ALTERNATIVE ENERGY SYSTEMS S.B. 583 & 584: ENROLLED ANALYSIS
Senate Bill 583 (as enrolled) PUBLIC ACT 632 of 2006
Senate Bill 584 (as enrolled) PUBLIC ACT 475 of 2006
Sponsor: Senator Jason E. Allen
Senate Committee: Technology and Energy
House Committee: Energy and Technology
Date Completed: 1-10-07
RATIONALE
Legislation enacted in 2002 created the Michigan Next Energy Authority to promote and increase the research, development, and manufacturing of alternative energy technologies; and to allow the Michigan Strategic Fund board to designate one renaissance zone as an "alternative energy zone". The package also established various tax credits, exemptions, and deductions for alternative energy businesses. The Authority must certify businesses and their property as eligible for the tax benefits. Since the establishment of the NextEnergy program, technological advances have been made, and it was suggested that the relevant statutes be updated to reflect this, as well as include items that were omitted from the original legislation.
CONTENT
Senate Bill 584 amended the Michigan Renaissance Zone Act to require the alternative energy zone to promote and increase the testing, as well as the research, development, and manufacturing of alternative energy technology, and perform the same activities for alternative energy systems and alternative energy vehicles.
Senate Bill 583 amended the Michigan Next Energy Authority Act to include items related to the research, development, and manufacturing of an alternative energy system and the research and development of alternative energy vehicles in the definition of "alternative energy technology"; revise other definitions; and add several new definitions.
Senate Bill 584 took effect on December 21, 2006. Senate Bill 583 took effect on January 4, 2007. The bills are described below in further detail.
Senate Bill 584
Public Act 512 of 2002 amended the Michigan Renaissance Zone Act to allow the Strategic Fund board to designate one renaissance zone as an alternative energy zone. The alternative energy zone must promote and increase the research, development, and manufacturing of alternative energy technology.
Under the bill, the alternative energy zone also must promote and increase the testing of alternative energy technology, as well as the research, development, testing, and manufacturing of alternative energy systems and alternative energy vehicles.
Senate Bill 583
Public Act 593 of 2002 created the Michigan Next Energy Authority Act and the Michigan Next Energy Authority. Among other things, the Authority may oversee an alternative energy zone, as well as promote and increase the research, development, and manufacturing of alternative energy technology.
Previously, the Act defined "alternative energy technology" as equipment, component parts, materials, electronic
devices, testing equipment, and related systems that are solely related to the following:
-- The storage or generation of hydrogen for use in an alternative energy system.
-- The process of generating and putting into a usable form the energy generated by an alternative energy system, excluding the component parts of an alternative energy system that are required regardless of the energy source.
-- A microgrid.
Under the bill, "alternative energy technology" means equipment, component parts, materials, electronic devices, testing equipment, and related systems that are specifically designed, specifically fabricated, and used primarily for any of the following:
-- The storage, generation, reformation, or distribution of clean fuels integrated within an alternative energy system or alternative energy vehicle, excluding an anaerobic digester energy system or a hydroelectric energy system, for use within the system or vehicle.
-- The process of generating and putting into a usable form the energy generated by an alternative energy system, excluding the component parts of an alternative energy system that are required regardless of the energy source.
-- A microgrid.
-- Research, development, and manufacturing of an alternative energy system.
-- Research and development of an alternative energy vehicle.
-- Research, development, and manufacturing of an anaerobic digester energy system.
-- Research, development, and manufacturing of a hydroelectric energy system
The bill defines "anaerobic digester energy system" as a device or system of devices for optimizing the anaerobic digestion of biomass for the purpose of recovering biofuel for energy production. "Biomass" means wood and paper products industries, food production and processing, trees and grasses grown specifically to be used as energy crops, and gaseous fuels produced from solid biomass, animal waste, municipal wastes, or landfills. "Hydroelectric energy system" means a system related to the process of generating or putting into usable form the energy produced solely from flowing or falling water. The system may consist of a turbine, generator, alternator, electronic devices, or other directly related component parts.
The bill revised the definition of "microgrid", which includes the lines, wires, and controls to connect to two or more alternative energy systems. The bill added fuel lines and fuel reformers to the definition.
The Act defines "alternative energy system" as the small-scale generation or release of energy from one or any combination of the following types of energy systems: a fuel cell energy system, a solar-thermal energy system, a wind energy system, a battery cell energy system, and a clean fuel energy system. The bill added biomass and thermoelectric energy systems. The bill defines "biomass energy system" as a system that generates energy from a process using residues from wood and paper products industries, food production and processing, trees and grasses grown specifically to be used as energy crops, and gaseous fuels produced from solid biomass, animal wastes, municipal wastes, or landfills. "Thermoelectric energy system" means a system that generates energy into electrical energy using direct heat from a clean fuel energy system or waste heat from any source. The term includes an energy system that uses alkali metal thermal-to-electric conversion (AMTEC) technology.
The bill also revised the definition of "small-scale", which includes a single energy system with a maximum generating capacity of two megawatts or an integrated energy system with a maximum generating capacity of 10 megawatts. Under the bill, the term also means a fuel cell energy system, a photovoltaic energy system, or a wind energy system.
The Act defines "clean fuel energy system" as a device that is designed and used solely for the purpose of generating power from a clean fuel. The bill includes renewable fuels in the definition of "clean fuel", and defines "renewable fuels" as biodiesel or biodiesel blends containing at least 20% biodiesel, or biomass. "Biodiesel" means a diesel fuel substitute consisting of methyl or ethyl esters produced from the transesterification of animal or vegetable fats with methanol or ethanol.
