PUCT rejects SWEPCO CCN, citing cost, flawed analyses and decarbonization

At its May 25 open meeting, the Texas PUC discussed its many concerns with SWEPCO’s proposal to replace a dispatchable generating unit with intermittent renewable resources. The commissioners questioned many of the assumptions in SWEPCO’s analysis, believing the utility understated the costs and overstated the value, believing the analysis was end result driven.

Commissioner McAdams’s Memo

On May 24, 2025, Commissioner McAdams filed a memo, indicating that he had “significant concerns with SWEPCO's amendment to its certificate of convenience and necessity for the generation facilities in question.”

Open Meeting Discussion

Chairman Lake suggested that “this is a tricky one,” and recommended that the Commission address only whether or not to approve the Certificate of Convenience and Necessity (CCN). If the CCN is granted, he recommended taking up any conditions at the next meeting in order to more thoroughly consider those conditions.

As a member of the Southwest Power Pool’s (SPP’s) Regional State Committee (RSC) and Resource and Energy Adequacy Leadership (REAL) team, Commissioner McAdams noted that he had heard SPP staff say that the SPP system cannot afford any more retirements of dispatchable generation. He noted that in a meeting on May 16, 2023, SPP had presented information indicating that by October 2024 there would be insufficient reserve margins on the system for continued dispatchable retirements, however, SPP expects 6 GW of retirements over the next 7 years. Commissioner McAdams suggested that the “current healthy reserve margins are somewhat illusory.” While not discussing the prudence of retiring the Pirkey plant here, Commissioner McAdams suggested that “it is a specter looming over this proceeding.”

Commissioner McAdams suggested that SWEPCO had made some “bad bets on the future of coal,” seemingly not seeing fracked natural gas coming, “expensive bets for which ratepayers have had to foot the bill.” Now SWEPCO wants to retire these expensive units 20 years early, likely expecting ratepayers to cover the stranded cost.

Commissioner McAdams noted that SWEPCO has proposed to add $2.2 billion of wind and solar capacity for “at best” 237 MW of intermittent capacity, under SPP’s current accreditation scheme, “another expensive bet that they are asking their captive Texas ratepayers to foot the bill on.”

Commissioner McAdams was concerned that, as SPP gets tighter on capacity, it will result in more outages and more expensive energy for SWEPCO’s ratepayers. His overall objection to the company’s instant proposal was that he does not believe the proposed units would help with that. While SWEPCO has tried to answer concerns, the commissioner was not convinced by their answers, especially in light of the problem he was identifying.

Commissioner McAdams agreed with parties that SWEPCO had created its own problem and would rather bank on new and potentially risky, very expensive intermittent capacity rather than less expensive, more obvious steps that were before them.

Second, Commissioner McAdams felt that SWEPCO had not adequately considered alternatives to the proposed facilities. He was skeptical of retiring this amount of dispatchable generation and issuing a Request for Proposals that only looks at wind, solar and short-term capacity purchases.

Commissioner McAdams suggested that both of SWEPCO’s analyses were “deeply flawed.” He believed that insufficient consideration of the increased need for transmission, as well as potential increases in congestion and locational marginal pricing were both “basically ignored” in these analyses. Furthermore, the price of the project increased by 80% between 2020 and when the application was filed, which he believed represented more than inflation and supply chain interruptions.

Commissioner McAdams suggested that SWEPCO had understated costs and overstated the value of the project, believing they should have given more consideration than they did to dispatchable resources and Power Purchase Agreements (PPAs) as alternatives.

Third, regarding the impact on quality of service, Commissioner McAdams noted ongoing comparisons between intermittent and dispatchable resources, a fundamental question for the Commission in most of recent its proceedings. He suggested that retiring a lot of dispatchable generation and replacing it with intermittent generation would not improve service quality but likely cause it to decline.

Commissioner McAdams suggested that SWEPCO “put its thumb on the scale” in projecting the units ultimate capacity and how soon they could be operational.

