Owners of two Minnesota wind farms file for bankruptcy court protection

Power to people on the prairie — it's the idea, born in Minnesota, that farmers should own some of the wind turbines spinning above their fields.

But that idea has turned into a financial loser for about 360 farmers and other landowners who invested in two small wind farms more than a decade ago near Luverne, Minn., in the windy southwest corner of the state.

The companies that collectively own the two Minwind Energy projects filed for reorganization this week in U.S. Bankruptcy Court in Minnesota. The owners stand to lose their investment, and the wind farms eventually may have to shut down, according to regulatory filings.

It is the first of the state's approximately 100 operating wind power projects to seek bankruptcy protection, and the case is raising questions about whether the small-scale wind farm model still works in an era of ever-larger wind-generating projects.

"The wind business is not for the faint of heart," Beth Soholt, director of the St. Paul-based trade group Wind on the Wires, said in an interview. "These are big energy facilities … It is a long-term contract with utilities that expect you to produce. A lot of things can go wrong."

The Minwind wind farms, with 11 turbines that went on line in 2002 and 2004, made a profit until 2012, and are still operating, according to its financial reports. The electricity is sold to Minneapolis-based Xcel Energy and Cedar Rapids, Iowa-based Alliant Energy under long-term deals. Some of Minwind's power is fed into a giant battery built by Xcel near Luverne to store electricity for when the wind doesn't blow.

Minwind has told federal regulators that the turbines have needed extensive repairs, including main bearings, and the company no longer can afford the upkeep. To make things worse, Minwind got into a jam with the Federal Energy Regulatory Commission for not filing certain paperwork since 2006. The result is a $1.9 million regulatory liability that has left a potential buyer uneasy about signing a deal to acquire the wind farms.

Minwind's attorneys have told the government that the owners were "unsophisticated" in regulatory matters, and should be excused from the filing lapse. Some of the owners also had invested in the former Agri-Energy ethanol plant in Luverne, which was sold in 2010 to another biofuel company.

"None of the owners has had any experience in the power sector, except through ownership and operation of the facilities," the company's Washington-based legal team led by Margaret Moore said in a regulatory filing.

But federal regulators didn't buy the lack-of-sophistication argument. Indeed, the company led by President Mark Willers, Luverne businessman and farmer, has long been credited with creating an innovative business structure with nine separate limited-liability companies allowing investors to take advantage of federal wind energy tax credits, a now-discontinued state assistance program for small wind projects and USDA grants.

Willers declined to comment in detail, but acknowledged that the company was tripped up by a rule change that FERC made eight years ago — a time when the company didn't have a Washington attorney on retainer to watch for such things.

In its bankruptcy case, the Minwind companies filed for reorganization, a process that allows companies to shed liabilities. That potentially could clear the way for a sale to a turbine repair company. Under a proposed deal, the wind farms would be sold for the cost of the remaining debt with no additional return to investors, Moore told regulators.

It is unclear how much individual investors will lose.

Minnesota has long supported community-owned wind farms, and more than 30 of them have been built, according to state data. Most have less than 20 turbines, a fraction of the size of large wind farms built by major energy developers.

Soholt of Wind on the Wires said there have been long-standing concerns about whether small, community-owned wind farms have set aside enough funds to maintain wind generators for the typical 25-year operating agreements. But she said Minwind's case is the first she heard of a small wind power company facing those troubles.

Michael Bull, who had a top state energy post during the Pawlenty administration, said that in the mid-2000s, Minnesota policy on small wind farms changed. The direct state subsidies ended, and state officials paid more attention to whether small companies could sustain the long-term maintenance needs of wind farms.

"My sense is that the industry got pretty sophisticated — a lot of more sophisticated as the projects got larger," said Bull, who is now policy and communications director for the Center for Energy and Environment, a nonprofit that promotes energy efficiency.

Carol Overland, a utility attorney based in Red Wing, Minn., who was not involved in Minwind, said it's possible that other small wind power producers could get caught in similar regulatory, maintenance and financial struggles as the Luverne-area wind farms.

"Small wind development is a good thing, but it developed in Minnesota in a way that was not in the public interest or the interest of the people developing it," said Overland, who has challenged transmission and wind power projects on behalf of affected landowners.

Graphics reporter Jim Foster contributed to this report.

David Shaffer • 612-673-7090 Twitter: @ShafferStrib