Power play

Montana Power wind contract raises concerns



The Montana Power Company awarded a contract Dec. 4 to a Missoula business to turn the state’s gusts and breezes into 3 percent of its power output. It is one of the biggest investments in wind power nationwide by any utility company to date.

Economists and environmentalists alike tout wind power as a clean and cheap way to help with the state’s energy woes. The project also promises to bring important economic development to Montana, including an assembly plant and operations facility that would create 65 new jobs.

Questions have been raised, however, about the awarding of the contract, and an “intervention,” or appeal, has been filed with the state Public Service Commission (PSC). The concerns have implications beyond the immediate deal. The success or failure of the wind power project could affect the pocketbooks of ratepayers, the economic wellbeing of several counties, and the very future of renewable energy in Montana.

The origins of the project can be traced to the 1997 deregulation of Montana’s energy market. Although the Montana Power Company (MPC) is moving out of energy and into telecommunications, shaking off all of its power obligations will take several years. One remaining task is a legislative mandate to be Montana’s “default supplier” of power until 2007. “Default supply” customers cannot choose among competing providers because of their location or specific power needs.

In 1997 the Legislature thought this would be a very small group, but the boom in competition and consumer choice touted by deregulation’s proponents never came. Now nearly all homes and some industrial customers fall into this category.

MPC has turned to alternative energy sources to fill its default supply portfolio. Wind energy was attractive because of its low price, environmental soundness, and natural abundance in Montana. The windiest state in the northwest, Montana has enough wind resources to meet 15 percent of the electricity demand of the whole United States, according to Peter West of the Renewable Northwest Project.

But the promise of wind energy comes with a caveat, he adds. It has to be done right.

“Renewables suffer longer from the mistakes of developers than traditional forms of electricity generation,” says West in his testimony to the PSC.

The theory is that a failed venture involving a traditional power source will reflect badly on the venture, and not on the power source itself. Renewables like wind power, though, are newer and less accepted and therefore could be tagged as risky. All of which, says West, make the success of projects like MPC’s absolutely vital.

“For this reason,” West told the PSC, “I would expect that if MPC’s selected developer of wind power fails, it would prevent wind from being included in Montana’s energy mix anytime soon.”

Real concerns—or sour grapes?

On June 8, MPC issued a request for wind energy proposals from developers across the country. They received 23 proposals from 15 companies. By July 12 they had narrowed the competition to four bidders: SeaWest Wind Power of California, Navitas Energy of Minnesota, Distributed Generation Systems of Colorado, and Montana Wind Harness.

The first three companies have established track records, with numerous wind projects up and running. Montana Wind Harness is a start-up founded by Missoula businessman Jim Carkulis. Its financing comes entirely from a Massachusetts company, Ameresco, Inc. and the construction will be done by a respected European company, Nordex.

MPC chose Montana Wind Harness’s bid of $31.65 per megawatt hour.

“The most important factor we looked at was price, and their price was extremely competitive,” says Bill Pascoe, MPC’s vice president for energy supply. He also cites Montana Wind Harness’ plan for Nordex to build a turbine production plant and the flexibility in the company’s 13 potential wind farm sites across the state.

Almost immediately, however, the three companies that lost out began raising issues with the award. Navitas filed an intervention with the Public Service Commission, stating, among other things, that they entered a lower bid than Montana Wind Harness, $28 per megawatt hour. All three companies have expressed surprise that Montana Wind Harness was chosen, given its lack of experience.

“This whole thing is a little bit strange,” says John Jaunich, CEO of Navitas. “If Distributed Generation Systems won and it had been a legitimate number we would not have protested. We have never intervened in the history of our company. We just think the people should be aware of it.”

SeaWest has also sent a letter to the PSC echoing Navitas’ concerns.

“To conclude that [Montana Wind Harness] have financing experience and capability is not well-founded,” SeaWest Assistant Vice President Darin Huseby writes in his letter. “The other short-listed bidders, on the other hand, have considerable wind industry experience in operations and construction—both requirements for project financing.”

Furthermore, Huseby writes, while the economic development draw of the turbine plant may have been attractive, it was outside the parameters of the request for proposals.

Navitas was also working on an economic development aspect, says Jaunich, but his company was not given fair consideration.

“We found out in mid-October that there was another negotiation process that was taking place,” Jaunich says. “From that point on we were taken out of the loop.”

MPC is “very comfortable with the choice we made,” says Pascoe. He denies ever seeing an official $28 bid from Navitas.

