Wind Energy Industry Impacts in Oklahoma November 2015

Transcription

1 R E S E A R C H F O U N D A T I O N R E P O R T Wind Energy Industry Impacts in Oklahoma November Prepared by Dr. Shannon L. Ferrell and Joshua Conaway, Oklahoma State University Department of Agricultural Economics

2 Acknowledgments This project represents an unprecedented collection of data about the Oklahoma wind energy industry, and would not have been possible without the assistance of a number of state and county personnel who went far above and beyond their duties in assisting with the collection and analysis of this information. Ms. Kylah McNabb with the Oklahoma State Energy Office was incredibly generous in sharing information she had compiled over the course of 12 years regarding Oklahoma s wind energy industry and also shared the benefit of her experience as a wind resource researcher and project developer. Her assistance was absolutely vital to compiling the portrait of Oklahoma s wind energy industry presented in Section 1. Importantly, though, Ms. McNabb s assistance was foundational to the project team s understanding of all the issues researched through this project. Compiling the historical ad valorem tax data and building a sound ad valorem forecast model the core of this report s Section 2 would have been impossible without the assistance of Gary Snyder (OSU Center for Local Government Technology Assessor Training Accreditation Program), Wade Patterson (Garfield County Assessor), Doug Brydon (Deputy Director of the Oklahoma Tax Commission s Ad Valorem Division), and Dr. Notie Lansford (Director of the OSU County Training Program). Each made contributions of advice, experience, insight, data, and personal contacts enabling our project team to collect an exhaustive dataset on wind energy system ad valorem tax revenues over 20 counties and to build the forecast model. Further, the project team extends its sincere gratitude to all county treasurers and assessors who, in addition to their ordinary duties, compiled the tax data forming the foundation of Section 2 s analysis. Several of these county officers also devoted significant time to explaining the practical mechanics of the assessment and taxation of wind energy systems and to helping the team validate its research, and we are especially grateful to them: Bab Coker (Roger Mills County Treasurer), Cassie Springer (Roger Mills County Deputy Treasurer), Julie Louthan (Dewey County Assessor), Kelly Taylor (Deputy Assessor, Beckham County), Lynette Ingraham (Harper County Assessor), Sonya Coleman (Woodward County Treasurer), Janet Roulet (Custer County Treasurer), Rhonda Brantley (Comanche County Treasurer), and Stan Jennings (Caddo County Treasurer). A mapping project of the scope and detail required for the research presented in Section 3 had never been attempted for Oklahoma (and, based on research to date, anywhere else), and the results achieved required hundreds of man-hours in pain-staking, detailed work. Mr. Joshua Conaway, Ms. Paige Harjo, and Mr. Brian Highfill completed what at first seemed an insurmountable task, and did so with exceptional precision and speed. In so doing, they also created a resource that will provide value to Oklahomans for years to come. Additional thanks are also owed to Mr. Conaway who contributed to the economic analysis of land use trade-offs included in Section 3 of this report. Finally, Dr. Shelly Peper Sitton very graciously provided valuable editorial and layout support for this report. Funding The State Chamber of Oklahoma Research Foundation funded this project through a research contract. Author s Note Data for Figures 2 and 3 appearing on page 9 are current as of June 30,. All other data contained in this report reflect the most current publicly available information as of May 1,. 2

3 Contents Figures...4 Executive Summary Section 1: Oklahoma s Wind Energy Industry The History of Oklahoma s Wind Energy Industry Oklahoma s Wind Energy Industry Today The Future of Oklahoma Wind Energy...11 Section 2: Wind Energy s Contributions to Ad Valorem Revenues Oklahoma s Ad Valorem Tax System Wind Energy s Contribution to Oklahoma Ad Valorem Revenues Historical Payments to Counties Forecast Payments to Counties The Oklahoma Qualifying Manufacturing Concern Exemption and Exempt Manufacturing Reimbursement Program Forecast Reimbursement Fund Obligations for the Wind Industry Assessment Methodologies for Oklahoma Counties Conclusions and Recommendations Regarding Ad Valorem Issues...24 Section 3: Spatial Issues and Land Use in Oklahoma s Wind Energy Industry Mapping Methodology Summary of Spatial and Land Use Findings Spacing, Compatibility of Land Uses, and Setback Issues Wind Energy and Agricultural Land Uses Wind Energy and Petroleum Development Setback Issues Conclusions Regarding Spatial Issues and Land Use...35 Section 4: Wind Energy s Impacts to Oklahoma Utility Ratepayers...35 Section 5: Conclusions...35 Appendix: Research Methodology

4 Figures Figure 1: Oklahoma Installed Wind Energy Capacity, Figure 2: Oklahoma Wind Energy Projects...9 Figure 3: Summary of Oklahoma Wind Energy Projects...9 Figure 4: Oklahoma Electrical Power Production by Source, January...10 Figure 5: Oklahoma Wind Power Production...11 Figure 6: SPP Priority Projects Map...12 Figure 7: Proposed Route of Plains & Eastern Clean Line HVDC Transmission Project Figure 8: Historic Ad Valorem Revenues and Property Values for Wind Energy Systems, Figure 9: Acre Equivalencies for Average Wind Turbine Ad Valorem Revenues...16 Figure 10: Total Historic and Forecast Ad Valorem Revenues...17 Figure 11: Historical and Forecast Ad Valorem Revenues from Wind Energy Systems, by County and Source...18 Figure 12: Location of Existing Oklahoma Wind Energy Projects Relative to Population Loss or Below Non-Metropolitan County Average Population Gains Figure 13: Total Education Revenues from Wind Energy Systems...19 Figure 14: Composition of School Funds Paid over Forecast Model, Figure 15: OTC Ad Valorem Reimbursements by Industry Sector, Figure 16: Total Historical and Forecast OTC Ad Valorem Reimbursements...23 Figure 17: Combined Historical and Forecast Ad Valorem Tax Payments by Source...23 Figure 18: Examples of Project Elements...25 Figure 19: Summary of Wind Energy Project Land Use...26 Figure 20: Equivalent Area of All Oklahoma Wind Energy Projects...27 Figure 21: KODE Novus I Project Wind, Irrigated Agriculture, and Intensive Animal Production...28 Figure 22: Blackwell Wind Farm Road Configuration...29 Figure 23: Increases in Per-Acre Revenues to Agricultural Land from Wind Energy Systems Figure 24: Examples of Cattle and Wind Turbines...31 Figure 25: KODE Novus I Project, Wind and Petroleum Development...32 Figure 26: Setback Radii to Avoid Collision in Event of Mutual Derrick and Turbine Collapse Figure 27: Distance of Existing Wind Energy Projects from Nearest Hospital, Airport, and School...34 Figure 28: Map of Radii from Hospitals, Airports and Schools to Nearest Wind Turbine Figure 29: Oklahoma Tax Commission Depreciation Schedule...40 Figure 30: OTC Cost Approach Model Asset Value...41 Figure 31: Ad Valorem Revenue Collections by System Life Year, Cost Approach Model, Prototype Turbine

