Saturday, July 26, 2014

The Clean Line Transmission Controversy In Iowa



Regular visitors to this blog can probably guess that I’m more interested in writing about farmer owned distributed generation (DG) than utility scale renewable energy projects. To clarify, I’m not really opposed to the big wind thing, but I’m opposed to large wind projects as the only business model for developing wind resources. I’m also of the opinion that small scale energy projects are more cost effective than centralized generation supported by transmission lines. Current U.S. tax policy and regulations discourage farmer owned DG, but that’s really a topic for an upcoming post. So, with that out of the way, let’s look into the Clean Line controversy a little more thoroughly, as it has generated a fair amount of media coverage in Iowa. 

Clean Line is a is a proposed transmission project that bills itself as a vehicle for carrying wind energy from O’Brien County in Northwest Iowa to markets in Illinois.  Farmers and landowners along the proposed transmission line route are quite upset at the prospect of a private company possibly using eminent domain to seize farm land for that companies own use. This has resulted in what I think is really the first organized opposition to renewables in Iowa. Several Farm publications have covered this story.  It was on the front page of a recent Wallace’s Farmer issue. The Iowa Farmer Today (IFT) also covered it, noting that over 1000 oppositions to the project have been filed at the Iowa Utilities Board.  IFT also noted that “Roger McEowen, director of Iowa State University’s Center for Agricultural Law and Taxation, said the first thing landowners need to realize is the agreement as it stands favors Clean Line Energy.”  Also, it appears that the transmission line compensation is a one-time payment, while wind projects generally compensate landowners annually. So, it’s easy to see why farmers are peeved.

While I’m very concerned about potential abuse of eminent domain in Iowa, I think it’s unfair for the opposition group to single out Clean Line on this issue. Eminent domain is typically used for projects that serve a public need, and Clean Line opponents don’t seem to believe the company has passed that test. Then they should also be concerned with other company’s eminent domain use in the state. In the Iowa Utilities Board 2009 Docket RPU-09-0003,


 Micheal O’Sullivan with Nextera Energy testified that “MidAmerican had non-requirement sales for resale in 2008, according to its FERC Form 1 filings, of approximately 38% of its total sales of electricity, and approximately 42% of its total MWh sold”. 


So, it looks like a portion of MidAmerican’s (MEC) wind is sold on the wholesale market. Therefore, Clean Line opponents should also be concerned with MEC having eminent domain at its disposal to expand their AC transmission in Iowa for excess generation.
  
The Iowa Legislature introduced a bill in 2014 to tighten requirements for use of eminent domain for this type of project. Early versions of the bill would have also affected AC transmission lines. Later changes were proposed so the bill would only pertain to DC transmission lines, the type proposed by Clean Line, giving the state’s other utilities a pass. The bill didn’t advance, but why would legislators write an eminent domain bill that only affects one company, and not a bill that helps all landowners approached by developers.  The bill was almost certainly lobbied on by utility interests. It was also opposed by some environmental groups, who want the Clean Line project. It will be interesting to see if some of those same enviro groups will oppose eminent domain use by a Texas company that has proposed an oil pipeline in Iowa. Some of them are already citing concerns about the pipelines potential impacts on farmers. It seems that the Clean Line opposition group might also oppose eminent domain use to acquire land for the pipeline. 

A number of groups do support the Clean Line project, so let’s examine the “for” position as well. Supporters like the potential additional clean wind energy the transmission project could bring online, and wind develops have secured easements where the Clean Line Substation has been proposed.  I’m not convinced that the new transmission line will just carry wind energy, as federal guidelines try to give equal transmission access to all forms of generation. Wind generation in that section of Northwest Iowa would have a very good capacity factor, probably close to 45%. But that still means that quite often, it could carry coal power from the Dakotas. Wind is currently without subsidies, as the federal production tax credit has expired, while coal still enjoys federal assistance (see my past post, or try Google). So, coal power could have an advantage over wind for electric power purchasers. That may balance out somewhat with the proposed EPA regulations for power plants, but you get the picture.  This study by Capx2020, while from back in 2007, seems to think Regional Transmission Projects may help import coal power to areas of the Midwest (page 15 – PDF file). 

