A $4.5 billion wind farm and transmission line announced last week by Public Service Co. of Oklahoma and a sister utility needs a quick answer from Oklahoma regulators so the project can fully qualify for federal tax credits for renewable energy.
The Tulsa-based electric utility filed an application Monday asking for preapproval to recover PSO's share of costs from the Wind Catcher project in the Oklahoma Panhandle when it goes in service by the end of 2020. PSO wants a decision from the Oklahoma Corporation Commission by March 31, 2018.
"The project is located in a high-quality wind area and is projected to be eligible to receive 100 percent production tax credits (PTCs) under federal law," Steve Fate, PSO's vice president of regulatory and finance, in a regulatory filing. "It will produce a savings for PSO customers in each year of the project with approximately $996 million net present value of savings as compared to purchasing PSO's energy needs from the market."
Those savings come from comparing the Wind Catcher project to a similar amount of generation expected to be available in the market. In the first three years, savings are estimated at $108 million, PSO said.
Federal production tax credits for wind are a key component of the project's financing, said Nick Akins, chairman and CEO of American Electric Power Co. Inc., PSO's parent company.
The federal incentive is set to phase down annually to 40 percent of its value before ending Dec. 31, 2019. Projects that started construction in 2016 qualify at the full, 2.3 cents per kilowatt hour credit. The incentive is worth 1.84 cents per kilowatt hour for projects that start construction this year. The credit lasts for 10 years.
Those fractions of pennies add up for large wind farms. The Wind Catcher project in Texas and Cimarron counties will have 800 GE turbines and a total capacity of 2,000 megawatts. PSO will get about 30 percent of the electricity, while the rest will go to Southwestern Electric Power Co., a sister utility with 530,000 customers in Texas, Louisiana and Arkansas.
"The sense of urgency around getting approvals for this thing is centered on the federal government basically giving a 62 percent-, 63 percent-off sale with the PTCs, and to take full advantage of the PTCs, that's $2.5 billion alone," Akins said last week in a conference call with analysts.
The wind farm won't be eligible for Oklahoma's zero-emissions tax credit, which ended July 1 for new wind projects. The state's 0.5 cents per kilowatt hour credit can be carried forward up to 10 years. It is refundable for cash at 85 percent of its value, but lawmakers ended it because of its rapid growth.
PSO's share of the $2.9 billion Wind Catcher facility is estimated at $871 million. The utility will sell its share of renewable energy credits and pass the proceeds on to customers through the fuel-adjustment clause.
Chicago-based Invenergy started some construction of the Wind Catcher project last year. At completion, it is expected to be able to generate electricity up to half the time. That 51 percent capacity factor "compares very favorably to regional wind generation resources," said PSO spokesman Stan Whiteford.
"The project will lock in approximately 8.7 million low-cost MWh (megawatt hours) per year for 25 years," Paul Chodak, AEP's executive vice president of utilities, said in PSO testimony filed Monday. "It will lower our customers' overall rates from day one while also hedging against increases in future fuel and power costs."
The wind farm will be connected to a PSO substation in north Tulsa by a 765-kilovolt generation tie line. It will function like a giant extension cord, bringing the electricity directly from the Panhandle to PSO and on to SWEPCO. The 350-mile line will leapfrog some of the grid congestion issues in northwest Oklahoma exacerbated by the growth of wind generation in the western part of the state.
"While some of the best wind resources in the nation are located in the Oklahoma Panhandle, the region lacks sufficient transmission capacity to deliver that energy to major load centers," Fate said in testimony filed Monday.
The generation tie line part of the project is expected to cost $1.6 billion, with PSO's share representing $487 million.
Separately from the Wind Catcher project, PSO said it is in contract negotiations for 100 megawatts of wind capacity that is expected to be in operation by the end of 2018. That project came out of a request for proposal the utility issued in September.
PSO has 547,000 electric customers in eastern and southwestern Oklahoma.