5 Executive Summary In the past 12 years, Oklahoma has grown from having no utility-scale wind energy capacity to now having nearly 4,000 megawatts of capacity, making it the fourth-largest wind energy state in the United States. With projects currently under construction, Oklahoma is projected to have more than 5,000 megawatts of capacity by the end of. Possessing one of the nation s largest wind resource potentials and an increasingly robust electrical transmission grid, Oklahoma stands poised to be one of the nation s leading producers of wind-generated electrical power. A separate study estimates the wind industry has created more than 1,600 direct, full-time jobs in Oklahoma. Oklahoma now produces roughly 17 percent of its power from wind, compared to the U.S. average of 6.5 percent (which includes all renewable sources other than hydroelectric power). In many counties, the equipment installed in wind energy projects represents a significant increase in the taxable property base, which has led to corresponding increases in revenues for local schools and county services. Including both historical payments and payments forecasted for planned projects, the wind energy industry is projected to pay approximately $1 billion in ad valorem taxes. With the corresponding OTC payments, the wind industry is predicted to pay nearly $1.2 billion to education funds, including local and county school funds and the Oklahoma CareerTech system. A review of the tax records for all existing Oklahoma wind energy projects reveals those projects already have increased the tax base and ad valorem revenues in those counties by installing equipment with a current appraised value of $3.3 billion dollars. From the first tax year in which revenues were received from Oklahoma s first utility-scale wind energy projects (2004) through the most recently-available data for the 2014 tax year, wind energy systems in Oklahoma resulted in the payment of nearly $134 million in ad valorem taxes to Oklahoma counties, including both Oklahoma Tax Commission ( OTC ) reimbursements and developer tax payments to counties. Over the span of the entire model, which includes both Oklahoma s first wind energy projects (installed in 2003) and the forecast projects (whose last year of projected life is 2043), owners of wind energy projects will pay approximately $1 billion dollars in ad valorem taxes. Every dollar paid in Reimbursement Fund distributions yields $1.69 in owner-paid tax revenues to local governments and schools. A separate study estimates royalty payments to Oklahoma landowners where wind farms are located total more than $22 million annually. In addition, the ability to conduct livestock and crop operations coextensively with wind energy projects provides significant additional returns to landowners. Importantly, the increased revenue provided to school districts containing wind energy projects benefits not only those districts, but districts across the state as well. The calculation of state aid to local school districts takes into account a number of the district s revenue sources. If, after those sources are tallied, the district s projected per-pupil revenue exceeds 150 percent of the projected state average per pupil revenue, the amount of state aid supplied to that district is reduced proportionately. This means more state funds are available for the support of all Oklahoma schools. The results of this project show Oklahoma wind energy projects occupy far less land than suggested by industry estimates. Turbine spacing allows ample and diverse land uses within project footprints, and existing wind projects largely avoid locations such as hospitals, airports, and schools by wide margins. 5

6 On average, the total land use of Oklahoma wind energy projects including turbines, roads, and substations, is 0.46 acres per megawatt or 0.87 acres per turbine. These numbers are significantly less than those estimated by industry sources (which suggest a land use of three acres per megawatt of capacity). The mapping project indicates wind energy development should pose few or no barriers to oil and gas development in the same area. The observations of the mapping project, coupled with operational information about the construction and operation of wind energy projects, suggest wind energy development should pose few or no barriers to oil and gas development in the same area. Oklahoma s wind energy projects physically occupy a very small footprint, particularly in respect to their generating capacity. The total area occupied by the projects measured totaled to slightly more than two 640-acre sections of land, or an area roughly the size of downtown Oklahoma City. Turbines are spaced sufficiently to allow a variety of land uses to coexist on the same property, including a wide range of agricultural and petroleum uses. If current patterns of land use continue, there will likely be few problems with setbacks of wind turbines from facilities such as hospitals, airports, and schools. Oklahoma s two investor-owned utilities have estimated their use of power from wind energy projects will save ratepayers nearly $2 billion. 6

