Utilities takes $1.5M hit on wind deal after customers back off
A wind-power deal that blew off course has left Colorado Springs Utilities holding the bag for $1.5 million.
This was the result of a City Council resolution March 26 agreeing to a plan that salvages as much as possible from $8.5 million worth of wind power that Utilities had bought based on "letters of interest" from three customers who were going to buy 96 percent of it, then changed their minds. The council vote sells the the product - at a loss - to those same customers.
John Romero, Utilities' general manager for energy acquisitions, underwent sharp questioning from City Councilmembers Angela Dougan and Tim Leigh, who both expressed consternation that Utilities had not obtained actual contracts before making the purchase.
But they ultimately went along with the other six council members who were present. As Leigh put it, the decision was a matter of “which horn of the ox you get gored with” - whether to make Utilities eat the $8.5 million (which no one favored) or to absorb the $1.5 million loss over a two-year span.
“What happened needs to be absolutely reviewed,” Dougan said. “Now we've got to clearance the price if we want anything.”
She also questioned Romero's statement that Utilities could “absorb the difference” without a “rate impact.” She asked rhetorically, “Where's this $1.5 million coming from? Every time I ask, I'm told there isn't a penny to spare.”
More favorable views were expressed by City Councilmembers Jan Martin and Brandy Williams. “This is a positive, it really is,” Martin said, saying blame should not be placed over the letters of intent. “If you believe in renewables and want to mix them into our portfolio, as of today, there is a cost for that.”
Williams emphasized that the wind-power sale as a whole was a “great way to partner” with key elements of the community, and besides, “there is nothing to preclude us from selling this [the leftover wind power] before it's over.”
No one on council denied Romero's comment that Utilities went out looking for wind customers at the direction of the majority of council, in its role as the Utility Board.
According to Romero's council presentation, the $1.5 million came about as the difference between the $8.5 million Utilities had paid for 108,186 megawatt hours (MWh) of wind power and the lower price that's since been negotiated with the same three customers who had reneged on their letters of interest. He did not name these entities, but at one point referred to those most interested in wind power as “military bases in particular, colleges and universities.”
Also helping pare the number down to $1.5 million, he said, was selling 10 percent of the MWh to various residential customers. For that privilege, in keeping with Utilities policy, those customers will pay individually higher electrical rates because wind - like other renewables - is considerably more expensive than coal and natural gas.
Such realities are factors in Utilities' long-range “Energy Vision,” part of which has prevented Utilities from contracting long-term for wind power, as Romero explained it, because the expense would have an adverse effect on the vision's goal to maintain an overall “20 percent cost advantage over the regional utilities in the state.” However, another part of the vision calls for a continuing move toward renewable energy sources, and “customers believe long-term contracts are a hedge against fossil fuels,” Romero noted. He added at another point that “we feel it is very important that we as a utility find opportunities for them to meet their renewable goals.”
A document prepared for the council meeting by Jerry Forte, Utilities CEO, discusses the reasons for the large customers backing out on their promises. The document states that the enterprise “provided contracts to customers who initially indicated interest in the wind power offering: however, several of those customers were no longer able to gather management support for the purchase of wind due to increases in the incremental cost of wind… budget concerns and potential sequestration and federal funding issues.”
Regarding the cost, Romero said in his presentation that the wind product Utilities eventually bought was tied to commodity prices, which change “on the hour.” The purchase price wound up at $39.25 per MwH, which is near the top end of the $40 maxiumum that he said is stipulated in Utilities' main planning document (the Electric Integrated Resource Plan). As for the letters of intent, “we found that customers expressing a willingness to pay isn't an actual willingness to pay,” he said. He suggested that next time, Utilities might look for safeguards, such as a “not-to-exceed” price.
This is the second time this year that City Council has supported Utilities spending ratepayer money on alternative energy sources over and beyond state or federal mandates. The other is a plan for a 20-year, $23 million solar subsidy, which will have a public hearing at the City Council meeting April 9.
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