CapX $$ fight in the news

Filed under:Uncategorized — posted by admin on June 21, 2010 @ 11:58 am

… and yours truly too… though the names of NoCapX 2020 and U-CAN were not mentioned.  Probably because those two names say it all!

It’s always about economics, as is CapX:

ICF – MISO Benefits Analysis Study

This is about the capital costs of transmission.  Capital costs of transmission have heretofore (HUMPH!) been paid by those utilities constructing transmission, and then they recover reasonable and prudent expenditures in the rates.  Now they’re wanting to change the rules of the game, have to some extent already — Construction Work In Progress (CWIP) costs are now recoverable (Minn. Stat.216B.16, Subd. 7b).  They want to changes the rules even more, and I can see a few reasons.  First, there is no capital to be building huge infrastructure projects.  The CapX Certificate of Need record reflects that the promoters were looking to Lehman Bros. for money!  That got a snort in the hearing, not reflected in the record.  Second, utilities can recover CWIP, they’re public service corporations, but a transmission only company is not a public service corporation.  Sooooooo, if the CapX utility developers can recover their costs now as “utilities” and what happens when/if they transfer the “transmission assets” over to a transmission only company (which is also now allowed for the first time thanks to that 2005 transmission bill, see Minn. Stat.216B.16, Subd. 7c.)???  And then, the MISO tariff, which needs to be approved by FERC, and which then is probably going to be the subject of a challenge in Federal Court, all that is up in the air!  So, utility transmission promoters and developers don’t want to go beyond dipping their toe in the water, they aren’t about to put their own capital at risk!  It’s so much more fun to screw around with ours!

So, back to the St.PPP article.  The headline of today’s article bothers me because I’d say it’s not so much “sharing the cost of shipping wind energy” as “shifting costs away from transmission owners.”

  1. It’s not sharing, it’s a cost shift. The idea is for someone, anyone, other than the project proponents to pay, for someone, anyone, other than those owning the infrastructure to pay.  As for CapX, we don’t even know who the ultimate owner will be, THEY REFUSE TO DISCLOSE;
  2. It’s not “shipping,” it’s the construction capital costs at issue. Transmission service cost, “shipping,” is in the tariff, though not in the busbar cost, the cost focus of economic dispatch, and it should be, as should costs for reactive power and line losses, because power is cheap as long as you don’t consider the costs; and
  3. It’s not wind, it’s electric generation connecting to the grid, be it wind, coal or whatever! Transmission service providers must be open to all, wind, coal, hydro, nuclear.

And that Marya White, Dept. of Commerce, it’s good a regulator recognizes that the East Coast does not want Midwest transmission (the don’t want it because it’s too costly, doesn’t address East Coast renewable energy development, AND that it’s for COAL!  See DUH… eastern states don’t want our transmission), she’s missing an important aspect of why “a lot of eastern states are not crazy about that.”  There is that teensy matter of the FEDERAL COURT not liking it either, and given that they tossed out the PJM scheme to shift costs to the entire PJM region, MISO had best be very, very careful and not be shifting costs to those who do not benefit, that they very explicitly lay out why they are apportioning as they propose:

Illinois Commerce Commission v. FERC – Aug 6, 2009

This cost shifting is “new.”  They’re trying to do it differently than it was in the days of gas plant proliferation.  Plants like Lakefield Jct. didn’t have any interconnection costs, and then when we got around to the SW MN 345kV line (often falsely called the 825MW wind line) we were at a deficit, and had to put in a lot of infrastructure before even 1MW of ANY generation could be put into the system.  INCLUDING THE LONG PROBLEMATIC FT. CALHOUN INTERFACE IN NEBRASKA!!!  Cost shifting isn’t anything new, but it must be recognized as such to get a handle on what the “problem” is and what will solve it — and more importantly, IF it is a problem that needs solving.

Here’s the article in the St. PPP:

MISO unveiling plans to share costs of shipping wind energy
Cost-sharing plan proposed, but industry advocates say it’s still too expensive

By Leslie Brooks Suzukamo
Updated: 06/20/2010 11:33:17 PM CDT

A yearlong, behind-the-scenes struggle among wind developers, utilities and transmission line owners is coming to a head Tuesday. At stake is Minnesota’s and the rest of the Upper Midwest’s aspirations to build a business of exporting wind energy to other parts of the country in the coming decades.

The fight centers on who pays for the construction of costly high-voltage transmission lines expected to carry electricity from isolated wind farms to the Twin Cities, Chicago and points east.

Wind energy advocates who have seen early drafts of the new rules say a plan to require energy generators to pay about 20 percent of the cost of new lines — whether they use wind, coal or any other fuel — is too heavy a burden for their industry.

If the 20 percent share goes through, wind industry advocates say projects may leave the region for other parts of the nation where the costs of new transmission is cheaper.

The defections would slow down efforts to turn the Upper Midwest into a wind energy powerhouse, they say.

Some of the nation’s strongest wind resources are locked in a corridor running from the Dakotas down to Texas, and tapping the excess wind resources can generate sales to eastern states with renewable energy needs but less wind resources. It might also persuade more turbine and blade manufacturers to build facilities here instead of shipping their products from overseas.

