Date Requested: January 28, 2015
Time Requested: 01:50 PM
Agency: State Tax & Revenue Department
CBD Number: Version: Bill Number: Resolution Number:
1594 Introduced HB2042
CBD Subject: Tax


FUND(S):

General Revenue Fund

Sources of Revenue:

General Fund

Legislation creates:

Neither Program nor Fund



Fiscal Note Summary


Effect this measure will have on costs and revenues of state government.


    The stated purpose of this bill is to create the West Virginia Renewable Energy Act. The bill makes legislative findings and defines terms. The bill provides a maximum $2,000 investment cost recovery incentive for customer-generated electricity from renewable energy systems, but exempts electric and gas companies from qualifying for that incentive. The bill also provides a $25,000 maximum tax credit for electric light and power companies that purchase customer-generated electricity. The bill requires reports be made to the Legislature. The bill also provides that no incentives may be taken after June 30, 2023, and credits may not be taken after June 30, 2024. The bill also provides that customers who generate electricity from renewable sources may sell electricity to electric light and power companies.
    
    According to our interpretation, the bill creates a tax credit for power generation companies to be claimed against their Corporation Net Income Tax liability. The credit can be taken in an amount equal to the investment cost recovery incentive payments made in any fiscal year as outlined in the bill. The credit for any one fiscal year cannot exceed twenty-five one-hundredths of one percent of the businesses’ taxable power sales or $25,000, whichever is greater.
    
    Projects that would qualify for the renewable energy cost recovery initiative include: solar, biomass, geothermal, wind, and hydroelectric. The incentive is limited to small generation projects as the eligible electric production does not include that from companies with at least one thousand megawatt hours of annual sales or a gas distribution business. The incentive is equal to the kilowatts generated multiplied by an economic development factor that varies depending on how the electricity was produced. The bill further provides for the resale of the generated electricity to power companies. In 2013, according to the U.S. Energy Information Administration, approximately 4.1% of all electricity generated in WV came from renewable sources - primarily hydroelectric power and wind energy. According to the WV Division of Energy, the State currently has 398 commercial and residential installations. If each system were to reach the $2,000 per household maximum, the costs would reach nearly $800,000. Going forward this number could increase significantly with the extension of the Federal Residential Renewable Energy Tax Credit that can be coupled with other incentives to reduce the payback period of renewable energy production systems. Furthermore, data on other qualifying energy production is not readily available. As such, the aggregate costs associated with the passage of these incentives cannot be fully estimated at this time.
    
    The State Tax Department would incur $15,000 in administrative costs in FY2016, including $5,000 for implementation and testing. In FY2017 and thereafter, the State Tax Department would incur $10,000 in administrative costs.
    



Fiscal Note Detail


Effect of Proposal Fiscal Year
2015
Increase/Decrease
(use"-")
2016
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 15,000 10,000
Personal Services 0 10,000 10,000
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 5,000 0
2. Estimated Total Revenues 0 0 0


Explanation of above estimates (including long-range effect):


    According to our interpretation, the bill creates a tax credit for power generation companies to be claimed against their Corporation Net Income Tax liability. The credit can be taken in an amount equal to the investment cost recovery incentive payments made in any fiscal year as outlined in the bill. The credit for any one fiscal year cannot exceed twenty-five one-hundredths of one percent of the businesses’ taxable power sales or $25,000, whichever is greater.
    
    Projects that would qualify for the renewable energy cost recovery initiative include: solar, biomass, geothermal, wind, and hydroelectric. The incentive is limited to small generation projects as the eligible electric production does not include that from companies with at least one thousand megawatt hours of annual sales or a gas distribution business. The incentive is equal to the kilowatts generated multiplied by an economic development factor that varies depending on how the electricity was produced. The bill further provides for the resale of the generated electricity to power companies. In 2013, according to the U.S. Energy Information Administration, approximately 4.1% of all electricity generated in WV came from renewable sources - primarily hydroelectric power and wind energy. According to the WV Division of Energy, the State currently has 398 commercial and residential installations. If each system were to reach the $2,000 per household maximum, the costs would reach nearly $800,000. Going forward this number could increase significantly with the extension of the Federal Residential Renewable Energy Tax Credit that can be coupled with other incentives to reduce the payback period of renewable energy production systems. Furthermore, data on other qualifying energy production is not readily available. As such, the aggregate costs associated with the passage of these incentives cannot be fully estimated at this time.
    
    The State Tax Department would incur $15,000 in administrative costs in FY2016, including $5,000 for implementation and testing. In FY2017 and thereafter, the State Tax Department would incur $10,000 in administrative costs.
    
    



Memorandum


    The stated purpose of this bill is to create the West Virginia Renewable Energy Act. The bill makes legislative findings and defines terms. The bill provides a maximum $2,000 investment cost recovery incentive for customer-generated electricity from renewable energy systems, but exempts electric and gas companies from qualifying for that incentive. The bill also provides a $25,000 maximum tax credit for electric light and power companies that purchase customer-generated electricity. The bill requires reports be made to the Legislature. The bill also provides that no incentives may be taken after June 30, 2023, and credits may not be taken after June 30, 2024. The bill also provides that customers who generate electricity from renewable sources may sell electricity to electric light and power companies.
    
    The bill appears to have conflicting expiration dates for both right to earn tax credits and the right to claim them.
    
    Expiration of: Proposed §5B-2I-6Proposed §11-24-11c
    Right to earn tax credit June 30, 2022 June 30, 2023
    Right to claim tax credit June 30, 2023 June 30, 2024
    
    Carry back of tax credits is not addressed in this bill. In addition, 5B-2I-4 (c)(1)(C)(I) through (v) refer to equipment manufactured in the state as a qualifying factor for the incentive. However, (vi) permits out-of-state manufacturing equipment which seemingly negates the prior statement in the bill. It is not clear whether both in-state and out-of-state equipment are qualifying factors for the tax credit incentive.
    
    
    
    
    



    Person submitting Fiscal Note: Mark Muchow
    Email Address: kerri.r.petry@yahoo.com