Xcel Energy Inc. plans to create a transmission subsidiary to build some new high-voltage lines, executives told analysts at an investor conference investor in New York on Wednesday.
Stand-alone transmission companies are becoming more common in the electric utility industry because the federal government has encouraged them as a way to boost competition and reduce costs on big multistate power line projects.
“The main purpose is to give us some financial flexibility,” said Teresa Mogensen, Xcel’s vice president for transmission.
Xcel, based in Minneapolis, traditionally has built power lines on its own or in partnership with other utilities. But it plans to create a stand-alone transmission company in 2014 as a potential vehicle to develop $650 million in power lines in and near its Texas and New Mexico service areas.
Xcel projected overall 2014 capital expenditures of $2.9 billion and five-year capital expenditures of $14.1 billion. Transmission investments are expected to be nearly $1 billion in each of the next three years, Mogensen said.
Regulated by federal government
Electric utilities like Xcel that deliver power to homes and businesses are local monopolies whose investments and rates are closely regulated by state utility commissions.
But a new class of utility — focused solely on transmission lines — has emerged to compete for multi-state transmission projects. The financial terms of these projects typically are regulated by a federal agency rather than state utility commissions.
The Federal Energy Regulatory Commission, which has promoted more competition in multi-state transmission projects, has for several years allowed utilities higher rates of return compared with levels typically approved by state regulators for such investments. That’s one reason creating a stand-alone transmission company can be an attractive business proposition for utilities.
In 2002, American Transmission Co., based in Waukesha, Wis., was created as the nation’s first stand-alone transmission company, and now has $3.3 billion in assets. It is owned mostly by Wisconsin utilities, including municipal and cooperative power companies; Duluth-based Allete Inc., parent of Minnesota Power, has an 8 percent stake.
Some of the nation’s largest utilities, including Duke Energy and American Electric Power, also have created separate transmission ventures, which are known in the industry as “transcos.”
Xcel CEO Ben Fowke told analysts that his company needs to do likewise.
“If we are going to be in the game, a transco is something you need to have, so you are on an even keel,” Fowke said. “We don’t want to not have that vehicle if it turns out to be a competitive advantage.”
Jim Fama, vice president of energy delivery for the Edison Electric Institute, a utility trade group, said regional grid operators such as MISO, the grid operator for 15 states including Minnesota, are seeing various proposals from such transmission companies for power line projects.
“Regardless of the builder, getting transmission projects built continues to be risky and long-term, and companies need a return on equity that is commensurate with the risk,” Fama said in an e-mail.
Mogensen said in an interview that Xcel’s transmission company will mainly be a vehicle for developing and financing projects, and will rely on existing Xcel Energy employees, whose work for the unit would be charged back to it. The two initial projects being considered under the new entity are transmission lines serving new oil and gas fields in Texas and New Mexico.
She said it’s unclear whether Xcel’s new transmission subsidiary will try to build power lines elsewhere. State laws in Minnesota, North Dakota and South Dakota, three of the eight states where Xcel operates, discourage competitive transmission projects. Xcel supported passage of those competition-limiting measures.