Report on the study of the tax and rate treatment of renewable energy projects

This study was conducted in response to the requirements of Section 1205 of the Energy Policy Act of 1992 (EPACT), which states: The Secretary (of Energy), in conjunction with State regulatory commissions, shall undertake a study to determine if conventional taxation and ratemaking procedures result in economic barriers to or incentives for renewable energy power plants compared to conventional power plants. The purpose of the study, therefore, is not to compare the cost-effectiveness of different types of renewable and conventional electric generating plants. Rather, it is to determine the relative impact of conventional ratemaking and taxation procedures on the selection of renewable power plants compared to conventional ones. To make this determination, we quantify the technical and financial parameters of renewable and conventional electric generating technologies, and hold them fixed throughout the study. Then, we vary taxation and ratemaking procedures to determine their effects on the financial criteria that investor-owned electric utilities (IOUs) and nonutility electricity generators (NUGs) use to make technology-adoption decisions. In the planning process of a typical utility, the opposite is usually the case. That is, utilities typically hold ratemaking and taxation procedures constant and look for the least-cost mix of resources, varying the values of engineering and financial parameters of generating plants in the process.