California gets it right

California has one of the most aggressive Renewable Portfolio Standards ('RPS') in the country requiring 33% of the electricity sold in the state come from renewables by the year 2020. A ruling this month upped the ante on utilities by mandating that 75% of the energy come from projects located in the State[1]. Despite the enormous pressure on utilities to meet the RPS standards, the State has demonstrated that not every project should be built.

Last year, California utility Pacific Gas and Electric Company ('PG&E') submitted an application to the State's Public Utility Commission seeking approval to acquire, develop, and construct the Manzana Wind Energy facility, a 246 megawatt wind plant proposed in the Tehachapi region of Kern County, CA. A year earlier, Iberdrola Renewables had negotiated to sell the to-be-built project to PG&E for $911 million after years of delays due to transmission issues and the economic downturn. Although PG&E's application requested approval to build the facility on 7,000 acres of land, Iberdrola had obtained local development permits and land leases sufficient for just 189 megawatts. The final project could ultimately be less than that requested, but still represented one of the largest wind projects proposed in the State.

PG&E's application sought State approve to pass on all costs of building the project to ratepayers, as well as any cost overruns due to project delays, regardless the reason, thus leaving PG&E shareholders and Iberdrola free of any financial culpability.

The California Division of Ratepayer Advocates ('DRA') objected to the application from the outset. In testimony filed with the PUC, the Division rightfully complained that "PG&E's ratemaking proposal does not provide any protections for ratepayers in the event the project is delayed or commercial operations are stopped for reasons relating to an actual or protential violation of the federal or California Endangered Species Acts." The project has already experienced construction delays and given existing problems of transmission and serious concerns voiced by federal and state agencies over impacts to the California condor, it was prudent for the DRA to assume costs would rise.

On December 21, 2010, Administrative Law Judge (ALJ) Maryam Ebke issued a proposed decision denying approval.

The findings of fact were unambiguous including the below six:

1. There is no demonstration of need to support this application.
2. PG&E's proposed interconnection schedule is unrealistic.
3. The operational viability of the Manzana Wind Project may be at risk due to potential death or take of a California condor, an endangered species under both State and Federal laws.
4. As a utility-owned generation project, ratepayers will pay a lump sum cost for the Manzana Wind Project rather than a performance-based cost.
5. As a utility-owned generation project, ratepayers are at risk if the Manzana Wind Project produces less than expected.
6. PG&E did not compare the cost of the Manzana Wind Project to other projects as directed by the Scoping Memo.

These findings stand in direct contrast to what we've witnessed in orders issued by States in the eastern region of the U.S. most notably the Cape Wind and Deepwater Wind offshore proposals reviewed by Massachusetts and Rhode Island respectively.

This statement in ALJ Ebke's decision provides insight into how projects should be measured:

"In short, although the project would contribute to the California renewable generation goals, given the availability of other lower-priced renewable projects in the competitive market that could impose far less risks on ratepayers, PG&E has failed to demonstrate a need for this project."

We are also encouraged by Ebke's acknowledgement of risk to the federal and state endangered California condor.

The final Environmental Impact Report (EIR) prepared on behalf of Iberdrola insisted that "as turbines are in an area with high visibility, condors could be expected to be able to avoid collisions with wind turbines at the project site" and that "no suitable foraging or nesting habitat were identified at the project as a result of more than 5,000 hours of biological surveys conducted at the site."

But raptor specialist Jim Wiegand asserts otherwise in his editorial this week:

The scientific community is very aware that each year thousands of vultures of every type are slaughtered by prop wind turbines across the world. The high numbers of dead vultures clearly indicates that these slow flying gliders are not at all able to "skillfully" avoid the 220 mph tip speed of the propeller style wind turbine.

As for having no suitable habitat on the wind site ...the Manzana Wind Farm is located in California condor Habitat. In the project's EIR, very important and very obvious information was omitted about this condor habitat. The report failed to disclose the larger mammal (wild pig, elk, deer, cattle) populations in the upper portion of this wind farm that are food sources for the condor. Instead, the EIR concluded the habitat to be unsuitable for condors despite these well-known food sources on the upper PDV wind site.

ALJ Ebke addresses the seriousness of condor mortality in her decision, but limits the discussion to the risk to ratepayers in the event of project shutdowns or other operational adjustments should there be a loss. We may argue about her emphasis, but the point is clear: the risk to endangered species is very real and the costs/risks of mortality must be borne by the project owner, not the public. The same position is warranted in states across the U.S. where endangered species are at risk from wind development.

Iberdrola has canceled its plans to sell the project and PG&E withdrew its application.

With green energy policies now promoted as economic opportunity and jobs programs, governmental incentives have shifted the bulk of project risks onto rate- and taxpayers. Sixty-five percent or more of a project's monetary costs and risks are presently met through governmental subsidies, including cash grants, DOE loan guarantees, and premiums on energy prices. Whether intended or not, the American public has become the largest buyer/developer/investor of renewable energy while the profits remain privatized. This has created an environment where the likes of PG&E, Iberdrola, turbine suppliers and all other parties involved in a project's construction and O&M are free to inflate prices but share limited, or even no responsibility for meeting performance standards. This is exactly what we can expect for the Cape Wind, Deepwater Wind, and other renewable projects across the country. We can't blame PG&E or Iberdrola for taking advantage of the current system, but let's hope our legislators and regulators look to California for lessons learned.

[1] There are 1,008 in-state power plants (69,709 megawatts installed) now operating in California; renewables represent 13.9% of the mix including 2.4% from wind energy.