EYE ON EUROPE: E.ON Bids and Battles to Gobble Up Endesa
By Kathleen Davis, associate editor
German powerhouse E.ON has been eyeing Spanish electricity group Endesa for months, but a series of cash and government detours has kept it from completing the transaction.
Most recently, in late September, the German giant raised its offer to à¢â€š¬37 billion (about $47 billion). This comes on the heels of a European Commission ruling that Spain broke E.U. rules by bureaucratically straight-jacketing the German company’s previous takeover bid.
While government officials in Madrid didn’t call a complete halt to E.ON’s previous bid of à¢â€š¬27 billion, they made it clear that they wanted Endesa to remain a Spanish-owned company. In fact, Spanish President Zapatero’s administration quickly passed new laws that gave the government veto power over some business dealings they felt could impact communities and Spanish culture. The E.U. was not happy about this new strategy, saying it obviously and clearly violated the E.U. open access laws that Spain adopted when joining the Union.
“The Commission’s decision that the conditions imposed by the CNE [Spain’s national energy commission] on E.ON are unlawful requires Spain to withdraw them,” the European Commission said in a statement about its findings.
But, this tiny victory doesn’t mean E.ON will definitely get to snap up Endesa. There are suddenly a few other players on the field. Local energy company Gas Natural has had a small bid on the table for months, but the biggest competitor is Acciona, a Spanish-owned engineering company that runs a significant share of the renewable energy sector in Spain. They surprised the world by snapping up 10 percent of Endesa with a à¢â€š¬3.9 billion share purchase recently. They’ve also let it be known that they may raise that to as high as 24.9 percent, riding just under the cut-off for a full-blown takeover bid.
In a statement sent to the CNE in early October to support their bid, E.ON CEO Wulf H. Bernotat said, “I would like to put the record straight. Our offer and intention cannot be compared to a third party’s activity seeking a minority shareholding and addressing only a selective group of shareholders. There are only two offers for 100 percent of Endesa, and of these E.ON offers the best value by far for all of Endesa’s shareholders along with the simplicity and certainty of 100 percent cash. Our increased offer underlines our strong commitment and strategic interest in Endesa, and we remain confident of proceeding to completion.”
According to BBC reports, though, this bid may not be the last. It’s expected that E.ON will continue to up the ante for Endesa, despite the sudden appearance of Acciona on the field.
EYE ON EUROPE: Siemens Honored for Substation Automation
The 2006 Frost & Sullivan Technology Leadership Award in the field of substation automation was presented to Siemens Power T&D (PTD) for commissioning the world’s first substation control system based on IEC 61850-the new “high objective” standard protocol for substation communications.
The task was executed for Aare-Tessin AG-an independent, pan-European energy group-in its 16-kV Winznauschachen substation (Switzerland) and completed in early November 2004, just six months after the IEC 61850 was released.
“This project is of significant importance as it marks the achievement of the required interoperability in substations for the first time,” noted Frost & Sullivan industry analyst Viswanathan Krishnan. “The new standard protocol IEC 61850 ensures error-free communication among all connected substation automation and protection devices, regardless of the device manufacturer, enabling utilities to save time and costs due to not needed, expensive protocol converters and engineering benefits through IEC 61850.”
SICAM PAS, the power automation system used in the Winznauschachen substation, is fully compliant with IEC 61850. But SICAM PAS also helps users to migrate from older systems like Siemens SINAUT LSA or SICAM systems through supporting older standard protocols like DNP3, IEC 60870-5-101, etc.
With the emergence of IEC 61850 as an integrated solution and future trends in substation automation favoring further developments in IEC 61850 and IP-based communication, Siemens is well-positioned, particularly following the announcement of its hundredth project based on IEC 61850 for the East China Power Grid Company in early 2006.
“In this project, Siemens expects to cut the reaction times substantially and facilitate the setting of parameters through the use of redundant 100 Mb/s Ethernet fiber optic rings compliant with IEC 61850 for communication between the devices,” said Krishnan. “Notably, Siemens will also pioneer the use of bay controllers operating with integrated and exchangeable IEC 61850 optical fiber Ethernet switches with ring redundancy functions.”