Finally, Commissioner McAdams suggested that the proposed cost of $9.2 million per megawatt of accredited capacity was “shocking” in comparison to the $1.36 million/MW that the Commission recently approved for Entergy’s gas-fired Orange County Power Station. Commissioner McAdams noted that this proposal would result in an 18.2% increase in retail base rate revenue and an increase in net plant in-service of 56%.

Commissioner McAdams concluded that SWEPCO could be asking ratepayers to “cover another bad bet.” The commissioner added that he “was not saying renewables aren’t the answer, but they aren’t all of the answer,” putting too many eggs in one basket by retiring good accredited capacity for a large and expensive project that has dubious potential for replacement capacity.

Commissioner McAdams suggested that SWEPCO “needs to go back to the drawing board” and bring back projects with capacity that is more reliable and affordable to ratepayers. He concluded by recommending that SWEPCO’s application be denied but recommended that the Commission take notice of SWEPCO’s application in Louisiana for the purpose of establishing the record at the PUCT.

Oral Argument

Southwestern Electric Power Company

SWEPCO stated that the Pirkey power plant retirement decision was based on an economic analysis, which looked not only at the capital cost of making the plant compliant but the continued cost of operating the plant. This analysis determined that retirement would save ratepayers between $790 million and $1.168 billion and no party provided evidence that continued operation of the plant would be a cheaper alternative.

SWEPCO noted that the capital cost of the proposed facilities are not the only consideration and, when all costs and benefits are considered, the selected facilities are the most cost-effective means of meeting customers capacity and energy needs. SWEPCO suggested that the Levelized Cost of Energy from those facilities is expected to be $43/MWH compared to Pirkey’s $70-$80/MWh.

SWEPCO stated that, from the beginning, they put the diversity value of the selected facilities “front and center.” SWEPCO noted that each of the 16 generating units that serve Texas ratepayers are powered by natural gas or coal. In terms of accredited capacity, SWEPCO’s fuel mix would remain at almost 79% fossil fuel in 2029 and 83% in 2041, so fossil fuels are, and would remain, a significant part of SWEPCO’s resource mix.

Texas Industrial Energy Consumers (TIEC)

TIEC stated that the primary statutory question in this proceeding is whether SWEPCO’s request for the proposed facilities is necessary to the public, whether it is necessary to spend $2 billion of ratepayer money to obtain an estimated 237 MW of accredited capacity, while offering no conditions, no protection for ratepayers, and nothing that would put any shareholder “skin in the game.”

TIEC suggested that the CCN is not necessary for the public and SWEPCO could have purchased a combustion turbine, which would provide the same capacity and be dispatchable, for approximately $200 million.

TIEC noted that, while SWEPCO suggested that its proposal is the most cost-effective option, its analysis was based on projections 30 years into the future, adding that the $2.2 billion of the proposal is a real number that gets put into rate base if it is approved. However, the Production Tax Credits (PTC) benefits depend on how much the plant will actually run, how much economic curtailment will come into play with an explosion of renewables in SPP, and how much other factors could cause them to run less than projected. The savings were also based on projected fuel costs.

Electric Cooperatives

Counsel for East Texas Electric Cooperative and North East Texas Electric Co-Operatives agreed with Commissioner McAdams’ memo. He noted that the cooperatives intervened because they saw that the selected facilities would significantly increase their costs. In addition, the cooperatives believe these intermittent resources would reduce the reliability, resiliency and stability of the region. The cooperatives recommended rejecting the Proposal for Decision (PFD) and requiring SWEPCO to evaluate lower cost alternatives that would keep reliable generation online and operating in Texas. The cooperatives also noted that SWEPCO had not reevaluated its decision to retire Pirkey since 2020, despite changing market conditions.

Cities Advocating for Reasonable Deregulation (CARD)

CARD joined in the other parties comments and supported Commissioner McAdams memo, adding that CARD requests the Commission reject the PFD because the project is too expensive and too risky, placing all of the risk on ratepayers. CARD also joined in Staff’s request to reject the finding that the retirement of Pirkey was a reasonable decision by SWEPCO.

