MERCER: Federally sanctioned electricity extortion finds a roost in state
A government folly is playing out in our state's Capitol over a wind electricity project that a group wants to build in Clark County. At the root of this folly is a federal requirement. Believe it or not, a wind farm developer can force a utility...
A government folly is playing out in our state's Capitol over a wind electricity project that a group wants to build in Clark County.
At the root of this folly is a federal requirement. Believe it or not, a wind farm developer can force a utility company to buy its electricity, even if the company doesn't want it.
This gets worse. The wind power might cost more than the company wants its customers to have to pay for electricity.
In this case Oak Tree Energy LLC wants to erect wind turbines in Clark County and force NorthWestern Energy to buy the electricity that would be produced.
Oak Tree is a Delaware company that was formed in February, according to its filings with our secretary of state's business registration office. The company has existed longer than that, however.
Records filed with the state Public Utilities Commission show Oak Tree has been trying for more than a year to force NorthWestern Energy to buy the 19.5 megawatts Oak Tree says will be generated from the towers it plans in Clark County.
NorthWestern Energy has little choice. That's because of a 1978 federal law known as PURPA -- the Public Utility Regulatory Policy Act -- that makes utility companies buy from independent energy producers.
But in March 2011, NorthWestern refused to negotiate any further with Oak Tree.
That led Oak Tree to file a complaint with PUC, asking the state regulators to settle the price NorthWestern would have to pay Oak Tree for the electricity NorthWestern didn't want in the first place.
For more than a year, the complaint has confounded the PUC and its staff.
The dispute remains a long way from resolution, because there's no agreement among Oak Tree, NorthWestern and the PUC staff on how something known in the utility regulation world as "avoided cost" should be calculated.
A two-day hearing last month led the commission's chairman, Chris Nelson, to suggest a compromise as part of oral arguments that were held April 26.
NorthWestern's response is the Nelson proposal is illegal, overstates NorthWestern's avoided costs, is technically flawed and will have "deleterious" unintended consequences.
That's because, according to NorthWestern, the proposal "does not provide guidance as to what constitutes a legally enforceable obligation in South Dakota."
Oak Tree's response, on the other hand, is accepting of the Nelson proposal if it can be further tweaked in Oak Tree's favor.
"Oak Tree believes it will not be able to finance and build its project without a modification in Chairman Nelson's calculation," the company said in its official letter of response.
Frankly, we have now arrived at the point where the real folly of forced wind purchases becomes evident.
Oak Tree wants an inflation factor built into the pricing structure because, according to the company, "the Oak Tree project (like any proposed wind project) faces a number of uncertainties."
Are you ready? Here's uncertainty No. 1, according to the company:
"For example, Oak Tree cannot with any certainty guarantee the amount of wind that will be available for generation over a period of 20 years."
Think about that statement for a moment from the perspective of NorthWestern and NorthWestern's customers.
NorthWestern is being forced to buy electricity it doesn't want, and to pay a higher price for the electricity than it wants to pay, and the supply is unreliable.
If NorthWestern builds the 19.5 megawatts of Oak Tree power into its supply chain, NorthWestern also needs to have at the ready a backup supply for when those 19.5 megawatts are needed but Oak Tree can't deliver them.
That means customers of NorthWestern essentially have to pay twice for the costs of generating the 19.5 megawatts.
Oak Tree also argues in its response that the Nelson compromise doesn't provide any cushion for the unknown costs of maintenance and operation.
"If these contingency costs are completely eliminated when calculating a potential sale value of the generation, the owner of the wind plant would be taking considerable risk, and lenders and tax equity participants may be reluctant to fund under such circumstances," Oak Tree said.
Oak Tree wants NorthWestern and its customers to not only take the unreliable electricity they didn't seek and pay a higher price for it, but Oak Tree wants its risk eliminated too?
At the same time that hefty state and federal tax breaks await Oak Tree and other wind developers too?
But who could blame Oak Tree for trying to make a buck doing what Congress says it can do.
This is like watching some gangster movie where people get offered a deal they won't be allowed to refuse, and a crooked police captain is watching from the door, except this is real.
Cleaner energy is a worthy goal. But it's hard to believe this is what Congress intended to allow happen to our nation's citizens.