Higher transmission returns expected, says ERCOT head

With new transmission in great demand, owners will expect a little better return than in the past to make investments in projects, Tom Noel, CEO of the Electric Reliability Council of Texas said Thursday. While the going rate is about 8.5-9%, Noel said, he thinks it will take a return of 10-12% to attract investors to transmission projects in an era of deregulation.


By Kate Thomas
OGJ Online

HOUSTON, Mar. 22�With new transmission in great demand, owners will expect a little better return than in the past to make investments in projects, Tom Noel, CEO, of the Electric Reliability Council of Texas (ERCOT) said Thursday.

While the going rate is about 8.5-9%, Noel said, he thinks it will take a return of 10-12% to attract investors to transmission projects in an era of deregulation. Speaking at Houston Energy Expo, Noel said, Texas Public Utilities Commission Chairman Pat Wood "probably understands that it will take a little more than in the past."

One of 10 regional reliability councils in the North American Electric Reliability Council, ERCOT serves 85% of Texas's electrical load. Because it operates only in Texas, ERCOT does not come under federal regulatory jurisdiction.

Come June 1, ERCOT will become a single control area as part of Texas's electric restructuring bill. It is scheduled to begin a mock market Apr. 2. Noel said deadlines have slipped and contractors have expended 50% more hr than projected developing the systems, but he insisted all is in place "to tee up for the June 1 pilot."

With 70,000 Mw scheduled to be on line this summer, ERCOT appears to have sufficient electric generating capacity. But transmission capacity is limited in several areas of the state. These have restricted service to load, affected market participants' ability to change electricity providers, and limited market transactions.

The south-north constraint, for example, restricted shipments of power to 800 Mw last summer. Up to 3,263 Mw of new independent power production generation is expected to come on line in South Texas. And with two additional projects requesting interconnection near Corpus Christi the load may increase to more than 6,000 Mw in the South Texas.

Dallas serious
The situation in Dallas is also serious. Although the Dallas-Fort Worth load is concentrated inside a four-county area, few power plants are located inside that region to serve that load. A number of new merchant power plants are being planned or built in North Texas, but all are outside the transmission-constrained metro area. But with more transmission capacity, "Dallas has hard choices," Noel said, and will have to consider "distributed power" to serve growing demand in Dallas, Tarrant, Collin, and Denton counties.

Noel noted there is also not enough transmission capacity to carry power from West Texas where new wind power projects are under construction. "Dallas could use a lot of the power," Noel said, but there is no way to move it to North Texas.

Other constraints exist on movements of power from the Valley into Central Texas. Noel said Houston is in better shape than Dallas in terms of its available import capacity. But an ERCOT transmission study showed probable limitations on exports from the Houston area, since new generation capacity greatly exceed load increases in the area.

There are four bulk, 345 kv transmission lines extending north from Houston, and all four are loaded over their rated capacity under certain single contingency conditions, the study found..

Noel said six transmission projects are under way or about to be under way, and, he said, ERCOT will nominate three new projects this spring to help relieve some of the most serious congestion. The projects will have to be certified by the PUC.

Noel said finding investors for the projects doesn't appear to be a problem. When American Electric Power Co., which has large power plant investments in Central Texas, signaled it didn't want to invest in new transmission capacity, the Lower Colorado River Authority (LCRA) offered to build the project.

"LCRA can borrow at municipal rates," Noel said, better than the rates AEP could obtain. Noel said ERCOT doesn't want to own assets.

"But if we want lines, and can't get it done, we may have to take another look," he said.

Contact kthomas@pennnet.com

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