New York University Social Responsibility or Insanity Paper The instructions are below, u should write 3 pages and a half page reflection about what u lear

New York University Social Responsibility or Insanity Paper The instructions are below, u should write 3 pages and a half page reflection about what u learned this assignment. DardenBusinessPublishing:242595
UVA-OB-1171
Giving Voice to Values
This document is authorized for use only by Ruth Hansen at University of Wisconsin – Whitewater.
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Rev. Dec. 27, 2016
Social Responsibility or Insanity:
The Entrepreneurial Struggle to Build Utah’s First Wind Project 1, 2
Background
Several years before becoming an independent wind developer and launching Wasatch Wind, Tracy
Livingston attained millionaire status through the sale of his medical equipment manufacturing company. With
financial freedom, Livingston, the consummate entrepreneur, contemplated a new business venture. As he
considered his “next plan in life,” 3 a magazine article about wind power caught his attention and upon further
investigation of the technology, he became confident that wind power was “the next up and coming thing in
energy.” Innovations had made modern wind generation cost-competitive with traditional fossil fuel sources
of electricity, such as coal and natural gas. And, since the wind was ‘free’ and did not have to be mined or
transported, it provided a price-stable form of non-polluting power generation. Livingston concluded that
wind’s price stability would eventually help provide security to the nation’s energy supply. Wind power plants
also offered environmental benefits, because they did not emit carbon dioxide, sulphur dioxide, nitrogen oxide,
and mercury. Once convinced of wind energy’s social and environmental benefits, Livingston believed it was
“his duty” to apply his “background in business and engineering” to wind development.
As Livingston studied the Utah energy market, he decided that immediate steps were needed to conserve
the fossil fuel supplies of coal and natural gas for producing electricity. While experts disagreed on the
remaining life of these resources, they all agreed that supplies would be exhausted eventually. Some experts
predicted that Utah’s economically-accessible coal supplies could be extracted in as little as 12 years making the
relatively fast construction of wind farms one of the best short-run options to conserve coal and gas.
Additionally, because wind was free, inexhaustible, and not subject to cost fluctuations (especially problematic
for natural gas), it offered a hedge against potential price shocks and increases in fossil fuel-fired electricity costs
or looming carbon taxes and restrictions. Livingston claimed the real question was not if costs would rise, but
“…how fast will fossil fuel generation costs rise in the future?” He concluded that, with a choice of building
either “more wind plants or more coal plants,” the price stability of wind plants gave them the lo ng-term
economic advantage. Livingston’s task, now, was convincing others of his conclusions about Utah’s and the
nation’s energy future.
1 This material is part of the Giving Voice to Values (GVV) curriculum. The Yale School of Management was the founding partner, along with the
Aspen Institute, which also served as the incubator for GVV. From 2009 to 2015, GVV was hosted and supported by Babson College. Darden Business
Publishing is pleased to present this material in its original form.
2 This case was prepared for the Giving Voice to Values program by Cathy L. Hartman, Ph.D., Edwin R. Stafford, Ph.D., Utah State University,
with input from Mary Gentile, Ph.D., Babson College
3 All quotations are from a series of video-recorded interviews conducted with Tracy Livingston, founder and CEO of Wasatch Wind, on October
2007 and August 2009.
This field-based case is part of the Giving Voice to Values curriculum collection. Names and other situational details have been disguised. It was written as
a basis for class discussion rather than to illustrate effective or ineffective handling of an adm inistrative situation. Copyright © 2010 by Mary Gentile. All
rights reserved. To order free copies, send an e-mail to sales@dardenbusinesspublishing.com. No part of this publication may be altered without permission.
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A Towering Opportunity
The first opportunity Livingston identified in the industry involved wind tower design. The U .S.
Department of Energy (DOE) was interested in innovations that allowed wind projects to be deployed in windrich, but geographically challenging locations, such as ridge tops and places where access roads would be
difficult to build. In 2002, Livingston procured a DOE grant and founded his company, Wasatch Wind, with
a division called Wind Tower Systems.