7 Section 1 Oklahoma s Wind Energy Industry In the past 12 years, Oklahoma has grown from having no utility-scale wind energy capacity to now having nearly 4,000 megawatts of capacity, making it the fourth-largest wind energy state in the United States. With projects currently under construction, Oklahoma is projected to have more than 5,000 megawatts of capacity by the end of. Possessing one of the nation s largest wind resource potentials and an increasingly robust electrical transmission grid, Oklahoma stands poised to be one of the nation s leading producers of wind-generated electrical power. 1.1 The History of Oklahoma s Wind Energy Industry One can hardly think about Oklahoma without thinking about wind, and the proof is in our state song: Oklahoma! Where the wind comes sweeping down the plain. Oklahoma s wind resource has always played a vital role in the development of our state. In our days as a Western territory, wind-powered water pumps the iconic windmills instinctively associated with the Old West allowed settlers to pump water out of deep aquifers, making productive land out of areas that might not see settlement otherwise. 1 What many people do not realize, however, is the arrival of wind-powered electrical generation was almost simultaneous to the wind-powered water pump, with the first sales of windmills designed for residential electric power generation occurring in the 1890s. 2 Nearly a century later, the American utility-scale 3 wind power industry began to take shape. Several scholars consider early 1980s California (in the wake of the energy crisis of the 1970s) to be the birthplace of the modern American wind energy industry. 4 Its market for electrical power, availability of transmission capacity near dense wind resources, and energy policies made California the leading state in U.S. wind energy until In the mid- to late 1990s, the deregulation of electrical markets, dramatic improvements in turbine efficiency and increasing instability in natural gas prices led power companies and investors nationwide to look at wind once more. Utility-scale wind power development depends on a number of factors beyond the quality of the available wind resources, including the regional market prices for electrical power, accessibility to electrical transmission lines with the capacity to carry the power generated by a project, and the state and federal policy environment. 6 The mix of these factors in California made that state the leader in U.S. wind energy until 2006, when Texas would overtake it and move on to a commanding lead. 7 Much of Texas explosive growth may be attributed to the fortunate circumstance that one of its largest and most dense wind resource areas is bisected by one of its largest electrical transmission lines. 8 Aggressive state programs to build transmission capacity in areas most likely to stimulate wind power development most notably the Competitive Renewable Energy Zone (CREZ) projects 9 also attracted development to Texas. Policies and markets drove much of California s wind power growth; resources coupled with transmission capacity and beneficial policies drove much of Texas wind power growth. This leads to the interesting case of Iowa, which frequently swaps positions with California as the state with either the second- or third-largest wind capacity despite having a smaller wind resource potential than many other states with more installed capacity. A leader in renewable energy production (as home to over 25 percent of the U.S. ethanol production capacity and a major biodiesel production state 10 ) and a leading state with respect to farmer investment in renewable energy projects, Iowa sought to leverage those advantages with a number of state policies supporting wind power development, including a requirement for utilities to offer renewable power options to customers, 11 a Renewable Portfolio Standard ( RPS ), 12 and a state renewable energy tax credit. 13 The factors that made California, Texas, and Iowa early leaders in utility-scale wind development looked much different in Oklahoma. The market for power in Oklahoma in the early 2000s was much different than that of California or even Texas in that Oklahoma has historically paid the lowest cost for electricity of any of its neighboring states. At the same time, most of Oklahoma s best wind 7

8 resources were located in the part of the state with the lowest population density, meaning they were also in the portions of the state with the least electrical transmission capacity. Nevertheless, the quality of Oklahoma s wind energy resource in two areas relatively close to existing high-capacity transmission lines attracted Oklahoma s first utility-scale wind energy projects in 2003 with the installation of the Oklahoma Wind Energy Center in Harper and Woodward Counties and the installation of Blue Canyon Phase I in Comanche and Caddo Counties. 1.2 Oklahoma s Wind Energy Industry Today The construction of the Oklahoma Wind Energy Center and Blue Canyon Phase I projects marked the beginning of an almost-continuous pattern 14 of growth in Oklahoma s wind energy industry, and since that time, Oklahoma has grown to rank fourth among U.S. states in installed wind energy capacity. 15 Figure 1: Oklahoma Installed Wind Energy Capacity, ,000 Oklahoma Installed Wind Energy Capacity, ,346 5,000 Installed Wind Energy Capacity (MW) 4,000 3,000 2,000 1,811 3,134 3,134 3,782 1,480 1,130 1, Oklahoma s wind power industry has grown from zero capacity in 2002 to 3,782 megawatts by 2014, making it the fourth-largest wind power state in the United States. Source: data: Energy Information Administration, Oklahoma State Electricity Profile 2012, available at (last accessed May 1, ); 2013 and 2014 data: AWEA, Oklahoma Wind Energy Fact Sheet, available at FileDownloads/pdfs/Oklahoma.pdf (last accessed April 30, ); estimate: Oklahoma Department of Commerce State Energy Office. 8

