MINUTES OF THE
SENATE Committee on Taxation
Seventy-First Session
March 15, 2001
The Senate Committee on Taxationwas called to order by Chairman Mike McGinness, at 2:36 p.m., on Thursday, March 15, 2001, in Room 2135 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.
COMMITTEE MEMBERS PRESENT:
Senator Mike McGinness, Chairman
Senator Dean A. Rhoads, Vice Chairman
Senator Randolph J. Townsend
Senator Ann O’Connell
Senator Joseph M. Neal, Jr.
Senator Bob Coffin
COMMITTEE MEMBERS ABSENT:
Senator Michael Schneider (Excused)
OTHER LEGISLATORS PRESENT:
Senator Dean A. Rhoads, Northern Nevada Senatorial District
STAFF MEMBERS PRESENT:
Kevin D. Welsh, Deputy Fiscal Analyst
Rochelle Trotts, Committee Secretary
OTHERS PRESENT:
Alan D. Caldwell, Lobbyist, Green Energy Business Council of Nevada
Carole Vilardo, Lobbyist, Nevada Taxpayers Association
Elizabeth M. Pederson, Lobbyist, League of Women Voters of Nevada
Marion I. Barritt, Vice President, Sunrise Sustainable Resources Group
Alfredo Alonso, Lobbyist
Susan L. Reeder, Lobbyist, Sierra Pacific Power Company
Robert Cooper, Senior Regulatory Analyst, Bureau of Consumer Protection, Office of the Attorney General
David L. Howard, Lobbyist
Chairman McGinness:
We have several bills waiting for amendments and hopefully they will be ready next week. I open the hearing on Senate Bill (S.B.) 273.
SENATE BILL 273: Proposes to exempt from sales and use taxes certain products that use renewable energy resource to generate electricity. (BDR 32-641)
Senator Dean A. Rhoads, Northern Nevada Senatorial District:
The amendment (Exhibit C) is the bill. The first paragraph in italics under the explanation needs to be amended because, originally, the bill went to the vote of the people but now it goes into effect June of this year. The other change is on the last page, paragraph (d) was added. No one would have ever believed 2 years ago renewable energy would be competing against hydro, gulf-fire light plants, and natural gas plants.
Alan D. Caldwell, Lobbyist, representing Green Energy Business Council of Nevada:
The Green Energy Business Council of Nevada is a group of 14 renewable energy businesses located in the state. Mainly my primary concern is the state of Nevada is hugely dependent on sources for its energy from out of state and that runs close to 95 percent, which is too much dependency on other states and other pricing mechanisms that the state of Nevada has no control over. On the other hand, we have a huge abundance of renewable energy resources: wind, solar, and geothermal. This is one of the steps the state could take to promote renewables and ensure they have a place in our state, which works on the large-scale projects as well as the small scale. In the small-scale situation, it gives the rural homeowner a chance to put together small renewable energy systems that include solar, wind, or geothermal. I am putting in a flat-plate collector to my home right now and this is one way I can cut into, but not eliminate my natural gas bill and save some money. I strongly support this bill and the other group I represent, my corporation, Sierra Concepts, which does wind farm development, supports it.
Senator Neal:
You are asking to support this measure because it would exempt taxes from the gross receipt from the sale of, and the storage, use or other consumption in this state, of any product designed or adapted to use a renewable energy. That is broad language; give me an example as to what some of these products would be and why they would deserve an exemption from this state.
Mr. Caldwell:
Independent Power Corporation has installed between 3 and 400 small renewable energy systems over the last 4 years. Such a system would include, for example, solar panels, an inverter, charger controller, batteries, and a back-up generator. Most of the time you could rely on a system that was providing electricity via solar energy. There are components that are not renewable components but would be part of the whole system. The systems that would be included should be specified in this bill. I had a chance to look at the amendments and perhaps could use a greater clarification on the exact systems.
Senator Neal:
Issues such as this that we have had before us in the past, which simply stated the cost of renewable energy had not reached a point where it was less than the energy generated by electricity. In fact, I have seen figures that represent costs as high as 27 cents per kilowatt. That is extremely high, if electrical bills are now costing 10 cents per kilowatt, I think people will remain with electricity. Why should we grant this exemption if it is not going to benefit anybody?
