Wind Energy: Will It Benefit Your Municipality?

BY RONALD S. COPE, UNGARETTI & HARRIS LLP, CHICAGO

It is clear that the as well as other countries development will create jobs and also an alternative and around the world will increasingly be using wind energy. It is a cheaper form of energy. For municipalities the issue becomes relatively low cost form of energy and will certainly help how can it be of benefit to the community and what are the alleviate this country’s dependence on foreign oil. Current sources of local regulation? American wind farms will generate just over one percent of U.S. electricity powering the equivalent of over 4.5 million On one level alternative forms of energy such as wind energy homes. However, that can be expected to grow over the next can reduce costs for municipalities in the same way that costs several years. can be reduced for home owners and businesses. It simply becomes cheaper to operate provided there is a legal T. Boone Pickens, a billionaire and legend in the oil and gas mechanism for offsetting the costs between the electricity business, has said that “The United States is the Saudi Arabia provided in the traditional manner from a utility company and of wind power.”1 He points out that 20% of America’s the electricity provided by wind energy. Utility companies electricity could come from wind. He further points out that the themselves will benefit from wind energy by having an development of wind power is an investment in America that alternative source of power. holds the promise of creating high-skill jobs for thousands of Americans who would be employed in the manufacture of On another level small wind turbines can directly benefit the turbines and blades. A 2005 Sanford University study found home owner or business. The small wind turbines were that there is enough wind power worldwide to satisfy global common on farms and ranches across the Midwestern United demand seven times over – even if only 20% of wind power States before rural programs. Wind generators could be captured.2 American wind farms will produce an power lights, radios and kitchen appliances in rural areas. Small estimated 48 billion kilowatt hours of wind energy in 2008.3 turbines contribute a larger public benefit by reducing demand on utility systems now supplied primarily by centralized fossil The American Wind Energy Association explains that one fuel plants.4 Small turbines or small wind energy conversion megawatt of electricity can power 250 to 300 homes. In systems are variously described but generally consist of a wind Illinois, at the end of 2008, the power capacity was 1,000 turbine, one tower, support system, blades and associated megawatts with projects under construction which will provide controls and conversion electronics which has a rated capacity an additional 171 megawatts. Illinois ranks eighth in the United of 10 to 100 kilowatts and a height of 35 feet or more up to 100 States in existing capacity. feet or even 200 feet.5 Miniwind energy conversion systems (miniwecs) are generally at a height of 35 feet or less and have There is no question that wind energy will continue to be a rated capacity of less than 10 kilowatts.6 developed in the United States and that its growth and

