Does Midamerican Have Too Much Influence On Regulators and Elected officials ? updated 6-11-18

In my opinion... yes.
I'm going to shift gears slightly from the recent series of posts on the utility's wind asset valuations, and provide some examples of where I believe the utility gets its way too easily from the people responsible for utility over sight.

My first example though... once again... involves wind property taxes.
MEC is currently in the process of re-powering  a number of their wind projects in Iowa, with new longer blades, generators, gear boxes, etc, even though some of these projects are only 10 years old.
The utility claims the changes will result in almost 30% more more annual electricity production. Hmm, will MEC increase the annual lease payment to landowners, since the turbines will generate more revenue?

I attended the MEC permitting meeting in Pocahontas county for the re-power of the MEC Pomeroy Project. I inquired how the MEC wind turbine improvements would change the turbine valuations at this project. I was told that the valuations would remain the same, even though MEC is performing a major upgrade. County officials provided me with the following letter from the State Department of Revenue, as reason to leave turbine valuations unchanged.

 

So,  even though the DOR letter states that this is an an informal opinion, and treats the re-power as repairs, instead of the major upgrade that it appears to be, the county seems ready to agree, even though it isn't fair to the county bottom line IMO. I've already documented that the MEC Pomeroy project appears to be undervalued , when local assessor valuations are compared to the MEC's filings at FERC.  So, let's look at what's involved in MEC's planned re-power of these projects. 

MEC appears to be planning on claiming the federal production tax credit on the re-power, even though this project has already used the federal PTC once. I found an article that states in order for MEC to claim the federal PTC, 80% of each turbine has to replaced. 

      

These are not repairs. MEC is replacing nearly the entire turbine in order to generate more revenue, and claim a tax deduction. MEC doesn't appear to want to share the PTC with ratepayers. (PDF file) The IUB filing  states the re-power won't be done unless MEC keeps the PTC themselves. Since the re-power is proceeding , I'm guessing MEC got its way. Interesting to see the heavy hitters opposed to the re-power here though. So, do you think the utility has too much influence on regulators here?  

This sure has the look of a tax shelter, and if you search the www for "Warren Buffet tax avoidance", you'll find lot's of entertaining reading.  

Then there is this one, where Mr. Buffet claims utilities are only facing competition because of the federal tax credits,for renewables. Really... Berkshire shareholders are buying that one? 

This seems to be why Warren appears to like monopolies so much, MEC's competitors are shut out , as this now disappeared article notes . Hmm, maybe I can find a copy on the internet wayback machine. 

So, does this state sanctioned monopoly have too much influence in Iowa? 

 

UPDATE

I've found some additional information on the MEC wind turbine re power. The letter above provided by Pocahontas county was the basis for the county's opinion that property taxes would remain unchanged after the re power.

The dept of revenue opinion seems vague here. Does the "tower" refer to the entire wind turbine? What about the "building" ? There would normally be a building at the interconnection point. Maybe DOR means the nacelle when referencing "building".  If the letter means the actual tower sections , Surely DOR understands the tower sections are probably the least expensive part of the turbine. MidAmerican is replacing the nacelle, blades,and hubs, almost everything except the tower sections and concrete pad with an upgrade to a larger capacity nacelle,longer blades, and supporting equipment. These are essentially new, larger turbines and should be taxed accordingly IMO. DOR mentions this is only an informal opinion, however. 

I find it hard to believe that it's necessary to do this re power given the extra costs involved. I think it's risky to MidAmerican ratepayers. This Utilities Board filing by environmental law and policy center, and the Iowa environmental council (disclosure, I used to serve on the IEC board of directors), supports the re power, noting it will extend the useful life of the wind turbines another 20 years.. I'll bet that MEC pitched the extended turbine life in IUB filings as well. However some of the wind turbines slated for re powering are less than 10 years old.

  

 I found a 2013 IUB filing by MEC stating wind turbines have a useful life of 30 years or even longer, using letters from Siemens and GE stating properly maintained wind turbines have at least a 30 year useful life.. So... the re power only gets the  re powered turbines to the original 30 year lifespan? This begs the question - Is MEC not properly maintaining their wind projects?  :) I just couldn't resist! However, it raises a more serious question , I do wonder if there is a public record of regulators ensuring the proper maintenance of MidAmerican wind turbines.

    So, this seems like an unnecessary endeavor. Local government won't get treated fairly on property taxes IMO. There could additional risk for MEC ratepayers. Yet County officials, the state DOR, IUB and others, have, or seem ready to approve of this. But then, I noted this example of what can happen when a regulator gets on the wrong side of MidAmerican.     

Do you think MidAmerican has too much influence over regulators and elected officials? I do.     

      

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MidAmerican Wind Property Tax Update

In the utility's press release for wind XI, once again, MEC indicates that its wind projects cost more than the valuations the utility has reported to county assessors.

The utility lists the cost of wind XI at $3.6 billion , and will use 1000 turbines, and have 2000 megawatts of capacity. In the past, the utility has reported valuations of their wind projects in the area of $1600 per kilowatt, and even lower in some of the county assessor filings I've seen.

It looks like MEC will use 2 megawatt turbines, as noted by using 1000 turbines to reach the 2000 megawatts.  The following release in North American Wind Power mentions MEC has selected Vestas 2 megawatt turbines for wind XI.

  


From North American Wind Power



Using the MEC provided project information, let's do the math.
$3.6 billion divided by 1000 turbines = a cost of $3.6 million per turbine.
$3.6 million divided by 2000 kilowatts = an installed cost of $1800 per kilowatt. quite a lot higher than the utility is reporting to county assessors.
$200 x 2000 kilowatts per turbine = a possible undervaluation per turbine of $400,000.
1000 turbines x $400,000 = equals a potential $400,000,000 undervaluation of this wind project for for tax purposes.

I'm using Mid-American"s cost figures, from their press release, so once again , we have another example of the utility listing higher valuations for their wind projects than MEC reports to county assessors.

Previous posts on this topic have also noted examples of  the utility listing higher valuations at FERC, and the the IUB than at the county levels.

Part of the project cost includes grid interconnection . It's possible the missing $400,000,000 might be interconnection costs. MEC is on record reporting some wind costs in the utility replacement tax instead of classified as wind  property. even though the wind property tax code seems to say otherwise.I'm guessing a private wind developer (not an Iowa utility) couldn't do this.

      So, is $400,000,000 in the wrong tax program, missing altogether, or something else?

The main questions I have from researching this are-

Why am I consistently finding lower valuations reported at the county level than MEC reports in their press releases, FERC, and the IUB ?

How much revenue is local government  losing because MEC reports wind assets in the utility replacement tax program ? Sorry public , its confidential at the department of revenue.

Is the utility self reporting the replacement tax filings with little or no review by the department of revenue? That department has not answered my question about what audit procedures are used  to verify MEC's replacement tax filings .

It's time for this information to be made available to the public so we can see. I'm certainly willing to discuss this with the utility , appropriate state agencies, or elected officials.

Considering the growing public resistance to large scale wind projects in Iowa, making the utility's wind costs available to the public would let voters see if the utility's cost savings of buying turbines in bulk is more than offset.by transmission cost upgrades to connect industrial wind to the grid.

Then policy makers could determine if if future renewable energy projects should be smaller , more distributed, and owned by regular Iowan's instead of a Berkshire Hathaway utility.

I'm wondering if wind projects were owned by regular Iowan's, that it would make it easier to sort out this property tax issue!

  "We may have democracy, or we may have wealth concentrated in the hands of a few, but we can't have both."

  Louis Brandeis

  

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