When Iowa utility regulators approved MidAmerican Energy Co.’s Wind VIII project in 2013, Gov. Terry Branstad (R) called the $1.9 billion, 1,050-megawatt build-out a “win-win” for the state.
But two years after turbines began spinning, victory is looking a little bit sweeter on the utility’s side of the ledger, according to the state’s consumer advocate.
The Office of Consumer Advocate, part of the Iowa attorney general’s office, said MidAmerican is unfairly benefiting by seeking to pass through to ratepayers $3.7 million in costs for producing wind energy when wholesale energy prices are negative while keeping the associated federal production tax credits.
“It is not equitable that MidAmerican receive the benefits while its customers’ [sic] bear the costs,” Consumer Advocate Mark Schuling said in a prehearing brief filed earlier this week.
The consumer advocate has the backing of technology giants Facebook Inc., Google and Microsoft Corp., all of which built massive data centers in Iowa to take advantage of the clean, low-cost wind energy. The companies were part of discussions with MidAmerican to resolve the dispute. But parties ultimately told state regulators they were at an impasse.
Des Moines-based MidAmerican, one of the dozens of companies under the wing of Warren Buffett’s Berkshire Hathaway Inc., argues that the consumer advocate and tech companies are looking at the issue too narrowly.
The company, which has more than 2,000 turbines across Iowa, with more on the way, said the overall benefits of the projects dwarf any associated costs because fuel costs are reduced by millions of dollars a year and because wind displaces more expensive generation.
“The board’s focus should be on the overall allocation of costs and benefits between customers and the company,” MidAmerican attorney Brian Rybarik said in a filing. “If one starts looking at individual components of these wind projects, it is easy to pick them apart and find a component that benefits either the customer or the company to a different degree.”
Schuling said his office supported the MidAmerican wind projects and agrees that customers have benefited. But he said that doesn’t mean customers should pay for MidAmerican to run turbines and collect the tax credits.
“This is a choice to increase their revenue through production tax credits,” he said in an interview.
The Iowa Utilities Board, which flagged the issue for review last spring, ordered parties to file briefs this week after they were unable to resolve differences. A formal hearing is set for next month.
Who benefits? Who bears the costs?
At the heart of the case before state regulators is who bears the cost of running wind turbines when wholesale energy prices are negative; that is, when owners of a generating unit must pay the grid operator to produce electricity.
Negative prices, which vary according to where a wind farm or power plant is located on the grid, occur mostly at night when electricity demand is low. They are most common to areas of the country with significant penetration of wind, nuclear and hydro capacity, electric generation that can’t be easily reduced or shut down.
Chicago-based Exelon Corp., which runs a half-dozen nuclear plants in Illinois, has complained that negative prices from growing wind penetration in the Upper Midwest were a big cause of economic distress at two of its nuclear plants – claims that the wind industry disputes (Energywire, June 15, 2016). Exelon threatened to shut down the plants before the General Assembly stepped in with $235 million in annual subsidies to keep them operating.
For wind energy producers, the negative prices are easier to swallow due to the PTC of up to $22 per megawatt-hour. The PTC was most recently extended by Congress just over a year ago and will be gradually phased out through 2019.
Take the example cited by MidAmerican in its filing with the Utilities Board. Even if it costs MidAmerican $12 per MWh to produce energy from a wind farm, the company can still realize $10 per MWh in revenue because of the PTC.
MidAmerican’s tariff approved by the Utility Board lets the company keep all PTCs from the Wind VIII and Wind IX projects until they are included in base rates at a later date.
The consumer advocate and tech companies don’t dispute that. They argue that the utility must also bear associated costs of producing the energy.
Negative wind revenue and the PTC value are both baked into the utility’s energy adjustment clause (EAC) for older wind projects. The EAC, approved for the first time as part of the last rate case in 2014, is a separate line item on customer bills that includes all fuel-related and purchased power costs.
For subsequent wind projects, the board ruled that MidAmerican could keep the PTCs until some later date when the projects would be rolled into the utility’s base rates. But that will be years, since MidAmerican doesn’t plan to file another rate case for at least a decade, a utility spokeswoman said.
But in the case of MidAmerican’s massive, $3.6 billion Wind XI project, neither PTCs nor negative revenues will be passed through to customers before the project is in base rates.
In filings last week, both the consumer advocate and MidAmerican agreed that the board should apply a ratemaking tenet known as the “matching principle.” But parties disagreed about how it should be applied.
Schuling said PTCs should be linked to any costs related to running turbines when energy prices are negative. The utility said costs and benefits of the wind projects should be matched more broadly.
The utility said the fuel cost benefits of the wind projects alone more than offset any costs related to operating the wind farms when prices are negative.
What’s more, the last four wind expansions developed by MidAmerican are being built at no net cost to utility customers.
“This is an extraordinary situation in the utility industry,” the company said. “Excluding negative wind revenues from the EAC now would disregard the millions of dollars in fuel savings costs that flow to customers through the EAC while, at the same time, MidAmerican is not collecting the costs of this new generation through base rates.”
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