By Steven M. Brown, editor in chief
The mainstream media took notice in late February when TXU Corp. announced it was the target of a $45 billion cash-and-debt buyout by private equity firms Kohlberg Kravis Roberts & Co. and Texas Pacific Group. But that wasn’t the only multi-billion-dollar energy-related deal announced in the Lone Star State that month. In fact, it was only one of three.
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In the space of two weeks, Sharyland Utilities (a small, privately owned T&D utility operating in far south Texas), Electric Transmission Texas (a proposed joint venture between American Electric Power and MidAmerican Energy Holdings) and TXU Corp. cumulatively produced more than $50 billion worth of proposed power industry deals, proving once again that everything really is bigger in Texas. Bigger and, based on these deals, getting greener all the time.
Sharyland’s Plan for the Panhandle
To outsiders, the Texas panhandle doesn’t seem to offer much more than horizons that go on forever, a fair amount of soil both on the ground and in the air, and wind. Especially wind.
All that wind, a bane to those who aren’t used to it, will soon be a boon to west Texas and the Texas panhandle.
Two multi-billion-dollar proposals in front of the Public Utility Commission of Texas are aimed at tapping the rich wind resources of west Texas and the Texas panhandle. Photo courtesy TXU CorpClick here to enlarge image
On Feb. 15, Sharyland Utilities announced it had filed a proposal with the Public Utility Commission of Texas (PUCT) to build an 800-mile, 345-kV transmission loop throughout the Texas panhandle. The Panhandle Loop, as it’s being called, would act as a pipeline to the panhandle’s rich wind resources. The project is intended to connect up to 8,000 MW of power-mostly wind but also natural gas and coal-fired generation-into the ERCOT electric market.
“Quite simply, this proposal will bring the ERCOT grid to the panhandle,” said Hunter Hunt, president of Sharyland Utilities. “That way, the entire state can enjoy the benefits of the tremendous wind resources located there, as well as the substantial gas and coal resources.”
Sharyland filed the Panhandle Loop proposal as part of a PUCT proceeding to designate Competitive Renewable Energy Zones in Texas. If the PUCT approves the proposal, Sharyland says it will immediately take steps to construct the transmission facilities with the goal of project completion by late 2010. The Panhandle Loop will consist of three interconnected transmission lines extending from three separate points in the existing ERCOT grid. The project is expected to cost approximately $1.5 billion.
Joining Sharyland in supporting the Panhandle Loop proposal are Irish-based wind developer Airtricity Inc.; the renewable holdings arm of investment firm Babcock & Brown; chemical company Celanese Corp., which is considering electric generation as an alternative for one of its facilities in the Texas panhandle; and Occidental Energy Ventures Corp., a subsidiary of Occidental Petroleum.
The Panhandle Loop will be open access, meaning any generator-whether it is wind, coal, natural gas, or otherwise-can potentially use the loop to access the ERCOT power market. Under Texas market rules, the Panhandle Loop’s cost would be borne by all ratepayers within ERCOT. Proponents of the proposal say it’s essential to making wind and other renewables part of the mainstream energy mix in Texas.
“The best wind in the state, and among the best in the country, is in the Texas panhandle, and it’s largely untapped today,” said former FERC chairman Pat Wood, who currently serves as chairman of Airtricity’s North American advisory board. “The only way to tap it is to build a highway out to it.”
Wood refers to the Panhandle Loop and other proposals of its ilk as operating under an “if you build it, they will come” policy.
“I think we’ll see the states that are serious about wind recognize that you have got to be proactive and build transmission out to the wind-rich zones so the wind developers will know that they have access to the market,” Wood said.
“You wouldn’t build a wind plant if you didn’t have transmission. You’ve got to put the cart before the horse in this case.”
ETT Ready to Bolster ERCOT Grid
Sharyland’s $1.5 billion panhandle proposal was big, but in a state known for one-upsmanship, it’s not surprising that an even bigger transmission proposal was announced within weeks of the Panhandle Loop news.
On Feb. 27, Electric Transmission Texas (ETT), a proposed joint venture between American Electric Power and MidAmerican Energy Holdings, filed a proposal with PUCT for the construction of approximately 1,000 miles of transmission lines to support Competitive Renewable Energy Zones. ETT also proposed an additional 900-mile, high-voltage backbone transmission system to support long-range reliability in Texas. All told, the multi-phase proposal would amount to approximately $7 billion in transmission projects, although the latter phase of the proposal is considered “conceptual” at this point.
Phases one and two of the proposal, like Sharyland’s proposal, would serve as a “pipeline” for renewable power. The first phase would provide access for up to 8 GW of existing and planned renewable energy projects in north and central-west Texas. The second phase would support an additional 2 GW of renewable projects. These first two phases of ETT’s proposal carry a price tag of $3 billion, which, like the Panhandle Loop, would be borne by ratepayers within ERCOT.
Upon PUCT approval, ETT anticipates completing the first phase by 2012 and the second by 2015.
While Sharyland’s proposed Panhandle Loop would serve to bring renewables from the panhandle into ERCOT, ETT’s executive director Calvin Crowder explained that his company’s proposal is focused more on delivering the power to load centers once it reaches ERCOT.
“There have been proposals brought forward on how to deliver wind from the panhandle into ERCOT, but what we saw was a need to address ERCOT’s concerns that if you did deliver this wind to the ERCOT grid there would be some overloads to ERCOT systems,” Crowder said. “There needed to be ERCOT upgrades to accommodate the wind.”
Crowder said he sees ETT’s and Sharyland’s proposed transmission projects as being complimentary to one another. Given there close proximity, he sees several potential points at which the two projects would interconnect.
Crowder calls the third phase of ETT’s proposal a “visionary plan” to build an extra-high-voltage transmission system. This long-rage phase is estimated to cost $4 billion but is conceptual and could change significantly, according to ETT. The third phase is less about spreading wind around ERCOT and more about the long-range stability of Texas transmission.
“Planning must begin now to ensure the future viability of the ERCOT grid,” Crowder said.
ETT is currently a subsidiary of AEP but is awaiting regulatory approval to become a 50/50 joint venture between AEP and MidAmerican Energy Holdings. ETT would then operate as a regulated transmission utility in Texas.
TXU’s Big, Green Buyout
Completing the “big, bigger, biggest” triumvirate of Texas energy news is the proposed buyout of TXU Corp. The buyout, like Sharyland’s and ETT’s transmission plans, has a decidedly eco-friendly, green bent to it.
Announced in late February, the buyout would break TXU into three separate businesses (generation, T&D and retail), scrap eight coal-fired generation projects and carry with it $400 million in demand-side management investment. The emphasis on reducing coal-fired generation and increasing investment in renewables and demand-side management won the buyout an endorsement by Environmental Defense and Natural Resources Defense Council-two unlikely proponents of multi-billion-dollar energy deals.
With TXU, AEP, MidAmerican and KKR, the original “barbarian at the gate” all behind this flood of early-2007 news, Texas, a state better know for oil and gas tycoons, may have set itself up as the epicenter of green power in the U.S.
Go to www.elp.com and click on the Currents Podcast button for more about Texas’ big transmission plans. Episode 5 of Currents includes more from Pat Wood and Calvin Crowder.