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A Green Winter: The Case of Proposed Jiminy Peak Mountain Resort Wind Turbine

A Green Winter: The Case of Proposed Jiminy Peak Mountain Resort Wind Turbine – Alternative Formats

Make an initial post in which you consider the following:

Should Jiminy Peak proceed with the installation of the turbine? Why or why not?

What should be the most important considerations of Jiminy Peak when making this decision?

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A Green Winter: The Case of Proposed Jiminy
Peak Mountain Resort Wind Turbine
Case
Author: John B. MacArthur & Thomas L. Barton
Online Pub Date: July 12, 2017 | Original Pub. Date: 2012
Subject: Cost Accounting, Management Accounting, Sustainability in Business
Level: Intermediate | Type: Direct case | Length: 2025 words
Copyright: © 2012 IMA Educational Case Journal. All rights reserved.
Organization: Jiminy Peak Mountain Resort | Organization size: Small
Region: United States of America | State: Massachusetts
Industry: Sports activities and amusement and recreation activities
Originally Published in:
MacArthur, J. B. & Barton, T. L. (2012). A green winter: The case of proposed Jiminy Peak
Mountain Resort wind turbine. IMA Education Case Journal, 5(3), Article 1.
Publisher: Institute of Management Accountants
DOI: http://dx.doi.org/10.4135/9781526427052 | Online ISBN: 9781526427052
SAGE
© 2012 IMA Educational Case Journal. All rights reserved.
SAGE Business Cases
© 2012 IMA Educational Case Journal. All rights reserved.
This case was prepared for inclusion in SAGE Business Cases primarily as a basis for
classroom discussion or self-study, and is not meant to illustrate either effective or ineffective
management styles. Nothing herein shall be deemed to be an endorsement of any kind. This
case is for scholarly, educational, or personal use only within your university, and cannot be
forwarded outside the university or used for other commercial purposes. 2018 SAGE
Publications Ltd. All Rights Reserved.
This content may only be distributed for use within Johnson .
http://dx.doi.org/10.4135/9781526427052
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A Green Winter: The Case of Proposed Jiminy Peak Mountain
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Abstract
When consumers reel from the sticker shock of high energy costs, smart business
managers are looking for creative and profitable ways to insulate themselves from the
vagaries of the energy marketplace. This teaching case is about a successful mediumsized ski resort in the Berkshire Mountains of Western Massachusetts, Jiminy Peak
Mountain Resort (Jiminy Peak), and its deliberations about a wind turbine installation
as a way to add a high degree of stability to its energy costs while helping to fulfill a
corporate mission to protect the environment and allow the use of “green marketing” to
attract more visitors to its popular ski slopes. This case allows undergraduate and
graduate students to explore the economic, environmental, social, and other factors
associated with the decision to invest in green energy sources based on the real-world
example of Jiminy Peak wind turbine investment project. The case can be adapted for
use in cost/managerial/management accounting undergraduate and graduate classes.
Case
Introduction
Brian Fairbank, president and CEO of Jiminy Peak Mountain Resort, is worried about energy
costs. Primarily a ski resort, Jiminy Peak’s business is very energy-intensive, mainly because
most of the winter snow is manufactured by machines that run on electricity. Strong
conservation campaigns over the years have reduced energy consumption by 25 percent, but
the resort still consumes about 7.5 million kilowatt hours (kWh) of electricity each year, with
about 60 percent used during the peak winter months.
Last year, electricity costs were about $0.11 per kWh, but this season, the cost skyrocketed to
$0.16 per kWh – an increase of almost 50 percent. Even before the electricity cost increase,
Jiminy Peak had tried to operate as efficiently as possible to minimize its electricity
consumption. As examples, 1,800 new fluorescent bulbs were installed in the lodge, replacing
incandescent bulbs; high-efficiency lights had been installed on the ski runs that
automatically dim to half wattage during night maintenance work; half of the snowmaking
system had been converted to zero-energy gravity-feed.
Jiminy Peak was even a test site for the development of revolutionary new high-efficiency
“guns” for the snowmaking machines. This new snowmaking technology uses 40 percent less
electricity than the older version. In the 1990s, the resort won an energy conservation
recognition award from Massachusetts Electric for saving over one million kWh of electricity
from its improvements in snowmaking, lighting, and elsewhere.
But there is only so much Jiminy Peak is able to achieve in energy conservation with its
existing facilities and still offer high quality recreational services. Fairbank has realized that a
more ambitious energy reduction initiative is needed, and so he and resort managers are now
considering harnessing an abundant renewable green resource readily available to the
mountain resort: wind power.
The Wind Turbine Project Proposal
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Fairbank has been in the ski resort business long enough to know that the Berkshire
