[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



 
           OVERSIGHT OF THE WIND ENERGY PRODUCTION TAX CREDIT

=======================================================================


                                HEARING

                               before the

                     SUBCOMMITTEE ON ENERGY POLICY,

                      HEALTH CARE AND ENTITLEMENTS

                                 of the

                         COMMITTEE ON OVERSIGHT

                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 2, 2013

                               __________

                           Serial No. 113-62

                               __________

Printed for the use of the Committee on Oversight and Government Reform


         Available via the World Wide Web: http://www.fdsys.gov
                      http://www.house.gov/reform




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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                 DARRELL E. ISSA, California, Chairman
JOHN L. MICA, Florida                ELIJAH E. CUMMINGS, Maryland, 
MICHAEL R. TURNER, Ohio                  Ranking Minority Member
JOHN J. DUNCAN, JR., Tennessee       CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina   ELEANOR HOLMES NORTON, District of 
JIM JORDAN, Ohio                         Columbia
JASON CHAFFETZ, Utah                 JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan                WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma             STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan               JIM COOPER, Tennessee
PAUL A. GOSAR, Arizona               GERALD E. CONNOLLY, Virginia
PATRICK MEEHAN, Pennsylvania         JACKIE SPEIER, California
SCOTT DesJARLAIS, Tennessee          MATTHEW A. CARTWRIGHT, 
TREY GOWDY, South Carolina               Pennsylvania
BLAKE FARENTHOLD, Texas              MARK POCAN, Wisconsin
DOC HASTINGS, Washington             TAMMY DUCKWORTH, Illinois
CYNTHIA M. LUMMIS, Wyoming           ROBIN L. KELLY, Illinois
ROB WOODALL, Georgia                 DANNY K. DAVIS, Illinois
THOMAS MASSIE, Kentucky              PETER WELCH, Vermont
DOUG COLLINS, Georgia                TONY CARDENAS, California
MARK MEADOWS, North Carolina         STEVEN A. HORSFORD, Nevada
KERRY L. BENTIVOLIO, Michigan        MICHELLE LUJAN GRISHAM, New Mexico
RON DeSANTIS, Florida

                   Lawrence J. Brady, Staff Director
                John D. Cuaderes, Deputy Staff Director
                    Stephen Castor, General Counsel
                       Linda A. Good, Chief Clerk
                 David Rapallo, Minority Staff Director

      Subcommittee on Energy Policy, Health Care and Entitlements

                   JAMES LANKFORD, Oklahoma, Chairman
PATRICK T. McHENRY, North Carolina   JACKIE SPEIER, California, Ranking 
PAUL GOSAR, Arizona                      Minority Member
JIM JORDAN, Ohio                     ELEANOR HOLMES NORTON, District of 
JASON CHAFFETZ, Utah                     Columbia
TIM WALBERG, Michigan                JIM COOPER, Tennessee
PATRICK MEEHAN, Pennsylvania         MATTHEW CARTWRIGHT, Pennsylvania
SCOTT DesJARLAIS, Tennessee          TAMMY DUCKWORTH, Illinois
BLAKE FARENTHOLD, Texas              DANNY K. DAVIS, Illinois
DOC HASTINGS, Washington             TONY CARDENAS, California
ROB WOODALL, Georgia                 STEVEN A. HORSFORD, Nevada
THOMAS MASSIE, Kentucky              MICHELLE LUJAN GRISHAM, New Mexico



                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on October 2, 2013..................................     1

                               WITNESSES

Mr. Curtis G. Wilson, Associate Chief Counsel, Passthroughs and 
  Special Industries, Internal Revenue service
    Oral Statement...............................................     5
    Written Statement............................................     8
Mr. Rob Gramlich, Senior Vice-President for Public Policy, 
  American Wind Energy Association
    Oral Statement...............................................    15
    Written Statement............................................    17
Mr. Dan W. Reicher, Executive Director, Steyer-Taylor Center for 
  Energy Policy & Finance, Stanford University
    Oral Statement...............................................    20
    Written Statement............................................    22
Mr. Robert J. Michaels, Ph.D., Senior Fellow, Institute for 
  Energy Research, Professor of Economics, California State 
  University, Fullerton
    Oral Statement...............................................    30
    Written Statement............................................    32

                                APPENDIX

The Hon. Jackie Speier, a Member of Congress from the State of 
  California, Opening Statement..................................    78
A Letter from Thomas A. Barthold to the Hon. James Lankford......    82


           OVERSIGHT OF THE WIND ENERGY PRODUCTION TAX CREDIT

                              ----------                              


                       Wednesday, October 2, 2013

                  House of Representatives,
    Subcommittee on Energy Policy, Health Care and 
                                      Entitlements,
              Committee on Oversight and Government Reform,
                                                   Washington, D.C.
    The subcommittee met, pursuant to call, at 9:30 a.m., in 
Room 2154, Rayburn House Office Building, Hon. James Lankford 
[chairman of the subcommittee] presiding.
    Present: Representatives Lankford, Farenthold, Jordan, 
Walberg, Speier, Lujan Grisham, Horsford, and Duckworth.
    Staff Present: Molly Boyl, Senior Counsel and 
Parliamentarian; Joseph A. Brazauskas, Counsel; Caitlin 
Carroll, Deputy Press Secretary; John Cuaderes, Deputy Staff 
Director; Brian Daner, Counsel; Adam P. Fromm, Director of 
Member Services and Committee Operations; Linda Good, Chief 
Clerk; Tyler Grimm, Professional Staff Member; Ryan M. 
Hambleton, Professional Staff Member; Frederick Hill, Director 
of Communications and Senior Policy Advisor; Christopher Hixon, 
Deputy Chief Counsel, Oversight; Mark D. Marin, Director of 
Oversight; Laura Rush, Deputy Chief Clerk; Sarah Vance, 
Assistant Clerk; Jeff Wease, Chief Information Officer; Jaron 
Bourke, Minority Director of Administration; Beverly Britton 
Fraser, Minority Counsel; Jennifer Hoffman, Minority Press 
Secretary; Elisa LaNier, Minority Deputy Clerk; and Daniel 
Roberts, Minority Staff Assistant/Legislative Correspondent.
    Mr. Lankford. The meeting will come to order. I want to 
begin this hearing by stating the Oversight and Government 
reform mission statements. We exist to secure two fundamental 
principles: First, Americans have the right to know that the 
money Washington takes from them is well spent. Second, 
Americans deserve an efficient, effective government that works 
for them. Our duty on the Oversight and Government Reform 
committee is to protect these rights. Our solemn responsibility 
is to hold government accountable to taxpayers because 
taxpayers do have the right to know what they get from their 
government.
    We work tirelessly in partnership with citizen watchdogs to 
deliver the facts to the American People and bring genuine 
reform to the Federal bureaucracy. This is the mission of the 
Oversight and Government Reform committee.
    Today's hearing is really about the oversight of the wind 
energy production tax credit. There is some changes that 
happened in the past year to the way that tax credit is 
written. So today we're going to talk not only about some of 
the changes in section 45 of the Internal Revenue Code, but 
also the issue of long term, where is this really going, how we 
are trying to unfold the PTC. The PTC was first enacted 1992, 
it was not supposed to be permanent, it was a subsidy to help a 
Nation industry to help get on its feet.
    However since then, it has been renewed by Congress eight 
times, most recently, as I just mentioned as part of the fiscal 
cliff deal signed January the 2nd of this year. The deal 
provided for 1-year extension of tax credit, lasting until 
January of 2014 coming up. We are rapidly approaching that date 
and this hearing is designed to examine this credit.
    First and foremost, it is critical that we ensure our laws 
have clear standards that agencies can enforce. I am glad to 
see a representative of the Internal Revenue Service is here 
today, thank you, Mr. Wilson, for being here, and will be able 
to help with this conversation to provide some clarity.
    The most recent extension include a significant change for 
how producers qualify for the credit. Previously a wind 
facility had to be placed in service, meaning producing 
electricity before the deadline. Now one facility only has to 
begin construction by the deadline to qualify.
    One of the goals of this hearing is to make sure this 
change to the PTC is working properly for the taxpayers and for 
the Treasury. We need to make sure that the IRS is able to 
evenly apply the law in a manner that reflects Congressional 
intent. The IRS's guidance document defining beginning of 
construction appears to be lenient and vague at some points and 
we need to provide some clarity.
    Furthermore, there are serious deficiencies in the 
mechanisms to ensure a taxpayer has complied with the tax 
credits requirements. There is a real risk the IRS is not 
properly positioned to ensure that credit is not being 
improperly claimed at some future date. According to a recent 
estimate from the Joint Committee on Taxation that I requested, 
another 1-year extension of the PTC will cost $6.2 billion for 
just wind alone, and that's over the next 10 years. A 5-year 
extension for wind would reduce Federal budget receipts by 18.5 
billion over the next 10 years.
    As long ago as the 1980s proponents of wind energy have 
been saying that tax credits only needed temporarily. So we are 
trying to look for what is that temporary date and how does 
this keep working. We keep hearing that we're almost there or 
just a little bit longer, but the facts state that wind power 
has been steadily increasing over the last ten years. And there 
is this point of saying when does wind power take off on its 
own?
    In 2003 wind accounted for about .12 quadrillion Btu in 
power consumed. According to the energy information 
administration, the projected total for 2013 will be 1.61 
quadrillion Btus rising to almost 1.7 quadrillion for 2014. 
From 2003 to 2012, wind power consumption increased over a 
thousand percent. Additionally wind power has a share of our 
domestic electricity generation has risen progressively. As of 
2012, wind power is at 3.46 percent of our US electricity 
generation. This is up from .29 percent in 2003, representing 
almost 12-fold increase in wind share of electricity generation 
in a 10-year period. Additionally wind has increased its share 
of total renewables from about 14 percent in 2003 to over 64 
percent last year.
    In all these metrics, wind energy use on a steady and 
uninterrupted rise. Today 30 States and the District of 
Columbia mandate a certain percentage of total energy 
production come from renewable sources, another 7 States, 
including my home State of Oklahoma have voluntary goals. To 
date, wind generation accounts for 90 percent of all new 
renewable resources developed under the State RPS programs.
    It is my hope today that we can provide additionally 
clarity to wind producers, seeking to legally claim a credit 
that is in the law. And we have a healthy dialogue among 
economists in industry regarding whether the tax credit--
continuing to use this tax credit is a good steward over 
taxpayer dollars. As we're preparing the Nation for a 
diversified energy profile, it is important that we look at all 
energy sources, how we handle that for the coming days. With 
that I recognize the gentlelady from California, Ms. Speier, 
for an opening statement.
    Ms. Speier. Mr. Chairman, thank you. Now I appreciate that 
several of our witnesses have traveled long distances to be 
here today, so moving forward with this hearing can be 
rationalized. But our government is in a shutdown, 800,000 
Federal employees are furloughed, and Congress has abdicated 
its fundamental constitutional responsibility to fund the 
government. So moving forward, I think it would be appropriate 
for this committee and other committees to shut down during 
this shutdown so that we feel the complete and utter efforts 
being made to not function in an adequate fashion.
    Having said that, we are here today for a hearing on the 
production tax credit which has helped the wind industry grow 
to a major source of renewable energy here in the United States 
as the chairman has mentioned. In fact, wind energy has grown 
from about 1 percent of the U.S. total energy production before 
the PTC to now 4 percent. Today the wind energy industry 
employs more than 80,000 American workers, including workers at 
manufacturing facilities up and down the supply chain, as well 
as engineers and construction workers who build and operate 
wind farms. And these are good paying jobs.
    Wind turbines are now made domestically by approximately 
550 new manufacturing facilities in all regions of the country. 
These facilities produce more than 70 percent of the content of 
an average wind turbine installed in the U.S. compared to just 
25 percent in 2005. In fact, as a direct result of the PTC, the 
wind industry was the number one source of new generation 
capacity in the United States last year, and we are making 
these turbines in America.
    Wind energy also means lower prices for consumers, 
Department of Energy data shows that from 2005 to 2010, 
electricity rates increased by twice as much in the 40 States 
with at least wind power compared to rates in 10 States with 
the most wind generation. I can tell you that clean wind energy 
and the PTC are important to California, and I know that 
Oklahoma is one of the biggest producers of wind energy as 
well.
    Only weeks ago, the IRS issued new guidance interpreting 
the latest extension of the PTC. That was passed on January 2nd 
of this year. Not a single energy company has yet claimed the 
tax credit under this 1-year extension, and it will 
realistically be at least 18 months before the IRS will be 
called upon to apply its guidance. This can be a risky 
proposition for companies that are investing hundreds of 
millions of dollars in new wind energy projects. After all, if 
they don't build and get it operating, they don't get the 
credit. There are no loans or guarantees or upfront benefits. 
That's why clarity is an essential. We can help make sure we 
don't face problems down the road when those investing now seek 
to claim the credit.
    Mr. Chairman, call me paranoid, but I also have to note 
that on the same day this hearing was announced, Americans for 
Prosperity, FreedomWorks and more than 20 other conservative 
groups launched a campaign to end the PTC. The majority's 
witness is also known as an opponent of the PTC and wind energy 
altogether. I hope that we are really conducting oversight of 
the implementation of the law and not using this hearing simply 
to launch another attack on a clean energy program that has 
worked well for many years.
    There is little doubt that the elimination of the PTC or 
the risk of its determination lapse will damage the industry 
and put a break on its renewable growth. The wind energy has 
gone through a boom and bust cycle whatever Congress has 
allowed the benefit to expire or get close to expiration. Last 
year, even though the PTC lapsed for just 1 day, hundreds of 
workers who manufactured wind turbines were laid off and 
construction and manufacturing projects were cancelled in 
anticipation of the lapse. Workers in Grand Forks, North Dakota 
and Little Rock, Arkansas lost their jobs at turbine 
manufacturers when the PTC's future was in question.
    Some object to the wind energy industry receiving any 
Federal support. But let's get real, the fossil fuel industry 
has received tax subsidies since the early 1900s. And other 
government incentives that far exceed everything we are doing 
for renewable energy. Big oil still gets Federal subsidies even 
though justified biggest oil companies, BP, Chevron, 
ConocoPhillips, ExxonMobil and Shell made a combined $118 
billion in profits in 2012. Of course, those profits were down 
from their record high of $137 billion in 2011.
    I want to bring your attention to this chart which 
illustrates the huge differences in subsidies for fossil fuels 
as opposed to wind energy over time. Oil and gas have received 
over $4.8 billion each year in government subsidies over 90 
years. Wind energy, by contrast, has received a small fraction 
of that, an average of about $370 million per year for the last 
19.
    So if anyone has fiscal concerns about Federal support for 
energy producers, I think this chart shows clearly that there 
is much more reason to be concerned about support for fossil 
fuel industry than renewable energy sources. If we want to get 
rid of the PTC, well, let's get rid of all the subsidies for 
all of the various forms of energy. We need to give as much 
support to clean renewable energy sources as we have provided 
and continue to provide for fossil fuel industry.
    The committee and the Federal Government shouldn't be in 
the business of picking winners and losers in the energy 
marketplace. We certainly shouldn't be using our hearing to 
promote the interests of fossil fuels by creating problems for 
renewable energy, especially when the PTC and other renewable 
programs help ensure that our Nation maintain a diverse energy 
portfolio.
    Mr. Chairman, I thank the members for participating in this 
hearing. I thank, in particular, the witnesses who are here and 
hopefully we will have a thoughtful examination of ways to 
encourage greater use of renewable energy sources as we tackle 
the growing problems of climate change and energy independence. 
I yield back.
    Mr. Lankford. Thank you. And just to remove any paranoia--
--
    Ms. Speier. Yes, I need that.
    Mr. Lankford. --this is actually the first that I've heard 
that they released that that day, so there was no connection on 
that. So I will be interested in being able to see that, that 
way you can be totally free of any paranoia.
    Ms. Speier. Good to know.
    Mr. Lankford. That's great. Members will have seven days to 
submit opening statements for the record. We now recognize our 
first and only panel today and look forward to the 
conversation. Mr. Curtis Wilson, associate chief counsel for 
Passthroughs and Special Industries in the Internal Revenue 
Service. Thanks for being here. As well, Mr. Robert Gramlich is 
the senior vice president for Public Policy, the American Wind 
Energy Association. Thanks. Mr. Dan Reicher is the executive 
director for the Steyer-Taylor Center for Energy Policy & 
Finance at Stanford University. Thanks for the flight. And Mr. 
Robert Michaels is a senior fellow at the Institute for Energy 
Research and Professor of Economics, California State 
University in Fullerton. Hopefully you all rode on the same 
plane together coming from California. So I appreciate your 
coming on this.
    Pursuant to committee rules all witnesses are sworn in 
before they testify. Gentlemen if you please stand add raise 
your right-hand.
    Do you solemnly swear or affirm the testimony you are about 
to give will be the truth, the whole truth and nothing but the 
truth, so help you God?
    Thank you. You may be seated. Let the record reflect the 
witnesses have answered in the affirmative.
    In order to allow time for a discussion I would ask you to 
limit your testimony to 5 minutes, there is a countdown clock 
in front of you that will help with that. If you go a little 
bit over we will have mercy, if you go a little bit under it's 
bonus points. And then we'll have a conversation and dialog 
from there. So recognizing the panel, Mr. Wilson, we'd ask you 
to be able to go first on this and look forward to receiving 
your testimony.

