Testimony of Tom Wind, Wind Energy Consulting, PC, Jamaica, Iowa

Joan Conrad
Executive Secretary
Iowa Utilities Board
1375 E. Court Avenue
Des Moines, IA 50319-0069
June 3, 2013
Re:
Docket No. EEP-2012-0002
Dear Secretary Conrad:
Enclosed please find a copy of the Direct Testimony of Tom Wind on behalf of the
Environmental Law & Policy Center, Iowa Environmental Council, and the Iowa Policy Project
in the above-named IUB docket. Please do not hesitate to contact me with any questions
Sincerely,
/s/ Joshua T. Mandelbaum
___________________________________________
Joshua T. Mandelbaum
Staff Attorney
Environmental Law & Policy Center
Ph: 515-244-0253
Fax: 515-244-3993
jmandelbaum@elpc.org

STATE OF IOWA
BEFORE THE IOWA UTILITIES BOARD
IN RE: )
) DOCKET NO. EEP-2012-0002
MIDAMERICAN ENERGY )
COMPANY )
)
DIRECT TESTIMONY
OF
THOMAS A. WIND
On Behalf of
Iowa Environmental Council
Environmental Law & Policy Center
Iowa Policy Project
June 3, 2013

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Q. What is your name and business address?
A. My name is Thomas A. Wind and I work for Wind Utility Consulting, PC at 1639 320 th
St., Jamaica, IA 50128.
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Q. On whose behalf are you testifying today?
A. I am testifying on behalf of the Iowa Environmental Council, the Environmental Law &
Policy Center, and the Iowa Policy Project.
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Q. Please describe your background and experience in the field of gas and electric
utility regulation.
A. I graduated from Iowa State University in 1974 as an electrical engineer. I was employed
by Iowa Southern Utilities for 15 years from 1974 through 1989, primarily in the area of
transmission and generation resource planning. I was also involved with a rate case
proceeding and two transmission line franchise applications while at Iowa Southern. In
1989 I started my consulting business as a professional engineer. My main areas of
practice have included transmission planning, electric load forecasting, energy efficiency
program planning, and generation resource planning. I have also provided consulting and
development services for over 80 megawatts of wind generation now in operation. I also
have a minority interest in two community-owned wind farms and provide management
services for one of them. Because of my wind generation development experience, I am
very familiar with PURPA-related issues. My past work with generation resource and
energy efficiency program planning is largely based on avoided cost issues.
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Q. What is the purpose of your testimony?
A. The purpose of my testimony today is to describe how MidAmerican Energy Company’s
(MidAmerican) avoided cost methodology has produced costs that are not reflective of
MidAmerican’s true avoided costs especially for wind generators; to explain how an
alternative methodology will provide more representative costs that will ultimately result
in more customer investments in energy efficiency programs and Renewable Energy
Systems (RES); and to recommend that MidAmerican adopt a technology-specific
avoided cost rate for customer-owned wind projects, as further described in the
Environmental Intervenors’ Response to the IUB’s Order Requesting Additional
Information in Dockets TF-2012-0546 and TF 2012-0574.TF-2012-0546 and TF-2012-
0574.
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Q. How do avoided costs impact energy efficiency and renewable energy development?
A. The level of the avoided cost is a critical factor in determining the cost- effectiveness of
energy efficiency programs from both the utility’s and customer’s perspectives.
Underestimating avoided costs will lead to fewer energy efficiency programs and lower
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customer incentives, both of which lead to higher energy usage.
Likewise,
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underestimating avoided costs offered for PURPA contract-based wind and solar projects
will result in little if any investment by utility customers and community wind and solar
developers. Therefore, it is important that the avoided cost calculations for both energy
efficiency and renewable energy programs are not underestimated, and that they reflect
all costs avoided by the utility.
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Q. Is there any evidence that MidAmerican’s calculations represent an underestimate
of their true avoided cost.
A. Yes. Exhibit 1 is a map showing community wind turbine projects in Iowa. For the
purposes of this testimony, I define community wind projects as turbines with a 100 kW
rating or higher that are owned by an entity other than MidAmerican or Alliant Energy.
The black dots on the map essentially show all wind turbines larger than 100 kW that are
not part of a large wind farm. The black dots with the circles show the community wind
projects that exist because of PURPA-based Power Purchase Agreement (PPA). There
are 51 wind turbine projects that exist today in Iowa because of PURPA-based PPAs.
These 51 projects have a total nameplate capacity of about 88 MW. I have provided
some level of consulting or development services for all but 7 of these 51 community
wind projects.
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Q. Are any of these PURPA-based wind projects in MidAmerican’s service territory?
