Southern Cross Transmission Wants a Free Ride From Texas Ratepayers

That seems to be the conclusion of the Public Utility Commission of Texas (PUCT) in its most recent Order regarding the Rusk to Panola transmission connection that will move cheap electricity out of Texas as part of the Southern Cross Transmission project.

Southern Cross is another merchant transmission project supposedly "for wind" that wants to export cheap Texas power into Southeastern states via a new 400-mile HVDC transmission connection.  A "merchant" project is one for which investors shoulder the risk because it doesn't have a guaranteed ratepayer-financed revenue stream.  Merchant projects are not found needed for reliability, economic, or public policy purposes, therefore ratepayers shall not be forced to finance them.  Merchant projects generally negotiate rates with willing customers to finance their projects.

Southern Cross had to jump an additional hurdle that other Midwestern merchant projects did not.  Southern Cross proposes to export wind generated transmission from the Electric Reliability Council of Texas (ERCOT) into another electric region.  ERCOT is its own little one-state electric region island in order to escape the jurisdiction of the Federal Energy Regulatory Commission (FERC) that applies to other multi-state electric regions.  In order to connect ERCOT resources to another region, Southern Cross went through a process at FERC that allowed the connection without compromising ERCOT's independence.  Part of that deal required a connection from within ERCOT to another portion of Texas that was not within ERCOT.  This is the proposed Rusk to Panola project, a double-circuit 345kV line.  Southern Cross's transmission project would then connect to this project and move the electricity further across Louisiana and Mississippi, and connect with the grid in Alabama.  Rusk to Panola (known as RPTP by Southern Cross) is only necessary to provide electricity to Southern Cross.  RPTP needs the permission of the PUCT to build the project.  While PUCT acknowledges that it must approve the project, it may do so with conditions.  And the conditions PUCT placed on its approval have been met with resistance by Southern Cross.

Holy shell companies, Batman!  RPTP is supposedly owned by the City of Garland, Texas, but will be paid for by some entity known as Rusk Interconnection, LLC.  Just like peeling an onion... layer after layer after layer... but back to the main event...

PUCT has directed that any costs caused by the RPTP be assigned to Southern Cross Transmission, and not ERCOT ratepayers.  ERCOT ratepayers are already shouldering the burden of ERCOT's CREZ projects, a series of new transmission lines intended to move wind-generated electricity from western Texas to load centers in the eastern part of the state.  CREZ hasn't come cheap for ratepayers, and it looks like Texas may have overdone it, supplying so much "cheap" wind power that there is a surplus.  Southern Cross proposes to alleviate that surplus by exporting it to other states.  But yet, Southern Cross doesn't want to pay the full cost of its project's effect on the ERCOT system, instead purporting that ERCOT ratepayers would receive some "benefit" from Southern Cross and must therefore pay for that "benefit."  Except these aren't "benefits" that ERCOT ratepayers need.  At best, they are "benefits" that ERCOT ratepayers don't need or want, "benefits" that are foisted upon them because of Southern Cross's project.  Who wants to pay for "benefits" they don't need?

PUCT says:

The current market design in ERCOT primarily places the responsibility for system costs on ERCOT customers. This docket has revealed that the Southern Cross DC tie will result in additional costs to ERCOT, which include extraordinary costs that arise specifically from the Southern Cross DC tie, the Garland line, and the Garland or Oncor substations. Because the customers of exported power are not ERCOT customers, under the current market design and rules, they will not bear any responsibility for the extraordinary costs specific to the Southern Cross DC tie, Garland line, and Garland or Oncor substations that they impose on the ERCOT system. Southern Cross believes that those customers—and therefore Southern Cross—should get a free ride as to these extraordinary costs. The Commission disagrees and determines that the public interest demands that ERCOT ratepayers should not bear any of the costs associated with the Garland line, the Oncor substation, the Garland substation, or the Southern Cross DC tie that are properly borne by others.
The costs that a user of the ERCOT system causes cannot be determined simply by focusing on the costs of the facilities on the last forty miles of a multi-thousand-mile network. There is little doubt that additional facilities will be required in ERCOT because of the electricity flowing over the Southern Cross DC tie. Southern Cross believes that the costs of those facilities should be borne by customers in ERCOT, not the out-of-ERCOT customers that cause those costs.  And Southern Cross opposed even an investigation into whether revisions to the current ERCOT cost-allocation method were needed. Southern Cross attempts to justify this free-ride position based on theoretical benefits that this project will provide to ERCOT.

The Commission agrees, however, that no party met the burden of proof to prove what benefits, if any, Texas ratepayers will enjoy as a result of the Garland line and the Southern Cross DC tie and concurs with the ALJs that any benefits are questionable.  This is one of the issues that will be evaluated by ERCOT and if subsequent investigations show any benefits, then any such benefits could be reflected in the new market-design rules. The record in this case does not justify a free ride for these questionable benefits.  Texans are in the process of paying billions of dollars for the newly constructed CREZ transmission lines, and for substantial other facilities, that are integral to transmitting electricity to the Garland line and the Southern Cross DC tie. As proposed by Southern Cross Transmission, the Garland line would simply interconnect with these CREZ lines and reap benefits without paying its fair share of costs.

Further, Southern Cross argues that the DC tie will not cause a substantial increase in ancillary services needed in ERCOT, and that no change in the current manner that ancillary costs are assigned is necessary.  Southern Cross argues that the DC tie should get a free ride on these extraordinary costs also. The Commission agrees that this is a highly technical question and has requested ERCOT to evaluate this matter. The Commission also agrees, however, with ERCOT and other parties that additional ancillary services will likely be required to support the operation of the DC tie, and at certain levels, that requirement may be significant.  And, as with the other extraordinary costs discussed in this Order, it is appropriate that the cost causer be responsible for the costs, not for ERCOT customers to bear the costs of others. The Commission does note that Southern Cross softened its position some by agreeing that it could and would provide reactive-power service through the DC tie.

One benefit offered by Southern Cross is the lowering of the price of electricity in ERCOT during high-load periods.  However, Southern Cross Transmission's analysis does not appropriately account for the effect on the ERCOT energy market, which sends market signals through scarcity pricing when electricity resources are becoming scarce. Distortions to ERCOT's market signals could prevent the energy-only market from appropriately responding to shortages, leading to inadequate resources in this market. This risk to ERCOT's market structure and the grid's reliability must be assessed and addressed through recommended changes.

PUCT did a great job fishing out the "but for" costs of the project, that is those costs that would not occur "but for" the construction of RPTP.  Other states could take a lesson from this Order.

Southern Cross has asked for another rehearing on this matter by PUCT.  Just paying their own way doesn't seem to be an option for Southern Cross.  Is that because the project is not profitable unless it is subsidized by ERCOT ratepayers?

Meanwhile, Southern Cross doesn't seem to be very popular in Mississippi, where numerous landowners have intervened in the permitting process at the Mississippi Public Service Commission.  Bravo, landowners!  To see the Mississippi docket, go here and search for Case Year 2017, Case Type UA, and Case No. 079.

Southern Cross seems to have at least as many problems as the Clean Line projects proposed to its north.  It's a fact:  Landowners in fly-over states object vociferously to the use of eminent domain on their property to benefit electric ratepayers in other states and financially support private enterprise that wants to make a killing speculating in the electric power markets.  Multi-state transmission projects "for wind" are money pits on regulatory minefields that will never succeed.