Update on Wisconsin Legislation Promoting Power Plant Siting

Andy Franken, The Hamilton Consulting Group

June 13, 2003

© 2003 The Hamilton Consulting Group

The Wisconsin Legislature is about to enact a major overhaul of the utility shared revenue aid payment distribution system for municipalities and counties that host new facilities, and communities that host current plants that are repowered. Rep. Gottlieb (R-Port Washington) and Sen. Ron Brown (R-Eau Claire) have authored bills encompassing new incentive aid payments. Their bills are AB-378 and SB-180, respectively. Both bills have received the endorsement of the Utility Committees in their respective houses. It is expected that the legislation will obtain full legislative approval by the end of June.

In close discussions with utility chairmen Rep. Scott Jensen (R-Waukesha) and Senator Rob Cowles (R-Green Bay), the authors have proposed sweeping changes to the current utility aid formula to provide increased payments to municipalities that host new, or repower current, electric generation facilities.

It has become increasingly difficult for communities to accept the impacts of electric generating facilities given the perceived low return for the communities. With economic growth and job creation critical to the future of Wisconsin’s economy, policymakers have made it a priority to provide incentives for new power plant construction to meet Wisconsin’s growing energy needs.

Wisconsin’s energy needs grow by about two to three percent annually. Wisconsin historically has been a net importer of electricity, but construction of new major power plants in the state has been muted in recent years by a vigorous regulatory climate and the problems associated with siting.

Currently, utilities pay a gross receipts tax on the sales of energy to the state (See LFB Memo, and Legislative Council Memo) in exchange for a property tax exemption. In lieu of property taxes, the state reimburses municipalities and counties through a shared revenue formula based upon the net book value of utility property in the community multiplied by nine mills.

The current formula includes a cap on the net book value applied to payments of $125,000,000. In addition to this cap, payments to municipalities are limited to no more than $300 per capita for municipalities and $100 per capita for counties. The revenues returned to host communities are are in amounts of two-thirds for cities and villages and one-third for counties. If a plant is located in a town, one-third of the payments are directed to the town and two-thirds are directed to counties. As a plant ages, the value of the utility property is depreciated; subsequently, the state payments to local communities diminish as well.

In order to minimize the impact on current host communities, the current law formula will continue to be applied to existing facilities, including power plants, general structures and substations. Some communities which host existing power plants are advocating better treatment under the current formula. The authors of the bills agree that inequities remain under the current system, but the goal of the legislation is to provide incentives for new plants; the current formula, which remains in effect for existing plants, may need to be addressed as a separate initiative.

The new proposal, which would take effect in 2005, will provide increased payments to local units of government based upon the ‘capacity’ of new or repowered plants. The Public Service Commission (PSC) will determine the ‘name-plate’ capacity of each new plant. In addition to these capacity aid payments, the legislation proposes three incentive aid payments for local communities:

1. A base load incentive payment for plants determined by the PSC to be base load, operating at 60 percent of name plate capacity;
2. A brownfield incentive if a plant is built on or adjacent to a brownfield; and
3. A renewable energy incentive payment.

The current per capita limits of $300 for municipalities and $100 for counties will be retained for the initial capacity aid payments and base payments under the legislation. The incentive payments, however, are not included in the per capita cap calculations and will provide more funds to the communities.

The legislation also makes changes to what is known as mitigation payments. Currently, utilities provide mitigation payments to municipalities in addition to the shared revenue a community receives. These payments are negotiated between municipal officials and the utility. In most cases, if the PSC determines the mitigation payments to be prudent, these costs are included in utility rates paid by customers. The bills eliminate purely financial mitigation payments, but allow the PSC to approve payments which are related to health and safety issues as long as they pass the prudency test.

Other provisions of the legislation include:

• Aid for Certain Ash Disposal Sites: The legislation doubles the net book value of ash disposal facilities owned and operated by electric cooperatives for purposes of utility aid payments.

• Construction Work-In-Progress: The legislation discontinues aid payments on the value of utility property under construction.

• Aid on Decommissioned Production Plants: The legislation sunsets current law relating to utility aid payments on decommissioned production plants. It replaces this with aid payments based on production plants’ previous exemptions from general property taxes due to liability for state utility taxes.