American Electric Power‘s (AEP; NYSE:AEP) Transource Energy joint venture with Great Plains Energy (NYSE:GXP) plays an important role in its efforts not only to reposition the company in the transmission business but to achieve overall near-term critical mass, President and CEO Nick Akins said.
Transource also represents an opportunistic move to take advantage of some of new policies set forth in FERC Order 1000, Akins suggested during AEP’s 1Q12 earnings conference call April 20.
“The reason we did the Transource deal was to pursue competitive transmission development projects,” he said. “FERC certainly wanted to set the tone for competitive transmission going forward and it was important for us to put together an engine for that future growth, and we saw … a near-term project that could provide the ability for us to put that critical mass in place and really give us an advantage to run forward in the marketplace.”
Capital spending for the JV will begin to pick up in 2014-2016, offsetting “dampened” JV equity contributions around that time, Akins said. According to a February presentation, AEP had projected JV equity contributions of $82m, $28m and $35m for 2013, 2014, and 2015, respectively. With the Transource JV, AEP will now make equity contributions in line with the JV’s ownership structure, an AEP spokesperson told TransmissionHub April 20. AEP owns 86.5% of Transource, with Great Plains owning the remaining 13.5%.
Transource is currently developing two transmission projects together worth about $445m. The projects are required by the Southwest Power Pool (SPP) to improve reliability and reduce congestion.
The Sibley-Nebraska City project is a 175-mile, 345-kV line linking a substation near Nebraska City, Neb., with a substation near Sibley, Mo. Transource would construct and own approximately 170 miles of the project and Omaha Public Power District would construct the remainder of the transmission line. According to Mike Deggendorf, Kansas City Power & Light’s (KCP&L) senior vice president for delivery, the project is estimated to cost approximately $385m and has an anticipated in-service date of 2017.
The Iatan-Nashua line is a 30-mile, 345-kV line from a substation near Weston, Mo., to a substation near Smithville, Mo., and is estimated to cost approximately $54m. It has an anticipated in-service date of 2015.
“We are going to be investing more capital in transmission than we have over the last couple decades because there hasn’t been a lot of transmission buildout and the industry needs it,” the spokesperson said. “We see it as a vehicle that will contribute to the 4-6% earnings growth we’ve projected. It’s a way to invest capital with an attractive return.”
The Transource JV with Great Plains also provides future prospects for transmission investment in SPP, the PJM Interconnection and the Midwest ISO, and gives AEP a presence in Missouri and Kansas.
Deggendorf told TransmissionHub on April 4 when the JV was announced that there is “about $50bn worth of transmission that needs to be built out over the next 30 years,” in those three regions.
KCP&L is a subsidiary of Great Plains Energy.