FERC grants SunZia Transmission authority to sell transmission at negotiated rates
Once the project is operational, FERC’s open access requirements will preclude it from erecting barriers to entry in the relevant market
FERC has granted SunZia’s request to modify its authority to charge negotiated rates for transmission capacity on the SunZia Southwest Transmission Project, SunZia said in a Sept. 20 post on its website.
As noted on the website, the project – which is anticipated to be in service by 2020 – consists of two bi-directional extra-high voltage electric transmission lines and substations that will transport energy from Arizona and New Mexico to customers and markets across the Desert Southwest.
SunZia’s total transmission capacity has an approved rating from the Western Electricity Coordinating Council (WECC) of 3,000 MW for two single-circuit 500-kV AC lines, the site noted.
The Bureau of Land Management (BLM), along with 14 cooperating agencies, led the effort to comply with the National Environmental Policy Act, and in January 2015, BLM issued a record of decision (ROD) that approved SunZia’s application for a right of way (ROW) across federally owned property, the site noted.
According to the Sept. 20 post, FERC broadened SunZia’s negotiated rate authority to allow SunZia to enter anchor customer arrangements for up to 100 percent of the project’s transmission capacity.
FERC also accepted SunZia’s report on its open solicitation process and selection of Pattern Energy Group LP as an anchor customer for 1,500 MW of transmission of the first phase of the project, SunZia added. Pattern is developing a few utility scale wind projects in central New Mexico near the SunZia East substation, SunZia said. FERC’s recent approval allows SunZia to subscribe sufficient transmission capacity with Pattern to enable delivery of the power from that wind generation across the Desert Southwest, SunZia said.
As noted in FERC’s order, issued on Sept. 20, SunZia Transmission, in its November 2016 application, stated that it is the independent developer of the project and is owned by SouthWestern Power Group (SW Power), ECP SunZia, LLC, Shell WindEnergy, Inc., – collectively referred to as the merchant owners – as well as Tucson Electric Power Company. ECP SunZia and SW Power are wholly owned by MMR Group, Inc. FERC further noted that SunZia Transmission owns the project jointly as a tenant-in-common with Salt River Project Agricultural Improvement and Power District (Salt River) and Tri-State Generation and Transmission Association, Inc., (Tri-State). Tucson Electric, Salt River, and Tri-State will make their capacity shares available separately through their respective open access transmission tariffs (OATT), FERC said.
According to the application, SunZia Transmission plans to complete the project in two phases, FERC said:
· Phase I includes a 500-kV HVAC transmission line and substations, totaling 1,500 MW of capacity
· Phase II includes a 500-kV HVAC transmission line – for an additional 1,500 MW of capacity – or a high voltage direct current transmission line – for an additional 3,000 MW of capacity
SunZia Transmission said that construction is expected to begin during 1Q18, placing Phase I in service by 4Q20. FERC added that the instant filing addresses negotiated rate authority and the capacity allocation for Phase I only.
In May 2011, FERC granted negotiated rate authority to each of the merchant owners and authorized them to enter negotiated presubscriptions with anchor customers in open seasons for up to 50 percent of their pro rata share of the project’s merchant capacity. FERC added that it required that the remaining capacity be made available in open seasons.
Following the issuance of the 2011 order, SunZia Transmission initiated its open solicitation process, which yielded a letter of intent to negotiate a precedent agreement for up to 1,500 MW of transmission capacity from First Wind Energy, LLC. SunEdison, Inc., in January 2015 acquired First Wind and expressed its intent to honor the letter of intent, FERC added, noting that SunEdison filed for bankruptcy protection in April 2016. As a result, FERC said, SunZia Transmission concluded that SunEdison would be unable to negotiate the precedent agreement.
According to FERC, SunZia Transmission said that, in May 2016, it reinitiated a broad marketing effort for the merchant capacity through an open solicitation process. In July 2016, SunZia Transmission formally solicited written responses to its open solicitation and received initial inquiries from 12 interested parties. FERC added that according to SunZia Transmission, after an additional exchange of information, four entities submitted applications by Aug. 10, 2016. SunZia Transmission on Aug. 26, 2016, selected Pattern Energy Group (Pattern Development) as the “preferred” anchor customer to enter into a precedent agreement for up to 1,500 MW of merchant capacity – 100 percent of the merchant capacity for Phase I.
SunZia Transmission requested that FERC re-issue and revise the authorizations that it granted in the 2011 order due to changed circumstances. First, FERC added, SunZia Transmission sought negotiated rate authority for itself as the transmission provider on behalf of its merchant owners. SunZia Transmission said that it will administer the interests of the three merchant owners through a single OATT and coordinate all aspects of the project.
Second, FERC added, consistent with FERC’s 2013 policy statement, SunZia Transmission requested authorization to enter into an agreement with an anchor customer, including an affiliate, for up to 100 percent of the project’s merchant capacity.
SunZia Transmission also requested that FERC confirm its prior finding in the 2011 order that the merchant owners have ownership shares in the project in proportion to their respective investments in the project and that the merchant owners of the project are not affiliated by virtue of their joint investment in the project, FERC said.
SunZia Transmission contemporaneously filed, in the same docket, a selection report that sets forth SunZia Transmission’s open solicitation and anchor customer selection process. SunZia Transmission explained that the selection process led it to select Pattern Development as the preferred anchor customer that will enter into a precedent agreement for up to 1,500 MW of merchant capacity, FERC added.
SunZia Transmission said that, to enhance the likelihood of obtaining permanent financing for the project, SunZia Transmission and Pattern Development have contemplated potential co-ownership of the project and a wind generation project that Pattern Development owns, for which Pattern Development seeks to use the project’s capacity, FERC said.
SunZia Transmission stated that it will assume full market risk, and affirms that none of the merchant owners, or their affiliates, owns any traditionally regulated transmission systems with captive customers, or any other transmission systems.
FERC added that SunZia Transmission stated that potential transmission customers will have alternatives to service over the project, which will interconnect with, or near, public utilities in Arizona and New Mexico from which customers can secure transmission service and potential expansion of transmission systems under cost-based rates. Therefore, SunZia Transmission explained that those alternatives would place downward pressure on the project’s negotiated rates that the merchant owners could charge, FERC said.
SunZia Transmission said that, once the project is operational, FERC’s open access requirements will preclude it from erecting barriers to entry in the relevant market.
FERC added that it finds that neither SunZia Transmission, the merchant owners, nor any affiliate can erect barriers to entry in the relevant markets, nor do those entities have the incentive to withhold capacity on the project. As a result, FERC said that it concludes that SunZia Transmission’s proposal has met the first factor of a four-factor test – that is, just and reasonable rates.
Among other things, FERC noted that SunZia Transmission commits to comply with all applicable NERC and WECC reliability requirements and procedures, as well as to ensure regional reliability and operational efficiency of the project. FERC added that based on such commitments, it finds that SunZia Transmission has met the regional reliability and operational efficiency requirement.