ELECTRICITY:

Bid to connect grids needs buy-in from independent Texas

Tres Amigas, the $1.9 billion project that aims to connect three U.S. electric grids, is nearing its initial construction phase -- assuming financing comes together.

But for it to become the landmark superstation in New Mexico its backers envision, the plan still needs support from a state with a penchant for operating on its own: Texas.

The development is being led by Phil Harris, who helped to expand the PJM Interconnection, a regional transmission organization that now coordinates power in 13 states and the District of Columbia. While Tres Amigas has seen delays, Harris said he's confident in the project and the reasoning behind it.

Tres Amigas is intended to tie together the eastern, western and Texas interconnections, which proponents say would provide more outlets for renewable energy, boost grid reliability and offer trading opportunities. Industry observers are waiting to see how Texas, which closely guards its electricity oversight, might agree to connect without fear of federal interference.

"It really takes a firm belief in the future, where some five or 10 years down the road Texas joins in, in order to justify sort of really building that first leg with the kind of technology and capabilities that they've announced," said Michael Giberson, an associate professor of energy, economics and law at Texas Tech University.

The Tres Amigas name -- which means three friends in Spanish -- is a nod to the goal of connecting three grids. Harris said he chose the female "amigas" as a way to honor women, with so many power projects named for men. Spanish nouns also have gender, and Harris noted that the word for interconnection is female.

Initial work on the project began in 2008 as Harris explored the idea.

'Transmission bottleneck'

In a December 2009 release, Harris described the need for transmission to take renewable energy to where it's most needed as self-evident. By allowing wind, solar and geothermal power to be exchanged among the grids, Harris said, Tres Amigas would "help break our nation's transmission bottleneck."

In 2010, the Federal Energy Regulatory Commission said it granted Tres Amigas' request to sell transmission services at negotiated rates. FERC didn't disclaim future oversight of a connection from the Electric Reliability Council of Texas (ERCOT), the state's main grid operator, but said future orders to proceed could come without conferring FERC oversight on the council's utilities.

Jon Wellinghoff, who was FERC chairman at the time, said in a March 2010 statement that "Tres Amigas is a prime example of the creativity and pioneering thinking that our country needs to expand the ability of the transmission grid to reliably accommodate all sources of electricity generation, including renewable energy."

A possible project such as Tres Amigas comes amid changing dynamics in the electric industry, as utilities have moved beyond just creating their own power, Giberson said.

In the last 10 or 15 years, he said, "the wholesale power markets have sort of expanded, and you've got a lot of nonutility generators on the power grid."

In December 2009, Tres Amigas was expected to be operational by the end of 2014. Harris said transmission projects take time, and he feels good about the progress made in five years.

The project is seeking funding with a team of investment bankers, with phase one expected to cost about $565 million, according to Harris. Lining up financing would enable the first part of the project to start construction in the spring or summer of this year, he said, with a possible completion in 2017.

"We've been pleased with the fact that there've been a number of companies that are expressing interest in us, and we're going through the various stages of due diligence as they look at the entire project, review everything about it," he said, noting talks with utilities and private equity funds.

The first phase involves the western and eastern interconnections. Connecting ERCOT in a second phase is estimated to cost about $600 million, while a third phase would offer an expanded connection, Harris said.

Just this month, Tres Amigas and Broadview Energy LLC announced agreements that may lead to the development of up to 500 megawatts of wind generation in New Mexico, according to a news release. Broadview plans to send wind power to California by the end of 2015. Harris said different parts of his project can be energized as it's built.

Tres Amigas is a transmission interconnection, and Harris said it won't take title to energy. He said the project will follow a process of filings meant to ensure that Texas' grid remains under state oversight.

Lingering doubts

Harris said naysayers have been around forever, likening the Tres Amigas efforts to ones that led to the establishment of the Erie Canal.

"Anything that's new and innovative to the status quo, there will be those that will say no," he said.

PNM Resources Inc. CEO Pat Vincent-Collawn gained attention last month when New Mexico's Albuquerque Journal ran an item headlined: "PNM CEO doubts Tres Amigas viability."

She was quoted as questioning the business case, citing low natural gas prices that let utilities generate power close to their operations and California regulations that might block some out-of-state generation.

The comments drew a response from Tres Amigas through London Economics International in a piece submitted to the local newspaper. It said Vincent-Collawn's comments on natural gas and California were "ill-informed," according to a copy of the op-ed article.

The piece said Tres Amigas will connect markets and allow companies such as PNM to lower costs of power to customers through use of the project.

PNM stands ready to connect to Tres Amigas once it is operational, said Greg Miller, executive director of transmission policy at PNM. He said use of the facility will be determined by market participants and prices.

New Mexico has the ability to develop more power than it can consume, so entities are looking to send some of it elsewhere, Miller said. He said PNM hopes the market rebounds, as the company facilitates transmission services.

"We see presently that that market is pretty soft, frankly," Miller said. "We had a lot more entities interested in interconnecting to our system a few years ago, many more than we do have today."

For Texas, indications are that it can continue to oversee its grid, Giberson said, though more assurances might be needed. ERCOT covers much of the state.

"The more commercial interaction there is between ERCOT markets and the transmission grid outside of Texas, the more likely that federal regulators will take an interest and decide that they need to be the regulator for the ERCOT market rather than" the Public Utility Commission of Texas, he said.

If ERCOT were on board, Giberson said, it might help make the project happen.

"ERCOT staff and stakeholders continue to review and evaluate possible interconnection of the proposed Tres Amigas project," Robbie Searcy, an ERCOT spokeswoman, said in an email. She said developers have requested a reliability study, a necessary step in the planning process.

Tres Amigas also had a filing this month with the Public Utility Commission of Texas, requesting a docket number for a transmission line application.

Adding generation

Major grids are weakly interconnected, said Michael Webber, deputy director of the Energy Institute at the University of Texas, Austin. Tying them together offers the possibility of improving reliability, he said, while questions about problems in one region spreading to another may need to be addressed.

Despite some doubts in Texas, developers will keep building capacity because it's easier than in some other areas, Webber said. That may leave the state with extra power that could be sold to other jurisdictions, he said, or Texas could look to bring in electricity during periods of tight supplies.

"If we build a lot of spare capacity and we have more capacity than we need, then that creates more of an incentive to have Tres Amigas," Webber said. "If we don't build enough power and we have shortages, that builds more of a cause for Tres Amigas."

Texas has seen continued plans to add generation.

On Feb. 12, energy company First Wind said it secured $206 million in financing for the Route 66 Wind project in Texas. Work was set to continue on the 150 MW project, which will be its first renewable project in the state.

NTE Energy said Tuesday that it planned to develop the Pecan Creek Energy Center. The project would be fueled by natural gas and have an investment of more than $200 million.

Texas' regulatory setup means projects such as renewable energy can progress quickly in the state, said David Power, deputy director of the Texas office of Public Citizen, which tracks energy and other issues and sees possible benefits in Tres Amigas. At the same time, the state's grid means connections can be more complicated, he said.

"Anytime you deal with a Texas border, you're going to take a while," Power said.

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