The power struggle for Wyoming’s wind by Ken Otterbourg @FortuneMagazine September 14, 2011, 9:25 AM EDT E-mail Tweet Facebook Google Plus Linkedin Share icons Wyoming is an ideal place to generate electricity from wind. But getting current from turbines to customers is a political and economic puzzle. How it plays out will have lessons for renewable-energy projects nationwide. Bill Miller, president of Anschutz Exploration, at Anschutz’s Overland Trail Ranch near Rawlins, Wyo., where a 1,000-turbine wind farm is planned. FORTUNE — The best wind in America is in Wyoming. It is a door-snapping, heart-pounding wind that barrels in from the west, chasing the truckers along Interstate 80 as they race to make Omaha by nightfall. It is sometimes described with words ordinarily associated with dark chocolate or exceptional pinot noir. It has been called dense, world-class, consistently extraordinary, special, and fabulous.It is all these things and more. The best wind in America is also harsh and divisive. Across Wyoming, whose vast resources of coal and natural gas help keep state taxes low and the nation’s lights on, there is a sprawling battle under way about the future of this renewable energy, how to develop it, and how to get it to market.They are fighting here over policy, taxes on wind farms, and the legal rights of the companies that want to build the networks of power lines and towers needed to move electricity to Oregon, Nevada, and California. And they are fighting over things that can’t be so easily quantified, such as how best to preserve the sweeping views of mountains that seem to tumble down from the sky, and whether an energy source that still depends on tax credits and set-asides is worth all the trouble.The residents of Wyoming aren’t the only ones wondering where the wind leads. In a sense, we all are — or should be. The Obama administration, like its predecessor, has a goal to increase the amount of power generated from wind to 20% by 2030. It’s now at about 2%. We have the wind, on land and offshore. What we lack is the infrastructure. And the scale of the footprint that would be required to generate and then move all this power is only starting to come into view, igniting battles in Wisconsin, Maine, and elsewhere.There’s good wind across the nation’s midsection, but Wyoming’s wind is given an extra boost by a 100-mile stretch in the state’s southern half, where the Continental Divide all but disappears and the wind gathers force as it pushes through from the west. Beyond power and speed, Wyoming has consistency — what’s known as capacity. At many places in the state, the wind blows more than 40% of the time.Along the highways around Cheyenne and Casper, plenty of turbines rise out of the sagebrush and scrublands. Wind energy here is already generating about 1,400 megawatts of power, but that’s perhaps a tenth of the state’s potential. And in the past year the industry has come to a dead halt. There are political obstacles, but the main problem is this: Wyoming has run out of power lines connecting it to the rest of the country. And until it gets more, that epic wind is just moving dust and dirt eastward, one gust at a time. A turbine propeller blade being transported by truck on I-80 between Rawlins and Rock Springs, Wyo. “It’s all about transmission,” says Loyd Drain, executive director of the Wyoming Infrastructure Authority, a little office tucked between a Quiznos and a bed-liner shop in downtown Cheyenne. “A lot of people will tell you it’s all about wind. That’s hogwash. If we don’t get new transmission built, we’re not going to build any type of generation.”Some of the biggest names in the energy business are trying to launch power-line projects here, planning routes and dealing with the scrum of federal agencies that have a hand in approving interstate transmission projects. The list includes Rocky Mountain Power, which is part of Berkshire Hathaway’s brk.a MidAmerican Energy Holdings; TransCanada TRP ; and LS Power. The company that is furthest ahead and getting the most buzz is run by Anschutz Corp., headed by billionaire Philip Anschutz.Anschutz’s Overland Trail Ranch is a few miles east of the Continental Divide near Rawlins, in Carbon County, named for the coal reserves still being worked there today. Overland, which started life in the mid-1800s as a land grant to the Union Pacific UNP , covers some 500 square miles of rolling high country, with the North Platte River looping through as it starts a wide arc into Nebraska.I’m bouncing along in a pickup on the ranch’s rutted trails with Bill Miller, who runs the Anschutz operations here. He explains the plan. The company bought the property in 1997 to run cattle. In 2007, Anschutz decided it wanted to be in the renewables business, complementing its oil and gas holdings, and it realized that Overland had astonishing wind. It also realized that the wind was handcuffed — stranded, in the parlance of the energy crowd — because of a lack of transmission. So one Anschutz affiliate, Power Co. of Wyoming, is developing a 1,000-turbine wind farm that can generate 2,500 megawatts, enough power for a medium-size city. Another, TransWest Express, wants to build a $3 billion line to carry all that power to southern Nevada and on to California.Getting the power out of WyomingThere are two basic ways to transmit power. The first uses alternating current, or AC. It’s how electricity is generated, and it allows ready access to the power at lots of places along the route. The other is direct current, or DC, and it’s more like a highway. The power moves more efficiently, but the conversion stations, which function like on and off ramps, can cost hundreds of millions of dollars, so there tend to be few connecting points. For long runs through the desert Southwest, DC makes the most sense, even if it’s more expensive upfront.TransWest wants a DC line, and to reduce its costs, it is trying to bring in a partner. The federal Western Area Power Administration, which distributes power from the Hoover Dam and elsewhere in 15 Western states, is considering signing on as an equity partner. The deal also would let Anschutz benefit from the government’s power to use eminent domain, a potent negotiating