The Public Utility Commission of Texas, in a May 25 final order, granted Southwestern Public Service’s (SPS) application, as modified by a settlement agreement, to amend its certificate of convenience and necessity (CCN) to acquire, build, own, and operate a proposed 478-MW wind generation project in Hale County, Texas, and a proposed 522-MW wind generation project in Roosevelt County, N.M., (the Sagamore project).
The Hale project will consist of about 239 Vestas-America Wind Technology turbines, while the Sagamore project will consist of about 261 Vestas-America Wind Technology turbines.
The commission added that the application also requested commission approval of a 30-year purchased power agreement (PPA) with Bonita Wind Energy, LLC, an affiliate of NextEra Energy’s (NYSE:NEE) NextEra Energy Resources, for an additional 230 MW of wind generation from an 80-MW wind farm in Crosby County, Texas, and a 150-MW wind farm in Cochran County, Texas.
All but two of the parties in the docket (PUC Docket No. 46936) entered into the unopposed settlement agreement that resolves all issues between the parties, the commission said, noting that while the remaining two parties did not join the agreement, they do not oppose it.
As noted in the order, SPS – a wholly owned subsidiary of Xcel Energy (NYSE:XEL) – will purchase the Hale County site from NextEra Energy Resources, which has secured the land rights and completed some preliminary site work. SPS stated that the total cost of developing the Hale County wind farm is about $769m, including allowance for funds used during construction.
The commission added that SPS expects to have the Hale project in service by 2019 so that the company will be able to receive 100% of the federal production tax credits (PTC) available from the project.
SPS is purchasing the Sagamore project in New Mexico from Invenergy, LLC, which has acquired the land rights and completed some preliminary work. The commission also said that according to SPS, the total cost of developing the Roosevelt County wind farm is about $865m, and SPS expects to place the Sagamore project in service by the end of 2020, to allow SPS to receive 100% of the PTCs from the project.
SPS noted that it is not requesting the CCN amendment because of the inadequacy of existing service or the need for additional service. Instead, the commission added, SPS proposes to develop and own the projects to save SPS’ Texas retail customers about $1.6bn in energy costs over their service lives, based upon certain assumptions of future events, costs, and prices. Based on those assumptions, SPS estimated that, if the commission approved the Hale and Sagamore projects, as well as the Bonita PPA, then a typical bill for a residential customer using 1,000 kWh per month would be reduced by $2.37 per month, or 2.09%, in 2021.
The settlement was filed in February and signed by, among others, commission staff, SPS, the Texas Industrial Energy Consumers, the Office of Public Utility Counsel, and the U.S. Department of Energy. The commission added that the settlement included such provisions as a capital cost cap on the Hale and Sagamore projects; a minimum-production guarantee regarding output from the projects; and a commitment by SPS to credit customers with 100% of the PTCs generated by the projects.
The commission noted that after reviewing the settlement, it requested additional information, including on whether an analysis of the impact of the Tax Cuts and Jobs Act on the projected savings had been conducted. SPS provided additional supplemental settlement testimony, which demonstrated that, using SPS’ expected inputs for capital costs, net-capacity factor, and a projected low cost of natural gas in its production-cost modeling, and incorporating the effects of the reduction in the corporate federal income tax rate from 35% to 21%, the projected savings to customers on a total company, net- present-value basis are about $543m.
The supplemental settlement testimony also demonstrated that even in a worst-case scenario in which the costs to build the Hale and Sagamore projects reach the cap on construction costs; the output of the Hale and Sagamore projects and the Bonita PPA is at the minimum 48% net-capacity factor; and levelized gas prices are lower than expected in SPS’ base case scenario, the projected savings to customers on a total company, net-present-value basis are about $232m, the commission said.
Based on a simple ratio of the projected savings of the base case $543m savings scenario and the worst-case $232m savings scenario, the typical residential customer using 1,000 kWh per month would save $1.01 per month in the worst-case scenario, the commission noted.
Further discussing the capital cost cap, for instance, the commission said that for Texas retail ratemaking purposes, SPS agreed that, in the first rate case in which the Hale project is first included in rate base, the gross plant-in-service amount for the Hale project to be includable in SPS’ rate base will not exceed $1,675 per kW installed on a total company basis. That $1,675 per kW amount is 102.5% of $1,634 per kW, which was the average installed cost presented in SPS’ application for the Hale and Sagamore projects combined, the commission said.
The cap of $1,675 per kW includes AFUDC, all costs for generation interconnections assigned by the Southwest Power Pool (SPP), any necessary new transmission and distribution equipment, and any necessary upgrades to existing transmission or distribution equipment, the commission said.
For SPS’ initial rate case seeking inclusion of the Sagamore project, the combined total of the gross plant-in-service amount for the Sagamore project plus the gross plant-in-service amount for the Hale project that was included in the initial Hale project rate case, will not exceed on average $1,675 per kW installed on a total company basis, including AFUDC, all costs for generation interconnections assigned by SPP, any necessary new transmission and distribution equipment, and any necessary upgrades to existing transmission or distribution equipment, the commission said.
“The cap on capital costs … is reasonable and necessary to find that the proposed Hale and Sagamore projects show a probability of lowering of costs to customers,” the commission said.
Of the minimum-production guarantee, the commission noted, for instance, that SPS has agreed to guarantee the minimum output of the Hale and Sagamore projects at an annual 48% net-capacity factor, starting for each of the Hale and Sagamore projects with the beginning of the first calendar year after commercial operation.
The commission said that that guarantee is reasonable and necessary to find that the projects show a probability of lowering of costs to customers.
Among other things, the commission said that SPS is to make an informational filing with the commission on May 15 of every year to report on the production level of the projects and any underproduction credits or recapture charges as provided in the order.