A wind-power deal once expected to cost the city little to nothing has cost City Water, Light and Power customers more than $3 million in the last six months.
CWLP has spent nearly $6.4 million to buy wind energy from two wind farms in northern Iowa this fiscal year, but has recovered only about half of that expense, according to recent CWLP revenue figures.
CWLP customers are paying for the $3.2 million difference through a fuel adjustment charge assessed on their monthly utility bills.
The wind-power purchases are part of agreements Springfield aldermen approved in 2006 to avoid delays in building the city’s $500 million Dallman 4 power plant. The Sierra Club agreed to withdraw its challenge to the coal-fired plant after aldermen signed off on the deal.
Ward 1 Ald. Frank Edwards said this week that aldermen were assured the utility would break even on wind power. He said the city should consider getting out of the agreements and pursue sue the Sierra Club for damages.
“Somebody needs to be held accountable,” he said. “I just don’t think it’s fair that the people of this community are forced to bear this kind of burden.”
Economy to blame
Utility officials blame the economy and depressed energy markets. Before fall of 2008, the wind purchases were profitable, and for several months, ratepayers received credits on their utility bills.
Eric Hobbie, CWLP’s chief engineer, said he doesn’t consider it a $3.2 million loss because that assumes the utility bought the wind power for the purpose of selling it.
“We bought wind energy for native load,” he said. “Because of the wind purchase, we’re able to sell additional energy into the market from the CWLP generating units. We’re giving our customers credit for that extra energy being sold, but that extra amount being sold doesn’t currently cover the entire cost of wind purchase for native load.”
Once the economy turns around, the utility expects to break even again, officials said.
Will Reynolds, chairman of the Sangamon Valley Group of the Illinois Sierra Club, said he doesn’t remember any claims that the wind power wouldn’t cost any money.
“Springfield has received national recognition for our commitment to clean energy, both the wind power and our energy-efficiency projects,” he said. … “Those are projects that save customer and the utility money once that investment is made.”
Reynolds couldn’t say specifically what would happen if the city tried to get out of its wind-power agreements.
“There’s consequences any time a legal contract is broken,” he said. “I would think that Frank Edwards would be worried about the city’s reputation if it couldn’t be trusted to uphold the legal contract. That would have consequence far beyond the Sierra Club.”
Covers native load
Buying wind energy was the most controversial part of the deal the city inked with the Sierra Club because of its unknown cost and the fact that the city can generate more than enough power from the new 200-megawatt plant.
The agreement called for the city to buy 120 megawatts of wind capacity – 60 megawatts for state government and 60 megawatts for itself. The utility also had to take other steps to conserve energy and reduce power plant emissions in exchange for the Sierra Club dropping its objections to construction of the coal-fired plant.
CWLP says it doesn’t sell the wind power on the open market. Instead, it uses the wind power to cover its native load – local demand for power– which in turn, frees up additional electricity produced by CWLP’s generating units to be sold.
But these days, energy-market prices are well below the price CWLP pays for wind power.
Currently, as part of its 10-year agreements, CWLP is buying the wind power for $46.60 per megawatt hour. But the extra energy the utility sells in its place on the wholesale market brings in only $22.85 a megawatt hour.
Still, both CWLP and the Sierra Club say wind power is a worthwhile investment.
CWLP says owning wind power diversifies its energy portfolio and readies Springfield for renewable-fuel mandates that are coming.
CWLP officials say they’ve talked to other wind providers who, even in today’s down market and economy, cannot match or beat CWLP’s contract price of $46.60.
“I absolutely am confident that we will never procure it at this price again,” Hobbie said.
Avoided costly delay
CWLP also notes that the agreements avoided costly delays from a drawn-out court battle.
A one-year delay in the $500 million Dallman 4 project could have hiked construction costs by as much as $150 million, CWLP says. That would have required another rate increase, the utility says.
Ward 3 Ald. Frank Kunz said he doesn’t see a way out of the wind-purchase deal.
“We had signed on for 10 years to buy wind power. Period,” Kunz said. “At the end of 10 years, would I re-up it? No. This was all done to build the plant as quick as possible.”
Was it worth it?
“I believe in the long term, over the next 20, 30 years, it will turn around and it will be worth it,” Kunz said.
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