I found the above link in the comment section of an article discussing the nebulous sounding idea of a “Special Purpose Development Corporation — created for the sole purpose of acquiring properties for a transmission project and then selling the bundled parcels to the developer. The number of shares granted would depend on assessed value.” The concept was pitched by the Center for Rural affairs, to help decrease landowner opposition to transmission projects. While the think tank’s attempt to “think outside the box” is somewhat refreshing to me, Clean Line opponents didn’t seem to care for it, as a “small riot” erupted in the comment section of the article. 

So, how do we go about encouraging more renewable energy development in the Midwest? I’m going quite a bit further out of the box. Annual payments to landowners for wind projects have worked well to date, so it seems annual transmission line easement payments might work better to secure rights for new power lines. It’s pretty clear that eminent domain use by renewable projects pisses people off. It’s an old business model tool that doesn’t seem suited to modern clean energy development. Letting affected landowners have actual ownership in the wind project and transmission line might work a lot better. Even wind energy trade magazines have noticed that the current model for wind development might be in need of improvement. Mark Del Franco at North American Windpower notes that “Times have changed, and so must the actions of wind developers. It’s the new reality.”   

However, I’ve noted before that I think it’s high time for a robust distributed generation policy to encourage more local ownership of wind and solar. It will build more public support for renewable energy policy. It might also help larger projects as the public will become better educated about wind and solar when they can own it. The public might start ignoring misinformation about renewables. It will also help regulators plan and watch for ratepayer interests, given that some are projecting that as many as half of the countries electric customers might generate their own power by 2028.  Some of the many projects planned around the country just won’t be needed under that scenario. Having a stable DG policy in the country would help regulators decide which of those projects will be warranted. Until that happens, at least some forward thinking areas of the company have decided not to wait. I’ll close with a link to a positive example of rethinking our plan for modernizing the countries electric grid.         


Update 
I found an additional link for this post , It looks like the Fort Dodge Messenger requires an account to view this , But it is a story about Clean Line meeting with local economic development officials. It contains the following quote "Because of the federal regulations that require line owners to allow interconnecting, Detweiler said there is the likelihood of additional revenue by other entities moving power along the system."   So it looks likely this project will carry some coal power. Mr. Detweiler is an employee of Clean Line.

       

Tuesday, June 10, 2014

Does MidAmerican pay correct wind property taxes in Iowa ?



It’s time to update efforts to determine if MidAmerican (MEC) is paying correct property taxes on their wind assets in Iowa, I’m going to concentrate on a small segment of the MEC wind project near me. The project was built in 3 phases. The 3rd phase consists of thirteen 2.3 megawatt turbines, 5 in Pocahontas County, and 8 in Calhoun County.  Curiously, each county valued the turbines differently, Pocahontas at $3.66 each, Calhoun at $3.60 million. These figures were quoted to me during visits to each assessor office. Since then, the two county assessors have apparently networked and each county’s assessment currently stands at $3,631,990. I’ve asked each assessor to show me how they calculated the valuations, and how come there was a difference in the original valuations.  Both have recommended I review the MEC property tax filings I accessed in both counties.  

I’ll get to the filings shortly, but first, state law allows Iowa taxpayers to contest property tax assessments in an annual April to May period at a county review board. I filed a petition contesting MEC’s wind values in Calhoun County during May.  I requested an oral presentation, and was allotted 15 minutes to present information supporting my concern about MEC’s wind property valuation. I noted the difference between the valuations in each county, concern that the utilities don’t appear to itemize all project soft costs in their county filings, and my general concern that the county valuation was vastly south of the project cost caps negotiated by MEC, Office of Consumer Advocate (OCA), and the Iowa Utilities Board (IUB), all entities with much experience with wind costs. I also offered to help, as I have consulting experience with wind projects. I requested the county access MEC’s Utilities Board filings and thoroughly review them.  The county dismissed my petition for “lack of standing”.
It’s Interesting to note (also a little disappointing) that the Calhoun Assessor noted in a letter dismissing my claim that she had contacted the IUB. She wrote that the cost caps weren’t relevant to valuations, and that the final project cost was $1611 per KW. See below. 




