US Fifth Circuit Court Of Appeals Rules Against Wind-Farm Owner Exelon In Dispute

The US Court of Appeals for the Fifth Circuit has ruled against the Chicago-based energy producer Exelon in its dispute with Southwestern Public Service Company over pricing for power provided by the company’s Texas Panhandle wind farms, according to recent reports.

The rejected claim for “favorable” pricing means that Exelon loses leverage in its relationship with Southwestern Public Service Company. Potentially more important though is the effect on the wider industry in the region affected — that said, the situation has a number of interesting implications. Perhaps foremost of which is the (possible) effect on the energy storage industry.

As Roy Palk, attorney and senior energy industry advisor at LeClairRyan, notes: the court decision “is an incentive for further development of energy storage equipment, further technology developments, further refinements. Storage is an option, and it’s going to become better and better.”

Hmm. Interesting, but that will depend a lot on whether or not other, potentially cheaper, strategies are pursued — such as wind farms functioning as backup for each other, thereby improving their position with regard to being providers of “firm power “.

Renewable Energy World provides some background:

The dispute stems from an interpretation of the Public Utility Regulatory Policies Act (PURPA) of 1978, designed to help alternative energy developers overcome market barriers created by utility monopolies. Under PURPA, the wind farms can operate as ‘qualifying facilities,’ meaning they are eligible for special rate and regulatory terms.

But a decade ago Exelon and Southwestern began disputing exactly what those terms are. Exelon maintained that Southwestern was obliged to enter into a long-term contract based on avoided costs, with payments pegged at $0.035/kWh to more than $0.090/kWh for the first nine years of a 20-year agreement.

Southwestern argued that the price was too high and refused to accept the terms. Because the wind farms could not supply firm power, they were eligible only for a current ‘time of delivery’ price for ‘as-available’ power, the utility said.

This argument of course has now been “settled” by the US Court of Appeals for the Fifth Circuit with its recent 2-1 decision in favor of Southwestern and the Public Utility Commission of Texas.

The two judges who ruled in favor — Judge Jennifer Walker Elrod and Judge Jerry Edwin Smith — stated their reasoning as being that “while PURPA promotes alternative energy, it does not do so at the expense of the American consumer but mandates that the rates that utilities pay for such power shall be just and reasonable.”

And that the “favorable” pricing is only for the companies that are competently able to forecast when they will deliver energy to the utility — and capable of delivering the specified amount of energy at the scheduled time.”

So, what aside from legal talk does this ruling actually mean for wind farms in the states affected (Texas, Mississippi, and Louisiana)?

Scott DuBoff, an attorney at Garvey Schubert Barer, probably puts it very clearly: “The issue is concerning. It is advantageous for the wholesale purchaser, and it presents potentially serious disadvantages for the producer of the power.”

Not a death-knell, but certainly not good for the industry either. It’ll be interesting to see what happens next. 🙁 An appeal? A rehearing?