An Iowa Utility Death Spiral?? (And Other Items)

Could it happen in Iowa? For those of you unfamiliar with the “utility death spiral” concept, The Interweb has been full of discussion lately about big changes coming for utilities. Here’s how it goes: Many people start generating their own electricity by installing their own solar panels, small wind turbines, micro gas turbines, and fuel cells. This lowers the amount of customer’s captive to monopoly utilities. Those utilities have to raise electric rates among remaining customers to maintain services. This causes even more customers to install solar panels, etc. Rates go up even more. Soon… down the drain another utility goes.  The telecom industry, once highly regulated, has changed radically in the last 2 decades, so it seems possible that similar things could happen with electricity generation. I’ve linked to articles discussing this before. The first post I saw on this topic was in 2008. According to the author, almost half of U.S. electric customers could be generating their own electricity by 2028. If that happens, you can be sure the industry will look much different than it does today.  Here’s some of the latest buzz: 

Bloomberg Businessweek posted “Why the U.S. Power Grid's Days Are Numbered”. Stephen Lacey just posted “UBS Analysis: Efficiency and Solar Create ‘Difficult Road’ for Global Utility Sector in 2014” . William Pentland @ Forbes.com isn’t buying it , making the case that companies will adjust before the “death spiral” occurs.  John Farrell doesn’t agree in “Utility Shocked to Find It’s Already Dead”, making the case that decisions made by utilities in the 90’s, may have already sealed their fate.  A quote - “we can toss out the antiquated notion that a utility grid must be centrally planned and centrally owned in an era when cost-effective energy generation is neither”. A lot of generation and transmission assets planned or in construction may not be needed, but someone (That’s you dear ratepayer) will have to pay for them. Some utilities have aggressively moved to control renewables themselves, yet a lot of their customers will still want their own wind turbines and solar panels. Our utility friends seem to have forgotten that the customer is always right. Their only plan seems to be “pick a fight with customers while trying to retain them”, as noted in the 2008 post above.  

    

The investment folks have also noticed. Seekingalpha just posted Are utilities headed for a death-spiral? The Economist ran “European utilities - How to lose half a trillion euros” in October. The “death spiral” doesn’t seem to be a myth in Europe. I plan to crawl further down the rabbit hole on this issue in the New Year.

   

Shifting gears, it’s the holidays, and here’s a link to some solar powered Christmas gifts, along with a photo of some coal fired Christmas decorations spotted on a recent trip. 

Here’s hoping that customer’s utility has a great distributed generation program. Most likely though, the Santa’s are powered by a lump of coal judging by the link to MISO Midwest fuel sources found on John Farrell’s twitter account.  The link shows the grid powered by 71.8% coal today. 

  So it looks like we need to add much more distributed generation in Iowa to change the look of that graph. You can send a new year’s wish to the Iowa legislature to do just that!   

Happy Holidays, and thanks for checking the blog out this year!          

Iowa’s 5 Biggest Renewable Energy Turkeys Of 2013

After enjoying Stephen Lacey’s post – “The 5 Biggest Clean Energy Turkeys of 2013”, I decided to rate Iowa’s own top 5 renewable energy gobblers this year. I have been watching Iowa energy policy for quite a while and there were no shortage of potential “winners” this year. Here are my nominations:  

1- MidAmerican energy company - for that company’s apparent lack of transparency on how they determine property tax rates for their wind projects in Iowa. Yes, no surprise that I would rate them as top turkey.  As noted in several previous posts, the utility sent me information that they negotiated much higher installed cost estimates with the Iowa Utilities Board than MEC was assessed on local property taxes. And it is very difficult for Iowan’s to access public information if they are concerned about their county and school district receiving proper revenue. If this is your first visit, please check the numerous posts here about what I learned so far.

2- Private Energy Companies with eminent domain power- Clean Line Energy is planning a HVDC line in Iowa. If the project proceeds, the company will register as an Iowa utility and have eminent domain authority to acquire land for the project. I’m opposed to allowing private companies to condemn land for their own purpose. So are a number of other Iowa farmers, and for that reason, the project seems to be generating  opposition in our state. Check the reader comments on the op ed linked above.

I’ve been watching efforts to stop the tar sands pipeline by several groups in Nebraska, by opposing that company’s use of eminent domain to gain right of way for Keystone XL.  I’ve been wondering for a while if those same groups (some with Iowa ties), will look the other way, or even support the use of eminent domain for wind transmission lines in Iowa. Hey, Opponents to, and advocates for both projects are using the same talking points.  Hmmm…

3- Iowa Senate leadership - Given my nominations above, these days, a lot of Iowa Farmers are interested in investing in their own wind and solar projects instead. The Iowa Senate let them down this year by declining to allow a floor vote on a bill to specifically allow farmer owned wind energy here. I wrote several posts about this when the senate was considering the bill. I just couldn’t write the epilogue about the bill when the senate bowed to utility pressure and “killed” farmer owned wind policy for another year.  This has been a recurring problem for many years in Iowa. Both of our political parties can share the blame for the lack of progress on this issue since the 1980s. However, this year, the award goes to Iowa senate Democrats.     

