Power Engineering - Westar trims wind plans after regulatory decision

31 December 2007 -- A decision by the Kansas Corporation Commission has led Westar Energy, Inc. to suspend plans to develop 200 MW of wind power by the end of 2010. The company said it will move forward with another 295 MW of wind power. Regulators found Westar's proposal to invest in wind energy prudent, but declined to approve its request for an incentive rate of return allowed by Kansas law.

The company said the order also indicated that in the future wind generation could be subject to "undefined operating standards" and "potential financial penalties" that have not been imposed on other forms of generation.

"We are concerned that the KCC's decision introduces uncertainty as to how wind investments might be regulated in the future, increasing their risk and inhibiting such development," said Bill Moore, Westar Energy president and chief executive officer in a statement. "Because deadlines are so tight to secure some of the state's most attractive wind sites for our customers, we will move forward with 295 MW despite the increased risks."

Given the "regulatory uncertainty" that the commission's order introduces and the decision by the commission not to approve the renewable energy incentive, Westar said it has suspended plans to move forward with additional wind generation.

"We don't see the order encouraging the further development of wind energy in Kansas," Moore said.

On October 1, Westar Energy reached tentative agreements with developers to build three wind farms totaling 295 MW of generation and filed a request with regulators to determine in advance its policies for setting rates for those projects. The agreements with the developers were contingent on regulatory approval of Westar's request for rate treatment.

The commission said the actual cost to construct the wind farms, up to $282 million, to be owned by Westar, will be allowed in rates after the wind generation begins providing service to customers. Costs in excess of $282 million will be subject to further regulatory review.

In its order, the commission said it concluded the circumstances do not justify allocating to ratepayers the cost of an additional 1 percent return on investment in light of the uncertainties inherent in wind generation and the narrow margins as to whether purchased power agreements or ownership is more costly.

The commission also said an incentive mechanism to maximize wind energy output is not necessary at this time. It plans to revisit the issue in two years. And it said it will continue to review the prudence of Westar's operations and maintenance of its wind assets and to make "appropriate financial adjustment" if the company has not operated or maintained its wind facilities appropriately.

Regulators also opened a general investigation to gather information on the wind generation industry and to investigate wind generation data reporting. The regulatory body said it will use this investigation to set performance metrics and determine what information is needed to evaluate wind generation performance.

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