Wind farm says Duke violated contract

2013-12-21 | Indianapolis Business Journal | IBJ.com

The owner of a northern Indiana wind farm says Duke Energy Indiana Inc.—which had agreed to buy energy the 87-turbine operation produces—breached its contract, “proving disastrous.”

Benton County Wind Farm LLC, based in Earl Park, is suing Duke in federal court in Indianapolis for unspecified damages, claiming the power company has not honored its agreement.

The suit alleges the company’s actions have resulted in the wind farm “frequently [being] forced to curtail operations. As a result, the Wind Farm’s electrical output and revenues have been sharply reduced.” But many of the details of Duke’s alleged contract breach are redacted in the 23-page complaint.

An executive for one of the wind farm’s parents, Orion Energy Group in Oakland, Calif., would not say whether the alleged payment shortcomings put the farm’s future in jeopardy.

“If it was not significant, we would not have filed the complaint,” said Jim Eisen, Orion’s general counsel.

A Duke spokeswoman would only say, “We’re reviewing the filing.” The utility’s attorneys had not filed an official court response to the lawsuit by IBJ deadline.

In 2006, the companies set up a 20-year contract in which Duke would buy 100 megawatts of electricity the wind farm produces once it went online in 2008. A 2007 agreement gives another 30 megawatts to Vectren, but Vectren’s obligations are “not an issue,” according to the lawsuit.

Orion Energy Group LLC began running the wind farm in 2008 as the state’s first commercial-scale operation. The farm’s 87 turbines tower over the 350-resident town of Earl Park northwest of Lafayette.

The wind farm has needed Duke’s business from its launch to cover the construction costs, the company says in its lawsuit. The project cost about $150 million.

Duke signed up to receive the energy as it was looking to diversify its energy portfolio with more renewable resources. The utility began searching as early as 2004 for a developer to build a 100-megawatt wind farm.

“Clean, carbon-free, wind-generated energy is a good addition to our power sources,” Jim Stanley, then-Duke Energy Indiana’s president, said in a statement soon after the wind farm began operating.

“The agreement was the first significant, long-term purchase of wind power in Indiana. It’s also a boost to the local economy.”

Duke takes the electricity and sells it onto the power grid through Midcontinent Independent System Operator Inc. in Carmel.

“The MISO re-sale prices are affected by many factors and fluctuate constantly, often within a single hour,” the lawsuit says. “Under the [contract], Duke bears all risks arising from these market fluctuations.”

Duke has to pay a fixed price, the amount of which was redacted from court records, to Benton County Wind Farm, regardless of what Duke earns reselling through MISO. Duke is only excused from its obligation to pay the wind farm in “narrowly defined” emergencies, the lawsuit says.

MISO’s pricing system and a glut of wind energy appear to be at the root of the court case.

A computer algorithm bases prices on two “significant factors”: bids that utilities submit when selling energy and costs relating to congestion on the grid.

Duke and other power sellers had to submit price bids for traditional forms of energy, such as coal and natural gas.

Companies selling wind energy did not have to bid until recently, when the renewable resource surged in popularity in Indiana.

Wind farms popped up around northern Indiana, which has become a hot spot for the energy source.

BP and Dominion Energy started the 600-megawatt Fowler Ridge Wind Farm, also in Benton County. And the county is now home to EDF Renewable Energy’s 106-megawatt Hoosier Wind Farm.

MISO’s transmission grid wasn’t able to handle the burst of new wind energy, according to an August 2012 report by Synapse Energy Economics Inc. in Cambridge, Mass.

“This leads to costly congestion and uneconomic curtailment, or spilling, of available wind,” the report said.

An oversupply congested the grid and drove down the prices at which utilities could sell the energy, which has happened nationally. In some cases, companies have to pay to dispense their power onto the grid. They will often claim tax credits that turn their upfront losses into profits.

MISO changed its rules in March, requiring sellers to submit bids for their energy, like they did for fossil fuels.

When bids are too high, MISO’s automated system electronically signals the energy producer—in this case, the Benton County Wind Farm—and tells it to reduce its output.

The lawsuit redacts what Duke specifically did, only noting the utility “curtail[ed] electrical production by refusing to offer the Wind Farm’s power to MISO at competitive prices and then refusing to compensate [the wind farm] when the Wind Farm is directed by MISO not to produce power.”

Eisen, from parent company Orion, would not elaborate on the situation beyond what documents say.

Contract terms say the wind farm is set up to produce 100 megawatts for Duke, so Duke must buy all 100 megawatts, without refusal.

“Duke’s refusal to [redacted] or to compensate BCWF for generation lost due to Duke’s bidding practices has proven disastrous for BCWF,” the lawsuit says. “As a result, the Wind Farm has produced substantially less power than it is capable of producing with a corresponding collapse of the Wind Farm’s cash and tax revenues.”•