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Texas getting to the tricky stage -- CREZ process rolls on

Electricity market regulators in Texas have selected their preferred option for building out the state's electricity transmission network under its Competitive Renewable Energy Zones (CREZ) plan. The choice does not favour any particular wind project developers over others, though the matter of who builds the wires and which developers get access to them first is likely to prove contentious.

The Public Utilities Commission of Texas chose so-called "scenario two," which is expected to cost $4.93 billion and accommodate 18,456 MW of wind power from CREZ zones in west Texas, the Texas panhandle and South Plains. The plan is "fairly neutral toward developers" because it reaches all CREZ zones, says Jim Barkley, an attorney with Houston-based law firm Baker Botts. The commission worked for more than a year before coming to its decision together with the state's electric grid operator, ERCOT. The wind industry has been heavily involved in the process.

More than two-dozen transmission service providers have registered an interest in supplying the wires, while wind project developers, who long ago scrambled to secure land rights, are refocusing their sights on lining up their proposals near the expected transmission capacity. "I'm seeing land deals happen more quickly," says Adam Kruger, an attorney with DLA Piper. "But with this transmission plan chosen, maybe it's too late to get some of the best sites. It's like when a stock gets mentioned on the front page, by that point, that ship has sailed."

For commercial reasons, companies are secretive about who is doing exactly what. According to Kruger, typical land deals include a dollar sum per acre, usually in the range of $5-$9, and the promise of further payment from income on sale of electricity, usually between 4%-5% of revenues. The approach allows companies to secure land initially at a low cost.

Texas zigzag

The chosen transmission scenario is not a linear connection linking one remote West Texas area with load centres but a zigzagging patchwork of major upgrades all over the state. Most zones identified as the strongest wind resource areas lie within the patchwork. "I think nobody is assuming that they will tie directly into those lines, but rather into the nodes and gathering lines. That's a whole other level of transmission line build out and licensing that will have to get done," says Tom Anson, with law firm Strasburger & Price.

Lines that connect wind projects to new transmission wires will be paid for under the same "postage stamp" cost recovery mechanism for all of the Texas grid. All lines beyond the step-up transformer at a wind project will see the cost rolled off to the greater pot of state-wide transmission costs.

Two major follow-up issues remain: who will build the lines and which wind projects will get priority access to them? "The dispatch priority process will likely be the proceeding in which there are winners and losers among generators," says Barkley.

Companies that have already posted letters of credit to emphasise just how serious and financially capable they are about building wind farms believe they will get dispatch priority over newcomers to the CREZ process, says Jason Ryan, a former colleague of Barkley's at Baker Botts. But if space on the wires becomes tight, first movers may find their production curtailed at times. "That doesn't seem fair, so what do we do?" asks Ryan.

Any decision by ERCOT on who gets access could bring legal challenges. "There are some anti-trust concerns with getting together and deciding how we are going limit interconnection and deny those rights to people," says Ryan.

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