TransmissionHub tracking more than $165bn in planned, under-construction projects

Also discussed during the June 24 webcast were FERC’s New England ROE proceeding, SWEPCO project

TransmissionHub is tracking more than $165bn in planned and under construction projects, representing 51,076 miles, Kent Knutson, director of Hub Services for PennWell, said on June 24 during the TransmissionHub Quarterly Market Update, sponsored by AZZ.

According to the presentation, from 2015 to 2018, the average investment represents $28.4bn per year.

Knutson said investment of projects to be completed this year has changed from about $15bn to about $13.2bn due to some projects being pushed off into 2015. Also, some of those remain in the planning stages and have not begun construction.

Of the $165bn, about $48.9bn represent HVDC projects, while $25.6bn represent underground and underwater projects. Of the $13.3bn to be completed this year, $2.4bn has already started operation, $5.6bn is under construction and $5.3bn is still in development and planning, Knutson added.

Since January, there have been $2.7bn in new project announcements and of that, $1.79bn were announced since April.

According to the presentation, $29bn worth of projects are planned for 2015, with $14.6bn of that under construction, while $19.1bn in projects are planned for 2016, with only $2.4bn under construction at this time.

In 2015, 163 projects are planned for completion, and of those, 61 have estimated costs of more than $100m. Of the regions in the country, the West is the leader of most of this build-out, Knutson added, noting, however, that there is a significant amount of projects slated in the East.

As noted in the presentation, the top U.S./Canada projects in 2014 include ATCO Electric’s $1.8bn, 500 DC Eastern Alberta Transmission LineBC Hydro’s estimated $736m, 214-mile, 287-kV Northwest Transmission Line in British Columbia; the estimated $552m, 235-mile, 500-kV On Line Transmission Project by NV Energy and LS Power in Nevada which was energized in January; AltaLink’s estimated $408m Cassils to Bowmanton Transmission Project, online earlier this year; Public Service Electric and Gas’ estimated $390m, 55-mile, 230-kV North Central Reliability Project in New Jersey; the estimated $300m, 122-mile, 345-kV X2 Great Plains (Kansas V-Plan) by ITC Holdings (NYSE:ITC) in Kansas; and Oklahoma Gas & Electric’s estimated $152m, 110-mile, 345-kV X2 Woodward to Thistle project in Oklahoma.

Knutson also discussed the U.S. Environmental Protection Agency’s (EPA) Clean Power Plan. The EPA on June 2 released its long-anticipated and much-debated plan to control greenhouse gas emissions from existing power plants.

The centerpiece of the Obama administration plan requires states to draft plans designed to cut carbon dioxide emissions from the power sector 30% below 2005 levels by 2030.

The CO2 control program will bring about several co-benefits, including cutting nitrogen oxides and sulfur dioxide by more than 25%, EPA said.

EPA said the goals can be accomplished through a combination of power plant improvements, generating more electricity from renewable energy or low-carbon sources and greater use of energy efficiency measures.

Knutson noted that one of the key aspects of the regulation on existing plants is that it is based on the 2005 emissions, which were relatively high. By 2013 already, he said, 10% of the 30% by 2030 goal has already been met.

Noting that for some states like Montana, just one power plant is causing the big output issue, he said that the real issue is identifying the states that produce a lot of carbon emissions.

As noted in his presentation, Texas produced the most power plant emissions in 2012 with 232.3 million metric tons of CO2e, with a net reduction to meet the 2030 goal from 2012 emissions of 43.9 million metric tons of CO2e.

Also, Ohio leads the states in coal plant retirements with nearly 9,000 MW of planned retirements, some of which has already been retired, followed by Pennsylvania with just over 7,000 MW of planned retirements, and Iowa with nearly 5,000 MW of planned retirements. Both of those states have also already retired some plants.

According to the presentation, TransmissionHub’s sister publication GenerationHub is tracking $112bn in planned and under-construction natural gas projects, and with the CO2 rule pending, that is likely to grow.