6 | ILLINOIS MUNICIPAL REVIEW | JULY 2009 ILLINOIS LEGISLATION In this regard there are issues which have to be resolved, such as how the wind energy would be transmitted to the various Illinois legislation currently allows municipalities to regulate local government entities from the wind farm. This would be “wind farms.” Section 11-13-26 of the Municipal Code, 65 especially true if the wind farm was located in a distant part of ILCS 5/11-13-26 provides municipalities with authority to the state. Furthermore, the cost and expense of creating a wind “regulate wind farms and electric generating wind devices farm can be enormous, running into the hundreds of millions of within its zoning jurisdiction and within the 1.5 mile radius dollars. It should be noted that the legislation does provide that surrounding the municipality’s zoning jurisdiction.” This the unit of local government may ask for the assistance of any legislation became effective on August 16, 2007. Pursuant to state agency including the Department of Commerce and this legislation, municipalities have been drafting zoning Economic Opportunity, the Illinois Power Agency, or the ordinances governing wind farms and electric generating Environmental Protection Agency in obtaining financing wind devices. options for a wind generation turbine farm. It will be important for municipalities to see how this legislation is carried out in In addition, Section 16-107.5 of the Public Utilities Act allows the near future. for what is termed “net electricity metering.”7 This legislation permits an “eligible customer” to have the benefit of net ENVIRONMENTAL CONCERNS metering. The term “‘net electricity metering’ or ‘’ means the measurement, during the billing period applicable to In addition there are environmental concerns. One must take an eligible customer, of the net amount of electricity supplied into consideration the impact wind farms might have on the by an electricity provider to the customer’s premises or environment. Many zoning ordinances dealing with this subject provided to the electricity provider by the customer.” Section have provisions related to raptors or birds of prey. The Bald and 16-107.5(b). In effect, the electricity provider charges the Golden Eagle Protection Act, 16 U.S.C. Section 668 (A), customer for the “net electricity supplied.” protects against harming a bald or golden eagle “knowingly or with wanton disregard for the consequences.” If the amount of electricity used by the customer during the Likewise, the Migratory Bird Treaty Act, 16 U.S.C. Sections billing period exceeds the amount of electricity produced by the 704, 712 and the Coastal Zone Management Act, 16 U.S.C. customer, the electricity provider charges for the net electricity Section 1452, require an environmental plan to be approved in supplied to and used by the customer. On the other hand if the regard to the siting of electrical generator facilities. The amount of electricity produced by the customer during the “facilities shall be erected upon the sites selected to have the billing period exceeds the amount of electricity used by the least adverse effects practicable on areas used for spawning, customer during that billing period the electricity provider nesting, and seasonal migration of wild life species.” supplying the customer supplies a credit to a subsequent bill for service to the customer for the net electricity supplied to the electricity provider. Section 16-107.5 (d)(1)(2). However, the statute does not provide that municipalities qualify as “eligible customers” within the meaning of the Act.8 Legislation has been proposed to rectify this situation but it went back to the ...one megawatt of electricity can Rules Committee and has died there. power 250 to 300 homes.

In addition, Section 11-15.3-1 (of the Municipal Code 65 ILCS 5/11-15.3-1) provides that a municipality may own and operate a wind generation turbine farm, “either individually or jointly with another unit of local government, school district, or community college district that is authorized to A lawsuit filed in December 2007 by the Coastal Habitat own and operate a wind generation turbine farm, that directly Alliance was brought to enjoin construction of wind farms off or indirectly reduces the energy or other operating costs of of the Texas coast for violating these environmental standards. the municipality.”9 Coastal Habitat Alliance v. Patterson, United States District Court for Western District of Texas, Austin Division, AO7 CA This legislation gives a municipality either individually or 985ly (December 4, 2007). jointly with other units of local government pursuant to an intergovernmental agreement, authority to develop a wind DRAFTING A ZONING ORDINANCE generation turbine farm. This would allow municipalities in conjunction with other local government bodies including Pursuant to the legislation provided in the Illinois Municipal school districts and community college districts to own and Code10 and for home rule municipalities pursuant to their home operate their own wind farms in order to reduce the energy rule authority, municipalities have the authority to pass costs of the municipality. WIND ENERGY CONTINUES ON PAGE 8