PUCT staff

PUCT staff (Staff) echoed the concerns of TIEC and the cooperatives. Staff opposed the PFD’s finding that SWEPCO’s November 2020 decision to retire the Pirkey plant was reasonable, specifically, the plant was retired 20 years before the end of its useful life and its closure takes hundreds of megawatts of dispatchable generation off the SPP system. Staff noted that its testimony and briefing focused largely on options SWEPCO could have considered to keep the Pirkey plant in operation.

Commission Discussion

Commissioner McAdams noted that the Louisiana Public Service Commission (LPSC) denied the application but has not issued a final order on Motions for Rehearing.

SWEPCO informed the Commission that the LPSC approved a unanimous, uncontested stipulation with a few modifications, including improving the short-term gas purchased capacity contracts, but delayed a final vote on the wind and solar resources subject to a comparison of the selected facilities to some PPAs for comparable facilities.

Chairman Lake noted that PPAs would put the price and operational risk on a third party rather than on ratepayers.

Commissioner McAdams confirmed that the evidence shows SWEPCO has a capacity need, which will be increasing in the very near future and which will be deficient under the balancing authority’s reserve margin requirement that they have today, which is also being enhanced as a result of the increasing proportion of renewable energy in the system, to account for that variability.

Commissioner McAdams also noted that SPP does not have a Reliability Must Run (RMR) provision to retain units for system capacity or an RMR for transmission stability. He noted that these are regulated utilities with integrated resource planning (IRP) that allows regulators to command them to meet their resource adequacy obligations. Texas, on the other hand, does not have this capability, which was struck after the adoption of deregulation in Texas in 1999.

Chairman McAdams stated that there is a very limited toolbox for these utilities to meet their reliability obligations and the CCN is one of the few remaining tools the PUCT has for this purpose.

Commissioner Glotfelty agreed with Commissioner McAdams’ recommendation to deny the CCN. Knowing that SPP has no RMR tool that can be used to retain the Pirkey plant makes him even more concerned with taking this plant out of rate base. He believed that retirement of Pirkey should not be the basis for putting new plants into rate base, that this should occur due to load growth, unless the plant is at the end of its useful life, which it is not.

Commissioner Glotfelty stated that “it’s a shame” that Texas does not have IRP for vertically-integrated utilities, which puts Texas at a disadvantage. He suggested that this is an area that the Texas legislature should consider in the future for vertically integrated utilities.

SWEPCO clarified that Arkansas and Louisiana have IRPs that have both supported SWEPCO’s proposed plan.

Commissioner Glotfelty expressed concern about the RFP process, “the backbone of competitive markets,” adding that not considering long-term PPAs was bad. In addition, he did not believe that transmission congestion costs for the wind farm in Oklahoma had been adequately considered. The commissioner also noted that there had been no discussion of supply chains constraints that could affect the online date for these projects.

Commissioner Glotfelty noted that storage costs have dropped dramatically since 2020 but this was not included in this discussion, allowing firming of the renewable resources in a way that could have increased their accredited value, somewhere from 237 MW up to the 999 MW.

Commissioner Glotfelty stated that he did not understand the Production Tax Credit (PTC) issue, adding that if PTCs go to the parent company, they do not benefit the consumers that are paying for the project.

SWEPCO explained that the PTCs would go through the fuel clause, dollar for dollar, and the company would also gross up the PTCs for taxes, with a total amounting to more than $1 billion, buying down the investment by almost 50%. SWEPCO noted that they also requested the “standard ratemaking right” to create a deferred tax asset for use during times when they were unable to use all of the PTCs. SWEPCO noted that the Inflation Reduction Act also gave the company the right to sell the PTCs, a right which it did not have before.

Commissioner Glotfelty acknowledged that this assuaged his concerns to some degree, adding that netting that back to the consumers that are directly paying for the project would be important. He noted that PTCs are normally netted out in the cost of the PPA.

Commissioner Glotfelty concluded that he supports wind and solar and believes that transmission is the key to getting them all to market. However, Commissioner Glotfelty noted that the Commission is in a unique position and, even if they ultimately come to the same conclusion in the future, it needs to be based on different facts.

Chairman Lake highlighted that transmission and congestion costs are real, not to mention the land needed for all that transmission, which must be balanced against other options. The Chairman also suggested that, “at a minimum,” a fixed-price PPA with a third-party, limiting price, operational and commodity risk to ratepayers, should at least be considered.

