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Texas approves Xcel Energy wind projects based on customer savings guarantee

Texas utility regulators took the unusual step of approving Southwestern Public Service Co.'s plans to construct two large wind power projects solely for the purpose of getting cheaper energy rather than building more generation to serve a need for more electricity.

The Public Utility Commission of Texas, with just two members currently serving on the three-seat board, on May 25 approved the Xcel Energy Inc. subsidiary's plans 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.

New Mexico utility regulators have already approved the projects, which required approvals from both states because Southwest Public Service, or SPS, serves customers in eastern New Mexico and western Texas and the wind facilities will be used to provide energy to all of them.

On a motion from Commission Chairman DeAnn Walker and Commissioner Arthur D'Andrea's second, the regulators approved a May 24 second draft order the PUCT staff prepared after modifying an earlier version in response to extensive questions Walker asked about the benefits ratepayers would receive as justification for the projects. Walker also wanted assurances that ratepayers would not be exposed to a risk of paying higher rates.

The commissioners in late April indicated they were favorably inclined toward approving the projects, but on May 9 Walker issued a memorandum and recommended revisions to a proposed order, prompting SPS and PUCT staff responses to her concerns and the writing of the second draft order.

On the same date as her memo, private developer FGE Power, which is developing the 500-MW Goodnight Wind Energy project in Armstrong County, Texas, wrote the PUC to say the capital costs of the SPS wind facilities as disclosed in the initial proposed order were 20% to 33% higher than those for FGE's own project. The Hale project costs are $120 million more than those of the Goodnight project in the same region, even though Hale is 5% smaller, FGE CEO Emerson Farrell said. "We cannot understand how SPS can justify such high construction and connection costs," the company said.

The total cost of developing the Hale County wind farm is about $769 million and the Sagamore project will cost $865 million, according to SPS. The Hale project is due to start service in 2019 and Sagamore in 2020. Also, SPS will enter a 30-year purchased power agreement with Bonita Wind Energy LLC, an affiliate of NextEra Energy Resources LLC, for an additional 230 MW from two Texas wind projects of the NextEra Energy Inc. subsidiary.

FGE said its two-phase project is expected to begin operations in the summer and fall of 2019, but until very recently Farrell said he was unaware SPS proposed to construct its own wind facilities. FGE was not a party to the Hale and Sagamore proceeding.

All but two of 13 parties in the Texas case entered into a settlement with SPS to support PUCT permits for the wind projects and the remaining parties, the International Brotherhood of Electrical Workers Local 602 and Lea County Electric Cooperative Inc., did not oppose the projects. The settlement includes a cap on capital costs, a minimum energy production guarantee and a commitment to credit customers with 100% of the federal production tax credits, even if the projects fail to qualify for them.

Also, SPS agreed to guarantee that its Texas retail customers will save money over the first 10 years the wind facilities operate by compensating them if the costs of the Hale and Sagamore projects exceed a calculated savings in the range of $232 million to $543 million, depending largely on natural gas fuel costs the wind facilities will avoid. Over the full service lives of the projects SPS estimated its Texas retail customers will save $1.6 billion. (PUCT Docket No. 46936)