                       WITNESS STATEMENTS

                 STATEMENT OF CURTIS G. WILSON

    Mr. Wilson. Thank you, Chairman Lankford Ranking Member 
Speier and members of the subcommittee. My name Curt Wilson, 
and I appreciate the opportunity to appear before you today to 
discuss renewable energy credits under the Internal Revenue 
Code. Before I begin, I will provide to you a little background 
about my office and its role in connection with renewable 
energy credits. As you said, I'm the associate chief counsel of 
the Passthroughs and Special Industries division of the IRS 
Office of Chief Counsel. My division has between 70 and 80 
lawyers, plus six support staff. Our responsibilities include 
providing advice to the Commissioner of the Internal Revenue 
Service and his staff, providing litigation support to our 
colleagues in our field offices and at the Department of 
Justice tax division, working with taxpayers on private letter 
ruling requests and drafting guidance to taxpayers in the 
Internal Revenue Service that is published in the Federal 
Register and the Internal Revenue bulletin.
    When drafting published guidance, we work very closely with 
the Office of Tax Policy at the Department of Treasury. My 
office has subject matter responsibility for a wide range of 
issues. One of those issues is the credit for production of 
electricity from renewable energy sources under section 45 of 
the Code. That section generally permits taxpayers to earn a 
credit each year based on the amount of energy that they 
produce over a 10-year period from qualified resources at a 
qualified facility.
    Alternatively, taxpayers may elect an investment tax credit 
based on a percentage of their eligible basis and qualifying 
property in lieu of claiming the production tax credit. 
Qualified resources include wind, geothermal, closed loop 
biomass, open loop biomass, municipal solid waste and a few 
others. In addition to the production tax credit and investment 
tax credit section 1603 of the American Recovery and 
Reinvestment Act of 2009 allowed taxpayers a third option of 
requesting a cash payment in lieu of either the production 
credit or the investment tax credit.
    To qualify for that cash payment in lieu of the credits, a 
taxpayer had to place a qualifying facility in service in 2009, 
'10 or '11, or alternatively, the taxpayer could place a 
facility into service after 2011, but only if the taxpayer 
began construction during 2009 through 2011 and then placed the 
facility in service before a termination date, and that 
termination date varied depending on the type facility.
    In contrast to the section 1603 program, to claim the 
production tax credit or the investment tax credit, taxpayers 
initially had to place a facility in service by the end of 2012 
in the case of wind facilities, and by the end of 2013 for 
other eligible technologies.
    The American Taxpayer Relief Act of 2012 extended 
eligibility for the credit for wind to the end of 2013, and 
also changed the qualification requirement for wind as well as 
other eligible technologies from a requirement that the 
taxpayer placed on facility and service to a requirement that 
the taxpayer begin construction.
    The statutory language of the ATRA amendment didn't define 
beginning of construction standard. The 1603 program, which 
addressed similar energy related facilities, had used a similar 
phrase however. So when we began to consider publishing 
guidance for taxpayers, we look to how that standard was 
administered in the section 1603 program. Guidance regarding 
the section 1603 program had been previously issued in 
question-and-answer format. It generally provided that physical 
work of a significant nature constituted beginning of 
construction.
    The determination of whether that task was met in any case 
was based on all the relevant facts and circumstances, and the 
Q and As provided examples. In addition, the section 1603 
program provided a safe harbor that basically said you would be 
treated as if you had begun construction if you had spent at 
least 5 percent of the ultimate cost of the property.
    The section 1603 guidance, in turn, used the description of 
beginning of construction that was very similar to regulatory 
language pertaining to bonus depreciation under section 16 
168(k). So when we issued our first published guidance in 
notice 2013-29, we turned to that prior precedent in the 1603 
program. For the most part, we followed that prior precedent 
providing both the physical work of a significant nature, and a 
5 percent safe harbor, but we also noted that there would be 
strict scrutiny like there was in 1603 program if taxpayers 
didn't begin construction and then maintain a continuous 
construction program.
    It's important to note that whether the taxpayers apply 
under the safe harbor of the 5 percent, or a second safe harbor 
that we provided in 2013-60 following questions from the 
industry about beginning of construction that taxpayers can 
still meet that standard if they do perform physical work of a 
significant nature.
    I hope I've provided sufficient background on this credit 
and I am happy to take questions.
    Mr. Lankford. Thank you.
    [Prepared statement of Mr. Wilson follows:]
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    Mr. Lankford. Mr. Gramlich.


