The start of the legislative season in Cheyenne has prompted a statewide discussion over how lawmakers should address a budget crisis caused by falling industry revenues. A cycle of ups and downs, good years and bad, is expected in Wyoming, where coal, oil and natural gas pay most of the bills.
While the state’s residents wait for better economic news, the return of jobs and a rise in commodity prices, some lawmakers are focusing their energies on an industry they can control to some degree: wind.
From raising the wind generation tax to discouraging in-state use of renewables for electricity, the wind debate is swirling in Cheyenne. Those skeptical of wind’s value are repeating an often-heard complaint – that wind development has increased electricity bills for Wyoming customers without providing the employment and tax benefits of traditional resources.
Wind is further criticized because it offsets electricity generated by coal, Wyoming’s cherished but beleaguered industry.
The conversation is sure to continue throughout the session, but as to whether wind has upped the cost of electricity, experts already have an answer: yes and no.
Wind is to blame – kind of
Before the recession, Rocky Mountain Power was preparing for growing demand for electricity.
“Really back in about 2000, we started thinking about the need for new generation,” said Dave Eskelsen, spokesman for the company. “A new natural gas plant would cost customers around 8 cents a kilowatt hour, and new wind was about the same. So what you saw after 2000 was a combination of natural gas and wind.”
The company added 2000 megawatts of natural gas. It built or acquired via contracts 1800 megawatts of wind power. Rocky Mountain Power also focused on transmission expansion. The cost of growth would end up being paid by the consumer, but there was no arm-twisting to get the company to build up its wind portfolio. It was simply cheap, Eskelsen said.
Fast forward 15 years. Wyoming utility rates, and rates across the U.S. have increased, as companies expanded their infrastructure when the nation’s economy was growing.
In Wyoming, residential electricity rates increased from around $8.50 per kilowatt hour in 2009 to about $11 last year, according to the Energy Information Administration.
Recently, when freezing temperatures raised electricity bills in places like Casper, some believed the culprit was the increased wind capacity in the state.
Casper resident Tom Swanson opposes wind, largely for aesthetic reasons. He was part of the Northern Laramie Range Alliance, a civilian group fighting a wind farm south of Glenrock in 2009.
But he also believes wind development has done a disservice to the state, without any of the benefits of traditional fuels.
“I’ve learned as much as I can about wind and how it affects rates,” Swanson said. “It affects it in far more areas than you first would see.”
In essence, that’s correct. When RMP expanded its wind generation, it caused rates to rise.
However, other fuels would have caused the same increase, Eskelsen said.
Wyoming has a regulated rate system. Increases passed on to the consumer must be justified before the Wyoming Public Service Commission. Those requests are watched closely by the Officer of the Consumer Advocate.
Bryce Freeman, administrator for the consumer advocate’s office, said that wind isn’t to blame for increases.
Put simply, wind hasn’t increased rates. Expansion has, and that’s allowed, he said.
Federal boost for small wind farms
With coal, the cheapest form of electricity generation, struggling to survive, many in Wyoming have become increasingly critical of wind energy. Federal regulations on carbon dioxide emissions have made utility companies uncertain of coal’s future and unwilling to invest in new coal plants, experts note.
Meanwhile, some see wind receiving an unfair boost from federal laws like the Public Utility Regulatory Policies Act of 1978.
A provision of the law forces companies like Rocky Mountain Power to buy energy from small producers on 20-year contracts – whether the utility needs the power or not. Increasingly, those small facilities are wind farms.
Some say the law affects Wyoming’s rates, as it displaces cheaper fuel sources.
Rocky Mountain Power recently approached the Wyoming Public Service Commission, asking that the maximum contract length be reduced to three years. That request was denied. Two decades is a normal contract rate for electricity.
But companies like Rocky Mountain Power usually enter those contracts based on supply and demand rather than a federal leg up for small operators, said Eskelsen, the company spokesman.