JULY 2009 | ILLINOIS MUNICIPAL REVIEW | 7 WIND ENERGY CONTINUES which might very well mean the electrical power lines existing along right-of-ways. This raises other issues of the right of the zoning ordinances which regulate wind energy conversion municipality to charge for the use of its right-of-way. In this systems. These zoning ordinances require very careful regard see Electricity Infrastructure and Maintenance Law, 35 consideration because of a variety of competing interests. For ILCS 645. This law provides: example, in some communities there is great resistance to the idea of having wind turbines 200 to 400 feet in the air with “This law is intended to create a ‘uniform system for the large rotating blades. In the case of Ecogen LLC v. Town of imposition and collection of fees associated with the Italy11 a wind farm developer sued the town under Section 1983 privilege of using the public right-of-way for the delivery of the Civil Rights Act seeking relief from a moratorium of electricity.’” prohibiting construction of windmills. The federal district upheld the moratorium even though it had extended to two Section 645/5-4 provides that a municipality is entitled to years stating the following: require a franchise contract from an electricity deliverer as a condition of allowing the electricity deliverer to use any portion “The development of wind power projects, which convert of any public right-of-way within the municipality for the wind energy into electricity, seems to be on the upswing in placement and maintenance of facilities for distributing, this country but that growth has not been universally transmitting or delivering electricity. welcomed…” See e.g. Felicity Barringer, “Debate of Wind Power Creates Environmental Rift,” New York Times, June 6. DETERMINING THE SCOPE OF THE ZONING AND WHETHER 6, 2006 at p.18. IT INCLUDES THE TRANSMISSION LINES AND THEIR LOCATION. This determination can be critical because the energy generated As in Don Quixote, where one person sees a windmill must be able to leave the site and find its way into an electric another sees a ‘monstrous giant’ looming over the grid so as to ultimately be useable. One of the basic issues countryside. This case involves one such proposed project during the approval process must be to determine the feasibility that has met with local opposition.” of transmission and permission that needs to be granted by the municipality to use public right-of-way. In addition, it is SPECIFIC PROVISIONS OF A ZONING CODE necessary to consider whether the zoning that must be The specific provisions of a zoning code should provide approved extends beyond the for the following: wind farm where land in fee simple or easements have been 1. SET BACK REQUIREMENTS. This includes purchased to run the power set back requirements from adjacent property lines. lines as well as overhead utility or transmission lines. 7. DECOMMISSIONING. One item that is often overlooked is 2. NOISE STANDARDS. The issue of noise is the importance of a provision raised repeatedly in regard to the grant of a dealing with the special use or conditional use permit and the decommissioning of the wind farm. This provision requires the decibel readings are usually measured from removal of the turbines and the equipment from the project site any residential, school, hospital, church or and restoring the site to its original condition. As with other public library to the windmill structure. similar issues such as required subdivision improvements, municipalities might ask for financial guarantees such as a 3. HEIGHT LIMITATIONS. It is to be bond or Letter of Credit that the work will be performed. remembered that the Federal Aviation Administration would have to approve the FINANCIAL ADVANTAGES siting so there would be no possible interference with an airport. We have found that height limits Determining the financial benefits requires careful calculations go to 450 feet. by experts. For one thing not every site is conducive to a wind energy conversion system. While it seems obvious, it must first 4. ROAD ISSUES. This involves the right of the developer to be determined whether there is sufficient wind at the site to use existing roads in exchange for providing road maintenance make it worthwhile. Furthermore, the system has to be placed and repair to the roads damaged by the construction of the in such a way as to maximize the wind energy in the area. It wind farm. would seem clear that where net metering is permitted that there is a strong likelihood that if there is sufficient wind 5. INTERCONNECTIONS. The WECS developer has to energy in the area that a small wind energy conversion system provide for interconnections to an electrical transmission grid will result in reduced electrical costs. The existing literature

