A Clark County wind developer has filed a complaint with the South Dakota Public Utilities Commission alleging that Sioux Falls-based Northwestern Energy is unlawfully refusing to buy its power.
The case, only the third such dispute to come before the commission, illustrates the tension between the state’s renewable energy ambitions and its desire to keep electricity rates low.
The complainant is Oak Tree Energy, which plans to build a 19.5-megawatt wind farm in Clark County. It first applied for a federal interconnection agreement in April 2010 with the aim of selling the power to Northwestern.
The sticking point in drafting a purchase power agreement was establishing Northwestern’s true avoided cost – broadly, the cost it would incur to generate the power rather than buy it.
Federal law requires regulated utilities to buy power generated by independent operators and pay, at minimum, the avoided cost.
Enforcing the law falls to state agencies, however, and South Dakota does not require its regulated utilities to calculate the avoided cost for interconnection projects above 100 kilowatts, PUC commissioner Chris Nelson said.
This means, essentially, that the avoided cost is negotiated on a case-by-case basis.
Oak Tree’s first offer to Northwestern set the avoided cost at $69.20 per megawatt hour, according to PUC filings. Its final offer, tendered in February, was $54.40 per megawatt hour with a 2.5 percent annual increase.
Northwestern wasn’t interested. In correspondence with Oak Tree’s lawyers, the company said it didn’t need additional generation to help meet the state’s nonbinding goal of 10 percent renewable generation by 2015, and that an arrangement to buy Oak Tree power would mean a rate increase for customers.
“We have enough baseload generation to meet current demand and are currently selling any excess generation into the open market,” Pam Bonrud, then-director of government and regulatory affairs, wrote in a July 6 letter.
Oak Tree is owned by Leonard “Bill” Makens, a Clark County farmer who also owns the Oak Tree hunting lodge. Makens said he filed the complaint in hopes of resolving the issue before the end of the year, when a federal grant for renewable energy projects is set to expire.
“We’ve negotiated in good faith, in our opinion, with the utility company,” Makens said. “They just haven’t given us a very timely response.”
Makens said the company is looking at other utilities to sell its energy to, but that Northwestern’s Clark County substation is the most accessible.
Northwestern spokesman Tom Glanzer declined to comment on the case. “We have received the complaint, and we will respond later this week,” he said.
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