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PMLD admits wind facility is losing money, raising rates

This letter written by Princeton Municipal Light Department's (PMLD) General Manager, Brian Allen, offers a candid assessment of the utility's two-turbine (3.0 MW) project. The turbines have failed to live up to expected production levels. The project has also been plagued by technical problems. Rather than reducing rates for customers, the project lost $1.875 million and will continue to lose $600,000 yearly under current circumstances. Excerpts of the letter are provided below. The full letter can be read by clicking on the link at the bottom of this page.

Excerpt 1:

In 2011 the wind turbine project lost $628,000. Since January 1, 2010 and through June 20, 2012 the wind turbine project has lost $1,875,000. This is after credits for renewable energy production. These loses fall to the PMLD customers.

In 2011 PMLD electric rates were 36% higher than the average rate for Massachusetts residential customers. The average PMLD customer using a little over 800 KwH a month paid $516 more for electricity in 2011 than the average Massachusetts customer paid. Compared to average Massachusetts residential rates Princeton customers paid in total an additional $774,000 in 2011.

The original projection for the wind turbine project showed that Princeton residents would receive a financial advantage. In fact, Princeton residents have suffered a financial lost. The original projections overstated both the kilowatt hours produced as well as the price of electricity and understated the expenses associated with the project.

Before the wind turbine project, the PMLD was in a more solid financial position than it is today. The PMLD had relatively little debt and its customers paid just slightly more than the average Massachusetts customer for electricity. For example, in 2005 our total liabilities were just under $1 million.

Excerpt 2:

As best I can look into the future, I would expect the wind turbine losses to continue at the rate of around $600,000 a year. This assumes current wholesale electricity rates, no need for extraordinary repairs and that both turbines continue operating. If any major repairs are required this will be an additional expense for the PMLD. The original warranties on the turbines have expired and extended warranty options are not available.

The original projections were based on the wind turbines producing roughly 9,000 MWh (megawatt hours) a year. Based on 2 1/2 years of experience, a better estimate is 6,500 MWh a year with both turbines running. This is roughly 28% less than originally expected. Furthermore, the original projections were made when wholesale electricity rates were higher and assumed our excess wind turbine production would sell for $80 a MWh. The average wholesale rate during the first six months of this year was $31 a MWh. It is currently running at around $35 a MWh. The breakeven point for the wind turbine project is a wholesale electricity rate of $125 per MWh.

The wind turbine losses have two direct effects on PMLD operations. First, we must charge the Princeton ratepayer more in order to cover the losses. Therefore, Princeton has one of the most expensive rate structures in the Commonwealth. The second effect is that without raising the rates over today’s level the PMLD must run a lean operation in other areas. In particular, our ability to build up a reserve (which is needed in case of a major storm or other catastrophe), and upgrade and renew our infrastructure is limited. In cutting back on infrastructure investment we both increase the risk of more frequent short-term power outages for customers, as well as increase the risk of more widespread and longer-term power outages in case of a major event such as a storm.

The commissioners and I are discussing alternative courses of action.

Excerpt 3:

In August 2011, one of the two wind turbines was taken out of production due to a mechanical problem. It went back into production in July 2012. The PMLD had a three year warranty on the turbines when they were installed. Therefore, in theory, the PMLD should not have any costs for this repair. Unfortunately, the situation is not that simple. The German company was represented in the US by an agent who in turn used another company to install the turbines. Furthermore, there have been problems between these three companies unrelated to the PMLD. The matter is in litigation. ...We may see some recovery of costs and lost revenue through the litigation and insurnace claim process but this has not yet been determined and may take some time to work through.

Editor's Note: According to PMLD's website, PLMD is a non-profit public service corporation that provides "reliable and low cost electric service to the residents and businesses of the Town of Princeton, Massachusetts."

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General Manager Letter Rate Payers

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Source: http://town.princeton.ma.us...

SEP 12 2012
http://www.windaction.org/posts/34861-pmld-admits-wind-facility-is-losing-money-raising-rates
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