Wind Tower Systems developed a new light-weight tower structure, and Livingston needed a location to
demonstrate and test the viability of his design. His business partner, Dean Davis of Windward Engineering,
had a small office and wind testing facility at the mouth of Spanish Fork Canyon located 12 miles southeast of
Provo, Utah, and suggested he use this site. Davis’ data indicated it was potentially the “windiest spot in the
West.” Livingston was surprised at the suggestion, because this site did not appear on a widely circulating wind
prospecting map issued by the National Renewable Energy Laboratory. 4 The modeling approach used to
develop the map lacked the ability to accurately measure wind speeds in complex terrains such as the mouths
of canyons.5 However, a visit to the site one morning led Livingston to proclaim, “Wow, this [location] really
looks exciting.” So, began Livingston’s journey to build Utah’s first wind project at the mouth of Spanish Fork
Canyon.
Harvesting Canyon Winds and the Spanish Fork City Engineer
In fall 2004, Wasatch Wind began assessing the economic viability of the Spanish Fork site and installed
an 80-meter anemometer to collect six-months of wind speed measurements to supplement Davis’ data.6
Simultaneously, Livingston investigated transmission availability, city land use ordinances, and nearby
residential development. He found that the site was not only near transmission lines, but also home to a gravel
pit nearing the end of its useful strip mining operation. The land owner was trying to figure out how to reclaim
the mined area. When Livingston approached him, and said “I’ll put five turbines on your piece of ground and
pay you a royalty,” the owner readily agreed. The site had industrial zoning, so Livingston did not anticipate
any land use issues from city officials.
Unfortunately, the Spanish Fork city engineer raised concern that construction of the wind plant at that
location could interfere with the city’s nearby spring water collection system. City planners agreed and
ultimately rejected the wind project proposal. Livingston identified another location further away from the
water system. However, this action brought the wind project closer to Spanish Fork’s residential community,
within 600 feet of some homes. Thus, community acceptance of the project was now more critical, and
Livingston launched an educational initiative.
Using a mailing list supplied by Spanish Fork city staff, in April 2005, Wasatch Wind mailed over 1200
invitations to a town hall meeting to introduce and discuss the wind project proposal with the broader
community. About 60 residents attended, and Livingston presented details of the wind project and showed
virtual images of the turbines on the landscape. He emphasized the wind project’s economic and social impacts.
Utah Wind Map 2003. Available at http://wpadev.nrel.gov/wind_resource_maps.asp?stateab=ut&print. (Last accessed August 2011).
Brower, M., J.W. Zack, B. Bailey, M.N. Schwartz, and D.L. Elliott, “Mesoscale Modeling as a Tool for Wind Resource Assessment and Mapping,”
presented
at
the
14th
conference
on
Applied
Climatology,
Boston,
MA.
Available
at
http://ams.confex.com/ams/84Annual/techprogram/paper_72138.htm (Last accessed August 2011).
6 Conlon, G.W. (2006), “Citizens Seek Moratorium on Wind Farm Towers,” (Provo) Daily Herald, 15 February 2006, p. A1. Available at
http://heraldextra.com/content/view/165985/9 (Last accessed August 2011).
4
5
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Wasatch Wind would be paying hundreds of thousands of dollars in property tax revenues to Spanish Fork city
over the life of the wind plant. Because in Utah, school districts receive about 70% of property tax revenues,
Utah’s children would be the primary beneficiaries of developing Spanish Fork’s winds for power. Also, since
two of the proposed turbines would be located on city owned land, Spanish Fork would receive additional
annual royalties from land leases. Receiving a highly favorable response from the citizens who attended the
town hall, Livingston initiated analyses needed for siting, including wildlife and noise impacts. With satisfactory
results on all studies, Livingston finalized the permitting process. His next steps involved procuring turbines
and securing a power purchase agreement to sell the electricity.
