IOUs, munis and co-ops collaborate in the upper Midwest to ensure reliability
by Doug Jaeger
Regional planning and development for robust transmission expansion is happening in the upper Midwest.
A coalition of utilities is committed to building more than $3.5 billion of new transmission infrastructure in Minnesota and neighboring states to support reliability, expansion of wind power and other renewables, and regional economic vitality.
CapX 2020-short for “Capacity Expansion by the Year 2020″-includes investor-owned utilities, cooperatives and municipal utilities. For the CapX 2020 utilities, substance superseded structure. Not bogged down by having to create a new business model, they collectively built a vision and a construct to collaborate and get the work done.
The Vision Plan
Utilities in the upper Midwest have a long history of working together, but in 2004 they took cooperation to a new dimension. The coalition’s planning studies showed that customer demand for electricity would grow by between 4,500 and 6,300 MW by 2020. The transmission grid would have to expand to accommodate that growth. Recognizing that long-term reliability was at stake, the largest transmission-owning utilities in Minnesota and the surrounding region came together to jointly plan for and collaborate on a solution.
Transmission facilities needed for various future generation scenarios were identified. The coalition worked to identify a flexible and robust plan for new transmission infrastructure needed regardless of where or what type of generation developed.
Using information from independent power producers, wind developers, utility resource planning staff and the Midwest Independent Transmission System Operator’s generation interconnection queue, the coalition’s planning team devised three scenarios to illustrate potential locations of new electric generating plants or wind farms.
The team considered planning requirements for meeting the Minnesota Renewable Energy Objective; addressed issues related to relieving transmission congestion; and focused on high-voltage solutions that best addressed the three generation scenarios. Facilities common to at least two of the scenarios were identified as the cornerstone of the initial CapX 2020 “Vision Plan.”
Analyses identified a large number of new transmission facilities that would be needed to maintain reliability and for any future generation scenario. The vision encompasses more than 1,600 miles of new, high-voltage transmission lines. The first two phases of transmission investment-Group 1 and Group 2 projects-are needed to ensure regional reliability and to address local reliability issues.
Stakeholder Support Enlisted
From the beginning, the utility consortium actively involved stakeholders, including environmentalists, to help educate around the need for a sound, region-wide delivery system to accommodate renewable expansion and to assure reliable delivery. Included in the consortium’s message was that transmission is electron-agnostic or non-denominational: that is, the grid doesn’t differentiate between electrons generated by wind, water, coal, natural gas or nuclear fuel. Therefore, it’s in everyone’s best interest to have a robust transmission system. The CapX 2020 team convinced people that reliable power, access to low-cost power and renewables (including 2,400 MW of state-mandated wind power in Minnesota), and the region’s economic vitality, were at stake.
The collaborative effort involved not only utilities but government agencies, the Midwest Independent Transmission System Operator (MISO), environmentalists and other stakeholders, removing obstacles to the ability to invest. The result: In Minnesota, we have greatly reduced regulatory lag, and thus, concern about returns.
Reducing Investment Risk
Regulatory and legislative bodies recognized the need and the cooperation, and provided a financial return mechanism that reduced the risk of investing. With this arrangement, there’s a forward-looking annual transmission rider that includes recovery of construction work in process. Neighboring states are following suit. Last year, South Dakota passed similar transmission investment legislation, and North Dakota is considering such a proposal.
Additionally, legislation enacted in Minnesota gave the state Public Utilities Commission authority to both determine the need for proposed transmission lines and to approve their routes. This consolidation was intended to result in a more efficient transmission line approval process.
How Joint Investment and Ownership Will Work
In 2006, regulatory proceedings were initiated in Minnesota for three of the four lines that constitute the Group 1 projects, comprising nearly 700 miles of 345- and 230-kV lines that, along with smaller supporting systems, will cost more than $1 billion. These lines are mostly in Minnesota but have small sections in North Dakota, South Dakota and Wisconsin. The development phase for these projects is expected to take three to four years, with the first of these lines expected to be in service by 2011.
The CapX 2020 participants devised an approach that will align a utility’s investment allocation with the costs recovered from each organization’s customers for the new transmission facilities. For members of MISO, the costs are determined by MISO’s tariff, which allocates costs based on whether the lines primarily serve regional reliability or generator outlet needs. For non-MISO utilities, the costs will be negotiated based on a determination of who benefits.
Using this approach for the Group 1 projects, the total investment was identified for each utility that will participate in one or more of the four projects. Each utility was then allowed to concentrate its total investment in one or more of the projects. The result is that each of the Group 1 projects has a unique mix of five investors and investment levels.
Early in 2007, the project participants will begin determining the ownership model for each of the projects. Possibilities range from joint ownership of a project’s facilities by all the participants, to participants owning discrete portions of a project. The ownership question is complex and will be carefully analyzed to identify the approach that will best serve CapX 2020 participants. However, the utilities will select a model that accommodates investment by each participant at participation levels already agreed upon.
Virtual: a Flexible Business Model
The CapX 2020 initiative was initially advanced by a somewhat informal-some call it faith-based-coalition of utilities. In many respects, that’s still the case. The effort is led by a “virtual organization,” a collection of teams whose members include experts from each of the 11 participating utilities. The teams focus on topics such as transmission line standards, technical analysis, regulatory and legislative affairs and communications. In 2006, co-executive directors were appointed from coalition members Xcel Energy and Great River Energy to manage the virtual organization.
Permitting and constructing four projects in Group 1 and related transmission system improvements, and preparing for future activities associated with Groups 2 and 3, are huge undertakings. Additionally, the overall effort is not simply a collection of separate, individual projects occurring in a concurrent timeframe. It’s a highly integrated means of meeting a variety of interrelated system needs and a very long duration effort, occurring continuously between now and 2020 or beyond.
With these challenges in mind, the CapX 2020 utilities considered a variety of organizational structures. The virtual organization model was chosen because it was the most expedient and efficient for supporting implementation of Group 1 projects and near-term efforts on Group 2 and 3.
The virtual organization did not require forming a new business entity with the complex and time-consuming negotiations that would entail. It is flexible enough to fit the existing, vertically integrated structure of the participating utilities, and it can be adapted to or subsumed by a future transmission structure, should one be adopted.
The virtual organization allowed for centralized control of tasks that spanned the projects, such as pursuing a single Certificate of Need application for the three 345-kV projects in Group 1, while allowing other more discrete portions of individual projects to be managed by different lead utilities, albeit with a great deal of coordination among them.
For the virtual organization to succeed, those involved will need to communicate effectively with many people outside their utilities, accept work direction from management or peers from other utilities, and embrace techniques and even standards from other utilities. Fortunately, in the transmission business we have a long, successful history of collaboration on which to build.
Doug Jaeger is the vice president of transmission for Xcel Energy, the fourth largest transmission provider in the U.S. Jaeger is responsible for Xcel’s transmission portfolio, overseeing planning, engineering, construction and maintenance, system operations and customer service. Additionally, he plays a key role in market relations and public policy on transmission-related matters.