Albuquerque Journal editorial on Sagamore Project
February 28, 2018
We get it: utility regulation is a complex business, and our state regulators have to find that sweet spot that balances consumer and business interests while also complying with state and federal laws and understanding tax law to boot. That’s why sometimes it’s so important to take a step back and see the forest for the trees – or the wind turbines.
Xcel Energy operates in eight states. Its subsidiary, Southwestern Public Service Co., has been in Roswell for more than a century and serves about 385,000 people in New Mexico and West Texas. Xcel is proposing two huge wind farms — a 522-megawatt facility between Portales and Lovington, and a companion 478-megawatt facility north of Lubbock, Texas.
Once built, the $1.6 billion wind farms, combined with 230 megawatts of wind from a nearby NextEra facility, would provide enough electricity to power about 440,000 average homes annually – easily a quarter of the state’s population.
Xcel says the farms would save ratepayers about $2.8 billion in electric costs over 30 years by offsetting higher fuel costs from natural gas and other sources. The company has agreed to cap cost recovery for the project – which it is entitled to – at $1,675 per kilowatt, is guaranteeing the wind farms will produce a minimum annual output of 48 percent of capacity, and says customers will be credited 100 percent of the federal production tax credits for wind generation it will receive once the farms come online. The project would bring at least $57 million in local spending for New Mexico contractors, vendors and labor. And it has the seal of approval from the New Mexico Attorney General’s Office, the Coalition for Clean Affordable Energy, the environmental group Western Resource Advocates and the PRC’s utility division staff.
So it is troubling Public Regulation Commission hearing examiner Elizabeth Hurst wants PRC commissioners to reject Xcel’s proposal – which all the aformentioned entities have signed off on – 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.
Because what business is willing to invest $1.6 billion and then operate up to two years without making any money?
And this is happening at the same time New Mexico is trying to move away from traditional coal-generated power and is seeing Public Service Company of New Mexico not only shutter two units at the San Juan Generating Station, but prepare for the ultimate shutdown of the plant in 2022.
Hurst is right to want to ensure the agreement doesn’t run afoul of the law and end up setting rates retroactively. But the fact is, allowing Xcel/Southwestern to simply set interim rates with the understanding adjustments will be made accordingly is not retroactive rate-making; it is establishing a reasonable rate placeholder, a tool that protects and provides certainty for all involved. Under Hurst’s plan, customers would be benefitting from the electricity generated by the facilities while Southwestern would go up to two years writing off its earnings.
And who can afford to do that?
Not Xcel, which has already mentioned moving its plans to Colorado or Minnesota, even though New Mexico and Texas have the best wind save for offshore and deliver more reliable power and more reliable savings.
As the PRC considers Xcel’s proposal and Hurst’s recommendation, it is important commissioners step back and consider New Mexico’s goals on renewable energy, the many entities backing this plan as well as the federal tax credits that make it economically feasible (those expire March 22).
Because this is an opportunity New Mexico doesn’t want to see gone with the wind.
This editorial first appeared in the Albuquerque Journal. It was written by members of the editorial board and is unsigned as it represents the opinion of the newspaper rather than the writers.
