Texas Power Industry Schedules Billions of Dollars of Generation, Transmission Projects

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Despite heat waves, regulatory uncertainty and drought, the lights stayed on in Texas during the sweltering summer of 2011. Today, electric utilities, power developers, regulators and engineering, procurement & construction (EPC) firms are working hard to strengthen and expand generation and transmission in the Lone Star State, to ensure customers have an adequate and reliable supply of electricity for future peak demand periods.

Texas utility regulators are doing their part by raising the ceiling on peak-hour electric costs, to $4,500 per megawatt-hour (MWh) from the current $3,000 per MWh to incentivize construction of additional generation and transmission projects in the state. That cap will remain in place until next May, and many observers agree it will be raised yet again for future years.

Power prices only rarely approach these levels, usually during periods of extreme heat or cold. During 2011, wholesale power prices in Texas averaged about $60 per MWh. But during peak periods, as electric prices approach their caps, a state agency, the Electric Reliability Council of Texas (ERCOT) (Austin, Texas), keeps the lights on by paying large electric users to cut back on their electric use.

Electric prices and the future construction of power generation in Texas are influenced largely by natural gas prices, which plummeted to about $2 per million British thermal units (MMBtu) recently. Texas' electricity market is deregulated, which means generators in the state enjoy no guaranteed rate of return. Therefore, Texas generators must try to maximize their profits during periods of shortage to offset thin margins for the rest of the year.

Matching electric supply to demand can be particularly challenging in Texas, partly because the state functions as its own electricity market, with very limited transmission connections to other regional markets. Therefore, Texas' electricity market must be self-sufficient; it can't rely on importing power to meet its electric demand. Miscalculations or periods of extreme weather or unplanned outages could threaten electric reliability in the state.

"If we don't get investment in our generation market, we are in a world of hurt," Donna Nelson, the chairwoman of the Public Utilities Commission of Texas (PUCT), told The Fort Worth Star-Telegram recently. Last month, the PUCT approved Nelson's proposal to raise the price caps to $4,500 through the end of next May.

The paper quoted Ashley Barrie, a spokeswoman for Luminant Generation (Dallas, Texas), a division of Energy Future Holdings (Dallas), as saying "current wholesale power prices and price signals are simply not at levels necessary to support development during the near term."

Utilities, developers and EPC firms also are staying busy developing new generation and transmission projects in Texas. Industrial Info is tracking 121 Electric Power projects in Texas that are scheduled to kick off between January 2012 and December 2013. The total investment value (TIV) of these projects is $22 billion.

These projects are in various stages of planning, engineering and construction. Right now, 50 projects collectively valued at $14.7 billion are in the planning stage. An additional 23 projects valued at $6.6 billion are being engineered, and 47 projects valued at $744 million are under construction.

The projects are dispersed across 12 zones in Texas. The zones with the highest dollar-value of projects scheduled to kick off by year-end 2013 include:

Zone 2, in the Texas Panhandle, has a total of $7.7 billion of Power Industry projects

Zone 6, which includes Lubbock County, follows with $4 billion of projects

Zone 8, which includes Dallas County, is scheduled to host $2.2 billion of projects

Zone 3, which includes Travis County, is on track to kick off about $2 billion of projects

Click on the image at right to see a bar chart showing where power projects are scheduled to be built, by zone, in Texas.

The generation projects scheduled to kick off by year-end 2013 include a mix of windfarms and natural gas combined-cycle (NGCC) projects. As well, several high-voltage transmission projects are scheduled to begin construction. Some of the largest projects in the advanced engineering phase include:

• The Temple Natural Gas grassroot, 550-megawatt (MW) energy Center, a $650 million project scheduled to kick off in mid-2012 and be brought online in mid-2014. Panda Energy International Incorporated (Dallas, Texas) is the project's owner, and a unit of Bechtel Corporation (San Francisco, California) is providing EPC services to the project.


• The Horseshoe Bay 560-MW natural gas T C Ferguson combined-cycle addition, a $625 million project where dirt is scheduled to be turned in mid-2012 and begin generating electricity by late 2014. Fluor Corporation (NYSE:FLR) (Irving, Texas) is providing EPC services to this project, which is owned by the Lower Colorado River Authority (LRCA) (Austin, Texas).


• The Windthorst 150-MW grassroot Bobcat Bluff windfarm, a $345 million windfarm that is scheduled to kick off construction in mid-2012 and be brought online in late 2012. M.A. Mortenson Company (Minneapolis, Minnesota) is providing EPC services to this project, which is owned by enXco (San Diego, California), a unit of French electricity giant Electricite de France S.A. (EPA:EDF) (EDF) (Paris, France).


• The Vernon grassroot 345-kilovolt (kV) Riley-Krum West Transmission Line, which will stretch about 150 miles from Vernon, Texas, to Krum, Texas. This $250 million project, owned by Oncor Electric Delivery Company LLC (Dallas), a unit of Energy Future Holdings Corporation (Dallas), began construction earlier this year, and is scheduled to be operating by the middle of 2013.


• The Eldorado 345-kV Big Hill-Kendall grassroot transmission line, a 38-mile line scheduled to be built in West Texas. Irby Construction Company (Jackson, Mississippi) is the general contractor for this project, which is owned by LCRA. Construction will kick off later this year and the project is scheduled to be in-service by the end of 2013.


• The Vernon grassroot 345-kV Riley-Tesla transmission line, a 65-mile line from Wilbarger County, Texas, to Childress County, Texas. Owned by Electric Transmission Texas LLC (Austin), this $125 million project, which began construction earlier this year, is scheduled to be operating by early 2014. Electric Transmission Texas is a joint venture between units of American Electric Power Company (NYSE:AEP) (Columbus, Ohio) and Berkshire Hathaway (NYSE:BRK.A) (Omaha, Nebraska). Irby Construction is the general contractor for this project.

Industrial Info does not expect that every project will begin or finish construction according to its schedule. Delays in permitting could delay generation or transmission projects. Transmission lines may need to be rerouted in response to local opposition. The inability to negotiate a power purchase agreement could defer the start of construction for generation projects.

However, federal environmental regulation is a powerful force driving construction of generation and transmission assets in Texas. Some in the state's Power Industry worry that regulations like the Cross-State Air Pollution Rule, issued last year by the U.S. Environmental Protection Agency (EPA) (Washington, D.C.), could cause the lights to go out in Texas. That rule has been temporarily stayed pending the resolution of federal court challenges. For more on how CSAPR could affect electric reliability in Texas, see October 11, 2011, article - EPA Proposes Technical Changes to Finalized Cross-State Air Pollution Rule.

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Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.