                   STATEMENT OF ROB GRAMLICH

    Mr. Gramlich. Thank you. Good morning, Chairman Lankford, 
Ranking Member Speier, subcommittee members. I appreciate the 
opportunity to speak to you this morning about the success of 
the PTC and its value to American taxpayers. I also appreciate 
the interest in clear standards and making sure the policy 
works effectively. The short answer is we now believe we have 
clear standards and we believe it will work very effectively.
    The PTC is a production-based tax credit provided to a 
variety of different renewable electricity sources, including 
small hydro, geothermal and biomass to name a few, and it's 
also available for new nuclear energy facilities. Congress 
designed the PTC as a performance-based incentive such as the 
credit can be taken only if and when actual electricity is 
produced. It does not provide to finance development or 
construction. It is also broad-based and competitive such that 
every company that develops an eligible project can claim the 
credit on their tax return. There is not an application process 
and government employees do not pick or choose winners or 
losers.
    On January 1st, 2013, as part the American Tax Payer Relief 
Act of 2012, just as the PTC expired, Congress extended and 
modified the structure of how projects qualify for the PTC. 
This was done in recognition of the uncertainty created by the 
exploration and the recognition of project development delays 
such as permitting delays or weather-related construction 
delays that can occur and create uncertainty as to when a 
project will be placed in service.
    Under the modification projects that commence construction 
before January 1st, 2014 qualify for the credit. However 
consistent with prior law, a wind operator cannot actually 
claim the PTC until it produces and sells electricity. The IRS, 
as you have just heard, has issued much needed and much more 
clear guidance on the statutory change in a manner consistent 
with congressional intent and start construction precedence. 
Under the guidance construction commences when physical work of 
a significant nature starts. This start of construction 
framework has ample precedent and several other sections of the 
Tax Code, including sections for bonus depreciation for self-
constructed property, expensing for qualified property use and 
refining liquid fuels and with respect to the recovery period 
for natural gas distribution lines.
    Over the years, the PTC has been a tremendous success. With 
the credit in place, the U.S. wind industry was the number one 
source of new generation capacity last year, wind turbines are 
now generally made domestically by approximately 550 
manufacturing facilities in all regions of the country. Wind 
projects in the U.S. have brought economic growth to rural 
communities, roughly $400 million in annual property taxes or 
similar payments to communities, and lease payments to farmers 
and ranchers of around $120,000 per turbine over its life time.
    This tax credit estimated by the Joint Committee on 
Taxation to cost less than $2 billion per year drives over $20 
billion in private investment annually and brings electricity 
to the equivalent of 15 million American homes. Without the 
PTC, these economic benefits and this private investment in the 
United States would not have occurred. Wind energy is also 
saving money for consumers across the country.
    One recent report from May of this year found that doubling 
the use of wind energy in the Mid Atlantic and Great Lake 
States would save consumers close to $7 billion per year. Even 
in the southeast utilities have entered into power purchase 
agreements with wind energy owners, because wind energy proved 
to be the least expensive option for their customers. 
Furthermore wind energy offers the stability of long-term fixed 
energy price which is offered by very few other energy sources. 
This protects consumers from fluctuations in fuel prices much 
like a fixed rate mortgage protects home owners from interest 
rate spikes. The cost of wind energy has dropped by 43 percent 
in the last 4 years, a great indication of a policy that's 
working. But the PTC is still needed to prevent us from relying 
too heavily on any single fuel source.
    For decades, Federal policies, especially within the Tax 
Code, has fostered a diverse mix of fuels in the interest of 
our economic and national security. So while the PTC may be a 
more recent addition to the Tax Code, it is one of many 
incentives that have been available over the years for many, in 
fact, all electricity sources.
    In conclusion, the PTC is a wise investment. Allowing it to 
expire as is scheduled to occur at the end of this year will 
move us away from further diversification of our energy 
portfolio, take away opportunities for consumers to save money, 
dampen domestic manufacturing and innovation, and cause 
companies to hold off on investing in communities across 
America. Again, thank you for the opportunity to be here today, 
I look forward to answering your questions.
    Mr. Lankford. Thank you.
    [Prepared statement of Mr. Gramlich follows:]
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    Mr. Lankford. Mr. Reicher.


                  STATEMENT OF DAN W. REICHER

    Mr. Reicher. Chairman Lankford, Ranking Member Speier, 
members of the subcommittee, my name is Dan Reicher, and I'm 
pleased to share my perspective on the wind energy production 
tax credit. The PTC has been a highly effective policy tool in 
the financing of tens of thousands of megawatts of U.S. Wind 
projects. I support the extension of the PTC for a multiyear 
period, with a gradual phase-down as Congress simultaneously 
transitions the industry to the same financing mechanisms that 
have provided low cost capital to hundreds of billions of 
dollars worth of oil, gas, coal and transmission infrastructure 
for decades. I refer to Master Limited Partnerships, MLPs, and 
Real Estate Investment Trusts, or REITs.
    MLPs and REITs combine the fundraising advantages of a 
classic corporation, that is the sale of publicly traded stock 
with the tax benefits of a partnership. That is, a single layer 
of taxation. These two financing mechanisms were authorized by 
Congress decades ago and importantly, do not require periodic 
reauthorization unlike renewable energy tax credits. Since 
Apache Petroleum launched the first MLP in 1981, MLPs have 
reached a total market capitalization over $440 billion.
    REITs have a total market cap of over 670 billion, with IRS 
rulings opening up REIT investment and electricity 
transmission, gas pipelines and other traditional energy-
related projects. The use of MLPs and REITs would give 
renewable energy projects access to far greater pools of 
capital than in the tax equity markets, and as a result, lower 
the cost of project capital significantly and with it, 
renewable electricity prices. And with publicly traded shares, 
MLP and REITs would allow millions of Americans to invest in 
our Nation's renewable energy future just like they can today 
in fossil energy and transmission infrastructure.
    A bipartisan bill, the MLP Parity Act, would extend MLPs to 
renewable energy, energy efficiency, carbon capture and 
storage, cogeneration and other technologies. The bill is 
cosponsored by Representatives Poe, Republican of Texas, Gibson 
Republican of New York, Gardner, Republican of Colorado, Welch, 
Democrat of Vermont, and Mike Thompson, Democrat of California. 
Senators Coons, Moran, Murkowski and Stabenow back a bipartisan 
and identical companion bill in the Senate.
    On the REIT front the IRS, on its own, could issue a broad 
revenue ruling that would extend REITs to renewable energy. The 
IRS has already issued private letter rulings extending REIT 
status to, among other things, electricity transmission lines, 
gas pipelines, cell towers and billboards. In December 2012, 35 
Members of Congress Republicans and Democrats, wrote President 
Obama urging him to support the extension of REITs and MLPs to 
renewable energy. I understand that the administration is 
considering these approaches. A smart transition to the 
financing of U.S. wind projects would involve a 3-pronged 
approach: Number 1, a multiyear extension of the PTC with a 
gradual phase down; number 2, the near-term congressional 
adoption of the MLP Parity Act; number 3, an IRS revenue ruling 
that expands REITs to include renewables. This smart transition 
would allow the wind industry for the next several years to 
continue to build projects using a well established financing 
approach that PTC, while the industry also works with the 
existing MLP and REIT finance community to transition to these 
long-standing lower cost financing mechanisms. In this way, 
wind companies could land in a place that much of the rest of 
the energy industry has long enjoyed, low cost, government 
authorized financing mechanisms, not requiring periodic 
Congressional extensions. This would be a big step forward for 
an industry that is generating more and more good paying U.S. 
jobs as it also generates more and more low carbon electricity.
    I want to emphasize that my support for MLPs and REITs 
should, in no way, signal that I endorse an immediate phaseout 
of the PTC or any weakening of the current investment tax 
credit for solar. We need significant time for a thoughtful 
phase-down of the PTC, and we need significant time for an 
effective ramp up of MLP and REIT financing. Above all the 
industry needs policy certainty and continuity to avoid the 
serious consequence of past boom and bust cycles. I'd be 
pleased to take questions. Thank you.
    [Prepared statement of Mr. Reicher follows:]
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    Mr. Lankford. Dr. Michaels.