9 Figure 2: Oklahoma Wind Energy Projects The map above depicts Oklahoma s 30 existing wind energy projects consisting of over 2,000 wind turbines. For a more detailed discussion of the layout of Oklahoma s wind energy projects and the mapping process, see Section 3 and Appendix 3 below. Figure 3: Summary of Oklahoma Wind Energy Projects Name Operational Location (county & nearest town) Oklahoma Wind Energy Center Blue Canyon: Phase I Weatherford Wind Energy Center Blue Canyon: Phase II Centennial Wind Farm Sleeping Bear Wind Farm Buffalo Bear Wind Farm Red Hills Wind Farm Blue Canyon V OU Spirit Wind Farm (Keenan I) Elk City Wind Energy Center Minco Wind Farm Keenan II Elk City II Blue Canyon VI Taloga Wind Farm Minco II Wind Farm Crossroads Wind Farm Big Smile Wind Farm at Dempsey Ridge Rocky Ridge KODE Novus I Wind Project Chisholm View Wind Project Canadian Hills Wind Farm Blackwell Wind Farm (OSU) KODE Novus II Minco III Origin Wind Energy Project Mammoth Plains Wind Energy Center Seiling Wind Seiling Wind II Osage Wind TOTALS Under Construction Arbuckle Mountain Balko Wind, LLC Breckinridge Wind Project Chilocco II Goodwell Wind Project Kay Wind Project Kingfisher Wind Little Elk TOTALS Harper & Woodward Counties (Woodward) Comanche & Caddo Counties (Lawton) Custer County (Weatherford) Comanche & Caddo Counties (Lawton) Harper County Harper County Harper County Roger Mills & Custer Counties (Elk City) Comanche & Caddo Counties Woodward County (Woodward) Roger Mills & Beckham Counties (Elk City) Grady County (Minco) Woodward County (Woodward) Roger Mills & Beckham Counties (Elk City) Caddo County (Apache) Dewey County (Taloga) Grady and Caddo Counties Dewey County (Canton) Roger Mills & Custer Counties (Dempsey) Kiowa and Washita Counties Texas County Garfield and Grant Counties (Enid) Canadian County (north of El Reno) Kay County (Blackwell) Texas County Grady and Caddo Counties Murray Counties Dewey and Blaine Counties Dewey County Dewey County Osage County Murray County Beaver County Garfield County Kay County Texas County Kay County Kingfisher County Washita County Capacity # of (MW) Turbines Online Turbine Type Developer Owner GE 1.5 MW NEG Micon 1.65 MW GE 1.5 MW Vestas 1.8 MW GE 1.5 MW Suzlon 2.1 MW Suzlon 2.1 MW Acciona 1.5 MW GE SLE 1.5 MW Siemens 2.3 MW Siemens 2.3 MW 1.6 MW Siemens 2.3 MW 48 GE 1.5 MW; 18 GE 1.6 MW Vestas 1.8 MW Mitsubishi 2.4 MW GE 1.6 MW 95 Siemens 2.3 MW; 3 3.0MW direct drive Gamesa 2.0 MW GE 1.6 MW DeWind 2.0 MW D GE 73 Senvion 2.05 MM92; 62 Mitsubishi 2.4 MWT102 Siemens 2.3 MW DeWind 2.0 MW D9.2 GE 1.6 MW Vestas V MW GE 1.7 MW GE 1.7 MW GE 1.7 MW GE 1.79 MW NextEra Energy Resources Zilkha Renewable Energy; Kirmart Corp. NextEra Energy Resources Goldman Sachs Chermac Energy Corporation; Invenergy Edison Mission Group; Chermac Energy Corp. Edison Mission Group Acciona EDP Renewables North America LLC CPV Renewable Energy NextEra Energy Resources NextEra Energy Resources CPV Renewable Energy NextEra Energy Resources EDP Renewables North America LLC Edison Mission Group NextEra Energy Resources RES Americas Acciona TradeWind Energy DeWind TradeWind Energy Apex Energy, Inc. OwnEnergy DeWind NextEra Energy Resources RES Americas; TradeWind Energy NextEra Energy Resources NextEra Energy Resources NextEra Energy Resources TradeWind Energy NextEra Energy Resources EDP Renewables North America LLC; Infigen Energy NextEra Energy Resources EDP Renewables North America LLC Oklahoma Gas & Electric NRG Energy NRG Energy Acciona EDP Renewables North America LLC Oklahoma Gas & Electric NextEra Energy Resources NextEra Energy Resources CPV Renewable Energy; GE Energy Fin. Serv. NextEra Energy Resources EDP Renewables North America LLC NRG Energy NextEra Energy Resources Oklahoma Gas & Electric Acciona Enel Green Power N. Am. DeWind GE Energy Fin. Serv.; Enel Green Power N. Am. Apex Energy Inc. NextEra DeWind NextEra Energy Resources Enel Green Power NextEra Energy Resources NextEra Energy Resources NextEra Energy Resources Enel Green Power N. Am Vestas V MW GE 1.85 MW GE 1.7 MW GE 1.7 MW Vestas V MW Siemens 2.3 MW Vestas V MW Vestas V MW EDP Renewables North America LLC Apex Energy TradeWind Energy PNE Wind USA TradeWind Energy Apex Energy Apex Energy TradeWind Energy EDP Renewables North America LLC D.E. Shaw Renewable Investments, LLC NextEra Energy Resources PNE Wind USA Enel Green Power N. Am. Southern Company First Reserve Enel Green Power N. Am. Oklahoma s wind energy industry now consists of 30 projects in 19 counties, with projects currently under construction in several of these counties and at least one additional county. Source: Kylah McNabb, Oklahoma State Energy Office 9

10 Oklahoma s wind energy industry now makes significant contributions to the electrical power needs not only of Oklahoma, but also surrounding states as well. Oklahoma set a target of producing 15 percent of its electrical power from renewable sources by 16 and exceeded that goal in In fact, Oklahoma now produces roughly 17 percent of its power from wind, compared to the U.S. average of 6.5 percent (which includes all renewable sources other than hydroelectric power). 17 Figure 4: Oklahoma Electrical Power Production by Source, January Oklahoma Electrical Production by Source, January Natural Gas-Fired 44% Coal-Fired 37% Wind 17% Hydroelectric 2% This figure presents the percentage of power actually generated from the respective sources. Note natural gas-fired electrical generation often serves as a compliment to wind-driven generation. Source: EIA Oklahoma state energy profile data, available at (last accessed May 1, ) 10

11 Figure 5: Oklahoma Wind Power Production Oklahoma Wind Power Production ,862 Power Generated from Wind Sources (thousand megawatt hours (MWh)) ,712 1,849 2,358 2,698 3,808 5,605 8,158 11, The amount of power generated by Oklahoma s wind energy systems continues to grow, owing to increased capacity and wind capacity factors above the national average. EIA Oklahoma state energy profile data, available at (last accessed May 1, ). 18 Oklahoma s wind energy industry has provided a significant source of economic benefits to Oklahoma. Beyond the ad valorem tax revenues paid to counties and schools and the electrical utility savings to Oklahoma ratepayers (both of which are discussed at length later in this report), Oklahoma s wind energy industry has also provided the following benefits according to a study conducted by Economic Impact Group, LLC: 19 Investment of more than $6 billion in the construction and development of wind energy projects Royalty payments to Oklahoma landowners of more than $22 million annually Creation of more than 1,600 direct full-time jobs 1.3 The Future of Oklahoma Wind Energy Even though Oklahoma has made significant strides in developing its wind power potential, the capacity for significant growth still remains. Practically, the limiting factor for Oklahoma s wind power development is not its wind resource, 20 but rather the capacity of its transmission grid to convey that power to market, and the market for wind power itself. The Southwest Power Pool coordinates the 11

