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New Mexico approves Southwestern Public Service wind applications

New Mexico utility regulators approved Southwestern Public Service Co.'s application to construct and operate the 522-MW Sagamore Wind Project in Roosevelt County, N.M., and the 478-MW Hale Community Energy facility in Hale County, Texas.

The state Public Regulation Commission on March 21 unanimously approved the Xcel Energy Inc. subsidiary's request. Hale is expected to reach commercial operation by 2019, and Sagamore is expected online by 2020. (New Mexico PRC Case No. 17-00044-UT)

Meanwhile, the Public Utility Commission of Texas will consider SPS' application for approval of the wind projects April 12. A proposed order for approval was filed in the PUCT's docket March 19. (PUCT Case No. 46936)

Approval by regulators in both states is necessary for the projects to move forward because SPS operates its production and transmission system in eastern New Mexico and western Texas as an integrated whole and allocates costs to customers in both states.

SPS' applications were backed by agreements with multiple stakeholders in both states, but the utility hit a speed bump in New Mexico when Hearing Examiner Elizabeth Hurst argued that allowing SPS to begin recovering costs before the projects can be put in permanent rates would violate state law against retroactive ratemaking.

SPS countered that its interim rate recovery proposal would provide more than $11 million in net benefits to its customers in the first 13 months of commercial operation and there was ample legal precedent for the arrangement.

At the utility's suggestion, the commission accepted an amendment to its proposed order that provides for SPS to sell the wind-generated energy into the power market and calculate for each month the market revenues it receives, plus production tax credits associated with the wind facilities. If the projects generate profits above their costs, the utility will ultimately credit its retail customers with lower bills.

However, first, the utility will file two rate cases to recover the costs of each wind project, with the Hale project rate case to be filed in 2019 and the Sagamore project rate case to be filed in 2020. During the months those rate cases are considered, the expected benefits from the power market sales and production tax credits will be counted toward offsetting the revenue requirements of the wind projects and therefore reducing customer rates that are ultimately set in those proceedings.

If for any reason, the expected revenues from power market sales and tax credits fall short of the costs of facilities as prorated over the period they are in operation before the customer rates take effect, SPS agreed it will not seek recovery of those uncovered costs from ratepayers.

Commissioner Patrick Lyons proposed the order include those provisions, and the other four commissioners voted with him for approval. Lyons said the arrangement was "a cleaner way to go" than the interim rate arrangement to which Hurst had objected, and he expressed confidence it would withstand any legal challenge.

PRC Chairman Sandy Jones said parties to the wind projects case appeared to agree with the change to the agreement or stipulation they had filed with SPS to approve the projects.

The projects presented the PRC with an unusual case since the commission's staff said they were not needed to meet present or future customer energy needs, but were presented as an economic choice for customers to save money. SPS said that in its application, energy produced from the wind projects will lower energy costs by more than $2.8 billion over the next 30 years for the company's customers in Texas and New Mexico.