Mr. Caldwell:
Substantially, the larger projects are at wholesale cost of 2.8 cents a kilowatt which is competitive with any other fuel. The objections that renewable energy were too high has gone away because wind technology has advanced tremendously over 20 years. In the larger wind farms, where there is good wind resource, the price is very competitive, in fact it is more competitive than natural gas, which seems to be the fuel of choice. Geothermal is very close and there is a bill in Congress to extend a production tax credit to wind and include the other renewables as well. Solar is higher but geothermal and wind are competitive at this point in time.
Senator Neal:
Why would you not include this in renewable energy sources that are not consumed or combusted in its natural regenerated state?
Mr. Caldwell:
We are talking about an energy system where the fuel costs nothing, the price of sun and wind will never change. What Nevada and other parts of the world are faced with is the escalating cost of natural gas. The study completed on natural gas plants shows, on the drawing boards right now, there is not enough natural gas to supply the natural gas plants. There are about nine natural gas plants in this state. We are dealing with something that is open ended, and who knows where the cost of natural gas will end up; the cost of wind, geothermal, and solar will always remain constant and fray. Once you get your infrastructure in and start utilizing these renewable resources, you can project what your long-term costs are going to be because all you have to cover is your initial capital outlays to get the project on-line.
Senator Neal:
Are you connected with the group that is putting in the wind farm at the Test Site?
Mr. Caldwell:
No, I am not.
Senator Neal:
Do you know about the group?
Mr. Caldwell:
Yes, it is a consortium of several companies.
Carole Vilardo, Lobbyist, President, Nevada Taxpayers Association:
Senate Bill 227 is currently being revised with amendments.
SENATE BILL 227: Revises and repeals provisions that exempt certain property from taxation. (BDR 32-892)
For the producers or manufacturers of energies, the component parts would, in effect, wind up with certain exemptions if certain criteria were met. The amendment (Exhibit C) goes back to a producer not a consumer situation. If, by a policy decision, you want this exemption to go back through a retail association, the end-user customer that buys it is to receive this exemption, you need to take out the language that is bolded in section 9 that refers to the product used to convert, store, and so on and go back to the language right before that.
Chairman McGinness:
We may put this into a subcommittee to try and reconcile the changes and similarities between S.B. 227 and S.B. 273.
Ms. Vilardo:
I agree. You have different policy decisions that have to be made as to what level you want to exempt from taxation. The beneficiary of the abatement or the exemption would be at two different levels.
Senator Neal:
The amendment would not exempt the 2 percent sales tax, any tax brought on by the state legislature unless this went to the vote of the people.
Ms. Vilardo:
Correct. I was going to oppose the bill as written and Senator Rhoads was concerned about doing something immediately that did not effectively defer until January 01, 2003. It has not been uncommon for the legislative bodies to decide there is a policy issue on an exemption that is important enough to be granted. The local taxes would be exempted and those portions you can exempt immediately. The 2 percent, which was referendum, must go to a vote of the people.
Senator Neal:
We do not want to leave people thinking that they will not have to pay the 2 percent sales tax.
Senator Townsend:
If we are only looking at section 9 on your amendment (Exhibit C) when it says there are, exempted from the taxes imposed by this chapter, which would be everything above the 2 percent, gross receipts from the sale of, and the storage, use or other consumption in this state, of any property to the extent that the property is used to collect, store and convert. If someone goes to rural Nevada and decides to build a solar, wind, bio or geothermal plant, they will be exempted from sales tax on the purchase of items necessary to produce that.
Ms. Vilardo:
That is correct.
Senator Townsend:
If you take a 50 megawatt plant, that runs about $50 million and $20 million is product to construct the plant, that $20 million would only have the 2 percent tax on it.
Ms. Vilardo:
That is correct. That is the way the amendment reads. That is not the way the gentlemen before me testified or the way the bill was originally written.
Senator Townsend:
If the sponsor of the bill wants additional things to accommodate other things in rural Nevada, then we need to look at that. There was discussion about the end-user and what that means relative to someone who buys a solar panel which is a separate issue all together.
Senator Neal:
How would this relate or affect the QF (qualifying facility)contracts that are outstanding with the power companies?
Senator Townsend:
The contracts that are currently in place under current regulation, as well as state law and federal mandate from FERC (Federal Energy Regulatory Commission), would have to be honored. I do not think it would affect the sales tax on those.
Senator Neal:
I am not talking about the sales tax. I am talking about the requirements the power companies have to sell the power to the QFs.