tool with stubborn landowners.Building interstate power lines is a daunting task. There’s a regulatory thicket at the state and federal level, and transmission projects tend to isolate perceived costs from benefits. The landowner who has to look at a line often doesn’t get to use the power running through it. Rocky Mountain, the Berkshire Hathaway company, is in the permitting stage for a transmission project that would move power from Wyoming to its customers in Idaho and Oregon. Unlike Anschutz’s company, Rocky Mountain is a regulated utility. That gives it the advantage of a built-in customer base for wind energy, but also ties its hands on building larger lines than its existing ratepayers need. A separate project, to help carry Wyoming power to the Southwest, is being scaled back because the company hasn’t been able to find partners to help build a larger, more efficient line. And it’s running into fierce opposition over where to place power lines for wind projects in eastern and western Wyoming.Near the town of Glenrock, east of Casper, Wasatch Wind has a contract with Rocky Mountain to sell power from two wind farms it hopes to develop in a broad expanse set amid the peaks of the Laramie Range. The turbines of the 100-megawatt Wasatch project would be visible from the home office that an investment banker and former World Bank official named Ken Lay has at his weekend ranch. “We do not want industrial-scale development in the mountains,” says Lay, one of the founders of the Northern Laramie Range Alliance. “People are sophisticated enough to do the math. They start thinking where all these projects are going to go. How are 100 of those wind farms going to get connected to the grid, and what is southeast Wyoming going to look like when they’re done.”Not everyone in the alliance is as well-heeled as Lay, but there’s a perception tinged with just enough reality that the second-home crowd — trophy ranchers as they are derisively called — are out to protect their views at the expense of the less fortunate.Rich Walje, the president of Rocky Mountain Power, has toured the property, and the company moved proposed transmission lines in part to avoid a fight with Lay and his allies, but he says there’s only so much the utility can do. State regulators require the company to use the least expensive routes. Federal regulations push for separating power lines for safety and security. “We’re now embroiled in a bit of a societal issue in Wyoming,” Walje says, “which is that some people really want to develop wind energy, and then there is a percentage of the citizenry who don’t want the state industrialized, if you will, with a plethora of wind towers tied together by transmission lines somewhat described as spaghetti lines.”Making the grid a national priorityFrom a technical standpoint, it’s not really any harder to build a power line than a natural-gas pipeline. But from a regulatory standpoint, it is. Unlike electricity, natural gas has always relied on third parties to move fuel from the gas fields, and it often needs to travel across state lines. Those differences — and the fact that pipelines are underground and largely out of sight — carry enormous implications for licensing and construction. The permitting for pipelines is done almost exclusively at the federal level, controlled by the Federal Energy Regulatory Commission (FERC), and there’s a history of case law that keeps the process moving forward. The 1,700-mile Rex pipeline, which brings natural gas from Wyoming to the Midwest, went from start to finish in four years. By contrast, the rules for building merchant transmission lines across the West are still being sorted out, and there’s no federal agency in charge. TransWest started planning in 2007 and is still in the permitting process with the Bureau of Land Management and others; it faces at least two more years of paperwork before construction can start. With luck, the power would begin flowing to customers in 2015. The Foote Creek Wind Project in Arlington, the first commercial wind-energy facility in the state, began operation in 1999. Our old model of power distribution revolved around regulated utilities operating within a single state. In that equation, moving power to the customer was just an expense. Merchant transmission is different. It’s not an expense, it’s the business. The companies that want to play aren’t utilities. They don’t have the same responsibilities, of course, but they don’t get the same rights when running power lines. Add to that local zoning ordinances, Indian reservations, raptor studies, and state industrial siting commissions and you can see the sheer scope of the challenge of bringing the power from the source to the plug.“If we’re ever going to get serious, you won’t do it with the current regulatory structure,” says Stephen Burnage, the president of Renewable Energy Transmission Co. and a developer of the TransWest project before it was sold to Anschutz. “Something has to radically change.” The country, he says, needs to treat the grid as a coordinated national asset, no different or less important than the Interstate system.Congress studied interstate transmission issues two years ago, pushed by Sen. Harry Reid of Nevada, a big fan of solar power, with the idea of giving better structure to the process and more power to FERC, but the idea went nowhere, in part because so many players aren’t sure they want FERC to have more power and in part because for most of us the grid right now seems to work just fine. We worry that the cure may be worse than the disease.When we talk about the grid, we are really talking about three grids. There’s one for the East. One for the West. And one that covers most of Texas. It’s worth noting that Texas — which like Wyoming is an energy powerhouse — leads the nation in wind-energy production, and one reason is that all its production and transmission can be coordinated. That creates predictability for investors and supply reliability when the wind doesn’t blow.Before TransCanada and Anschutz and the others can build transmission, they need power-purchase agreements with the California utilities that have large — and growing — renewable-energy portfolios to fill. None now exist, but