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United States

United States: Independent producer challenges utility plan

Iowa regulator set to rule in NextEra versus MidAmerican dispute.

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A battle is playing out behind the scenes in Iowa between two American wind power giants over which of their wind development plans is the best value for consumers. MidAmerican Energy, Iowa's largest utility, would like to build, own and operate 1001 MW of new wind generation on its system by the end of 2012, on top of its roughly 1400 MW in Iowa under ownership or power contract. NextEra Energy of Florida, the leading US wind developer, says selling its wind power to the utility through a combination of power contracts and built projects is a better option for consumers.

The utilities have filed their competing plans with the Iowa Utility Board (IUB), which will decide which plan is better for ratepayers, who ultimately pay either way. MidAmerican is seeking permission to fold the cost of the wind generation it wants to build and operate into its rate base. NextEra, formerly known as FPL Energy, filed an intervention in the case.

NextEra questions the need for additional wind generation beyond its plans in Iowa and says MidAmerican did not conduct a competitive procurement process before expecting ratepayers to pay for future wind power, much of which could be sold outside Iowa's ratepayer base. "We were very explicit as to how we could, through our portfolio, meet a lion's share of the 1001 MW that they're asking for permission to build," says NextEra's Steve Stengel. "Yet MidAmerican hasn't proposed or identified any sites - they're simply asking for approval for ratepayers to fund a $2 billion build-out of their generation when they already sell 42% of their generation outside of their service territory."

Price certainty

NextEra's portfolio boasts 65 wind facilities and more than 6 GW in 16 states, including roughly 1400 MW of Iowa's nearly 3 GW. The company is offering to supply 850 MW to MidAmerican through a combination of several 25-year power purchase agreements (PPAs) and the sale of Endeavor I, a 100 MW plant brought online last year with Clipper turbines, and a late-stage 250 MW project expected online in 2010 or 2011. NextEra claims that its PPAs would provide a level of price certainty that MidAmerican cannot guarantee its customers.

MidAmerican acknowledges it will not need new generation on its system until 2019, but it wants to move quickly to 1001 MW to take advantage of federal tax credits for wind power and a buyer's market for wind turbines, which it says have become somewhat cheaper in the past year as demand slackened off in the credit crunch.

Furthermore, it will soon have a big new market to serve. In September, the utility becomes a member of the Midwest Independent System Operator (MISO), the major independently operated competitive electricity market in the Midwest. The utility will gain access to transmission capacity for selling excess wholesale energy beyond Iowa and into MISO's 14-state marketplace. It also disputes NextEra's price analysis.

John Perkins, a consumer advocate for the State of Iowa, believes that NextEra is in search of guaranteed prices in a climate where merchant deals (selling power into the spot market rather than on contract) can be something less than lucrative. "NextEra doesn't want to take the chance that they're not going to get it sold," Perkins says. "They want to lock in MidAmerican as a customer. But I think part of it is NextEra didn't really understand that this settlement agreement does not preclude them from continuing negotiations with MidAmerican."

Indeed, MidAmerican contends in its filings that IUB approval will allow it to proceed with due diligence, including possible negotiations with NextEra and other wind resource developers. Iowa ratepayers can also benefit from MidAmerican sales outside Iowa, says Perkins. A large portion of what MidAmerican sells on the wholesale market comes back to ratepayers in proportionate shares that vary from year to year in accordance with existing settlement agreements, he says.

Transmission constraints

Not only are there limited buyers for wind power, but there are also limited transmission lines to absorb all the wind both companies want online. "We're clearly transmission constrained here in Iowa," says Robert Latham, an independent Iowa energy consultant. "And there's an issue of who's going to have preference on the use of transmission."

The IUB will examine the testimonies before making a decision, required by 2010. "They're looking at the prudence and reasonableness of certain things, like the rate of return on equity," says IUB's Rob Hillesland.

Ultimately, though, if MidAmerican is granted permission to build and ends up being wrong - if NextEra's offer turns out to be the better deal - the proof will come out roughly four years down the road. "MidAmerican is going to have to deal with that issue the next time it comes to a rate case with the board," Perkins says. "They'll need to show that they in fact didn't have a cheaper source of energy from wind."

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