Enter an Investor, a Utility, and a Public Service Commission
Livingston approached John Deere, the Fortune 500 farm equipment manufacturer, to be his project’s major
investor. John Deere agreed to provide Livingston with the turbines for the project.
Livingston’s efforts to broker an equitable power purchase agreement to sell his wind energy to the
incumbent utility, Rocky Mountain Power, was more challenging. Negotiations steadily became contentious,
drawn out, and expensive extending over a two-year period from 2004-2006. The pricing of power was
complicated by the regulated nature of electricity in Utah, which restricted how it could be priced and to whom
it could be sold. As Spanish Fork would be Utah’s first commercial wind project, there wasn’t a method or
precedent for determining the market value of the wind power purchase agreement.
Additionally, because Rocky Mountain Power owned the substation and transmission lines adjacent to the
wind plant, it was the only potential buyer for the power. Under federal regulations, the utility had to purchase
the electricity at its avoided cost rate from independent power producers such as Wasatch Wind. Avoided cost
is defined as the added costs that would be incurred if the electric utility generated the power itself, or if it
purchased it from another source. Rocky Mountain Power contended its avoided cost rate was about four
cents a kilowatt hour (kWh) based on its existing depreciated infrastructure costs for fossil fuel generation.
This was far below the six cent level that Livingston needed to make his project economically viable. Further,
Rocky Mountain Power had a company policy to only buy wind energy from projects of 100 megawatts (MW)
or larger. The proposed Spanish Fork wind plant was only 18.9 MW; Livingston was told that “unless you can
make this 100 MW, we are not interested.”
With the inability to reach a satisfactory agreement, Livingston saw his only option was “to go to the [Utah]
public service commissioners and convince them that the purchase of Spanish Fork electricity was in the interest
of rate payers.” The public service commissioners would have to decide which costs were relevant in evaluating
energy alternatives.7 Livingston later reflected “I knew our hands, our lives; [and] this business that I had
started and was so enthusiastic about [were] dependent on three men looking at it, understanding what would
be beneficial to their rate payers.”
As a small developer with limited financial resources and staff, Livingston had to argue his own case before
the public service commissioners and the high-powered legal staff of Rocky Mountain Power. He searched for
a way to communicate effectively with the commissioners. He decided that the “most compelling” argument
rested on consideration of the long-term price stability of wind. As he stated, “…you might have to pay a little
bit more today [for wind], you might not, but you are certainly going to be paying a lot less in 20 years, in 30
7
Utah Code, Title 54: Public Utilities 2008. Available at: http://le.utah.gov/~code/TITLE54/54_03.htm. (Last accessed August 2011).
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years, in 40 years compared to coal and natural gas.” As wind power was price stable with predictable costs
years into the future, its key benefit to rate payers would be as a hedge against rising fossil fuel costs.
Livingston further argued that building wind plants in rural locations could help landowners, often cashstrapped farmers and ranchers, through lease payments made annually for the life of the project. Livingston
was insistent that the Spanish Fork wind project was not only economically beneficial for rate payers, despite
being more expensive than Rocky Mountain Power’s existing fossil fuel-generation costs, but that wind power
offered social value (e.g., energy security, clean air, rural economic development, job creation) that was not
being considered. He learned, however, that by legislative mandate, the Public Service Commission was not
allowed to consider social benefits of wind energy, only its short-term economic cost.
Finally, Livingston maintained that the price of wind should reflect prevailing market costs for new energy
development rather than the cost function of the utility’s existing power sources. He questioned the avoided
cost method that Rocky Mountain Power used that was based on its old, depreciated coal- and gas-fired plants
to set its purchase price for new wind energy. Was this a fair method for pricing new wind energy when even
new coal- and gas-fired power plants could not meet that historic cost threshold? The avoided cost method
for pricing wind power was analogous to requiring that the price of a new, fuel efficient car be the same as the
price of an old, used gas-guzzler. New coal and gas plants were not held to this standard; and, Livingston
argued that the avoided cost policy literally choked out any future for new renewable energy in Utah.
