Transource Missouri on Aug. 31 filed for incentive rate treatment under FERC Order 679 for two transmission projects in the Southwest Power Pool (SPP).
Transource Missouri is a subsidiary of Transource Energy, the recently created joint venture between American Electric Power (NYSE:AEP) and Great Plains Energy (NYSE:GXP).
The company is seeking incentive rate treatment for a 30-mile, 345-kV transmission line and related facilities to be constructed between the Iatan and Nashua substations in Missouri, approved as an SPP balanced portfolio project in 2009, and the Missouri portion of a 175-mile, 345-kV transmission line and related facilities to be constructed between Sibley, Mo., and Nebraska City, Neb., approved as an SPP priority project in 2010.
The Iatan-Nashua project is estimated to cost $64.8m. The estimated cost to Transource Missouri for its portion of the Sibley-Nebraska City project is $380m out of the total estimated $400m. The balance will be picked up by the Omaha Public Power District.
The projects, which would be the first transmission facilities that Transource Missouri will develop and own in SPP’s footprint, have in-service dates of 2015 and 2017, respectively.
“[B]oth projects will provide SPP customers with substantial economic and reliability benefits, alleviate congestion at certain constrained flowgates on the SPP transmission system and thereby increase power flows and permit enhanced trade with the Midwest Independent Transmission System Operator, Inc. (MISO), and facilitate integration of new renewable generation resources,” Transource Missouri said in its filing (Docket No. ER12-2554).
For each of the projects, the Transource subsidiary has requested:
- Inclusion of 100% of construction work in progress (CWIP) in rate base
- Recovery of all prudently incurred costs not capitalized and authorization to establish regulatory assets that will include all such expenses that are incurred in connection with the projects prior to the rate year in which costs are first flowed through to customers pursuant to the Transource Missouri formula rate under the SPP open access transmission tariff, including authorization to amortize the regulatory assets with interest over five years for cost recovery purposes
- Use of a hypothetical capital structure until long-term financing is in place
- Recovery of prudently incurred costs in the event either or both projects must be abandoned for reasons outside Transource Missouri’s reasonable control
- Authorization to change the base ROE in the formula rate pursuant to future limited, single-issue FPA Section 205 proceedings
For the Sibley-Nebraska City project, Transource Missouri has requested a 100 basis point adder to its return on equity (ROE) for its investment, to compensate for the risks and benefits of the project.
The company also requested a 50 basis point adder to its ROE for RTO participation.
SPP has issued to Great Plains Energy subsidiaries Kansas City Power & Light (KCP&L) and KCP&L Greater Missouri Operations (GMO), notifications to construct (NTCs), designating them as the SPP transmission owners for the Iatan-Nashua project.
SPP has issued an NTC designating GMO as the SPP transmission owner to construct the Missouri portion of the Sibley-Nebraska City project.
“Once the Missouri Public Service Commission approves certain requested authorizations, KCP&L and GMO will seek to novate to Transource Missouri KCP&L’s and GMO’s obligations under the NTCs for the projects,” Transource Missouri said. “Transource Missouri anticipates becoming a transmission owning member of SPP and will transfer functional control of the Projects to SPP after they are placed in service.”
Iatan to Nashua
In its evaluation of the benefits of the Iatan-Nashua project, SPP assigned a cost-benefit ratio of 2.95, the third highest benefit-to-cost ratio of 20 proposed projects in the RTOs’ balanced portfolio study, Transource Missouri said.
The SPP region will experience significant immediate benefits once the transmission line is energized.
The project is expected to alleviate congestion at two of the most congested flowgates on SPP’s system, the Iatan-Stranger Creek and the Lake Road-Alabama flowgates. According to SPP’s 2011 State of the Market Report, these flowgates are the third and fourth most congested flowgates in the region.
“This results in major constraints for north-south power flows at the Kansas-Nebraska interface,” Transource Missouri said. “Once the Iatan-Nashua project is placed in-service, congestion at these congested flowgates will be alleviated significantly, increasing power transfers between the two states as well as between the SPP and MISO regions.”
The line is also expected to reduce peak transmission losses on the KCP&L and GMO systems by approximately 8 MW, the company said.
The $64.8m estimated cost for the project “represents a significant investment for Transource Missouri and, without the incentives requested in this application, challenges Transource Missouri’s ability to maintain adequate cash flows which could ultimately lead to lower credit ratings and higher costs of financing,” the company said.
Sibley to Nebraska City
The $380m project is expected to modernize and integrate SPP’s system, reduce congestion, increase the ability to interconnect new wind generation resources, increase capacity for west to east flow of electricity, and provide substantial benefit for customers, Transource Missouri said.
“SPP determined that the priority projects result in a cumulative benefit-to-cost ratio of 1.78,” the company said.
Sibley-Nebraska City is expected to relieve congestion at two of the most congested flowgates on the SPP system, the company said.
“Similar to the Iatan-Nashua Project, the Sibley-Nebraska City project addresses congestion in the second most congested region on the SPP system by alleviating congestion on the Iatan-Stranger Creek and the Lake Road-Alabama flowgates, the third and fourth most congested flowgates on the system,” Transource Missouri said. “This congestion results in major constraints for north-south power flows between at the Kansas-Nebraska interface.”
The project is also expected to mitigate congestion at the Cooper South flowgate, also a constraint for north-south transfers.
“Once the Sibley-Nebraska City project is placed in-service, congestion at these congested flowgates will be alleviated significantly, enabling increased power transfers between Kansas and Nebraska as well as between the SPP and MISO regions,” the company said.
The Sibley-Nebraska City project represents the most costly priority project approved by SPP, Transource Missouri said, adding that its cost exceeds the estimated amount of any of the individual priority projects for which Oklahoma Gas & Electric Company has received incentive rate treatment.
“Transource Missouri is a new transmission development company with no current transmission facilities in service,” the companies said. “Transource Missouri faces considerable risk in obtaining reasonable terms in its financing efforts.”
Given that the project links two states, includes two crossings of the Missouri River, it has a long development timeline.