Senator Townsend:
If you fit the federal guidelines of a qualifying facility then the local utility, in our case Nevada Power Company and Sierra Pacific Power Company would be required to buy that energy from that facility. We have a number of those facilities and because of that, any additional resource that is developed in the state, unless this Congress amends the PURPA (Public Utility Regulatory Policies Act of 1978) you are going to have the same requirements and they are going to have to buy energy from those facilities unless they are already contracted with someone else.
Elizabeth M. Pederson, Lobbyist, League of Women Voters of Nevada:
We are in support of this bill. Renewable energy is very important as we move into the future, and this bill provides a way to lure people over from nonrenewable energy sources to renewable energy sources, especially, as we see the energy crisis in California and the energy crisis for seniors and people with low incomes. It is important to consider alternate ways of making sure all citizens have the electricity and heat they need to live comfortably.
Marion I. Barritt, Vice President, Sunrise Sustainable Resources Group:
As a consumer, I have a solar system on my house, which produces electricity and I am net metered. If this bill were in effect when I did this, it would have saved me a few hundred dollars. This is an incentive type bill and will cost our state some dollars in the form of reduced revenues but that will be more than made up by enticing renewable energy businesses to come into this state and put their plants here, whether they are wind, solar, or additions to geothermal. The energy crisis will not go away, and Nevada can produce energy that we need here plus be an exporter. SMUD (Sacramento Municipal Utility District) is estimating their cost is approximately 12 to 14 cents and are planning to bring that down next year.
Senator Townsend:
If we do not build these facilities you gain nothing in tax. If you build them under this proposal, you gain at least 2 percent. This is not something we are giving away, we are not collecting it now. We are not taking anything away from the power company, they are still in peaking time during the summer and in Las Vegas they are still 50 percent short.
Senator Coffin:
Is it worth it for us to do it for each particular area? If a plant does go in, there are still expectations of who will take care of it, fight the fire or protect it which would lose the local level if we are starting to talk about larger things that are asset based.
Senator Townsend:
There is a price to pay every time you do bring something on-line. In looking and analyzing these plants, the construction alone is substantial in the amount of labor costs when you look at the people who remain after the plant has been constructed in order to maintain these plants. Perhaps the revenue loss is picked up from the original sale to offset because of the people they do bring into a community, do develop a great deal of revenue from their own tax base in churning the economy.
Alfredo Alonso, Lobbyist:
I am representing BP (British Petroleum) and BP Solar, which is the largest solar, hydrogen producer and fuel cell company in the world. We support this bill. Right now, no one has taken advantage of the current exemption. From a policy standpoint, it is a good energy policy considering the issues that remain before you with respect to energy. Solar has been considered viable but expensive, and those costs are coming down as technology improves. Electricity and gas bills are getting higher and will have parity which makes it all the more important to jump-start this type of generation environment. Hydrogen seems to be the energy of the future. We currently have hydrogen plants around the world and those will come to be more commonplace with advent of technology and as fuel-cell technology increases.
Senator Townsend:
Is your reading of (Exhibit C), the last page where it lists wind, solar energy, geothermal energy and energy derived from biomass, from a legal standpoint do you read solar energy to include solar thermal?
Mr. Alonso:
As it states, including without limitation, I would say it would include both solar thermal and hydrogen. The more you specify some of these types of technologies the clearer it will be.
Chairman McGinness:
We need to make sure the language that says it is naturally regenerated, including without limitation, is encompassing.
Senator Neal:
Is BP Solar presently operating in this state?
Mr. Alonso:
No. The entrancing aspect of that is, as solar and other renewables become more important to the United States. The key is, abroad, renewables particular solar are a significant part of the energy component. Unfortunately, until the energy problems hit they have not been as active as they would like to be, but now are growing at about 30 percent a year and hope to do more in the future.
Senator Neal:
Is BP Solar aware, if these types of exemptions are granted, you are taking money from school kids?
Mr. Alonso:
There is no existing money paid into the system with respect to solar.
Senator Neal:
The mechanism in terms of our sales tax, is set up whereby a portion of that goes to school children.
Mr. Alonso:
If you are bringing in new development, you are bringing in new dollars and new jobs. The 2 percent you would be receiving does not exist now, therefore, we would not be taking anything from the system, we would be adding to it by BP developing the product.
Senator Neal:
You indicted BP Solar is not presently involved in any solar projects within this state. When BP Solar does come here, what types of projects would they be involved in?