A. Based on my extensive knowledge of community wind projects in Iowa, I am not aware
of any community wind project selling all of their power to MidAmerican on a wholesale
basis.
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Q. Why do you think there are no PURPA-based wind projects in MidAmerican’s
service territory?
A. The rates offered to Qualifying Facilities (QFs) have been far too low to be “sufficient to
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encourage cogeneration and small power production”. 1
Typically the rates offered have
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been about 2¢ per kWh for wind generation. This rate is well below the cost that
1 18 CFR 292.304 (b)(3)
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MidAmerican has incurred for the wind generation that it has installed for its customers.
This low offered rate has essentially cut out any opportunity for QFs to provide power to
MidAmerican.
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Q. Do you have direct experience with a proposed QF wind project on MidAmerican’s
system?
A. Yes. One of my clients in Cherokee wanted to install a 1.5 MW wind turbine near
Cherokee. The primary goal of the project was to provide a large wind turbine that
would be available to the local community college for its wind technician training
program. The power from the turbine would be sold to MidAmerican. The standard
PURPA offer rate was about 2¢ per kWh, and the project was not economically feasible.
We met with staff at MidAmerican’s offices to see if MidAmerican had any flexibility in
what it would pay considering that the turbine would be used for wind technician
training, or whether MidAmerican could own and install a turbine at Cherokee for the
students to use for training. MidAmerican said it would consider our request and about
two weeks later MidAmerican replied that it had no flexibility, and would not offer more
than the published rate. MidAmerican also said it would not install a turbine at Cherokee
for use by the college.
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Q. Are you aware of other QF wind projects that have wanted to sell power to
MidAmerican?
A. Yes. As a wind power consultant, I have fielded dozens of inquiries from community
members about installing a large wind turbine and selling power to MidAmerican. I
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always discuss the factors needed to make a QF wind project feasible. When I learn that
their farm or proposed site is in the MidAmerican service territory, I have to tell them
that MidAmerican will only pay about 2¢ per kWh for their wind power. They often
don’t understand how MidAmerican can justify installing its own turbines, but not pay a
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reasonable price for wind power from someone else.
Usually the person becomes
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discouraged and drops the idea of installing a large wind turbine. If the person feels that
the offered rate is too low, they will ask what they can do about it. I then explain that
they would have to go through a negotiation process with MidAmerican and most likely a
complaint process with the IUB, which would take some time and would likely cost them
some money for expert assistance. The added time and cost again discourages them from
proceeding with their proposed project. So based on my experience, if the low 2¢ rate
doesn’t kill the project, the thought of a lengthy and potentially costly negotiation and
appeal does.
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Q. What does a QF need to be able to install a large wind turbine in the MidAmerican
service territory?
A. It requires a contract option ranging from 10 to 20 years and an avoided cost rate
sufficient to make the project economically feasible. I believe that an avoided cost rate
equivalent to MidAmerican’s own cost of wind generation would likely be sufficient.
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Q. Is MidAmerican’s QF tariff workable from the perspective of a wind generation
QF?
A. MidAmerican’s tariff does not work from the perspective of a prospective wind
generation QF because it is a two part tariff with both energy rates and capacity rates.
The wind generation QF cannot easily predict the revenue it would receive from the
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capacity rate since it would vary from year to year.
Furthermore, I believe that
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MidAmerican’s QF tariff discriminates against wind generation QFs compared to wind
generation investments it makes on behalf of its own customers. The discrimination is in
the form of the price paid to wind generation QFs compared to the cost that
MidAmerican charges its own customers for wind generation through its rates.
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Q. What do you recommend MidAmerican should do to make its avoided costs for QFs
workable and fair?
A. I would recommend that intermittent QF generation such as solar PV and wind
generation need a single part tariff paying a fixed or a predictable escalating amount per
kWh for a 10 to 20 year contract period. This single part rate would consider both the
capacity value and energy value of the intermittent QF generation. The IUB should
require MidAmerican to set an avoided cost rate specifically for wind and solar
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generation QFs, as allowed by FERC precedent. 2
The avoided cost rate for wind and
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solar generation QFs should comply with FERC regulations and Orders.
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2
In re California Public Utilities Comm’n, 133 FERC 61,059 (Oct. 21, 2010).
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Q. What should MidAmerican’s avoided costs for QFs represent?
A. MidAmerican’s avoided cost must reflect the costs that it in essence charges its own
customers for the next kWh of generation. For example, MidAmerican has said that it
will install about 1050 MW of additional wind generation in Iowa as a source of power
for its own customers. We can presume that MidAmerican thinks this option is best
option for its own customers. Based on this, its avoided costs should reflect the capital
and operating cost of this new wind generation. Likewise if MidAmerican installs a solar
photovoltaic (PV) generation facility someday, then its avoided costs should reflect the
cost of the solar PV facility so that a QF wanting to install a solar PV facility can receive
a PPA rate that is fair and appropriate.
