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Utilities Hate Risk

1/22/2015

3 Comments

 
So, Grain Belt Express announced the opening of its solicitation of bidders for its proposed transmission capacity yesterday.

Big deal.

Remember these three words:  Utilities Hate Risk.
The solicitation for commitments, expected to last about seven weeks, will be a gauge in determining the interest in using the line.
GBE is soliciting customers in accordance with the plan it filed with FERC last year to negotiate rates in a fair and non-discriminatory manner that results in just and reasonable rates.

Despite GBE's media push that FERC has "approved" its project, FERC has no jurisdiction to approve the siting and permitting of the project.  What FERC does have an interest in is ensuring that the rates GBE charges to its customers are just and reasonable.  FERC simply approved GBE's plan to undertake this process fairly.  Once GBE completes the negotiation process and assigns capacity, it must make a compliance filing with FERC demonstrating that it complied with the plan as approved.  That may be be the tricky part!

Who wants to make a contractual commitment to purchase capacity on a transmission line that may or may not be permitted, and may or may not be built?  It could be generators, that Clean Line admits have not yet been built.  It could also be utilities, who commit to purchase the capacity.  Or it could be no one at all.

In the case of generators, the generators would need to have customers (utilities) that want to purchase their generation delivered to Indiana (and incur additional transmission costs on other systems to get the power to load).  Since these generators have yet to be built, and the transmission to Indiana has yet to be built, committing to a purchase price for delivered power could be risky.  Utilities hate risk.  A utility seeking to add renewable generation to its portfolio has many options, including existing generators and transmission.  Utilities plan their resources many years in advance as part of their obligation to provide a public service.  They are obligated to seek the cheapest price.  They want to know the resources they commit to purchase will actually be there when needed, not possibly unavailable at some later date, which would leave the utility scrambling to fill some hole in its plan at whatever price they can find.  Utilities hate risk.  Risk is costly.

In the case of utilities purchasing capacity directly... more risk!  Purchase of capacity on a transmission line that may or may not be there when needed, connected to unnamed generators that may or may not be there when needed, is risky.  Utilities hate risk.

I read an article long ago regarding Clean Line's business plan.  Some panned the plan, saying there is no market for this kind of risk.  So, I thought about it.  If Clean Line's plan is such a sure thing, why aren't there hundreds of transmission companies building merchant  lines outside the regional planning process?  Utilities have transmission affiliates, and they like to make money, too.  Maybe it's because experienced transmission developers know that there truly is no market for Clean Line's business plan?

Last year, Clean Line opened a different FERC-jurisdictional solicitation process for another of its projects, the Plains and Eastern Clean Line.  Regarding that process, Clean Line recently claimed:
It was encouraged by the strong response to a solicitation of customers for another power line it plans to build to deliver wind energy from Oklahoma to Southern states.
Encouraged?  Strong response?  If the response was strong and encouraging, Clean Line should have negotiated contracts with the respondents and made its compliance filing at FERC and announced to the world that it had committed customers for that project, right?  What happened?
From May through July of 2014, Clean Line conducted an open solicitation for transmission capacity on the Plains & Eastern Clean Line. 15 potential customers submitted more than 17,000 MW of requests for transmission service.
Clean Line's negotiated rate authority for Plains & Eastern requires the company to:
... make a compliance filing disclosing the results of the capacity allocation process within 30 days after the close of the open solicitation process, as discussed in the body of this order.
*crickets*

It's been 6 months.  No compliance filing.  No contracts.  No customers.  What happened?  Is Clean Line still negotiating?  Doesn't sound very strong and encouraging to me.  What if the bids Clean Line received were unacceptably conditioned to manage risk, or not satisfactory to economically support the project?  Remember, the bidding window has closed.  Would Clean Line have to award capacity to the top bidders, no matter the conditions?  If so, then perhaps it is busy evaluating the economic reality of its project.

Or is Clean Line planning to reject the first round of bidders and open a second solicitation window, hoping for better bids?  Would that be fair in FERC's eyes?

Don't forget to get your bids in. ;-)

Utilities hate risk.

3 Comments
Non-negotiations
1/22/2015 07:19:11 am

The last numbers supplied by Clean Line reps reported that about 15% of the easements needed for the route in Kansas were secured (approx 50 miles), only 2 miles in Missouri, and since Illinois is last on Clean Line's list, a rational guess is even fewer there.

Western Kansas should have been/be the easiest place for CL to secure easements: sparser population, larger tracts of land ownership and so fewer disturbances to residences, less intrusion to quality crop ground, and more incentive to them as they may also host wind turbines that would compensate in a manner far more beneficial to the property owners than Clean Line offers. So, the farther east the route moves, one could argue the harder it's going to be secure easements.

Assuming the numbers provided by CL are accurate, of the 700 mile route, CL has easement contracts for less than 8% of it. The project first filed for utility status in Kansas in early 2011, (unbeknownst to any impacted property owner) it was awarded that same year, another reason they have had more leverage with Kansas property owners.

So, Clean Line is over four years in, with only 8% of the route's easement needs. What are the chances it will be delivering power in 2017 as they originally claimed? Or 2018 as they claimed in October? Or 2019 as they are currently claiming? Wonder what year their open season is offering capacity for?

Reply
Stubborn
1/22/2015 09:02:08 pm

Looks like the company (or the federal government, if they're so stupid to partner with Clean Line) will be facing record numbers of eminent domain takings. In Iowa, they're looking at doing more than 85% condemnation, and those landowners are NOT budging. This is going to be wildly expensive and time consuming. I hope it doesn't turn into the new Bundy Ranch.

Reply
Jeannette Gregory
1/28/2015 03:40:15 am

Our farm is in the path of MarkTwain Trasmission Project!

Reply



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    About the Author

    Keryn Newman blogs here at StopPATH WV about energy issues, transmission policy, misguided regulation, our greedy energy companies and their corporate spin.
    In 2008, AEP & Allegheny Energy's PATH joint venture used their transmission line routing etch-a-sketch to draw a 765kV line across the street from her house. Oooops! And the rest is history.

    About
    StopPATH Blog

    StopPATH Blog began as a forum for information and opinion about the PATH transmission project.  The PATH project was abandoned in 2012, however, this blog was not.

    StopPATH Blog continues to bring you energy policy news and opinion from a consumer's point of view.  If it's sometimes snarky and oftentimes irreverent, just remember that the truth isn't pretty.  People come here because they want the truth, instead of the usual dreadful lies this industry continues to tell itself.  If you keep reading, I'll keep writing.


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