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Friday, July 25, 2014

Wind projects' costs irk utilities in 9-state pool

BY DAN VOORHIS
The Wichita Eagle

Not everybody is happy about Kansas' move into a wind-powered future. Several utilities in the region that are being asked to help foot a bill for hundreds of millions of dollars to upgrade high voltage lines in western Kansas remain upset about the process.

The projects — critical to the development of the wind industry in western Kansas — were approved last year. Construction will begin in mid-2012, and the lines are scheduled to be in service by the end of 2014.

But the debate over the projects has roiled the Southwest Power Pool, an association of utilities spread across nine states that includes all of the Kansas utilities.

As a result of the dispute, the power pool is redesigning the way it evaluates project costs, in the hope that it eliminates the unpleasant surprise of sharp cost increases.

That's what happened with the Kansas project, called the "V plan" or the "Y plan" because of how it looks on a map. In April 2010, the power pool board approved building twin 345-kilovolt power lines from the Wichita area to Medicine Lodge to Spearville in western Kansas based on estimates of $356 million.

The lines would carry a hoped-for bounty of wind power from the plains of western Kansas to points east.

But at a power pool meeting in October, staff revealed that the new estimate was $456 million — $100 million more.

There were also nearly $200 million in cost increases in a similar project in western Oklahoma and a new line to boost system efficiency in Nebraska and Missouri.

That reduced the dollar benefit/cost ratio from 1.78 to 1 to a still-adequate 1.5 to 1, according to the power pool.

There was plenty of anger and finger-pointing in the room when the new figure was unveiled.

Jeff Davis, a commissioner on the Missouri Public Service Commission, the equivalent of the Kansas Corporation Commission, this week summed up much of the feeling by saying that the process was flawed. Individual utilities design the projects, while the power pool has the power to spread the cost across all utilities. There's no incentive to keep costs down, he said.

"It's like being able to remodel your house and assess your neighbors for the cost," he said.

Critics contend that ITC Great Plains and Prairie Wind Transmission, which includes Westar Energy, increased costs by lengthening the route to avoid the habitat of the lesser prairie chicken in Barber, Comanche and Clark counties.

Kelly Harrison, vice president for transmission and environment for Westar, and president of Prairie Wind Transmission, disputes this.

He said that after detailed analysis of the land and consulting with stakeholders, including an environmental assessment, Prairie Wind came up with two routes. The routes cost about the same, he said, but one avoided the lesser prairie chicken habitat — so it made sense to take that one.

Harrison said the original estimates came from power pool planning staff based on simplistic assumptions about the lowest-cost route.

Once utility staff hit the ground to study actual routes, it's only natural that cost estimates would rise, Harrison said.

"I would say that there are members of the Southwest Power Pool that are disappointed in the lack of rigor used in the initial cost estimates," he said.

Spreading costs

A broader philosophical dispute centers on whether those utilities that see no benefit from the lines should have to pay for them.

The Southwest Power Pool adopted in April 2010 a new formula that assesses the cost of building the pool's largest lines, so-called "highway" lines, equally across all pool members because they can transfer energy between utilities.

The net effect is that Kansas ratepayers will pay about 20 percent of the cost of all approved projects, including those in Oklahoma, Nebraska and Missouri, according to Harrison.

If Kansas ratepayers had to bear the entire cost of the "V Plan," it might have scuttled it entirely — and, with it, the prospect of Kansas wind power.

But Omaha Public Power District was dismayed last year when, shortly after it joined the power pool, the power pool adopted the policy that allocates 100 percent of the cost for major lines across everyone in pool — and even less happy to be handed a big bill for the projects.

In April, its board of directors said that it is considering withdrawing from the power pool over the cost allocation issue.

"We'll be required to pay a considerable amount of money for little benefit," said utility spokesman Jeff Hanson.

He said the board is still studying the issue but must make a decision by Aug. 25.

Empire Electric and Lincoln Electric System have also expressed unhappiness.

Harrison also disputes this argument. He said that all utilities in the Southwest Power Pool will benefit from the wind power flowing through its lines.

Members of the power pool can increase their use of alternative energy without paying any transportation cost, he said.

And, besides, he said, Westar customers will be paying for "highway lines" elsewhere in the future.

David Springe, Consumer Counsel for the Kansas Citizens' Utility Ratepayer Board, said the political winds at both the state, regional and national levels are blowing toward building more infrastructure for utilities.

The Federal Energy Regulatory Commission is providing all kinds of tax and financial incentives that have brought investors and companies into the market to build lines.

With the deck stacked in favor of building, he said, if systems aren't designed to keep costs down, ratepayers will suffer the most.

"I'm not opposed to building transmission lines, but right now it's sort of the gold rush," Springe said. "I'd like to see a few more checks and balances, and actually building in the least-cost way for customers."

The federal government apparently agrees with the principle that only those who benefit should pay.

In a July 21 statement on new rules about to go into effect, FERC chairman Jon Wellinghoff said:

"Among those principles are that costs must be allocated at least roughly commensurate with estimated benefits; those that receive no benefits should not be allocated costs."

Reach Dan Voorhis at 316-268-6577 or dvoorhis@wichitaeagle.com.

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