject was curbed by legislative leadership during the present session will likely lead to an increased interest among members of the public. Time, alone, will tell whether this approach will be successful.

Correction: This story was emended Feb. 26 to correct the spelling of former Rep. Jeb Steward’s name. — Ed.