--AEP forms joint venture with Great Plains Energy to build new competitive transmission projects
--The JV will build two initial projects for $466 million, then compete for new projects
--New federal rules that aim to boost competition are expected to create new opportunities for transmission projects
(Adds comments from AEP executive in third, fourth and 11th paragraphs, transmission market estimate in the eighth paragraph and other details throughout.)
By Cassandra Sweet
American Electric Power Co. (>> American Electric Power Company, Inc.) said Wednesday it is forming a joint venture with Great Plains Energy Inc. (>> Great Plains Energy Incorporated) to build $466 million of electric transmission projects, followed by other projects.
AEP will own 86.5% of the new company, called Transource Energy LLC, while Great Plains Energy will own 13.5%. The firm will take over development and construction of two transmission projects Great Plains has proposed to ship power between southeast Nebraska and western Missouri, and between two cities in western Missouri.
The joint venture will focus on winning projects in a new competitive market that will result from new federal rules aimed at boosting transmission development, said Lisa Barton, executive vice president for transmission at AEP.
"We want to make sure that we're well positioned to get as many of these projects that are in our backyard as well as look at it from a growth opportunity standpoint," Barton said in an interview.
As U.S. utilities look for ways to boost revenue and earnings amid rising costs and increasing competition, building new transmission lines needed to ship electricity from one part of the country to another is an increasingly attractive business. Federal regulators introduced new rules last year that make it easier for companies to recover their costs for such projects and require regional grid operators to identify new projects that are needed.
New transmission lines are needed in most parts of the country to ensure that the grid has enough electricity at all times to meet demand, to provide access to more power resources, and to ship wind, solar and other renewable power to the grid from remote areas.
New transmission projects also will likely be necessary to deliver power supplies needed to replace dozens of aging coal-fired power plants that will be shut down over the next several years because of stricter federal pollution limits and low prices for natural gas, a rival fuel that makes coal look more expensive by comparison.
U.S. utilities are planning to invest between $240 billion and $320 billion in transmission projects through 2030, according to a report issued last year by The Brattle Group. The projects include building new transmission lines, beefing up existing lines, building new substations and other facilities.
AEP, which owns several utilities, is also the largest U.S. transmission operator and one of the largest transmission developers. The company plans to spend more than $2.2 billion on new transmission projects through 2015.
Among those is a $1.6 billion, 420-mile transmission line that AEP plans to build with Exelon Corp. (EXC) and a joint venture that AEP owns with MidAmerican Energy, a unit of Berkshire Hathaway Inc. (BRKA, BRKB); a $1 billion, 260-mile transmission line through Indiana that AEP is developing with Duke Energy Corp. (>> Duke Energy Corporation); and a group of projects in Texas that AEP is building with Mid-American Energy.
AEP will continue developing and building its existing projects at "full force," while looking to develop new projects through the Transource joint venture, Barton said.
Under the new transmission rules set by the Federal Energy Regulatory Commission, regional grid operators must identify new transmission facilities their region will need to meet growing energy demand, relieve congestion on the grid, bring new renewable resources to market and ensure the region has access to power supplies amid power plant closures or other changes. The first wave of those plans is due at the FERC this fall.
In the past, individual companies could block new development by rivals if the project crossed a part of the grid that they controlled. The new rules remove that ability.
AEP operates utilities in 11 states and serves about 5 million customers. Great Plains Energy is the parent company of Kansas City Power & Light.
-By Cassandra Sweet, Dow Jones Newswires; 415-439-6468; [email protected]
(Kristin Jones contributed to this article.)