Still, when it comes to cost, the federal law isn’t hurting the Wyoming consumer, experts say.
“It is certainly not clear that this is increasing costs significantly,” said Rob Godby, director for the Center for Energy Economics and Public Policy at the University of Wyoming. “But it is the case that it forces the utility to purchase power that it might not otherwise feel that it needs to purchase, and therefore uses some other capacity less than it otherwise would, and that makes the use of that facility less efficient.”
But those small companies that qualify under PURPA are producing less than 80 megawatts for wind, much too low to affect Wyoming rates, he said.
“They only have to purchase power for what it would cost to generate that power, so the lowest price,” he explained. “Generators don’t want to pay any more than they have to, so they argue pretty vehemently.”
The law also protects against rate increases as a result of the federal provision.
“In theory, consumers should be indifferent as to whether the utility builds stuff to provide that generation or buys it from the owner of the [small company], because either way they are going to be paying the same thing,” said Freeman, of the Office of the Consumer Advocate.
There is an argument to be made that wind is taking the place of traditional energy sources, like coal. A move away from coal in some areas of the country has affected the market, while competition from natural gas threatens coal’s dominance.
“It’s displaced electron for electron,” said Swanson, the Casper resident who is critical of wind power. “It’s displaced in our rate structure, which is why we now don’t have the cheapest electricity in the United States.”
Demand in environmentally friendly states like Oregon or California is forcing Wyoming’s hand, he said.
The argument has validity on a macro scale. Other states do affect Wyoming energy, where the majority of electricity produced in the state is sold to out-of-state buyers. If California has policies that punish coal-fired electricity, that impacts Wyoming’s market.
Some state lawmakers are attempting to mimic green-favoring policies with a fossil-fuel-favoring bill, Senate File 71. It’s a tit-for-tat policy, penalizing utilities that use wind for Wyoming electricity.
Still, California’s move toward green energy shouldn’t affect Wyoming rates directly, even if a company like PacifiCorp, the parent company for Rocky Mountain Power, operates in both Wyoming and progressive states.
“State regulations, and our own cost-allocation process, is designed so that states only pay for what they use. A renewable portfolio standard in Oregon or California does not cause prices to rise in Wyoming,” Eskelsen said. “That’s one of the reasons that state-by-state regulation has continued to exist: because generally states don’t want the policy of other states affecting their prices.”
If the issue is considered on a market scale, wind can serve to bring rates down. In California, where electricity is bought and sold on a free market – as opposed to regulated rates – wind energy is always bought up first, Godby said.
“The bottom line is the more wind you put on the system, it always goes on the front end, because it’s cheapest,” he said.
Many say wind is cheap only with government subsidies, but that is no longer the case. Moreover, the wind credit will be phased out incrementally in the next few years, at which point the electricity market’s playing field will be even in terms of cost.
Though wind has garnered attention and frustration recently, the reality is that wind development has stalled out since Wyoming implemented a wind generation tax, passed in 2010 and implemented in 2012. While states like Colorado, Montana and Utah grew their wind portfolios, Wyoming experienced negative growth in the industry, according to a wind study by the Center for Energy Economics and Public Policy at the University of Wyoming.
Any large new wind projects would likely serve out-of-state markets, as Wyoming’s demand is currently met. Developers for the Chokecherry and Sierra Madre project, for example, a 1,000-turbine site in southern Wyoming that had the first 500 turbines recently approved, plans to find buyers in the southwest.
Chokecherry will pay taxes in Wyoming on generation, sales and use and property, but it will not provide Wyoming with electricity nor displace local electricity markets from natural gas or coal-fired power plants.
Wind has the advantage of no fuel cost and no emissions, with the disadvantage of being intermittent, said Eskelsen, of RMP. But, like natural gas, it is carving out its place in the coal-dominated electricity market.
As for Wyoming, the growth spurt of wind generation already happened, and so did the resulting spike in rates.