• The Role of the States in Transmission Infrastructure Development: Moving Beyond Siting to Financing, Construction and Ownership
  • April 20, 2007 | Author: Jordan J. Abshire
  • Law Firm: Troutman Sanders LLP - Washington Office
  • In the wake of the Energy Policy Act of 2005 (“EPAct 2005”), much has been made of new backstop federal authority to site new transmission lines.  Questions abound about when and where FERC will use this new authority.  While the debate over federal authority continues, several states have become more active, both individually and in concert, in facilitating the development of transmission infrastructure.  In doing so, the states have moved beyond efforts to streamline the siting process within their own states, and have also created separate transmission authorities, giving them a wide range of responsibilities from coordinating feasibility studies to financing private projects with state bonds and in some cases directly investing in transmission facilities. Although it is too early to tell whether the creation of state transmission authorities and the interstate coordination efforts of several states will facilitate the development of transmission infrastructure, the recent interest of some states in putting political and financial muscle behind transmission projects could signal opportunities for developers.

    I.  State Transmission Authorities

     Recognizing the economic benefits of exporting power derived from wind, coal and lignite supplies located within their respective states, several Western states have established transmission authorities to encourage the development of transmission infrastructure. 

    A.  Wyoming

    In 2004, the Wyoming State Legislature created the Wyoming Infrastructure Authority (“WIA”) and tasked it with the development of electric transmission infrastructure.  Specifically, the WIA is authorized (1) to enter into partnerships with private and public entities to build and upgrade transmission lines; (2) to extend up to $1 billion in bond financing for projects owned by private parties; and (3) to invest directly in transmission lines in instances where private investment is not offered. 

    Up to this point, the WIA has entered into several partnerships to study the feasibility of new transmission lines.  Beyond studies and MOUs, the WIA has also financed 75 percent of a $50 million, 130 mile, 230 kV line planned by Basin Electric Power Cooperative for Northeast Wyoming that is expected to increase export capacity by 100 megawatts.  In this particular transaction, the WIA sold $34.5 million in bonds to the State Treasurer; in turn, the WIA entered into a loan agreement with Basin Electric. 

    B.  Idaho/North Dakota/Montana

    In 2005, both Idaho and North Dakota created transmission authorities, respectively the Idaho Energy Resources Authority and the North Dakota Transmission Authority.  Both authorities have the power to finance, acquire, construct, operate, and own transmission facilities.  Further, the authorities can issue bonds to finance their own projects and the projects of others.

    In Montana, a bill is currently working its way through the legislature to create the Montana Electrical Transmission and Pipeline Authority.  Under House Bill 114, the authority would have the power to facilitate the development, planning, economic analysis and coordination of transmission corridors and facilities.  The authority’s activities would be funded by up to $250,000 in revenues generated by the state’s Wholesale Energy Transaction Tax.                

    C.  Will these state transmission authorities be successful in achieving their goals?

    Whether these state transmission authorities will be successful in developing transmission infrastructure in their respective states remains to be seen.  In the area of direct investments by transmission authorities in facilities, there are two potential impediments: (1) a prohibition in some state constitutions against direct investment by state entities; and (2) a concern among state legislators and other officials over exposure to liability arising from state-owned transmission facilities. 

    Aside from direct investment, however, the experience of the Wyoming Pipeline Authority (“WPA”) and the Rockies Express Pipeline indicated that state transmission authorities may have similar success in attracting investors to transmission projects.  When the Rockies Express Pipeline was first proposed, there were other competing proposals for similar pipelines, some of which would have bypassed Wyoming and its abundant natural gas supply.  The WPA stepped in with its bonding authority and backed the proposed Rockies Express Pipeline.  The WPA’s initiative apparently opened the door for private investors, which in the end funded the entire project, eliminating the need for the WPA to issue any bonds.

    II.  States Acting in Concert

    Several states are also entering into MOUs with other states to coordinate siting and development efforts. Another potential vehicle for such coordination is the formation of a regional transmission siting agency through an interstate compact pursuant to EPAct 2005.

