Southwestern Public Service argues for savings under wind PPAs

Southwestern Public Service (SPS) is working at the New Mexico Public Regulation Commission on approval of power purchase agreements (PPAs) with the developers of three wind projects that bid their capacity earlier this year into a wind request for proposals (RFP).

SPS, in a July 10 application, asked for authorization:

  • to enter into a 20-year power agreement with NextEra Energy ResourcesMammoth Plains Wind Project Holdings LLC for the purchase of 199 MW of wind energy beginning no later than Dec. 31, 2014. The Mammoth facility will be a new 199-MW capacity wind project that will be located in Dewey and Blaine counties, Okla. The project will consist of 117 in total of 1.7-MW wind turbines. It will produce on an annual basis an estimated 996,000 MWh of wind energy. The point of delivery will be the Tatonga 345 kV substation owned by Oklahoma Gas & Electric in Dewey County, Okla.;
  • to enter into a 20-year purchased power agreement with NextEra Energy Resources’ Palo Duro Wind Project Holdings LLC for the purchase of 249 MW of wind energy beginning no later than December 2014. The Palo Duro facility is a new 249 MW capacity wind project that will be located in Hansford and Ochiltree counties, Texas. The project will consist of 147 in total of 1.7 MW wind turbines. The Palo Duro project will produce on an annual basis an estimated 1.18 million MWh of wind energy. The point of delivery will be SPS’s Beaver County Tap on the Hitchland-Woodward 345 kV line in Hansford and Ochiltree counties, Texas, via a 15.2 mile generation tie-line;
  • to enter into a 20-year purchased power agreement with Infinity Wind Power’s Roosevelt Wind Ranch LLC for the purchase of 250 MW of wind energy beginning no later than Dec. 31, 2015. The Roosevelt facility is a new 250 MW capacity wind project that will be located in Roosevelt County, N.M. The type and number of wind turbines has not been finalized but options include: 108 – 2.3-MW Wind Turbines (total 248.4 MW); 147 – 1.7-MW Wind Turbines (total 249.9 MW); or 125 – 2-MW Wind Turbines (total 250 MW). The Roosevelt project will produce on an annual basis an estimated 1.06 million MWh of wind energy. Roosevelt will construct an approximately 9-mile 345 kV interconnection line to connect to SPS’s Eddy Co-Tolk 345 kV line near Dora, N.M.

SPS provides PPA pricing data to the commission

Bennie Weeks, in Aug. 13 supplemental testimony for SPS, a unit of Xcel Energy (NYSE: XEL), said the acquisition of additional wind resources through these PPAs is forecasted to reduce SPS’s energy costs up to $590m (total company) net present value over the term of the PPAs, of which SPS’s New Mexico retail customers are expected to experience about $100m in savings (based upon current jurisdictional allocations). The PPAs will provide greater benefit to customers than would feasible self-build options, Weeks noted.

As far as pricing, Weeks said:

  • Under the Mammoth PPA, the price for the first year of commercial operation will be $19.18 per MWh. The price escalates at 2% each year.
  • The Palo Duro PPA pricing for the first year of commercial operation is $21.10 per MWh and escalates at the rate of 1.8% annually until the end of 2020. The price is then reset to $22.20 and escalates at the rate of 1.8% annually.
  • The price under the Roosevelt PPA is $20.15 for the first year of commercial operation and escalates at 2.0% annually.

“The main factor in choosing to enter into the PPAs as opposed to SPS building wind generation is related to timing,” Weeks wrote. “The American Taxpayer Relief Act, signed into law on January 2, 2013, extended the Federal Production Tax Credits (‘PTC’) to eligible wind projects that have begun physical work of a significant nature or have spent a minimum of 5% of its capital costs for the project in 2013. SPS would have been unable to acquire the land rights, receive the necessary permits (including certificates of convenience and necessity and all permits listed on Exhibit F to the respective contracts), receive an approved transmission interconnection from the Southwest Power Pool, and plan and construct at least 5% of the facility such that it could avail itself of the PTC by December 31, 2013. Without the PTC, SPS could not have constructed the units at a lower cost than it is paying under the PPAs. In addition, the delay in pursuing a self-build approach would have delayed the customers’ receipt of fuel savings. Thus, on a present value basis, the forecasted fuel savings would have been less under the self-build approach than under the PPAs.”

In addition to the short timeframe just described, Weeks said that SPS became aware of decreasing wind prices when it began to receive unsolicited bids that were very competitive relative to system avoided costs. SPS’s desire to take advantage of those falling prices was a key reason for SPS releasing the wind RFP on March 15, 2013. The favorable pricing from independent wind developers gave SPS the opportunity to purchase low cost wind generation even though a self-build wind option would not have been possible in the given timeframe to meet the requirements for the PTC.

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.