As for Montana Wind Harness being a start-up business, Pascoe says MPC was reassured by the company’s partnership with Ameresco and Nordex.

Dale Osborn, CEO of Distributed Generation Systems, thinks both Montana Wind Harness’ $31.65 price and Navitas’ $28 price are too low to be feasible. His company’s bid was about 10 percent higher.

This discrepancy undermines his competitors’ complaints, according to Jim Carkulis of Montana Wind Harness.

“One company says we’re too low, the other says we’re too high,” he says.

Osborn does not plan to file an intervention, but he is suspicious of the process and will be watching the PSC’s examination closely. “It looks to me like this is a political decision more than anything else,” Osborn says. “I’ve known Montana Power for a long time. I think they’re very honorable and reputable people, but the end result of this bid is pretty odions.”

Concerns about Montana Wind Harness are underscored by the record of business dealings by the company’s founder. According to district court records and state business files, Jim Carkulis’ past ventures have encountered numerous lawsuits and state sanctions.

In 1991, Carkulis’ work with Montana Silver Springs, Inc., a bottled water company based in Philipsburg, ended when the company kicked him off its board and sued him, alleging fraud and negligent misrepresentation. State business records show that two of his Missoula-based start-ups, Iso-Flex, Inc. and the Myriad Group, were “involuntarily dissolved” by the state, one for issuing a bad check and the other for not filing an annual report. District court records show that Iso-Flex and Myriad Group dealings resulted in tens of thousands of dollars in civil judgments against Carkulis, as well as several tax liens.

Carkulis is adamant that his background is irrelevant to the wind power contract. Particularly, he says, because after the initial negotiations, his “position in the company is very minor.” A project manager from Ameresco is overseeing things, Carkulis says, and Montana Wind Harness is working with some of the most respected lawyers, business people, and environmental analysts in the field. Montana Power’s only concern about Carkulis was his specific lack of wind power experience, Bill Pascoe says.

“We were concerned about James’ lack of development in the wind industry, and because of that we were insistent that he have strong partners, and Nordex and Ameresco are strong partners,” Pascoe says.

One observer concerned about Carkulis’ role is Jim Morton, director of the local Human Resources Council, a non-profit group that works closely with both MPC and the PSC.

“It raises a caution,” Morton says. “With the controversy, I’m surprised [MPC] didn’t do more due diligence on the principals. They have the staff.”

Morton’s group has not taken a stance on the bid award yet, but they will be examining the evidence and presenting their own intervention to the PSC.

“We want it to be a viable project,” Morton says. “In order to ascertain whether it’s viable you look at the people who are promoting it and what their history is, both in the field and outside the field. Do they deliver?”

Resolving the issues

The PSC will look at the wind power contract along with several other cases dealing with Montana Power’s restructuring. Although a date has not been set, MPC has requested the wind power issue be resolved by March 31, 2002.

Montana Wind Harness and its partners are confident the PSC will not find fault with the award.

“At the end of every competition there’s always one person that won and a bunch of people who didn’t and the ones that didn’t are always on their high horse about something,” says Robert Paul, vice president of Nordex, USA.

Montana Wind Harness is now considering 13 sites across Montana for its wind farms and turbine production plant. The local officials who have sites under consideration are waiting for Montana Wind Harness’ decision, and in the meantime, their impressions of the deal are mixed.

Peggy Beltrone, chairwoman of the Cascade County Commissioners, has had a positive experience and is hopeful about drawing part of the project to her county. Carkulis has “put together a very strong partnership in order to do the bid,” she says, and Montana Power is “trying to be a great corporate citizen in doing this.”

Beltrone says the “bold step” taken by MPC to show such a commitment to wind energy will draw even more manufacturers like Nordex to Montana.

Another site under consideration is a tract of property near Whitehall in Jefferson County. John Jaunich of Navitas Energy visited the site in August, according to Scott Mendenhall, manager of the Jefferson Local Development Corporation. Mendenhall was under the impression that Navitas was the front runner. Then MPC announced its decision.

“We thought we had put together a very competitive project with a very reputable, large company,” Mendenhall says. Navitas planned to build a turbine manufacturing plant in Jefferson County, which has been suffering from the downsizing in its gold mines, Mendenhall says. While Whitehall is still in the running as a potential site, Mendenhall is troubled by the process of the award and concerned about the project’s future.

“I’m saying these things at some risk,” Mendenhall says. “I can’t help but be disappointed when it looks like the truly winning and best proposal was overlooked at great cost to the ratepayers and to a couple hundred jobs in manufacturing here. That’s not chump change for our community.”

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