DTE Energy Co. and CMS Energy Corp. want their utilities' wind energy systems classified as industrial personal property, making the companies eligible for significant personal-property tax relief under 2007's Michigan Business Tax (MBT) legislation.
The change could potentially save the companies $50 million combined in annual taxes and give them the same tax treatment as private wind developers whose systems are deemed industrial personal property, according to state officials.
It's one of many tax-policy questions the state faces as it moves to finance and build Michigan's alternative-energy industry. Some industry watchers say tax incentives are important pieces of the financing puzzle to promote renewable energy and diversify Michigan's economy.
Gov. Jennifer Granholm has targeted alternative energy as one of Michigan's emerging growth sectors and has supported several tax-related measures.
For example, two recently passed bills are designed to help the state build clusters of business investment around anchor companies in high-technology industries such as alternative energy. One measure, sponsored by Sen. Jason Allen, R-Traverse City, allows an anchor company that attracts other suppliers or customers, or influences other suppliers or customers to expand, to receive a tax credit based on the value of personal income taxes generated from the new jobs. The anchor could be in one part of the state while the suppliers or customers could be in another part.
A companion bill, sponsored by Rep. Ed Clemente, D-Lincoln Park, targets anchor companies that attract suppliers or customers in the same area. The anchor could receive an MBT credit equal to a maximum 5 percent of the taxable value of each supplier's or customer's property within a 10-mile radius of the anchor company.
Another new measure targets Hemlock Semiconductor Corp., the world's leading producer of polycrystalline silicon, and offers a 12-year MBT credit of as much as $357.4 million to entice the company to choose Michigan for a more than $1 billion expansion that could produce up to 500 new jobs. The company is based in Hemlock, near Saginaw. The tax credit is based on electricity costs and consumption. The company could announce a decision by the end of the year.
Construction at Hemlock is already under way for a separate $1 billion expansion, announced in May 2007, that will provide about 500 jobs.
Liz Boyd, Granholm's press secretary, said that if you look at what's happening across the nation and the world, you can see the growth potential for alternative energy. And we want that growth sector to happen here in Michigan.
For example, she said, the tremendous potential with Hemlock Semiconductor, and the work that's happening in the Saginaw Valley, has the potential to transform that area into a Silicon Valley for Michigan.
Doug Roberts Jr., director of environmental and health policy at the Michigan Chamber of Commerce, said that as Michigan sets standards for the use of renewable energy, as well as energy efficiency, providing some tax relief, incentives to get to the standards, is important as well.
But Michael LaFaive, director of fiscal policy at the Midland-based Mackinac Center for Public Policy, said Michigan should not target specific sectors and can't know that the alternative-energy industry is going to be the next big thing.
Instead of incentives, he said, Michigan should lessen business burdens overall, such as eliminating the MBT or improving environmental permitting.
He said targeting the alternative-energy area is just the industrial policy flavor of the month, similar to Michigan's new package of incentives to woo film production.
In recent months, lawmakers have introduced or acted on a slew of tax-related bills to spur production of alternative energy in Michigan, from allowing the state's tax-free renaissance-zone program to include projects that produce energy from sun and wind, to tax exemptions targeting specific industries like solar and biomass.
Many measures are future-reaching. For example, Senate and House bill packages provide sales, use, and property-tax exemptions for next-generation agricultural combines.
The exemptions ensure that machinery that will harvest grains and other crops at the same time it harvests biomass used to produce energy, will qualify for tax treatment already given other types of agricultural machinery, said Greg Bird, press secretary for House Speaker Andy Dillon, D-Redford Township.
Other bills, introduced in May by Republican and Democratic sponsors, offer tax incentives to help businesses and homeowners purchase alternative-energy systems or make improvements.
James Croce, CEO of NextEnergy in Detroit, said a strong renewable-energy portfolio standard mandating electricity that utilities must purchase from renewable sources is more important than tax breaks in creating a viable alternative energy market in Michigan.
Tax policy is not counterproductive, Croce said, but it's not going to get the job done.
Nate Collamer, director of commercial analysis with Baltimore-based Constellation Energy Group Inc., said one aspect that's important to consider in the move to more renewables is to avoid favoring one technology, such as wind, over others, such as biomass or solar.
From my standpoint, a level playing field is really important in all of this, he said. For example, if you give the same property tax exemption to all renewable resources, then that's a level playing field.
Constellation is involved in a number of renewable-energy operations across the country.
To CMS and DTE, which could build wind turbines that could help the state attain its renewable-energy goals, tax treatment of the systems is important. CMS, parent of utility Consumers Energy Co., is identifying wind-power sites and expects nearly all the renewable energy it would add to its portfolio by 2015 would come from wind.
About half of that power would come from wind farms CMS would build and about half would come through contracts with other developers.
The company has purchased easements for more than 10,000 to 12,000 acres on which it could develop wind farms, principally on the west side of the state and in the Thumb area.
As we start to develop wind farms all around the state, we have to worry about whether those wind farms are going to pay a high-level tax, said Ted Vogel, vice president and chief tax counsel for Consumers Energy. He said the machinery and equipment of wind farms, such as towers and turbines, should qualify for the same industrial personal-property tax breaks whether it's owned by a utility or nonutility company.
Vogel said that based on all the wind farms CMS is considering, the classification could reduce the wind farms' personal-property taxes from $20 million annually to perhaps $8 million annually.
DTE Energy has purchased easements on some 40,000 acres in the Thumb area's Huron, Tuscola and Sanilac counties for a wind turbine development that could provide power to its Detroit Edison Co. Southeast Michigan customers. The development could cost an estimated $1.2 billion to $1.5 billion.
Len Singer, DTE senior media-relations representative, said the classification of utility wind systems as industrial personal property is an idea with merit and could encourage more wind power development in Michigan. He confirmed that the company has met with the Michigan Department of Treasury on the issue, but declined to comment further.
Rich Vander Veen, president of Lowell-based wind-power developer Mackinaw Power L.L.C., said utilities already have competitive advantages over independent power producers, and giving them additional tax breaks would only add to that.
But Scott Schrager, director of legislative affairs at Treasury, said classifying the utility wind systems as industrial personal property will provide tax treatment that is even and that will help keep down the cost of alternative energy.
He said the legislation, in part, would allow the utility wind energy systems to qualify for personal-property tax relief under the new MBT laws. The MBT package cut industrial personal-property taxes by an average 65 percent by reducing the tax rate from 24 mills to 12 mills and providing a 35 percent refundable MBT credit on the remaining personal-property tax liability for industrial property.
Schrager said potential tax impact is difficult to calculate because it's not clear how much wind power the utilities might produce and how much they might purchase from other providers. He said that in the next few years the tax impact would be minimal. Some 10 years from now, the amount of taxes the state might forgo could reach $50 million.
The legislation is expected to be debated this fall.