PERSPECTIVE
WORLD-GENERATION MAY/JUNE 2015 V.27 #2
14
as transmission developers have clamored
for the right to offer alternatives to the
utilities’ construction of high-voltage
projects subject to cost allocation in their
regions.
The Adolescence of RFPs.
From the
mid-late 1980s to the mid-90s, RFPs for gen-
eration mushroomed. There were early
unsuccessful attempts as utilities and regula-
tors tried to determine the right criteria, rel-
ative weightings, and evaluation processes
for those RFPs. Conducting such RFPs
required the utilities to be explicit about the
basis for the “need” that was being satisfied
with such capacity. In transmission, we are
now in this stage, as some RTOs/ISOs have
issued one or more RFPs, with very differ-
ent models of such processes, and questions
about how to satisfy transmission reliability,
economic, and public policy needs.
Expansion Phase.
As generation
RFPs grew common, many utilities formed
subsidiaries to compete outside of their
“home turf”, and often formed joint
ventures (JVs) to bid with independent
firms on these opportunities. This has
already happened in transmission, with
more than a dozen such entities at the
utility holding company level, and many JVs
for specific projects or broader efforts (e.g.,
Duke-ATC, Transource). The number of
opportunities in transmission is notably less
than for generation, as generation RFPs
were utility-specific, while transmission
RFPs are regional, state-wide or province-
wide to serve multiple utilities’ needs. Still,
there will be more transmission
solicitations as this phase plays out.
Maximum Industry Size,
Consolidation, and Strategy.
As in gen-
eration, the size of the transmission indus-
try will be self-limiting, as the number and
scale of opportunities (and projects outside
of the RFP process) will dictate how many
firms do well, and how many decide to fold
their tent. Each solicitation has more los-
ers than winners. Putting together bids is
expensive, and companies will pursue only
the ones where they believe they have a
good chance of success. Some firms will
adopt a regional (closer to home) strategy
and others a national or North American
one; in fact, this is already happening.
Competition Becomes the Norm.
In the final stage, the RFP process will
become independent of the original law or
regulation that started it. Competitive gen-
eration now represents over 40% of all
power produced in the US, and it is not
dependent on PURPA for its vitality and
growth. If RFPs for transmission produce
benefits for customers, as recognized by
state regulators and RTOs, then such solici-
tations will become commonplace, without
regard to FERC Order 1000.
Thus, though they are being applied for
the first time in North America, transmis-
sion RFPs are following a predictable path.
Let’s now look to the present and future.
What do the transmission solicitations look
like and how should we expect these RFPs
and indeed the overall transmission indus-
try to develop?
JVs Will be Common.
As suggested
above, JVs often make it easier to bring
together all the qualities deemed necessary
for success, given the evaluation criteria
(e.g., permitting, siting, costing, financing,
operating, etc.). However, JVs are not
always necessary. One company, NextEra
Energy Transmission, has been successful
both on its own (in California), and in a JV
(in Ontario). The figure below depicts the
teams selected to bid in the most recent bid
in Alberta, where local (Alberta-based)
firms combined with US-based firms or
financial institutions in the Fort McMurray
West solicitation.
An important element of success in the
solicitation process – and indeed in the
competitive transmission industry – will be
to choose the right partner(s).
There are two primary forms of solici-
tations, which we call “open” and “closed”.
Open RFPs are ones where the evaluator
indicates that they have a reliability or con-
gestion problem at a certain point in the
grid, and they ask for bids to alleviate that
concern. This can lead to a great diversity
of bids, and is the approach the PJM adopt-
ed in the Artificial Island and market effi-
ciency bids. PJM received 26 bids in
response to the Artificial Island solicitation,
with solutions ranging from installation of
reactive power devices to construction of
various configurations of 500 kV lines, and
costs ranging from $115 million to about
$1.5 billion. The “closed” form is where the
evaluator specifies that the needed solution
is a specific line or substation at a specific
point on the grid (e.g., between two substa-
tions) for a certain delivery date. This is
the approach that CAISO, Ontario and
Alberta have utilized to date. While this
approach limits the bidders, it makes sense
where the solution to the system need is
clear. Both forms of solicitations have
resulted in awards to winning bidders.
What we expect is that as competitive
transmission expands, the RTOs and their
evaluators will increasingly divide their
evaluation process into two major steps, as
(continued page 27)
Canadian Utils
Quanta, Valard
& ATCO
AltaLink, AEP,
Burns & McDonnell,
SNC Lavalin
TransAlta,
MIdAmerican
EPCOR, LS Power
Kiewit, Sargent &
Lundy
TransCanada,
Elecnor
Figure 2 - Bids in the Fort McMurray West 500 kV Line Solicitation – Joint Ventures
Abounded
WHO GETSTO BUILDTRANSMISSION?
CONTINUED FROM PAGE 13
