A wind developer’s dispute with an Iowa utility is part of a larger pattern of resistance to small renewable energy projects, according to advocates in the state.
Both sides agree, however, that there needs to be more clarity about how a federal renewable energy law should be implemented.
Optimum Renewables wants to develop three 8 MW wind farms and sell the output to Interstate Power and Light, a subsidiary of Alliant Energy. This sort of transaction is at the heart of the Public Utility Regulatory Policy Act, known also as PURPA. Congress passed the law in 1978 for the express purpose of fostering more renewable and other domestic energy sources.
After more than a year of discussions with Interstate, Optimum finally filed a complaint in April with the Iowa Utilities Board. It alleges that Alliant made a “non-negotiable” offer to purchase power at a rate and under terms that, according to Optimum, ensure that “these projects will not be able to secure financing.”
‘No real explanation’
PURPA in very broad terms requires utilities to purchase renewable energy from certain “qualified generators,” provided the energy is cost competitive. But a lot of details are left unspecified, and that’s where state regulators such as the Iowa Utilities Board, enter the scene. If Optimum and Alliant continue to disagree, the board will need to decide what complies with the federal law.
Optimum wants to be paid $49.50 per megawatt hour, more than double the $23.59 that Alliant has offered Alliant’s offer, according to documents filed by Optimum, “is approximately 46 percent lower compared to the rate IPL offered in similar PPAs executed in March 2016.”
Also, Alliant has offered to sign a contract to buy power from Optimum for five years. Power-purchase agreements between generators and utilities typically run for about 20 years. That long time period is often critical to provide the assurance of future revenue that is required by potential investors.
Alliant also has told Optimum that it will curtail production from the wind farms “based on load,” a practice that Optimum contends is “in direct conflict with PURPA.”
The developer also asserts that the interconnection fees that Alliant wants to charge – averaging about $1.4 million for each of the three wind farms – is about four times what it has charged for recent projects, “with no real explanation.”
In documents filed with the state regulator, Optimum suggests that Alliant’s offer is influenced in part by a wind project it is pursuing.
“We feel that these Projects are being discriminated against due to the fact that IPL is planning to build a 500MW wind project and was permitted to … earn an 11% return on this investment over the 40 year depreciable life of the project,” Optimum wrote in the complaint it filed with the regulators. “Judging from the information, we are confident that IPL is paying their own generation far in excess of the avoided costs” that IPL has offered to pay Optimum.
‘We see a pattern’
Alliant declined to respond to particular allegations leveled against it, saying only, “Our mission is to deliver energy solutions and exceptional service our customers and communities count on. As part of that effort, we are transitioning our generation and energy mix to include more highly-efficient natural gas and renewables, such as wind and solar.”
“Alliant’s posture in the negotiations is such that it would not allow the project to go forward,” said Josh Mandelbaum, a lawyer for the Environmental Law & Policy Center who has followed the matter and is writing a brief that he hopes to submit to state regulators.
“Alliant was not negotiating in good faith. It was, ‘take these terms or leave it.’ If utilities don’t act in good faith and don’t follow the law, they force each and every renewable project to file a complaint, and that’s not viable. Most developers will just quit a project” rather than expend the money and energy to take it to the state regulators, Mandelbaum said.
“That’s part of what the utility is counting on. In some respects it rewards bad behavior. We see a pattern of that with Alliant and renewables. At every opportunity they look for ways to create a barrier.”
Alliant was quite forthright about its frustration with renewable projects earlier this month in a hearing before an energy subcommittee at the state legislature. The hearing was titled, “Reevaluating PURPA’s Objectives and its Effects on Today’s Consumers.”
Terry Kouba, the company’s vice president for Iowa operations, testified before the subcommittee that in order to comply with PURPA, Alliant often is forced to purchase “renewable power at a premium compared to other available renewable energy sources, such as utility-owned generation or competitively bid PPAs, and our customers bear that premium.” (Mr. Kouba's testimony can be downloaded from this page or read at this link. )
He also accused developers – including Optimum and its current project – of “gaming” the law and “disaggregating” projects into smaller limited-liability corporations in order to meet PURPA’s limits on the size of a “qualifying facility.”
