A community-owned wind farm in southwest Minnesota is being sold, ending a costly trip through bankruptcy court that its new owners say achieved just one purpose — escaping a hefty, unpayable fine for a lapse in filing paperwork with federal energy regulators.

Under terms of the court sale, four turbines of the Minwind project near Luverne, Minn., have been sold for $622,000 to a group of community investors led by farmer Dean Tofteland in a deal that closed last week. Seven turbines are approved for sale to the wind farm's lender, First Farmers & Merchants National Bank of Luverne, for $1.96 million in a noncash deal expected to close this year.

More than 300 small investors, including many farmers, stand to lose all or most of their investment in Minwind. It was completed in 2004 on two sites 8 miles apart under a state policy to encourage locally owned wind energy. The turbines have continued to operate during the Chapter 11 bankruptcy case, which was filed in January.

Tofteland, who heads a new ownership group called Community Renewables, and Brian Short, president of the First Farmers holding company, blamed the Chapter 11 bankruptcy on the Federal Energy Regulatory Commission (FERC). A year ago the agency imposed a $1.9 million penalty on the wind farm for not filing annual paperwork declaring it was a qualified renewable energy facility.

Minwind officials have admitted they didn't file the paperwork for several years, saying they weren't aware that FERC had changed its rules to require annual reports, rather than a one-time filing. The failure to file the reports didn't affect electricity production or its price, which is governed by long-term agreements with two utilities that buy the power.

Short, whose banking group has been a lender to many wind-power projects, sharply criticized federal regulators' actions in an interview Wednesday.

"This whole thing is kind of silly because Minwind was assessed a fine that it never could have paid and never will be paid, and the only result of all this is a bankruptcy filing, hundreds of thousands of dollars in legal fees and nobody is ahead except a bunch of lawyers who got paid a lot of money," said Short, who formerly served as a federal magistrate in U.S. District Court in Minnesota.

Mary O'Driscoll, director of media relations for FERC, said Wednesday that the agency does not comment as a matter of policy.

Although the wind farm's 11 turbines needed maintenance — a problem cited in the court papers — Short said that alone would not have driven the wind farm into bankruptcy. He said lawyers advised the wind farm's operators to file bankruptcy after FERC rejected a plea for leniency.

Short and Tofteland said it's doubtful that FERC will get any money out of the bankruptcy case, which is still pending in U.S. Bankruptcy Court in Minnesota. The judge has scheduled a hearing in January to address claims of equity holders and unsecured creditors.

Tofteland, a grain and hog farmer who also had a stake in the original Minwind, said the $1.9 million penalty "was a bizarre finding" for a filing lapse that caused no harm to the utilities buying the power. Some of the electricity also is fed into a grid-sized battery near Luverne owned by Xcel Energy, which buys most of the wind farm's output.

Community Renewables, the new ownership group for part of the project, includes a number of local investors who had a stake in the original Minwind project, Tofteland said. That group, and Short's bank, said they plan to invest in upgrades to the wind farm, though not to replace the turbines. Short said the bank eventually may find a buyer for its share of the wind farm.

Tofteland said the sale to local investors is a bittersweet ending. "It is nice to keep the community involved," he said.

David Shaffer • 612-673-7090

Twitter: @ShafferStrib