                STATEMENT OF ROBERT J. MICHAELS

    Mr. Michaels. Thank you, Chairman Lankford, Ranking Member 
Speier and members of the committee for the opportunity to 
testify today on the loss of taxpayer dollars in the form of 
wind production tax credit. To start with, go back to the 
creation, the PTC began as an obscure part of the Energy Policy 
Act of 1992, a tiny subsidy to an infant industry that might 
need support to grow. Not until 1990s was it even mentioned in 
DOE's annual energy outlook where it was expected to produce 
very little by 2020. It surprised us, it grew to a highly 
competitive international industry, wind turbines accounted for 
the largest block of new power generation in 2012. Throughout 
this the PTC sunsetted, was renewed and so on.
    Today, wind lobbyists are again asking for full 
continuation permanent subsidy. Looked at objectively, wind 
power is a poor choice for continued subsidy through the PTC. 
It is in no way an infant industry, generator manufacturers 
compete around the world and could fund their own research. 
Even if advances are on the horizon, a subsidy like the PTC 
should not be offered because it pays turbine owners to operate 
rather than to invent. Even without the PTC the wind is 
exceptional because it still does have a long-term market in 
the form of State renewable portfolio standard requirements 
which are expected to lead to approximately a large amount over 
the next 20 years under these programs.
    Wind is hardly without its drawbacks, we hear that a wind 
turbine could light 20,000 homes per year. Because wind blows 
intermittently, most of the residents will be living in the 
dark most of the time. An electric grid only works if supply 
equals demand every second which requires the Nation's power 
plants to compensate for winds randomness and act as reserves. 
Over 85 percent of these plants obtain their energy from coal, 
natural gas and nuclear power. Adding one of those plants to 
the system increases reliability because it is controllable. 
Adding a wind generation does the opposite because it requires 
additional reserves to compensate for wind's unpredictability. 
For system planning purposes, the ERCOT, the Texas grid 
operator, counts a megawatt of wind generation capacity as 
equal to 8.7 percent of a reliable fossil fuel megawatt.
    Wind entails other costs. Over the past 5 years, 
approximately $22 billion have been spent on transmission 
dedicated to reaching wind facilities which would not otherwise 
have to have been built. The fact that wind turbines do not 
burn fuel or emit no pollutants or carbon does not make them 
green. The reasoning conveniently neglects the reality of the 
substantial volume of fossil fuel generation must operate and 
pollute solely as backup for the intermittent wind power that 
most utilities have no choice but to accept. Going back a step, 
wind turbines are made of materials whose production entails 
emissions, and the material requirements per megawatt of wind 
capacity are substantially greater than for gas or coal 
capacity.
    Finally, some advocates see wind is worthy of public 
support because of its alleged ability to create jobs. There is 
nothing discernibly unique about wind as an industry. 
Construction jobs are short lived and mostly in conventional 
building trades, most construction employment is small and post 
construction employment, is small in volume and skewed toward 
low skills.
    Claims that the wind production tax credit increases 
employment are without foundation. There are computer programs 
that purport to show job creation as wind workers incomes are 
re-spent. When households and businesses pay premium prices for 
wind power those funds are unavailable for them to spend 
elsewhere. Every visible new job in the wind industry comes 
with a less visible lost job elsewhere in the economy. It 
concerns me that the National Renewable Energy Laboratory now 
offers computer models for use by wind advocates, that 
calculate created jobs, and never consider the lost jobs due to 
overpriced power. Wind power has grown from a novelty boutique 
energy source into a mainstream industry that employs numerous 
high-paid lobbyists at the Federal and State level.
    The PTC has remained, and even expanded despite the lack of 
any rationale for keeping it. At the wind industry's present 
size, other seeming advantages have also vanished to be 
replaced by higher costs, generally funded by consumers rather 
than wind investors. Winds environmental implications are not 
all benign, advocates of the PTC cannot substantiate claims of 
job creation. The PTC's rationale has vanished, it's usefulness 
to taxpayers has expired and so should the PTC. Thank you.
    [Prepared statement of Mr. Michaels follows:]
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    Mr. Lankford. Thank you. I am very grateful for all four of 
you to be here. Listening to opening statements could not have 
been more different, and I'm looking forward to the dialogue on 
that, and I really do appreciate that and that's the way it 
should be to be able to go through the dialog as we try to 
pursue some of this.
    Mr. Wilson, I mentioned to you before and giving you the 
heads up on it. Mr. Gramlich had mentioned much greater clarity 
is there, the 5 percent phaseout, or the 5 percent safe harbor 
is obviously a clear safe harbor based on what the final price 
is. My concerns are the way the rule is written as it comes out 
right now and based on beginning construction, it gives the 
impression almost that IRS has to be there to be able to 
inspect the roads, to be able to inspect the purposes and the 
intents, when really this is going to be filed later on it.
    To make it more clear, there is a section, I mentioned to 
you before, if the road is done for construction, it counts as 
under construction. But if that same road was built for 
employee use or for visitors to come on, it doesn't count. So 
is it the intent of the IRS to say make this as non nebulous as 
you can, make sure that you've spent at least 5 percent to get 
safe harbor because everything else is going to be a guess.
    Mr. Wilson. That was certainly not my intent to make it 
nebulous. We--as I mentioned earlier, we did pattern our 
guidance off the prior guidance and----
    Mr. Lankford. Sure.
    Mr. Wilson. --section 1603 program and section 168(k). We 
do have a history with that and it has not generated a lot of 
questions on those points. Just to clarify, the service doesn't 
typically--wouldn't typically go and determine whether or not 
someone had began construction at the time that they were doing 
it. They might get picked up on audit at a later stage, and 
then the taxpayer would demonstrate that they had actually 
begun construction through the normal business records process.
    Mr. Lankford. Correct, and that was my point. When I read 
through the regulations and they are invigorating reading, 
which is great, by the way, try to be a clear as you can, when 
I read through the regulations on it, it almost gives the 
assumption that someone is going to have to look at it before 
it begins to make that judgment call if they doesn't reach this 
5 percent safe harbor.
    So my question to you is, is it the assumption that 
industry will make sure they hit that 5 percent, and if they 
don't hit that 5 percent safe harbor it's going to be quite a 
significant paperwork process to be able to prove they were 
under construction by that date.
    Mr. Wilson. I--the--there is no assumption that people will 
try to make the--to use the safe harbor, the 5 percent safe 
harbor more than the other safe harbor which I mentioned and 
noticed in 2013-60, which is a place in service by the end of 
2015. That is an alternative that they can use. They can make 
the 5 percent safe harbor, they can make the place in service 
safe harbor, or they can do the physical construction.
    Mr. Lankford. But physical construction, if they are going 
to put up, let's say, 100 towers and they put in the footings 
for two of them, that is under construction, so they might have 
only spent 3 percent of the actual total end cost. So the 
question is, that now it becomes were they under construction 
enough, were two footings with the steel and the concrete down, 
I know they are not going to pour that way by the way, they are 
going to have to do multiples, but putting in a road, and 
putting in two footings for 100 different units, does that 
count long term? For all 100 eventually?
    Mr. Wilson. That depends, if the all 100 are operated as a 
unit----
    Mr. Lankford. Right.
    Mr. Wilson. --it is a facts-and-circumstances 
determination, but you can treat multiple units as one project 
for purposes of beginning a construction. If you begin work 
on----
    Mr. Lankford. If they do continuous construction, let's say 
they put in two footings, and it ends up being 3 percent of the 
total cost of the final cost of projects, but then they do a 
little bit of construction each year for the next 10 years, and 
they don't really put it into use, start actually generating 
producing power for 11 years from now, would that 10-year time 
clock begin for the PTC at the point that they put the first 
tower in as far as actually producing electricity, when does 
that 10-year clock begin for the PTC for them?
    Mr. Wilson. That, again, I will have to say it, it will 
depend. If there--one of the things that the guidance provides 
is that we will look carefully with strict scrutiny at a 
taxpayer who begins construction but then doesn't maintain a 
program.
    Mr. Lankford. Some level of continuous--I am assuming they 
are going to have some kind of level of continuous 
construction. Could they take 10, 11 years--I know that they 
would have a difficult time getting capital for that, I get 
that. Could they take 10 or 11 years to do a project and then 
start the 10-year clock running? Could an investor know I'm 
going to trickle this project along while I'm working on other 
things just to keep something moving and then get the PTC at 
some future date?
    We have the responsibility on this dais to also do 
budgeting. When we put a tax credit out there in the past it 
has been very clear, we know when it guess online and we know 
we have 10 years from there. With this one, some of the 
difficulty we have in budgeting on this is, we don't know when 
it's going to go online. We don't know how many projects are 
going to take, and how long it continues construction, and when 
we talked about phase-out and such, that a typical project may 
take 3 or 4 years to do in construction, not including all the 
very lengthy permitting processes. The challenge is this is 
somewhat of a phase-out already because of the length of time 
and it is unknown. So could they theoretically hold this 
indefinitely?
    Mr. Wilson. They could, if they still met the beginning of 
construction and continuous program of construction, then there 
is not an end date for that.
    Mr. Lankford. Okay. Well, that's something we'll work on, 
that is our responsibility. I am going to continue to move on 
so we keep the conversation moving. Ms. Speier.
    Ms. Speier. Thank you, Mr. Chairman. Mr. Gramlich, give me 
an idea of the kind of high-paying jobs the industry generates.
    Mr. Gramlich. Sure there certainly are a lot of 
construction jobs; manufacturing jobs would be the other 
general area as you noted and I noted as well; the 550 
manufacturing facilities in the country now producing wind 
energy.
    Ms. Speier. Give me an average salary.
    Mr. Gramlich. Oh, boy, I'm not sure I know. Manufacturing 
jobs are notoriously well paying, and it is one of the very few 
sectors that is actually growing, and significantly growing, 
manufacturing jobs in this country.
    Ms. Speier. So maybe on behalf of the committee, you could 
you submit to us some numbers so that we'll have the benefit of 
that as we evaluate the PTC in the future.
    Mr. Gramlich. Sure.
    Ms. Speier. Dr. Michaels suggested that these aren't 
permanent jobs. Would you like to comment on the robustness of 
the jobs that are created within this industry?
    Mr. Gramlich. Well, he said there as nothing discernibly 
different about this industry, I mean, these are great jobs, 
many industries have great jobs, our industry happens to have a 
lot of manufacturing jobs. As long as the industry keeps 
growing, those facilities, those 550 facilities will keep 
churning out wind turbines over the years. It's very similar to 
the auto manufacturing sector in terms of the skills and the 
types of jobs, and of course, those auto manufacturing 
facilities, as long as there is a market they keep turning out 
automobiles year in and year out. That what we expect and hope 
for.
    Ms. Speier. Mr. Reicher.
    Mr. Reicher. Let me say quickly, I worked for a wind 
company for several years after I left Washington. This is a 
longstanding wind company, it is in the business of R&D, 
manufacturing assembly, installation maintenance, this is in a 
small New England town, it has been a real important industry 
in that community. They have installed turbines for the 
military around the world for native Alaskan villages all over 
this country and all over the world, it is a very specialized 
type of turbine, and these have been great jobs for people who 
I don't think would otherwise have the access to those kinds of 
jobs.
    Ms. Speier. My other question was to what extent are we 
exporting these turbines?
    Mr. Gramlich. There is a little of a bit growing export 
market. One of the reasons we produced so much here is that 
these happen to be very large, heavy pieces of equipment. So we 
actually have a unique strategic advantage for this sector in 
manufacturing these turbines here in this country compared to a 
lot of other industries where policymakers may be looking to, 
you know, where can we grow manufacturing jobs? This is 
actually because of the unique physical attributes of wind 
turbines, this is actually a great opportunity where we really 
can't expect to manufacture the turbines here that we end up 
deploying here.
    Ms. Speier. All right. So when we do, as we often do, is 
not act until the last minute, do this lurching forward as we 
have this year in extending it for 1 year, the implications are 
profound. Can any of you talk about the impacts to jobs lost 
when we don't give any clarity and consistency in what we are 
offering in terms of tax credits?
    Mr. Gramlich. I can, sure. I mean, last year, we expected, 
with the impending expiration of the tax credit last year, we 
commissioned a study that found 37,000 jobs, or roughly half 
the jobs in the industry would have been lost. We did, in fact, 
lose many of those jobs in the latter half of the year as the 
exploration approached. Some of which we lost to manufacturing 
and may never get back.
    Now the industry has rebounded with the extension of the 
tax credit and the change to the start construction framework 
as opposed to solely using placement service qualification----
    Ms. Speier. Mr. Gramlich, I'm going to ask one more 
question, so if you could just wrap up.
    Mr. Gramlich. Sure. That has alleviated some of the time 
pressure so it is a more workable policy than it used to be.
    Ms. Speier. So Mr. Reicher suggested, Mr. Wilson, that you 
could administratively extend REITs and MLPs to apply to wind 
