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Xcel Energy seeking interim rate recovery for 2 big wind projects

Arguing that a delay in cost recovery for two major wind projects would make the proposed projects untenable, an Xcel Energy Inc. subsidiary will make its case before state regulators in March.

New Mexico regulators agreed to let Xcel Energy's Southwestern Public Service Co., or SPS, present arguments March 7 on the company's request to begin recovering costs of the two wind projects as soon as the plants go into service. Public Regulation Commission Hearing Examiner Elizabeth Hurst has recommended that the PRC reject the request, which is part of an agreement filed in late 2017 along with several other parties.

Typically, New Mexico ratepayers do not have to start paying for new utility assets until they are included in base rates. In order to be included in base rates, however, the new assets must already be in use. Since the wind projects will begin producing power long before base rate cases can be approved to include them, there would be a delay of many months before SPS could begin recovering its substantial costs of building the plants. Together, the projects will cost $1.6 billion and require very large up-front capital investments.

To avoid this "regulatory lag," SPS wants to impose interim rates for the wind farms. In New Mexico, this is a novel approach, but SPS said its case involves "unusual and exceptional circumstances."

The extraordinary situation is that SPS' new plants will save its customers money for many years, but the utility said it will suffer immediate and irreparable harm without interim rate relief. SPS said customers will receive lower bills due to fuel cost savings from wind replacing fossil fuel-powered generation, which will more than counter the impact of the interim rates.

The commission on Feb. 21 voted 3-2 to allow SPS and the other parties who signed the stipulation to present oral arguments and answer commission questions as to why the interim rates should be included.

In Feb. 19 comments, SPS argued that without assurance of timely cost recovery for the 522-MW Sagamore Wind Project in Roosevelt County, N.M., and the 478-MW Hale Community Energy facility in Hale County, Texas, it would be "extremely difficult" for SPS to build the projects as planned.

SPS plans to file a base rate case in 2019 to include the costs of the Hale project in rates and a second base rate case in 2020 for the Sagamore project. The PRC should allow the utility to recover costs for the wind facilities while the rate cases are processed, SPS said, adding that failure to recover these costs during two years of rate proceedings would damage SPS' credit and investor confidence.

However, Hurst said the PRC has no authority to create this "legal fiction" of interim rates for assets that are not in the utility's rate base because the mechanism would result in impermissible retroactive ratemaking.

SPS countered the commission will not run afoul of the prohibition against retroactive ratemaking if it makes clear at the outset the interim rates are subject to revision as future conditions warrant.