Texas regulatory structure called “key driver” for renewables transmission

The regulatory structure in the state of Texas is key to facilitating the development of new transmission for renewables, according to Heather Bailey, director of energy for Navigant Consulting.

Speaking on the TransmissionHub webcast “The Great Texas Transmission Rush: Lessons learned and outlook for transmission and reliability in Texas,” on April 11, Bailey traced the current regulatory structure to the deregulation of the state’s wholesale electricity market that took place in the late 1990s.

“Much like today, the state was in a resource adequacy situation where we may not have had enough new generation to support the growth in load,” Bailey said.

To help meet that need, state officials passed a series of rules intended to encourage the building of new generation. According to Bailey, the rules said, “If you come, and if you build, we will provide the transmission to serve your generator at no cost to you.”

While serving as an incentive to encourage new generation, it also proved to be a driving force in creating the need for new transmission.

Revenue recovery structure unique within Texas

When a transmission project successfully works its way through the coordinated planning process at the Electric Reliability Council of Texas’ (ERCOT) and is granted a certificate of convenience and necessity (CCN) by the Public Utility Commission Texas (PUCT), the PUCT certifies the need for the project and endorses a specific route, according to Bailey.

Removing the questions of need and route selection reduces the financial risks developers face in other states.

In Texas, “If [a developer] can substantiate their costs and they’re reasonable, a developer will be allowed rate recovery,” she said. In other states, a developer’s revenue recovery can hinge on whether the project was justified, she said.

Once costs are approved by the PUCT, they are then spread among all end users within the ERCOT service area so that “It doesn’t matter where the line is built; everybody shares in the cost,” Bailey said. “To me, that’s a key driver for ensuring that we have adequate transmission.”

Additional drivers for new transmission

Even after the build-out of the transmission needed to serve the state’s competitive renewable energy zones (CREZ), there is more transmission contained in ERCOT’s five-year planning process, Bailey said, calling the amount of transmission “significant.”

Bailey also cited improved economic conditions as among the drivers. “We have had a very stable economy which is now beginning to improve, and loads are continuing to increase,” she said, referring to the record peak demand in the summer of 2011.

Development of shale gas has also been a huge economic boon to areas in south and east Texas that were previously less economically developed. Shale gas fracking brings people to the area of operations, which fosters the development of hotels, restaurants, and other support businesses. “We’re seeing a very significant increase in the load in areas that previously didn’t have that kind of growth,” Bailey said.

In addition, Bailey said the CREZ lines that are under construction are causing the need to upgrade transmission elsewhere. “As we’re seeing generation grow and connect into the CREZ lines, there are additional reliability improvements that need to be made to the rest of the system,” she said.

Bailey said there are several very large reliability projects that will need additional transmission, including 128 active generation interconnection requests in ERCOT’s queue totaling more than 34,000 MW of capacity.

Other projects include the Lower Rio Grande Valley project, a $500m transmission project that  will help address the growth in load in that part of the state as well as facilitate 600 MW of wind generation. The project involves upgrades as well as new transmission, and is expected to be in service in 2016.

The Cross-Valley project is a $275M, 345-kV line that is being built to address load growth and reliability issues, also tied to increasing demand in south Texas.

The transmission boom, however, started with CREZ, Bailey said. “CREZ provided a great impetus for the development of renewable resources in Texas and was a very innovative process in the way that it approached transmission development.”

“CREZ has been huge with respect to transmission, and it’s something that is being looked at all over the country,” Bailey said. “The state of Texas, because of its regulatory structure, facilitated that.”