4 – Iowa energy advocates – For quite a while Iowa advocates who do like farmer - residential owned small scale wind, solar, and biomass, have been out-spent, and out lobbied by interests who like things just the way they are, thank you very much. You would think that after several years of this, advocates would work together and craft policy that addresses several of Iowa’s policy shortcomings, and send a united message to Iowa’s elected policy makers. That hasn’t happened. In fact, after reading this post about “building Science fight club”, I see similarities to Iowa energy advocates. Oops, I talked about “renewable energy fight club”, I will not, however, mention names, as I hope folks unite and improve this situation.

5 – Midwest renewable energy donors - Maybe I should have rated this group at number 4, as a number of the advocates above depend on them for their organization funding.  Iowa renewable policy looks the way it does because of the way these groups fund federal and state advocates. If you don’t like the way things are, and have contacts with any of these groups, maybe you should let them know. Maybe you should contact legislators and the media while you’re at it.  

So, that’s my list, I thought about including Iowa media outlets for their dismal coverage of Iowa renewables and climate policy, but, hey, you have to stop somewhere. 

That said, I’m really pretty thankful, despite sounding like quite a “downer” above. Iowa has moved the needle on renewables, and we’re really starting to debate how we want renewable policy to develop here.  That’s a good thing, and long overdue.  Iowa will be judged some day on how well we maximized the renewable energy opportunity to use the resources we were blessed with. Maybe we will actually do better than we’ve managed so far.               

MidAmerican Wind Property Tax October Update

The last 2 posts dealt with my efforts to determine if MidAmerican is paying the correct amount of property tax at their Pocahontas county location. I’m concerned that the wind project is undervalued, and don’t think they are. Several posts on this blog cover my effort to check on only one of their Iowa locations. What if their other projects in the state are similarly undervalued?

According to the newsletter I receive from MEC (a parcel of my farm has an MEC turbine on it), The utility has 13 other project sites in Iowa with 5 more in the planning stages.

 I came up with a large number in Pocahontas County for a potential property tax shortfall ($92 million). Let’s use a more conservative estimate of $50 million, Check my Sept. 10th post for the calculations.

$50 million x 13 existing projects and 5 “yet to be built” projects comes to $900,000,000 in assessed value potentially missing from the tax rolls annually. If so, that would take the luster off the utilities announcement last summer that they would build an additional $1.9 billion in wind projects. 

In addition, very little gross revenue from Utility owned wind projects stays in Iowa’s rural economy (experts generally estimate as little as 1%) . Most wind projects in Iowa are not owned locally. This link from the Iowa Wind Energy Association estimates “Iowa landowners with wind turbines on their land receive more than $16 million dollars annually in lease payments.” Sounds good, but if we figure that $16,000,000 is only 1% of gross revenue, then $1.6 billion is exported out of rural Iowa yearly to companies like MEC.  

Am I the only one that thinks Iowa could be doing a better job with our wind opportunity? So, not only are we not retaining much value from wind in our rural economy, but Iowans don’t seem to have a transparent process to determine if their schools and counties are receiving the correct property taxes from wind. 

Stay tuned!

MidAmerican Wind Property Tax

It looks like the MEC property tax issue is turning into a mini-series.

 A few turbines of MidAmerican’s Pomeroy project are located in Calhoun County. I recently stopped at that counties assessor office to check the assessed values of the wind project.   The Calhoun County turbines are part of the third phase of construction of this project. 

I was very surprised to find that the turbines are assessed at $3.1 million each, lower than the $3.6 million the same turbines are assessed in Pocahontas County.  They were installed at the same time. 

Again, there was no valuation placed on underground cable connecting the turbines.  If this is the case at all of MECs wind projects in Iowa, Counties might be missing out on quite a bit of revenue, considering my $5 million cable estimate in Pocahontas county alone ( see previous post).

The Calhoun assessor also informed me that MEC submitted valuations and the county accepted them. The filings weren’t available for review by the public. She also mentioned that the department of revenue was involved in the process, though she didn’t offer details. 

Overall, The Calhoun county assessor was professional. I’m going to submit a written request for the filings and see if they will provide them.  I imagine they won’t provide any more information than the Pocahontas filings though. 

Its harvest season, so look for new posts when it rains.            

