Cities wary about investing in wind energy

LIVINGSTON - Some local governments in Montana are having second thoughts about entering the wind energy business despite the incentive of interest-free financing from the federal government.

While some cities and counties remain enthusiastic about the idea, others are bailing out. Almost half remain uncommitted and the clock is ticking.

The Park County Commission dropped out of the program this month, saying it involved too many unknowns.

"It doesn't look like something we ought to hang our hat on right now," Commissioner Jim Durgan said.

Similar sentiments reign in Carbon County.

"As far as two of three commissioners are concerned, we're done with it," said Carbon County Commissioner Albert Brown. "It's too confusing, too many unknowns, too many issues that aren't being satisfactorily answered."

In December, 33 Montana cities and counties qualified for $72 million worth of Clean and Renewable Energy Bonds to finance windmills local governments were to own. The turbines would add the electricity to the electrical grid.

Sen. Max Baucus, D-Mont., was a prime mover of the legislation that created the program. He said in December that he saw the program as a way to level the playing field in the wind energy business, where private companies enjoy generous subsidies. Plus, it would create local jobs and save tax money.

So far, only eight of those 33 local governments have formally indicated they plan to go ahead with the program. Nine other cities and counties have said no. The rest must make decisions soon.

'Not a lot of time left'

"There's not a lot of time left to decide," said Claude Matney of Matney Frantz, a Bozeman engineering firm that has worked with the small governments and dealt with the legislative, regulatory and financial hurdles.

He said he understands that the process is confusing. Allowing local governments to sell electricity required an act of the Legislature. And converting wind on the prairie into heat and light in distant cities is complicated in physical, regulatory and financial ways. It involves big governments, distant financiers and NorthWestern Energy, a large utility.

You've got to have the right equipment, the right location and the right contract with an electricity buyer for it all to work, Matney said. That last component was the most questionable for Park County, said Director of Operations Bill Hurley.

"It covered all those little details except one," he said. "Who is going to buy your electricity?"

NorthWestern Energy has committed to buying 50 megawatts of new power, but if Park County's electricity isn't in that package, the county would have to negotiate its own deal, Hurley said.

With finances already tight and the future revenue stream uncertain, the commissioners were reluctant to commit to repaying a $1.8 million bond, even if it is interest-free.

Nobody is asking for that type of commitment yet, Matney said.

The next step for each of the 34 projects would be a due-diligence or feasibility study, which would look at precise locations for each turbine, costs of hooking them to the grid and the price the power would fetch on the market.

Until that is done, nobody truly knows whether any project pencils out.

However, such studies cost money. Matney's firm is asking $4,000 per megawatt to do the study. In the case of Park County, that means the study would cost $8,000. The county isn't taking that step.

Sweet Grass project

Sweet Grass County has a similar project, but commissioners there voted Thursday to commission the study.

"We're going to proceed cautiously," said Commissioner Phil Hathaway. "We're going to watch things pretty close. We're all pretty nervous."

Big Timber also decided to proceed with a study, Mayor Diana Taylor said.

"We're pretty excited about the idea of generating some energy from an alternative source," she said, adding that the city and Sweet Grass County might build a joint 3-megawatt facility with 12 machines, enough to power 900 homes.

Taylor said the city should be able to make about $30,000 a year, after all the bonds are paid, and any revenue goes directly into city coffers.

Enthusiastic but cautious

Three Forks Mayor Gene Townsend, whose city qualified for $460,000 worth of bonds, said he's enthusiastic about wind energy but apprehensive about this program.

"I'm being a little bit cautious because I'm hearing two different stories," he said.

Some people tell him the bonds will be hard to sell, while Matney Frantz assures him that buyers are in line.

Livingston City Manager Ed Meece took a similar approach. He said the local governments wanted to aggregate their bonding authority and build several large wind farms instead of a lot of little ones, hoping it would be easier to sell power that way.

But the Internal Revenue Service, which administers the bonds, said that wasn't allowed. "You have to put a community wind project in your community," Meece said.

He said the commission will decide at its next meeting whether to order the $6,000 feasibility study.

Matney said he wants to have all the feasibility studies done by November so communities that proceed "will have turbines up and running by the end of 2008."

He said his firm has done everything it promised and he's surprised that people are leaving the program.

"We applied for the money. We got the money. We got the legislation," he said.

His firm won't profit from the feasibility study fees, he said. Most of that money will "pass through" to subcontractors studying things such as wind, soil types and transmission lines. Matney said his firm hopes to see profits down the line, by contracting to build and operate the turbines.