    A.  The Western Governors Association Protocol

    In 2002, the Members of the Western Governors Association and various federal agencies adopted a Protocol to implement a coordinated joint review process of transmission line projects.  Among the objectives of the Protocol are to create a transparent and predictable review process, to eliminate duplication of agency pre-application, scoping, and permit review, and to create an efficient environmental review process that results in shared .

    B.  The Frontier Line

    In April 2005, the Governors of California, Nevada, Utah, and Wyoming entered into an MOU to support the development of a transmission line corridor that would facilitate the development of clean coal and renewable resources.  In February 2006, the four states announced the criteria by which each state would evaluate submitted proposals.  Additionally, representatives from the four Governors’ offices plan to engage FERC and state regulatory agencies on issues such as cost allocation, cost recovery for development and study efforts, and the need for timely regulatory approvals.  The utilities are currently conducting a feasibility study, have held several stakeholder conferences, and are expected to issue a feasibility report in April 2007.

    C.  The NorthernLights Project

    In 2006, the Governors of Idaho, Montana, and Nevada entered into an MOU for the purpose of siting and permitting a transmission line proposed by TransCanada stretching from Montana to Las Vegas.  Specifically, the MOU creates a state advisory committee which will be made up of a senior-level staff member from each state.  The initial task of the Committee will be to develop an agreement among the project sponsors, the states, and the federal government, which will include a project funding agreement, a detailed budget, and a siting and permitting timeline.  The Committee will also oversee the project team, which will be comprised of representative state officials responsible for siting and permitting projects in each state. 

    D.  The Interstate Compact under EPAct 2005

    Section 1221 of EPAct 2005 provides three or more contiguous states with the opportunity to enter into an interstate compact, establishing a regional transmission siting agency.  After Congressional approval is given, these regional agencies would carry out the siting responsibilities for transmissions lines in those states.  To date, no states have entered into this formal agreement.            

    E.  Will coordinated efforts among states facilitate transmission development?

    As with state transmission authorities, the jury is out as to whether coordinated efforts among states will facilitate the siting of these lines.  In theory, the coordination of siting/permitting timelines and cost recovery/cost allocation issues among the states should provide some regulatory certainty to developers as to process.  Further, the involvement of state representatives in the planning process should provide some degree of assurance that the submitted plans (presumably incorporating state input) would be approved by the various state commissions.  However, even with state support, large multi-state transmission projects remain enormously difficult given the very large capital requirements, the very long lead times, and the different interests of the different states involved.  There are also significant issues emerging as to greenhouse gas policy, as large interstate transmission lines are seen by some as enhancing the development of new coal-fired electric generation.

    Additionally, enacting legislation at the state and federal level to set up a regional siting transmission authority would be time-consuming, costly and potentially controversial.  Aside from the political difficulties, a state legislature would have to decide important legal questions in transferring siting authority to a regional agency, such as whether to divest its local siting entity of the authority to site all lines in the state, including intrastate lines or interstate lines not routed through its compact partners’ states, or whether it should only cede authority to the regional agency for lines that cross each state in the compact.

    III.  What do these developments at the state level mean for transmission developers?

    Although it is too early to tell whether the creation of state transmission authorities and the interstate coordination efforts of several states will facilitate the development of transmission infrastructure, the recent interest of some states in putting political and financial muscle behind transmission projects offers opportunities to developers.  Those state legislatures that have expressed a specific interest in developing transmission in their states may be receptive to legislative proposals from developers proposing specific incentives.  Further, those Governors that have expressed similar interests may also be willing to put their political muscle behind specific projects or legislative initiatives.  Additionally, there may be a place for utility or industry representatives on the boards of existing and newly created transmission authorities. 

    Indeed, the states in the West may be ushering a new era where state governments are viewed in the industry not as an impediment to the development and siting of transmission projects, but as a facilitator and partner.