energy companies. Are you contemplating that, is that on the 
agenda within the administration?
    Mr. Wilson. That's a question that the Office of Tax Policy 
at the Department of Treasury has responsibility for doing. My 
office works with them, but they are the ones who would make 
the policy call on that.
    Ms. Speier. So have you made any recommendations to them?
    Mr. Wilson. Unfortunately that's outside the REIT or 
outside my area of responsibility.
    Ms. Speier. My time has expired. But Dr. Michaels, you 
basically said that we don't need this tax credit. And if that 
is, in fact, your position, then do we need a credit for oil, 
and gas, and coal that have been around for generations, are 
not new industries, and I realize my time has expired so maybe 
you can include that in some response.
    Mr. Lankford. No, the witness can answer the question.
    Ms. Speier. Thank you.
    Mr. Michaels. Thank you. This hearing is about wind, I am 
not an expert on subsidies to those other industries. I think 
they should all be evaluated. But again, if we're simply 
looking at wind, I think it's particularly worthy of note in 
light of the PTC, in light of the general energy situation. All 
those others, I agree with you, are imminently worth studying. 
I didn't come prepared to do that, would be happy to do it 
otherwise.
    Mr. Lankford. Mr. Walberg.
    Mr. Walberg. Thank you, Mr. Chairman, and thanks to the 
panel for being here. Interesting, interesting subject to deal 
with.
    Mr. Wilson, according to David Burton, a tax law specialist 
with Akin, Gump, he stated, ``Savvy project developers could 
theoretically bank tax credits well into the future.'' If a 
developer plans well and banks through 2013, PTC-eligible 
component parts it may be able to continue to construct PTC 
eligible wind farms indefinitely. His concern--Mr. Burton's 
concern appears to be fair. Why is there no hard deadline in 
your guidance?
    Mr. Wilson. We didn't place a hard deadline because the 
statute doesn't place a hard deadline. It allows the credit if 
you begin construction before the end of the--of appropriate--
before the end of 2014 or '13, and so we didn't think we had 
authority to place a hard deadline.
    Mr. Walberg. So in other words there was a lot of 
flexibility that credits could still be claimed years down the 
road.
    Mr. Wilson. That's true. Unlike the section 1603 program 
which had termination dates, the extension that was part of the 
ATRA did not have an end date to it.
    Mr. Walberg. Mr. Gramlich, many States like Michigan have 
renewable energy suggestions or requirements already in place 
and working, doesn't this suggest that when energy can function 
on its own without further Federal subsidies like PTC?
    Mr. Gramlich. Well, the State renewable portfolio standards 
are very effective policies. The thing is we met and exceeded 
most of them by now, so for the foreseeable next few years, 
they have no real market impact. In a few States where more 
than 5,000 megawatts, I think that would be maybe double what 
the actual requirement would be.
    Mr. Walberg. It would seem like it would be in the States' 
best interest then if they are seeing that type of impact to 
increase, but we're not seeing that, are we?
    Mr. Michaels, along that line of questioning, you note in 
your testimony that the widespread use of RPSs negate the need 
for the wind PTC, could you elaborate further on that?
    Mr. Michaels. The RPS requirements in States are projected 
to require somewhere around 100,000 megawatts of renewable 
generation, most of them are going to be wind over about the 
next 15 years. That means one thing, even if wind is 
uneconomic, it says that these people, utilities in these 
States will have to buy it. It will support the industry in a 
very real sense, it supports demand without complexities and 
the incentives that come with protection tax credit.
    Mr. Walberg. Mr. Gramlich, response to that?
    Mr. Gramlich. Dr. Michaels, I believe in his testimony, 
said 70 gigawatts of additional wind would be needed, and then 
a minute ago in his oral testimony said some large number, and 
then just now, I think he said 100 gigawatts. The truth is it 
is actually 28, so far less than half of his lowest claim.
    Mr. Walberg. Dr. Michaels, response to that?
    Mr. Michaels. I have never heard the 28 gigawatts. I think 
we can simply resolve this by looking at the references.
    Mr. Walberg. Dr. Michaels, you note that the PTC is 
probably a poor tool to bring forth innovations, explain that a 
little further. That's a fairly strong statement.
    Mr. Michaels. I would challenge someone to tell me any 
innovations in the industry that have directly been brought 
about as a result of operations under the PTC. My argument is 
if you really wanted to reward innovation, reward innovation, 
don't reward operation. The link between operation and 
innovation is likely to be far weaker than the link between a 
dedicated research effort in innovation, that's all I'm saying.
    Mr. Walberg. Mr. Gramlich, your association suggests that 
Congress should extend the wind PTC. How long?
    Mr. Gramlich. We submitted testimony and spoke with the 
House Ways and Means Committee this spring. They are looking at 
tax reform. They are--as we understand, they are looking at all 
energy resources as has been discussed here, we're not quite 
sure or we haven't seen any bills obviously on that. Senate 
Finance Committee is looking at some alternative structures, so 
we are engaged in that.
    Mr. Walberg. But what would you suggest at this moment?
    Mr. Gramlich. We offered some ideas that would, in fact, 
probably more than any other industry has offered in terms of 
how long would be needed to sustain a minimally viable 
industry, which we believe everybody wants at least that much 
so that we can keep the cost reductions going, which are, in 
fact, caused by the production tax credit. The reduction of 
over 40 percent in our cost in 4 years is very, very much tied 
to the PTC.
    Mr. Walberg. I've run out of time here. How many years?
    Mr. Gramlich. The letter that we put out in December which 
was in the record in the House Ways and Means is available to 
see, we said 6 years under certain assumptions would create the 
minimally viable industry, but the stability that would be 
required to get to those----
    Mr. Walberg. Thank you, Mr. Chairman.
    Mr. Lankford. Thank you. Ms. Duckworth.
    Ms. Duckworth. Thank you, Mr. Chairman. You know I think if 
we are serious about reducing our reliance on foreign oil, 
reducing harmful greenhouse emissions and ensuring that 
Americans have access to reliable and affordable energy, we 
must make serious investments in a diverse energy sector, not 
just wind, not just oil, and not just gas, but a diverse 
sector. And I think wind energy is playing an important role in 
meeting these goals.
    In my district, wind energy has been an amazingly 
successful story American manufacturing. I'm proud to say that 
the State of Illinois is leading the way in both wind turbine 
manufacturing and capacity. Illinois now has the wind power in 
place to power 1.1 million homes, and we host over 2,000 wind 
turbines in 36 manufacturing facilities for wind turbine 
components with many of those in my district, including Winergy 
and Bly Industries. Bly Industries is a great example of the 
type of innovation and investment in American manufacturing 
that the wind industry is a great story of. Bly Industry 
manufactured rotating swash plates for helicopters. And with 
the cuts in defense spending, they were reducing production, 
they quickly, agilely adjusted their production line, and now 
have more orders than they can fill in the wind industry, and 
now have doubled their workforce.
    Good manufacturing jobs, good jobs that have benefits and a 
lot of people put back to work. So I am somewhat interested in 
knowing--looking at this aspect of it, we've got 6,000 wind 
related jobs in Illinois, a thousand of them in manufacturing. 
Although Dr. Michaels has said wind energy is a dying industry, 
I'm not sure how that jibes with the fact China, India, Brazil, 
Germany and Romania, all countries with very different 
economies and governments, are all supporting wind projects and 
resulting in employment. I'm going to ask both Dr. Michaels and 
Mr. Gramlich to answer this question, how competitive, Mr. 
Gramlich, is the global wind industry?
    Mr. Gramlich. It is very competitive. As you say a number 
of countries are investing a great deal in wind energy; China 
for example, and a number of European countries. So it's been 
very difficult but the Nation, U.S. has done a great job in 
bringing again 70 percent of the domestic production here to 
this country, and we have great resources, tools, training 
capabilities in this particular manufacturing sector that we've 
been able to keep up with that, even with our limited policy 
stability that we've had here.
    Ms. Duckworth. I know that in my own district, I have at 
least one manufacturer who makes gear boxes for windmills, 
exports them globally to places like China, one of their 
biggest customers.
    Dr. Michaels, you said this was a dying industry. Can you 
talk a little bit about the global situation for wind?
    Mr. Michaels. I do not know where the word ``dying'' came 
from. To my recollection, I have never stated that and it has 
it is clearly not a dying industry.
    Ms. Duckworth. I have this quote from you, it says it would 
be dying were it not for the fact that the industry gets all 
sorts of subsidies and tax breaks. It gets far heavier 
subsidies than any other energy sources. You're talking about 
nothing but incredibly expensive technologies that produce low 
quality power. You didn't say that?
    Mr. Michaels. I said that it might well be dead, and dead 
may have been an extreme. It might me be a much, much small 
presence, I think is a more accurate thing to say. If, in fact, 
your story is correct, and it may be, then wind can stand on 
its own, and it should stand on its own without the PTC. It is 
a competitive industry, the type we like to always encourage in 
America, and there's a lot of people who don't like government 
intervention in these types of markets, precisely because it 
interferes with their dynamism. So dying may have been not the 
best word to choose.
    Ms. Duckworth. Mr. Reicher, can you address the topic of 
the global wind industry?
    Mr. Reicher. Representative Duckworth, it's a very 
competitive global industry that lots of countries want to own. 
The Chinese have taken big, big steps forward to build a very 
significant wind industry, they are beginning to put up 
turbines in this country, they have been long competitors in 
Germany and in Denmark. It is a big race and it is a big global 
market.
    The international energy agency said we are going to spend 
$38 trillion between now and 2035 in building energy 
infrastructure of all types, $38 trillion. That is a huge 
market. An increasing chunk of that market will be renewable 
energy. The Chinese and other nations want to own a big chunk 
of that market, I think if we could put our policy, technology 
and finance tools in place in the right way, we could own a big 
chunk of that market as well. A market for technologies, many 
of which were developed and invented and deployed first in the 
United States.
    Ms. Duckworth. Thank you, thank you, Mr. Chairman.
    Mr. Lankford. Mr. Farenthold.
    Mr. Farenthold. Thank you very much, Mr. Chairman. And I 
will start with Mr. Gramlich. I'm concerned that the wind 
energy subsidies that we're spending, and the growth of wind 
energy is actually costing us more than we know. Are you 
familiar with concerns that the military that have been raised 
with respect to interference of wind turbines with radar use 
for air traffic control and military training and any of the 
costs associated with that?
    Mr. Gramlich. Every project does need to review a number of 
things, including wildlife impacts, local community impacts, 
but certainly if you are anywhere near a military installation, 
there has been a lot of work and a lot of interaction with the 
Department of Defense on how radar and training routes can be 
preserved, intact, and consistent with both development and 
military objectives.
    Mr. Farenthold. I'm going to go now to Dr. Michaels. The 
Public Utility Commission of Texas chair Donna Nelson has 
stated that Federal incentives for renewable energy have 
distorted the competitive wholesale market in Texas. Wind has 
been supported by Federal production tax credit that provides 
$22 per megawatt hour of energy generated by wind resources. 
With these substantial Federal incentives, some wind producers 
have actually bid negative prices into the market and can still 
make a process, we've seen a number of days where the negative 
clearing price in the west zone of ERCOT, which is the Texas 
energy market, where most of the wind farms are installed. 
These market distortions are creating a problem in Texas in 
that because wind is unreliable and it makes it difficult for 
other generators to recover their cost and discourages 
investment in new generation. Do you believe that her statement 
is accurate?
    Mr. Michaels. Um, Chairman Nelson and I worked in 
proceedings before the Public Utility Commission of Texas. We 
have our differences but on this one, I'm generally in 
agreement with her. It is a much deeper problem because it is 
going to become greater as wind grows as a presence. What 
happens is that congestion on the transmission lines, people 
have to bid for it, limited capacity, and because of the PTC, 
essentially you can bid a negative price, and after you get the 
PTC back, you're still making an income greater than zero from 
that. Why is that a distortion? Very simply, it's at variance 
with the realities of resource scarcity. It is a variance of 
what we would see in competitive markets, and there doesn't 
seem to be anything we can do about it when obtaining the 
efficiency of the grid. It's going to be a much bigger problem 
because it is not just in Texas, there are at least three other 
regional transmission operators who are starting to face 
increasing volumes of this in the same way that Texas is and 
nobody really knows how to resolve it.
    Mr. Farenthold. Thank you, Mr. Reicher, you indicate in 
your written testimony that a multiyear extension in the PTC, 
Protection Tax Credit, is necessary to avoid a bust in the wind 
energy industry. As former DOE Chief of Staff, you are 
certainly familiar with the Energy Information Administration's 
annual energy outlook, are you not?
    Mr. Reicher. I am.
    Mr. Farenthold. Could you turn your microphone on, please? 
You answered in the affirmative.
    Mr. Reicher. I don't know this year's specific outlook, but 
I am generally familiar with the----
    Mr. Farenthold. You agree that it is one of the definitive 
resources with respect to energy and economic forecasts.
    Mr. Reicher. It's a useful one.
    Mr. Farenthold. And so AEO's reference case which assumes 
that the PTC will not be reauthorized by December 13th of-- I'm 
sorry, December 31st of 2013, projects strong growth for the 
wind energy development in the United States. In fact, it says, 
the increase in wind power generation from 2011 to 2040, had 
134 billion kilowatt hours, or 2.6 percent per year. It 
represents the largest absolute increase in renewable energy 
generation. It also indicates that wind will add more than 42 
gigawatts of capacity by 2040, and total wind capacity will 
exceed hydropower by 2040. How can you characterize that 
projection with no PTC extension as a bust?
    Mr. Reicher. I don't know the details of that projection. 
Let me just say, what I do know is the history of the 
development of this industry, and that is when the PTC is in 
place, we see growth in this industry. When we lose it as a 
result of unreliable Federal policy, we see a drop-off.
    Mr. Farenthold. And let me just follow up on Mr. Walberg's 
question to you. He asked how long do you think it needs to be 
extended. Do you have a time frame?
    Mr. Reicher. I have said in my testimony, we need to put it 
in place for a multiyear period with a phase-down. I was very 
clear there ought to be a phase-down.
    Mr. Farenthold. And multi----
    Mr. Reicher. Just if I could finish, and that ought to be 
linked, and I don't know if you were here to hear my statement, 
this absolutely needs to be linked to opening up master limited 
partnerships and real estate investment trusts to renewable 
energy. Both of those financing mechanisms put in place by this 
Congress have been available to conventional energy sources and 
they ought to be----
    Mr. Farenthold. And those won't-- and those alone won't do 
it. You've still got to basically give them money.
    Mr. Reicher. Be careful. I said a multiyear extension with 
a phase-down. With a smart ramp up of those, I am very clear 
that if we give some years to the PTC, phase it down, and then 
ramp up these other two financing mechanisms that have been so 
vital to the development of oil and gas infrastructure, to the 
tune of roughly $500 billion, that's a smart transition, and 
that's what we ought to be doing. And let me just finish. We 
have bipartisan support in this House for that bill and we 
ought to--we ought to get on with it.
    Mr. Farenthold. All right, well, I'm out of time. Thank you 
very much for your testimony.
    Mr. Lankford. Ms. Lujan Grisham.
    Ms. Lujan Grisham. Thank you, Mr. Chairman, and I 
appreciate the panel being here today. New Mexico ranks 12th in 
the Nation for the production of wind energy and it's currently 
producing energy for about 280,000 homes. And it is also 
providing great economic promise in our State which currently 
has negative job growth and is experiencing one of the toughest 
economic situations in the country.
    I am--and you have heard this, I think, several times this 
morning, but we have one of the national labs also, two 
national labs in New Mexico, and they are both very clear that 
in the interest of national security, having a diverse energy 
portfolio is critical; not just necessary, critical, must 
happen, and making sure that there is a clear strategy to 
assure that that is developing and growing in a meaningful way 
is also on their critical list for national security issues. 
But recognizing that most--that some of the testimony today, 
and some of the questions that really focused on the credit and 
whether or not that's a useful investment, I want to focus on 
for a minute, Dr.--Mr. Michaels.
    Now, you state in your written testimony, that Federal data 
and forecasts show that all in all, the cost of wind turbines 
have and will be higher than that of gas-fired plants. And you 
referred to the cost estimates released by the U.S. Energy 
Information Administration in Exhibit 1. Now, Exhibit 1 
compares the cost of different types of energy production, and 
it shows that wind power is one of the least expensive methods 
of producing electricity compared to all other types of 
conventional and non-conventional forms of power generation.
    Now, considering that my own State, its potential, has the 
potential and is capable of needing more than 73 times the 
State's current electricity needs, I'm very encouraged. The 
Intergovernmental Panel on Climate Change, which is a worldwide 
committee tasked with examining climate change, recently found 
that it is extremely likely that human influence has been the 
dominant cause of observed global warming and the panel warns 
that extreme weather will continue unless we act aggressively 
to reduce the pace of greenhouse gas emissions.
    In New Mexico, we are on the forefront of climate change. 
Earlier this year the Federal drought monitor listed New 
Mexico's drought as the worst in the country. Nearly the entire 
State was classified as experiencing extreme or exceptional 
drought, and currently we are under a state of emergency due to 
extreme flooding.
    I have lived in New Mexico all my life and I have never 
seen anything like this, destroying roads, farms, and homes. 
Now, what I'm getting at here, is that the cost of electricity 
is not the only cost that should be considered. There are 
environmental and health costs associated with power plant 
pollution from destroyed and damaged property due to droughts, 
fires, floods, rising oceans, to health care costs due to heart 
attacks, premature deaths and many types of respiratory 
illnesses.
    In Exhibit 1, Mr. Michaels, does your written testimony 
include these environmental and public health costs associated 
with the different types of energy production?
    Mr. Michaels. I'm using--pardon me, I'm using the figures 
from the Energy Information Administration and no, those 
figures do not include all of those costs. And again, they also 
don't include costs of overpriced power, and how people may 
suffer under that for various reasons. And the most important 
thing they don't do for wind is they are assuming that a 
megawatt of wind power comes out with the same reliability as a 
megawatt of fossil fuel power. You have to add to that wind 
expense the fact that you need backup; that you have to do a 
lot more than just look at the cost of that unit. The gas fired 
units----
    Ms. Lujan Grisham. Well, Mr. Michaels, or Dr. Michaels, I 
appreciate that. I have got Mister in here and I see clearly it 
is a doctor. So I apologize for getting your title wrong. But 
in any event, it is clear then that this comparison in your 
exhibit is not complete.
    Mr. Michaels. I think it is impossible to make a complete 
comparison. I'm trying to do the best I can with data that I 
think I can live with. Yet----
    Ms. Lujan Grisham. Without a complete cost comparison, is 
it fair to say that in making recommendations about using all 
of our tools and investing, particularly in something that 
affects national security, that maybe we ought to have an 
effective, complete, comprehensive cost comparison that would 
include all of those things, including the things that you have 
identified?
    Mr. Michaels. Personally, if I----
    Ms. Lujan Grisham. Apples to apples, for all of these 
energy sources.
    Mr. Michaels. Please pardon me.
    Ms. Lujan Grisham. Oh, sure.
    Mr. Michaels. Personally, I would really very much like to 
see that. I think that costs would come out and I think we 
would learn a tremendous amount, and I think both of us would 
probably learn quite a bit on both sides of this issue. Are, in 
fact, we overstating or understating, say, the health issues 
and the climate issues, or are we overstating or understating 
the costs of backing up reliable wind power? These are open 
issues, and I certainly favor doing more research into that.
    Ms. Lujan Grisham. Dr. Michaels, I'm out of time and I 
appreciate the chair's allowance of that, but as policymakers, 
I agree we should definitely be doing things in a much more 
comprehensive, factual manner to make these decisions and 
recommendation. Thank you, Mr. Chairman.
    Mr. Lankford. I now recognize Mr. Jordan.
    Mr. Jordan. I give my time to the chairman. Thank you.
    Mr. Lankford. Thank you. Ms. Lujan Grisham, I completely 
agree the difficulty of this, as this committee has dealt with 
before is trying to evaluate the social cost of carbon and all 
these things because that number is difficult to get your hands 
around. We have seen the administration change it by 50 percent 
in just 3 years, saying their models have changed. So there is 
this great challenge of this very subjective, how do you get 
your hands around that. We have an economists here that live 
and breathe on subjective data, and giving their advice in the 
middle of all of that, and I understand that, but that dynamic 
is incredibly difficult for us to do. It is part of our 
conversation today as we both figure out how do we provide 
greater certainty for the industry that is currently living 
under this law? And then also, where are we going on this long 
term? We do need to have a broader energy portfolio but we have 
a lot of issues to deal with this as well.
    Mr. Reicher, you have mentioned a couple of times about the 
MLPs. I would like to go into greater depth with you on that, 
because this conversation about, as you said before, a 
significant trailing off of the PTC to give it a significant 
amount of time to be able to become where Mr. Gramlich--6 years 
or more whatever it may be. It was interesting. I have been in 
Congress a relatively short period of time, about 3 years. But 
in my first months here, because my energy--my State is a 
significant producer of wind. We are jokingly called the Saudi 
Arabia of wind in Oklahoma because we have so much wind 
generation and we are an exporter of wind out of our State, 
which is a good thing economically for us and functionally for 
us. But the grand challenge of it is is how do we do this? I 
had folks that caught me in my office from my industry in the 
first months that I was here and said, we just need 4 more 
years of the PCT, and I think we can trail this off if we get a 
good sunset on it. This is not a comment from Mr. Gramlich, but 
to hear you say we just need 6 more years, made me think about 
that conversation I had 3 years ago with someone that said, we 
just need 4 more years.
    This is one of those very difficult things to get our arms 
around. We have got to find a way to be able to figure out how 
do we provide some certainty in Federal policy? Let's talk in 
greater depth of what you are trying to do with this MLP 
proposal. How does that fit in? How does that work 
economically? How does that bring more capital into the 
industry?
    Mr. Reicher. Well, let's take it back home, in fact, to 
Oklahoma where your oil and gas industry, the infrastructure 
that backs up a lot of that oil and gas industry has been 
financed largely using master limited partnerships.
    Mr. Lankford. Yes, it has.
    Mr. Reicher. And they have been vital to this from the 
early 1980s. They do, in fact, lower the cost of capital for 
infrastructure. They are certain in terms of their policy base, 
you don't need to reauthorize them. And they have been a--have 
had a dramatic impact on the building of energy infrastructure. 
My point is, let's open up those mechanisms to the rest of the 
energy industry. I'm not just talking renewable energy. I'm 
talking carbon capture and storage. So that if we need to pull 
carbon out of coal plants and you have to build infrastructure, 
finance that with MLPs. I'm talking energy efficiency. I'm 
talking cogeneration.
    The bill sitting here in this House and over in the Senate 
is very broad technologically. So put that in place. The IRS 
can, in fact, issue a revenue ruling to do something very 
similar.
    Ranking Member Speier, they can make the change to REITs. 
Congress has to make the change to MLPs. Meanwhile, link that, 
don't, don't cut off--don't cut off the PTC at the end of this 
year. Give it some running room.
    Mr. Lankford. Well, just to push back somewhat, what is 
your guess at this point of how long the PTC has right now, as 
it currently stands under construction? If someone is under 
construction, and they begin to hit the 5 percent safe harbor 
threshold, for instance, how many years is this trailing right 
now? Because it's--well, it is ending ``this year.'' It is 
really not ending this year. They have got 3 or 4 years. How 
many companies, how many years is this really going to be a 
trailing off of what we currently have?
    Mr. Reicher. Mr. Chairman, I was in the wind energy 
development business, and you know, these are projects that 
generally take in the larger ones in 2 to 4 years, something 
like that. I wouldn't lose a lot of sleep over the fact that 
there could be a project that goes a little bit longer. I think 
the IRS has done exactly what it should do, which is you, the 
Congress, didn't give them a specific date. They have written 
some good guidance as they have to in many of these cases, and 
they have said, here is what under construction means. I don't 
think there is going to be major abuses of this. I think it is 
going to take a few years to get out of this. So let that 
happen. Meanwhile, extend the PTC for a reasonable period of 
time, and then pull these other two long-term financing 
mechanisms in, that means the MLP and the REIT.
    Mr. Lankford. Mr. Gramlich, Dr. Michaels has mentioned a 
couple of times on it, and I have talked to several folks in 
the industry as well, this issue of where you have a wind farm, 
you also have got to be connected at some point in that grid to 
nuclear, coal, gas, something, because even in Oklahoma, the 
wind does stop blowing on days. I have been to a wind farm and 
stood next to it and seen every tower still. So that what is 
the connection there between other fuel sources that are 
consistent that you can turn on and off, and the wind which 
only God turns on and off?
    Mr. Gramlich. Chairman Lankford, there are three States 
getting more than 20 percent of their electricity from wind 
right now. They are----
    Mr. Lankford. Of their actual production, or their 
production capacity?
    Mr. Gramlich. Their production, their megawatt hours over 
the course of a year from wind energy. Iowa is one of them. 
These are perfectly reliable systems. You could have those 
utilities in here talk about how their lights stay on. So----
    Mr. Lankford. But because they are partnering with another 
fuel source, and I'm running out of time.
    Mr. Gramlich. Exactly how it worked for fossil and nuclear 
facilities, because every single generation facility can go off 
at any moment. It is nothing----
    Mr. Lankford. While we have a diversified fuel structure, 
that's why, quite frankly, I believe it is good to have coal 
and natural gas, and nuclear, and wind, have all of these out 
there because you wanted a diversified source on it. But that 
is true, they are going to always be partnered with. They can't 
be just be a standalone consistent power source.
    Mr. Gramlich. Exactly. That is why I did not advocate for a 
100 percent wind energy grid.
    Mr. Lankford. Okay, thank you. Mr. Horsford.
    Mr. Horsford. Thank you. Good morning, Mr. Chairman. I 
thank you to our panel for being here. Those who oppose wind 
energy argue that production tax credits should be permanently 
eliminated as an incentive for wind project development because 
the wind industry is no longer in its: ``infancy,'' and 
therefore no longer needs such support. The argument goes 
further that all electricity generators should be subject to 
smart-based competition, and but only wind projects should 
compete on their own economic and environmental merits without 
the support of Federal financial incentives.
    Mr. Gramlich, your expertise lies in the wind industry, and 
I have met with your organization in the past. I'm from Nevada. 
My district is 52,000 square miles. I have both rural, and 
urban. One portion of my district in the northeast in White 
Pine County has a major wind farm. There is another one in the 
Northwest portion of the district that's in Representative 
Amodei's district, but wind is a very important part of the 
economic diversification opportunities in rural America. So you 
are an expert in wind industry, so I want to ask you to respond 
to this graphic. Do you agree with the data depicted on the 
chart displayed regarding energy subsidies?
    Mr. Gramlich. I do. I think that's a very accurate and 
informative chart. I think it's very important to look at the 
number of years over which different energy technologies have 
received incentives, because it effectively gives them a long 
head start in the market.
    Mr. Horsford. Is there any way that you can characterize 
the oil and gas industry as being in its infancy given that it 
has been receiving Federal subsidies now for more than 90 
years?
    Mr. Gramlich. Well, I don't have ways to characterize it 
other than to say that incentives do exist for all 
conventional, as well as newer clean technologies.
    Mr. Horsford. But after 90 years, they are not infants.
    Mr. Gramlich. I do think the time frame absolutely matters. 
Yeah, the relative short period over which clean energy sources 
have received incentives is very relevant to determine how long 
they are needed. I mean, one answer to the question of--from 
Representative Walberg would be, well, I don't believe the 
incentives for wind will be needed as long as conventional 
sources have received them. I don't know, you know, it of 
course matters a great deal, what your assumption is on what 
other technologies receive in order to say how much we need and 
we don't know that yet.
    Mr. Horsford. Okay, well, let's stay with this for just a 
moment though. The production tax credit has been around since 
1992, that's correct?
    Mr. Gramlich. Correct.
    Mr. Horsford. But a significant increase in wind energy 
capacity didn't actually occur until about 8 years ago in 2005, 
is that also correct?
    Mr. Gramlich. I know that well because that's when I joined 
AWEA, that's correct, yes.
    Mr. Horsford. So would you say that wind energy tax credits 
are still in its infancy?
    Mr. Gramlich. Yes, I think they have made a great impact, 
but they have certainly not reached their--completed their 
task.
    Mr. Horsford. Okay, so let's take a look at the amount of 
the subsidies on this chart. According to this chart, the oil 
and gas industry receives about $4.8 billion in Federal 
subsidies on average every year, and which have developed into 
giant industries as a result.
    Mr. Reicher, would it be a fair competition if the oil and 
gas industry was permitted to keep receiving $4.8 billion worth 
of Federal subsidy while the wind industry receive nothing?
    Mr. Reicher. Representative Horsford, we have subsidies 
across the board for the energy industry ranging from oil and 
gas, to nuclear, to renewables, to energy efficiency, and they 
have all served important roles in different ways across 
research development, demonstration, and deployment. So we 
really do have to take a hard look at all of this, and put it 
all on a level playing field and it is not on a level playing 
field today.
    You cite nuclear power. Nuclear provides 20 percent of U.S. 
electricity, zero carbon, very important in our--in our energy 
mix today. And it has received some important subsidies over 
time from R&D dollars, to Federal liability insurance, to tax 
credits for new reactors. It's become an important mix and 
Congress has backed these subsidies over decades and decades. 
And we are doing similar things in the oil and gas area and we 
ought to continue to push the renewable area as well.
    Mr. Horsford. Okay.
    Mr. Reicher. Now, the option to get rid of all of them. I 
don't see that happening. If we are not going to get rid of all 
of them, let's build a level playing field.
    Mr. Horsford. Thank you. My time is expired, Mr. Chairman. 
I would just say that we need to be careful. It seems that the 
distractors of the wind industry are asking the government to 
pick winners and losers by only removing Federal subsidies for 
one particular sector of the energy capacity, which is wind 
energy, but leaving all of the other subsidies intact, and I 
would not support that approach. Thank you.
    Mr. Lankford. Thank you. We are going to start a second 
round of questioning here in just--people on the dais wants to 
be able to participate in that.
    Mr. Gramlich, when a wind farm does construction they have 
business expensing as well, just normal business expensing for 
the actually tower itself. Are they able to write off the 
products they produce and such as their normal tax treatment 
for a wind farm? Is there anything else in addition to the PTC?
    Mr. Gramlich. I'm not--we could certainly give you an 
answer to that and follow-up on that. I'm not exactly sure how 
the other tax provisions work.
    Mr. Lankford. Right. They operate as a business and 
function as a business and have normal business expensing 
through products, through purchasing the towers to whatever it 
may be. It is considered a business expense. They are able to 
write off that business expense. Does anyone disagree with 
that? Mr. Wilson, I know I'm outside of your lane there on that 
but----
    Mr. Wilson. I'm not aware of any others. We can check and 
get back to you. But I don't think--I'm not aware of anything 
that is not available to any other business.
    Mr. Lankford. Correct. Every other business would be 
treated the same and be consistent on that. Part of the--part 
of the conversation on this, and I mention Mr. Horsford and his 
comment on that, the challenge of it is, is when you take oil 
and gas and say, okay, I'm going to take all of their IDCs and 
all of their normal business expensing and I'm going to call 
that a subsidy. But for wind, I'm not going to call their 
version of the IDCs their products, that's not a subsidy. That 
is just normal business expensing. But for oil and gas, that's 
different. They shouldn't have any way to do business 
writeoffs, and normal business expense.
    I know, this hearing was not about trying to compete 
different types of fuels. I think everyone has been clear on 
this dais. We want every type of fuel. But if we are going to 
be consistent in comparing apples and oranges, we probably 
should compare apples and apples and oranges and oranges in 
this to be able to compare as far as how tax treatment is done, 
whether this normal business expensing, if we are going to do 
that, let's put it all in there. And let's actually compare not 
based on size, because it is my guess--I don't have the exact 
number in front of me--I think the oil and gas industry is 
slightly larger than the wind industry. So when you talk about 
the dollars that are involved in actual investment, it is a 
different amount of dollars that are involved in investment as 
well.
    I need to ask about renewable fuel standards. Obviously, 
many states, my State, Oklahoma, is one of the largest wind 
producers in the country. We don't have a mandatory renewable 
fuel standard. It is a voluntary process. In our State it has 
thrived in that, as far as wind energy. The question becomes of 
trying to guess this, and this is for the two economists that 
are here as well as anyone else that wants to jump in on it.
    How do we begin to compare and say what's the effect of the 
PTC, versus what is the effect of the renewable, of all of the 
renewable requirements that are on every single State? So every 
State has this blend of fuels that's now--that's putting this 
in place and we see this thriving wind energy there because the 
State's mandating some sort of renewables in the portfolio. So 
how do we balance the two? How do we begin to guess what's due 
to the renewable requirement portfolio? What's due to the PTC? 
Dr. Michaels, do you want to do that? And then Mr. Reicher, you 
can jump in as well. Is there a way to be able to guess and to 
separate those two out on greatest impact?
    Mr. Michaels. It sounds like something that I would spend 
several months trying to think of how to redo the research. 
Quite frankly----
    Mr. Lankford. That's the benefit of being an economist.
    Mr. Michaels. And other economist jokes. No, that is really 
a problem. I don't know how I would approach it at this point.
    Mr. Lankford. Okay.
    Mr. Michaels. I'm sure there probably are people who are 
looking at it though.
    Mr. Lankford. Mr. Reicher, do you have a guess on that as 
well?
    Mr. Reicher. Mr. Chairman, it's push and pull. There have 
been vital complementary mechanisms over the last couple of 
decades. And as a former developer, I would look out into the 
market and say, you know, where is a good place to build a 
project? Is there some pull going on as a result of State 
policy? Is there some push going on as a result of the 
availability of tax credit? You sit down, you look at the deal, 
and you see if the numbers work and you decide whether to build 
it. You take either one of those out, and these would not be--
--
    Mr. Lankford. Sure.
    Mr. Reicher. --as attractive a project.
    Mr. Lankford. No, I definitely agree. Both of these have 
driven production. In the earlier stages, even in my State, if 
you wanted to declare your home as a home that's running on 
wind power, your electricity bill is higher and you would pay a 
premium for that. But it's individuals that were very concerned 
about those issues and wanted to pay a part of that because the 
cost was higher initially.
    Now, I don't know how our cost is catching up and where 
things are going on that, but there is no question that there's 
some individuals who want to do that. That's why the master 
limited partnerships is a very interesting, capital thing for 
people that want to invest in that, could actively invest in 
that, provide greater capital, but there is also that process 
as well. Let me briefly go into this as well, and we may have 
time to be able to come back on it also. And that is on is 
environmental issues.
    The effects of the environmental requirements and requests, 
the permitting process. The wind farm that is in Oklahoma is 
currently going through the process with Fish and Wildlife on a 
taking permit for the number of eagles that will be killed in 
the future days by the wind farm. Other solar projects have 
large problems with a random lizard that is in that area and so 
they are having difficulty in moving it's solar project.
    All of these things are real dynamics of actually moving 
forward in the permitting process. What effect do we have right 
now on some of the environmental regulations and the permitting 
and actually moving wind power ahead? Mr. Gramlich, you want to 
jump into that?
    Mr. Gramlich. Sure, I would mainly just offer that our goal 
in that area is the same as it is in tax policy. We are looking 
for clarity, like every other industry. We want to know what 
the rules of the road are, and with this change in the 
statutory provision for the tax credit, we sought for and 
received clarity from the IRS. We are seeking the same from 
Interior and the Fish and Wildlife Service. And you know, 
hopefully we will get more. We don't have full clarity, but you 
know, the good news is, wildlife impacts are being managed. 
Wind is, even though it tends to get far more attention than 
anything else that impacts wildlife, I think it is .0003 
percent, of bird--human-induced bird deaths are caused by wind, 
where every bird death is regrettable and we are working hard 
to mitigate those.
    Mr. Lankford. Yeah, it just makes for a great photograph is 
really what it does on that. And we have just as many issues in 
Western Oklahoma, saying we can't put up a wind tower because 
of the habitat of the lesser prairie chicken in Western 
Oklahoma. And to say, it is not a matter of the taking of an 
eagle, it is a matter of the habitat of a lesser prairie 
chicken that someone has said prairie chickens are afraid of 
wind towers, and so we don't want to put more wind towers in 
this area because we fear that when we get a lesser prairie 
chicken on a couch and begin to do counseling with them, they 
are nervous about those towers. And so we have a whole 
different set of issues. Obviously, that is a different hearing 
for a different day. Mr. Horsford.
    Mr. Horsford. Thank you, Mr. Chairman. I actually enjoy 
coming to this committee because it's actually the one time 
when we get have a little bit of substantive debate. And I 
really do appreciate your leadership as chair that allows us to 
have more of these discussions. And I didn't want to interrupt 
you or ask you to yield prior when you were clarifying the 
issue around the subsidies, and all I have to say about the 
subsidies is, you know, oil and gas has a whole lot of 
exemptions and loopholes that have been built into those 
subsidies over the 90 years. And I agree that if we are going 
to look at things apple-to-apple comparison, then it should lay 
out some of the unique exemptions that that industry has 
enjoyed, and whether or not it's proper for them to continue to 
enjoy them at the expense of having a new burgeoning portion of 
renewables to have an appropriate incentive to participate. And 
I think that is a fundamental policy question that we need to 
have, so I agree with you.
    Mr. Lankford. Would the gentleman yield for a colloquy?
    Mr. Horsford. Sure.
    Mr. Lankford. And I'll extend your time. I think we can do 
unanimous consent fairly easily to extend your time.
    Mr. Horsford. Sure.
    Mr. Lankford. The issue that I have is, most of those tax 
treatments for oil, gas, other traditional fuels that have been 
around for a while, most of them really are normal business 
expensing; just their business expenses look different. 
Obviously it is very expensive to be able to put up a tower, do 
a drilling operation for a moment and being able to pull that 
out. But that's the normal operation. They are able to write 
that off.
    So while some folks will say that's a loophole, or a 
special subsidy, that's their normal business. That's what they 
do as a business, and it only applies if they keep doing it. If 
they ever stop, then that goes away. And some of the challenge 
of this is for wind at this moment, they have more business 
expensing which they should, by the way, have normal business 
expensing. They also have a PTC that is driving that. They also 
have renewable portfolios that are driving that.
    It's an industry that has grown rapidly. It is rapidly 
catching up with hydro, which no one would have guessed decades 
ago that it would catch up with hydro. And the challenge is, 
how do we do this in the future for any industry that's 
functioning? And I totally agree, everything should be looked 
at, but we also need to be able to keep it in context; what it 
really is. Like a--for instance, going to one of the loopholes 
you talked about, G&G for oil and gas. That's just geology. 
That's a normal part of their business expensing. If you are 
doing geologic research, you are going to have to spend that if 
you are actually going to poke a hole in the ground and do the 
research. So it is just research, normal business expensing.
    But we will work through this process in the days ahead. We 
will have, hopefully, a tax reform proposal come to the House, 
and we will have this in a very aggressive format at that point 
on a lot of issues simultaneous.
    Mr. Horsford. Reclaiming my time, Mr. Chairman, I 
appreciate those points. I will just note that the oil and gas 
industry is much more profitable than any of these other 
sectors, and the question will remain, and the policy choice, 
is, should those special exemptions, tax loopholes and other 
subsidies continue to apply for some 90 years for what is a 
very profitable industry?
    And I have no, you know, say what you will, it is a private 
business. They can make money. But wind energy and other 
renewables are much more entrepreneurial. They are more of the 
small business that's partnering to develop an energy project 
with, oftentimes, a utility. That's what happened in my home 
State of Nevada. It's a small wind energy project that has a 
purchase power agreement with a major utility. And their margin 
of profit is nil, if there's a profit at all, because they are 
trying to demonstrate that this approach will work.
    So I just hope that as we proceed, and I'm glad to hear 
that we may ultimately have a comprehensive tax reform package, 
because we need to look at these industries who have 
historically gotten special exemptions, tax breaks, and other 
subsidies, who have tremendous profits to the detriment of 
entrepreneurs, small businesses, and those who should be 
getting Federal subsidy in order to grow our economy.
    Thank you, Mr. Chairman.
    Mr. Lankford. Absolutely. And while we are having this 
dialogue, and I do appreciate the dialogue going back and forth 
on it, I'm glad to see every type of energy is extremely 
entrepreneurial. Wind is much more efficient now in its 
generation than it was 20 years ago in the actual production of 
electricity and what they are actually putting into the line. 
So we are more entrepreneurial. But what is happening right now 
with oil and gas in the revolution that has occurred in 
fracking is because of an entrepreneurial risk as well.
    So those were small businesses that have also taken an 
enormous risk. The cost of a well now that we have this, as a 
Nation, a wash in natural gas. But that also, each drilling 
platform has gone from a little over $1.5 million to about $6 
million just to go try to get down to that hole and be able to 
do it.
    So there is lots of entrepreneurial risk in that. That's a 
great part of being an American, quite frankly, is that every 
one of these industries has a tremendous amount of 
entrepreneurial risk, and when they take the risk, it pays off 
for them.
    Mr. Wilson, I'm going to ask you one quick question. The 
IRS provides the private letter rulings in response for 
guidance. Is there a plan to do private letter rulings for wind 
developers just to make sure that they are going to meet the 
under construction, or they have begun construction test? Is 
that dialogue already occurring with industry to give them some 
sort of stability and confidence?
    Mr. Wilson. We haven't received any request for private 
letter rulings yet.
    Mr. Lankford. Would you anticipate those would come in the 
next 3 months as we get closer and closer to this deadline?
    Mr. Wilson. I'm not really anticipating that. I think, for 
the most part, the wind industry is pretty satisfied with the 
placed in service safe harbor. I think, for the most part, they 
think they are going to be able to make that comfortably. So 
I'm not anticipating private letter rulings.
    Mr. Lankford. Okay, so what--your assumption is at this 
point that the majority of everyone is going to make the above 
5 percent safe harbor target for final cost of construction, 
and they are not going to have to worry about some of the 
earlier rulings if they are less than 5 percent.
    Mr. Wilson. Right.
    Mr. Lankford. Obviously, you can't say with certainly at 
this point----
    Mr. Wilson. Right.
    Mr. Lankford. --but that's your assumption at this point.
    Mr. Wilson. Either the 5 percent safe harbor or the 
alternative safe harbor for placed in service----
    Mr. Lankford. Correct.
    Mr. Wilson. --before the end of 2015.
    Mr. Lankford. Correct. Mr. Gramlich, do you assume the same 
thing on that?
    Mr. Gramlich. I can't speak to whether private letter 
rulings will come, but the guidance that they did provide is, I 
know, our investors are ready to go now. That guidance, as I 
said before, was much, much needed, both the one in the spring 
as well as the one just issued. So I think there is going to be 
a lot of business happening based on that. And may I say one 
more thing about the Treasury rules?
    Mr. Lankford. Certainly.
    Mr. Gramlich. I'm a little concerned with an impression 
that may have been left by some questions and some answers 
earlier about the open-ended nature of the IRS rules. You 
should be assured that under either approach, safe harbor, or 
physical work, significant investment to the tune of tens of 
millions of dollars for a particular wind project will be 
needed and committed to, and payments begun by the end of this 
year in order to qualify.
    So--and that risk, as we have just discussed on the 
entrepreneurial, that is on the developer. That is not on the 
taxpayer, or on anybody else. So the companies are, you know, 
doing what they can right now to sign their power purchase 
agreements with utilities. They need and off-taker, they need a 
customer, they need to know where that sale is going because 
they don't want to hold that risk with no customers. So it is 
not open-ended. It is not indefinite. That risk will be held by 
them, and we expect a very limited universe of projects to 
qualify for that. Partly the, you know, the power markets are 
somewhat soft for all new electricity, so it is not going to be 
a huge set of projects that do qualify, regardless, and also, 
keep in mind that PTC applies to other technologies than wind. 
So when Treasury and IRS are looking at these timelines, they 
have to account for the construction timelines of not just one 
technology, but multiple.
    Mr. Lankford. Right. Mr. Reicher, you look like you are 
leaning onto your button there. Do you have a comment?
    Mr. Reicher. Thank you, Mr. Chairman. I would just say that 
it's this kind of a situation, the complexity of this, that 
gives investors pause; that other countries look at the U.S. 
and they say, this is a strange way to support a very important 
industry. And I think it is unfortunate, and I think it's the 
reason why a multiyear extension with clarity would be so 
helpful. This is not the way to build an industry. It sends 
such poor signals to investors, so let's do that, and those 
other two pieces.
    Mr. Lankford. Let me ask you a question with that. Is it 
better, let's say we can get into a tax treatment to do a 
multiyear extension with a clear phase-out so that everyone 
knows, it's here 100 percent this year, 100 percent year this 
year; it phases out, 50 percent, 50 percent, and the trailing 
off occurs that everyone talks about, is that better than what 
we have now, and to set a clear definite, and I agree with your 
statements, by the way, with the Master Limited Partnerships, 
blending with that, to provide that kind of clarity than what 
we have now?
    Mr. Reicher. Absolutely, and I think that's consistent with 
what the American Wind Energy Association has said in its 
statement at the end of 2012.
    Mr. Lankford. Right.
    Mr. Reicher. Pick a significant amount of time, a 
reasonable amount of time, phase it down, and put these other 
things into place.
    Mr. Lankford. Correct. But my own--my own question, we have 
two things here. My own request to joint tax evaluates we do 
this another 5 years, it's another $18 billion in costs. So we 
have to look at cost issues to say, what does that really look 
like, and the discouragement that I would have on this side of 
the dais is, if you set a, let's say a 6-year time period and 
say there is going to be a phase-out, what is not there so that 
2 years from now when the phase-out actually begins and it 
starts trickling off, our offices aren't flooded with saying we 
just need 6 more years to go through that. Setting that 
definite time period and making sure it's clear. Let's get a 
balanced look at this to make sure we have the infrastructure 
in place to provide this, but we also know the industry is 
going to continue to fly on its own. Any thoughts on that?
    Mr. Reicher. Yeah, number one, you are correct. You know, 
in theory, you can't bind a subsequent Congress.
    Mr. Lankford. Right.
    Mr. Reicher. Decisions can change. Having said that, if you 
blend these other financing mechanisms in, I would sit here 
today and bet that you will see the sort of logical transition 
that I'm talking about, and there will be less and less of a 
reason to seek another 6 years.
    I actually think that this multiyear phase-down and pull 
these other mechanisms in, I think we will be at a point in 5 
or 6 years where people will say, boy, we have done a really 
smart transition of this industry to a way that grown-up 
industries like oil and gas infrastructure and transmission 
infrastructure now use to get built.
    Mr. Lankford. Right. Mr. Michaels--Dr. Michaels, one quick 
comment, and then I'm going to recognize the ranking member. 
You had mentioned something about jobs and about job growth. 
These are manufacturing jobs. I know you didn't mean this, but 
I want to be able to just clarify one thing. And I'm not 
evaluating your heart on this one. You said they are low 
skilled, they are manufacturing, they are not good jobs. I want 
to give you an opportunity to clarify that because I can assure 
you, there are lots of folks in manufacturing jobs in my 
district that are great people, and that are great jobs on 
that.
    Mr. Michaels. No, that definitely----
    Mr. Lankford. Can you get your microphone there?
    Mr. Michaels. That definitely does need a clarification. 
Manufacturing jobs come in all sorts of skills, so do 
construction jobs, and the only thing I was saying, was if you 
look at the typical educational attainment, training attainment 
of people who are in these jobs, people who work at the wind 
installations after they go into operation, I have seen these 
in things like environmental impact statements for wind 
operations where they have to inventory the workforce, and I 
think generally speaking, the people in the construction and in 
the wind are pretty standard, good people, but pretty standard, 
and the people operating are simply relatively less qualified 
people.
    Mr. Lankford. Yeah, the grand challenge of this is, is that 
the new push to have a definition of what's a green job and 
what's not a green job. And that's where this gets drawn in, to 
suddenly say it's a green job and so it's on a higher level and 
you actually meet that person and they are doing manufacturing 
and other things, like a lot of other jobs. I went to a green 
job training location that was a Federal grant that went into 
my district from several years ago and they were doing green 
job training, and at the end of it I met the director I met 
some of the folks, I went through the program, and I asked the 
director privately, how many people in this program that have 
gone through for a couple of years, will work in a green job? 
And her answer was, the skills are transferrable. I said, that 
means zero, doesn't it? And her response was, the skills are 
transferrable.
    There are jobs that are out there that are great jobs and I 
have no opposition to this at all to be able to have great 
manufacturing jobs, and jobs operating and that kind of such in 
wind power, but create this sense that the only way American 
economy is going to move forward, is if we create more green 
jobs, I think begs the question of--we need to create more 
jobs, period, to have a growing economy. With that, I recognize 
the Ranking Member Speier.
    Ms. Speier. Mr. Chairman, thank you. On that note, in a 
country that has been reeling from extraordinary unemployment 
numbers for 5 years now, I think Americans would applaud the 
creation of any job, green or otherwise, and I am, I guess, 
bullish on the wind industry, in part, because we are making it 
in America. And the more we can bring manufacturing back, the 
more we can be insourcing, the more we can be restoring the 
manufacturing base that has really served us so well for so 
long, is to our advantage.
    Now, having said all that, this has been a really good 
discussion, Mr. Chairman, and the robustness of it and the 
thoughtfulness of it is really the kind of dialogue that should 
take place in this committee more often. So I want to thank you 
for that. Now, I do think what it has underscored for me is 
that we should not look at any one of these credits in 
isolation; that if we are going to look at these credits, we 
look at them in toto, we look at them to make sure that we are 
not picking winners and losers, something that I have said and 
that others have said this morning. We have got to be fair. And 
I am one of those that really wants to embrace that kind of a 
review, and since that is under the jurisdiction of this 
subcommittee, I hope that you will consider having a hearing 
where we can look at all of these tax credits, and evaluate 
them completely.
    Let me just ask one last question. And that is to you, Mr. 
Wilson. Has the GAO identified any abuses of the PTC in your 
recollection?
    Mr. Wilson. I'm not aware of any, no.
    Ms. Speier. Do any of you know of any kinds of abuses that 
have taken place? So this is not a situation where people have 
somehow tooled the system, or used it to feather their beds in 
a manner that wasn't consistent with generating energy, 
correct?
    Mr. Wilson. Not that I'm aware of, no.
    Ms. Speier. All right, so with that, Mr. Chairman, I thank 
you for bringing this hearing to our attention, and for opening 
up some other avenues of review.
    Mr. Lankford. Thank you.
    Ms. Speier. And thank you, all of the witnesses.
    Mr. Lankford. Thank you. And I ask unanimous consent. I 
have mentioned a couple of times a letter that I wrote to the 
Joint Committee on Taxation asking for some information 
documentation, and I ask unanimous consent to place this in the 
record. No objection.
    Mr. Lankford. Gentlemen, thank you for being here and 
letting us pepper you with questions. We will do some follow-up 
in the days ahead. I'm grateful for the clarification that's 
happening, and look forward to us finding some solutions to be 
able to solve this long term. We do need a plan so this is not 
a perpetual, never-ending proposal of how we handle energy 
production. We need a plan and structure that we know is going 
to work and help us. So gentlemen, thank you very much for your 
time. With that, we are adjourned.
    [Whereupon, at 11:16 a.m., the subcommittee was adjourned.]


                                APPENDIX

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