Montana commissioners decry veto of bill nixing Community Renewable Energy Project requirement

Requiring Montana utilities to buy a specified amount of energy from small-scale, locally owned renewable energy projects in the state is policy that should be abolished, say members of the Montana Public Service Commission (PSC).

The opportunity to do that presented itself last week but instead, the proposed legislation—Senate Bill (SB) 32 sponsored by state Sen. Keith Regier (R-Kalispell) — was nixed April 7 by Montana Gov. Steve Bullock, a Democrat, leaving in place the Community Renewable Energy Project (CREP) requirement.

“It’s disappointing to see the governor cling to empty promises behind a failed policy, rather than have the courage to admit when a program has outlived its usefulness. CREPs do virtually nothing to promote renewable energy development in Montana, while creating an enormous amount of busy work for the PSC,” which oversees the CREP requirement as part of its duties, said Montana PSC Chairman Brad Johnson following the veto last week.

Started in 2005 as part of the Montana Renewable Portfolio Standard, the CREP requirement defines an “eligible renewable resource” as electricity that’s produced from wind, solar, geothermal, certain water power projects, landfill or farm-based methane gas, and gas produced during the treatment of wastewater, among others.

The CREP requirement also stipulates that the state’s major utilities acquire 75 megawatts (MW) worth of capacity from CREP projects that, in turn, are limited to 25 MW in size. And the cost of energy from these projects cannot exceed the cost of any other alternative energy resource available to the utility by more than 15 percent.

The Montana law, initially passed by the state legislature to promote the development of small renewable energy projects by local owners, subjects CREPs to strict local ownership standards that the PSC says disqualifies most investors from financing these renewable projects.

Text from the law states that “local owners” means:
Montana residents;
General partnerships of which all partners are Montana residents;
Business entities organized under the laws of Montana that have less than $50 million of gross revenue; less than $100 million of assets; and at least 50 percent of the equity interests, income interests and voting interests owned by Montana residents;
Montana nonprofit organizations;
Montana-based tribal councils;
Montana political subdivisions or local governments;
Montana-based cooperatives other than cooperative utilities; or
Any combination of the individuals or entities listed above.

The requirement that these projects be locally owned presents significant dilemmas, Travis Kavulla, vice chairman of the PSC, told Daily Energy Insider on Tuesday.

“There are few Montana domiciled businesses with so large a tax appetite as would be required to be a tax-equity investor on attractive capital terms. Since that is almost universally how wind and solar projects have been financed in the United States, the absence of possible ‘local owners’ significantly hampers the economics of any projects,” Kavulla wrote in emailed remarks.

Even if that were not the case, a 25 MW or smaller project is not scaled to an economic size and almost certainly would prove higher-cost than a larger alternative, on a per-megawatt hour basis, he said.

“These two aspects of the law basically set it up to be a failure,” Kavulla wrote in the email.

In fact, since 2004 there have been just six projects certified as CREPs in Montana, which in turn has made it difficult for the state’s largest electric utilities to comply with the law. One of their solutions has been to build or purchase their own CREPs and the law was amended in 2009 to expand the definition of local owners to include utilities, even though they are owned primarily by out-of-state shareholders.

Kavulla noted that leaving this law on the books could result in a utility, not actual local owners, buying wind farms that are not scaled to economic size just to escape the possibility of being fined by the PSC.

Considering an alternative
Unfortunately, the remedy to eliminating the requirement of local ownership would undermine the entire purpose of the law, Kavulla said.

“That is why we proposed a complete repeal. That remains the best, and in some respects, the only option,” he wrote in his email to Daily Energy Insider.

Economical wind is being developed regardless of whether the law is workable, said Kavulla, and it’s a small part of the state’s renewable portfolio standard. Utilities also have already complied with the law’s 15-percent-by-2015 mandate, he added, and larger wind projects continue to be developed at a relatively low cost.

“These state laws are increasingly eclipsed in their importance by federal tax subsidies and the underlying technology cost of renewables,” Kavulla wrote. “The fact is that renewables don’t require this crutch in Montana, and removing it should not be controversial.

“That the law was vetoed is a sad proof that mandates never go away, even when their purpose is achieved through means that have more of a market look to them,” he said.

Commissioner Roger Koopman added that as the history of the CREP program has proven, “you can’t create qualified investors out of thin area simply by passing a law mandating it. The governor needs to learn how to let go of failed programs, instead of trying to give them eternal life.”

Gov. Bullock’s staff was not immediately available for comment.