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Does Duke Wind Pay Its Taxes?

Yes, but supporters urge locals to close a Michigan loophole

April 5, 2011 | By Glenn Puit
Great Lakes Bulletin News Service

Jim Dulzo/MLUI
  Wind turbine parts, including a hub and nacelle for the Stoney Corners wind farm, near McBain, are subject to “personal industrial” property taxes.

An energy company proposing to erect 112 wind turbines in northwest Lower Michigan disputed its tax assessment on one of its wind farms in Wyoming last year, prompting a handful of local officials to question, at least for awhile, whether the company was committed to paying the taxes it said the project would generate.

The company, Duke Energy, the largest energy firm in America, wants to build its Gail Windpower Project in Manistee and Benzie Counties. The proposal calls for placing utility-scale turbines approximately 485 feet high in a scenic, mostly agricultural area between one and 14 miles east of the Lake Michigan shoreline.

The company estimates that, if the project is built, it will pay each county approximately $1.3 million in property taxes annually—in Benzie’s case, equivalent to a 4.4 percent increase over its 2009 property tax revenues, according to annual tax revenue figures supplied by the county.

As four townships in the two Michigan counties wrestle with the proposal, some local opponents have pointed to the Wyoming tax dispute as an indication that Duke cannot be counted on to provide the local property tax revenues that are a major selling point for the Gail Windpower project. But reporting by Great Lakes Bulletin News Service indicates that Wyoming tax officials sided with Duke on its appeal and the controversy has since subsided.

In its reporting, however, the Great Lakes Bulletin News Service also found that a state policy meant to encourage alternative energy development could prevent townships and counties that host large-scale wind turbines from fully benefiting from the property taxes such projects can provide.

A Dispute in Wyoming
In Wyoming, Duke’s tax disputethe only one GLBNS could identify in a Web search aimed at any of the company’s nine wind farms in four statescentered on a local government unit’s assessment for the company’s Top of the World windpower project.

Ed Werner, a former chairman of the Converse County Board of Commissioners, told the Great Lakes Bulletin News Service that when the wind farm was first proposed, Duke painted a very promising picture of how it would generate significant tax revenues for local governments. But a year later, when the firm’s first tax bill came due, Duke disputed the county’s assessment.

“They told us exactly what they would pay, and about a year later, as the project neared completion, they contested...and claimed all these exemptions for Wyoming,” Mr. Werner said.

One state official was quoted as saying that he thought Duke might have misled local officials regarding the taxes it expected to pay.

Since then, however, the controversy has subsided. Duke spokesman Greg Efthimiou told GLBNS that the company was entirely justified in appealing its tax bill because the assessment included wind turbines that had not yet been installed at the farm.

“The [tax bill] amount included the value of those turbines, and they were not anywhere near the state of Wyoming,” Mr. Efthimiou said.

When the matter was fully vetted, the state sided with Duke. Mr. Efthimiou said the entire amount disputed was less than $300,000, but the controversy was compounded by an erroneous news report that indicated as much as $41 million was at stake.

“It has caused us a lot of pain and it was not justified,” Mr. Efthimiou said.

Current Converse County Commission Chairman Mike Colling confirmed Mr. Efthimiou’s statements. Mr. Colling told the news service that Duke was correct in appealing its tax assessment and that he views Duke as a good corporate citizen, a view that that a check of the company’s own Web site seems to confirm. The site announced recently that, for the third consecutive year, Corporate Responsibility magazine named the firm one of its 100 Best Corporate Citizens.

Mr. Werner, the previous county chairman, who once told ABC News that Duke was “one of the best companies to work with on the ground,” described the Duke appeal as a public relations gaffe.

But he also said there is a larger lesson to be learned: When energy companies want to erect wind farms, local governments and townships need to be extremely diligent in making sure local units get their fair share of tax revenues from the companies harvesting their natural resources.

Millions at Stake
Mr. Werner’s admonition, it turns out, may apply to any community in Michigan that welcomes a wind farm. The problem has little to do with companies that operate the farms, however, and does have a straightforward solution.