12 projects. This analysis was guided by the Strategic Planning Committee (SPC) to be presented to stakeholders and the BOD for review in April The list of projects the BOD requested staff to study in Phase II of the Priority Projects effort is referred to as Group 1 throughout this report and is listed below and illustrated in Figure 1: power grid for Oklahoma, Arkansas, Kansas, Nebraska, and parts of Louisiana, Missouri, and Texas. Since Group much 1 of the SPP region encompasses areas of high wind resource, it has planned for a number of additional Spearville transmission Comanche line projects Medicine to connect Lodge areas of Wichita with large (765 current kv construction or planned and wind 345 energy kv operation) projects with Comanche areas of electrical Woodward power District demand. EHV Further, (765 kv Clean construction Line Energy and Partners 345 kv operation) continues development Hitchland of a 700-mile Woodward high voltage District direct EHV current (345 kv (HVDC) DCT1) transmission line designed to transport wind energy generated in the southern Great Plains to demand centers in the eastern United States. Valiant NW Texarkana (345 kv) Buildout of these lines will likely trigger additional wind energy development nearby. Cooper Maryville Sibley (345kV) Riverside Tulsa Reactor (138 kv) Figure 6: Southwest Power Pool Priority Projects Map This map depicts high-voltage transmission projects already approved by SPP or with priority for feasibility analysis. Figure 1: Priority Projects (Group 1) 1 DCT refers Source: to Southwest double-circuit Power Pool, SPP Priority Projects Phase II Report, (2010), available at spp.org/publications/priority%20projects%20phase%20ii%20report.pdf 7 (last accessed May 1, ). 12

13 Figure 7: Proposed Route of Plains & Eastern Clean Line HVDC Transmission Project The High Voltage Direct Current (HVDC) Plains and Eastern Clean Line project would transport wind-generated power from Oklahoma, the Texas Panhandle, and southwest Kansas to the Tennessee Valley Authority. Source: Clean Line Energy Partners Plains & Eastern Clean Line Project, available at plainsandeasterncleanline.com/site/page/interactive-map (last accessed May 1, ). Section 2 Wind Energy s Contributions to Ad Valorem Revenues In many counties, the equipment installed in wind energy projects represents a significant increase in the taxable property base, which has led to corresponding increases in revenues for local schools and county services. Including both historical payments and payments forecasted for planned projects, the wind energy industry is projected to pay approximately $1 billion dollars in ad valorem taxes. 2.1 Oklahoma s Ad Valorem Tax System Ad valorem 21 taxes, as the name implies, are based on the value of the items taxed. In Oklahoma, all personal and real property is subject to ad valorem tax at the county level unless the property is subject to some form of exemption. 22 Three primary factors determine the amount of tax owed for a given piece of property: the property s value, the county s assessment ratio, and the millage rate for jurisdiction containing the property. With a limited number of exceptions, the task of determining the market value of property falls to a county assessor. 23 One important exception is property owned by public service corporations, such as electrical utilities; such property is assessed by the State Board of Equalization. 24 Once the assessing entity (either the county assessor or the State Board of Equalization) determines the fair market value of an asset, that value is multiplied by the county s assessment ratio to determine the gross assessed value of the property. Article X, Section 8 of the Oklahoma Constitution limits the range of assessment ratios from 10 to 15 percent of fair cash value for most personal property 25 and percent for property owned by a public service company. 26 Any applicable deductions are applied to the gross assessed value to determine the property s net assessed value. 13

14 The property s net assessed value is then multiplied by the millage rate 27 applicable to the tax district (typically defined by a local school district) containing the property. In most cases, the majority of county ad valorem taxes paid consist of millages for local schools. 28 For example, counties can impose a four mill levy on all non-exempt property in the county with the funds generated by the levy apportioned to the school districts in the county in proportion to their average daily attendance. A combination of other levies can also provide funds to local school districts, Career Tech districts, and community colleges. County governments can also impose millages for a number of county needs, facilities, and services such as emergency medical services, fire protection, road improvement, and solid waste handling. Understanding how ad valorem taxation works provides the foundation for understanding the impact of Oklahoma s wind energy industry on revenues for schools and county governments. 2.2 Wind Energy s Contribution to Oklahoma Ad Valorem Revenues Since the assessed value of property represents the single largest variable in ad valorem tax revenues, the introduction of a high-value asset such as wind energy facilities can create a significant impact on those revenues. A review of the tax records for all existing Oklahoma wind energy projects reveals those projects already have increased the tax base and ad valorem revenues in those counties by installing equipment with a current appraised value of $3.3 billion dollars in those counties. Further, if those projects currently planned for construction in Oklahoma indeed come into operation, these impacts to county revenues would be significantly amplified Historical Payments to Counties As an initial step in the research of ad valorem payments made to Oklahoma counties by wind energy projects, county tax records for all 23 existing Oklahoma wind energy projects with county tax records (and excluding projects that were centrally assessed) were obtained. 29 Since ad valorem tax units generally follow school districts, these 23 projects were divided into separate units for each of the school districts they touched, resulting in 65 historic units. These records provided information on the gross and net assessed values of the personal property associated with each project. For the purposes of this research, only personal property values were evaluated since most wind energy projects owned no (or only a negligible amount of ) real property. 30 By applying the respective counties assessment ratios, the market value of the wind energy projects property were also determined. From the first tax year in which revenues were received from Oklahoma s first utility-scale wind energy projects (2004) through the most recently-available data for the 2014 tax year, wind energy systems in Oklahoma resulted in the payment of nearly $134 million in ad valorem taxes to Oklahoma counties, including both Oklahoma Tax Commission ( OTC ) reimbursements and developer tax payments to counties. 14