 We can compare the project cost per kilowatt to the county wind property valuation. A 2.3 megawatt wind turbine = 2300 kilowatts. 2300 x $1611 per KW = $3,705,300, a number higher than either county valued the turbines, and higher than MEC’s county filing appraised the turbines.  I relayed this to the assessor by email and received the following response – “As I have said before, we do not assess per kw.  That is what you are using to compare.  We are assessing the same as Pocahontas County, as well as every other county with wind energy property.”
This is why I asked the county to review the IUB filings to determine why the numbers were different, and determine if all hard and soft costs are accounted for in the valuations, as the Department of Revenue (DOR)  advises County assessors to do.  Also at issue, what items are used to determine the IUB caps?

OK… back to the utility filings. A few interesting examples are below.  The first 2 are examples of the ledger invoices costs listed in the MEC Calhoun County filings. 


In my opinion, I think it’s hard to determine if these are actual costs incurred in the county, or general costs at multiple locations. A more useful format would be itemized costs of turbine towers, nacelles, foundations, balance of plant, and per turbine soft costs. I can’t determine if the underground cable between turbines is accounted for in this filing. The filings for the 3rd phase in Calhoun County included these invoice records. Pocahontas County has all three project phases, but MEC only included invoice records for the first phase. It appears the utility filed no supporting documentation for the other 2 phases. The filings over the last 5 years have also raised and lowered the value per turbine.   See below. A decrease in cost was filed in 2013.   Also note that MEC lists 11of the 2.3 megawatt turbines installed in Pocahontas County. 




A 2014 filing raises the value, again with no supporting documentation. Also note MEC counts 8 of the 2.3 megawatt turbines installed in the county.  The Pocahontas county Assessor counts 5 of the 2.3 megawatt turbines, by the way.



 
So what to do about this issue?  I found quite a few items that conflict with each other while examining this small segment. Given that the Utility seems to have misplaced some of the turbines they thought were in Pocahontas County, and that there seems to be differences between the utility county filings and information provided by the IUB, it seems fair to question the costs submitted.  Since the Calhoun assessor notes that all counties are using the same method to calculate wind values, here are my recommendations:
  
1-This is an Open Records issue! Both counties originally denied my request to see these records. Once they were reminded of the section of the Iowa code that allowed citizens to review property tax filings, they allowed me access. My local review board petition was dismissed using Utility board information that I have not had access to yet. Lack of transparency has been a big problem in sorting things out with this issue. Iowans should have access to these records.     

2 – Every county with MEC wind assets should review the MEC filings at the IUB, and thoroughly review their own current methods of wind valuations. MidAmerican originally offered to make their tax department personnel available to review this issue.They have yet to do so. It seems that 3rd parties should be involved in this process as well. I'm volunteering. 
3. Again, 3rd party consultants familiar with wind costs should be involved as well. That might be difficult, as most consultants might have conflicts of interest, having worked for existing projects.  The IUB and OCA are watching out for the ratepayer, so they may be perceived as having a conflict as well.  

4. The DOR should offer more assistance to county assessors to determine if all hard and soft project costs are accounted for. Iowa now has several billion dollars of wind assets installed. Even small mistakes on valuations can add up to larges values not on the state tax rolls.  
    
So, I’ve shined a ray of sunshine on this issue. It needs more work.  I still haven’t learned why MEC and the IUB modified the cost caps for this project 5 times , but the county only has 3 property tax assessments for this project. Citizens can appeal to a state review board if they don’t agree with their (or their neighbors) Property assessments. I’m hoping local government will address it.  I’m still reviewing about 100 pages of MEC’s county filings, so more interesting stuff will probably surface.  Stay tuned…   

P.S. It’s probably obvious to blog visitors that writing skills are not my greatest asset, So thanks for checking me out and enduring grammar errors, fragmented sentences, etc. I’m covering some energy issues that I really think need more discussion in Iowa, not all of them positive, so I’m going to try ending with an inspirational link when posting. 