Additionally, this project will feature an additional switchgear interlocking level implemented directly in the process, with the help of generic object oriented substation event (GOOSE) messages that assist in exchanging prioritized messages between the bay controllers.
Projects of the Year Nomination Deadline Approaching
With a deadline of Nov. 30, 2006, nominations for the annual Utility Automation & Engineering T&D Projects of the Year Awards are now being sought. The winners will be announced and the awards given out at the DistribuTECH 2007 Conference and Exhibition in San Diego, CA.
The Award Nomination Form can be downloaded at: /downloads.pennnet.com/pnet/misc/uaelp/uae_poy_nomform.pdf.
The awards are designed to honor the most innovative transmission and distribution technology implementations and engineering projects undertaken by North American utilities in the last year.
All interested parties-be they utility personnel or technology vendors-are welcome to submit an entry for awards consideration. All North American companies involved in transmission/distribution of electric power, from federal power agencies to rural co-ops, RTOs to ISOs, are eligible to win the award.
There are four categories in which a company can submit its project for consideration. They are:
- T&D Automation Project of the Year-this category includes distribution automation, transmission automation, T&D management systems, substation automation, SCADA/EMS implementations, and related field devices and systems.
- AMR Project of the Year-this category includes implementations of automatic meter reading technology, systems and equipment.
- Geospatial Project of the Year-this category is intended for implementations of AM/FM/GIS, mobile computing, field force automation, mobile workforce management, outage management/response systems, and systems integration.
- Non-automated T&D Engineering Project of the Year-this category is for entries involving underground and overhead transmission/distribution line construction, substation construction projects, and expansions/upgrades to existing facilities.
All the project entries will be judged based on the size and scope of the project, the level of innovation used, and the benefit to the utility, their customers, and the industry as a whole. In the end, one entry will be chosen from each of the four categories as the award winner. Each winner will be recognized in a feature article in Utility Automation & Engineering T&D magazine and during DistribuTECH 2007.
For more information, please contact Steven M. Brown, editor in chief, at firstname.lastname@example.org.
United Illuminating Co. Celebrates GIS Project Milestone
The United Illuminating Company (UI) broke ground on the Singer Substation 345-kV gas-insulated switchgear (GIS) project. The Singer Substation will become the largest 345-kV GIS installation in the United States and Canada, according to United Illuminating.
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As part of the Middletown to Norwalk transmission upgrade project, the Singer Substation will be the cornerstone of system improvements planned by UI. Completion of this substation will allow UI to interconnect the planned 345-kV transmission system, existing power plant, and UI’s 115-kV feeder system.
“UI is making major investments in transmission in order to significantly improve system reliability and to help meet the growing electricity needs for thousands of residents and businesses in southwestern Connecticut. The GIS technology being used for this project is an integrated solution; allowing UI to achieve high reliability in geographically constrained areas such as Bridgeport, while providing an aesthetically pleasing building that complements the architecture of the area,” said James P. Torgerson, UI’s chief executive officer.
UI has chosen Siemens Power T&D as the major contractor for the project. Siemens has hired McPhee Electric of Farmington, Conn., and Manafort Brothers of Plainville, Conn., as participants in the construction of the substation.
The project, which is a joint project between UI and Northeast Utilities, will extend the existing 345-kV transmission grid into the 54-town southwest Connecticut region. The project includes 45 miles of overhead lines and 24 miles of cable under local streets. The line is scheduled to be in place by December 2009.
OSI Joining SCADA Test Bed Program
Open Systems International (OSI) is participating in the U.S. Department of Energy’s National SCADA Test Bed program. The program, jointly operated by Idaho National Laboratory (INL) and Sandia National Laboratories, performs extensive cyber security assessments on SCADA and process control systems to identify potential equipment and system vulnerabilities and to provide vendors with recommended solutions to increase the resilience of the nation’s critical infrastructures.
The Department of Energy’s Office of Electricity Delivery and Energy Reliability provides funding to INL and other national laboratories for research and development projects related to control systems security. OSI has volunteered its technology and resources for this important effort. The project is expected to be completed in six months.
