Iowa, United States [RenewableEnergyWorld.com] Iowa regulators last month took up a proposal by MidAmerican Energy that would allow the utility to build 1,001 MW of wind generating capacity in the state through 2012, put the investment in rate base and recover the costs from ratepayers.
Sounds innocent enough. But the utility told regulators it doesn’t expect to need additional capacity resources prior to 2019. And it also asked regulators to give it flexibility to move on what it thinks are bargain prices for wind turbines. What’s more, it could make the wind generation available on regional wholesale markets.
“MidAmerican recently missed an opportunity to secure economically priced wind turbines in part because it was unable to make very significant financial commitments without definitive ratemaking principles,” said Thomas J. Budler, the utility’s general manager of wind development in testimony filed last spring.
MidAmerican’s proposal drew the attention of NextEra Energy Resources, the Florida-based independent power producer formerly known as FPL Energy. NextEra ranks among the largest wind power developers in the U.S. It took the unusual step of intervening in the Iowa case, objecting to MidAmerican’s proposal and making an unsolicited bid to sell some of its own wind portfolio to the utility.
Michael O’Sullivan, NextEra senior vice president of development, said in his own testimony that the company intervened because MidAmerican is seeking approval of binding retail ratemaking principles for $2 billion worth of wind energy without a competitive procurement process.
“It appears that MidAmerican’s business plan is to generate wind energy in excess of its regulated service territory needs and sell even greater amounts of wholesale energy” to the Midwest Independent System Operator, which MidAmerican plans to join. In short, NextEra objects because MidAmerican is asking its regulators to okay its plan to have ratepayers pick up the tab for what otherwise would be a largely stockholder-backed venture.
‘Boxtops of Cheerios’
In more blunt terms, the Des Moines Register newspaper quoted O’Sullivan during a recent hearing as saying that MidAmerica “effectively mailed in four boxtops of Cheerios and asked for approval.”
The argument pits the state’s two largest wind generators against each other. Together they control about 70 percent of the state’s existing wind capacity. MidAmerican has around 1,400 MW and NextEra has 800 MW of wind capacity in the state.
MidAmerican bases its argument in part on an April 2006 decision by the Iowa Utilities Board. Regulators decided then that a determination of need does not require a “showing that the lights will go out if the facility is not built.” Such a decision would not be a prudent planning criterion, the Board said. In addition, when considering ratemaking principles, Iowa code requires the regulated utility to demonstrate to the board it has considered other sources for long-term electric supply and that the facility is reasonable when compared to alternative supply sources. “While cost remains a factor, elimination of the least-cost requirement is consistent with the intent of the ratemaking principles statute, which is to attract electric power generating facilities to this state,” the Board decided in a May 2002 case. It went on to say that non-cost factors could “in some cases be determinative.”
Climate Change and Energy Security
MidAmerican pointed to the possibility of federal action on both renewable energy standards and carbon emissions as reasons to proactively expand its wind generation portfolio. On the one hand, wind generation provides a hedge to facilitate compliance, the utility said. On the other hand, if MidAmerican has more than adequate renewable generation, its customers can benefit from wind exports and renewable energy credit sales.
“In either circumstance MidAmerican’s Iowa retail customers stand to benefit through incremental revenues and/or avoidance of potentially higher compliance costs,” MidAmerican said in a July brief.
Return on Equity
The utility asked its regulators to approve a 12.2 percent return on equity. It said the return matched two prior wind ratemaking cases. It also said the return likely would be less than 12 percent owing to the cumulative affects of depreciation and deferred taxes.
NextEra said it believes MidAmerican is attempting to finance a wholesale business through the support of captive ratepayers.
“Providers like NextEra do not have the ability to finance construction of their facilities from ratepayers’ funds,” the company said. In testimony before the Board, O’Sullivan was quoted as saying NextEra likely would not seek to develop additional wind capacity in the state if MidAmerican’s proposal is approved.
As an alternative, NextEra proposed selling two wind projects to MidAmerican, one currently operating and one in development. NextEra proposed selling 100 MW of the existing Endeavor I wind farm for $2,150 per kilowatt in early 2010. It also said it would sell a 250 MW wind project in late-stage development for $2,175 a kilowatt in 2010 or $2,200 a kilowatt in 2011. It also offered a series of purchase power agreements starting at around $54.00/MWh and escalating 2 percent a year for 25 years.
NextEra said its offer is a lower-cost alternative to MidAmerican’s proposal. NextEra said estimated total capital requirement for the utility’s plan is $2,333 to $2,685 a kilowatt, without allowance for funds used during construction. That translates to a cost of around $80 to $92/MWh.
The Board concluded its hearings the week of August 10. A decision could be several months away.
This article was reprinted with permission from Power Engineering as part of the PennWell Corporation Renewable Energy World Network and may not be reproduced without express written permission from the publisher.