He offered a solution: “Congress should consider exempting utilities from PURPA’s mandatory purchase requirement if a state regulatory commission finds (1) that the utility’s customers do not need the additional power to meet their customers’ needs or (2) the utility employs integrated resource planning and conducts a competitive resource procurement process that provides an opportunity for (qualifying facilities) to participate.”
Costs vs. benefits
Nathaniel Baer, who directs the energy program for the Iowa Environmental Council, said that Alliant “is looking at this very narrowly. The conversation has to start with, ‘What are the costs, and what are the benefits?’” of renewable generation on the grid.
“There are some studies showing that customers adding solar can reduce utility revenue but also the revenue requirement (the cost to the utility) by the same amount. So far, they’ve refused to acknowledge there are benefits. That underlies the hostility we are seeing.”
Other large customers have found it difficult, if not impossible, to develop renewable resources in Alliant territory. Three years ago, Grinnell College punted on a plan to build a 5.1-megawatt wind farm that would have provided about half the power consumed on the campus. Alliant told them that most of the power would have to be curtailed – thrown away, essentially – because another developer had already put up a wind turbine that would meet the demand on that substation. The developer, it turns out, was Optimum Renewables.
Grinnell proposed tapping into a different substation that could have accommodated energy from the proposed wind turbine. It was the substation, in fact, that earlier had provided the college with its power.
“We sent them a letter saying, ‘Here are some other ideas,’” Chris Bair, the college’s environmental and safety coordinator, said at the time. “We were trying to make it work for everyone. Optimum wanted to make everything work too. I do think [Alliant] could have switched us back to the other substation. They never got back to us on it. I don’t think we ever got a final yea or nay. They’re not required to do that. There’s no legal obligation to do it, and no financial reason to do it.”
Another college, Luther College, about four years ago began exploring the possibility of a combined heat and power (CHP) plant. The consulted with a team from a CHP research outfit in Chicago.
According to Jim Martin-Schramm, a religion professor at Luther who has pursued more renewable energy on campus, “They looked at us and said, ‘You’re a good candidate.’ Then they ran us through a detailed study and put in Alliant’s relevant rates including standby tariffs, and said, ‘If you were a customer of MidAmerican (Iowa’s other major investor-owned utility), your 1.4 megawatt system would have a payback of 15 years. But since you’re a customer of Alliant, the payback is 55 years.
“We just threw up our hands at that point. A tariff is a tariff, and there’s not much we can do about it”
The potential to save energy through combined heat and power is so great in Iowa that members of the Chicago CHP think tank submitted some testimony on the topic in Alliant’s now-pending rate case.
Next, Luther joined with the Winneshiek Energy District in Decorah and four other large institutions and proposed a “shared solar” project to Alliant. Rather than put panels at numerous locations such as government offices and schools, they proposed installing one 2,500 kilowatt array, then each using 20 percent of its output.
They would have needed to use Alliant’s distribution system, and they would have utilized a “virtual” approach to net metering – something not required by PURPA or by Iowa law. Each of the partners invested $10,000 to market the idea to Alliant.
“We had a couple meetings over a year of back and forth, but we never got a formal response or written explanation of any kind. It was frustrating process,” said Andy Johnson, director of Winneshiek and one of the leaders of the shared solar project. The issue lingering in the background, he said, was the same one that causes conflict over countless initiatives to cut energy use and promote renewable energy sources.
“We all understand the issue of revenue loss…and a decade of no load growth. Our economy is built around growth, and they haven’t seen that. That’s understandable, but it creates important questions for regulators to be looking at.
“Nobody wants utilities to go bankrupt, but nor are they guaranteed perpetual growth. If customers increasingly are able to save energy, that should be a great thing for customers and communities. On the flip side, it could be a challenge to the utility.
“Our regulators need to look at that.”