LPSC repeats mistake that may cost ratepayers

Louisianans dodged a bullet on the Windcatcher project. They might not have such luck concerning the junior version.

Last week, Southwestern Electric Power, a subsidiary of American Electric Power which provides electricity in northwest/west/central Louisiana, announced that its Sundance project had come online. This 199 megawatt addition is the opening salvo of the North Central Wind project in Oklahoma that eventually will ramp to 1,485 MW, of which Louisiana will receive as much as 464 MW while SWEPCO and AEP customers in Oklahoma and Arkansas will divvy up the rest.

This comes as part of a SWEPCO strategy to replace coal and gas-fired generation with renewable energy. The utility plans to take several such units offline in Louisiana and Texas over the coming decade, plus a wind farm. It insists that this eventually will have the state’s customers come out ahead, with the maximal cost borne by ratepayers at $624 million but reaping $1.15 billion in savings.

If this sounds familiar, it’s because Louisianans heard similar arguments about the one-third larger Windcatcher project. That foundered when Texas regulators denied it, citing a set of unrealistic assumptions behind assumed savings that in reality likely would have increased ratepayer costs. With the deal structured in a way that gave Texas a veto, it fell apart.

Yet all but one member of the Louisiana Public Service Commission bought into that one, with some members justifying it by saying it contained an addendum of consumer protections. However, those stipulations ended up scuttling the effort, because the company realized it couldn’t restructure elements to cover costs limited by the deal.

Initially, the now-activated project didn’t look to advance. The LPSC-hired expert said the public wouldn’t benefit – that is, their rates likely would have increased as a result of the project – but relented and signaled acceptance when the leftist Alliance for Affordable Energy and woke Wal-Mart intervened with a set of like constraints as in the Windcatcher deal, and the LPSC unanimously approved of the settlement (with this happening last spring, it perhaps explains why the group didn’t try hard to oust Republican Commissioner Eric Skrmetta in his reelection attempt).

Unlike Windcatcher, this project avoids $1.6 billion in transmission lines cost, and apparently SWEPCO thought it could live with the caps on costs passable to ratepayers. And, learning from that, it structured the deal so that if Texas rejected that, Arkansas and Louisiana could take up the slack and the deal would live – a “flex-up” about which the LPSC staff expressed doubts.

Rejection is what Texas did precisely. In a stinging rebuke of adding the SWEPCO new wind 810 MW that paralleled its Windcatcher conclusions, its regulators noted “assumptions do not reflect a realistic range of possible future conditions,” particularly faulting SWEPCO for chronic overestimation of natural gas prices (which makes wind seem relatively cheaper) compared to markets and competitors, too much reliance on a as-yet nonexistent carbon tax, and misestimating renewable stocks’ availability, typical capacity, congestion (which an expensive tie-in would have to relieve), useful life of the project, and the availability of tax credits for reduced costs and for sale as excess.

As for the “guarantees,” Texas ruled similar ones given to Oklahoma and Arkansas were more generous than the plan filed with it. Significantly, the Louisiana order maintains that its ratepayers are to get those as well if these are better than the ones in its order. Regardless, Texas ruled that “SWEPCO did not establish that the acquisition of the wind generation facilities will result in the probable lowering of cost to customers with or without its proposed guarantees” and “SWEPCO's proposed guarantees are insufficient to protect consumers from the financial risks of the wind generation facilities.”

This means that in the pessimistic scenario at some point this fashionable venture will cost SWEPCO consumers more than if the utility stuck to more reliable and cost-efficient natural gas especially abundant in Louisiana and Texas. Optimistically, the LPSC will force the company to live up to the stipulations, which likely would force it to cut back on wind usage (and its pledge to introduce as much as 200 MW of solar generation into the mix). If the goal in all of this was to introduce a significant amount of renewable energy into the portfolio, that doesn’t look likely.

Once again, the gullible LPSC has found itself snookered in a rush to achieve trendiness. This time, consumers may have to compensate for that.