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Law Energizes Power Debate; Hybrid Cars, Energy Changes Encouraged

Posted on: Tuesday, 9 August 2005, 15:00 CDT

The first federal energy law in more than a decade doles out tax breaks of all sizes, designed to encourage everything from buying a fuel-efficient car and installing a solar water heater in a home to building more power lines and new nuclear reactors.

The bill, signed into law by President Bush on Monday in New Mexico, was passed during a year in which the price of everything from oil and natural gas to gasoline and electricity has escalated.

Before signing the bill, Bush said: "This bill is not going to solve our energy challenges overnight. It's going to take years of focused efforts to alleviate those problems."

The law could touch Wisconsin consumers and its energy sector in a variety of ways, such as incentives for adding insulation or installing energy-efficient windows, energy efficiency measures sought by Johnson Controls Inc., incentives to build more power lines sought by American Transmission Co. and wind power projects being planned by companies like We Energies.

Incentives for consumers

Consumers will see tax credits for buying a hybrid-electric or clean-diesel car. A shopper buying a hybrid today is eligible for a $2,000 tax deduction, but the new law boosts the market for hybrids, clean-diesel cars and other energy-efficient vehicles by offering a direct tax credit. Effective for cars bought after Jan. 1, 2006, the credit will range from $250 to $3,400, depending on the size, weight and fuel economy of the vehicle.

Consumers may have to act fast to get their credits because the bill caps at 60,000 the number of hybrids made by any one carmaker that can be eligible for the credit a provision that could result in credits going quickly for buyers of already popular hybrids such as the Toyota Prius.

For the first time in years, the federal tax code will offer incentives to residents to install solar hot water or solar electric systems on their homes, said Niels Wolter, who works on solar power issues for the Wisconsin Focus on Energy program, based in Madison.

"The knee-jerk reaction (from the administration) is to help the coal and gas and nuclear industries, but it's nice to see that they're doing stuff for renewables, as well," he said. "For 30 years now, we've been wanting to get more domestic in our energy production."

The solar credit, when combined with state incentives through Focus on Energy, could lower the cost for a solar hot water system, now priced at more than $6,000, or a solar electrical system, which can cost $15,000 or more.

The home energy efficiency tax credit, available in 2006 and 2007, will offer a maximum of $500, which includes up to $200 of the cost of energy-efficient windows; up to $300 of the cost of a highly efficient central air conditioner, heat pump or water heater; up to $150 of the cost of a highly efficient furnace or boiler; and up to $50 of the cost of a furnace with a highly efficient fan.

A nice little gift'

Apart from consumers, the most visible impact for Wisconsin may be in the new high-voltage transmission lines American Transmission Co. wants to build and in the wind-production tax credit that could result in construction of hundreds of wind turbines in the state.

Rick Kuester, executive vice president of We Energies, said the bill's passage will help keep the company on track to open in 2007 the two wind-power projects in Fond du Lac County that the utility bought this summer from Navitas Energy of Minneapolis.

Pewaukee-based American Transmission Co. said construction of new power lines will be boosted by tax changes that will make it easier to finance construction of power lines.

"We need transmission in our state desperately, and what this bill does will now give us some tax benefits," said Bill Burlew, manager of federal affairs at American Transmission Co. "Given sometimes the political dynamics at work here, with interests all across the country, I thought Wisconsin got a nice little gift out of this."

Transmission companies received an estimated $1.2 billion in tax incentives over 10 years, led by a provision that permits utilities to depreciate over 15 years rather than 20.

For Johnson Controls, the program, known as Energy Savings Performance Contracting, enables the company to install new boilers or control systems, or more efficient lighting, "at no upfront cost to the government," said Mark Wagner, vice president of regulatory affairs.

Some advocates for energy efficiency say the bill could have gone further. But Wagner called it a "very positive bill that's strong on efficiency and balances a lot of different types of approaches out there."

Making conservation attractive

Tax breaks for businesses to become more efficient could result in more businesses taking a second look at retrofitting their factories to make them more energy efficient, said Gerrit Reinders, director of sustainable energy solutions at Johnson Controls in Milwaukee.

Tax credits are also available for companies "that might employ and put in place energy-conserving measures in their buildings, and that's what we do for our customers," he said. "Our customers can take advantage of those credits, so that can make (an energy- saving) project even more attractive."

The bill provides credits to manufacturers of home appliances in the hopes that the manufacturers will lower the prices on their products. The credits range from $75 to $175 per appliance, according to the Alliance to Save Energy.

Opponents say the energy law, which passed after several attempts failed in recent years, sets America's energy path on the wrong course. The bill, they argue, is a missed opportunity to move America toward an era of less dependence on imported oil and more reliance on renewable sources of energy.

"If you look at the very serious challenges we have as it relates to the price of natural gas or oil, the bill continues to have a focus on current technologies, current fuels," said Dan Ebert, who leads the state Public Service Commission. "Given the pressures that the world energy market is putting on the country's economy, this was a time for a bold statement, to take a step forward in a different direction, and this bill doesn't do that."

But supporters said they were glad something finally passed.

David Parker, an analyst who monitors utility companies for Robert W. Baird & Co., said the energy industry will be glad to have a bill that "tries to offer some direction."

"It's an embarrassment that we haven't had an energy policy for what seems like forever, that we had the largest blackout the U.S. has ever experienced in 2003, gas and oil prices are at all-time highs with no kind of relief in sight."

To critics, the estimated $12.3 billion to $14.5 billion in tax breaks may please politically organized sectors of the energy industry, but it isn't far-reaching enough in pushing energy efficiency and conservation as a way to reduce use of energy and ease pressure that high prices are causing for consumers.

"It seems to be more of a Christmas tree with ornaments for everybody than a coherent national energy policy," said Lee Cullen, a Madison energy lawyer who works on energy policy issues.

"As big picture policy, it doesn't really change anything," said Michael Vickerman, executive director of the Madison-based renewable energy group Renew Wisconsin. "It won't affect consumer attitudes; it doesn't lead the country into a direction toward more responsible energy use."

Hybrid cars

-- Buyers of hybrid and other energy-efficient cars and trucks will qualify for a tax credit of $250 to $3,400.

Solar energy

-- Homeowners will get a tax credit for 30% of the purchase price of a new solar water heater or electric system.

Wind power

-- Plans to add hundreds of wind turbines in Wisconsin got a boost with a two-year extension of tax credits for wind energy.

Power lines

-- Tax provisions are designed to stimulate construction of transmission lines, benefiting American Transmission Co. and utilities.

The Associated Press contributed to this report.

Copyright 2005, Journal Sentinel Inc. All rights reserved. (Note: This notice does not apply to those news items already copyrighted and received through wire services or other media.)

Source: Milwaukee Journal Sentinel

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