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Commissioner says PUC couldn't rule on Black Hills Power's wind farm request

Public Utilities Commissioner Gary Hanson said Tuesday that while he supported a proposed Black Hills Power wind farm, he maintained the commission’s unanimous position that it does not have the statutory authority to make a formal determination about the project before it is built.

Black Hills Power announced Monday that it has shelved plans for what would have been the first commercial wind farm West River, a $38 million project 8 miles north of Belle Fourche.

The utility said the project was too risky without a PUC ruling that the wind farm was “reasonable and cost effective” under the state law governing South Dakota’s renewable energy goal.

“Ultimately, they wanted 100 percent assurance, (which) we simply were not able to give them without going through the rate process,” Hanson said of a process that can’t occur until a wind farm is built and a rate hike is requested by the utility.

Black Hills Power said the effect on a customer’s bill would be about a 1.5 percent increase if the company did eventually raise rates to cover its costs.

Hanson said he was prepared to vote against the PUC staff’s recommendation on the matter, saying he thought the wind farm proposal had a lot of advantages.

The project would have included between seven and 12 turbines, each about 250 feet tall, and would have provided 20 megawatts of electricity, enough to power about 8,500 homes for a year, with the potential to generate up to 50 megawatts.

“The cost of power was lower than most I’ve seen,” Hanson said. “It was an economical and reasonable opportunity. It looked like it would be a pretty darn good project. I anticipated supporting it and thought that it would go through the process without a hitch like wind projects do.”

But he changed his mind after studying the staff’s documentation supporting its decision.

“It became clearer and clearer that the commission was not legally permitted to rule in Black Hills’ favor,” Hanson said.

Hanson said he expects lawmakers will take up the issue in next year’s Legislative session. He said they should study whether the law contains an unnecessary disincentive.

“There appears to be a little bit of a knot in the (renewable energy objective) law,” he said.

The law was passed in 2008 and set a voluntary goal that 10 percent of power sold in the state would come from renewable, recycled and conserved energy resources by 2015. This project would have increased Black Hills Power’s percentage to about 9 percent from about 6 percent.

Hanson said the law contains the “strange” provision that before using renewable energy, the utility must evaluate whether the use is “reasonable and cost-effective considering other electricity alternatives.”

Any utility would already be making that decision as a matter of good business practice, Hanson said.

Black Hills Power was seeking PUC confirmation of its decision.

“Their concern as they explained to us is they really want to know whether the PUC will grant them the opportunity to recover their costs (through a rate increase),” Hanson said. “That is a bit of a strange animal. It is a big risk and yet they took a much larger risk when they went ahead with the WyGen III” coal plant built in Wyoming last year.

Black Hills Power told the PUC that its refusal to rule on the prudence of the project will stifle construction of renewable energy generation in the state and hamper economic development.

Asked whether he agrees with this accusation, Hanson said, “Apparently it has.”

But there are at least 10 commercial wind farms East River that have not been hampered by a similar concern. Black Hills Power’s request was the first time a utility has sought a declaratory ruling before building a wind farm.

Basin Electric Power Cooperative, based in Bismarck, N.D., is the state’s largest user of wind power, with more than 300 megawatts of capacity out of a total of about 780, according to PUC data.

Basin spokesman Floyd Robb said the cooperative moved forward with its East River wind projects on the directive of its members, who in 2006 voted to have 10 percent of their power come from renewable sources by 2010.

Because co-ops are not regulated by the state PUC and Basin already had the support of its members, it was not taking a risk by spending the money on developing wind power, Robb said.

NorthWestern Energy, based in Sioux Falls, is an investor-owned utility that is regulated by the PUC just as Black Hills Power is. But it purchases its 25 megawatts of wind power from BP Alternative Energy, spokesman Tom Glanzer said, and hasn’t had to ask for a rate increase specifically tied to the wind project.

With no mandate in South Dakota to use renewable energy, “Anything your local provider is doing is simply out of generation needs,” Glanzer said. “Obviously, there is a push to go forward with renewable but there is also the customer in mind, and you want to make sure the price of that renewable resource is not going to affect your customers or your business in a negative way.”

Hanson said the PUC supports the development of renewable energy and has taken several steps to make wind projects easier to develop.

“There’s always more that can be done,” he said. “However, there’s a balance that needs to take place. Energy has to be cost-effective. You can build a lot of renewable energy that’s very expensive. If the folks can’t afford it, there’s no point in building it.”