By Zachariah Bryan/UM Legislative News Service

A state program that requires utilities to buy from small-scale, locally owned renewable energy projects in Montana is facing a do-or-die moment in Helena.

Sen. Keith Regier, R-Kalispell, is pushing Senate Bill 78, which would eliminate the Community Renewable Energy Projects program. The bill passed a final vote last week in the Senate 30-19 and now moves into the House of Representatives.

If there’s one thing people on both sides agree on, it’s that the program isn't working. Begun in 2005 as part of the Montana Renewable Portfolio Standard, it requires that Montana's major  utilities together produce 75 megawatts of new renewable energy. Each project cannot exceed 25 megawatts of energy, and they must be owned by Montanans.

NorthWestern Energy, which wants to repeal the law, is producing just 25 megawatts through CREP – 40 megawatts short of its goal. Montana-Dakota Utilities has hit its 10-megawatt target.

“It was designed to promote the development of small renewables by local owners, but by definition it is not working,” Regier said.

The main sticking point is the ownership rule. By law, CREPs must be owned by Montana residents, local organizations or business entities in which at least half of the “equity interests, income interests and voting interests are owned by Montana residents.”

Because such projects can cost millions of dollars, developers are often forced to look outside Montana for investors. That fails to meet the local ownership requirement, which is enforced by the Public Service Commission, the overseeing agency.

“We spend months and months working with these projects and it comes down to the wire and it doesn’t work with these ownership rules,” said Butch Larcombe, a spokesman for Northwestern Energy. “It is very frustrating for us.”

Take Greycliff Wind in Sweetgrass County, for example. Twice the developers' CREP projects were approved by NorthWestern Energy only to fail before the PSC.

That exasperated Rhyno Stinchfield, CEO of Montana Wind Resources, a Greycliff developer.

“It cost us into the thousands of dollars in legal costs to get that through,” he said by phone. “We went back and forth with PSC (and) NorthWestern Energy — I sure don’t want to go through that process again.”

Martin Wilde, CEO and principal engineer of WINData, made similar gripes in a letter to PSC almost three years ago.

When his company proposed a 25-megawatt CREP wind project in the Crazy Mountains, he suggested letting outside investors help with initial investment but eventually turn it over to Montanans.

Under his plan, an out-of-state investor would retain majority ownership of the project through the first 10 years. Then, in year 11, majority rights would revert to local owners for the remainder of the 25-year power purchase agreement.

However, Wilde wrote, the PSC’s strict interpretation of the ownership law prevented the plan from becoming feasible. The project died before developers could draw up a new agreement.

Lawmakers have yet to consider such a change in the ownership rule. Sen. Richard Barrett, D-Missoula, proposed eliminating the local ownership rule entirely earlier this session, but recently dropped the bill.

Brian Fadie, clean energy program director of the Montana Environmental Information Center, supports the idea of removing or at least improving the ownership rule.

“We should be looking to improve the CREPs provision, rather than repeal the entire requirement,” Fadie said in a phone interview. “The goal of it is to create clean energy while creating jobs and economic activity and tax payments in local communities. If we get rid of CREPs, we know that won't happen.”

Fadie pointed to the four CREP  projects currently selling to NorthWestern Energy as proof of positive impact. They have totaled $41.8 million in project investment and created 87 construction jobs and 5.5 full-time permanent jobs, according a 2014 legislative report.

But PSC Vice Chairman Travis Kavulla was hesitant about changing the ownership rule.

“Our concern is that the legislative intent behind the CREP standard is promoting genuine local ownership,” he said at a hearing for Regier’s bill last month. “(By striking out the rule), you would definitely be allowing CREPs that are locally owned to be built, it’s just the meaning of local ownership would have been, in that situation, eviscerated.”

Even if the ownership rule was stricken, Regier wasn’t convinced CREPs could work. Between the cap on megawatt production and the high cost of the projects, he said, most would be either uneconomical for the developers or result in higher rates for customers — or both.

“You still have a problem with economy of scale,” he said by phone. “Smaller units, 25 megawatts, run about $50 million, and the return on that is not going to be that great … To make it work, they would have to charge more for the power.”

Kavulla concurred.

“CREPs are almost by definition quite costly," he said. "The cheaper ones come in at about $50 per megawatt hour, $12 more than most recently contracted wind projects.”

The 80-megawatt Vivaldi Springtime Wind Project in Reed Point, which is expected to be finished in early 2018, will sell its  power for $37.65 per megawatt hour. And the 78-megawatt Crazy Mountain Wind Farm will sell for $42.38 per megawatt hour during peak demand ($36.36 during lower demand).

Older projects average around $50 or more. NorthWestern Energy also buys energy from the Spion Kop Wind Farm at $53.78 per megawatt hour — a rate that was set back in 2012.

“You might hear some opposition to this bill, and I think that opposition is from disappointment — disappointment that the CREPS are not working and they like that concept,” Regier said at his bill’s hearing.

Despite such problems, Kavulla is optimistic about the future of Montana's renewable energy portfolio. He pointed to about 200 megawatts of wind energy that has been announced as a sign of hope.

Many factors drive increased renewable energy production, he said, including federal tax policy, declining costs and greater availability of technology, such as wind turbines.

"This bill,” he said, referring to the proposed repeal of CREPS, “changes nothing that drives those factors.”

Zachariah Bryan is a graduate student at the University of Montana School of Journalism and a reporter with the Community News Service, a partnership between the school and the Montana Newspaper Association.