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This paper utilizes WASP, a state-of-the art computer model, to obtain optimal generation expansion plans for an electric utility in order to assess the impact of incorporating a wind energy conversion system into an electric utility generation expansion plan. The IEEE Reliability Test System is used in the evaluations. The optimal plans satisfy given levels of reliability, in terms of loss of load probability and capacity reserve margin, and minimize the present worth of capital and operating costs minus a salvage value at the end of the planning horizon. The analyses were carried out with a 75 MW and a 150 MW wind energy conversion systems as expansion candidates and evaluating their impact on optimal mix of capacity for displacement, fuel savings and capital and operating costs over the 1981-2010 planning period. In this paper the wind turbine generators are modelled as multi- state units whose derated capacity states are caused by wind variability and random mechanical failure. As the results show, the wind energy conversion system has a significant effect on optimal mix of generation and construction timing of conventional units as well as reliability and capital and operating requirements.