Miller has faith in the quality of Wyoming’s wind. “The project will stand on its economic merit,” he says. “I’m confident that our purchase price — should we get to a point sooner or later with a power purchase agreement — will be competitive with anybody.”Price is only part of the delivery equation, though, and the utilities might need to line up renewable-energy sources before the transmission companies are able to get their lines built. In that scenario, the state’s wind is stuck, without a ride, and for many people here that would be just fine.The independent state of WyomingAs I drive around Wyoming, I keep coming back to a scene from Dog Day Afternoon where Sonny and Sal are inside the bank with their hostages, surrounded by cops and trying to negotiate a flight to somewhere, anywhere.Sonny: Is there any special country you want to go to?Sal: Wyoming.Sonny: No, Wyoming is not a country.They’re both right, sort of. Wyoming is different. It is the least-populated state, with 564,000 people in an area twice the size of Pennsylvania. There is only one traditional university and only one law school, which binds its political class. People call the state a very small town with a very long main street, and there is a dance between distance and intimacy that is woven through the Wyoming way.And there is this, which is central to making sense of just about any issue in Wyoming, but particularly renewable energy: The rancher — independent and tall in the saddle — may dominate the state’s psyche, but it’s the miner who pays the bills. A radar unit on Overland Trail Ranch used to track flight and nesting patterns of birds to minimize harm from turbines. A third of state spending — $1.6 billion last year — comes from severance taxes and federal mining royalties for coal, gas, and oil. In essence, utility customers across the nation are footing Wyoming’s tax bill. New power plants run on cleaner-burning natural gas. And older coal plants have switched to the low-sulfur, less-polluting variety mined in the state’s Powder River Basin, now home to nearly 40% of U.S. coal output. Energy discussions here get heated quickly.“The issue is really one of thinking through how you recognize that there are a set of values in Wyoming that need to be accommodated even though what the wind industry is really after is a larger national set of values,” says Dave Freudenthal, who finished his second term as governor in 2010. He is pure Wyoming in all its complexities: a brainy ranch kid, a popular Democrat in the reddest of states, and a Subaru driver who sits on the board of Arch Coal ACI , the nation’s second-largest coal company. He is not exactly a beloved figure among wind’s boosters. They think he invited the industry in, and then yanked away the welcome mat with new taxes and land-use regulations when too many developers showed up.Freudenthal is unapologetic and says he changed course after realizing that the state’s wind was so good that it didn’t need incentives. “This is a case of an industry that feels like it’s been promoted to second-coming status and suddenly encounters a world that says, ‘Well, maybe, but you’ve got to recognize that you’re going to be doing it here.'”Wyoming’s resistance involves more than tax policy. The idea of renewable energy as slightly illegitimate is pervasive here. Sue Wallis is a poet, rancher, and state legislator from the tiny town of Recluse, in the state’s northeast corner. The coal trains there stretch to the horizons, and the mines have brought growth and prosperity to her district and the state. The wind industry’s lack of traction doesn’t surprise her. “This is a state full of climate-change skeptics,” says Wallis. “If you’re basing your whole support for clean energy on climate change, we’re not buying it.”Gov. Matt Mead, who took office in January, is also one of those skeptics, but he’s focused on jobs and smart enough to understand that his views on science don’t matter much in the marketplace. His grandfather Clifford Hansen was governor and later a U. S. senator, and he led the fight to increase the states’ share of federal mining royalties, a singular act that transformed Wyoming and the West. Gov. Matt Mead in his office in the capitol in Cheyenne “To me the first question is, Do we agree with renewables?” says Mead during a talk in the state capitol, a handsome sandstone building with a gold dome, and a stuffed bison just off the rotunda. “That’s the start of the question. Wyoming doesn’t need to produce renewables for our state to do well financially.”But beyond Wyoming’s borders, there is a huge demand for clean energy, and Mead says Wyoming ought to stay agnostic about the sources of power that flow from the state. He says leases to wind farms could keep some ranch families on the land, and the appeal of wind energy might help lure data centers here. “And it will help us solve transmission or not,” says Mead. “If you have the wind farms but no transmission, you just have things blowing in the wind.”With the big projects moving so slowly, Mead and the legislature have time to tinker with state laws on generation and transmission and maybe strike a balance that helps the industry move forward. This past session, the wind industry failed in an effort to swap reductions in sales taxes (a big upfront cost) in exchange for higher generation taxes (which spread the costs over the life of the turbine). Making matters worse, the legislature also extended a ban on the use of eminent domain for some power lines. On a visit to the Overland Ranch, Bill Miller and I step down from his truck in the middle of a treeless expanse. We are greeted by a blast of wind that shoves us with an insistence bordering on rudeness. Miller points to a place in the distance and says that the wind on that ridge blew more than 80% of the time last January.There is pride in his voice, and that must have been how early industrialists felt at Spindletop or Niagara Falls, when they looked upon an energy source with so much potential that the obstacles of harnessing it seemed almost an afterthought and well worth the effort.–Ken Otterbourg is a Fortune contributor who lives in North Carolina.This article is from the September 26, 2011 issue of Fortune.