Pioneer Transmission
Pioneer Transmission
John Laing Group ("John Laing"), a leading international investor and active manager of core infrastructure assets, acquired Duke Energy’s 50% equity interest in Pioneer Transmission, LLC (“Pioneer”). The acquisition completed in November 2024. Pioneer—previously owned by Duke Energy and American Electric Power (AEP)—is a 42.5-mile, 765-kilovolt (kV) transmission line and associated substation assets. In service since 2018, the line extends from Greentown Station to Reynolds Station, west of Lafayette, Indiana. It is a well-maintained, key asset that provides reliable services to the local community. This project should win the award for the following key reasons: - Complex procurement process with changing transaction parameters - Nimble management of stakeholders in complex procurement process - Effective risk assessment and risk transfer - Transformative impact on the local community and environmental impact - Innovative financial structuring Innovation in Procurement, Structure, Finance, and/or Delivery. The procurement of this asset was complex. AEP announced its intention to divest this asset in its Q2 2023 quarterly earnings and subsequently ran the divestment process of Pioneer and Prairie Wind Transmission. John Laing submitted a competitive non-binding offer (NBO) for both assets. However, in early Q1 2024 (after receipt of NBOs), Duke Energy announced its intention to sell its stake in Pioneer. To sell this asset, Duke Energy joined AEP’s sale process, thus expanding the parameters of this transaction. Shortly thereafter, in its Q1 2024 earnings call, AEP announced its intention to retain its shares in both Pioneer and Prairie Wind Transmission, thereby halting its divestment process. The changing parameters of this transaction—in which the original seller (AEP) withdrew but was subsequently replaced by the asset’s co-owner (Duke Energy)—created a very complex transaction process wherein innovation was required by all parties to overcome material deal matters. Innovation in Financing John Laing ultimately performed a thorough due diligence process and purchased the asset within a one-month timeframe. This was challenging because the participants, size, and parameters of the deal were in flux. However, despite this dynamic environment, John Laing conducted a thorough market sounding by reaching out to institutions and investors to raise efficient capital at the John Laing acquisition company level. Throughout the market sounding and prior to signing financial commitments, investors were asked to agree to key terms while remaining flexible with the total quantum size and parameters as these changed materially throughout the transaction process. Material deal matters that John Laing managed within a short timeframe and a dynamic environment included: • Change of control provisions to assume the existing operating company’s debt • Change of operating service agreements to the new John Laing-AEP joint venture • Completion of a competitive procurement for a third party operator for business and operations and maintenance services Assessing Risk and Transferring Service Provision to AEP Prior to the transaction, AEP provided operations and maintenance services of the transmission line while Duke Energy provided business services. Pioneer was John Laing’s first investment in FERC-regulated transmission lines. As such, it was determined that it would be most effective for the asset, and ultimately for rate payers, for AEP to undertake Duke Energy’s existing responsibilities instead of delegating provision of these services to John Laing. For this reason, as part of the transaction closing, John Laing and AEP agreed that AEP would provide business services—previously performed by Duke Energy—leveraging AEP’s in-house expertise. John Laing also performed due diligence and developed an innovative structure that ensured no impact on customer rates. Considering Future Expansion in the Asset Valuation While not concurrent with a project milestone, the acquisition of Duke Energy’s stake in Pioneer Transmission occurred during the Midcontinent Independent System Operator (MISO) Long Range Transmission Planning. This planning focuses on future transmission investment across the MISO region and is organized into four tranches as follows: - Tranche 1: Received approval in 2022 and represents a $10.3 billion investment through 18 transmission projects in MISO’s Midwest Subregion - Tranche 2: Currently underway - Tranche 3: Will address MISO South Region needs - Tranche 4: Will be focused on the North/South Region interface After the NBO stage, MISO released its initial draft of the Tranche 2 portfolio, which includes a ~45-mile line from Greentown substation. While Tranche 2 projects have not been finalized, there is potential for a new greenfield opportunity at Greentown substation, which is within the Pioneer asset and therefore further complicated this sale process, as Indiana legislation allows for right of first refusal by existing parties at the substation. To accommodate this potential future expansion—which could affect the value of the asset—the John Laing team performed preliminary due diligence to determine the likelihood and potential capital implications of a future project at the Greentown Substation, post-acquisition. John Laing assembled a new technical workstream to examine this potential expansion and determine the price impact. Design Quality for a Sustainable Transmission Line Pioneer’s design quality is robust, including 193 steel lattice towers with concrete pier foundations across the line. In addition, the assets that Pioneer owns in the Greentown substation have a robust design, including four reactors, three reactor breakers, six line breakers, 21 motor-operated switches, four relay panels, and nine protection relays. Pioneer's design quality will ensure a sustainable transmission line with a long-term lifespan for the equipment. Sustainability and Promotion of Environmental Measures Electricity transmission is a key component enabling the trend of increasing electrification and the integration of renewable energy. Transmission can have a favorable impact on renewable energy costs; a recent study demonstrated a 27% decline in total system cost from $110/MWh to $80/MWh. Pioneer is well positioned to support Indiana with its goals to shift the generation mix towards renewables, as transmission between high-renewable areas and load centers reduces both fossil-fuel use and the region’s carbon footprint. In Indiana, the shift toward renewables is ongoing: in 2013, renewables comprised 6.3% of Indiana’s energy mix, whereas in 2023, the renewable mix grew to 19.2%. As of Q2 2023, $2 billion has been invested in the Indiana solar sector. Social Impact and the Transformative Effect of the Project on the Local Community and Users Pioneer sits within the MISO region. MISO has announced a robust plan to retire coal-fired power plants over the coming 15 years in favour of additional renewable power generation. This renewable power will be supported by a “highway” of 765-kV transmission assets, of which Pioneer is a key connection node. Pioneer has a strong social impact and will be transformative for the local community due to MISO and the state's ability to connect newly built renewable power to the grid. This will enable clean power for residents in the Indiana region and a cleaner energy mix for the state's residents.