By Richard Williamson
DALLAS - One of the largest public-private partnerships in Texas involves transmission of electricity produced by wind.
The $5 billion Competitive Renewable Energy Zone transmission network represents a new way of building a system for bringing power to major population centers.
In the case of CREZ, the power is not coming from traditional coal, gas or nuclear plants but from wind farms in isolated areas of West Texas that have become known as the largest source of renewable energy in the nation.
"This represents a series of paradoxes," Barry Smitherman, chairman of the Texas Public Utility Commission, said at a recent Bond Buyer Texas Public Finance Conference. "Texas is the reddest of all states politically but produces more green energy than any other. Its leaders opposed climate-change legislation but are developing the biggest renewable energy project in the nation."
As head of the PUC, Smitherman has been front and center in choosing utilities to build the CREZ system. The largest public utility picked was the Lower Colorado River Authority, which is responsible for a $789 million segment to be financed through revenue bonds. But the largest investor of all was investor-owned Oncor Energy, which will finance a $1.34 billion section of the network.
Since the assignment of the projects, however, another public utility operated by the city of Garland has challenged Oncor's award, threatening to delay the CREZ system.
After its exclusion from participating in the project, Garland filed suit against the PUC, seeking to overturn the decision. The city, an eastern suburb of Dallas, claimed it could develop its proposed segment of the project at a lower cost than investor-owned companies.
On Jan. 15, Texas District Judge Stephen Yelonosky ordered the PUC to suspend development of the CREZ lines and reconsider its award process. Yelonsky found that the commission had overstepped its mandate.
"The court reverses and remands the agency decision because it is in excess of the agency's statutory authority, not reasonably supported by substantial evidence, and arbitrary and capricious," the judge ruled.
Garland cited its tax advantages and ability to borrow at lower interest rates through municipal bonds. Those lower costs would mean lower rates for electric customers, the city argued.
"This decision simultaneously encourages customer protection and the development of clean energy - goals that benefit all Texans," Garland city attorney Brad Neighbor said in a prepared statement after the ruling.
Neighbor's additional comment in a city press release - that "the PUC should not put the interests of big transmission line developers before the interests of Texas ratepayers" - brought a heated response from Smitherman and other commissioners at a Jan. 29 meeting, the first since Yelonosky's ruling.
Smitherman told Neighbor that he found the release offensive, and commissioner Kenneth Anderson called it an effort to embarrass the PUC and "inflame the public." Commissioner Donna Nelson said Neighbor's statement contained "mischaracterizations, innuendos and untruths."
Neighbor said he was being criticized for representing the interests of Garland citizens.
To resolve the impasse, the PUC could give Garland a piece of the project or simply rewrite its order, avoiding the rationale that Yelonosky found unjustified.
In its 2009 ruling, the PUC pointed out that it has no supervisory authority over public utilities like Garland's and another owned by a city, San Antonio's CPS Energy, which also bid for one of the segments. Garland Power & Light, with only 32 employees, had sought to use its right to eminent domain to condemn land outside of its service area to build one of the lines.
The process of acquiring right-of-way through condemnation of land hundreds of miles from Garland could be a time-consuming and legally ambiguous process, one that the PUC would not be able to participate in.
"This lack of commission jurisdiction raises serious due-process concerns, particularly regarding CREZ facilities outside of municipally owned utilities' traditional boundaries," the PUC ruling stated.
"Furthermore, the commission is not persuaded that it would be able to fully execute the duty ... to develop a plan to construct CREZ transmission in a manner that is most beneficial and cost-effective to customers, if the commission were to designate municipally owned utilities not bound to commission oversight as CREZ TSPs [transmission service providers]."
Unlike the Garland and San Antonio utilities, the Lower Colorado River Authority does fall under the PUC's jurisdiction as a major wholesale supplier.
The CREZ system represents the first time that the commission - a regulatory authority that usually decides rate cases - has been in charge of actually assembling a project of such magnitude.
The CREZ project will double the amount of wind energy available to utilities to 18,456 megawatts. The regulator was expecting to have the new lines in service within four or five years under an ambitious plan passed by the Texas Legislature in 2005.
SB 20 directed the PUC to select the most productive wind zones in the state and devise a transmission plan to move power to populated areas in the state.
Dallas-based Oncor won the largest project, worth $1.34 billion.
"Oncor is now focused on building the section we were awarded on time and on budget," Charles Jenkins, senior vice president of the company's transmission and system operations, said in statement. "Oncor is already working with vendors to ensure the availability of equipment and contractors to expedite the CREZ projects."
While PUC's end of the process is in a state of uncertainty, the major players are proceeding with the process of acquiring right-of-ways for the high-power lines that typically draw resistance from landowners.
The LCRA is hosting a series of open houses to hear from residents of the scenic Texas hill country, where the lines, towers and relay stations will appear.
As the CREZ project develops, Texas is also seeking to modernize its electrical grid under the control of the Electrical Reliability Council of Texas. Texas is the only state in the nation that operates on a grid independent of other states.
One of the projects well underway is to install "smart" meters on homes and business that allow consumers to control the amount of electricity they use during the day.
The project ties in with the wind energy initiative in that wind power produces more energy at night than during the day.
With the expected growth in the use of electric cars, consumers eventually will be able to charge the batteries of their cars at night using wind energy, solving one of the major conundrums of electric generation: the need to store power.
"We are building the smartest grid in North America," Smitherman said. "We are reducing carbon dioxide emissions at a rate far in excess of any other state except New York."