15 Historic Ad Valorem Revenues and Property Values for Wind Energy Systems Figure 8: Historic Ad Valorem Revenues and 2004 Property 2014Values for Wind Energy Systems, $40,000,000 $35,000,000 $36,339,731 $32,435,831 $4,000,000,000 $3,500,000,000 Annual Ad Valorem Revenues $30,000,000 $25,000,000 $15,000,000 $5,000,000 $1,096,189 $1,063,054 $4,058,301 $3,906,333 $4,856,962 $6,938,834 $9,661,555 $13,440,732 $20,026,105 $3,000,000,000 $2,500,000,000,000 $1,500,000,000 $1,000,000,000 $500,000,000 Total Asset Value for Installed Wind Energy Systems Total OTC reimbursements Total owner paid taxes Total property value Oklahoma s wind energy industry currently has an estimated $3.3 billion of installed generation equipment, resulting in nearly $134 million in ad valorem payments to counties. Note: A number of wind energy projects were installed in the latter portion of 2014, and as a result, the tax and valuation information for those projects will first appear in s data. The slight decrease in tax revenues and property value for 2014 reflects the depreciation and resulting decrease in tax revenues from previously installed projects, without the offsetting increase from these 2014-installed projects. As this data suggests, wind energy systems can provide a significant increase to the tax base of a county, particularly rural counties. To illustrate this point, the table below presents the number of acres required to provide the same annual ad valorem revenue as the average wind energy turbine in the respective regions of the state with existing wind energy projects or projects under construction given their average land values 31 and millage rates. 32 As shown, each wind turbine provides the ad valorem tax base of hundreds of acres of unimproved land. 15

16 Figure 9: Acre Equivalencies for Average Wind Turbine Ad Valorem Revenues Panhandle West Northwest Southwest North Central South Central Northeast Beaver Blaine Beckham Alfalfa Caddo Craig Ottawa Cimarron Custer Comanche Canadian Carter Creek Pawnee Texas Dewey Greer Garfield Cleveland Lincoln Pottawatomie Ellis Harmon Grant Garvin McIntosh Rogers Harper Jackson Kay Grady Muskogee Seminole Major Kiowa Kingfisher Jefferson Nowata Tulsa Woods Roger Mills Logan Love Okfuskee Wagoner Woodward Tillman Noble McClain Okmulgee Washington Washita Oklahoma Stephens Osage Payne Average values per acre (unimproved land) Average total millage Annual ad valorem revenue per acre Annual ad valorem revenue per turbine Equivalent unimproved acres Turbine "Per Acre" Annual Ad Valorem Revenue Region Pasture Cropland Pasture Cropland Pasture Cropland Panhandle $ 558 $ 1, $ 34 $ 61 $ 86,403 2,547 1,418 $ 86,403 West Northwest $ 1,327 $ 1, $ 109 $ 157 $ 116,243 1, $ 116,243 Southwest $ 1,081 $ 1, $ 84 $ 137 $ 110,708 1, $ 110,708 North Central $ 1,955 $ 2, $ 174 $ 189 $ 126, $ 126,801 South Central $ 1,736 $ 2, $ 164 $ 201 $ 134, $ 134,075 Northeast $ 1,908 $ 2, $ 177 $ 228 $ 131, $ 131,669 The tables above illustrate the number of acres of unimproved agricultural land required to generate the same amount of ad valorem tax revenue as the average wind turbine in Oklahoma. As discussed in more detail in section 3 below, much of the historic growth of Oklahoma s wind energy industry occurred in counties that either lost population or experienced only nominal growth between the 2000 and 2010 Censuses, underscoring the importance of these contributions made by wind energy projects to those counties. However, the historic tax contributions of wind energy projects are small in comparison to the potential future contributions of the industry in the state Forecast Payments to Counties By the end of 2014, Oklahoma had 3,782 megawatts of installed wind energy capacity. However, as of early, wind energy developers had filed applications with the Southwest Power Pool ( SPP ) to connect an additional 4,914 megawatts of wind energy capacity in Oklahoma. 33 All of these projects, if constructed, would more than double the wind energy capacity of the state. Thus, understanding the full impact of the wind energy industry requires an examination of its future in Oklahoma Methodology of forecasting Appendix 1 provides a detailed description of the methodology used to forecast future ad valorem tax revenues from both current and planned Oklahoma wind energy projects. In summary, tax records for existing Oklahoma wind energy projects provided the estimated market value of existing projects, and Energy Information Administration data provided the estimated value of planned projects. Both existing and planned projects were depreciated using the method applied by the OTC in calculating reimbursements for the five-year manufacturing exemption (discussed in section 2.3 below), which uses a 12-year lifespan for moving components of the turbines and a 25-year lifespan for the non-moving components. Current (tax year 2014-) assessment ratios and millage rates were applied to existing projects and held constant over the remaining lifespan of the equipment to forecast future ad valorem 16

17 tax payments for those projects; for planned projects (whose school districts, and thus current millage rates, could not be determined), current county assessment ratios and average millage rates were used to forecast future ad valorem tax payments Forecast Results Over the span of the entire model, which includes both Oklahoma s first wind energy projects installed in 2003 and the forecast projects whose last year of projected life is 2043, owners of wind energy projects will pay approximately $1 billion dollars in ad valorem taxes. Figure 10: Total Historic and Forecast Ad Valorem Revenues Total Historic and Forecast Ad Valorem Revenues Annual Tax Revenues $120,000,000 $100,000,000 $80,000,000 $60,000,000 $40,000,000 $1,096,189 $1,063,054 $4,058,301 $3,906,333 $4,856,962 $6,938,834 $9,661,555 $13,440,732 $20,026,105 $35,846,009 $32,012,180 $37,935,301 $49,115,238 $52,143,963 $50,430,276 $104,201,185 $97,352,946 $90,785,593 $84,110,172 $77,850,435 $71,698,509 $65,552,819 $60,320,448 $55,483,394 $50,602,434 $46,283,554 $43,837,644 $40,500,779 $38,613,513 $36,547,185 $34,147,770 $31,968,073 $28,718,293 $26,134,725 $21,700,974 $21,059,029 $18,666,056 $14,826,854 $13,171,998 $12,525,781 $1,600,000,000 $1,400,000,000 $1,200,000,000 $1,000,000,000 $800,000,000 $600,000,000 $400,000,000 $200,000,000 Cumulative Tax Revenues Total OTC reimbursements Total owner paid taxes Cumulative payments to counties Historical and forecast payments resulting from wind energy payments are projected to total approximately $1.5 billion. 17

