Wisconsin Public Service Corp. (WPSC), Wisconsin Power and Light (WPL) and Wisconsin River Power Co. (WRPCo) applied Sept. 9 at the Federal Energy Regulatory Commission for authorization to enter into a “Lease Agreement” concerning the hydroelectric facilities owned by WRPCo.
WPSC and WPL each own a 50% share of WRPCo and currently purchase 100% of the output of WRPCo’s hydroelectric facilities under the terms of a Power Purchase Agreement (called the “Hydro PPA”). The parties have agreed to terminate the Hydro PPA and instead enter into a Lease Agreement for 100% of the output of WRPCo’s hydroelectric facilities.
WRPCo is a non-transmission owning member of the Midcontinent ISO and a participant in MISO’s various power markets. WRPCo owns a 35-MW (nameplate) hydroelectric facility consisting of several small generators located at its Petenwell and Castle Rock reservoirs on the Wisconsin River. WRPCo also owns a 15-MW combustion turbine unit (the “J31”). WRPCo sells 50.7% of its hydroelectric capacity and 50% of its combustion turbine capacity to WPSC and the balance of its capacity and energy to WPL. WPSC and WPL each have a 50% ownership share of WRPCo.
The Hydro Project is located on the Wisconsin River in Central Wisconsin and consists of two complete sequential developments. There is the Petenwell development, and the Castle Rock development, which is located immediately downstream of the Petenwell plant. The Petenwell plant has an aggregate capacity from its four generators of approximately 20 MW. Castle Rock’s five generators have an aggregate capacity of approximately 15 MW. The original license for the project was issued in 1950.
WRPCo, the owner of the project, was originally formed by WPSC, WPL and Consolidated Water Power Co. (CWPCo), WRPCo entered into a Hydro PPA with WPSC, WPL and CWPCo to facilitate the sale of power. The PPA has been revised from time to time. Under the current Hydro PPA, WPSC and WPL each purchase one-half of WRPCo’s entire output from the hydro project. In exchange, WPSC and WPL each pay 50% of WRPCo’s annual Net Utility Hydro Operating Expenses and its Return on Net Hydro Investment.
WRPCo also owns the 15-MW oil-fired J31 combustion turbine located at the Petenwell site. WRPCo sells the output of the J31 unit to WPSC and WPL under a Power Purchase Contract (called the “J31 PPA”). WRPCo acquired the J31 unit in 2003, which, along with the combined 35 MW of generating capacity from the hydro project, made WRPCo eligible for reduced state taxes under Wisconsin law.
The application noted that WRPCo is retiring the J31 unit in early 2017 due to a number of operational issues over the past several years. Following a series of economic analyses, WRPCo determined that the most economically efficient option is to simply retire the J31 unit rather than try to repair it. WRPCo has also determined that in order to continue to qualify for reduced state tax treatment under Wisconsin law it must terminate the J31 PPA with WPSC and WPL following retirement of the unit, and convert its Hydro PPA to a lease agreement.
WPSC and WPL have filed an application with the Public Service Commission of Wisconsin seeking approval of the lease agreement. WPSC and WPL are not filing an application with FERC under Section 8 of the Federal Power Act to transfer the hydro license since there is no change in the upstream ownership of WRPCo and no transfer of the hydro project to a new entity.
In addition to the lease, WRPCo, WPSC and WPL are entering into a Service Agreement and an Operating Agreement. WRPCo will retain ownership of the project property, including the facilities. Under the Operating Agreement, WRPCo will subcontract the performance of certain services to WPSC and WEC Business Services, including management, administrative, accounting, and operation and maintenance services.