NW Energy Small Wind Farm Tax

MONTANA, Apr 15 2008 (Neo Natura) - Developers of small wind-power projects in Montana have their eyes on the Public Service Commission this week, as it may decide a crucial price issue affecting their ability to succeed.

NorthWestern Energy, the state's dominant electric utility and the primary purchaser of wind power in Montana, wants to charge small wind farms for the cost of “integrating” their power into the NorthWestern system, which serves 320,000 customers.

The utility says if wind-power developers don't pay that cost, then NorthWestern consumers end up absorbing it.

“To have a cost shifted to ratepayers, I don't think is in their best interest,” says John Hines, chief supply officer for NorthWestern.

Yet developers of small wind-power projects that sell, or hope to sell, to NorthWestern say the company hasn't shown that those costs really exist.

And even if some costs do exist, they're less than the charge NorthWestern wants to levy, developers say - a charge they say would make it all but impossible to do business in Montana.

“If they end up with (a charge) the way NorthWestern has proposed, it's a serious impediment and it doesn't reflect the cost of those smaller generators,” says Bill Pascoe, a Butte consultant who works with wind-power developers. “My view is that it's very damaging to small producers.”

The PSC, the five-member body that regulates utilities in Montana, could decide Tuesday whether and how NorthWestern can charge these small projects for integration costs.

Put simply, integration costs are what the utility believes it must pay for additional power to balance the intermittent nature of wind power.

Because wind-power production occurs only when the wind blows, NorthWestern or any electric-system operator says it must buy what it calls “regulating power” to keep the system within a certain range of voltage.

The cost of that regulating power, which must be available at all times, should be charged to wind-power producers, NorthWestern says.

NorthWestern wants to base the integration charge for small producers on what it says are the costs of buying regulating power for the state's largest wind farm, the 135-megawatt Judith Gap project north of Harlowton.

Under that proposal, small wind-power producers would pay anywhere from $8 to $22 per megawatt-hour of power produced.

Two Dot Wind, the operator of 33 small wind turbines in central Montana, has challenged this charge as unjustified and exorbitant.

NorthWestern buys power from these small wind projects at about $50 per megawatt-hour - a price the producers point out is already below market value and below what NorthWestern customers pay for electricity.

Taking $8 to $22 out of that price for integration costs is not only unfair and unjustified, but also would essentially halt all future small wind-power development in Montana, says Mike Uda, the attorney for Two Dot Wind.

“If the commission wishes to drive wind development out of the state of Montana, then it should by all means adopt NorthWestern's proposal,” Uda wrote in arguments submitted March 27 to the PSC.

Two Dot Wind and others say the costs of integrating small projects' power is negligible, if anything, and certainly should not be calculated based on the cost of one, large project like Judith Gap.

Pascoe earlier proposed that the PSC order NorthWestern and small producers to collaborate on a study that examines the cost of integrating power from multiple small projects.

NorthWestern has ignored this request, and said the only question is how much integration costs Two Dot Wind or other small producers should pay.

“It's not NorthWestern customers' responsibility to make a business venture work,” Hines says of the small producers' claims. “We're not asking developers to subsidize ratepayers, but we're not asking ratepayers to subsidize (small producers) either.”