Wisconsin Power and Light (WPL) has recently worked out option deals for other parties, including Wisconsin Public Service Corp., to buy into an expanded Riverside power plant, said WPL parent Alliant Energy (NYSE: LNT) in its Feb. 24 annual Form 10-K report.
In April 2015, WPL applied with the Public Service Commission of Wisconsin (PSCW) for approval to construct a natural gas-fired combined-cycle project in Beloit, Wisconsin, referred to as the Riverside expansion. Construction proposals received to date indicate the Riverside expansion is expected to generate up to 700 MW. Capital expenditures are currently estimated to be approximately $700 million to construct the project and a pipeline to supply it with natural gas. The estimated capital expenditures exclude transmission network upgrades and AFUDC.
WPL recently entered into agreements with neighboring utilities and electric cooperatives that, if the proposed Riverside expansion is approved, would provide each of those parties with options to purchase a partial ownership interest in the Riverside expansion. The purchase price for such options is based on the ownership interest acquired and the net book value of the Riverside expansion on the date of the purchase. The exercise of each option is subject to PSCW approval, and the timing and ownership amounts of the options are (assuming project startup in early 2020):
- Wisconsin Public Service Corp. (WPSC), up to 200 MW under option, can be exercised in 2020-2024 period;
- Madison Gas and Electric (MGE), up to 50 MW, exercisable in 2020-2025 period; and
- Electric cooperatives, up to 55 MW, exercisable by September 2016.
Starting on the date the proposed Riverside expansion is placed in service, WPSC’s options would allow it to acquire up to 200 MW over four years, with no more than 100 MW available to be acquired in the first two years. Similarly, MGE could acquire up to 50 MW over five years, with no more than 25 MW available to be acquired in the first two years. If WPSC exercises its options, and subject to approval by the PSCW, WPL may exercise reciprocal options to purchase up to 200 MW of any natural-gas combined-cycle plant that either WPSC or its affiliated utility, Wisconsin Electric Power, places in service within 10 years of the date the proposed Riverside expansion is placed in service.
The agreements with WPSC and MGE also provide that the parties negotiate amendments to the Columbia coal plant joint operating agreement that provide WPSC and MGE options to forgo certain capital expenditures at Columbia, which upon exercise would require WPL to incur such capital expenditures in exchange for a proportional increase in its ownership share of Columbia. These options for WPSC and MGE expire when the proposed Riverside expansion is placed in service and exclude capital expenditures related to the Columbia Unit 2 selective catalytic reduction retrofit project currently being constructed.
In addition to the provisions described above, the settlement agreement WPL entered into with Wisconsin Electric and WPSC includes the following:
- Riverside Expansion Market Participation Date – WPL agreed that the proposed Riverside expansion would not enter the Midcontinent ISO capacity market prior to the date set by MISO for qualifying generation as a capacity asset for the MISO planning year beginning June 1, 2020;
- Riverside Expansion Interconnection Study – WPL agreed to file a request with MISO on behalf of itself, Wisconsin Electric and WPSC to complete a non-binding study to assess an interconnection option of the proposed Riverside expansion to ATC’s transmission system. WPL and the parties filed such request with MISO in January 2016.
- WPL and Wisconsin Electric PPA – WPL and Wisconsin Electric agreed to enter into a power purchase agreement (PPA) whereby WPL would purchase specified levels of energy and capacity from Wisconsin Electric through 2019.
- Renewable Generation Joint Development Agreement – WPL, Wisconsin Electric and WPSC agreed to negotiate a separate joint development agreement for the purpose of cooperatively developing any renewable resources greater than 50 MW in Wisconsin for the benefit of their respective customers. The terms of such agreement would be 10 years beginning on a date no later than June 1, 2016. The utility that originates such renewable resource would hold a majority ownership and operational control of the renewable resource. The other two utilities would have the right to acquire a minority interest in the other utility’s renewable resource.
In terms of the electric cooperatives’ options, WPL recently executed term sheets with various unnamed electric cooperatives, which currently have wholesale power supply agreements with WPL. The term sheets provide the electric cooperatives an option to purchase a partial ownership interest in the Riverside expansion while the project is being constructed. The options would allow the cooperatives to acquire an aggregate maximum amount up to 55 MW, with each cooperative required to make elections regarding such options by September 2016. If the options are exercised, the current wholesale power supply agreements with the electric cooperatives would be extended by at least four years until 2026 with automatic continuation of such agreements unless terminated by either party, with a five-year notice requirement.
A decision from the PSCW on the Riverside expansion application is currently expected by the second quarter of 2016. The Riverside expansion is also subject to the receipt of various approvals and permits. Subject to such approvals, construction is currently expected to begin by early 2017 and be completed by early 2020. The Riverside expansion would replace energy and capacity being eliminated with the 2015 retirements of Nelson Dewey Units 1 and 2 (coal) and Edgewater Unit 3 (coal), and the planned retirements of Edgewater Unit 4 (coal) and the Rock River and Sheepskin Combustion Turbine Units, which in aggregate have a nameplate capacity of approximately 700 MW.