SWEPCO explained that PPAs were not included in the RFP because they already had a solar PPA and to create balance and diversity, believing ownership of these resources would be appropriate in this instance. SWEPCO added that the company is not taking any risk because the price is essentially fixed and they are not carrying financing costs that customers would be asked to pay. Finally, SWEPCO noted that they don’t have to close if the project is not completed on time or if there are any concerns.

Commissioner Glotfelty asked what would happen if Invenergy could not meet the in-service date but SWEPCO had already shut down the Pirkey plant.

SWEPCO replied that if they received information that the in-service date would not be met, they would get in the market and locate short-term capacity to replace it.

Chairman Lake added that, while this was good contracting on SWEPCO’s part, they would still have to acquire short-term resources, which would probably be more expensive.

Commissioner Cobos noted the importance of the fact that the PUCT does not approve IRPs and the Commission must determine whether those facilities are necessary for the public through the CCN process. She suggested there are three considerations that must be made: 1) the need for additional service, 2) the probable improvement of service, and 3) the probable lowering of cost to consumers.

Commissioner Cobos noted SWEPCO has a need for additional service, having a deficit of over 1,834 MW, as a result of SWEPCO’s decisions to retire several of its generating facilities. She suggested that what is driving the need for additional service are an increase in SPP’s required summer planning reserve margin, from 12% to 15%, and recent implementation of performance-based accreditation. However, she suggested that a large part is driven by AEP’s self-imposed “decarbonization/net zero goals,” which has resulted in the retirement of a large amount of dispatchable generation, benefiting shareholders but not ratepayers.

Commissioner Cobos did not believe that these facilities would lead to a probable improvement of service, adding that there is a lot of risk involved, adding that, as more wind generation is added in SPP, the accredited value of wind generation resources would likely decrease.

Commissioner McAdams informed the other commissioners that the SPP Board would soon be voting on increasing its winter planning reserve margin, 15% is proposed but they will be considering increasing that over the next 4 to 6 years to 20% to 40%.

Commissioner Cobos suggested that SWEPCO’s RFP process could have been more robust and seemed to be end-results driven, focused on obtaining renewables and not considering dispatchable generation.

With regard to lowering the cost to consumers, Commissioner Cobos suggested that SWEPCO largely relied on energy savings and the PTC benefits, which were based on variables that could change, including energy pricing, Locational Marginal Price pricing, the impact of the Inflation Reduction Act, performance, natural gas prices, inflation, etc. She believed there were too many unknowns to be able to support the estimated benefits. Based on her analysis of the three CCN requirements, Commissioner Cobos recommended that the CCN be denied.

Commissioner Jackson noted that a lot has changed since the initial evaluation in 2020, adding that it is the PUCT’s responsibility to evaluate ratepayer costs and there is nothing that can benefit ratepayers more than reliability. Her concern was with moving from dispatchable generation to intermittent resources. She suggested that it is important to send a message that nothing is more important than reliability.

Chairman Lake echoed that sentiment, adding that reliability is paramount and it should be delivered at the lowest possible cost.

The Chairman stated that it appeared unanimous among the commissioners that the proposed acquisition is not in the public interest.

Commissioner McAdams told SWEPCO that it should take a message back to AEP that reliability is being affected by what SWEPCO and others in SPP are doing. He recommended balancing between retiring dispatchable units and replacing them with renewables be accomplished in a balanced, methodical way in the very near future because the very near future is what the Commission is very concerned about.

Chairman Lake stated that this must be considered a portfolio approach, adding that when the price of natural gas is $9/MMBtu it’s great to have solar and wind but when it is cold and dark, you have to be able to keep the lights on, adding that hopes and dreams don’t keep the lights on and the PUCT’s job is to keep the lights on. The Chairman concluded that for ERCOT, SPP and MISO nothing is more expensive or devastating than losing reliability.

The PUCT approved a motion to: 1) take notice of the Louisiana proceeding concerning these facilities, and 2) reject the PFD and deny the application consistent with the Commission’s decision and Commissioner McAdams’ memo.