SUMMIT POWER SEEKS TAX FIX TO SAVE WEST TEXAS PROJECT $150 MILLION

Tamar Hallerman
GHG Monitor
2/22/13

The development company behind a poly-generation carbon capture and storage project in west Texas is ramping up lobbying efforts for Congress to alter a provision in the tax code that would save the project $150 million. Laura Miller, director of Texas projects for the Seattle-based Summit Power Group, LLC, has not been shy about her efforts to push Congress to close a tax loophole that requires her company to pay taxes on the $450 million Clean Coal Power Initiative grant it received under the stimulus bill for its $2.9 billion Texas Clean Energy Project (TCEP). But in a recent interview Miller said the tweak is all the more critical given that Summit hopes to declare financial close—and subsequently begin construction—on the 340 MW integrated gasification combined cycle facility next quarter. “The final piece that has to come together for this project is this tax problem we have,” she said. Miller hopes to get the change approved in the upcoming budget cycle, she added.

Under current law, companies that receive grants from programs like the Department of Energy’s Clean Coal Power Initiative must distinguish their organizational structure. Traditional corporations are not required to count grants as taxable income. But due to ambiguity in the tax code, non-corporate entities like LLCs or partnerships are required to report grants as taxable income, according to Miller. That means that LLCs like Summit and SCS Energy, the developer behind the similarly-structured Hydrogen Energy California IGCC project, must pay a 35 percent tax rate on their CCPI grants.

As Summit moves to lock down its final financing pledges in the short term, that would mean that the company must raise an additional $150 million to cover the taxes on the CCPI grant, Miller said. “The problem is that if we don’t eliminate the problem, we would have to come up with another $150 million to cover our tax bill, which we would have to pay as soon as we receive the bulk of our CCPI grant at the beginning of construction,” Miller said. “Given that one gasifier runs about $300 million, as soon as you buy that and a couple other pieces of equipment, you ultimately eat up the grant very quickly. So right now this tax issue’s a huge problem.”

Tax Fix Lacks Legislative Vehicle

Miller has managed to drum up support from a bipartisan group of Texas lawmakers on Capitol Hill in the past, but has struggled to find tax legislation to attach the provision to. She said her Congressional supporters had initially thought about using last year’s fiscal cliff deal as a legislative vehicle, but that effort failed in the midst of contentious last-minute negotiations. Now Miller said she hopes the upcoming Fiscal Year 2014 budget cycle can provide a forum to push the changes through. “The problem for us is not political support. You need to find a vehicle, and there’s not much moving on energy or tax issues right now,” said Miller, who was in Washington earlier this month attending meetings with Capitol Hill staffers on the issue.

Miller said she is also trying to reach out to the White House. “We’d love for the President, because of his new agenda on climate change, to put a little line in his budget saying that it’s a priority to get the two top 90 percent carbon capture projects done and that we need to approve the zero-cost tax fix,” Miller said. “That would be very convenient.” President Obama is expected to roll out his FY 2014 budget request to Congress next month.

A group of more than two dozen lawmakers, largely from the Texas Congressional delegation, wrote a letter to House Ways and Means Committee Chairman Dave Camp (R-Mich.) in October requesting the panel’s leadership to make the alteration that would clarify that no CCPI grants are taxable. “The Clean Coal Power Initiative was created to foster research and development in innovative new ways to use our nation’s vast coal resources in the most environmentally friendly way possible. It is important that we do not let incongruities in the tax code derail two of the most ambitious projects undertaken through CCPI,” the letter stated, referring to TCEP and HECA.