Wind Catcher takes the stage in Okla.

Source: Edward Klump, E&E News reporter • Posted: Saturday, July 7, 2018

Regulators in Oklahoma are scheduled to hold a hearing today on a major wind project as the oil and gas state grapples with potential costs and benefits of renewable energy.

American Electric Power Co.’s proposed Wind Catcher Energy Connection has stirred debate in four states since it — and its $4.5 billion price tag — was detailed last July. AEP is looking for support of plans to recover associated costs from customers in the future.

Regulators in Arkansas and Louisiana gave the idea a green light, with conditions. In Texas, administrative law judges recommended granting an application with conditions to ensure a net public benefit. Not everyone is on board, and a decision in the Lone Star State will run through the Public Utility Commission of Texas.

But Oklahoma is where the reality of the project hits home in many ways because that’s where the wind turbines and a transmission line are slated to be located. AEP has argued the project will augment investments in cleaner energy, save customers money and deliver economic benefits. Oklahoma is one of the leading states for installed U.S. wind energy capacity, though it remains well behind Texas.

Today’s hearing is expected to begin around 1:30 p.m. local time in Oklahoma City, and it could continue tomorrow. An element to watch is whether any attached conditions might not be acceptable to AEP, assuming Oklahoma regulators eventually give the project preapproval.

“We think it’s going to get approved,” Shar Pourreza, managing director with Guggenheim Securities, said last week.

But such a decision, he said, likely will come with “contingencies.” Pourreza reiterated Guggenheim’s projection from a June report that there’s a 50 percent probability the project does proceed.

It’s possible AEP could develop the project without the preapproval it seeks. But the company is looking for a degree of certainty and could re-evaluate the project without a favorable Oklahoma decision.

An administrative law judge in Oklahoma recommended against preapproval. The judge cited various factors, including a lack of competitive bidding for major aspects of the project. The office of Oklahoma Attorney General Mike Hunter (R) and a division of the Oklahoma Corporation Commission also came out against preapproval and want to see a number of conditions if commissioners at the OCC decide to endorse the project.

2 states in play

Wind Catcher is intended to help deliver power to the customers of two AEP-owned utilities — the Public Service Company of Oklahoma (PSO), which serves parts of Oklahoma, and Southwestern Electric Power Co. (SWEPCO), which operates in portions of Arkansas, Louisiana and Texas. AEP has pegged PSO’s share of the project investment at about $1.36 billion.

The Wind Catcher plan from AEP includes a proposal to acquire a 2,000-megawatt wind farm that another company has been working on in Oklahoma. The idea also includes a 765-kilovolt power line, which would run hundreds of miles in Oklahoma from the Oklahoma Panhandle to the Tulsa area, and some related infrastructure. The exact route is still evolving.

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.

Peter Main, a SWEPCO spokesman, said last week that approvals in Arkansas and Louisiana were significant steps toward bringing the benefits of Wind Catcher to customers. The project could be discussed by the Public Utility Commission of Texas during a July 12 meeting.

“In Texas,” Main said in a statement, “we are very pleased that the administrative law judges’ proposal for decision is favorable to the Wind Catcher project, and we are continuing to work with all parties for approval of this important project.”

The Texas PUC could accept, reject or modify the recommendation from the administrative law judges. The proposal for decision discusses a variety of possible conditions, such as a potential cost cap and a guaranteed net capacity factor.

Stan Whiteford, a spokesman for PSO, said this week’s hearing in Oklahoma will look at negotiated settlements with various parties, including Oklahoma Industrial Energy Consumers.

He said PSO is hoping to see an Oklahoma regulatory decision in July. Wind Catcher is being positioned to take advantage of a federal production tax credit, and AEP envisions having the project completed by the end of 2020.

“It’s been a long process” since the Wind Catcher plan was unveiled, Whiteford said, adding that his company looks “forward to getting approval and moving on to construction.”

Questions about risk

Hunter’s office issued a statement in May to say that, while he remained opposed to preapproval of Wind Catcher, there were ratepayer protections he would like to see if preapproval were granted by Oklahoma regulators. An assistant state attorney general and the director of the Public Utility Division of the OCC signed a document that discusses potential requirements.

PSO has touted its proposed settlement terms, such as limits on construction costs, performance guarantees and making sure customers save money over a certain period. In a June report, Guggenheim said some non-starters for AEP could include “capacity factors that are beyond the design of the project and an annual look back that would be equivalent to a merchant plant in terms of risks.”

Oklahoma regulators have various options, such as backing an agreement supported by PSO or one that includes aspects of it and what the attorney general prefers.

There also are political factors because a Republican primary runoff election looms Aug. 28 in Oklahoma. Dana Murphy, the OCC’s chairwoman, is seeking her party’s nomination for lieutenant governor. Bob Anthony is seeking to retain his OCC seat. And Hunter, the attorney general, is trying to hold his current office.

Guggenheim said in a June report that having a commissioner running for lieutenant governor means the oil and gas lobby in Oklahoma could be influential. Potential approval of Wind Catcher could be “so restrictive that the project would get shelved,” the firm said.

On the other hand, Guggenheim said, the project could mean “substantial taxes and jobs” for a new lieutenant governor’s constituents, while some large customers want the project to help reduce rates.

AEP won’t, in Guggenheim’s view, “take on unreasonable risks that would put the company or its credit ratings in jeopardy.”

Al Armendariz, deputy regional director of the Sierra Club’s Beyond Coal campaign, said Wind Catcher would provide renewable energy, create jobs and aid the tax base in parts of Oklahoma. He expressed cautious optimism that it will obtain approval from Oklahoma regulators.

AEP “has been able to reach agreements over the last few months in the neighboring states of Arkansas and Louisiana that will be receiving portions of the wind power,” Armendariz said via email. “We believe these agreements increase the likelihood of approval in Oklahoma.”