The Wind Power Tax

A regulator socializes transmission-line costs, and a utility fights back.

· Should businesses and families have to pay higher electricity rates to underwrite the cost of wind energy they don't even use?

That is the issue as the Federal Energy Regulatory Commission takes up a complaint by Interstate Power and Light Co. (IPL) that 500,000 rate payers in Iowa and Minnesota will have to pay $170.5 million from 2008-2016 for transmission lines and upgrades to connect wind farms to the electric grid.

The utility provides compelling evidence that "the burden of these huge costs is unrelated to any benefits that may accrue to IPL and its customers." And they are paying even though they "have not experienced any material improvements to reliability or lower energy prices."

Wind turbines on the Heil Family Farm, a wind farm, in Haverhill, Iowa.

The case has ramifications nationwide because the price tag for upgrading and expanding power lines to reach offshore and remote wind turbines could reach $150 billion. The green energy lobby and Obama Administration want to socialize these costs on the backs of all rate payers.

We criticized this stealth consumer tax two years ago ("The Great Transmission Heist," Review and Outlook, November 8, 2010). Michigan rate payers were asked to subsidize about 20% of the $16 billion cost to build wind-based power lines outside the state even though those customers received little benefit. These cost-shifting schemes would seem to violate the Federal Power Act, which says FERC should establish "just and reasonable" rates to cover transmission costs.

Yet in 2011 FERC issued new guidelines called "Order 1000" stating that pricing to cover transmission costs need only be "roughly commensurate" with benefits received—whatever that means. When we challenged FERC for straying from the user-pays principle, FERC chairman Jon Wellinghoff responded that his agency's pricing proposal "makes clear that only those who benefit from transmission facilities will be allocated the costs of such transmission investments."

Well, now we'll see. The dispute is over what constitutes a "commensurate" benefit. Interstate Power and Light says it doesn't use the wind power, so it shouldn't pay for it. The green lobby and FERC counter that rate payers benefit from the overall "reliability" of the electric grid.

But this is like arguing that Oklahomans should pay to fix potholes in Manhattan because this enhances the national transportation system. In any case, wind power is one of the least reliable sources of electricity due to its intermittency. In states like Colorado, wind has to be backed up by coal or natural gas plants, not the opposite.

It's no secret why FERC is likely to rule against the homeowners in Iowa and Minnesota. The Obama Administration's green vision is to make wind and solar an ever-larger share of U.S. electricity production, regardless of costs. Think high-speed rail for the electric power network. The only way to make that happen without a political backlash is to spread the costs far and wide.

Wind and solar power are too expensive to compete with natural gas, coal, nuclear and hydropower without government help. The wind lobby already won an extension of its $12 billion production tax credit as part of the recent tax increase. More than half the states also have renewable energy standards forcing residents to purchase wind power. And now the greens want another subsidy for transmission lines.

In the Interstate Power and Light case, FERC has an opportunity to reinstate the user-pays principle. If FERC won't do that, Congress should step in for consumers and define "just" and "reasonable" pricing for the windy FERC chairman.

A version of this article appeared February 11, 2013, on page A12 in the U.S. edition of The Wall Street Journal, with the headline: The Wind Power Tax.