American Public Power Association2301 M Street, N.W.Washington, D.C. 20037-1484202-467-2900202-467-2910 (fax)www.APPAnet.orgStatement of the American Public Power AssociationPresented to theHouse Ways and Means Committee Subcommitteeon Select Revenue Measures onHearing on Federal Tax Credits For Electricity ProductionFrom Renewable SourcesTuesday, June 7, 2005The American Public Power Association (APPA) is the national service organizationrepresenting the interests of over 2,000 community-owned utilities located in every statebut Hawaii. Collectively, public power utilities deliver electricity to one of every sevenelectric consumers (approximately 43 million people), serving some of the nation’slargest cities. However, the vast majority of APPA’s members serve communities withpopulations of 10,000 people or less.We appreciate this opportunity to offer our views on federal financial incentives forproduction of electricity from renewable energy sources. Appropriate incentives forrenewable and clean coal generation are essential to achieving a balanced energy bill. Atthe same time, we believe an important element of the debate on renewable energysources and clean technologies is absent from this hearing—comparable incentives forpublic power systems. Without comparable incentives, nearly 3000 public power and ruralcooperatives serving approximately 25 percent of America’s electric consumers will behampered from investing in renewable energy facilities.Under current law, investor-owned utilities are eligible to receive a production tax creditfor generating electricity from renewable energy sources. However, not-for-profit utilitiesare ineligible for such incentives because they do not incur any federal tax liability. Theonly incentive provided to consumer-owned electric utilities for renewable energyproduction is the Renewable Energy Production Incentive (RPEI) Program subject to theannual appropriation process and has been grossly under-funded since its creation as partof the Energy Policy Act (EPAct) of 1992 and is discussed further in this section.The lack of comparable incentives will exacerbate problems for public power systems dueto a growing trend of state mandates and prospects of a federal requirement that utilitiesgenerate a certain percent of their electricity from renewable energy sources. For-profitutilities have federal incentives in place to offset the cost of investing in renewable energyfacilities to comply with government mandates while not-for-profits must pass on the costas rate increases to their customers.
Financial incentives for public power to invest in renewable energy projects will alsocontribute to the reduction of greenhouse gas intensity. As part of APPA’s voluntarycommitment with the U.S. Department of Energy for participation in a voluntarygreenhouse gas reporting and reduction program, comparable incentives for all sectors ofthe electricity industry is specifically outlined in the proposal as an important strategy toachieve this objective and recognizing the role not-for-profit utilities play in the industryby serving 25 percent of the nation’s electricity customers.Comparable Tax Incentives for Municipal Electric UtilitiesCurrent market conditions make the of production of electricity from renewable energysources three to 10 times higher than from traditional fuel sources such as coal andnatural gas. APPA’s members have a commitment to their customers and thecommunities they serve to keep rates at the lowest possible level. This commitment makesit difficult to participate in a national energy policy that promotes diversification ofsources of electricity generation to include greater use of renewable energy.Many APPA members are extremely interested in expanding generation capacity toinclude renewable generation facilities. Because public power systems are governed bylocal elected or appointed officials, they are responsive to the needs and expectations oftheir respective communities. Public power communities want clean energy even whenthis results in higher rates. In fact, public power has an excellent record of providingclean energy. However, the availability of comparable incentives would provide a morereliable and non-regressive financial mechanism to make it easier to invest in qualifiedprojects to generate from renewable energy sources.Traverse City Light and Power (TCLP) Department in Traverse City, Michigan, is oneexample of a community’s commitment to renewable energy. TCLP has a nameplatecapacity of 1,000 Kilowatts (kW) from hydroelectricity generation. Furthermore, theTCLP owns and generates 800,000 kWh/year of electricity from a nine-year old windturbine to serve its 10,256 customers. The decision to make this investment was finalizedafter enough volunteers in the community agreed to pay a 1.5-cent/KWh premium ontheir electricity rates to cover the cost of the production from a renewable energy source.The decision to make the investment has been a positive one for the community as it hasdiversified its energy supply and contributed to cleaner air. In addition, TCLP hasrecently begun discussions with the local school to provide some electricity from the windturbines to charge a hybrid electric bus that the school hopes to put in to operation soon.Several of the dams used by TCLP for hydropower generation are in need of heavy capitalinvestment. However, these improvements provide little additional power supply. TCLPestimates the dams would need approximately $4 million for upgrades and improvements.With little return on their investment and discussions in the Michigan legislatureregarding a renewable portfolio standard, TCLP is considering additional windgeneration capacity, but its options are limited because it will be difficult to garnerenough volunteers to accept a surcharge given the necessity to ask citizens for help for thefirst wind project. Therefore, the viability of pursuing this new wind project will dependhighly on whether or not public power systems receive a comparable tax incentive.Renewable Energy Production Incentive Program- 1 -
The only federal incentive currently available to public power systems is the RenewableEnergy Production Incentive (REPI) program authorized under the Energy Policy Act of1992. This program was created to be a comparable counterpart to the renewable energyproduction tax credits made available to investor-owned utilities under this law. UnderREPI, the U.S. Department of Energy (DOE) is authorized to make direct payments tonot-for-profit public power systems and rural cooperatives at the rate of 1.5 cents per kWh(1.8 cents when adjusted for inflation) from electricity generated by solar, wind,geothermal, and biomass projects. Unfortunately, the REPI program is subject to theannual appropriations process, and the program has been woefully under-funded since itsinception. According to DOE sources, approximately $80 million would be required inFiscal Year (FY) 2006 in order to fully fund all past and current REPI applicants. Despitethe demonstrated need, however, DOE has only asked for $5 million for FY 2006, citingbudgetary constraints.Renewable Portfolio StandardsComplicating the issue is a recent trend by several states to enact renewable portfoliostandards (RPS) and the prospects of a federal RPS mandate. According to the U.S.Energy Information Administration (EIA), almost 20 states have enacted some form of anRPS, and there are further discussions in other state legislatures to enact similarmandates. For-profit utilities can have the ability to use the federal tax incentives grantedto them to offset the costs associated with the state laws. Not-for-profit utilities required tocomply with these RPS mandates will not have comparable incentives to assist them indoing so.Without federal financial assistance, public power systems must finance more expensiverenewable energy facilities internally—through higher rates for everyone or surchargespaid by those willing to pay more for “green” power. For example, the Board of Waterand Power Commissions for the Los Angeles Department of Water and Power (LADWP)recently adopted a policy in response to a state RPS and a resolution passed by the CityCouncil. The policy approved by the Board set the goal of LADWP supplying 20 percentof its generation load by 2017 from renewable energy resources and an interim goal of 10percent by 2010. In order to determine how LADWP will pay for this effort, a study will beconducted to examine a renewable surcharge for its customers to pay for meeting the RPSgoals and possibly a calculation method and plan for implementing the surcharge. Alsoincluded in the study will be an assessment for a solar surcharge to support installationand generation of electricity from photvoltaics. But without comparable incentives, theLADWP is limited to what financial options can be used to meet the City Council’sresolution.Greenhouse Gas InitiativeAPPA has joined with partners in the electricity industry in signing a Memorandum ofUnderstanding (MOU) with DOE that commits us to voluntarily reduce greenhouse gasintensity. This MOU was part of President Bush’s proposal for a voluntarily greenhousegas emissions reporting and reduction program. The goal of the program is to reducegreenhouse gas intensity levels by 18 percent by 2012.- 2 -