The Virginia State Corporation Commission (SCC), in an April 2 final order, denied an application filed by Appalachian Power Company (APCo) involving the company’s proposed acquisition of wind generation facilities.
As noted in the final order, APCo last July filed with the SCC an application seeking approval of a rate adjustment clause to recover costs associated with the company’s proposed acquisition of the Beech Ridge II and Hardin wind generation facilities being built in West Virginia and Ohio, respectively.
“Put simply, the capacity and energy from these generating facilities is not needed by APCo to serve its Virginia customers,” the SCC said in its order. “Thus, we find that it is neither reasonable nor prudent for APCo to acquire the wind facilities and then recover the costs from Virginia customers based on the record before us. Accordingly, we do not approve the rate adjustment clause requested in this proceeding.”
The SCC added that it finds that the company has failed to establish that the wind facilities are needed at this time. Without such a need, it is neither reasonable nor prudent for APCo to recover the costs of the wind facilities from its Virginia customers through a rate adjustment clause, the SCC said.
APCo does not assert a capacity need for the wind facilities, the SCC said, adding, “Rather, APCo asserts that the wind facilities are needed to provide a lower cost source of energy compared to purchases from the PJM Interconnection, L.L.C. (“PJM”), wholesale market, particularly during the winter months when APCo traditionally experiences its peak demand.”
The SCC said that it finds that APCo has not established that the wind facilities are needed to address an energy deficiency. APCo does not assert, for instance, that it is without access to sufficient energy to serve its native load, the SCC said. The record shows that APCo is a winter-peaking utility with access to purchases through PJM, a summer-peaking RTO, which allows APCo access to excess energy during the winter months when PJM is off-peak, the SCC said.
The SCC also said that APCo’s updated economic analysis presented in rebuttal shows a significant reduction in the level of proffered benefits as a result of the passage of the federal Tax Cuts and Jobs Act.
The SCC further noted that it finds “that APCo has not established the wind facilities are needed at this time as a hedge against market volatility.”
An Appalachian Power spokesperson on April 2 told TransmissionHub: “Appalachian Power is certainly disappointed by the outcome in this case. We believe our Virginia customers would like to have more renewables in our energy mix and lower costs for that power. The company is reviewing the SCC order and will work on our next steps forward.”
In a March 9 post-hearing brief filed with the SCC, the company noted that it is seeking approval of the rate adjustment clause (Wind G-RAC) to recover costs associated with its proposed acquisition of the 50-MW Beech Ridge II and 175-MW Hardin wind generation facilities.
APCo said that the type of costs that it will seek to recover through the Wind G-RAC include operations and maintenance expenses; administrative and general costs; taxes; and a return on and of its capital investment in the facilities.
The wind facilities represent a very inexpensive opportunity for the company to reduce its reliance on volatile market purchases of energy, the company said, adding that the average all-in cost for the wind facilities over the first 10 years of their operational life will be less than $29 per MWh.
“This price is, by any definition, cheap, in part because it captures the entire benefit of the production tax credit (“PTC”),” the company said. “And when the PTC is no longer in effect, the resulting increased price will be offset due to the almost simultaneous termination of four of the company’s current wind renewable energy purchase agreements (“REPAs”), each of which are significantly more expensive. Moreover, the less expensive energy from the wind facilities could replace two of those terminating REPAs that are part of the company’s renewable portfolio standard (“RPS”) generation portfolio. The addition of these facilities at this time is an incremental and inexpensive step towards constructing a reasonable least-cost portfolio, as set out in successive integrated resource plans (“IRPs”).”
Because the company has not closed on the acquisition of the wind facilities and thus has not incurred the costs of their acquisition, initially the company is only requesting the SCC’s approval or a “zero rate,” but would update the SCC prior to implementing non-zero rates. The company added that it is making the request now due to a condition in the asset purchase agreements (APAs) with the wind facilities’ developer, Invenergy, to seek regulatory approval of recovery before the transactions to acquire the facilities can be completed.
An Invenergy representative could not be immediately reached for comment by TransmissionHub on April 2.
In a March 29 filing to the SCC, APCo said that it was approached on March 26 by Invenergy with an unsolicited offering regarding the Hardin wind farm. General Electric has offered to upgrade the wind turbine generators at Hardin from the current 2.5-MW model to a new 2.72-MW model, at no additional cost to APCo. The result of installing those newly offered wind turbine generators at Hardin would be an increased annual energy production of about 2.5%, or 12,000 MWh, the company said.
Among other things, the company said that spreading the capital investment over that greater annual production and factoring in the additional PTCs that would be generated by that increased production would lower the cost to customers by $1.19/MWh on a 25-year levelized basis – even considering modest increases in land lease and O&M costs, the company said, adding that that has a present value of $6.9m (total company).