The Triple Threat To Kansas Wind: How Legislation May Wipe Out Current And Future Development

Categories : Policy Watch

14064_kansas The Triple Threat To Kansas Wind: How Legislation May Wipe Out Current And Future Development Despite wind energy's strong record of success in Kansas, a faction of state legislators have continued to introduce a series of bills designed to roll back policies that have attracted renewable energy development and investment.

Although previous legislative efforts have been unsuccessful, several bills introduced in the current legislative session seek to make changes that dramatically impact wind generation in Kansas, potentially affecting the economics of the state's existing wind projects.

Renewable Portfolio Standard:

Over the last few years, most attacks on Kansas' renewable energy policies have focused on reducing or repealing the 20% by 2020 renewable portfolio standard (RPS). This year, two bills (H.B.2373 and S.B.253) continue this trend by proposing to freeze the RPS at 10%, thereby eliminating the 15% and 20% thresholds for 2016 and 2020, respectively.Â

H.B.2373 is pending before the House Committee on Energy and Environment, chaired by an outspoken RPS opponent, and several hearings have been held. Though a vote was originally scheduled for March 18, the meeting was canceled without explanation, and no further committee meetings have been publicly announced. Similarly, S.B.253 is pending before the Senate Committee on utilities, but a vote has not taken place and no further meetings have been publicly announced.

As of this writing, it appears that neither bill will make it out of the committee. However, key provisions can still be introduced through another committee or included as an amendment to another bill. In reality, even if the bills pass, it would only be a symbolic victory for RPS opponents.

The Kansas Corporation Commission has testified that Kansas' utilities have virtually satisfied the 20% threshold through existing and planned generation and power purchases, well ahead of the 2020 RPS deadline, and the two largest utilities in Kansas, Westar and KCP&L, have indicated that they will have sufficient renewable generation to satisfy the 2020 threshold. However, the impact of even a symbolic RPS defeat in Kansas could be felt in other states that are weathering challenges to RPS policies.

Renewable Generation Property Tax Exemption:

Renewable energy generation assets are currently exempt from ad valorem property tax in Kansas. Two bills, H.B.2396 and S.B.257, propose to modify this exemption to only apply to the first 10 years after the asset is placed into service. The key distinction between the two bills is that S.B.257 applies retroactively and, therefore, includes existing wind projects while H.B.2396 only impacts projects that file for exemption after Dec. 31, 2014. If the more severe Senate version were to pass, the Department of Revenue estimates that the total revenues generated would increase incrementally as existing projects exit the 10-year exemption window, from approximately $50,000 in 2016 to $18 million in 2025. This potential new revenue makes these bills particularly attractive to Kansas lawmakers looking to relieve the state's nearly $600 million budget deficit.

The outcome of both bills is still uncertain. The House Committee on Taxation has held a hearing on H.B.2396, but has not scheduled a vote. Similarly, the Senate Committee on Assessment and Taxation has held a hearing on S.B.257, but no vote has been scheduled.

Excise Tax on Renewable Generation:

Finally, H.B.2401 proposes to impose a new 4.33% excise tax on electricity produced from renewable resources. The Department of Revenue estimates that the proposal would generate between $12 million to $20 million annually. The House Committee on Taxation held a hearing on the proposal on March 18, but a final vote has not been scheduled. Obviously, an excise tax on renewable project electricity generation would have a real impact on the economics of current and future wind energy projects in Kansas.

Although attempts to repeal the RPS are certainly noteworthy, efforts to modify the tax treatment of existing wind projects are particularly troubling. Most Kansas wind projects have entered into donation or payment-in-lieu-of-taxes agreements with local taxing jurisdictions. Modifying the project's tax liability could trigger provisions in those agreements that reduce the payments made by developers. However, depending on how the provisions are worded, it is possible that some portion of the payment obligations may continue. This uncertainty introduces a risk where developers may be liable for both ongoing payments under county agreements plus an unknown future tax liability.

Alan Claus Anderson and Britton Gibson are shareholders at law firm Polsinelli. They can be reached at aanderson@polsinelli.com and bgibson@polsinelli.com.

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