18 The figure below presents historical tax payments 34 received by counties from wind energy projects and forecast tax payments, broken out by county and by source (OTC reimbursements under the fiveyear manufacturing exemption or payments made directly by project owners to the respective counties). Figure 11: Historical and Forecast Ad Valorem Revenues from Wind Energy Systems, by County and Source Historical Revenues Forecast Revenues Overall Totals OTC OTC OTC Owner Paid Taxes Total Owner Paid Taxes Total County Reimbursements Reimbursements Reimbursements Owner Paid Taxes Total Beaver $ $ $ $ 47,131,923 $ 84,411,590 $ 131,543,513 $ 47,131,923 $ 84,411,590 $ 131,543,513 Beckham $ 657,435 $ $ 657,435 $ 16,697,373 $ 29,347,704 $ 46,045,077 $ 17,354,808 $ 29,347,704 $ 46,702,512 Blaine $ $ $ $ 1,239,274 $ 2,085,081 $ 3,324,354 $ 1,239,274 $ 2,085,081 $ 3,324,354 Caddo $ 8,734,758 $ 1,975,834 $ 10,710,592 $ 4,568,671 $ 19,124,327 $ 23,692,998 $ 13,303,429 $ 21,100,161 $ 34,403,590 Canadian $ 9,093,267 $ $ 9,093,267 $ 62,404,126 $ 119,325,551 $ 181,729,677 $ 71,497,393 $ 119,325,551 $ 190,822,944 Comanche $ 8,786,986 $ 1,877,660 $ 10,664,646 $ $ 12,646,350 $ 12,646,350 $ 8,786,986 $ 14,524,010 $ 23,310,996 Custer $ 8,530,650 $ 4,008,487 $ 12,539,137 $ 10,210,987 $ 26,758,191 $ 36,969,178 $ 18,741,637 $ 30,766,677 $ 49,508,314 Dewey $ 4,709,009 $ 26,490 $ 4,735,499 $ 30,718,549 $ 59,519,028 $ 90,237,577 $ 35,427,558 $ 59,545,518 $ 94,973,076 Garfield $ 6,902,905 $ $ 6,902,905 $ 18,975,133 $ 43,269,971 $ 62,245,103 $ 25,878,038 $ 43,269,971 $ 69,148,008 Grady $ 7,816,137 $ $ 7,816,137 $ 11,463,635 $ 31,966,352 $ 43,429,987 $ 19,279,772 $ 31,966,352 $ 51,246,124 Grant $ 1,101,623 $ $ 1,101,623 $ 9,688,630 $ 18,113,169 $ 27,801,798 $ 10,790,253 $ 18,113,169 $ 28,903,421 Harper $ 7,677,653 $ 2,897,916 $ 10,575,569 $ 52,218,626 $ 97,435,891 $ 149,654,517 $ 59,896,279 $ 100,333,807 $ 160,230,086 Kay $ 2,392,035 $ 12,571 $ 2,404,606 $ 37,454,864 $ 66,974,558 $ 104,429,422 $ 39,846,899 $ 66,987,129 $ 106,834,028 Kiowa $ 6,464,434 $ 2,662,906 $ 9,127,340 $ 7,864,869 $ 21,431,584 $ 29,296,453 $ 14,329,303 $ 24,094,490 $ 38,423,793 Murray $ $ $ $ 19,208,942 $ 32,319,089 $ 51,528,031 $ 19,208,942 $ 32,319,089 $ 51,528,031 Osage $ $ $ $ 23,326,560 $ 38,946,939 $ 62,273,498 $ 23,326,560 $ 38,946,939 $ 62,273,498 Roger Mills $ 24,298,729 $ 1,554,291 $ 25,853,020 $ 4,626,871 $ 49,116,980 $ 53,743,851 $ 28,925,600 $ 50,671,271 $ 79,596,871 Texas $ 3,546,316 $ $ 3,546,316 $ 33,881,100 $ 62,869,405 $ 96,750,505 $ 37,427,416 $ 62,869,405 $ 100,296,821 Washita $ 3,613,591 $ 415,493 $ 4,029,084 $ 3,626,334 $ 11,691,353 $ 15,317,687 $ 7,239,925 $ 12,106,846 $ 19,346,771 Woodward $ 11,796,210 $ 1,352,869 $ 13,149,079 $ 49,279,498 $ 104,345,867 $ 153,625,366 $ 61,075,708 $ 105,698,736 $ 166,774,444 Ad valorem tax payments to some Oklahoma counties exceed $100 million over the span of the historical and forecast data. Importantly, several of the historical and forecast projects reside in counties either losing population or gaining less population than the non-metropolitan county average in Oklahoma between the 2000 and 2010 Censuses. Thus, the wind energy industry has the potential to make significant ad valorem contributions to counties where there may be downward pressure on other sources of ad valorem revenue. Figure 12: Location of Existing Oklahoma Wind Energy Projects Relative to Population Loss or Below Non-Metropolitan County Average Population Gains Several Oklahoma counties with population losses or growth rates below the non-metropolitan average also contain wind energy projects, bolstering ad valorem tax revenues. 18

