Southwest Power Pool (SPP) President and CEO Nick Brown earlier this month discussed challenges facing SPP, including the matter of right of first refusal (ROFR) and cyber security issues.
Discussing ROFR during his Feb. 9 keynote discussion at Americans for a Clean Energy Grid’s National Electric Transmission Infrastructure Summit that was held in Washington, D.C., Brown said, “We still have questions in our footprint on who can build and, case in point, … one particular line was pulled out of the approved list [of SPP’s 2017 Integrated Transmission Planning (ITP) 10-Year Assessment, or ITP10] for further study, which we hope will be completed by April.”
As TransmissionHub reported, the SPP board recently approved 13 out of 14 transmission upgrades recommended in the ITP10 assessment and directed further evaluation of a new 345-kV line from Potter to Tolk in the Texas Panhandle. According to a presentation that was given at the Jan. 31 board meeting, the 90-mile Potter-Tolk 345-kV line is in the Southwestern Public Service (SPS) area, and its estimated cost (2017 dollars) is $144m. The lead time for the project is 72 months, and the need date listed in the presentation is Jan. 1, 2017.
“Southwestern Public Service has filed a lawsuit against us to not issue the Notice to Construct for that particular line because they say, ‘That’s not a competitive project, under [FERC] Order 1000, we have a right of first refusal in Texas,’” Brown said, adding, “[I]t’s an issue that has yet to be resolved, either by the Legislature or by the Public Utility Commission [(PUC)] of Texas, so it’ll be interesting to see.”
SPS, a wholly owned subsidiary of Xcel Energy (NYSE:XEL), on Jan. 18 filed suit in the 181st District Court, Potter County, Texas (Amarillo) – the Cause No. is 106111-B, an Xcel spokesperson told TransmissionHub on Feb. 21. The line driving the suit is the Potter to Tolk line, but the purpose is to gain clarity on the company’s right of first refusal concerning these lines, the spokesperson said.
According to SPS’ petition filed with the court, the company seeks a declaration that Texas law prohibits SPP from designating a non-incumbent transmission owner to build and operate new transmission facilities in areas of Texas outside of ERCOT. Or stated in the affirmative, the petition said, SPS seeks a declaration that Public Utility Regulatory Act § 37.051 grants an incumbent electric utility operating in areas outside of ERCOT the exclusive right to build new transmission facilities located in the service area prescribed for that utility by the PUC. The petition further noted that SPS seeks temporary and permanent injunctive relief prohibiting SPP from designating a non-incumbent transmission owner to build and operate new transmission facilities in SPS’ service area.
During his presentation, Brown discussed FERC Order 1000, noting that SPP “spent a lot of time and effort putting in a competitive bidding process, and we did use that last year for a particular line in Kansas that ultimately was deemed unneeded because of changes in load forecast.”
The dynamic nature of load shifts is another source of uncertainty as landowners can question the validity of studies that were done years before a project gets to the point of trying to acquire right of way (ROW), for instance, he said.
Brown noted that SPP operates in two distinct realms – “one being real-time operation, where we’re not looking past the end of our nose, and the other as a planning authority, looking 10 and 20 years into the future.”
Balancing the resources and understanding how much focus is needed in those two realms is a constant challenge, he said.
“We have to look 10 years down the road because the lead times for transmission are, in our view, eight years for a major transmission line, from conception and planning, which is in the 12- to 18-month range; the designation of a transmission owner to construct the facility, which can be as short as three months to as long as 12 months, if we have to go through a competitive bidding process; and then the construction time, [which can] be anywhere from two to eight years,” Brown said.
Of cyber security, he said that it is “SPP’s single biggest threat and I’m just amazed at attempts to circumvent our systems that occur continuously.”
SPP’s “primary focus, for the most part, to date has been on trying to keep people out,” he said. “I think we’re really going to have to get to a point of thinking that, ‘Okay, they’re already in now, how do we restore as quickly as possible?’ So, that’s on the resiliency side of the equation, and like insurance, how much do you buy? If we’re successful in keeping them out, we spend a bunch of money on the restoration side that was never used – just like buying insurance, you hope you never use it, but at the same time, you still spend the money on insurance. So, as a business person and, again, a regulated public utility, what’s the right amount? And I struggle with that and … probably everyone in this room struggles with that.”
The same issue exists when it comes to physical security, he said, adding that the industry has to do a better job of talking to customers about the value of electricity.
Success on cost allocation
Among other things, Brown noted that when he was elected SPP’s CEO in 2003, transmission had not been built in SPP’s footprint for about 18 years, primarily because “nobody really wanted to build it if everybody else was going to use it and not pay for it.”
SPP proposed the creation of a Regional State Committee (RSC) and decided to delegate certain authorities to that committee, including on cost allocation, he said, adding that the cost allocation process has been successful.
He said, “[W]e’re building transmission now because we know how to pay for it.”
As noted in an SPP October 2016 document, in April 2010, the RSC approved the current “Highway/Byway” methodology for new transmission facilities, and under that methodology, any costs for facilities included in the “Base Plan” after June 19, 2010, would be allocated as such:
- Less than or equal to 100-kV facilities: 100% on a zonal basis
- Greater than 100-kV and less than 300-kV facilities: 2/3 to the zone in which the facilities are located, 1/3 on a regional basis
- Greater than or equal to 300 kV: 100% on a regional basis
Brown noted that $10bn in transmission investments have occurred at SPP in 10 years, with 60% of that paid for at the Highway level, about 35% at the Byway level, and about 5% at the local level.
He also discussed a study published last year regarding the value of SPP transmission additions.
As TransmissionHub reported, transmission upgrades in SPP from 2012 to 2014 resulted in more than $240m in fuel cost savings for utilities during the first year of operation of SPP’s Integrated Marketplace, SPP said in that study.
The net present value of all quantified benefits from the transmission investments is expected to exceed $16.6bn over a 40-year period, resulting in a benefit-cost ratio of at least 3.5, meaning that the investments are expected to produce more than $3.50 in benefits for every $1 in transmission-related costs, SPP said.
Previous studies by SPP projected the expected future value of transmission construction based on forecast data, while the new study used actual historical operating data obtained during the first year of operation of SPP’s Integrated Marketplace to document transmission value already realized.
Brown said of the study, “I couldn’t have been more pleased with the results, and my hope now is that with that actual experience, that more people will be a little bit more visionary in approving transmission for economic benefits and for looking forward, as opposed to, ‘Well, what do I have to do for reliability standards?’”