Administrative law judges (ALJs) at the Texas State Office of Administrative Hearings (SOAH), in a May 18 proposal for decision, called for Southwestern Electric Power Company’s (SWEPCO) application for certificate of convenience and necessity (CCN) authorization to acquire an interest in the Wind Catcher Energy Connection Project to be approved, subject to certain conditions.
To ensure that customers realize a net reduction in costs, SWEPCO should be required to provide certain guarantees, the ALJs said.
A SWEPCO spokesperson on May 22 told TransmissionHub: “We are evaluating the proposal for decision that was issued by the administrative law judges on May 18 as part of the Public Utility Commission of Texas’ ongoing review process. The [proposal for decision] will be on the June 28 [commission] agenda.”
As noted in the proposal for decision, SWEPCO filed its application with the Public Utility Commission of Texas last July. The Wind Catcher Facility – which would be located on more than 300,000 acres in the counties of Texas and Cimarron in the Oklahoma Panhandle – includes 800 General Electric model 2.5-MW wind turbine generators that would provide 1,900 MW of delivered – 2,000 MW nameplate – wind energy with an expected net capacity factor (NCF) of about 51%, the ALJs said.
The project also involves the Wind Catcher Generation Tie Line (Gen-Tie), which would be an extra high voltage 765-kV line running about 350 miles to 380 miles through northern Oklahoma from the wind facility site in the Panhandle east and slightly south to the American Electric Power (AEP) load zone in the Tulsa area, the ALJs said.
The total estimated cost of the wind facility is about $2.9bn, of which SWEPCO’s share is about $2bn, while the total estimated cost of the Gen-Tie is $1.6bn – including $148m for allowance for funds used during construction (AFUDC) – of which SWEPCO’s share is about $1.1bn, the ALJs said. Accordingly, SWEPCO estimates that the total cost of its share of the project would be about $3.2bn, the ALJs said, adding that the SWEPCO Texas retail jurisdiction total estimated cost of the project is $1.1bn.
Further discussing the project, the ALJs noted that the wind facility is being built by Invenergy Wind Development North American LLC, which began construction in 2016 and has continuously maintained construction. Invenergy has targeted completion of the wind facility for Sept. 30, 2020, the ALJs said.
Last July, the developers and participants in the wind facility entered into an agreement entitled the Membership Interests Purchase Agreement (MIPA) to acquire, subject to regulatory approvals and other conditions, States Edge Wind I LLC, an Invenergy single-purpose subsidiary that will own the rights and assets of the wind facility, the ALJs said.
The MIPA, as described by SWEPCO, is a turn-key and fixed-price arrangement whereby Invenergy will manage all phases of construction and deliver the wind facility upon completion to the utility companies, the ALJs said. Invenergy will pay all construction financing costs, which are included in the purchase price, the ALJs said, adding that the purchase price for the wind facility is about $2.7bn. The total estimated cost, including the MIPA purchase price and other cost components discussed by SWEPCO, is about $2.9bn, the ALJs said, noting that SWEPCO’s share is about $2bn.
The Gen-Tie is being built to deliver the wind facility’s energy directly to the AEP load zone, bypassing congestion and curtailment on the Southwest Power Pool (SPP) system in the western Oklahoma area, the ALJs said. The Gen-Tie will consist of a proposed 345-kV to 765-kV generation substation (the Western Generation substation) at the wind facility; the proposed 350-to-380-mile radial, single-circuit, 765-kV transmission line; and a proposed 765-kV to 345-kV substation (the Tulsa North 765 kV Generation substation), which is in the AEP load zone, the ALJs said.
The participating utilities have entered into a fixed-price contract with Quanta Services for engineering, procurement and construction services (EPC) for the Gen-Tie, the ALJs said, adding that under the EPC contract, all engineering, procurement and construction are covered under the scope of Quanta’s work.
The Gen-Tie has a projected completion date of Dec. 15, 2020, which is slightly more than two weeks before the end of the Internal Revenue Service (IRS) safe-harbor date for wind production tax credits (PTCs), the ALJs said, noting that PTCs are assured for projects in service before that date.
The ALJs said that SWEPCO is not seeking the CCN because of the need for additional generation; instead, the company is asking for the CCN because it estimated originally that the total cost savings from the project would be about $1.9bn. SWEPCO’s estimate was based on a number of assumptions, including forecast natural gas prices, the ALJs said, adding that the company changed its estimate following the passage of the Tax Cuts and Jobs Act (TCJA), which lowered SWEPCO’s effective tax rate, thereby lowering the potential savings achieved from using tax credits, resulting in an estimated savings of about $1.5bn.
The ALJs said that they find that the estimated cost savings without any guarantees would be about $354m. The ALJs also said that while that is a net savings, they find that it is not a secure enough savings to recommend granting the CCN without including a number of guarantees to protect customers in the event that the project does not realize its anticipated savings.
“The ALJs base these recommendations on the unusual posture of this case,” the ALJs said. “Instead of a regulated utility requesting a CCN to build additional generation to address the need to serve new or increased load, SWEPCO is seeking the CCN solely for financial reasons. SWEPCO is speculating financially that the project will result in net customer savings, but it is doing so requesting that customers pay for the project through rates even in the event customers do not see a net rate decrease. Because this financial speculation is being undertaken with a guarantee (if the CCN is granted) that customers will pay for the speculation, it is appropriate to require SWEPCO to make its own guarantees to protect customers should the predicted economics of the project not be achieved.”
The ALJs said that SWEPCO, in its base case – which assumed no new development or purchase of any wind resources between 2021 and 2045 – estimates the benefits from the project at about $1.5bn net present value (NPV). The ALJs said that they find that the estimated savings should be reduced by $388m for lower natural gas prices, $550m for removal of a carbon-burden assumption, and $203m for additional wind generation, for a total reduction of about $1.1bn NPV. That calculation results in the estimated net benefits from the project of $354m NPV, the ALJs added.
If the commission decides to approve the project, the ALJs recommend that the commission establish a firm cost cap, as well as adopt certain of SWEPCO’s other guarantees to ensure that the customers are protected in the event of such contingencies as changes in the law and force majeure.
A cost cap of about $1.1bn, including AFUDC for the wind project and cost cap inclusive of the Gen-Tie line that does not exceed $2,302.75 per kW of nameplate capacity as measured on a total parent-company gross-plant basis, without exception for force majeure and change in law, provides a firm guarantee for the benefit of customers and should be imposed as a condition on the CCN, the ALJs said.
A reasonable NCF guarantee is 44.7% without exceptions for force majeure or change in law, and should be imposed as a condition on the CCN, the ALJs said.
Among other things, the ALJs said that a PTC guarantee of eligibility for 100% of the PTCs at a 51.1% capacity factor with an exception for change in law, but without an exception for force majeure, should be imposed as a condition of the CCN.