Transource to be AEP’s vehicle for competitive transmission

Transource, the newly formed joint venture between American Electric Power (NYSE:AEP) and Great Plains Energy (NYSE:GXP) will be AEP’s exclusive vehicle for pursuing competitive transmission projects, Lisa Barton, executive vice president for AEP Transmission, told TransmissionHub on Aug. 31.

“AEP certainly plans to be relevant in that space,” Barton said. “We are pursuing two projects there initially – these are projects that today are not competitive, but will be developed by Transource, and on go-forward basis, Transource would be the vehicle through which both companies would be seeking to participate in that competitive space.”

The initial two projects Transource is pursuing are the Iatan to Nashua project and the Sibley to Nebraska City project. 

The geography of Transource’s ambitions is not necessary limited, but AEP will focus on projects in the Southwest Power Pool (SPP), the Midwest ISO (MISO) and PJM Interconnection in the short term, Barton said.

“When you look at the horizon, there are changes certainly with what’s been going on at the federal level,” Barton said. “With FERC’s issuance of Order 1000, that is fundamentally going to change the playing field. [P]rojects that would’ve traditionally been jointly developed by [utilities] … are actually going to be competitive.”

Order 1000 requires that right of first refusal (ROFR) language about building new transmission projects be removed from tariffs, opening up the landscape to nonincumbent entities as well as incumbents. That AEP views this requirement as an opportunity is no secret. Nick Akins, the company’s CEO, in April said the company had formed Transource in order to pursue competitive projects. Transmission, he said at the time, is a key component in AEP achieving critical mass.

“It is an opportunity” for AEP to expand into other service territories, Barton said, as it is for others to expand into AEP’s service territory. “What is fairly clear is that each state will have the authority to determine whether public utility status will be granted to a given entity. So even if we wanted to go into California, it’d really be up to California to determine whether or not an entity would be allowed to be a public utility in that state.” 

Barton added that this is a new space in which change will not come immediately.

“I don’t think you’re going to see major movement in this space quickly because it does take time,” she said, adding that AEP will want to understand a market before moving into one.

The ROFR removal is imperative to the success of competitive transmission in the country. FERC recently underscored this in July, when the commission had to rule in favor of two incumbent entities over nonincumbents that had claims on two transmission projects. The nonincumbents had cried foul, arguing that FERC Order 1000 requires ROFR removal, but because Order 1000 is prospective in nature and hasn’t yet been implemented, FERC ruled in favor of the utilities.

“These orders highlight the very situation that Order No. 1000 is designed to remedy,” FERC Chairman Jon Wellinghoff said at the time. “In Order No. 1000, the commission stated that it is unjust and unreasonable to grant incumbent transmission providers a federal right of first refusal with respect to certain transmission projects because doing so may result in the failure to consider more efficient or cost-effective solutions to regional needs and, in turn, result in the inclusion of higher-cost solutions in the regional plan.”

AEP was one of the utilities involved in the cases. Its joint venture with Duke Energy (NYSE:DUK), Pioneer Transmission was attempting to claim ownership of the Reynolds to Greentown project, but Northern Indiana Public Service Co. (NIPSCO) contended otherwise. FERC eventually ruled in favor of NIPSCO, saying that MISO’s tariff, which was at issue in the proceeding, supported NIPSCO’s claim.

“I think that’s a bit of a blip in time,” Barton said. “I think the future is fairly clear in terms of where FERC wants to go, and we saw that from how each of the orders was drafted and the comments of the commissioners. The direction is clear, but how RTOs get there is not clear at this point in time.”

Order 1000 regional compliance filings are due Oct. 11.

When Order 1000 is finally implemented, though, AEP believes the hurdles to competitive transmission will fall away.

“Once filings are made, once FERC has ruled on those filings, then all entities will know exactly what those markets are, what the rules are, how they’ll be evaluating the companies, the proposals and the like,” Barton said. “We are a low-cost transmission provider. We really want to be able to provide those services for the benefit of customers.”

About Rosy Lum 525 Articles
Rosy Lum, Analyst for TransmissionHub, has been covering the U.S. energy industry since 2007. She began her career in energy journalism at SNL Financial, for which she established a New York news desk. She covered topics ranging from energy finance and renewable policies and incentives, to master limited partnerships and ETFs. Thereafter, she honed her energy and utility focus at the Financial Times' dealReporter, where she covered and broke oil and gas and utility mergers and acquisitions.