AEP unit seeks Michigan approval for Headwaters Wind deal

The Indiana Michigan Power (I&M) unit of American Electric Power (NYSE: AEP) applied June 28 at the Michigan Public Service Commission for approval to take power from an Indiana wind farm of Headwaters Wind Farm LLC.

On Feb. 25, American Electric Power Service Corp. (AEPSC), as agent for I&M, issued a request for proposals (RFP) for 200 MW of wind energy from sources located in either Indiana or Michigan. Final proposals were submitted by April 8. Headwaters was selected after proposals were received in response to I&M’s RFP. On June 5, I&M executed a renewable energy power agreement (REPA) with Headwaters.

As I&M evaluated potential renewable strategies, timing was a key factor. The federal subsidy (Section 45 Production Tax Credit (PTC)) for wind resources, set to expire at the end of December 2013, can provide a net benefit to I&M and its customers through a lower REPA rate.

I&M is seeking approval from the commission for purposes of cost recovery in Power Supply Cost Recovery (PSCR) proceedings. Although the Headwaters REPA provides renewable energy credits to I&M, I&M is not seeking, at this time commission approval for the Headwaters REPA.

A renewable resource purchase will improve fuel diversity, lessen exposure to fuel price volatility and represent a valuable safeguard to ratepayers, I&M said. Wind generation technology has advanced and wind mapping has also improved to identify the best locations for the siting of wind resources.

Headwaters Wind Farm is a subsidiary of EDP Renewables North America (EDPR NA). With the addition of the 200 MW of wind energy from the Headwaters Wind Farm, approximately 4.5% of I&M’s generation will be produced from renewable resources.

Marc Lewis, employed by I&M as Vice President of Regulatory and External Affairs, testified that the Headwaters Wind REPA will allow I&M to fulfill its commitment under the recent modification of the New Source Review Consent Decree with the federal government. AEP entered into the Consent Decree to resolve the allegations filed against AEP and its affiliates (including I&M) related to the New Source Review provisions of the Clean Air Act (CAA).

The Third Modification to the Consent permits I&M to satisfy its near-term emission reduction obligations by installing and operating dry sorbent injection (DSI) technology on both coal-fired Rockport units by April 16, 2015. In addition, I&M committed to secure an additional 200 MW of wind energy, provide additional mitigation funding to the states, and create a fund to support other energy efficiency and small-scale renewable projects.

I&M’s comprehensive environmental compliance plan will allow it to comply with new and emerging environmental mandates in a cost-effective manner. Specifically, under the plan, I&M will avoid about $2bn of capital expenditures at Rockport related to the previously planned installation of expensive Flue Gas Desulfurization (FGD) environmental controls. Instead, I&M is installing cheaper DSI controls at the Rockport as part of the Rockport Clean Coal Technology Project that will substantially reduce I&M’s cost of compliance. Without the commitment to acquire additional wind resources, I&M risked expending billions of dollars or losing the Rockport plant as a relatively low cost resource for customers, Lewis noted. The Headwaters Wind REPA will provide direct benefits to I&M’s customers and allow the utility additional time to assess the future of its generation portfolio with more certainty about evolving environmental regulations.

The location of the wind farm that is being developed by EDPR NA is in Randolph County, Ind. The facility interconnects with I&M’s transmission system at I&M’s Desoto-Tanners Creek 345-kV transmission line. I&M’s transmission system is within the PJM Interconnection footprint.

Headwaters Wind Farm asked the Indiana Utility Regulatory Commission on June 28 to decline jurisdiction over its 200-MW wind project in Randolph County. Such requests, for the commission not to govern a project like it would an electric utility, are routine for independent power producers in Indiana.

The company told the Indiana commission it intends to certify the Headwaters Wind Farm as an Exempt Wholesale Generator (EWG) at the Federal Energy Regulatory Commission.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.