“We’re pretty happy” with the FERC order, Russell Stidolph, CFO for Tres Amigas, told TransmissionHub Dec. 11.
“This is a big first step” in generating revenue for Tres Amigas, which has bigger goals to connect the three interconnections in the United States and aid transmission of renewables in the Southwest, Stidolph said.
The transmission service agreements were accepted subject to condition, since the transactions involve an affiliate, Western Interconnect, which was directed to make a compliance filing to complete the transfer of the agreements to Western Interconnect.
That will not be a problem and the compliance filing will be made early in the week of Dec. 14, Stidolph said.
Western Interconnect was formed by Pattern and Tres Amigas – with Pattern owning a majority interest and Tres Amigas owning a minority interest – for the sole purpose of developing, building and operating a 35-mile, 345-kV transmission line to connect the wind power projects to the Public Service Co. of New Mexico system at the Blackwater switching station in Clovis, N.M. The line will have a capacity of about 1,100 MW, and the wind projects have a total capacity of 497 MW.
Construction of the transmission line is expected to start in the next three months, and all permits for construction of the facilities are in place, Stidolph told TransmissionHub.
Tres Amigas for several years has been trying to develop its Superstation project over three phases to connect the three power grids in the United States – the Eastern Interconnection, Western Interconnection and Electric Reliability Council of Texas – and the original plan was for the wind projects to become transmission customers of the Superstation, FERC related in the order (Docket No. ER15-2647).
But because the wind projects have been developed faster than the Superstation project, they required interconnection and transmission service before Tres Amigas could finance and build the Superstation project. The transmission agreements would serve as anchor contracts for the 1,100 MW line, with Tres Amigas vowing to offer the same rates, terms and conditions to others in an open season, FERC said, noting that the original transmission rate was for $27,500/MW-year for each of the projects.
The three wind projects, which Pattern acquired at various points in the past year, are Broadview Energy KW, Broadview Energy JN and the Grady Wind Energy Center, according to the FERC order. The transmission service agreements cover an initial 25-year term starting Jan. 1, 2017, with the wind generation off-take agreements being held by utilities in California.
After Pattern purchased the generation facilities and revised the transmission service agreements to a rate of $25,000/MW-year, it formed Western Interconnect with Tres Amigas “because Pattern was concerned that Tres Amigas would have difficulty in financing construction of the transmission line since Tres Amigas has no other sources of revenue,” FERC said. The line would be operated by Western Interconnect until such time as Tres Amigas obtains financing and begins construction of the Superstation, with Tres Amigas then purchasing Pattern’s majority interest in the transmission line.
Tres Amigas had negotiated rate authority from FERC when it reached the transmission service agreements, and Western Interconnect sought to obtain the same authority so that the agreements could be transferred to it and Western Interconnect can serve as the transmission provider.
But because of the timing involved with affiliates and the agreements, Western Interconnect has some additional work to do to comply with FERC rules on negotiated rate authority.
“Based on the record, it is evident that the negotiation of the terms for transmission service occurred between affiliates,” because the negotiations between Tres Amigas and the wind projects occurred after Tres Amigas and Pattern had agreed to form Western Interconnect, FERC said.
Under FERC’s negotiated rate authority rules, any affiliate transaction must be negotiated at arm’s length, and “we find that Western Interconnect must take additional steps if it is to satisfy the commission’s four-factor analysis for negotiated rate authority to become the transmission provider of the transmission line,” FERC said.
The order accepted the agreements subject to Western Interconnection demonstrating that it did not give any preference to affiliates.
Western Interconnect vowed to conduct an open season and allow any other potential transmission customers to obtain the same rates, terms and conditions as the wind projects, and while that would ensure no preferential treatment in the future, it is “not sufficient to demonstrate that there was no undue preference given in the initial allocation of capacity to the wind projects based upon the affiliate relationship of the parties during re-negotiation,” FERC said.
The order suggested that Western Interconnect could revise the agreements back to the original terms and rates from the negotiations between Tres Amigas and the wind projects or it could hold an open solicitation for 100 percent of the initial capacity of the transmission line.