The U.S. production tax credit for wind energy should be extended and phased out over five to 10 years, said Lew Hay, executive chairman of NextEra Energy Inc. (NEE:US), the country’s largest producer of wind and solar energy.
The production tax credit of 2.2 cents per kilowatt hour expires for wind projects placed in service after Dec. 31. Industry advocates have warned that shrinking demand as a result of the credit’s uncertain future is causing job losses in the supply chain.
“At some point, every technology should stand on its own, but hitting a cliff I don’t think is smart,” Hay said at a Bloomberg Government breakfast in Washington today. “I don’t see any other industry saying we’re willing to sign up for a reduction and a total phase-out in the tax benefits we get.”
The wind industry and its advocates in Congress have garnered bipartisan support for extending the tax credit, though lawmakers haven’t reached agreement on continuing it. The issue is caught up in a broader debate over expiring income tax cuts and automatic spending increases also scheduled to take effect in 2013.
The American Wind Energy Association, the trade group advocating the credit’s extension, has said it’s willing to work with lawmakers on the future of the credit and has said it doesn’t need to exist forever. The group, which is seeking an immediate one-year extension, hasn’t taken a position on the length of such a phased reduction in the credit.
Because 29 states have renewable portfolio standards, Hay said, companies will still invest in wind energy.
“There’s still going to be demand for wind and solar,” Hay said. Without the tax credit, he said, prices for customers will be higher.
Hay and the chief executives of The Southern Co. (SO:US) and NV Energy Inc. are in Washington today to meet with lawmakers and congressional staff on another issue that is part of the end-of- year fiscal cliff: the scheduled tax increase on dividends.
“When we think about the effects of taxing capital formation, it is exactly the wrong federal policy to pursue right now,” said Thomas Fanning, the chairman, president and chief executive officer of Southern, which has customers in Alabama, Florida, Georgia and Mississippi.
If Congress doesn’t act, dividends would be taxed as ordinary income in 2013, returning to the tax policy in effect before 2003. The top rate, including a tax on unearned income from the 2010 health-care law, would be 43.4 percent, up from 15 percent this year. Republicans want to keep the current tax rates for a year and then overhaul the U.S. tax code.
Senate Democrats are proposing to set the top rate at 23.8 percent. That would apply, depending on the circumstances, to many individuals with incomes exceeding $200,000 a year and married couples with incomes exceeding $250,000.
“Those people aren’t just going to sit back and do nothing,” Hay said, adding that dividend-paying stocks would become less attractive. “Capital moves quickly in response to tax rates.”
A dividend tax-rate increase would increase the cost of capital for utility companies, the executives said, which would attempt to recoup the cost through higher rates on customers.
Hay cited estimates from Barclays Plc that utility stock prices would drop by 6 percent if dividend tax rates go up.
“It’s exactly the wrong thing to do in this economy,” Fanning said.
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