After months of back-and-forth discussions, the Utah public service commissioners agreed with
Livingston’s arguments and set a pricing policy that required Rocky Mountain Power to use a “market proxy”
for future wind energy purchases. That is, to set the rate for Spanish Fork wind energy at the same level the
utility was already paying for wind power from a larger project in another state. The set price made the Spanish
Fork project economically viable, and Livingston believed he could move forward with his plans. As he stated,
“now we had already had a town hall meeting [at which] there were no objections, approval from the city
council to build this wind project in an area zoned for wind development, a 20-year contract… what was there
to go wrong? And, then the nightmare scenario happened in Spanish Fork where it looked like I was going to
be denied.”
Citizen Uprising
Livingston received a call from a reporter asking for his comment on a moratorium proposal from
concerned citizens that would be considered at the February 2006 city council meeting the next evening.
Livingston was shocked and began to “question his sanity.” No one had voiced their concerns to him.
However, a phone call from the Spanish Fork city manager confirmed the uprising. A group of citizens became
alarmed after viewing the re-televised June 2005 city council meeting at which the wind project had been
approved; and, they claimed that they were not well-informed about the giant wind turbines that would be
invading their neighborhoods. They were raising concerns about the wind project’s aesthetics, noise, and
construction practices. They also challenged the zoning ordinance for wind development passed by the city
council, because it did not incorporate best practices for wind project siting and operation. All told, they
questioned the economic, environmental, and social benefits of the project.
The citizens’ eleventh-hour protest frustrated Livingston who declared, “It was well-publicized what we
were doing. Never mind that we had already had 30 articles prior to that in all the local newspapers, some on
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the front page.” Regardless, Livingston had to rapidly prepare a formal presentation to counter public criticism
and to build community acceptance.
The city council meeting the following evening attracted hundreds of citizens, most against the project.
Two citizens were each allowed time to present community concerns followed by a rebuttal by Livingston. The
first presenter claimed that the social benefits touted by Wasatch Wind were not true. He argued that while a
few landowners would receive lease payments for turbines on their property, the majority of citizens would not
receive any compensation or benefit; and, he feared the wind project would decrease the property value of his
house.8 The second citizen, an engineering professor, outlined information from his research on wind
ordinances in other states that included a broader set of constraints including noise levels, landscaping, and
turbine decommissioning. None of these considerations were included in the Spanish Fork wind ordinance.
At the meeting, Livingston felt as if the citizens were attacking him personally, he declared, “…I’m not the evil
developer here!”
At this point, even though Livingston later revealed that he was wondering, “What am I doing here? Has
my enthusiasm gotten the best of me?”, he also realized that “wind plants are a new thing and it is difficult for
local communities to understand what they really mean.” He wanted “…the citizens and community leaders
to…make an educated decision without them feeling like we are trying to impose something on a local
community.” He remained sympathetic to the citizens.
Livingston began his response by complimenting the citizens on the thoughtfulness of their presentations.
Then, he outlined details of his business plan including estimates made by city administrators and an
independent economic analysis of the construction and operation of the wind plant that found that it would
generate tax revenues, support jobs, and provide price stability for rate payers for twenty years or more.9
Livingston addressed the residents’ concerns by framing the decision in a business context rather than as a
debate of personal beliefs and values. He highlighted the social benefits the tax revenues would support. Taxes
from the wind project would represent a 26% increase in the city’s annual revenues with a significant portion
going to the school district. He also defended his education outreach effort that had included distributing
thousands of flyers, placing ads in the local newspaper the Provo Daily Herald, and giving interviews to the local
news channel KSL.10 Lastly, he conveyed his willingness to compromise and to work with citizens and…
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