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Q. How does MidAmerican calculate its avoided cost rates for QFs and why do you
think the method is inappropriate?
A. I believe that MidAmerican makes two key assumptions that vastly understate its true
avoided costs. MidAmerican’s avoided costs have two primary components. The first
component is the avoided energy cost, which is based on a production cost simulation of
MidAmerican’s generation resources, including some limited purchases, serving its
native system load. MidAmerican calculates the difference in energy costs for two
scenarios: one with an increment of energy purchases from QFs and one with no QF
purchases. This calculation simply reflects the change in fuel and variable operation and
maintenance (O&M) costs of all of its generation fleet including its own wind generation.
Since wind generation has no fuel costs and little if any variable O&M costs, wind
generation in general drives down the calculated avoided costs since it replaces the most
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expensive fossil fueled generation. Herein lies the first key assumption that understates
MidAmerican’s true avoided costs. Wind generation’s zero fuel cost benefits only come
about because of its high capital cost, which MidAmerican completely ignores in its
avoided cost calculations. So, on the one hand MidAmerican uses the zero fuel cost of
wind generation to suppress the avoided energy costs it pays to QFs while completely
ignoring the billions of dollars of investments of obtaining this zero fuel cost resource.
This is like asking a QF or energy efficiency programs to compete with another shovel of
coal into the boiler of a fully depreciated power plant. I also believe that MidAmerican’s
avoided costs would be inappropriate for a QF with a solar PV facility. A solar PV
facility has a high upfront capital cost like wind generation and a very low operating cost
and thus would be in the same position as a wind generation QF.
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Q. What is the second key assumption that MidAmerican makes that understates their
true avoided costs?
A. MidAmerican includes a small amount of avoided capacity costs in its avoided cost filing
for QFs. MidAmerican claims its avoidable capacity cost is nearly zero since the MISO
capacity market is so low right now. It then gradually escalates this low capacity cost up
to the cost of a new combustion turbine by 2016. For a wind generation QF with little
firm capacity, these avoided capacity charges provide little revenue. In reality, these
offered capacity costs are essentially meaningless to a wind generation QF or a solar PV
QF. For example, if MidAmerican purchased power from a 2 MW wind generation QF,
it could avoid the installation of one of its own wind turbines. If we assume a cost of
$1.7 million per installed MW of wind generation, then MidAmerican could avoid an
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investment of $3.4 million along with the annual operating cost and risks of that wind
generation. If the after-tax financing costs and operating costs of this 2 MW of wind
generation is, for illustrative purposes, 4 cents per kWh, then MidAmerican’s customers
will be paying MidAmerican 4 cents per kWh through their rates since the wind turbines
are in their ratebase. Historically MidAmerican has offered a QF about 2 cents per kWh,
which has discriminated against wind generation QFs. Year after year MidAmerican has
invested hundreds of millions of dollars in installing its own wind turbines while at the
same time only offering to pay a wind generation QF about half of what it charges its
own customers. As a result of this discrimination, there are no dots in MidAmerican’s
service territory in my Exhibit TAW-1. Similarly, MidAmerican’s failure to provide fair
and reasonable avoided costs has also likely resulted in underinvestment in energy
efficiency and other forms of renewables in its service territory.
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Q. In their January 16, 2013 revised filing for TF-2012-0574, MidAmerican has
proposed using a QF purchase rate varying from 1.2 cents during the winter to 2.1
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cents during the summer.
Is this QF purchase rate representative of the cost that
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MidAmerican’s customers pay for wind generation owned by MidAmerican?
A. No it is not. This represents a relatively low near-term market price caused by a number
of factors. Furthermore, this low avoided cost calculation ignores the millions of dollars
of investment in pollution control equipment that MidAmerican has been required to
make to continue to run its coal fired generation. The addition of wind generation by
MidAmerican or a QF allows MidAmerican to avoid expensive pollution control
investments on its older and smaller coal fired units by simply retiring them. These cost
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savings are clearly a benefit from wind generation that is not reflected in MidAmerican’s
avoided cost calculations. It appears to me that regardless of how low their avoided costs
are, MidAmerican has proceeded to add hundreds of millions of dollars of wind
generation nearly every year. MidAmerican gets assurance from the IUB that it will be
able to include the wind generation in its ratebase. By inclusion in its ratebase, its
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investment in the wind generation is assured a return.
