News: CJ Exclusives

‘Expired’ renewable tax credit program still paying out millions

An extended sunset provision, 'safe harbor' protections for projects in the works, and a transfer mechanism keep credits flowing

CJ file photo
CJ file photo

The sun keeps shining on North Carolina’s renewable energy investors — at taxpayers’ expense.

The state’s renewable energy investment tax credit program expired Dec. 31, 2015. Yet the state paid $454 million in the subsidies the past two years, including a record $245 million for calendar year 2016. It’s likely the state might forgo hundreds of millions more in tax revenue through 2020.

The program may be dead, but many of the tax credits remain alive. It was structured to issue tax credits equaling 35 percent of the money companies invested in renewable projects. Investors also have up to five years to claim the credits against the taxes they owe. Not surprisingly, companies with big tax bills tend to use credits the most.

In 2017 the state paid $209 million in credits, including $1 million or more to 41 entities, based on state Department of Revenue data. Of the recipients, 31 were large insurance companies, four were big banks, and two were electric utilities. Only three were people. Apple rounded out the list.

“At the end of the day it’s the taxpayer who’s getting the shaft because they’re pretty much subsidizing this,” said former state lawmaker Chris Millis of Pender County.

The state has issued $815 million in renewable credits since 2010. Before 2016, the highest handout was the previous year — $136 million. The state issued nearly $100 million more in tax credits the past two years than the $361 million over the previous six years.

Millis opposed doling out special favors to the renewable industry while in office, saying government shouldn’t pick winners and losers in the marketplace. He said vigorous lobbying efforts by the solar industry continue.

He said fiscal conservatives should be wary of industry lobbyists who push lawmakers to introduce a new batch of tax credits in the name of economic development.

The renewable tax credits were among several laws passed to boost in-state solar projects. Those included mandates forcing utility companies to buy increasing percentages of renewable energy, huge property tax discounts, and a favorable interpretation of a federal law providing long-term contracts and high power purchase rates to solar energy producers.

The incentives, unsurprisingly, worked. North Carolina is now No. 2 nationally in installed solar capacity.

Hundreds of individuals and companies rushed to get in on the tax credit deals, but none with greater appetite than Blue Cross and Blue Shield of North Carolina and Duke Energy.

BCBSNC claimed $26 million in tax credits in 2017, topping the list, according to an annual report compiled by the Revenue Department. Duke Energy ranked second with $17 million in claimed credits. The corporate giants accounted for 33 percent of all renewable credits issued from 2014-17. BCBSNC claimed $120 million during that period; Duke Energy claimed $117 million.

“Blue Cross NC is a fully taxed business that last year paid more than $511 million in state, federal, and local taxes. We have a diverse investment portfolio that includes stocks, bonds, health care technologies and products, and, among other things, renewable energy projects,” said spokesman Austin Vevurka.

“Blue Cross NC is not investor owned. Every investment we make is for the benefit of our customers. Strong financial stability is what allows us to pay our members’ medical costs, and ultimately improve their health,” Vevurka said.

“As a North Carolina-based company — with deep roots in our state, and members across all 100 counties — we regularly invest in projects that spur economic growth, and create jobs, some of which are renewable energy projects,” he said.

Duke Energy spokesman Randy Wheeless said it’s not surprising the giant utility was No. 1 or No. 2 each of the past four years in claiming renewable credits.

“I think any time people see those big numbers they may take pause. But we’re the largest utility company in North Carolina. We’re building a lot of renewables,” Wheeless said. “You would expect the largest energy company to be at the top of the list.”

About 70 percent of the renewable tax credits were taken by Duke Energy Renewables, the utility’s unregulated energy development arm.

“They have a number of solar projects in the northeast section of North Carolina, and down in eastern North Carolina, Washington County, and places like that,” Wheeless said.

He attributed the other 30 percent to the regulated Duke Energy Progress, and Duke Energy Carolina divisions.

“We’ve invested probably more than $1 billion in renewable energy in North Carolina, and we look to build projects in the most cost-effective way possible,” Wheeless said. “And taking advantage of tax credits is part of that equation.”

It’s unclear how many dormant tax credits will be claimed between now and the program’s 2020 termination.

Even the five-year end date has shades of grey.

The General Assembly passed a “Safe Harbor Act” extending the program for some projects to the end of 2016, and generating another pile of renewable tax credits. Lawmakers said some developers made substantial investments as the deadline approached but the state couldn’t complete the permitting process before the program ended.

Lawmakers inserted a last-minute provision into the 2017-18 budget to allow some biomass renewable projects to claim the expired 35 percent tax credit retroactively if they were operating by May 5, 2017.

Revenue Department spokesman Schorr Johnson said the looming deadline probably explains why tax credit claims have skyrocketed the past two years. Investors may be claiming larger portions so they don’t lose them.

Johnson said he didn’t have official estimates on how many more credits are available.

But a rough estimate is possible.

Last year Millis provided Carolina Journal with a Revenue Department document showing $1.64 billion in available tax credits were generated for the years 2010-15. Of that total, $1.55 billion was for solar project investments alone.

Subtracting $815,292,020 in credits claimed to date from the $1.6 billion figure would leave $823,220,906 in unclaimed tax credits. That number doesn’t include credits which might have expired. And all of them may not be claimed, as the holder might not owe enough in taxes to use the credits.

But investors have another option. They can’t sell renewable energy credits, but the law lets them transfer unused credits from one entity to another.

Here’s how it works. Original investors in a renewable project can sell their interest in the partnership after the first taxable year of existence. The buyer assumes the seller’s tax credits in the transaction. The credits — likely the most valuable part of the deal — technically remain with the original partnership, even though the players changed.

There’s no way to determine how those credits are valued during an ownership swap.

Johnson cannot say how many individuals and companies claiming the 2017 subsidies were the original holders of the credits. “[T]hat would be protected taxpayer information under North Carolina’s taxpayer secrecy law,” he said.

BCBSNC and Duke Energy say they have not participated in credit transfers.

“All of the credits we have received are a direct result of our investment in renewable energy projects. No credits were bought from others,” Vevurka said.

“We’re not buying the tax credits from anyone, or [doing] any kind of financial switching. Ours is very clean. We’ve built projects, and we’ve gotten tax credits,” Wheeless said, noting his surprise at who else was on the tax credit list.

“I know when you look at that list, every insurance company is on there, it seems like, and a lot of financial institutions,” Wheeless said. “I get kind of a general idea of what’s happening there, but that’s not what’s happening at Duke Energy.”