The sales tax rebate that Idaho has been providing to developers of alternative energy projects, including wind farms, may fall victim to its own success, AP reporter John Miller reports. The rebate expires in June, and higher-than-expected claims are giving pause to some state officials, including Gov. Butch Otter, even as backers push for an extension. Click below to read Miller's full report.

Idaho energy rebate could be victim of own success
By JOHN MILLER, Associated Press

BOISE, Idaho (AP) — Wind developers who are pushing to extend a tax break that has helped bolster their industry in Idaho suffered a blow because state officials say the success of the program is undermining efforts to balance the budget.

Back in 2005, when lawmakers passed a 6 percent sale tax rebate for alternative energy developers, lawmakers estimated it would cost Idaho just $2.13 million annually.

But with big wind projects now going up, Idaho now estimates it will pay rebates of $47 million over the next two years. That has contributed to a bigger hole in the budget than anticipated, they said.

House Majority Caucus Leader Ken Roberts said he isn't sure if the rebate's success so far spells the death knell for efforts to extend the break beyond its expiration on June 30. But the push now faces a difficult fight, he said.

Gov. C.L. "Butch" Otter has also told lawmakers the success of the rebate — and its heavy impact on the budget — have given him pause.

"The governor has told the proponents of the extension that he does not support a five-year extension in its current form," said Wayne Hammon, Otter's Division of Financial Management administrator.

With the end of the rebate approaching, claims are coming in significantly higher than expected — nearly $9 million in January alone, Hammon said.

The tax rebate allows alternative energy developers to recoup 6 percent of the sales and use taxes they pay for purchases of machinery and equipment used to generate energy.

The estimated $47 million hit to Idaho's budget means that developers are investing some $783 million on machinery and equipment to produce electricity.

Rich Rayhill, of Ridgeline Energy, a company that's building an 80 megawatt wind farm near American Falls, said state officials who focus on the budget hit ignore the economic upside of wind projects: These installations, in addition to generating clean energy, also produce corporate and personal income tax revenue, as well as property taxes that keep counties and school districts running.

None of the six states that surround Idaho charge alternative energy developers a sales tax, Rayhill said.

"Economics will force us to pursue projects in other states," he said.

It's not just wind power that's benefiting from the existing rebate.

Developers of fuel cells, low impact hydropower projects, geothermal power, biomass, solar and landfill gas power are also eligible.

But wind developers make up the biggest share of beneficiaries.

When the measure was passed in 2005, wind energy in Idaho produced about 300 kilowatts.

By the end of this year, renewable power generation, mainly from wind, is expected to reach 544 megawatts.

Idaho Power claims it could have 1,100 megawatts of wind generation on its system in just a few years, as developers have been lured here by not only the state tax rebate but generous federal incentives like U.S. Department of Treasury cash grants.

There's so much wind power in the works, by developers including General Electric, that the two utilities are fighting to change rules governing small wind farms. Idaho Power and Rocky Mountain Power argue some companies are gaming the current system to win more lucrative rates for their intermittent energy — it's only produced when the wind is blowing.

Democratic Rep. Wendy Jaquet, D-Ketchum and a supporter of the 2005 rebates, is torn by news the projects are now putting a dent in Idaho's budget. She thinks the rebate helped Idaho's clean energy industry pull itself up by its bootstraps but is alarmed that it may have come at the expense of education funding.

"After I heard about it, it kept me up nights," Jaquet said. "I couldn't sleep. I was stunned."

A pending Boise State University study is investigating how Idaho's rebates have helped spur energy development and the broader impact of these projects on the state economy. The results aren't due until next week, but its authors — including Geoffrey Black, the BSU economics department chairman — said initial findings indicate the long-term benefits of the rebate will outweigh Idaho's sales tax sacrifice.

"If we grant it, and the projects go forward, the state eventually comes out ahead," Black told the AP. "If it goes away, to the extent that projects aren't built here, that's an unequivocal loss. The question is, 'If we don't offer the sales tax rebate, are companies going to go elsewhere?'"

Copyright 2011 The Associated Press.
 

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