Black Hills/Colorado Electric Utility Co. LP is running into issues with its June 23 application at the Colorado Public Utilities Commission for a Certificate of Public Convenience and Necessity to purchase the 60-MW Peak View Wind Project, which would be owned by Black Hills and ultimately recovered as a utility rate-based asset.
Providing Aug. 24 supporting testimony to the commission was Greg Leuchtmann, employed by Invenergy LLC, the developer of the wind project, as Director of Sales and Marketing. He was testifying on behalf of Invenergy Wind Development Colorado LLC, an affiliate of Invenergy LLC.
Leuchtmann wrote: “Invenergy’s comments here are intended to provide information from its perspective and context in light of the Build-Transfer Agreement (‘BTA’) filed today. Secondly, I will discuss the steps Invenergy intends to take, under the assumption that this application is ultimately granted, to complete its obligations under the BTA and construct the Peak View Wind Project (the ‘Wind Project’) cost-effectively and in time to meet IRS qualifications for the Federal Wind Production Tax Credit (‘PTC’).
“Invenergy submitted several bids in response to the Black Hills ‘All-Source Solicitation’ on July 31, 2014. Invenergy’s bid No. 236-3A was selected as one of the preferred options in the Black Hills’s 120-Day Report to the Commission due to its low cost and benefits to the Renewable Energy Standard Adjustment. On April 29, 2015, Black Hills requested Invenergy to refresh bid 236-3A, consistent with the directives in Commission Decision C15-0373. Invenergy submitted its refreshed bid on May 6, 2015. On May 22, 2015, Black Hills informed Invenergy that its bid was successful. Black Hills and Invenergy immediately began negotiating the primary terms that would make up the BTA. The parties executed a Term Sheet on June 23, 2015, the deadline by which Black Hills had to make its submission to the Commission under Decision No. C15-0373.
“The BTA structure is designed to provide Black Hills a firm fixed price and a completed project pursuant to an agreed-upon timeline with specific milestones for deliverables and payments. Following execution of the BTA, Invenergy will complete the remaining permitting items (e.g., land use permitting of the generation tie-line to the point of interconnection) while the CPCN application is being considered by the Commission. If this application is granted, the Commission’s final decision will then trigger the effectiveness of the BTA.
“The BTA is structured based on milestones of construction on a per turbine basis. This is designed to limit both parties’ risk and to efficiently deliver the Wind Project in a manner suitable for PTC compliance. Invenergy has committed to complete the construction of the Wind Project by the end of 2016, prior to the deadline required under the IRS guidelines to qualify the Wind Project for the PTC. Invenergy will complete Milestone Completion Certificates after reaching each of the Wind Project’s defined milestones and receive payments tied to those milestones.
“Once the BTA becomes effective, Invenergy will shift to construction of the Wind Project. Under the BTA, Invenergy is required to procure materials, long-lead items, and release sub-contractors to commence activities as they are warranted. As part of the BTA, Black Hills will be granted a security interest in the Wind Project assets and equity interests of Peak View Wind Energy LLC, giving it the right to an assignment of those assets and equity interests if an uncured default under the BTA occurs. The final step will be to transfer the corporate entity which owns the assets of the Wind Project, Peak View Wind Energy LLC, to Black Hills.”
Commission staff has issues with Black Hills’ due diligence work
In another Aug. 24 filing, Gene L. Camp, who manages the Energy Section staff at the commission, said that staff recommends that the commission make the following findings:
- Black Hills’ due diligence review of the project was deficient. The company did not validate or independently assess Invenergy’s assertions with regard to performance and costs. As a result, he wrote that the commission should be “wary” of placing much weight on the company’s estimates for long-term project performance.
- Black Hills’ assumption that the project will produce energy at the rate specified by General Electric for a wind turbine in new pristine condition for twenty-five years running is unrealistic.
- Black Hills’ estimate of ongoing O&M costs is significantly understated and well below both the industry average and actual costs incurred at the company’s recently constructed wind facility.
- The bulk of the cost savings estimated for customers occurs in the last years of the assumed 25 year life of the project. If the useful life of the turbines were shortened, then most of the estimated savings will be lost. As a result, there is little certainty that customers will receive the savings estimated.
- The project as proposed will place the risk of performance and ongoing costs on Black Hills’ customers unless the commission places certain conditions on the approval of the application.
- While there is little certainty that the project will provide customers savings, it does not appear that customers will be harmed, either. As a result, Camp said the commission could decide to approve the project based solely on its ability to provide renewable energy for compliance with the Renewable Energy Standard (RES).
- Last, the project, if approved, will further Colorado’s policy to utilize renewable energy resources to the maximum extent possible, promote development of rural economics, attract new jobs, provide a hedge against volatile natural gas prices, and improve the natural environment of the state.
On the turbine output issues, Camp pointed out that General Electric makes it clear in its technical documentation, which is fundamental to Invenergy’s energy calculation, that the stated performance is for turbines with blades in new pristine condition. The constant production estimate of 219,042 MWh for each year for this project provided by Black Hills is not realistic, Camp added.
Camp wrote: “While there is no readily available data for energy production degradation for wind turbines, Staff would suggest as a minimum that production be assumed at 99% of Invenergy’s wind production estimate for the first ten years of operation, assumed at 98% of Invenergy’s estimate for the second ten years of operation, and assumed at 97% of Invenergy’s estimate for the last five years of operation. This will at least provide some estimate of Project performance with very limited production degradation.”