May 30, 2016
Illinois

CWLP shells out $100M-plus for wind power

By John Reynolds, Staff Writer | The State Journal-Register | May 29, 2016 | www.sj-r.com

For Springfield aldermen opposed to the 10-year-old Sierra Club deal that required the city to buy power from two wind farms, December 2018 can’t come fast enough.

By then, both contracts will have expired, at which point City Water, Light and Power estimates it will have spent up to $150 million. So far, the utility has spent about $101 million.

Ward 10 Ald. Ralph Hanauer, who wasn’t on the city council when the deals were approved, calls the wind-power contracts “the most costly mistake in the city of Springfield.” He added that the lack of a clause that allows the restructuring of the contacts to keep costs closer to market value – as just happened with CWLP’s coal contract – was part of the mistake.

“The contracts are one of the big reasons CWLP was in such poor financial shape,” Hanauer said. “I have asked Corporation Counsel Jim Zerkle to come up with a standard boilerplate language that is required to be in all city contracts to prevent anything like this from ever happening again.”

The Sierra Club’s wind-power agreement with the city in 2006 allowed it to move forward with construction of CWLP’s $500 million Dallman 4 power plant. The environmental organization agreed to withdraw a legal challenge to the coal-fired plant after aldermen signed off on the deal.

At the time, it was estimated that a one-year delay in the Dallman 4 project could have hiked construction costs as much as $150 million.

As part of the wind-power agreement, two 10-year contracts were executed in July 2007 and November 2008. The 2016 price for both contracts for wind power is $58.97/MWh, according to figures provided by the city.

The variable cost of producing the same power from CWLP’s own generation has been about half that – less than $30/Mwh – over the course of the wind contracts. And the new price in the most recent coal contract makes CWLP’s variable cost of generation even lower – roughly $17 to $26/MWh, depending on the unit.

“It’s my opinion that the city was forced into the contracts in order to prevent delays in getting the permit for the new power plant, which would have dramatically increased the cost,” Hanauer said.

Scott Gauvin, who chairs the Sierra Club Sangamon Valley Group, said it’s important to note that it was the city administration and CWLP that negotiated the wind-power contracts.

“They entered into the contract. If there’s anybody they want to complain to, if there’s any frustration, my recommendation is to look inward,” Gauvin said. “I’m not blaming any of the aldermen, I’m not blaming the mayor, but I think it’s unfair and unjust that certain aldermen and certain members of the administration want to point fingers back at the Sierra Club.”

Gauvin added that there are other cities across the Midwest that are getting better deals on wind power, and it’s to the city’s advantage to diversify its energy assets.

“They bought at the wrong time and put out a longer contract than they should have. Now we’re in the situation we’re in,” Gauvin said. “Just because you make that bad move, does that mean you shouldn’t continue to diversify?”

Mayor Jim Langfelder, who has been in office a little more than a year, has made CWLP energy diversification one of his key future objectives.

Langfelder said one of the big factors in any future alternative energy deal would be federal regulations.

“I think the presidential election is going to loom large in making that determination on how much green energy would need to be provided through municipally owned or regular power plants,” Langfelder said.

Hanauer said the fate of future alternative-energy contracts that the city might enter into should depend on what benefit they offer to the city and CWLP ratepayers.

“If we can purchase wind energy below what it costs to produce energy (at the power plant), then certainly, I think it would be beneficial,” Hanauer said.

Ward 7 Ald. Joe McMenamin said the cost of alternative technologies will continue to fall.

“Wise economics should determine whether future wind and solar investments are pursued,” McMenamin said. “Generally speaking, going forward, municipally owned electric utilities should concentrate on electricity distribution rather than generation.”

McMenamin said the wind contracts are symptom of the larger mistake of building a power plant with more generating capacity than what was needed.

“For most of 100 years the city pursued a conservative and wise strategy of only building enough capacity for our own local needs,” McMenamin said. “But 10 years ago, the city decided upon a risk-filled strategy to build a power plant in excess of what we needed, relying on coal, an energy source with a troubled future. The plan was to sell electricity on the open market, make a bunch of money and use the extra money to pay down the city’s unfunded debt. It all failed.”

Ward 9 Ald. Jim Donelan acknowledged that the cost of the wind-power contracts has been extremely high.

“Renewables certainly should be a consideration for our portfolio. However, any contract we would consider in the future should have provisions that allow us to take advantage of the market as it stands – whether the price of power is up or down. And, make sure we don’t get locked into something that arguably hurts the city.” Donelan said.

The Sierra Club agreement was approved in November 2006 under the late Mayor Tim Davlin. The vote was 7-3.

Ward 1 Ald. Chuck Redpath is the only current alderman who was on the council back in 2006. He voted in favor of the agreement.

“The vote was 7-3 because we were convinced that if we did not agree to the wind contract, our permits (for the new power station) would have been held up and it would have cost us millions more to build it,” Redpath said.

He said the two options before the council were to approve the wind-power agreement or not build the power plant.

“At the time, we didn’t realize how devastating it was going to be,” Redpath said.

While walking his ward and talking to the residents, Redpath said he’s run into a lot of people who are opposed to the wind-power contracts.

“There’s definitely a lesson for the future,” he said. “We have to be very, very careful when this contract comes back up. I don’t know how I could vote for it in most any form.”