The National SCADA Test Bed (NSTB) employs SCADA, cyber security and critical infrastructure protection experts to research and develop solutions that will strengthen computer systems operating infrastructures, such as the electric power grid, from attacks by viruses, hackers and terrorism.
Comprehensive testing facilities at INL include an independent, 138-kV power grid, several SCADA test bays and an emulation system, all of which can be configured to communicate with SCADA systems via several means including wireless, telephone, Ethernet, and Internet using proprietary and public domain protocols including MODBUS, DNP3 and ICCP. All aspects of intrusion into the SCADA platforms are tested by INL and recommendations given to the participating suppliers.
“Working together with key SCADA vendors such as OSI is absolutely essential if our test bed operations are to have the positive impact on security expected of us by the DOE. We look forward to working with OSI and anticipate results that will be mutually beneficial,” said Bob Hill, INL’s project manager for the NSTB Program.
Idaho National Laboratory is the U.S. Department of Energy’s lead nuclear energy research and development and demonstration laboratory. INL conducts programs in nuclear energy, national and homeland security, science and environment research. Battelle Energy Alliance manages and operates the laboratory for the DOE.
NERC Issues First Reliability Assessment as the ERO
The adequacy of North America’s electricity system will decline unless changes are made soon, Rick Sergel, president and CEO of the North American Electric Reliability Council (NERC) announced in October, in conjunction with the release of NERC’s first reliability assessment since being named the Electric Reliability Organization (ERO) for the United States.
NERC’s 2006 Long-Term Reliability Assessment Report analyzes the adequacy of electricity supply and transmission reliability in North America through 2015, and calls for actions to improve bulk power system reliability.
Demand for electricity is expected to increase over the next 10 years by 19 percent in the U.S., but confirmed power capacity will increase by only 6 percent. Capacity margins are projected to drop below minimum target levels in Texas, New England, the Mid-Atlantic area, the Midwest, and the Rocky Mountain area, in the next two to three years, with other portions of the Northeastern U.S., Southwest, and Western U.S. falling below minimum target levels later in the period.
In Canada, projected margins are adequate except in Western Canada, where additional resources will be needed as soon as 2008.
The transmission system requires additional investment to address reliability issues and economic impacts, according to Sergel. Expansion and strengthening of the transmission system continues to lag demand growth and expansion of generating resources in most areas. Total transmission miles are projected to increase by less than 7 percent in the U.S. and by only 3.5 percent in Canada through 2015.
The adequacy of electricity supplies depends, in part, on the reliability of fuel supply and delivery systems, not just the installed capacity of generators, according to Sergel. Gas-fired generating capacity additions are projected to account for almost half of the resource additions over the 2006-2015 period, with coal accounting for the other half. Strengthening coal and gas delivery infrastructures, and firming up gas supply and delivery contracts, will reduce the potential for shortages in electricity due to fuel disruptions.
“Our economy and quality of life are more reliant on electricity every day, yet the operation and planning for a reliable and adequate electricity system is becoming increasingly difficult. These convergent trends require industry and government to work together to adopt a longer-term, more coordinated planning strategy. This report is intended to provide a factual basis for implementing such a strategy,” said Sergel.
The NERC report identifies 22 necessary actions that encompass all areas of the bulk power system including generation, transmission, fuel supply and delivery, and demand response. Specific recommended actions include:
- Addition of power generation facilities;
- New and upgraded transmission facilities;
- Stronger contracts and other arrangements for the reliable supply and delivery of fuel to power generation facilities;
- More “demand-side” measures such as business and consumer energy-efficiency programs; and
- Addressing aging workforce issues in the electric industry.
Financing for Independent Electricity Transmission Acquisition Goes Through
ITC Holdings Corp. has completed its acquisition of Michigan Electric Transmission Company LLC (METC), creating the largest independent electricity transmission company in the United States (based on transmission load served and according to the company). The $865 million purchase was financed via the proceeds of a public offering of 6,580,987 shares of common stock and a $510 million private placement of senior notes. The international law firm Milbank, Tweed, Hadley & McCloy LLP, led by partner Robert B. Williams, represented Lehman Brothers and Credit Suisse. Lehman Brothers and Credit Suisse acted as lead underwriters for the common stock offering and Credit Suisse and Lehman Brothers acted as lead initial purchasers for the notes offering.
