Xcel Energy Inc. reached an all-party settlement that includes New Mexico's utility regulatory staff and attorney general in support of its effort to get approval to build two major wind projects and contract for a third in that state and Texas.
This is a marked turn of events, especially considering that the New Mexico Public Regulation Commission's, or PRC's, staff had filed written testimony on Oct. 24 opposing the projects as Xcel Energy subsidiary Southwestern Public Service Co., or SPS, had presented them. The application for the PRC's approval had been delayed for months over disagreements between the regulators and the company over the utility's efforts to keep contractual terms of the projects confidential.
However, on Dec. 11 the company filed a unanimous stipulation, which SPS President David Hudson testified resolves all issues among the parties.
The stipulation approves SPS' plans to acquire, construct and operate the 522-MW Sagamore Wind Project in Roosevelt County, N.M., and the 478-MW Hale Community Energy project in Hale County, Texas, and execute a 30-year power purchase agreement with Bonita Wind Energy LLC for 230 MW of other independently developed facilities in Texas.
The agreement limits the amount of costs that may be included in the company's New Mexico retail rates and ensures customers will receive 100% of the production tax credits even if the facilities fail to qualify for those credits, Hudson said.
Further, the stipulation guarantees that customers will not be burdened with any costs for the first 10 years of the facilities' operation and that they will receive all of the off-system sales margins generated by those projects, he said.
SPS will offer all the wind energy generated from the Sagamore and Hale projects into the Southwest Power Pool and will credit those sales to its retail customers through reductions in the fuel and purchased power portion of their bills, according to testimony by The Columbia Group President Andrea Crane on behalf of the state attorney general.
The parties agreed the commission should authorize SPS to acquire the sites for the projects and issue a permit for their construction. Also, the commission should authorize SPS to accrue an allowance for funds used during construction of the projects, Hudson said.
The combined wind facilities will be included in SPS' rate base in initial rate cases but will not exceed $1,675 per kW, which is 102.5% of the company's forecast installed cost, he said.
In Dec. 11 testimony, PRC Economics Bureau Chief John Reynolds said the commission staff previously opposed the projects because of significant risk to ratepayers from a 40% increase in the utility's rate base for the projects. However, SPS has now agreed to balance risks with a higher degree of certainty that customer benefits will be realized, Reynolds said.
SPS has agreed to cap the total project cost of the wind facilities in retail rate base and guarantee energy production at a 48% net capacity factor, and credit any shortfall to customers in the fuel expense portion of their bills, Reynolds said. SPS will also compensate customers for any net costs incurred during the first 10 years the Sagamore and Hale facilities operate, he said. SPS may cancel or reduce the size of one or both of these projects.
PRC staff Accounting Bureau Chief Charles Gunter put the fuel expense credit in a more favorable light, saying it means retail customers will begin receiving benefits of low-cost wind as it displaces higher-cost resources. At the same time, they will get production tax credit benefits through the fuel and purchased power adjustment, he said.
Crane said the cost cap does not guarantee ratepayers will benefit from the projects, but limits their risk exposure. Ratepayers will get full value for the production tax credits even if SPP cannot get them. Also, the 48% capacity factor guarantee will shield ratepayers from fuel costs if more expensive resources have to be used instead of wind, she said. (New Mexico PRC Case No. 17-00044-UT)
