The scheduled expiration of a production tax credit for the wind industry has taken center stage in the energy policy debate between President Obama and Republican presidential candidate Mitt Romney.
The credit, which allows taxpayers to claim 2.2 cents for every kilowatt hour of wind energy produced by a utility-scale wind farm, is due to expire on Dec. 31, 2012, a prospect that is already causing layoffs in the wind industry, according to its advocates.
utility’s plant construction exceeds budget by hundreds of millions. It seeks cost recovery, claiming that the design changes, delays and scheduling conflicts that caused the overrun were not its fault. But it insists the supporting data is confidential. A reporter asked me: Can the state commission make customers pay for the overrun when the claimed support remains secret?
There are two legal principles relevant to the question.
1. In any request for cost recovery, statutes make the utility bear the burden of proof: the obligation to present the information necessary to persuade the tribunal. The burden of proof is sometimes called the “risk of non-persuasion.” If the tribunal lacks the data necessary to judge the utility’s prudence, the tribunal will remain unpersuaded. Since the utility bears the risk of non-persuasion, it loses.
2. Statutes require all regulatory decisions to be based on “substantial evidence.” To allow cost recovery, the commission must not only possess the supporting information; the commission’s opinion must also display that information and explain its persuasive role. Otherwise, a reviewing court (and the public) cannot know if the decision is arbitrary. Without the information, and without the explanation, there cannot be a credible decision. Again, then, the utility loses.
These two principles—the tribunal’s obligation to base its decisions on substantial evidence, and the utility’s burden of proof—combine to leave the tribunal unable, legally, to approve a request for cost recovery when the utility withholds essential information.
There are ways to reconcile a utility’s need to keep data secret with the principles stated above. The classic way is to provide the data to the tribunal, and to the parties, under a commission order requiring that the information be kept secret. While this approach excludes the public, at least the commission can make an evidence-based decision. The problem remains, however, that the commission will be unable to explain its decision to a reviewing court.