Xcel Energy’s (NYSE:XEL) Southwestern Public Service (SPS) and the Southwest Power Pool (SPP), in a joint petition filed on Feb. 28 with the Public Utility Commission (PUC) of Texas, requested that the PUC resolve as a matter of law the issue involving whether SPS has the exclusive right to build and operate new regionally funded transmission facilities in areas of Texas that lie within the company’s service area.
SPS contends that the Public Utility Regulatory Act (PURA) grants an incumbent electric utility operating in areas outside of ERCOT a right of first refusal to build new transmission facilities located in the service area prescribed for that utility by the PUC.
In contrast, the petition added, SPP avers that there is no clear statement in Texas law that incumbent utilities have such a right of first refusal, and therefore SPP is proceeding as if there is no right of first refusal under Texas law and abiding by the portion of its Open Access Transmission Tariff (OATT) that requires the competitive solicitation and designation of transmission owners, including non-incumbents, to build and operate new transmission facilities in areas of Texas within the SPP footprint.
Because a regionally funded transmission project located in SPS’ service territory – the new 345-kV Potter to Tolk line – is scheduled to be considered by the SPP Board of Directors within the next two months, SPS last month filed a lawsuit in state district court in Potter County, Texas, seeking a declaration that it has the right to build the project, the petition said.
In light of the PUC’s familiarity with PURA and its statutory duty to oversee the electric industry in Texas, SPS and SPP have agreed to abate the lawsuit and to seek a declaration from the PUC regarding whether Texas law grants SPS a right of first refusal to build the regionally funded transmission project or whether SPP must follow the competitive bid process in the absence of such right of first refusal under Texas law, the petition said.
The petition noted that FERC in 2011 adopted Order 1000 to address challenges that developed in the electric transmission industry after the issuance of Order 890, which FERC adopted in 2007 and required each public utility transmission provider to have a coordinated, open, and transparent regional transmission planning process.
The most significant of those challenges was the possibility that substantial investment in future transmission facilities would be required to maintain reliable service at reasonable cost, the petition said. The package of reforms adopted in Order 1000 addressed transmission planning and cost allocation and, taken together, those reforms were designed to achieve two primary objectives: ensure that transmission planning processes at the regional level consider and evaluate, on a non-discriminatory basis, possible transmission alternatives and produce a transmission plan that can meet transmission needs more efficiently and cost-effectively; and ensure that the costs of transmission solutions chosen to meet regional transmission needs are allocated fairly to those who receive benefits from them.
The petition also said that Order 1000 requires that public utility transmission providers like SPP remove from their OATTs, or other FERC-jurisdictional tariffs and agreements, any provisions that grant a federal right of first refusal to transmission facilities that are selected in a regional transmission plan for purposes of cost allocation.
However, Order 1000 provides that it is not intended to abrogate state-created rights of first refusal that allow incumbent utilities in those states to build transmission facilities in their service areas, the petition said. If Texas laws provide an incumbent transmission owner the right to build transmission facilities in its PUC-certificated service area, then Order 1000 does not remove that right, the petition said.
To comply with the directive of Order 1000 to eliminate certain federal rights of first refusal under the SPP OATT, SPP developed the transmission owner selection process to competitively solicit proposals for transmission projects that are no longer subject to a federal right of first refusal. To select the transmission owner to build a competitive upgrade – which is a project approved for construction or endorsed by SPP’s board that meets certain criteria – SPP issues a request for proposals (RFP) for the competitive upgrade to all qualified RFP participants, the petition added.
SPP submits the RFP responses to an industry expert panel for evaluation based on criteria set forth in the SPP OATT, and that panel must develop a recommendation to present to the SPP board consisting of its recommended RFP bidder and an alternative RFP bidder for each competitive upgrade, the petition said. After the board selects a bidder and alternative bidder, SPP notifies the winning bidder that it has been selected to become the designated transmission owner for the competitive upgrade, and issues a notification to construct (NTC) for the competitive upgrade.
SPP in late 2016 completed its 2017 Integrated Transmission Planning 10-Year Assessment (2017 ITP10), identifying 14 transmission projects to be built to meet the reliability needs, policy initiatives, and economic opportunities for the SPP transmission system over the next 10 years. One of the recommended projects – identified as an economic project – was the construction of the Potter to Tolk line, which covers a distance of about 90 miles from a substation in Potter County, Texas, to SPS’ Tolk generating plant. The petition also said that while the SPP board approved the 13 other recommended projects, it delayed final action on that line until April due to the need for additional analysis by SPP.
SPS filed the lawsuit last month seeking a declaration that it has a right of first refusal to build the line, as well as other 345-kV projects to be built in the company’s Texas service territory. The petition added that SPS also sought an injunction prohibiting SPP from issuing an NTC to any transmission company other than SPS for the Potter to Tolk line.
While SPP on Feb. 27 removed the action to the United States District Court for the Northern District of Texas, SPP and SPS have agreed to request abatement of the federal court action if the PUC assumes jurisdiction over the request for a declaratory order, the petition said.
If the PUC does not declare the parties’ rights under PURA, SPS will have to pursue its remedies in the federal court action, and should that court decline to enjoin the SPP from issuing an RFP for the Potter to Tolk line, then SPS will have to prepare and submit a response to the SPP RFP for that line to protect its statutory right to serve all customers within its PUC-certificated service area.
The petition also said that SPS estimates that preparation of an RFP response would cost at least $750,000.
Among other things, the petition noted that SPS and SPP request that the PUC enter an order declaring whether Texas law grants an incumbent electric utility a right of first refusal to build and operate competitive upgrade transmission facilities in areas of Texas outside of ERCOT, and to establish a procedural schedule set out in the petition.