19 As mentioned above, several factors could influence the actual future payments of ad valorem taxes, including whether those projects with approved SPP interconnection agreements are built, the assessment methods applied to the wind energy equipment by county assessors, and the millages applicable to the school districts in which the projects are located Impacts to education funding Millages for the support of local school districts comprise the majority of ad valorem tax revenues; concordantly, the largest single beneficiary of the ad valorem taxes paid by the wind energy industry over the span of the historical and forecast model are local school districts. Over the entire span of the historical and forecast model, the Oklahoma wind energy industry (with the corresponding OTC payments) is predicted to pay nearly $1.2 billion to education funds, including local and county school funds and the Career Tech system. Of these funds, more than $918 million will be paid in millages to local school districts, more than $78 million will be paid in the form of counties 4-mill levies (which are redistributed to local school districts in proportion to their average daily attendance), and more than $174 million will be paid in millages attributable to Career Tech schools. Figure 13: Total Education Revenues from Wind Energy Systems Annual Education Revenues $90,000,000 $80,000,000 $70,000,000 $60,000,000 $50,000,000 $40,000,000 $30,000,000 $642,065 $911,775 $3,317,639 $3,234,209 $4,111,897 $5,710,177 $8,670,314 $11,010,283 $16,592,703 Total Education Revenues from Wind Energy Systems $28,583,543 $25,419,756 $33,561,602 $40,211,912 $42,213,308 $40,484,673 $79,567,785 $74,304,684 $69,281,406 $64,185,957 $59,426,605 $54,773,253 $50,126,658 $46,162,340 $42,501,936 $38,843,924 $35,527,233 $33,677,888 $31,110,624 $29,677,445 $28,090,019 $26,241,222 $24,559,338 $21,977,329 $19,983,993 $16,349,677 $15,859,703 $14,057,924 $11,467,377 $9,585,906 $9,405,040 $1,400,000,000 $1,200,000,000 $1,000,000,000 $800,000,000 $600,000,000 $400,000,000 $200,000,000 Cumulative Education Revenues County Schools (4 mill) Total Local School District Total Career Tech Total Cumulative Education Revenues Over the span of the historical and forecast data, payments from Oklahoma s wind energy industry and OTC reimbursements to educational funds total approximately $1.2 billion. 19

20 Composition of School Funds Paid over Forecast Model, Figure 14: Composition of School Funds Paid over Forecast Model, $918,696,203 $78,067,907 $174,657,013 County Schools (4 mill) Total Local School District Total Career Tech Total Payments received by local schools are projected to total nearly $1 billion, with payments received by the Career Tech system totaling nearly $175 billion. This source of funding could provide significant benefits to school districts, particularly in a number of rural districts facing declining asset values or decreased revenues from mineral severance taxes. Importantly, the increased revenue provided to school districts containing wind energy projects benefits not only those districts, but districts across the state as well. The calculation of state aid to local school districts takes into account a number of the district s revenue sources. If, after those sources are tallied, the district s projected per-pupil revenue exceeds 150 percent of the projected state average per pupil revenue, the amount of state aid supplied to that district is reduced proportionately. 35 This means more state funds are available for the support of all Oklahoma schools. Further, given the nature of the long-term power purchase contracts under which windgenerated electricity is sold and the relatively long life of wind energy assets, wind energy facilities can provide relatively stable sources of school revenue for significant periods of time. 2.3 The Oklahoma Qualifying Manufacturing Concern Exemption and Exempt Manufacturing Reimbursement Program In 1985, while enduring the throes of simultaneous downturns in both the petroleum and agriculture sectors, Oklahoma voters approved State Question No. 588, which added Article X, Section 6B to the Oklahoma Constitution. Seeking to lure new manufacturing assets and the attendant jobs they create to the state, this amendment created a five year exemption from ad valorem taxation on any real or personal property 36 owned by a qualifying manufacturing concern, defined as a concern that (1) Is not engaged in business in this state or does not have property subject to ad valorem tax in this state and constructs a manufacturing facility in this state or acquires an existing facility that has been unoccupied for a period of twelve (12) months prior to acquisition; or (2) Is engaged in business in this state or has property subject to ad valorem tax in this state and constructs a manufacturing facility in this state at a different location from present facilities and continues to operate all of its facilities or 20

21 acquires an existing facility that has been unoccupied for a period of twelve (12) months prior to acquisition and continues to operate all of its facilities. 37 Thus, qualifying manufacturing concerns must build or construct a manufacturing facility. The amendment authorized the Oklahoma Legislature to enact statutes defining manufacturing facility, also noting that a manufacturing facility that qualifies for the ad valorem tax exemption provided by this section, pursuant to the definition of manufacturing facility then applicable, shall be eligible for the exemption without regard to subsequent changes in the definition of the term manufacturing facility[.] 38 Consequently, the Oklahoma Legislature enacted a statutory definition of manufacturing facility encompassing a number of different sectors. Facilities must generally show defined amounts of payroll increase attributable to the facility in question, minimum capital investment, and must fit within specified North American Industrial Classification System ( NAICS ) codes. 39 Specifically, wind power facilities fitting within NAICS code may qualify if they can demonstrate a net increase in annualized payroll at the facility of at least Two Hundred Fifty Thousand Dollars ($250,000.00) or a net increase of Two Million Dollars (.00) or more in capital improvements while maintaining or increasing payroll. 40 Besides wind power and general manufacturing concerns (which often fall under the more general definitions of the statute), several other industrial sectors have specific requirements, including distribution centers and data processing facilities. 41 Recognizing the potential loss of ad valorem revenue for counties containing such qualifying manufacturing concerns could offset the economic development gains sought by five-year exemption, the amendment also directed the Oklahoma Legislature to create a means of reimbursing units of county and local government funded by ad valorem taxes for the loss of revenue caused by the exemption. Concordantly, also in 1985, the Oklahoma Legislature created the Ad Valorem Reimbursement Fund [t]o reimburse counties of this state for loss of revenue due to exemptions of ad valorem taxes for new or expanded manufacturing or research and development facilities 42 (hereinafter referred to as the Reimbursement Fund). Counties containing property subject to the five-year exemption can apply to the OTC for reimbursement of the funds foregone as a result of the exemption. 43 The Reimbursement Fund, in turn, is funded by an apportionment calculated as 1 percent of total income tax revenue received by the state. 44 Reimbursement claims by industrial sector often vary as macroeconomic forces, federal and state development incentives, and other factors influence the development of specific types of facilities eligible for reimbursement. Trends in payments from the Reimbursement Fund by sector are illustrated in Figure 15 below. 21