Trends in the Regions: Bonding for Renewables; Colorado Jumps on Solar, Wind Bandwagon

BYLINE: Richard Williamson

DATELINE: DALLAS


Following the example of neighbors to the north and south, Colorado this year expects to join a growing list of states empowered to issue revenue bonds for electric transmission lines.


Colorado plans to use its proposed Renewable Energy and Infrastructure Authority to transmit wind and solar power through lines built with $100 million of revenue bonds exempt from state, but not federal, taxes.


The new authority, as created by HB 1150, would be similar to the Wyoming Infrastructure Authority. The WIA is authorized to sell up to $1 billion of revenue bonds to build lines from the state's power plants to population centers throughout the West. While Wyoming primarily seeks to distribute electricity generated by its abundant coal resources, it and other states want to encourage development of public and privately financed renewable energy resources throughout the West.


In 2006, renewable energy projects producing more than 150 megawatts went online in Arizona, Colorado, Nevada, New Mexico, Utah, and Wyoming, according to the Interwest Energy Alliance, a renewable energy trade association.

This year, at least 850 megawatts of new renewable energy capacity is expected to go online with wind, solar, and geothermal power plants.


Under legislation passed in 2005, Texas is also moving forward with plans to generate power from wind sources in West Texas and the Gulf Coast for transmission to major urban centers.


The ultimate role model for these western states is California, which created the Consumer Power and Conservation Financing Authority in 2001 with $5 billion of bonding authority after a series of energy crises and soaring utility rates in the late 1990s. In addition to traditional power sources, California is investing heavily in solar and wind power. Sparsely populated, Wyoming is using its abundance of coal as an energy source while reducing the cheap fuel's chief handicap, emissions, and its biggest cost factor -- transportation via rail. The state is also working with California on processes for cleaning up coal and storing carbon dioxide byproducts.


The WIA is involved in planning, financing, building, and operating electric transmission facilities and other infrastructure. Legislation in 2006 added responsibility for promoting, and possibly investing in, advanced coal-generation technologies, such as coal gasification. "Several states have copycatted Wyoming," said WIA executive director Steve Waddington. "Kansas, South Dakota, North Dakota, Idaho, and New Mexico have created similar transmission authorities."


While the Wyoming agency has already issued its first debt and is developing a feasibility study for transmission lines to Arizona, the Colorado authority still needs one final Senate vote on HB 1150, followed by Gov. Bill Ritter's signature and voter approval.


Ritter's approval is seen as highly likely, though his spokesman said the governor would have to examine the bill that emerges from the General Assembly. The first-year Democratic governor has made renewable energy a hallmark of his administration.


"We are quickly making a name for ourselves as a state that's open for business in what will be one of the most important industries of the 21st century," Ritter said last month after Denmark-based Vestas announced plans to build a wind turbine manufacturing plant in Windsor, north of Denver.


Last week, Ritter boasted of Colorado's abundant sun and wind on an uncooperatively cloudy day in Boulder, where he signed HB 1281 and SB 100.


Under HB 1281, investor-owned utilities are required to produce 20% of their energy from renewable sources by 2010. Smaller cooperative utilities would have to produce 10% of their power from alternative sources by that date.


SB 100 requires utilities to upgrade their transmission lines to carry new energy sources. The bill, sponsored by Senate President Joan Fitzgerald, D-Jefferson County, and Rep. Buffie McFayden, D-Pueblo, also allows utilities to recover the upgrade costs during construction.


Under HB 1150, the renewable energy authority will have an executive director and a five-member board, with appointments made individually by the governor, the speaker and minority leader of the House, and the president and minority leader of the Senate.


The board will hire an executive director and staff for the agency. The bill creates a fund to service the revenue bond debt, and the board will issue loans funded by bond proceeds to utilities to build the transmission lines and related equipment.


While a 2003 initiative to provide $2 billion of bonding for water projects failed amid environmental disputes between the state's agrarian Western Slope and the densely populated Front Range chain of cities, the renewable energy measure has something to offer both sides of the Continental Divide.


Farmers from the windblown prairies of both eastern and western Colorado testified in favor of the bill, hoping to turn an agricultural nemesis into a source of revenue. Sen. Ken Kester, a Republican from Las Animas in southeastern Colorado, said the legislation could provide virtually unlimited funds for renewable energy projects in the long run.


In a House hearing on HB 1150, Baca County Commissioner Troy Crane said his county has a wealth of energy resources -- including biodiesel, ethanol, and solar power -- and no way to get it out of the county. Crane blamed the difficulty in funding transmission lines. Analysts from Standard & Poor's also point to a transmission logjam as one challenge facing public utilities, which enjoy healthier credit ratings than their investor-owned counterparts.


"Underinvestment in electric transmission infrastructure is a major concern for the industry, with more capital spending required to link new generation to the grid, to ensure reliability, and to avoid congestion costs," analysts noted in a February outlook on the sector. "Estimates of the required cost of transmission improvements nationwide vary, but generally exceed $10 billion. However, the details of how, when, and who will fund what is agreed upon as critical transmission investments remains unclear."


Like Wyoming, New Mexico will be an exporter of electric power when its renewable energy program is up and running. A few months ahead of Colorado, New Mexico earlier this year passed HB 188, creating the Renewable Energy Transmission Authority.


Gov. Bill Richardson, a Democratic candidate for president, praised the bill for its role in reducing greenhouse gases while creating jobs and helping ranchers reap profits from the wind.


Neighboring Texas' law requires that the state's Public Utilities Commission identify "competitive renewable energy zones" before transmission lines can be built from wind farms and other sources.


Texas claims more installed wind generation -- 2,508 megawatts -- than any other state. By the end of the year, the figure is expected to hit 4,850 megawatts.


The market for debt from the newly created state authorities is relatively new. The WIA's first issue of $35 million last September was bought in its entirety by the state treasurer's office under a new law that allowed the deal.


Those bonds were not rated, but Standard & Poor's said it would consider bond ratings for such issues through the lens of public utilities. "From a credit standpoint, while these debt-financed projects add a fixed-cost component to the utilities financial profiles, it is balanced against reduced exposure to wholesale power purchases, and in some cases, reduced transmission costs and congestion issues," analysts noted. "The success of these additions to 'owned' resources will ultimately depend on a combination of timely project completion, plant dispatch, plant operating efficiency and reliability, long-term fuel and delivery availability and cost, wholesale power price levels, as well as the opportunity costs of any other alternatives not chosen."


Bonds used to back public-private ventures, such as the Wyoming authority's, receive state income tax exemption but are not exempt from federal taxation, a situation the American Public Power Association seeks to change.


Under current law, the application of tax-exempt bonds for private use is limited to 10% of proceeds with a $15 million cap per project. That can force power generators to leave much of their capacity idle in the early stages of a project's life, according to the APPA.


"This provision should be repealed because it is discriminatory and it encourages practices that are neither environmentally nor economically sound," the association said in a report to Congress in 2005. Federal tax credit bonds, known as clean renewable energy bonds, or CREBs, created in 2005 and under consideration for renewal in Congress, are helpful in promoting renewable energy projects, according to APPA. But the small size of the authorized issuance that enjoys federal tax exemption -- $800 million -- is not enough to significantly expand renewable power generation, the group said.


"We want to be perfectly clear that tax-credit bonds are not, and should not, be viewed by Congress as an alternative to tax-exempt bonds for financing state and local government activities and related infrastructure," the association said.


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