Recently, Germany set another renewable record, generating nearly 75% of their electricity with renewables – without building a bunch of big transmission lines. Almost half of renewables there are owned by farmers and regular folks, instead of the corporate business model that makes up the majority of U.S. renewables. Iowa is nowhere close to that number, though we enjoy better wind and solar resources than Germany.  It’s time for Iowa to think locally when it comes to renewables!            


Monday, April 21, 2014

An Iowa Post On Climate Change



It’s time to clear the cob webs away here. There’s certainly no shortage of energy items for Iowa energy wonks to digest these days. I’ve just been engaged on other issues. Just a quick post today for us to get back in the swing of things.

I’ve filed a petition to contest MidAmerican’s wind property tax assessments in my local county, so you can expect another post on that subject. You can also expect an in depth post on Iowa distributed energy doings at the legislature and our Utilities Board that you probably won’t find elsewhere in our state social or print media. 

Today though,   Climate change... As a farmer deeply interested in renewables, I’ve understood for a quite a while that agriculture has the potential to be a part of the solution. Just look at what farmers have accomplished in Germany. Policy in the states is not friendly for farmers to help on the climate issue yet. From tax policy to fair treatment on interconnection, to getting a fair price for our electricity, policy in the U.S.A. mostly discourages farmers from adopting renewables. Farmers can be a stubborn lot, and sometimes we still make progress here, though the deck is often stacked against us. Guess I’ll take a closer look here as well.    

Climate change… David Roberts, one of my favorite energy writers, took a year off to recharge. He surfaced surprisingly at a recent climate conference in Washington State, so let's include the video of that conference that features his panel, along with a couple posts of his on climate change.    The first,   'Environmentalism' can never address climate change, was written after the national Cap and trade effort failed. A quote -  “Environmentalism” is simply not equipped to transform the basis of human culture. It grew up to address a specific, bounded set of issues. For 50 years, American environmental politics has been about restraining the amount of damage industries can do. Environmental campaigners have developed a set of strategies for that purpose, designed to overcome the resistance of industries and politicians to such restraints. And they’ve been successful in a number of areas. So when climate change entered American politics via environmentalism, that is the model into which it was slotted. Environmental campaigners set about restraining the amount of greenhouse gases industry can emit, and industry set about resisting.” 

The second - Climate change and “environmental journalism”  will probably be of interest to readers as well. “Climate change is not “a story,” but a background condition for all future stories. The idea that it should or could be adequately covered by a subset of “environmental journalists” was always an insane fiction.“ 

This isn’t a partisan issue, although it is used as one frequently. Unfortunately, that keeps most people from engaging about this. Here are a couple posts, one from George Lakoff, criticizing progressives on climate discussion, among other things - "Liberals Do Everything Wrong", the other, an interview with retiredArmy Brig. Gen. Chris King laid out the military’s thinking on climate change, contains some messaging that should resonate with conservatives. 

As a farmer, I simply go to the idea that makes sense to me – advocating for policy that enables farmers and non-farmers alike to adopt bottom up solutions… the old positive messaging approach! John Farrell seems to one of the best at articulating this approach.  But as we look at positive examples of folks who are making a difference, let’s remember that there is a lot of heavy lifting to do to enable people to start adopting their own renewable energy solutions.  

Thanks for checking out the blog!

Tuesday, January 28, 2014

MidAmerican Wind Property tax update January 2014



Since my last post on this issue, I presented my concern, that the utilities wind assets might be undervalued; to the Calhoun county supervisors (8 turbines from this project are located in Calhoun County). No action was taken, but a couple of the supervisors suggested the matter should be looked into further. The assessor suggested that I contact the Department of Revenue (D.O.R.) regarding this issue. The staff at D.O.R. was nice enough to meet and spend quite a bit of time discussing my concerns. They explained that since the property taxes were assessed at the county level, contesting the valuations would be done at the county assessor’s board. There is also a state property tax review board with subpoena power. After that, citizens who still are contesting the rulings in these venues would have to proceed to district court.   
  
