TAGG seeks support to conquer the grid game

By Kathleen Davis, Associate Editor

Is TAGG a national answer to congestion and bottlenecks, to gridlock and energy woes? In other words, is TAGG it?

The TransAmerica Generation Grid (TAGG)-originally labeled simply the TransAmerica Grid (TAG)-is a T&D/generation hybrid that proposes to put new plants at the minemouth in order to significantly reduce the cost of the end product, electricity. Add to those new plants-referred to as a “central generation ring” by TAGG spokesman and Black & Veatch vice-president Brad Vaughan-DC transmission lines that go to Chicago and L.A. (9,000 MW in each direction), and a quick outline of TAGG comes into focus.

“The basic concept [of TAGG] is that it’s cheaper to transport the finished product, the power, rather than the raw material,” stated Vaughan in an interview with EL&P.

Over a cup of joe

“I’m not the father of this project, but I’m the mother of it now,” Vaughan continued, revealing the history of TAGG, which, according to local legend, was the result of a brainstorming session between Black & Veatch and Siemens over a steaming carafe.

“They were trying to address some of the bulk energy transfer problems that exist in this country, the inability to move large amounts of power from one region to another,” Vaughan commented. “And after several cups of coffee this concept evolved.”

In fact, TAGG’s evolution has been a massive one, with cost estimates between $15 and $35 billion, a 2,000 mile radius and 18,000 MW total power in those DC lines. And, in an economic era overshadowed by Enron, there are questions about whether TAGG is fit enough to survive. Critics have called it too massive, too interdependent, and they’ve pointed out the large number of cancelled projects in the realm of power plant construction. Gas prices are low, and TAGG is relying on coal. And, on top of all of this, there is a rumor-reinforced by those cancelled projects-of overcapacity, which could leave TAGG trying to sell a product for which the demand is already taken.

Vaughan is the first to admit there are a few hurdles, but he doesn’t see overcapacity as one of them.

Vaughan also delved into the details-that it’s not entirely about the overall capacity picture.

“There are two issues here: whether we have, in a global sense, enough capacity to meet the demand. But also, do we have the generation located where the demand is? If not, then you rely on the transmission infrastructure to deliver that power to the load centers, and that’s where we run into trouble in this country because the current transmission infrastructure was not designed-is not capable-of performing that chore,” he stated.

But, according to Black & Veatch, TAGG is up for that challenge. Calling the project’s DC transmission lines a “dedicated superhighway for electricity,” Vaughan spoke of being able to move bulk energy long distances with only minor losses and of bridging inter-regional barriers that currently may keep region A’s overcapacity from being shipped to region B, where the demand is high.

[Overcapacity] may be real now, but if everything went very smoothly, TAGG’s first generation wouldn’t come on line until 2007/2008,” Vaughan pointed out. “And so, I think there are reasonable projections out there that demand’s going to get chugging along again and exceed capacity once the economy gets going and electricity consumption resumes its normal two to three percent annual growth rate.”

He also pointed to the price volatility of natural gas in response to questions about TAGG’s reliance on coal. Offering a portfolio of coal, lignite and wind energy, Vaughan says TAGG could minimize a power price tag, keep it from reflecting the volatility that natural gas can bring to the equation.

“So, not only is it an issue of total capacity; it’s economical capacity,” he added.

A pilgrim’s progress

Even with all the positive prospects of the project, Vaughan still admits that the road to TAGG’s completion will not be a smooth one.

“There are tremendous blocks. Let’s just name them. Money. The current regulatory environment, given the uncertainty about RTO formation. The unbundling of generation and transmission. The revocation of the Public Utility Holding Company Act. The extension of tax credits on wind energy. The issue of eminent domain.

The greatest risk: the difficulty of siting transmission projects state by state,” he said, commenting that TAGG will have to deal with siting issues in at least nine-and up to 14-states, depending on the final route chosen.

However, Vaughan remains hopeful that TAGG can get over those figurative mountains to the promised land, and it looks like the promised land-where that central generation ring would be located-may be quite happy to see it.

According to Vaughan, the states in which TAGG would like to build their plants-South Dakota, North Dakota, Wyoming, Montana-have reacted favorably to its potential.

“They are actively promoting their mineral resources as a way for economic development,” Vaughan said. “Currently those resources are trapped: There is no local demand for a power plant to consume those resources. So, they need an export capability, and that’s TAGG.”

However, investors and potential partners may not be as eager. Vaughan stated that many independent generators are intrigued with TAGG, but none are firmly committed. And with a long-range forecast for positive returns-in the 12 to 15 year range-the TAGG investor needs to be looking farther ahead than the next year or two.

“We believe that certain segments of TAGG are profitable, and TAGG, as a whole, is profitable. It doesn’t provide a fantastic ‘dotcom’ type of investment return, but it provides a solid investment opportunity,” he told EL&P, adding that the timeframe is akin to what large utilities companies who built coal-fired plants in the 1970s and 1980s are used to seeing.

But Vaughan also admits that TAGG has been a tough sell right now.

“I’ll be honest with you. It’s difficult in the present environment, with gas prices below $2 and the economy in a recession and energy investment being out of vogue,” he commented. “It’s a tough row to hoe, but, if you get past the present day economics and look forward into the future, demand for electricity is always going to increase. And we need to address it. TAGG does that.”

Brad Vaughan, vice-president of Black & Veatch, can be reached by e-mail (vaughanpb @bv.com) or phone (913-458-7758). Siemens Power Transmission and Distribution will discuss TAGG at the American Power Conference in Chicago on April 16. For more information, visit www.apc-pennwell.com.

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