On what that means for transmission, Knutson noted that for a state like Texas, which is already experiencing a huge build-out of wind energy and natural gas plants, “ the issue is going to be what kind of transmission interface [is it] going to have from regions that could provide [it] with energy that is low-carbon.”

Another interesting area to observe is California, which despite experiencing the current drought, has benefited from the hydro power it receives from the Northwest, he said, adding, “So, significant amount of potential transmission development that meets standards in various states is something that will be studied, I’m pretty sure, heavily.”

He also noted solar, wind and nuclear power development. For instance, there is 13.5 GW of utility-scale solar power development planned for the next three years, and 13.3 GW of wind power expected in 2014 alone. There has also been discussion in the industry of nuclear power perhaps being the surprise winner of the EPA plant rules, Knutson said, adding, “[T]here will be some reason to look at it very closely, but also to extend the life of some of the older units, and who knows, maybe some of those scheduled for retirement may be pushed forward.”

ROE order, Bay vote, SWEPCO project

Also presenting on June 24 was Rosy Lum, editor-in-chief of TransmissionHub, who discussed several key energy matters, including the recent Senate committee vote on FERC nominee Norman Bay.

As TransmissionHub reported, the U.S. Senate Committee on Energy & Natural Resources on June 18 voted in favor of the nominations to FERC of Bay and Acting FERC Chair Cheryl LaFleur.

“[T]he nomination of Norman Bay to be a member of the Federal Energy Regulatory Commission was voted out of committee today 13 to 9,” Whitney Potter, communications director for the office of Sen. Martin Heinrich (D-N.M), told TransmissionHub on June 18. “His [nomination] will move forward for a final Senate confirmation vote at a later date.”

A committee spokesperson told TransmissionHub that the committee voted 21-1 in favor of LaFleur’s nomination.

“[H]opefully, Bay’s nomination brings to a close a process that normally is pretty run-of-the-mill and doesn’t make that many headlines, but this past year was front and center of energy news,” Lum said, referencing President Barack Obama’s initial nominee Ron Binz’s withdrawal last fall following what Binz called “political blood sport in Washington.”

Lum noted that Bay and LaFleur must still be confirmed by the full Senate, which has not yet set a date for such vote, but that may occur this summer or next fall. LaFleur, who was elected to FERC in 2010 and whose term is scheduled to end this June, will serve as acting chair for nine months after Bay is fully confirmed, Lum said.

She also addressed FERC’s recent action regarding the New England base return on equity (ROE).

As TransmissionHub reportedthe base ROE for New England transmission owners will be lowered from 11.14% to 10.57%, or halfway between the mid-point and high point of a zone of reasonableness of 7.03% and 11.74%, FERC said on June 19.

The commission, in a long-awaited decision on the base ROE complaint filed in 2011 by Massachusetts Attorney General Martha Coakley against New England transmission owners (NETOs), said it will apply the same discounted cash flow (DCF) methodology to determine the base ROE for electric transmission lines as it applies to natural gas and oil pipelines, by incorporating into it both short- and long-term measures of dividend growth, rather than only considering the short-term growth projections currently used for electric transmission (Docket No. EL11-66).

FERC’s opinion on an initial order on the base ROE complaint affirmed in part and reversed in part the initial order issued on Aug. 6, 2013, established a paper hearing and announced a new method for determining base ROE. The order also changes FERC’s practice on post-hearing ROE adjustments, eliminating the practice of updating the ROE based on changes in U.S. Treasury bond yields.

The 11.14% base ROE rate came under dispute because it had been set in 2006, before the financial crisis, and the cost of equity component embedded in it reflected different economic conditions than were present in 2011, when the complaint was filed, resulting in unfair charges to consumers.

In the initial order, the presiding administrative law judge concluded that the base ROE of 11.14% was unjust and unreasonable, and recommended a base ROE of 10.6%.
In the opinion, FERC said it applied the two-step methodology to the facts of the proceeding to produce a proxy group and a zone of reasonableness for determining the appropriate base ROE for the NETOs. The commission found the NETOs’ starting proxy group, a national proxy group, was consistent with FERC precedent, and that the record contained all financial data necessary to conduct a DCF analysis of that proxy group using the two-step methodology, with the exception of long-term gross domestic product (GDP) growth. The new methodology is a constant-growth, two-step rather than a one-step DCF methodology.

