$600M transmission project splits Texas power industry
CenterPoint Energy Inc., a regulated utility, contends that it should oversee all of a new transmission line that would send electricity to the Houston area, not just some of it.
Calpine Corp. and NRG Energy Inc., independent power producers, say the state’s main grid operator acted improperly in endorsing the development in the first place.
The Electric Reliability Council of Texas, the grid operator, defends its actions in backing the proposal and designating a division of construction work.
A number of other parties, including the city of Garland and Cross Texas Transmission, are eager to see how the project moves forward. The tussles span two dockets that are slated to receive hearings before the Public Utility Commission of Texas this year.
The Houston Import Project even has more than one name, as CenterPoint has a website calling it the Brazos Valley Connection.
Yet one theme is constant: Economic interests are never too far in the background as debate rages over the roughly $600 million project supported by ERCOT, the grid operator. The line is intended to be ready for the summer of 2018.
“ERCOT believes that there’s potentially excess capacity in another region of the state and has agreed to run a transmission line down to Houston to help Houston meet its future growth obligations,” said Ed Hirs, an energy economist at the University of Houston. “Calpine and NRG would rather have higher profits and more profits, either from the plants that they currently own in the area or from new plants that they could build.”
And what about CenterPoint, which backs the project but has issues with a plan that could leave about half of the work for other parties?
Hirs said CenterPoint is a utility that would make money on the transmission line, so it wants “100 percent of the profit.”
Tension among power companies isn’t new in Texas, which has a partially deregulated setup in much of the state.
Regulated utilities such as CenterPoint handle the wires and poles. At the same time, power generators produce electricity and retailers market it to consumers in a system that backers say offers competition.
The continuing transmission dispute is evident at the Association of Electric Companies of Texas, which has members on opposing sides of the project and declined to comment.
Dividing up the project
The project would include building a double-circuit 345-kilovolt transmission line that runs about 130 miles, as well as upgrades to three substations and improvements to an existing line, ERCOT said in April. It said the need for a new path into Houston was identified in a 2008 long-term system assessment.
The current situation can be likened to a clogged freeway, according to the Brazos Valley Connection website.
Adding a “new electric transmission line will help relieve congestion on existing electric transmission lines while bringing reliable power into the Houston region,” reads a section of the website. It notes energy and petrochemical operations in the Houston area and says the region’s growth could be at stake without a new line.
CenterPoint has cited an estimate that the Houston area may add more than 100,000 residents a year, while noting generation retirements and possible limitations on new plants in the region.
“That dictates the need for us to increase our import capacity to bring power in from other areas of ERCOT to meet the demand and to maintain and enhance reliability going forward,” said John Kellum, vice president of high-voltage power delivery at CenterPoint.
The company contested the distribution of construction work because an entity that controls two end points typically gets to oversee a project, according to Kellum. He said CenterPoint met that standard through its control of substations known as Zenith and Limestone.
ERCOT instead designated that CenterPoint handle one section of the line, with Garland and Cross Texas Transmission, or CTT, handling another.
The dispute is set to take the spotlight Aug. 21, when the Public Utility Commission is scheduled to hold a hearing. There could be a decision in August or September, according to Kellum.
Garland’s municipal electric utility and CTT declined to comment on the case. But their filings with the Public Utility Commission set out some of their thinking.
“CenterPoint’s Complaint is based on its assertion that ERCOT’s chosen solution to the Houston Import problem consists of one transmission line with only two end points and thus is CenterPoint’s to build,” Garland and CTT said in a filing this year.
Instead, the parties argued, the ERCOT plan includes several components.
“CenterPoint’s assertion is false both as a matter of fact and a matter of law, as will be shown by Garland and CTT at hearing,” the parties said.
Garland and Cross Texas said in a filing that they could build transmission more cost effectively than CenterPoint.
Generators see flawed analysis
Kellum said CenterPoint didn’t dispute that Garland and CTT would be responsible for upgrading the Gibbons Creek substation roughly in the middle of the project. CenterPoint’s desire to oversee the line was related to its position as a regulated utility in the Houston area, he said.
