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Taking Green Private

How merchant funding is remaking the rules for renewables.

Fortnightly Magazine - March 2010

petitioned the FERC for a declaratory ruling that, if granted, will further erode FERC’s commitment to unbundling and open-access principles in the renewable energy sector.

In short, the project sponsors have asked the commission to descend a bit further down the slippery slope that FERC first announced a year ago in the now famous Chinook case. That’s when FERC allowed power line developers to set aside a 50-percent share of future line capacity for the exclusive use of an unnamed “anchor tenant” in the interest of helping with upfront construction funding. That ruling meant that 50 percent of line transmission rights would be handed out privately to well-heeled investors, outside of any open season solicitation, or any other sort of open-access allocation process. ( See Chinook Pwr. Trans., Docket Nos. ER09-432, 433 Feb. 19, 2009, 126 FERC ¶61,134 .)

In this new case, however, the “anchor” would weigh a tad more. SunZia project sponsors have asked FERC to sign off on an 80-percent private allocation of transmission rights to owner-anchors, outside of any direct open season allocations process. What’s left for open access now?

At this date, the SunZia project remains somewhat in flux. As currently proposed, the transmission line would run about 460 miles through the desert Southwest, potentially linking otherwise stranded renewable resources in New Mexico and Arizona with California markets.

Two possible configurations are in play: a) two single-circuit 500-kV AC transmission lines, with 3,000 MW total capacity; or b) if justified by higher market demand, a hybrid plan that includes a single 500-kV AC line, coupled with a 500-kV bipolar DC line, comprising 4,500 MW capacity.

The project ownership structure also is a bit atypical, featuring a mix of merchant investors and traditional, regulated, load-serving utilities, both publicly supported and investor-owned. At present, SunZia boasts three distinct tenants-in-common: Salt River Project (a 13-percent total project ownership share), Tri-State G&T (1 percent), and SunZIA Transmission LLC, whose members are SouthWestern Power Group (40 percent), Shell Windenergy Inc. (5 percent), Tucson Electric Power (1 percent), and ECP SunZia (40 percent), which is wholly owned by the Energy Capital Partners investment funds.

The merchant owners would take on all investment risk (to the extent of their shares) and seek to charge negotiated rates, while the utility owners would offer their line capacity shares pursuant to their FERC transmission tariffs (OATT) already on file. Nevertheless, the project already has been vetted through various regional transmission planning regimes, such as SWAT (the Southwest Area Transmission Subregional Planning Group), and reportedly is coordinating its plans with RETA (the New Mexico Renewable Energy Transmission Authority), as well as the state utility commissions in Arizona and New Mexico. ( See Petition for Declaratory Order, FERC Docket EL10-39, filed Jan. 29, 2010 .)

But to justify taking 80 percent of project capacity out of play, the project sponsors have come up with a clever argument—an open season not for signing up actual transmission rights, but rather an open season for the right to invest.

From the very beginning in 2006, Southwest Power Group (SWPG), the project manager