American Electric Power, Co.

Investment in electric transmission for years has been like the weather—everyone talks about it, but nobody does anything. But a report just released says the forecast for transmission is brightening, and a diverse group of sources confirms for ENR that a combination of regulatory changes and market forces is clearing the market for takeoff.

“We are in the early stages of what will likely be a multiyear build-out of the nation’s electric transmission system, driven by aging infrastructure and the increasing need to wheel power across multiple regions,” says the report, “Electric Transmission Overview,” by brokerage house A.G. Edwards & Sons Inc., St. Louis. A variety of factors has come together to drive the trend, says Neil A. Kalton, the analyst who led the team that produced the report.

The Federal Energy Regulatory Commission “really wants to develop competitive markets [for electricity]. The grid is not built for that,” Kalton says. To promote that goal, FERC is providing big incentives for grid investment, such as allowing returns on equity in the 11% to 14% range and quicker investment recovery through early inclusion of construction work in progress in the rate base. The improved regulatory climate has changed transmission from an underperforming asset into a money-maker for many utilities.

+ click to enlarge

Signal Received

Transmission owners are responding to the market signal. “The industry has been investing and will continue to invest in the nation’s transmission infrastructure at levels not seen in 30 years,” said an “Energy Data Alert” in December from the Edison Electric Institute to its members, which are shareholder-owned utilities. “Since 2000, the industry has invested more than $23 billion in the nation’s transmission system,” said the alert. “From 2006-2009, preliminary results indicate that the industry is planning to invest $31.5 billion…nearly a 60% increase over the amount invested from 2002-2005.”

In January, EEI released a report describing a broad sample of transmission proposals across the country. It profiled 67 projects, almost all of them either in development or under construction. The Tennessee Valley Authority and Bonneville Power Administration, which are not included in EEI data because they are federal power agencies, together report plans exceeding $2 billion in value over the next five years.

“I believe we’re in a building period for the foreseeable future,” says Mike Heyeck, senior vice president for transmission at American Electric Power Co., Columbus, Ohio. Like other sources, Heyeck says the U.S. transmission grid, constructed by vertically integrated utilities to meet the needs of their service areas, is “Balkanized” and ill-suited to the restructured electricity market. Energy resources such as wind in the Great Plains and coal in Wyoming are located far from the load centers on the coasts and must be linked to them with long transmission lines.

Heyeck says the industry today faces a challenge similar to “what [President] Eisenhower faced in funding and building the Interstate system” in the 1950s. Rather than invest in expanding the existing highway network, the U.S. overlaid it with an entirely new, high-speed, high-capacity highway network. AEP has the beginnings of such an overlay in its 765-kV lines and now is acting to extend it.

Last year, AEP proposed to construct a $3-billion, 765-kV transmission line 550 miles long from Putnam County, W.Va., to Middlesex County, N.J., provocatively naming it the I-765 Project (ENR 2/6/06 p. 9). The utility also is studying a $2-billion, 630-mile-long, 765-kV transmission expansion in Michigan, Indiana and Ohio with International Transmission Co., Novi, Mich. In Oklahoma, Kansas and Arkansas, AEP last summer proposed 610 miles of 765-kV lines for an estimated $3 billion. And AEP and MidAmerican Energy Holdings Co., Omaha, are in a joint venture to design, construct and operate transmission assets to connect competitive energy zones in Texas, where AEP alone is exploring a 420-mile, $1-billion, 765-kV opportunity.

Infrasource Inc. Labor, material and equipment availability may limit market’s growth.

Contracting Changes

“Customers are jockeying for position to get to market now,” says David R. Helwig, president and COO of transmission contractor InfraSource Inc., Media, Pa. They are recognizing that the market’s contracting is limited, and they are rushing to lock up their share now. InfraSource has grown 25% annually for the last three years, but “we couldn’t grow as much as we’d like,” Helwig says. “Our research has shown that the size of the market is just huge.”

“The outlook for contractors and others like MYR Group Inc. has never been better,” says William A. Koertner, president and CEO of the Rolling Meadows, Ill.-based transmission contractor. MYR last year completed engineering, procurement and construction of a 125-mile-long, $134-million, 345-kV line from MidAmerican’s new Council Bluffs Energy Center to Des Moines, Iowa. It was one of the largest projects in recent years. Koertner says 10% to 15% annual company growth is “achievable.”

Wind-farm construction now is driving the transmission market. “We bid three projects just this week” to deliver wind-generated electricity, says Koertner. But wind-energy transmission requires a different approach from the contractor. Many developers are “individuals—dentists, doctors, lawyers” and other people—without the electrical expertise of a utility, and they want an engineering-procurement-construction contractor to handle the transmission package, he says. “You must do more on spec with a developer,” and it is important to “make sure there is some substance to the project,” he adds.

Work force is “the major problem,” says Koertner. Linemen have to be mobile and many are over 50 years old. “We’re working really hard to bring new people into the craft, but they have to be willing to follow the work.” Between 2008 and 2015, labor supply must double, he says. Craft and supervision availability “will determine the pace at which plans can be realized,” Helwig adds.