Therefore, MidAmerican
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discriminates against wind generation QFs in favor of its own wind generation
investments. This recurring problem with MidAmerican’s avoided cost rates emphasizes
the need that the avoided costs need to be more representative of the cost of new
generation that MidAmerican continues to install year after year, and not some temporary
low price that is likely not relevant to what its own customers pay.
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Q. ELPC and IEC have stated that the avoided cost calculations should be determined
in a way that is simple and transparent, so that a QF can have confidence in its
validity and accuracy. Do you have any suggestions on how this could be done?
A. Yes. For the purposes of my recommendation to develop a technology-specific avoided
cost rate for wind QFs, I believe there are at least two ways to provide a more realistic
and transparent method of avoided costs that would eliminate the discrimination that now
exists against wind generation QFs. The first method would be to use the proxy cost of a
new wind farm in MidAmerican’s service territory. The second method would be to use
the cost that MidAmerican’s customers pay for wind generation through their rates. This
cost calculation could specifically include the last two or three wind farms that
MidAmerican installed. Either of these two methods would be relatively simple and
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would provide transparency. Likewise, MidAmerican has mentioned that they are
considering the addition of new nuclear generation or gas-fired combined cycle
generation. If MidAmerican commits to either of these options, then its avoided costs
should then reflect the cost of this new generation,
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Q. Should the avoided cost for QF generation include additional charges representing
distribution and transmission system costs?
A. Yes, the avoided costs should include additional amounts that, at the minimum, represent
the average transmission and distribution system loss that MidAmerican experiences on
its system because the addition of QF generation, especially in amounts of 100 kW or
less, almost always reduces both transmission and distribution losses. There will be a few
locations where MidAmerican has large amounts of wind generation where the
transmission losses may not be reduced with the addition of a QF. However, simply
using the average transmission and distribution losses on MidAmerican’s system would
be a reasonable and fair assumption.
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Q. ELPC and IEC have also stated that the avoided cost calculations should be fair and
should result in rates that are sufficient to encourage cogeneration and small power
production. How would you determine if the avoided costs are fair?
A. The avoided costs would be fair if they truly represent the costs of MidAmerican’s
additional generation or purchases to serve additional load. Since MidAmerican has been
heavily investing in new wind generation, the avoided costs should be representative of
what MidAmerican’s customers will be paying MidAmerican through their rates for that
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new wind generation. Likewise if MidAmerican installs nuclear generation or gas-fired
combined cycle generation, the avoided costs should be representative of the cost of that
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new generation.
These new generation costs should include any new transmission
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investments necessary for that generation.
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Q. Are there other proceedings that are relevant to this discussion?
A. Yes. There are currently two open PURPA avoided cost dockets: TF-2012-0546 and TF-
2012-0574. The Iowa Environmental Council and the Environmental Law & Policy
Center have intervened in both of those dockets. The responses to questions by the IUB
in those dockets are directly relevant to this issue in the energy efficiency filing. I helped
prepare the Environmental Intervenors Response to the IUB’s Order Requesting
Additional Information in Dockets TF-2012-0546 and TF 2012-0574. Those comments
are relevant to the discussion here.
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Q. Does this complete your testimony?
A. Yes, this completes my testimony.
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STATE OF IOWA
BEFORE THE IOWA UTILITIES BOARD
IN RE:
MIDAMERICAN ENERGY
COMPANY
) DOCKET NO. EEP-2012-0002
)
)
)
AFFIDAVIT OF
TOM WIND
STATE OF ILLINOIS ))
ss.
couNTY oF cooK )
I, Tom Wind, being first duly sworn on oath, depose and state:
1. that I am owner of Wind Utility Consulting LLC;
2. that I have personal knowledge of the facts alleged in the attached testimony; and
3. that said facts are true and correct to the best of my knowledge and belief as of the
date of this Affidavit.
Further affiant sayeth not.
/s/ Tom V/ind
Subscribed and sworn to before me,
a Notary Puþlic in and for said County and
State, this 3 dayofJune,2013.
Tom Wind
Notary Public
OFFICIAL SEAL
FI DELIA GAINE$MITCHELL
NOTARY PUBLIC. STATE OF ]LLINOIS
MY C0MMISSICN EXPIRES:0828/1 3

Testimony of Thomas A. Wind on behalf of ELPC, IEC, and the IPP
Iowa Utilities Board Case No. EEP-2012-0002
Exhibit TAW-1

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Community Wind Turbine Projects
Avoided Cost Projects
10
Mean annual Wind
Speed in Meters per
Second at 80 Meters
Height
Wall Lake
Municipal Utilities
MEC Territory
2
7 5
2
2
2
2
2
MEC Territory
MEC
Territory
MEC Territory