Wind tax reform pitched despite litigation threat

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OKLAHOMA CITY — A legislative movement to undo certain state wind industry incentives puts current developments at risk of default and has banks balking at new farm investment, a wind advocate said.

If lawmakers renege on financial commitments promised to attract wind developers into the state, the industry will sue, said Mark Yates, director of Oklahoma Wind Coalition. The industry trade association represents about 20 investors.

Lawmakers, though, are pushing forward with a series of measures to reform how the industry is taxed despite the threat of litigation. One plan would rid the state completely of a guaranteed industry incentive. A second would cap those payments and pay them out over a longer time period. A third idea would place a gross production tax on the energy generated by wind farms.

“The state lured us, or enticed the investment, and now (that) the investment is made, now the state is going to go back on its word,” Yates said. “We’re adamantly opposed to anything that’s retroactive, going back on the state’s word, going back on the word to the investors.”

Wind farms operational by the start of July 2017 are eligible to receive a controversial incentive, known as zero-emission tax credits, for the first 10 years of a farm’s operation. Companies use it to lower tax payments, then cash in unused credits.

Critics of the incentives, though, complain they’ve worked too well, ballooning uncontrollably as the proliferation of wind farms and energy output have blown away predictions.

In 2014, Oklahoma paid more than $59.7 million to producers — nearly triple what it paid two years prior, according to Oklahoma Tax Commission. Wind producers, meanwhile, reported generating as much as $113 million in the credit, though they didn’t claim it all.

Supporters say the credit helped bring in billions in private investment to rural areas, lower electricity prices, fund K-12 schools and create new jobs.

Yates said many developers also used the subsidy and a decade-long promise as leverage to get financing for their developments. To renege on the deal would jeopardize existing wind farms, he said.

“There’s a disconnect with our lawmakers to think that this is some kind of pot of cash that’s sitting around when we’re going to default on loans,” Yates said.

State Senate Floor Majority Leader Greg Treat, R-Oklahoma City, said “it’s a valid concern if you change the rules in the middle of the game,” but the idea to cap payments simply lengthens the state’s liability rather than eliminates it.

Yates said even delaying the promised payments would jeopardize developer’s financing agreements.

Treat said industries operating in Oklahoma understand that incentives are subject to change every year. Legislators recently altered some commitments made to the oil and gas industry, he said.

“The wind industry has been treated more than fair in Oklahoma in my estimation, and we are interested in reform,” he said. “What form that reform takes is still yet to be determined.”

House Majority Leader Mike Sanders, R-Kingfisher, said a new gross production tax on the industry seems to be the best public policy. That tax would be in addition the property taxes the industry already pays local entities.

Sanders said the fortunes of some school districts across western Oklahoma are tied to the success of the wind industry. Districts have financed bond packages based on developments built in their areas.

“At the end of the day, I think good policy should rule the day, so I’m hopeful we can come to a resolution,” he said.

Yates said his investors would be willing to consider a production tax on future wind farms.

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