How Much will RICL Energy Cost?
Over a year ago in October 2012 that was the question we asked Hans Detweiler of “Clean” Line Energy. We still don’t have an answer. For those of us looking into this question and searching the internet, we were feeling fairly comfortable RICL will charge about $25-$30 per megawatt for energy wheeled over RICL. Even with RICL still avoiding answer the question directly, the company’s lack of an answer was becoming more and more irrelevant.
The last day of live cross examination testimonyat the ICC revealed a new twist to the question “How much will this energy cost?”
David Barry, “Clean” Line Energy’s strategy and financial guy was the witness and ILA attorney Bill Shay had a line of questioning around this issue. While the transcript is not yet published and I cannot give the actual quote,, the attorney asked Barry about Demand Charges versus Capacity Charges. Barry explained a Capacity Charge is a charge applied based on the maximum service available. Such as a consignee buys 300 megawatts per hour of service from RICL. It’s up to the energy generator (wind energy company) or “non-generator” (sp3culator) to use or resell the consigned transmission service.
This differs from a Demand Charge where a flat rate is charged for services used, such as $25-$30 per MWH. While RICL has never answered our question directly “How much will this energy cost”, we all inferred from PowerPoint presentations it would be a Demand Charge..
When Barry indicated to the ILA attorney RICL plans to charge wind energy generators based on a Capacity Charge model, Attorney Bill Shay asked Clean Line Energy’s finance and strategy guy a very basic and straight forward question. “Do you know how Demand Charges occur?" Effectively the ILA attorney was asking Barry “do you have any clue what you’re talking about”. I nearly fell on the floor laughing, but held my composure while sitting next to team RICL.
Barry’s response was yes, he knows the difference. He went on to say RICL’s model will be based on fixed capacity charges based on capacity reserves. The energy generators (wind companies), or non-generators (speculators), will have to assume the risk. Risk is simply a part of doing business.
What kind of screwy business model is that?
So if a wind farm can produce 85% of the stated nameplate capacity on the best of days and average closer to 45% for the year. The wind farm has to figure and guess what its annual capacity is going to be and what it’s maximum daily capacity will be. Then negotiate a rate with RICL based on the annual generation but cover themselves for the maximum generations days.
Time for some story problem math.
A wind farm is rated at 100 megawatts. It’s probably maximum output is 85MW but it’s average generation is 45 MW. The company will want to buy 85MW’s of service from RICL to meet it’s potential maximum generation but only pay on the projected annual average of 45MW. From there the wind company will have to negotiate with RICL for a charge. If the wind company thinks it’s in the money at $25 per MWH on a demand charge, it would negotiate a rate of about 53% (45 of 85) or about $13.235 for 85 MW of service.
Confusing? Oh yeah. It makes me think RICL doesn’t want us to know how much this wind energy will cost us. My suspicion is RICL knows they are out of the money and “Clean” Line cannot deliver wind energy from the far side of Iowa into PJM at a competitive market price. Maybe there was a time before the 2008 pre-crash projections that RICL could be in the money delivering Iowa wind energy at a competitive price, but in today's economy RICL is out of the money. Maybe “Clean” Line never intended to be able to deliver energy at a competitive price but didn’t anticipate such public scrutiny. Maybe “Clean” Line just wants to acquire the Right of Way easement and sell it to another company for a tidy profit.
Regardless why “Clean” Line chooses to make it’s income generating model so needlessly complicated, “Clean” Line still refuses to tell Illinois residents and consumers how much will this energy cost and I think we have a right to know the answe before decaring the RICL project a public utility.. This is a legitimate question. Heck, this is an easy question. Just answer the question.
How much will this energy from RICL cost us?
We don’t want this powerline built and discover it’s not profitable. We don't want to be stuck with an aerial sewer through our farms. We don’t want this powerline built, then be asked for cost allocation to make this powerline profitable. Illinois ratepayers deserve an answer to this basic question. Why the avoidance?
I can’t help but wonder what kind of fraud is possibly being attempted here. Sure RICL “assures” us the powerline will not be built without contracts and assured income, but why should Illinois approve this powerline without knowing how much this energy cost? Capacity charges rather than a demand charge just makes this issue more needlessly confusing in order to avoid the real issue.
How much will this energy cost Illinois ratepayers.