The D.O.R. explained that since the property taxes were assessed locally, their job was to provide information and assistance to the county assessors. The D.O.R. sent a Feb. 2010 memo – “Cost Reporting for Wind Towers” - to county assessors.
Here is the memo, along with comments inserted by me. 

Property Tax Division
1305 E Walnut
Des Moines, IA 50319
515-281-4040
February 10, 2010
TO: Iowa Assessors & Deputy Assessors
FROM: Dale Hyman, Administrator
Property Tax Division
RE: Cost Reporting for Wind Towers
Iowa Code §427B.26 provides for a special valuation of wind energy conversion property based on “net acquisition cost.” Some assessors asked for clarification on what is to be included in “net acquisition cost.”

Should soft costs be included in net acquisition cost?

Yes. Soft costs are typically included in determining the value of improved property under the cost approach. The 2008 Iowa Real Property Appraisal Manual (page 3-2) specifically includes soft costs in valuing improved property. In addition, the 1990 “Property Appraisal and Assessment Administration” book by the IAAO, page 207, states: “In appraisal, costs consist of all expenditures necessary to complete construction of an improvement and place it in the hands of the buyer. Costs are either direct or indirect. Direct costs include materials, labor, supervision, equipment rentals, and utilities. Indirect costs include architectural and engineering fees, insurance, interest on construction loans, taxes incurred during construction, advertising and sales expenses, and reasonable overhead and profit.
“Accurate cost estimates will include all direct and indirect costs. Accordingly, when developing cost schedules, appraisers should be sure that all costs are accounted for.” Nothing in the definition of “net acquisition cost” excludes soft or indirect costs from being part of the valuation of the wind tower conversion property.   

My Comment – In my opinion, the reason the information MEC provided me does not match their filings to the county might be explained by this section. It’s possible that not all the soft costs are accounted for by utility and assessor. The utility filings only list turbine, met tower, substation and land. There are 50 plus pages of invoice copies, but I can’t determine if they have been included in the “net acquisition cost”.  The easiest way for assessors to obtain this information for MEC projects would be to access records at the Iowa Utilities Board.  It also appears that some of the costs above were instead included under the Iowa Utility Replacement excise tax, which is taxed at a rate per KWH formula.   

Part of the definition of net acquisition cost is an exclusion for “any excess cost adjustment.” An example would be if cost are accrued at the end of the year and the actual cost comes in lower, then there would be excess cost adjustment to report. 

 Is land part of the entire wind energy plant to be valued and subject to the special valuation?

No. The definitions of net acquisition cost and wind energy conversion property in
427B.26(4) are relative to improvements and not land or real property. Therefore, the intent is to value the land separately and give the special valuation only to the improvements on the land.

My comment- Since land is listed in the county valuations; I’m going to contact the assessor for an explanation.

Would a general ledger summary be helpful? 

Yes. A summary of the general ledger for the wind tower project would be helpful if it shows a breakdown of the cost of the project. Items that are in the general ledger but not in the net acquisition cost should be itemized and reviewed by the assessor.  

My comment - The invoice copies provided to the county would seem to cover this, but again, I can’t determine if they are in the net acquisition cost.  

It’s also interesting to note that the Iowa utility replacement excise tax was adopted  in 1998 because “The Legislature found that with the advent of restructuring of the electric and natural gas utility industry, a competitive environment would most likely replace the regulated monopoly environment.
Previously, utility companies were subject to property taxes levied on their production and transmission facilities. If those property tax levies would have continued in a restructured environment, the property tax costs would have put Iowa-based utility companies at a competitive disadvantage because out-of-state suppliers of energy would not have paid the Iowa property tax.” 

My understanding is that Iowa did deregulate the wholesale side of the utility business in 2003, but not the retail side, leaving the utility monopolies in place, perhaps legislators should revisit the excise tax. At any rate, it looks like we might have to go a little further down the rabbit hole to sort this out.