FERC’s DCF analysis yielded a zone of reasonableness of 7.03% to 11.74%. The 10.57% figure is the halfway point between the 9.39% midpoint of the zone of reasonableness and the top of that zone.

Lum noted that the general importance and implications of this case are a little more widespread in that it is not just contained to New England. “What FERC does, obviously, is going to have ripple effects throughout the industry, so there have been already filings that have been made around the country, similar filings, complaints to lower ROEs in other regions,” she said.

Among other things, Lum said that the industry remains in a wait-and-see mode, especially, for instance, due to the paper hearing, adding that, “I think it’s safe to say, though, that base ROEs will come down.”

Lum also discussed the Arkansas Public Service Commission’s (PSC) action on June 9, in saying it will reconsider the need for Southwestern Electric Power Co.’s (SWEPCO) Shipe Road to Kings River 345-kV line, which it had approved earlier this year, and will consider evidence on whether existing 161-kV lines can be upgraded in place of the project.

As TransmissionHub reported, the PSC said in an order granting rehearing (Docket No. 13-041-U), “Considering all the evidence provided to date, the commission finds that, while some transmission development in the area appears warranted, the record is presently insufficient to determine: the need for the particular 345 kV project that has been proposed, whether that project is consistent with the public convenience and necessity, and whether the project represents an ‘acceptable adverse environmental impact, considering … the various alternatives, if any, and other pertinent considerations.’”

The PSC also granted rehearing for consideration of additional evidence on the routing of the proposed line, and said that SWEPCO should provide additional evidence on its proposed routes and submit proof that potentially affected landowners receive statutory notice.

“With regard to routing, the parties should provide evidence whether existing 161 kV lines could be upgraded or existing rights-of-way used or expanded so as to limit adverse environmental impacts,” the PSC said.

In a statement issued June 10, SWEPCO said it planned to consult with the Southwest Power Pool (SPP), which issued to SWEPCO a notification to construct the line as part of regional reliability improvements it identifies.

“The commission’s decision to review routing of the line offers an opportunity to address areas of concern about location of transmission facilities,” Venita McCellon-Allen, SWEPCO president and chief operating officer, said in the statement. “Identifying a reasonable route for a transmission line in this region is challenging, given the I-540/I-49 corridor, Beaver Lake, and numerous communities and special places across the Ozarks. We will continue to seek an appropriate balance in the location of any transmission facilities. As we continue with these proceedings, we will keep landowners, public officials and other stakeholders informed about the project.”

SWEPCO on March 14 filed a petition for rehearing of the project after the PSC on Jan. 17 approved a route, Route 109, that would cross from Arkansas into Missouri and run for 25 miles of the project’s 56-mile length in Missouri. In its petition, SWEPCO mentioned proposed bills by Missouri lawmakers that aimed to prohibit the line from being constructed in that state, which would effectively scuttle the project.

SWEPCO asked the PSC to reconsider instead its proposed route, Route 33, which would allow the line to be sited entirely within Arkansas state lines. The PSC, in an errata to its Jan. 17 order approving the project, had found Route 33 to be unreasonable.

Lum noted that the PSC has not yet set a procedural schedule for additional testimony and hearings. “[S]tate activism is a trend we’ve been seeing more of lately in response to FERC Order 1000, which requires that right of first refusal [(ROFR)] language be eliminated from federal transmission tariffs,” she said. “At least eight states proposed ROFR laws in the last three years and seven have passed them. It’ll be interesting to see how SWEPCO’s case plays out.”

She continued, “We have a tension between regulators, whose job it is to protect consumers, and a federal RTO that has to meet reliability [standards] and implement FERC policy, not to mention a company that wants the line and [would] receive rewards from that.”