mountaintops can get very windy in the winter. He has decided to investigate the feasibility of
erecting a wind turbine to put the mountaintop wind to profitable and “green” use to help
stabilize the resort’s electricity costs. In addition, this would be consistent with Jiminy Peak’s
corporate mission to protect the environment and should also permit the use of “green
marketing” in the hope of attracting even more visitors to its popular ski slopes.
Jiminy Peak managers recognize that determining the viability of installing a wind turbine will
be a complicated, specialized process, and so they have engaged Sustainable Energy
Developments, Inc. (SED) of Ontario, New York, to examine the feasibility of such an
investment. SED’s fee is $157,000. With SED’s help, Jiminy Peak has already received a
small grant of $15,000 from the Massachusetts Technology Collaborative to offset part of the
cost of the formal feasibility study. The feasibility study is to cover the financial, technical,
social, and environmental aspects of the proposed wind turbine.
You are the leader of the SED wind turbine feasibility study team with the responsibility for
preparing the memorandum outlining the study’s findings and the team’s recommendations
for Jiminy Peak’s management.
Jiminy Peak’s History
Jiminy Peak opened in the Berkshire Mountains of western Massachusetts in 1948. By 2005 it
was larger than any other skiing and snowboarding resort in the southern New England
states. During this time period, it evolved into a four-season resort, offering skiing, mountain
biking, and other outdoor sporting activities. Jiminy Peak is about 2-1/2 to 3 hours’ travel time
from New York City and Boston and is only about one hour away from Albany, New York, and
Springfield, Massachusetts.
Through good management and sound development, Jiminy Peak became a popular winter
ski destination that covers 170 acres, with 45 ski and snowboard trails, three terrain parks,
and nine lifts, including a high-speed six-person chairlift. Savvy marketing and attractive
mountain facilities have enabled the resort to operate profitably, even in the summer. For
summer sport enthusiasts, Jiminy Peak installed the first mountain coaster on the East Coast,
an alpine super slide, a giant swing, scenic rides, a rock climbing wall, a “euro-bungy”
trampoline, hiking, and, for children, rope adventures, mini-golf, a rope spider web, and an
inflatable “bouncy bounce” playground. Winter visitors number about a 250,000 annually,
while summer visitors average about 100,000.
The Economics of Harnessing the Wind
The SED team has established that there is enough wind on the west shoulder of Jiminy
Peak’s mountain to effectively use a wind turbine. Significantly, the wind force on the
mountain is strongest during the winter, when Jiminy Peak’s demand for electricity is at its
greatest for snowmaking, ski lifts, and lighting. Jiminy Peak consumes about 4.5 million kWh
of electricity during the winter, which is 60 percent of its total annual needs.
GE Energy, a unit of General Electric, is able to provide a 1.5 MW-capacity wind turbine to
Jiminy Peak within a year at an estimated total purchase and installation cost on the proposed
site of $3.9 million. Subject to a favorable feasibility study, a loan of $3.3 million for 10 years is
available from Jiminy Peak’s local bank at an annual interest rate of 7.3 percent. A grant of
$582,000 is available from the Renewable Energy Trust Fund administered by the
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Massachusetts Technology Collaborative to complete the financing for the proposed wind
turbine purchase and installation. Funding for the Renewable Energy Trust Fund comes from
a charge on Massachusetts electric bills.
Although erecting the wind turbine on the proposed site would partly hide it from the view of
skiers, the local bank management would be able to see the wind turbine through a window
in the bank’s boardroom and, perhaps alarmingly, observe the bank’s loan collateral when the
blades were not turning because of insufficient wind strength.
Jiminy Peak management and the SED team are concerned about general community
acceptance and support for the wind turbine project. The local community is very concerned
with aesthetic and environmental issues. The proposed GE Energy wind turbine is taller than
the Statue of Liberty. Its three 123-foot blades are each longer than three school buses
placed end to end. Local residents may not be happy with such a large structure being
erected at the top of the mountain. Also, the construction materials would travel noisily
through the local community on trucks from the Port of Albany and add to road congestion.
One suggested idea to help gain community acceptance and enthusiasm for the project is to
invite the public to submit names for the wind turbine in a “Name That Turbine” competition. A
well publicized ceremony could be held to announce the winning name and to tout the
environmental and social benefits of the wind turbine.
The GE Energy unit would provide about one-third of Jiminy Peak’s annual electrical needs.
With electricity, the matching of generation with consumption is an important issue because
electricity cannot be stored for use later. With sufficiently strong winds, the turbine generates
power 24 hours a day, seven days a week, much of the time when Jiminy Peak does not need
that level of power. Fortunately, with the winds on Jiminy Peak at their strongest in the winter,
