Hola, Amigas

Texas has always operated its own energy grid, separate from the two other grids that span the rest of the nation. But a project quietly emerging in eastern New Mexico would curb that independence — and affect energy prices for Texas consumers in ways that remain much in dispute.

The $2 billion project could connect all three grids (eastern, western, and Texas) as soon as 2013. They would meet near Clovis, N.M., just west of the Texas border. The Federal Energy Regulatory Commission has given a preliminary go-ahead to the proposal, known as Tres Amigas, which doubles as the name of the company running it. The federal commission's chairman has praised it as a "prime example of the creativity and pioneering thinking that our country needs."

But serious questions remain over whether the project would benefit Texas residents and businesses — whether electricity prices would rise or fall and whether the connections would allow other states to siphon off too much of Texas' wind power. Large industrial users of electricity in Texas have objected, arguing the move will drive up prices. Some consumer advocates beg to differ, agreeing with Tres Amigas officials that the state's energy customers could benefit by making available electricity from around the nation. At issue is whether the importing of power, potentially at lower rates, would be offset by whatever Texas might lose when cheaper power flows out of the state to meet demand elsewhere. 

The chairman of the Texas Public Utility Commission, Barry Smitherman, remains wary. The project, he said in a Texas Tribune interview earlier this month, "would basically stick a big straw into the Panhandle of Texas and take out the wind energy that's developed up there" and send it to California, which has a well-documented lust for green power.

The Texas portion of the interconnection is not yet a done deal: The company awaits a crucial action from FERC to waive federal jurisdiction for transmission lines connecting to the Texas grid. Texas regulators do not have veto power over the project, but they could make the connection to the Texas grid difficult: ERCOT, the state grid operator, will need to review the project to make sure it will not harm grid stability, and the PUC will likely need to approve proposed transmission lines that would send electricity into ERCOT.

Energy independence

Texas prides itself on having its own grid, a situation that grew out of the Second World War and the desire for a reliable, homegrown supply. ERCOT does not actually cover all of Texas: El Paso and a few pieces of East Texas are left out, as well as a northern slice of the Panhandle, the windiest part of Texas. Texas has planned $5 billion worth of transmission lines to funnel West Texas wind to cities like Dallas and San Antonio, and some of those lines would reach farther into the Panhandle than before, bringing the power back to the state grid. The PUC worries that the state's investment would be difficult to recoup if an interconnection simply redirected the Texas-produced power elsewhere.

ERCOT already connects to other grids in five places: three with Mexico and two with the eastern U.S. grid. However, says Kent Saathoff, ERCOT's vice president of operations, those five are a lot smaller than the Tres Amigas project, and the Mexico interconnections are used mainly for emergencies. ERCOT is also evaluating a proposal for a sixth interconnection project, in Rusk County. The Tres Amigas project "would certainly have some effect" on electricity prices, Saathoff said.

Tres Amigas has strong backing from New Mexico's governor, Bill Richardson, a former U.S. secretary of energy. Phil Harris, the CEO of Tres Amigas, is also a New Mexico native, though his former job was heading a mid-Atlantic transmission planning organization called PJM. (Harris named the venture after deciding it was high time a power project had a female, Southwestern name.) 

Harris argues Tres Amigas could transform the southwestern United States into a renewable energy hub for wind power from Texas and other southwestern states and also solar and geothermal energy, which harnesses the heat deep in the earth to make electricity. That power needs to move in more directions — "like uncorking a bottle," Harris says. Tres Amigas counts among its investors Harris; ZGlobal, an engineering company; American Superconductor, a Massachusetts company specializing in grid infrastructure; and Alt Energy, a Connecticut- and Iowa-based private equity fund.

In March, FERC approved Tres Amigas' plan for recouping its investment: by charging companies for the right to pass energy through its system. But the regulators declined to waive federal oversight for lines that would connect to the Texas grid, saying they needed more information. Without such a waiver, the project cannot go forward due to ERCOT rules. So Tres Amigas will need to re-file if it wants to connect to ERCOT. This is probably the most crucial piece of the approval process, and a number of Texas parties — including the PUC — have made filings to FERC arguing for or against the project.

Two other steps are necessary. Before it links up to the Texas grid through a transmission line, Tres Amigas will also need to file a request with ERCOT for an interconnection study. ERCOT will then review the project and can order changes to ensure grid reliability. (The company says it will make its filings to interconnect with ERCOT next year, and once approvals are received, the connection would take two years to build.) Most transmission companies wanting to connect to ERCOT would also need to file with the PUC. Harris says his company is talking with a number of transmission providers, though Dallas-based Sharyland is the only one that has publicly announced interest. He says Tres Amigas has already secured all necessary environmental permits for the site, whose eastern boundary is a mile from the Texas border.

Imports, exports and blackouts

Texas consumers will benefit from the project, Harris maintains. Tres Amigas has spent three years studying prices in Texas and the other two grids, he says, and it found "many, many intervals" where Texas power was more expensive than on another grid. "It makes a lot of sense to be able to import cheaper power, and that means the citizens of Texas win," he says.

Of course, the reverse will sometimes be true as well: If prices in Texas are cheaper than elsewhere, then that cheap power may flow out of state. Texas Industrial Energy Consumers, a group that represents manufacturers and other large users of electricity, has vigorously opposed the project, saying it will raise prices in the Texas grid. Another vocal opponent is a group of companies called Occidental Permian, Occidental Chemical and Occidental Power Marketing, some of which self-generate power — and thus would compete in some sense with Tres Amigas, which brings more power to the grid from outside Texas — but also use a huge amount of it for oil and gas and chemical operations in Texas.

But Tom "Smitty" Smith, the director of the Texas office of Public Citizen, a consumer and environmental advocacy group, says he supports the project. "We think it's a potential way to reduce costs and is something we ought to be exploring," he says. Another supporter is Scandia, a wind developer that plans a big project in the Texas Panhandle.

Occidental has raised reliability concerns, but Saathoff, of ERCOT, contends that a blackout in one of the other two grids would not domino into Texas, because the type of connection involved, called "direct current," closely controls the way the power flows. Harris called a blackout contagion "physically impossible," noting that Tres Amigas will also use large energy storage systems to help back up the grids.

Nonetheless, Texans may have a hard time warming up to the three-grid project. Already, comments about Texas sitting it out are making the rounds. "I heard the term 'Dos Amigas' used more than a few times," writes Michael Giberson, an energy expert at Texas Tech University's business school, in a recent blog post.

Asked if Tres Amigas would move forward if only two grids — eastern and western — signed up, Harris replied: "Yeah. That's already proceeding." Construction of that interconnection should begin next year. But he quickly added that his company was "extraordinarily confident" that Texans would reap economic value from the project. "If there's no benefit," he says, "obviously you wouldn't want to do it."