Reusing the Reusens Hydro Dam: A Tax-Driven Deal?

The Reusens hydroelectric dam.

The Reusens hydroelectric dam. Photo credit: Roanoke Times

Appalachian Power Co. (Apco) has sold the Reusens hydroelectric dam on the James River near Lynchburg to Eagle Creek Renewable Energy LLC for an undisclosed price, according to press accounts.

Apco started generating electricity at the dam in 1903 and stopped in 2011. “Over the past few years, the five generators and other equipment at Reusens began to show wear and required extensive maintenance or replacement — primarily the result of age,” says Apco spokesman John Shepelwich. The utility reviewed a variety of alternatives, one of which was selling the facility, which “we explored for a few years.”

Eagle Creek plans to re-open the facility, which it expects to generate an estimated 40,000 megawatt hours per year. Why would Eagle Creek want to run the facility when Apco didn’t?

It’s not as if Apco doesn’t have abundant experience operating hydroelectric dams. It has six others, which it is keeping in its electricity-generating portfolio. Given the pressure all utilities are under to increase their commitment to renewable energy, one would think that Apco and its parent company American Electric Power would want to hang on to Reusens. Shepelwich says that the company will “more than offset” the 12.5 megawatt capacity of the Reusens dam with other investments in renewable energy, but in the current political environment, there’s no such thing as too much renewable — especially hydroelectric, which, unlike solar and wind, produces electricity steadily, reliably and predictably.

I tried to contact Eagle Creek but got no response to my email.

But here’s my guess: The decision to sell was influenced by federal tax incentives. According to the U.S. Department of Energy, the federal government offers several tax incentives to stimulate deployment of hydroelectric power.

  • In 2014 Congress appropriated funds for Hydroelectric Production Incentives. Eligible facilities may receive up to 1.8 cents per kilowatt hour (indexed for inflation) with maximum payments of $750,000 per year during the incentive period.
  • A Renewable Electricity Production Tax Credit provides 1.1 cent per kilowatt hour for electricity production by hydroelectric dams and other renewable energy sources over a 10-year period. Alternatively, project owners can take tax credits worth 30% of the value of the facility up-front.

Shepelwich confirmed for me that no tax incentives were available to Apco for Reusens.

Official statements by Eagle Creek don’t mention incentives one way or another, but here’s what I’m betting happened. Apco ran the numbers and determined how much it would cost to bring the dam back to operating condition. The cost-benefit to ratepayers was not sufficient to win approval by the State Corporation Commission, so Apco couldn’t justify the investment. Access to a 30% up-front tax credit and up to 1.8-cents-per-kilowatt-hour production incentive made the old dam worth a lot more to Eagle Creek. Therefore, it made sense for Apco to sell the facility.

Public policy questions arise. Is this incremental addition to Virginia’s green power mix worth the dual subsidies? How would we say unless we knew how much those subsidies amount to? When the governor of Virginia pays a subsidy from the governor’s opportunity fund to land a corporate investment, agree with it or disagree with it, the expenditure is a matter of public record and included in every press release. If Eagle Creek is receiving subsidies, are they on the public record anywhere? Should anyone know the answer, please contact me.

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9 responses to “Reusing the Reusens Hydro Dam: A Tax-Driven Deal?

  1. 40,000 Megawatts? Really?

  2. “The cost-benefit to taxpayers was not sufficient to win approval by the State Corporation Commission, so Apco couldn’t justify the investment.”

    Do you mean ratepayers, or shareholders?

    I suspect an old, amortized hydro plant with no fuel or waste costs would be fine for ratepayers. Shareholders, not so much.

  3. Let’s be clear, these are federal legislative subsidies you are talking about. Now, granted, Virginia is a piggy-back-tax state so State taxes are affected by federal tax law deductions and credits. But it’s not obvious, and I don’t understand, why any tax benefit available to Eagle Creek wouldn’t also have been available to APCo.

    As for the cost benefit analysis, Rusens is an old run-of-the-river hydro with a minimal lake behind the dam. You can’t store the river water; it’s use it or lose it; therefore, one of the greatest operational benefits of hydro power — quick-response dispatchability — isn’t available from Rusens, in contrast to a lake-impoundment hydro like Smith Mountain Lake, where the generators can use water much faster than the lake can fill so their capability is held in reserve until needed for ramping or peaking power. Rusens dam would not likely be built today, or rebuilt either, if ratepayer benefit or sales to the grid markets were the only measures. So, you’re right, a tax subsidy must be what tips the scales here and we should ask why it’s good policy to offer it.

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