California utility wants to invest $600 million in area wind farm

Big banks have backed away from big wind, but an investor-owned utility in California is proposing to invest $600 million of its own ratepayer-backed money to get one wind farm built in northern Montana.

Last year, San Diego Gas & Electric signed an agreement with developer NaturEner USA to purchase 309 megawatts of power from the $800 million Rim Rock wind farm in Glacier and Toole counties, said Jennifer Ramp, a spokeswoman for SDG & E.

In a July 15 filing to the California Public Utilities Commission, SDG & E asked for permission to amend the original power purchase agreement to allow the $600 million equity investment in Rim Rock.

A drop-off in capital investment by commercial banks and pressing renewable-energy requirements in California are cited in the proposal.
"We think this might be a very unique investment opportunity," Ramp said.
She called the proposal an "extra bold step" to help get Rim Rock constructed.

California's Public Utilities Commission still must sign off on the proposal.
"It's a change of how projects are going to get financed, perhaps, in the future," said Jim Bellessa, research analyst and senior vice president of D.A. Davidson and Co., an investment firm based in Great Falls. "Heretofore, these wind farms were being financed by the banking arena."

With the collapse in the financial markets, investors in major renewable-energy projects "went away," he said.

"If Montanans want the project to get completed, they need to get financing first," Bellessa said.

Bellessa called SDG & E's plans to finance Rim Rock an "aggressive tactic" driven in part by California's stringent renewable-energy requirements.
The utility's application says the U.S. financial crisis created turmoil in wind farm financing.

The two major investors - J.P. Morgan and GE Energy Financial Services - have scaled back, and the bankruptcy of Lehman Brothers and near bankruptcy of Wachovia and AIG has further reduced the pool of investors, SDG & E wrote in its application.

Bill Alexander of NaturEner did not immediately return a telephone message.

The utility's proposed tax equity investment "will significantly enhance the viability of this important 309-megawatt wind project," the application says of Rim Rock.

SDG & E has 1.4 million customers in San Diego county and southern Orange county. The ratepayer investment in the wind farm should be repaid in 10 years, the utility said in its application.

Repayment of the investment "comes primarily through reasonably assured tax benefits," the application states.

Investor-owned utilities are now eligible for federal income tax credits that previously had not been available, the utility noted in its application.

The commission would need to issue a decision no later than March 2011 in order for construction financing deadlines to be met, the application says.
The utility requested that the commission act "expeditiously," noting that the project must be operating no later than Dec. 31, 2012, for the utility to be eligible for production tax credits.

SDG & E also is seeking to amend the power purchase agreement so that the wind farm can be built in phases.

Rim Rock is an $800 million, 309-megawatt wind farm planned along the state's border with Canada.

It would be one of the largest wind farms in the northwestern United States. It's located just north of Glacier Wind Farm, a $500 million, 210-megawatt wind farm, which was constructed by NaturEner.

SDG & E also is buying power from Glacier.

Ramp said Rim Rock is SDG & E's largest renewable-energy contract to date and important in the utility's efforts to meet the state's renewable-energy portfolio standards.

SDG & E expects to deliver just less than 14 percent of its electricity from renewables by the close of 2010.

California law requires that 20 percent of electricity delivered by investor-owned utilities come from renewable sources by 2010.