Xcel Energy’s plans to build two massive wind farms in New Mexico and West Texas have hit a potential project-killing road block at the Public Regulation Commission.
PRC hearing examiner Elizabeth Hurst wants commissioners to reject a proposal that would allow the utility to recover lost earnings that accumulate during the time that lags between when the wind farms actually come online and when the commission eventually approves new rates for cost recovery and profits on its project. That lag could take up to two years, during which time Xcel subsidiary Southwestern Public Service Co. would have to write off any earnings because new rates would not yet be approved, even though customers would be benefitting from the electricity generated by the facilities.
Usually, utilities estimate those costs and earnings for incorporation into a future rate case. But in this case, SPS wants current rates paid by customers to immediately become “interim rates” once the wind farms begin operating, allowing it to collect lost earnings through a surcharge on customers’ bills after new rates take effect.
That eliminates uncertainty over the accuracy of projecting costs, since the surcharge would reflect actual operations and profit margins recorded during the time it takes the commission to set new rates.
But Hurst said it would violate legal principles that prohibit “retroactive rate making,” since it establishes an “interim rate” for the wind farms before the commission has actually approved new rates.
The interim rate design, however, is a key part of a settlement agreement SPS negotiated with other parties in the case, without which the utility might abandon its $1.6 billion project, said David Hudson, Xcel president for New Mexico and Texas.
“It will be extremely difficult to proceed because of financial uncertainty,” Hudson told the Journal. “We wouldn’t know when we would start earning a return, and the longer new rates are delayed, the bigger the financial damage is to the company.”
All parties in the settlement agreement – including the PRC utility division staff, the Attorney General’s Office and environmental groups – support the interim rate clause given the project’s expected benefits. SPS estimates customer will save about $2.8 billion over the next 30 years as the wind farms offset higher fuel costs from natural gas and other sources.
In addition, under the settlement, SPS agreed to cap cost recovery for the project at $1,675 per kilowatt, or 102.5 percent of expected installed costs for the wind farms.
If approved, SPS will build a 522-megawatt facility in eastern New Mexico, and a 478-MW wind farm in Texas. That, combined with the purchase of 230 MW of wind energy from a nearby facility owned by NextEra Energy, would provide enough electricity to power about 440,000 average homes annually.
But the commission must rule on the case by March 22 for SPS to meet federal deadlines to receive full federal tax benefits.