Williams noted, “Furthering the growth of independent transmission companies in the U.S., ITC Holdings’ acquisition of METC will provide electricity to a population of nearly 10 million throughout Michigan’s Lower Peninsula. Leveraging our knowledge of the utility industry with our expertise in acquisition financing and private equity, we worked closely with the investment banks on executing the complete financing package that included both debt and equity as well as a standby bridge facility in order to meet the needs of all parties.”
Williams further stated, “The deal exemplifies the continuing interest in transmission-only utilities and the role of private equity investors, who had ownership interests in both ITC Holdings and METC. Private equity firms and now even hedge funds are joining traditional investors such as independent power producers and investor-owned entities in advancing industry consolidation.”
Milbank has been at the forefront of major transactions in the electric utility industry, playing a role in a number of deals, including:
- ScottishPower’s $9.4 billion sale of PacifiCorp to MidAmerican Energy Holdings, a unit of Warren Buffet’s Berkshire Hathaway;
- PNM Resources $1 billion acquisition of TNP Enterprises;
- Creditor group’s $580 million sale of La Paloma to Complete Energy Holdings;
- Harbinger Capital Partners, illustrating the role of hedge funds;
- $1.3 billion recapitalization of Boston Generating LLC; and
- Energy Investors Funds acquisition of a majority interest in Tierra Energy LLC.
This METC acquisition, which received approval from the Federal Energy Regulatory Commission, is expected to result in operational efficiencies and improved system reliability. Milbank acted as underwriters’ and initial purchasers’ counsel with respect to the acquisition financing, which is composed of:
- A nearly $400 million SEC-registered primary and secondary common stock offering of ITC Holdings shares, which includes a secondary sale of shares by ITC’s principal stockholder, International Transmission Holdings. Investors in the selling stockholder include private equity investors KKR and Trimaran Partners.
- A $510 million Rule 144A private placement of senior notes in two series.
- An $885 million committed unsecured bridge term loan facility which was not drawn on due to the completion of permanent financing.
In addition to Williams, the Milbank team included partners John T. O’Connor and Richard M. Gray. Lehman Brothers Inc. and Credit Suisse Securities USA served as underwriters and joint book-runners for the common stock offering, with Morgan Stanley & Co. Inc. and A.G. Edward & Sons Inc. acting as co-managers.
METC, based in Ann Arbor, Michigan, provides electric service to approximately six million people throughout Michigan’s Lower Peninsula.
Electric Meter-Tampering Thief Convicted
An “energy consultant” who offered to help lower Philadelphia-based PECO customers’ bills by between 25 percent and 50 percent was recently convicted in federal court, sentenced to three years in jail and fined $50,000.
“Meter tampering is illegal and extremely dangerous,” said John Kratzinger, revenue protection supervisor for PECO. “Tampering with an electric or gas meter is stealing, nothing more or less. And, it puts the homeowner, their neighbors, PECO technicians and even police and firefighters in danger by creating a hazardous condition.”
PECO actively investigates instances of unusual meter readings with an 11-member revenue protection team. In this case, PECO became aware of the tampering after getting leads from other customers stating that someone was tampering with a meter in 1999. After further investigations, PECO and police zeroed in on George Wagner, of Philadelphia, who allegedly installed “energy-saving devices” on meters of customers throughout the entire five-county PECO service territory and in New Jersey and Delaware.
In actuality, Wagner was “fixing” the meters to slow the wheels used to calculate electric usage. Wagner was eventually charged with 30 counts of mail fraud in federal court. PECO was able to recover $1.5 million in revenue from customers whose meters were tampered. In 2005, PECO was able to back-bill for more than $4.7 million as a result of similar investigations and avoided losses of $11 million (money that would have been lost if the tampering was not discovered).
Since the Wagner case came to light in 1999, PECO has automated its 2.1 million electric and natural gas meters, which has advanced the company’s efforts to identify and thwart meter tampering and attempted theft of service.