Mr. Alonso:
Recently, BP Solar built a plant near Fullerton, California, that produces the solar product, which you see in homes and buildings throughout the world.
Senator Neal:
BP Solar would be on the sales end of it, not the production?
Mr. Alonso:
BP Solar could do both, but production is primarily what they are doing now.
Susan L. Reeder, Lobbyist, Sierra Pacific Power Company:
We support S.B. 273, with Senator Rhoads’ amendments. We would like to propose an additional amendment to the bill (Exhibit D). As written, the bill needs to be clarified because if someone has a fossil fuel generator and they use a small amount of renewable energy, they adapt it to use a small amount of renewable energy, would they still be eligible for the tax exemption? That would not be appropriate so you may want to add language for some qualifier on the amount of energy that is produced or the amount that comes from renewable (Exhibit D). It would also be appropriate to have the PUCN (Public Utility Commission of Nevada) oversight on this and insert the new language that is in (Exhibit D).
Senator Neal:
If renewable energy is used by the product, what product are you talking about?
Ms. Reeder:
The finished product, the energy that is produced in the end.
Senator Neal:
Are we equating energy with the word product?
Ms. Reeder:
Yes. That is how we read the bill. The output from the generating facility.
Senator Neal:
At least 75 percent used by the product is at least 75 percent of the energy. If the product is not being equated with the energy then why is the 75 percent of the energy from all energy used by the product?
Senator Rhoads:
The way it was explained to me was, you cannot have diesel motor generating electricity, you have to have 75 percent of that electricity going in, which has to come from renewable sources.
Senator Neal:
The product means to production of the energy, which you are trying to exclude the use of some type of generated source. Why would you want that?
Ms. Reeder:
If we have a coal generation facility and do a retrofit, put a couple of solar panels on so 5 percent came from solar, out of the 5 percent of the total output would come from solar, this exemption should not be allowed. We should have 75 percent or a greater number coming from the renewable, to qualify for the exemption.
Robert Cooper, Senior Regulatory Analyst, Bureau of Consumer Protection, Office of the Attorney General:
Our office is in support of this bill. I handed out a chart (Exhibit E) that shows the rising natural gas prices that was referred to by previous testifiers. The prices have doubled from the $2 per thousand cubic feet and stabilized around $5 to $6. Future trends are not expected to decrease and will probably stay in the $5 to $6 range, as Mr. Caldwell explained the cost curves for renewable energy are going the other way. They are coming down and have intersected with these natural gas curves where renewable energy resources are very competitive with natural gas, wind is cheaper than natural gas. The biggest cost for renewable energy projects is the cost of capital and those curves are also going down. Having a small amount of fossil fuel included in the exemption, such as the 75 percent the utility recommended, is appropriate because we are seeing at the Nevada Test Site, there is a blended facility where they are proposing to use solar thermal during the day but they create a cost savings if they can let natural gas run those turbines at night rather than shut them down. Senator Townsend made an excellent suggestion that solar thermal be included in the bill since that is one of the key fuels being envisioned for the test site.
Senator Neal:
If your statement is correct, that renewable energy is now becoming competitive, why grant an exemption?
Mr. Cooper:
We are not seeing a lot of renewable energy activity in Nevada partly because there is a lot of entrenched bias towards fossil fuels in the industry. People are used to a price of $2 per decatherm for natural gas. These numbers are more accurate in terms of the $5 to $6 and the industry has been very slow to change over and embrace renewable energy.
Senator Neal:
Your chart (Exhibit E), shows what the natural gas spot prices seems to be but you do not show the supply. My sources have related to me the supply is still there to meet the demand but the prices are going up.
Mr. Cooper:
Our office is investigating those issues.
David L. Howard, Lobbyist, representing Reno-Sparks Chamber of Commerce:
The people at the chamber and the business community are concerned about the total revenue picture of the state. We would like you to think about all those exemptions that are on the books today and strongly recommend some examination be looked into this session or an interim session to reexamine those exemptions for revenue at some point in the future.
Chairman McGinness:
The subcommittee will hear S.B. 227 and S.B. 273 with Senator Rhoads as chairman along with Senator Schneider and Senator Townsend. The meeting is adjourned at 3:32 p.m.
RESPECTFULLY SUBMITTED:
Rochelle Trotts,
Committee Secretary
APPROVED BY:
Senator Mike McGinness, Chairman
DATE: