Tax credit for aluminum plant lowers costs from coal

A West Virginia bill touted for saving an aluminum plant and the jobs that come with it attempts to do so by providing tax credits for suppliers of coal that eventually powers the plant.

The Energy Intensive Industrial Consumers Revitalization Tax Credit Act allows a credit of up to $20 million against severance tax liability. The credit would go to a supplier that provides coal for an electrical generator supplying power to an energy-intensive facility that employs more than 300 people. The bill passed 82-1 in the House of Delegates and 32-0 in the Senate.

Before it shut down, Century Aluminum was the largest customer of Appalachian Power. Last year, the power company said it was negotiating discounted electricity rates with Century Aluminum, utilizing a West Virginia law that allows special electric rate prices to be tied to market condition of products manufactured.

The language of the new bill, passed in the House and Senate in a special session Friday, specifically provides benefits to electric generators using coal. The bill allows the coal suppliers to take credit for up to 93 percent of its tax liability in exchange for providing 97 percent of the credit to the utility supplying the power.

The 3 percent differential, the House bill states, is intended to entice coal suppliers to participate in the program. The seven percent of severance tax not waived is intended to "preserve undiminished" the severance tax revenues distributed to counties.

Legislative findings in the bill are vague about the reason a tax credit is needed to make coal more affordable.

"As the result of competitive disadvantages emanating from outside the state and the current state of the national economy, some energy intensive industrial consumers of electric power have had to cease doing business in the state or are experiencing or may experience strains that could threaten their viability and continued operation," the bill states.

The statement is contrasted with another finding of the legislature that "West Virginia enjoys a competitive economic advantage among the states attributable to relatively low-cost electric power due in considerable measure to an abundance of coal resources, production from which powers electric generation in the state."

In a Feb. 29 SEC filing, Century Aluminum claims new EPA regulations are increasing the costs of electricity in states such as West Virginia, forcing electricity prices to rise.

"We expect that future electric power costs in the U.S. will present severe challenges to our domestic smelting operations," the filing states. "Recently proposed environmental rules affecting coal-fired power plants are expected to have a disproportionate impact on the electrical power providers for our smelting operations in Kentucky, South Carolina and West Virginia."

Century wrote that under the proposed EPA rules, "new limits on the emission on mercury, sulfur dioxide and other toxic air pollutants would require existing power plants to make significant capital investments in order to comply with the new standards."

"We expect that these new rules will result in power providers shutting down a significant portion of their coal-fired power generation capacity," the company wrote. "The power generating facilities that remain open will incur substantial compliance costs. The reduced power generation capacity and the additional compliance costs are forecasted to put upward pricing pressure for electrical power, particularly in areas with high concentrations of coal-fired power generation facilities like Kentucky and West Virginia."

The bill allows for credits of up to $20 million per year for up to 10 years.

A number of coal-fired plants have been slated for closure in recent years. Companies have blamed regulatory policies of the EPA for increasing the cost of burning coal, while others point to pressure from increasingly abundant shale gas availability.