Southwestern Public Service gets New Mexico support on solar power contracts

1. California (4316 MW)

Staff members of the New Mexico Public Regulation Commission filed July 10 testimony on an April 2 application from Southwestern Public Service for approval of two long-term power contracts with two NextEra Energy Resources solar projects of 70 MW apiece.

Andrea B. Delling, an Economist in the Accounting Bureau of the NMPRC’s Utility Division, offered an outline of separate long term purchased power agreements (agreements) with two units of NextEra for the purchase of: 70 MW of solar power from Roswell Solar LLC; and 70 MW of solar power from Chaves County Solar LLC.

SPS entered into separate agreements with Roswell Solar and Chaves County Solar for the average purchase of 190,650 MWh per year of solar energy from each facility. The agreements cover a contract term of 25 years, commencing on the commercial operating date for each solar power facility, which is projected to be no later than Dec. 31, 2016.

Asked if SPS will incur interconnection or transmission costs under the agreements, Delling wrote: "SPS will not incur interconnection costs (which include electric losses, transmission and ancillary service arrangements and other costs) under the agreements. The interconnection costs are the responsibility of NextEra from the point of generation from the Roswell and Chaves County solar facilities to the SPS point of delivery (115 kV bus at the SPS’s Chaves County Substation)."

Delling said that SPS provided reasonable cost and resource justification for the deviation from its integrated resource plan to include the agreements. SPS sought proposals for build-own transfers (also known as "turnkey projects") whereby the bidder designs and constructs the facility, and the facility is turned over to the utility upon the COD, SPS chose this option because of the company’s lack of internal experience in constructing solar facilities and the approach is consistent is with parent Xcel Energy's past practice.

SPS only received one ownership proposal that provided a buy option in the seventh year that would be based upon the fair market value of the facility at that time. SPS did not consider that option to be economically feasible in the near term as compared to the bids received in the 2014 solar request for proposals (RFP).

Bruno E. Carrara, the Bureau Chief for the Electrical Engineering Bureau of the Utility Division at the commission, wrote in companion July 10 testimony: "There are two agreements, both between SPS and limited liability entities created by NextEra Energy Resources.

Both agreements are for energy produced by solar facilities to be constructed on a 618-acre site about 5 miles east of Roswell, New Mexico, and on a 550 acre site slightly south of the Roswell facility site, also in Chaves County, New Mexico.

“The size of each facility is 70 MW, for a total of 140 MW. The NextEra entities have the responsibility to construct the facilities and to obtain all necessary permits and approvals. I will use the terms 'Roswell agreement' when referring to the agreement associated with the Roswell solar agreement and 'Chaves agreement' when referring to the agreement associated with the Chaves County solar agreement. The agreements will use single-tracking photovoltaic solar panels, and as such will produce electricity only during daylight hours."

Carrara added: "The two agreement are nearly identical. The agreements are for a term of 25 years of commercial operation. The expected commercial operation date for both locations is December 2016. The annual committed solar energy output of each facility starts at 202,820 MWh in the first year of commercial operation, and slowly declines over the 25-year term to 178,481 MWh in the 25th year. ... Approximately one-third of the facilities’ annual output is expected to occur during the months of May, June, and July. The price for the Roswell agreement for the energy acquired is $34.78 per MWh versus the price for Chaves agreement at $35.37 per MWh in year 1. SPS has stated that they do not know why NextEra offered slightly different prices. The prices for both agreements escalate at 2 percent per year."

The proposed Roswell and Chaves County agreements reflect the lowest solar energy prices seen so far, Carrara added. "The Roswell and Chaves County agreements are less than half the cost of SPS’s own SunEdison PPAs. It is quite remarkable how much the cost has declined in five short years — so much so that one has to seriously consider whether some short term mechanism other than long-term, escalating, purchase power agreements might be available to arbitrage against future capital cost reductions that may or may not materialize. Short-term options, however, present their own challenges, especially if one believes that favorable tax treatment will disappear after 2017."

Carrara said that commission staff recommends that the commission:

·      Approve the agreements but not the shared savings mechanism proposed by SPS. Staff does not recommend approving the agreements if any shared savings mechanism is included.

·      SPS should not be authorized to exercise any ownership option in the agreements or in the facilities and that SPS must first seek and receive commission approval through a future certificate of convenience and necessity or similar proceeding.

·      SPS should be required every five years (after commercial operation) to file a report in this docket with the commission, supported by evidence and testimony, that provides information of whether or not the agreements have provided a net displaced energy cost savings in the preceding period.

·      Staff recommends that SPS be required to submit a report in this docket once the SPP has made a determination regarding transmission service. SPS should be required to explain SPP’s determination, detail the capital cost, annual revenue requirement and cost per kWh to SPS of all options available to it, and justify, through supporting evidence and testimony, SPS’s preferred solution.

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