Under the Act, "alternative energy vehicle" means a motor vehicle manufactured by an original equipment manufacturer that fully warrants and certifies that the vehicle meets Federal motor vehicle safety standards for its class of vehicles, and certifies that the vehicle meets local emissions standards, that is propelled by an alternative energy system. The term includes an alternative fueled, fuel cell, electric, hybrid, solar, and hybrid electric vehicle. The bill includes a hydraulic hybrid vehicle in the definition, and defines "hydraulic hybrid vehicle" as a motor vehicle powered by a regenerative hydraulic drive system or powered by an internal combustion engine assisted by a regenerative hydraulic drive system. "Regenerative hydraulic drive system" means a system that captures energy from nonparasitic vehicle sources or energy wasted by a vehicle's brakes or suspension to be released to directly assist vehicle propulsion or directly propel the vehicle.
Previously, "hybrid vehicle" meant a motor vehicle that can be powered only by at least two alternative energy systems. Under the bill, "hybrid vehicle" means a motor vehicle that can be powered only by an internal combustion engine and one or more alternative energy systems.
The bill defines "alternative energy marine propulsion system" as an onboard propulsion system or detachable outboard propulsion system for a watercraft that is powered by an alternative energy system and that is the singular propulsion system for the watercraft. The previous definition referred to a fuel cell, photovoltaic, or advanced battery cell energy system, rather than an alternative energy system.
MCL 207.822 (S.B. 583)
125.2688a (S.B. 584)
BACKGROUND
In addition to creating the Michigan Next Energy Authority, Public Act 593 of 2002 transferred to the Authority four parcels of State-owned land in York Township, Washtenaw County; authorized the Authority to convey or lease all or part of the property transferred to it; and required that the proceeds be deposited into a new Michigan Alternative Energy Technology Fund.
The Authority has the power to manage and oversee an alternative energy technology park and the alternative energy zone; finance, direct, or otherwise aid in the planning, construction, and design of alternative energy technology businesses and infrastructure located within the zone and park; and design, construct, operate, and convey sites within the zone and park. The Authority also may construct, acquire, and improve or equip an alternative energy technology project, and borrow money and issue bonds and notes to finance project costs.
The alternative energy zone came to be located in the New Center area of Detroit, near Wayne State University.
The Authority is required to certify the following property for a personal property tax exemption: alternative energy systems, alternative energy marine propulsion systems, and alternative energy vehicles. The Act requires the State to reimburse intermediate school districts for all tax revenue lost as a result of the personal property tax exemption. In addition, the Authority must certify an alternative technology business, and an eligible taxpayer for the purpose of claiming a single business tax (SBT) credit for qualified business activity.
Public Act 549 of 2002 amended the General Property Tax Act to exempt from personal property taxes alternative energy personal property, if certified by the Authority and if the local school district and local tax collecting unit do not disapprove the exemption.
Public Act 531 of 2002 amended the Single Business Tax Act to allow a taxpayer to claim an SBT credit for qualified business activity certified by the Authority and/or claim a credit for qualified payroll if the taxpayer is located in an alternative energy zone.
ARGUMENTS
(Please note: The arguments contained in this analysis originate from sources outside the Senate Fiscal Agency. The Senate Fiscal Agency neither supports nor opposes legislation.)
Supporting Argument
The bills make various needed updates to the NextEnergy program, particularly by adding biomass and thermoelectric energy systems to the alternative energy technology covered by the program, and including testing within the activities undertaken by the alternative energy zone. Technological advances occur rapidly, and it often is difficult to enact laws that adequately define or apply to future technologies. It is important that these statutes, which provide tax incentives to businesses, encompass all of the appropriate technologies so that more companies find Michigan an attractive place to locate, expand, and create jobs.
Legislative Analyst: Julie Cassidy
FISCAL IMPACT
Senate Bill 583
The bill's definition changes increase the alternative energy activity that qualifies for two existing single business tax (SBT) credits and a personal property tax exemption. It is estimated that these tax credits (before the bill's impact) will reduce SBT revenue $8.4 million and personal property taxes $1.0 million in FY 2006-07. It is difficult to estimate the impact of changes in this bill because there are too many unknown factors, such as how many potential qualifying businesses are already in business or will be shortly, the extent of their business activity, and whether they will be approved for the SBT credits by the Michigan Next Energy Authority and for the personal property tax exemption by local governments and school districts. Based on the estimated cost of the tax credits and assuming there are at least a few existing businesses that will likely qualify for tax breaks under the changes, it is estimated that this bill will reduce revenue by about $2.0 million, and based on past experience, almost all of this loss in revenue will be due to the SBT credits. Any reduction in SBT revenue directly affects the General Fund/General Purpose budget and will have no direct impact on local governments. Local governments and school districts will be negatively affected to the extent that they approve personal property tax exemptions.
Senate Bill 584
The bill likely will reduce State and local revenue, and increase School Aid Fund expenditures, by an unknown amount. The bill adds additional items for the alternative energy zone to promote, and extends the tax exemption, deductions, or credits authorized for qualified property within the zone to property related to those additional items, which include property and activities associated with testing selected aspects of alternative energy and alternative energy products, as well as broadening the selected alternative energy products and technology affected by the Renaissance Zone Act. The change in revenue and expenditures will depend upon the value of the property affected as well as the business activity associated the additional property and activities included under the bill.
Fiscal Analyst: Jay Wortley
David ZinAnalysis was prepared by nonpartisan Senate staff for use by the Senate in its deliberations and does not constitute an official statement of legislative intent. sb583&584/0506