That problem was discussed recently at a gathering in Missaukee County, just south and east of Benzie and Manistee Counties, where the 20-plus-turbine Stoney Corners wind farm continues to add new machines, each one up to 470 feet tall and capable of generating close to two million watts of electricity in a good wind.

There, local residents heard a presentation by the Thumb Regional Renewable Energy Collaborative, a non-profit group based in Huron County, where there is ongoing, extensive, utility-scale windpower development. The group aims to maximize local revenue and employment from renewable energy projects.

In their Missaukee presentation, Thumb collaborative representatives reminded the audience that millions of dollars would be at stake for local townships and school districts if projects like Duke’s Gail Windpower project come to fruition. The speakers said it is important to take steps to make sure local governments receive the full benefit of a wind farm’s presence in a community.

The speakers explained that, in 2002, the State of Michigan established the NextEnergy Authority, designed to encourage research, development, commercialization, and manufacturing of alternative energy technologies through a combination of tax credits and exemptions. The authority can, if a wind developer requests it, exempt that company from some taxes on its industrial personal property, which, according to the Michigan Economic Development Corporation, includes wind energy system equipment.

Specifically, NextEnergy can grant wind developers a 100 percent exemption for two crucial parts of property taxes in Michigan: the 6-mill state education and the 18-mill school operating taxes. That adds up to 24 mills in lost revenue.

The authority’s exemption applies to taxes levied up until January of 2013, but local tax collection units—usually townships—can pass resolutions that immediately eliminate the exemptions, the collaborative explained. That could make a big difference: In many of the Thumb’s rural areas, for example, establishing a wind farm could double a townships’ total taxable value, since each new wind generator and its associated equipment typically has a taxable value of $1.3 million in its first year of operation. 

“People need to be aware of these exemptions,” said Mike Krause, a member of the Thumb collaborative and a co-presenter of the report. “Most of the wind developers are saying they intend to pay their personal property taxes and are not going to seek certification (thru NextEnergy), but that’s why there’s the need to educate our townships to start asking that question. The local townships only get 60 days to opt out of those exemptions, and the townships control all the millages.”

There are literally millions of tax dollars at stake for local townships and school districts that do not opt out of the NextEnergy exemptions. A proposed Upper Peninsula wind farm, for example, carries with it $30,000 to $40,000 in property tax revenues per turbine, per year. In Missaukee County, according to the Missaukee Sentinel, the value of Stoney Corners’ original nine windmills is $41 million, while the 10 added last year will raise the value to $83 million.

The Sentinel quoted Martin Lagina, the wind farm’s developer, saying that after his project’s 100 percent tax abatement ends, in December 2012, county school and township tax benefits will approach $500,000 per year, combined.

Fair Shares
Commenting from Wyoming, Mr. Werner said Michigan is now struggling with the same tax issues his state struggled with when it faced a windpower boom over the last five years. He said it’s critical for local governments to take every step necessary to insure their local communities receive their fair share of tax revenues from projects like Gail Windpower.

Mr. Werner explained that the State of Wyoming exempted commercial wind farms from some manufacturer-related taxes on generation equipment. But local units were concerned that, with that revenue lost to the state budget and Wyoming’s property tax structure also sending most local money to the state government, the local units would see little benefit from wind farm development—other than the jobs created and wind royalties paid to property owners who had allowed turbines onto their property.

To solve that problem, Wyoming lawmakers briefly considered implementing a tax structure known as “payment in lieu of taxes” for wind farms. The approach, which is legal in Michigan, substitutes a flat annual fee for a millage rate, and is often used to garner revenue from large, non-profit institutions that incur high costs from local governments but are not required to pay taxes.

Wyoming eventually opted for a quite different approach—a state-based wind generation tax of $1 per megawatt hour. A significant portion of that money is then redistributed to local governments where wind farms are located. Mr. Werner considers the mechanism a success.

“Wyoming said if you are going to come to the state and generate wind power, you are going to pay your way,” Mr. Werner said. “So far, I haven’t seen anyone pulling up stakes and leaving.”

Glenn Puit is a policy specialist for the Michigan Land Use Institute. Reach him at glenn@mlui.org.

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