MidAmerican property tax update

I’ve been trying to discover if MEC is paying the correct amount of property taxes at their wind farm located near me.  The quick answer is- I don’t think they are- due to information (mostly a lack of information) provided by MEC employee Dean Crist.  

This is the latest of several blog posts on this subject. Interested folks are invited to examine the earlier ones here.

 To recap:  I became curious about how Pocahontas County determined the rates for the MidAmerican (MEC) wind project in the county. The assessor’s office provided me with a property tax appraisal for the wind farm (constructed in three phases) for the first 131 turbines - $2,580,000 ($1720 per kW), the next 39 at $2,850,000 ($1,900 per kW) and $3,660,000 ($1591 per kW) for the final 13. The assessor’s office reluctantly provided basic filings (after an attorney requested them in writing) submitted to the county by MEC that roughly match the assessments, listing met tower, land, turbines, and substation. 

The following numbers were provided by Mr. Crist -   

1.         The first phase of Pomeroy (123 MW in 2007) was constructed under a Board-approved cost cap of $1,811 per kW.

2.      The second and third phase of the Pomeroy project (75 MW in 2007and 51 MW in 2008, respectively) was constructed under an economic test approved by the Board which resulted in cap caps ranging from $2,230 per kW to $2,480 per kW.

3.      The fourth phase of the Pomeroy project (7.5 MW in 2008) was added with a Board-approved cost cap of $2,300 per kW.

The fifth phase was an addition of 30 MW in the last ratemaking proceeding. At this moment I cannot find what year it was added as projects were added in 2009 – 2012. Cost caps for these projects were $2,050 per kW in 2009, $2,200 per kW for 2010 and $2,300 per kW for 2011-2012. 

 So, these are cost caps determined by the Iowa Utilities Board. MEC has been unwilling to date to provide actual project costs, only assuring me that the projects were completed under these cost caps. 

To me, the most interesting thing about these figures is that MEC’s cost caps were adjusted 5 different times, but the project has only three property tax assessments.  

The assessment of the first phase looks to be on low side to similar projects completed by Nextera (one of the largest wind developers in the country) in IUB DOCKET NO. RPU-09-0003. But, more noticeably, the cost cap for part of phase 1 and all of phase 2 is $300 to $400 higher per kW than the property tax assessments. The phase 3 cost cap is $400 higher per kW than the property tax assessments.  

There is no assessment for underground cable between the turbines. The assessor suggested I contact MEC when I questioned why. MEC did not supply itemized costs to verify that cable costs were in the turbine assessments. A wind consultant friend estimated costs of “Lighter cable 4/0 34.5 kV,  $115,000 / mile  (good for 4 turbines or so)”.  MEC has 183 turbines in the county, which would mean that potentially $5,175,000 in cable costs are missing from the tax rolls.  

The difference in the cost caps vs. property tax assessments concerns me. If the assessments for the first 2 phases (170 turbines, are off by $300 per installed KW, that figure is $76,500,000.  If the 3rd phase assessment is off by $400 per installed KW, that amount is $11,900,000. 

These figures total $92,575,000.  

  

 I was also unable to verify that construction and soft costs that were capitalized , depreciated, ( and therefore taxable), were included in the assessments. MEC declined to provide the confidential Utilities board filings that I requested that would have helped determine this.  

Finally, Mr. Crist noted in an email that the wind project costs beyond the Pomeroy substation were assessed under the Iowa utility property replacement tax system, rather than under 427B.26 -- Special valuation of wind energy conversion property. Since he did not respond to my phone call request for more information on the differences on tax rates between these 2 programs, I can only deduce that it produced favorable tax advantages for MEC.  427b.26 states that “Wind energy conversion property” means the entire windplant including, but not limited to, a wind charger, windmill, wind turbine, tower and electrical equipment, pad mount transformers, power lines, and substation.   

Possibly, the county is missing some additional revenue here as well.

My interest in this issue started when Pocahontas County considered creating a tax increment finance district to divert wind project property tax into special projects, potentially affecting 3 school districts and surrounding counties. It looks like residents of those school districts should demand a careful review of how the county determined tax rates for this project, as those school districts might be due more revenue than they are receiving now.  

There was little public information available at the Iowa Utilities Board to assist me on this quest. The documents describing the MEC wind builds have a lot of confidential information not available to Iowans, but I did find a U.S. Securities and Exchange Commission document that shed some additional information on wind project rate making principles for investor owned utilities. 

Other counties where MEC has wind assets or is planning to build assets might want to take note.  Next, a few interested parties and I plan to ask for a meeting with the assessor to revue this information. I’ll update when additional information on this issue becomes known. Perhaps MEC will even honor Mr. Crist's offer to schedule  a meeting with their tax department to discuss this issue.