“We’ve got the obligation to serve our service territory,” Kellum said. “We want to own, operate, maintain a very vital line that is important to the reliability of our area.”
ERCOT, in a filing, said the conduct challenged by CenterPoint was supported by engineering facts and consistent with good public policy.
“CenterPoint Energy’s strained construction, on the other hand, produces nonsensical results and fails to recognize ERCOT’s discretion to define what constitutes a ‘project,'” ERCOT said.
While CenterPoint took issue with the decision to divide up the project, it didn’t have a problem with ERCOT’s endorsement of the development.
That’s where Calpine and NRG, two generators, enter the picture.
They argued in a filing that ERCOT’s support for the project relied on inadequate and incomplete study and policies that could exacerbate local adequacy concerns. The companies said ERCOT didn’t conduct a full economic analysis that examined costs and benefits of resources and transmission costs, while also not establishing that a reliability problem really existed.
A Public Utility Commission hearing on this docket is set for Oct. 17.
David Knox, a spokesman for NRG, said in an emailed statement it was “alarming that supporters have not offered a meaningful defense of the flawed analysis.”
He cited “overstated” peak demand for 2018 in a coastal region and “understated” peak demand in northern Texas that contrived a need for the project and created an appearance that electricity would be available to go from the northern area to the coastal area.
“There is more potential new generation in planning stages in the Coastal region than in the North — yet ERCOT implicitly assumes a very large amount of new generation will appear in the North, which is not identified and assumed no new generation in the Coastal region, which would offset the need for the project,” Knox said.
William Taylor, vice president of government and regulatory affairs at Calpine, said the company appreciated that ERCOT has been committed to reliability. But he said Calpine thought the council should review the project again before customers were asked to pick up a potential $600 million tab to support it.
Taylor called for letting the market send a signal for “investment opportunities rather than relying on a transmission solution.”
“It’s fundamentally an issue of fairness in the way that they have used inconsistent approaches to the Houston Import Project,” he said.
Arguments ‘in their own interest’
CenterPoint, in a response to the generators’ complaint, said that ERCOT complied with applicable laws, rules and protocols, and that it evaluated other alternatives in its jurisdiction.
“The ERCOT Board would have abused its discretion had it adopted the Houston Generators’ position, which is to do nothing now and hope that sufficient generation materializes by 2018 to serve an undeniably growing load in the Houston Region,” CenterPoint said in a filing.
ERCOT, in its own response, said generators often “complain not that ERCOT failed to follow applicable transmission planning requirements but rather that those requirements should be changed.” The council said it welcomed discussions of assumptions and methodology used in future transmission analyses.
“But discussion of broader policy changes should not be used to delay this critical reliability project,” ERCOT said in a filing.
CenterPoint’s Kellum estimated the docket involving the generators could see a decision in November.
The debate comes after a group called Texans for Reliable Power, which included NRG and Calpine, raised concerns early this year about the power outlook in Texas and sought a capacity market, which could include payments to generators. The group had an advertisement suggesting Texas might see regular rolling blackouts unless the state changed its electricity market (EnergyWire, Jan. 14).
Since then, the capacity movement has cooled somewhat. Donna Nelson, who leads the Public Utility Commission, said in February that regulators planned to let lawmakers decide on a possible market change, and ERCOT said that reserves were poised to rise this summer and remain higher than previously expected in some future years (EnergyWire, March 3).
The Gulf Coast Coalition of Cities, meanwhile, expressed support for ERCOT’s backing of the proposed Houston transmission concept.
“ERCOT has identified this project as being necessary from a reliability perspective,” said Thomas Brocato, an attorney for the coalition. “We’ve not heard anything to convince us that it’s not a necessary project.”
Hirs, the energy economist with the University of Houston, said one issue to keep in mind was that reliance on generation from elsewhere and a large transmission line could expose Houston’s grid to interruptions around the state.
Ultimately, he said, the positions being taken by parties in the transmission case weren’t surprising.
“They’re just arguing in their own interest,” he said.