The Midwest Independent Transmission System Operator, the
group that controls the Midwest’s largest power grid, expects to lay out Tuesday a new way to share the costs of the lines throughout its 13-state territory, which stretches roughly from the Dakotas to Ohio and includes Manitoba, Canada. The plan will be unveiled at MISO headquarters in suburban Indianapolis.

Then MISO must submit its new cost-allocation idea to the Federal Energy Regulatory Commission on July 15.

MISO says it’s still considering reducing the 20 percent cost-share on the energy generators. MISO might even spread the entire cost of projects across utilities throughout its entire 13-state area, which would dilute the impact, said Jennifer Curran, executive director of transmission infrastructure strategy for MISO.

Curran said MISO is not responding to complaints solely from the wind industry. Different interest groups have weighed in with some degree of unhappiness, participants agree.

But it is regional wind developers who are threatening to pull proposed projects from the waiting line to get on MISO’s grid if MISO doesn’t make an adjustment, warned Wind on the Wires, a regional wind industry association based in St. Paul.

“They’re going to be voting with their dollars,” Wind on the Wires executive director Beth Soholt said.

“The big enchilada here is to develop much more (wind energy) than is needed here and ship it out,” she added.

MISO said it is trying to figure out an equitable way of paying for these new projects. Under the grid operator’s present rules, roughly 90 percent of the costs would have to be picked up by power generators such as the wind developers, while only 10 percent would be paid by the rest of MISO utilities in its 13-state territory that buy power, Curran said.

That tended to work when projects had strictly local impact, but these new projects tend to cross broad areas, which runs up the cost, observers said.

So MISO staff came up with a classification called the Multi-Value Project that would divide the cost of projects, with generators such as wind, coal and other plants paying roughly 20 percent of the cost and the remaining balance spread out among the utilities buying power in the 13-state MISO territory.

This 20/80 split flips the 90-10 formula, but wind developers say it’s still too expensive.

“Sure, it’s 20 percent, but we ask, 20 percent of what?” Soholt said. High-voltage transmission is so expensive that the 20 percent share adds up to more than wind developers can shoulder, she said.

A prime example could be the $700 million to $725 million Brookings Line proposed in the state’s three-line, $1.7 billion CapX 2020 project spearheaded by Xcel Energy and Great River Energy.

The Brookings Line extends from Brookings, S.D. to Hampton in Dakota County. It is the “poster child” for delivering renewable energy from the Dakotas and the Buffalo Ridge region in Minnesota’s southwest where many wind farms are already located, said Terry Grove, co-executive director for CapX 2020 and Great River Energy’s director of transmission.

There’s no guarantee the Brookings Line would qualify for MISO’s Multi-Value Project classification. But with its emphasis on carrying wind energy and increasing the reliability of the grid, it appears to be just the kind of multiple-purpose project for such a classification.

Great River Energy and Xcel Energy both support the concept of the Multi-Value Project for projects such as Brookings, but they are waiting for MISO to unveil its proposal before saying whether they support the new rules, officials from both utilities said.

State regulators are also watching.

While the Minnesota Public Utilities Commission is taking a wait-and-see approach, another agency, the Minnesota Office of Energy Security, prefers that utilities benefiting the most from the transmission projects pay the greater share for them.

Since a large project such as a Brookings Line could open up renewable energy to eastern states, the burden could migrate into the Rust Belt, said Marya White, manager of energy regulation and planning and energy facilities permitting for the state’s Office of Energy Security.

But White acknowledges that “a lot of eastern states are not crazy about that.”

Charging only the utilities that benefit from transmission lines is the fairest way to divvy up their costs, even though that may make projects less attractive, said Rochester attorney Carol Overland, who represents two groups of landowners opposed to the Brookings Line.

Spreading the cost of a Brookings Line across the entire MISO territory hides the true costs, she said. “The entire grid isn’t going to benefit from it,” she said.

The Brookings project recently got approval from the Minnesota PUC to push back its start date from 2013 to 2015 because it is waiting to see if MISO’s proposal gets federal approval.

The American Wind Energy Association, the industry’s largest trade group, has no opinion on MISO’s ideas.

But the association endorsed a plan in the neighboring Southwest Power Pool that covers states such as Kansas, Mississippi and New Mexico.

That grid operator does spread out the cost of high-voltage transmission across its entire footprint, and FERC approved that plan last week.

Upper Midwest wind developers have already started to hedge their bets.

Jack Levi, co-founder and co-chairman of National Wind, a development company in Minneapolis, said his company has 2,200 megawatts waiting to connect to the grid in Minnesota, Iowa and South Dakota.
But he stopped proposing wind projects in the MISO territory about 18 months ago and instead proposed them for states such as Colorado, Texas and Montana outside MISO.

He moved because if his MISO-bound projects cannot compete with wind energy from other grid operators, he’s afraid utilities will simply buy their wind power elsewhere, like Kansas, for example.

“If MISO doesn’t provide the same level of cost for its electricity as other system operators, MISO will be at a disadvantage,” he said.

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image: detail of installation by Bronwyn Lace