Iowa Renewables Update For October 2014

I’m still working on a tax and regulatory post to explain why current state and federal policy discourages farmer owned renewables (it also discourages business and individual renewable systems). That will be posted sometime after harvest. Is there a tax professional out there interested in co-authoring a piece?  Here are some “around the interweb” items and thoughts about farmers and climate policy in the meantime.  

 Nathanael Johnson @grist.org called on farmers to march at the recent climate rally , and spent some time discussing Iowa farmers. Grist is a great source for energy and climate writing. However, this post was particularly interesting to this farmer. Johnson correctly points out the disconnect between Greens and Farmers. Asking farmers to attend a climate rally scheduled in the middle of harvest is an excellent example of this (Sorry Nathanael, just couldn’t resist). 
His closing statement also caught my eye -  “In the past greens have largely dismissed conventional farmers because we’ve thought they were opposed to our goals. But if agriculture emerges as a true political power against global warming, greens will be ready to listen when farmers say, “Hey, you should be giving us some credit for our environmental efforts.”  I’ve found state and federal level green groups have indeed been dismissive of farmer owned renewables in the past as well (with at least 1 exception). I know quite a few of them, and have found them mainly enamored with  controlling emission levels, energy efficiency, utility scale wind – transmission lines, and lately solar leasing…but not focused on the barriers to farmer renewables.  These positions haven’t built much public support in the voting booth for climate policy and renewables.   
 Ag groups haven't had farmer renewables on their priorities list either, but that might finally be changing now that some farmers are starting to push them. , So, maybe Greens and Agriculture might have an issue they could agree on. I’m guessing German Farmers did march in this rally calling for moving Germany to 100% renewables. After all, farmers are major players in renewables there. In the Midwest, not so much.  

Who knows, if Greens and Ag could actually agree on this issue , maybe these groups could start to find consensus on the tougher climate policy goals we need. A lot of farmers are ready to do their part, Sadly, public policy isn't ready for them.    

Elsewhere, a utility funded study says their customers with solar installations help – not harm utility ratepayers.  

The Iowa Utilities Board is currently conducting a review of state Distributed Generation policy, and it appears they will do little to help farmer owned renewables in this docket. Feed in Tariffs, and statewide net metering will be not be taken up, and there’s no guarantee they will standardize interconnection procedures either.   In the past, the board has suggested the legislature take up some of these issues. Look for a full post on this.

There seems to be a lot of misinformation circulating in U.S. media on the German renewable revolution. This blog by Craig Morris is a good place to get the facts.

Iowa could only manage a number 30 rating on this “best state to locate your clean energy company” list. Sigh.

Iowa farmer opposition to a new transmission line continues. 

The positive uplifting link in this post, if you’re checking such things, is the above link on Marching German farmers. Thanks for stopping by the blog.  

Does MidAmerican pay the correct wind property taxes in Iowa? August 2014 update

I found the following article by Loren Hough, for the Chronicle Times in northwest Iowa. It assembles a lot of good information about wind project property taxes in NW Iowa. Of interest was the following -    “According to Mike Prior at the Iowa Wind Energy Association (IWEA), the estimated cost of new wind energy is generally pegged at $1.8 million per MW in 2014. That wind energy cost estimate figure was at $2 million per MW in 2012.”  

My last post on this topic concentrated on one small part of the MidAmerican (MEC) project in Pocahontas and Calhoun counties, using 2.3 megawatt turbines. In that post, I noted the current assessment of $3,631,990 per 2.3 megawatt turbine, installed in 2012, at MEC’s Pomeroy project. If we use Mike’s above figures, It appears that IWEA (MEC is a member) thinks it should cost almost $1 million additional dollars to install a 2.3 megawatt turbine.  

2012 costs - $2 million per MW x 2.3 megawatt = $4,600,000. 

The article also notes that O’Brien county estimates the value of MEC’s 500 megawatt project there (214 turbines, 2.3 megawatts each) at $900,000,000, installed in 2014.

$900,000,000 divided by 214 = $4,205,607.   IWEA’s 2014 cost estimate is $1.8 Million per megawatt. 

$1,800,000 per MW x 2.3 megawatt = $4,140,000.

 Much closer to IWEA’s estimate. What exactly is going on in Pocahontas and Calhoun County?  I haven’t been to determine the reason for this huge difference in assessed value by examining the MEC filings in these 2 counties.   

I want to clarify that I’m a huge wind energy supporter (you won’t find a bigger supporter). I’m just trying to determine if MEC is paying the correct property taxes on their wind assets. I also tend to prefer locally owned wind turbines over the absentee owned projects. So, let’s take a look at that.   

The article correctly points out that current wind development has been a “windfall” for the counties that land a wind project. The O’Brien county assessor notes that the MEC project will net a $6,480,000 annual property tax payment when assessments are fully in. So, nothing to sneeze at, but what would happen if this project were locally owned? The property tax amount would be the same, but gross revenue for electric sales would also stay in the county.  

The Iowa Energy Center has a nifty calculator for estimating wind turbine potential. The calculator did not have a 2.3 MW turbine choice, so I used a 1.6 MW turbine instead, and selected a town in O’Brien County . Here is the estimate. 

A 1.6 megawatt turbine will produce approximately 6,725,742 kilowatt hours annually. It takes 312 of 1.6 megawatt turbines to = the projects 500 megawatt size.   Iowa Utilities Board 2009 Docket RPU-09-0003 contains an estimate that MEC is paid 7 to 9 cents per kilowatt hour for wind production. 

6,725,742 x .07 cents per kWh = $470,801. That figure x 312 turbines =   a much bigger annual revenue number than the annual property tax number. $146,890,205 annually for the county in gross turbine revenue!  

Does anyone else think it’s time for state policy that encourages local ownership of wind energy? That policy would spread wind energy all around the state, letting more counties benefit than the select few that hit the home run by landing a big project. And Iowa sure isn’t keeping much wind profits in the local economy.  This post was originally going to be about why Tax and regulatory policy is preventing farmer owned wind energy, but this seems to be a good Segway into that topic. 

Thanks for stopping by. 

Here’s a positive story about renewables, as promised. What happens when you design a successful locally owned energy program? Quite a bit!     

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 now 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 developers 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 is a Fort Dodge Messenger story about Clean Line meeting with local economic development officials in northwest Iowa. 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.

       

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 3^rd 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 3^rd 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 3^rd parties should be involved in this process as well. I'm volunteering. 

3. Again, 3^rd 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!