Black Hills Power said Monday that it has pulled the plug on plans to build a wind farm near Belle Fourche after the state Public Utilities Commission said it does not have the legal authority to determine whether the project would enable the utility to meet the state’s voluntary renewable energy objective.
The voluntary objective calls for 10 percent of all electricity sold in the state to come from renewable, recycled or conserved resources by 2015.
Black Hills Power sought a ruling that the commission agreed the wind farm would be a prudent addition to its power portfolio to meet its customers’ needs.
While Black Hills Power could still build the wind farm without the advance ruling, it would be a bigger risk because it would not know whether it would be able to raise rates to pay for the wind farm.
Without a ruling, “BHP would be forced to make a $38 million decision without guidance from the commission,” the utility said in opposition of the PUC’s May 18 decision.
Commission staff said the body cannot make such a determination outside of a request to increase customers’ power rates.
The PUC staff recognized the bind utilities are in when trying to determine ahead of time whether the utility could attempt to recoup its costs from a project like a wind farm. The renewable energy objective law states that before using new renewable energy, the utility must make an evaluation to determine if the use is reasonable and cost-effective considering electricity alternatives.
Black Hills Power did that and was asking the commission to agree with its finding.
“BHP wishes to make it very clear, if it has not already done so, that it is NOT seeking rate recovery for the BHP Wind Project in this proceeding,” the utility wrote in a May 25 letter to the PUC.
Unlike some states, South Dakota does not have a procedure by which utilities seek regulatory approval for a power generation project before it is built. The project is only evaluated after it is built when the utility asks for a rate increase to fund it. Then, the commission determines whether the project was justified and how much of a rate increase to allow.
Renewable resource projects like a wind farm are riskier because they typically cost more to build and operate for the amount of power they provide. The commission could eventually rule that such an extra cost should not be borne by ratepayers when a traditional power source like a coal plant is available.
“We recognized that there’s a relatively high cost to add renewable wind generation compared to other alternatives such as the WyGen III coal plant,” vice president for operations Chuck Loomis said of the Wyoming plant Black Hills Power opened in 2010. The utility did not argue that the extra power is needed at this time.
“With this project, it was not driven by a need for the energy,” Loomis said. “It was a unique project and therefore we felt that a unique approach was appropriate.”
The utility will not pursue a legal challenge to the PUC’s decision. The project was time-sensitive and relied on the availability of federal tax credits, which expire at the end of 2012.
The 20-megawatt project – enough to power 8,500 homes for a year – was announced in April and would have been the first commercial wind farm in western South Dakota.
The “construction-ready” project was developed by Renewable Solutions, a Minnesota company owned by Rapid City native Mark Eilers. The company conducted exploratory research and obtained easements from landowners on the 4,200-acre site 8 miles north of Belle Fourche in Butte County.
Black Hills Power’s purchase of the project assets was contingent on a favorable PUC ruling.
|Wind Watch relies entirely
on User Funding