the turbine turns faster, generating more electricity. This phenomenon matches up nicely with
the resort’s higher electricity demand for snowmaking in the winter. The wind turbine is
expected to supply up to one-half of Jiminy Peak’s winter electricity needs. Electricity
generated by the wind turbine is expected to result in cost savings from buying about 2.3
million fewer kWh per year. In addition, excess electricity generated by the wind turbine can
be automatically diverted to the power grid and sold for an estimated $161,000 each year.
An important financial component of the wind turbine project is the sale of renewable energy
credits (RECs) to a third party. There is a ready market for these credits because they certify
that the purchaser of the credit purchased renewable energy. Third parties have already
agreed to purchase Jiminy Peak’s credits for 10 years at $166,667 per year, and it is to be
assumed in the feasibility study that sales of RECs will continue at this level for the remaining
years of the wind turbine’s life cycle.
In addition to the RECs, the wind turbine would enable Jiminy Peak to benefit from $46,000
per year in renewable energy production tax credits for 10 years, and it qualifies for MACRS
(Modified Accelerated Cost Recovery System) double-declining balance depreciation for a
five-year period with half-year depreciation in the first and last recovery years. Also, the new
turbine would enable Jiminy Peak to open from two to four weeks before other area resorts
because of the cheaper snowmaking from using wind power. This is estimated to generate an
additional $100,000 net cash inflow per year. Jiminy Peak management estimates that a wind
turbine service contract, insurance, and other maintenance would cost about $75,000
annually.
Based on discussions with Jiminy Peak management, SED has determined that:
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• Jiminy Peak is subject to a 40 percent income tax rate;
• Jiminy Peak has sufficient taxable income to benefit from any deductions and credits that
result from the wind turbine purchase;
• The after-tax weighted average cost of capital is 6 percent for discounting the expected
cash flows of the project;
• The wind turbine has a 25-year useful life with no terminal disposal value.
Case Analysis Questions
As the lead member of the SED team, your responsibilities are to supervise the completion of
the feasibility study of the proposed wind turbine project and to make a recommendation to
Jiminy Peak management on whether to install a wind turbine. Address the following
questions to provide your analysis and opinion on whether Jiminy Peak should proceed with
the purchase and installation of the wind turbine. Clearly state any assumptions used in
addressing the case questions and fully reference any sources accessed for information.
1. Using pertinent information from the case text, prepare a capital budgeting analysis of
the wind turbine project using the payback and net present value or internal rate of
return models.
2. Identify and evaluate the environmental advantages of the wind turbine project.
3. Identify and evaluate the environmental disadvantages of the wind turbine project.
4. Identify and evaluate the social factors and any other factors not already mentioned
that are pertinent to the wind turbine feasibility study.
5. Using the results from 1 through 4 above, prepare a memo addressed to Brian
Fairbank to present your feasibility study findings and make a recommendation as to
whether the resort should proceed with the wind turbine project.
6. Discuss how ongoing environmental cost management can be used in the decisionmaking process to increase value to customers and to help achieve the organizational
goals of Jiminy Peak.
7. Describe any help or practical insight that you received from reading the case and
preparing the case analysis. Stating that you did not receive any benefit from reading
the case and preparing the case analysis is a valid response as long as you give at
least one reason why you believe this to be the case.
About IMA®
IMA, the association of accountants and financial professionals in business, is one of the
largest and most respected associations focused exclusively on advancing the management
accounting profession. Globally, IMA supports the profession through research, the CMA®
(Certified Management Accountant) program, continuing education, networking, and advocacy
of the highest ethical business practices. IMA has a global network of more than 80,000
members in 140 countries and 300 professional and student chapters. Headquartered in
Montvale, N.J., USA, IMA provides localized services through its four global regions: The
Americas, Asia/Pacific, Europe, and Middle East/Africa. For more information about IMA,
please visit www.imanet.org.
Author’s Note
The authors thank Sandra L. Raburn and Jody Ratliff for their research contributions and
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A Green Winter: The Case of Proposed Jiminy Peak Mountain
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© 2012 IMA Educational Case Journal. All rights reserved.
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Katie Fogel of Jiminy Peak Mountain Resort for her assistance.
http://dx.doi.org/10.4135/9781526427052
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A Green Winter: The Case of Proposed Jiminy Peak Mountain
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