8 | ILLINOIS MUNICIPAL REVIEW | JULY 2009 indicates that these costs can be cut in half or even reduced wind energy conversion system on two-thirds from the current costs paid by a customer. This the roof of city hall remains to be means that a municipality which constructs its own system for seen. There currently is in place electrical power for its own requirements could save up to two- legislation which allows for thirds of its current costs. municipalities to become directly involved in wind energy conversion At last year’s IML annual conference, an engineering firm systems and at the same time to made a presentation which projected a cost of a regulate through the use of the zoning project to a municipality of $7,000,000. With the use of grant power the location and development money and factoring in the cost of financing, the municipality of wind energy conversion systems. would save over a period of 30 years, over and above the cost There are also financing mechanisms of the project, the sum of almost $7,000,000. The energy cost in place which can greatly assist the avoidance as shown was $15,859,175.12 municipality in carrying out a program harnessing the use of wind FINANCING THE PROJECT energy. The federal government has clearly made alternative forms of energy a high priority for Clean Renewal Energy Bond (“CREB”) or sometimes referred the future of this country. to as CREBs are a tax credit bond. Congress has approved an additional $800,000,000 for these types of bonds. The new As you know, the devil is in the details and to that end it is CREBs program allocates the $800,000,000 equally, one-third necessary to review with experts the way in which your each, among three eligible groups: units of state and local municipality might benefit from a wind energy program. The government, municipal/public power companies and electric opportunity is there and given the imagination and cooperatives. The Internal Revenue Code describes the perseverance of our local government officials there will, no regulations for the issuance and use of CREB bonds. These doubt, be some very important benefits reaped by communities bonds must be issued by a “qualified issuer” which includes in our state and across the nation. governmental bodies. The bonds are issued pursuant to an ______allocation by the Secretary of the Treasury. In addition to 1 , www.pickensplan.com/theplan 2008. 2 CREB bonds or as they are now referred to as NCREB, new www.pickensplan.com/theplan 2008 p.2. 3 American Wind Energy Association, www.awea.org. clean bonds, there are also qualified energy 4 Permitting Small Wind Turbines, A Handbook, California Energy conservation bonds (QECBs). The new clean renewable energy Commission, p. 5, American Wind Energy Association’s Small Wind bonds are similar to the “old renewable energy bonds” but Advocate Team 2003. 5 unlike CREBs which now have a termination date of December See Sangamon County Illinois Zoning Ordinance. 6 See Sangamon County Illinois Zoning Ordinance. 31, 2009, NCREBs have no termination date. QECBs provide 7 220 ILCS 5/16-107.5. the issuer with interest-free financing and the bondholders 8 There was a bill that was introduced into the Illinois legislature by Rep. receive federal tax credit in lieu of interest. The allocations are Fred Crespo. This bill would amend the Public Utilities Act to provide automatic and proportionate based on population. Both types of that the definition of “eligible customer” for the purposes of allowing net metering would include “electrical generating facilities owned or operated bonds, QECBs and NCREBs, provide for payments in the form by school districts, community college districts, or units of local of tax credits from the federal government to the holders of government pursuant to an intergovernmental agreement.” The bill those bonds. The bonds are subject to the national volume cap provides, in part, as follows (HB0692): of $800,000,000. The issuer has the right to borrow for “…(E)ach electricity provider shall allow meter aggregation for the purposes of net metering eligible renewable electrical generating qualified purposes at rates of interest which may be facilities owned or operated by school districts, community college significantly lower than the rates of interest on taxable debt or districts, or units of local government pursuant to an even other forms of tax exempt bonds. For governmental intergovernmental agreement. Electricity providers shall provide net bodies the Secretary of the Treasury is granted discretion to metering to all parties to the intergovernmental agreement so that all energy produced by the eligible renewable electrical generating determine the most appropriate method of allocating volume facilities is applied as a 1:1 kilowatt hour credit for each party to the cap. These types of bonds are available to local governments to intergovernmental agreement.” assist with the financing costs of qualified facilities used to The Bill, on 3/13/09, was re-referred to the Rules Committee where it has generate electricity, which includes wind turbines.13 died. 9 A similar provision provides for a county to own and operate a wind farm either individually or jointly and for a school district to own and operate a CONCLUSION “wind farm” or “wind generation turbine farm either individually or jointly with a unit of local government…” 55 ILCS 5/4200 and 105 ILCS It seems clear that wind energy holds great promise for 5/10-20.42. (This legislation became effective August 12, 2008.) 10 Section 11-13-26. municipalities for the low cost generation of electrical power. 11 438 Fed. Supp. 2d 149 (W.D. N.Y. 2006). Whether that benefit will be derived from a municipality 12 Johnson Controls, Inc., “Benefits of Harnessing the Wind to Illinois joining with other governments through an intergovernmental Municipalities,” 2008. 13 agreement or developing its own wind farm, or whether it will See 54 A, B and C, Internal Revenue Code. come from “net metering” or simply from providing a small

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