Electrical Generation Tax Proposed by Lawmakers

by Philip Baron, MBA

A proposed bill to tax electricity generated in Wyoming was heard Interim Joint Revenue Committee on Tuesday, Nov 12^th, 2019. The committee failed to vote on the legislation. The proposal led by Sen. Cale Case, R – Lander, seeks to tax electricity generated in Wyoming at a rate of $1 a Megawatt-hour (MWH) or the gross receipts of electricity generated in the state at 3.5%.

The bill was met with opposition from several wind producers, solar and electric companies. Rocky Mountain power, who owns many of the coal-fired plants in the state, asserted that this tax could cause them to consider closing the coal power plants in the state that are slated for retirement sooner than expected.

The proposed Electrical Generation Tax would give tax credits back to industries in Wyoming who generate their electricity from minerals extracted and taxed in the state. The bill would credit back sales, severance, and ad valorum property taxes back to these producers.

Wyoming currently charges a wind tax of $1 per kilowatt-hour (kWH). The proposed tax would have been an additional burden on the wind industry.

Representatives from the wind industry stated that in addition to the Wyoming Wind Tax they already pay significant property and sales tax in the state. The concern with the proposed tax is that it will drive potential wind projects to other states such as New Mexico, who give incentives in the form of tax breaks to wind producers whereas Wyoming is thought to give a disincentive to wind producers in the form of a $1 per kilowatt-hour tax¹.

New Mexico currently has a tax credit incentive for renewable energy production of $0.01 per kilowatt-hour produced. This tax credit is capped at 400,000 MWH of production. This results in a maximum tax credit of up to $4 million per year. In addition, New Mexico exempts Wind producers from paying sales tax if they pay the stats gross receipts tax².

A study by Benjamin Cook and Robert Godby at the University of Wyoming found that New Mexico had the lowest cost for developing wind energy. They found that New Mexico with its current incentives and low-cost funds for wind development provided through Industrial Revenue Bonding³, that the cost of wind development was lower than the current Wyoming tax environment. Their report shows that a tax increase on wind energy in Wyoming just widens the that gap.

According to a report done by the Legislative Service Office, Wyoming already exports about 60% of the energy that is generated here to other states. This bill was an attempt by the legislature to export the majority of the tax burden to out-of-state ratepayers.

With the increased policy changes in the surrounding states to have more and more of their power come from renewable sources, the intent of this bill was to capture some to that revenue for the State of Wyoming. This is the primary reason given by members of the committee in support of this tax.

It is likely that this bill will come back at some point in the future. Energy markets are going through a period of turn over where the once pricy alternatives of wind and solar are becoming competitive with coal and natural gas.

Wyoming relies on the extractive minerals industry for a big piece of its revenue (52% in 2017). Lawmakers continue to look toward tax increases as a way to raise revenue for declining mineral development.

However, this tax is not attractive to wind and solar developers. Taxing Wyoming industries may drive the wind and solar developers to build in another state, such as New Mexico.

Any tax increase means a business will have less money to invest back into its operations. Taxes are usually a fixed operating cost. All businesses weigh their fixed operating costs (also known as overhead) when deciding where to locate. The incentive for any business is to keep their overhead low.

Taxes are not insignificant in a business's decision about where to locate. In the case of this tax increase, there was an overwhelming consensus from those who would pay the tax that this increase might increase their costs to the point where they would build their projects in other states than Wyoming.

¹ Page 13 – 14 Cook and Godby. Estimating the Impact of State Taxation Policies on the Cost of Wind

Development in the West. Center for Energy Economics and Public Policy, Department of Economics

University of Wyoming. March 7,2019.

² Page 14 – 15 Cook and Godby. 2019.

³ Page 32 Cook and Godby. 2019.