Texas rejection dims outlook for AEP’s Wind Catcher plan

Source: Edward Klump, E&E News reporter • Posted: Monday, July 30, 2018

Texas regulators handed American Electric Power Co.’s Wind Catcher Energy Connection plan a major setback last week with a decision that might help kill the $4.5 billion proposal.

The Public Utility Commission of Texas (PUC) voted unanimously to reject an application from AEP’s Southwestern Electric Power Co. (Swepco), which sought a certificate of convenience and necessity authorization. The company could ask for a rehearing after commissioners sign an order on the rejection.

AEP’s Wind Catcher proposal involves a large generation and transmission project in Oklahoma that aims to provide wind energy benefits to customers in multiple states. Critics say there isn’t a traditional need for it and have worried about risks. Administrative law judges in Texas previously recommended that Swepco’s application be granted with conditions to ensure a net benefit to customers.

But the three-member PUC wasn’t comfortable with that approach. DeAnn Walker, the PUC’s chairwoman, said yesterday that she didn’t think the proposal for decision provided sufficient safeguards for ratepayers.

“We know what the costs are, likely, although those are also projected,” Walker said. The benefits, she said, “are based on a lot of assumptions that are questionable.”

Melissa McHenry, an AEP spokeswoman, said via email that the company was “extremely disappointed” in the PUC’s “decision rejecting our Wind Catcher proposal.” She said the company is evaluating its options.

Wind Catcher has been positioned to take advantage of a federal production tax credit, and AEP envisioned having the project completed by the end of 2020. AEP’s Wind Catcher plan includes a proposal to acquire a 2,000-megawatt wind farm that Invenergy has been working on in Oklahoma. The idea also includes a 765-kilovolt power line, which would run hundreds of miles in Oklahoma, and related infrastructure.

It remains to be seen what might happen with the proposed wind farm if AEP doesn’t move ahead with its Wind Catcher plan. Invenergy declined to comment on that possibility yesterday, and it referred questions about the Texas regulatory approval process to Swepco. That company echoed the disappointment expressed by its parent — AEP — and said it is evaluating options.

Wind Catcher could help deliver power to the customers of two AEP-owned utilities — the Public Service Company of Oklahoma (PSO), which serves parts of Oklahoma, and Swepco, which operates in portions of Arkansas, Louisiana and Texas.

AEP has said Wind Catcher is designed to save customers billions of dollars over 25 years, net of cost. In July 2017, AEP said Swepco would own 70 percent of the project and about 1,400 MW of wind, while PSO would have 30 percent and roughly 600 MW of wind.

Costs and benefits would be spread among customers in various states under AEP’s plan. The company has been seeking support from states to recover costs associated with the project in the future.

Regulators in Arkansas and Louisiana gave the idea a green light, with conditions. An administrative law judge in Oklahoma recommended against preapproval. The Oklahoma Corporation Commission listened to arguments about proposed settlements at a hearing on Wind Catcher this month (Energywire, July 2). A decision from that commission may come in the weeks ahead.

Assessing the future

In Texas, Swepco filed a petition for certificate of convenience and necessity authorization to acquire an interest in the Wind Catcher project.

Opponents have argued that customers would bear considerable risks associated with Wind Catcher. Much of the discussion has been around potential fluctuations in natural gas prices, including potential downside for the project if gas prices are too low. A proposed transmission line, or generation tie line, also has stirred concern.

Walker, the PUC chairwoman, said yesterday that she recently considered writing a memo about possible conditions for the project. But she ended up deciding not to do that.

Earlier this year, the PUC issued a favorable order related to a wind project involving a unit of Xcel Energy Inc. There was considerable discussion in that proceeding, but it included a settlement agreement and modifications.

Commissioner Arthur D’Andrea suggested yesterday that Wind Catcher was being discussed as a financial play that could help with lower rates.

There’s a burden to show that “the taxpayers and the businesses of Texarkana and Longview” really would “have something to gain,” he said.

D’Andrea wasn’t sure the burden had been met. He said it was a close and difficult case.

Paul Patterson, an analyst with Glenrock Associates LLC, said it looks like AEP’s Wind Catcher project appears headed for death.

“And barring some unforeseen event,” Patterson said, it’s “unlikely to be resurrected, at least in its current form.”

AEP investors didn’t seem too rattled by the Texas decision, despite some fluctuations in the company’s stock price. AEP shares rose 2.4 percent in regular trading yesterday.

In a note after the PUC meeting, Guggenheim Securities LLC called Wind Catcher’s prospects “dim.” But the firm said it doesn’t think AEP’s management will walk away from the project until there’s an answer from Oklahoma.

Wind Catcher garnered significant attention on AEP’s July 25 earnings conference call, as the company said it was seeking resolution in key states by the end of August. CEO Nick Akins said on the call that the company would live with the outcome from commissions in Texas and Oklahoma.

“If Wind Catcher were not to happen,” he said, there would “still be opportunities for those kinds of resources to be applied through our resource plans.”

But Akins said AEP didn’t want to miss the Wind Catcher opportunity “because it’s a great way to deal with the resource plans” in various states at once “rather than independently with perhaps less efficient projects.”

He indicated that his “going-in assumption” was that favorable decisions were needed from both Oklahoma and Texas for the company’s Wind Catcher project to happen.

Akins also told analysts and investors that AEP has growth prospects without Wind Catcher, which he still hoped would be approved.

“The foundation of this company remains solid,” he said.