Xcel Energy said Thursday that it is a step closer to entering the business of building multistate power transmission projects to serve customers other than its own.
Chief Executive Ben Fowke said Xcel has created two subsidiaries, Xcel Energy Transmission Development Co., to compete for projects on the Midwest grid, and the Xcel Energy Southwest Transmission Co., to compete for projects in the Southwest. One of Xcel’s main business units already serves customers in Texas and New Mexico.
Xcel has long built transmission lines for itself or in collaboration with other utilities. One large, current project, called CapX2020, is a more than $2-billion effort with Maple Grove-based Great River Energy and others to string new power lines across Minnesota, tying to lines in South Dakota and Wisconsin.
“We’ve got a track record of delivering transmission projects at a price point that I haven’t seen anybody else match,” Fowke said during the company’s second-quarter earnings conference call with utility analysts. “And we are executing on time. So we have a lot of experience.”
In December, Xcel announced plans to form the separate transmission unit, following the path of many other large utilities. These stand-alone units build and operate multistate transmission lines, serving multiple utilities.
Regional grid operators play a lead role in planning such projects. The rates charged to utilities relying on such transmission lines are set by the Federal Energy Regulatory Commission, rather than state utilities commissions. Authorized returns on such projects have tended to be higher than those set by state officials.
American Transmission Co., based in Waukesha, Wis., and owned mostly by Wisconsin utilities, was the nation’s first stand-alone transmission company when it was formed in 2002.
Fowke said Xcel still needs to file papers with regulators, a step he expects to take later this year. Bidding on new transmission projects is expected to begin in 2015, and likely will be highly competitive.
Xcel has previously said it will compete to build $650 million in power lines in and near its Texas and New Mexico service areas. In the Midwest, transmission projects potentially available for competitive bidding will be identified in December, said Jennifer June Lay, a spokeswoman for grid operator MISO, in an e-mail.
One risk of the transmission venture, raised by Morningstar analyst Travis Miller, is that the federal agency is under pressure to reduce the return on equity that gets built into the transmission rates.
Fowke acknowledged that’s a risk, but said the larger footprint of such projects offer other benefits and financial flexibility.
“I don’t think that dampens our desire to want to have a transco,” Fowke said of the prospect of lower return on equity for transmission projects.
Xcel has 1.2 million electric customers in Minnesota and operates in seven other states, including Colorado, Wisconsin, North Dakota and South Dakota.
For the quarter ending in June, Xcel reported earnings per share of 39 cents, down 1 cent from the quarter a year ago. The comparison was affected by weather-induced gains in 2013, Xcel said. Overall, the Minneapolis-based electric and gas utility said net income was $195 million, compared with $197 million a year ago.
Revenue was $2.29 billion, up 4 percent. Weather-adjusted electric and natural gas sales also rose.