Shareholders, Regulators Could Gain from Transmission Sales
Last week's announcement by Montana Power that it is getting out
of the energy utility business may be the start of a new push to
separate electric transmission and distribution, with an increase
in merchant transmission proposals, spurred by both shareholders
and regulators of the utilities, according to one of the nation's
first merchant power transmission companies. U.S. electric
transmission systems collectively represent a $70 to $90 billion
set of assets.
The depressed stock prices for merged and consolidated energy
companies, along with FERC Order 2000's incentives for
"independent" transmission ownership, are pushing the U.S.
inevitably toward so-called "transcos," for-profit, nonutility
owner/operators of the nation's major electric transmission lines,
said Fred Buckman, chairman of Washington, DC-based Trans-Elect, in
prepared remarks for a regional conference Thursday in Florida.
"Where ISOs (independent system operators) happen, they will
only be a transition to a Transco-dominated industry," said
Buckman, a former president at PacifiCorp, emphasizing that he
thinks merchant transmission companies, such as Trans-Elect will
better meet the needs of customers, regulators and shareholders.
"The move to divest transmission and distribution is really
going to have a pretty profound impact on other utilities," said
Robert Mitchell, an executive vice president and one of the
founders of Trans-Elect. "It highlights how under-performing
transmission is for investor utilities. (There are several cases
before FERC seeking greater authorized returns for transmission.)"
Mitchell said it is still uncertain whether his firm will bid on
Montana Power's electric transmission assets, but he noted that
they would "certainly be taking a hard look at it, and one way or
another, it is a positive move for us." He said Trans-elect is
concentrating on some of the utility holding companies, such as
First Energy in Ohio, that have already announced they are exiting
the power transmission business. Merchant power companies can offer
"attractive alternatives" to spinning off the assets into
affiliated companies or ISOs, Mitchell said.
Although unsure of what eventual organizational form it takes,
new transmission will likely be built because there is a lot of
"pent-up demand" for it, according to ABB's Raleigh, NC-based Rana
Mukerji, vice president of electric systems consulting.
Case-by-case and region-by-region approaches will finally unfold,
and in many cases, it will be a choice between what makes most
economic sense-new high-voltage electric transmission or
distributed generation with new natural gas pipeline links.
"If you cannot build electric transmission, people will be
looking more into the fuel cells and distributed generation,"
Mukerji said. "If there are not the right (price and regulatory)
signals for building more power transmission, you will see a
movement toward distributed generation."
Trans-Elect's Buckman will tell his Florida audience that there
is a "dark side" to the attractiveness of ISOs long term, given
what he calls their "passive" (third party) ownership that he
thinks discounts asset values in an environment where there are
insufficient incentives to replace traditional control and to
control capital investment.
As a result, Buckman argues that those utility holding companies
that have converged, merged or diversified for the most part have
stocks selling close to their 52-week lows; compared to Montana
Power and Duquesne Power, which are both selling close to their
52-week high stock prices. The so-called "disaggregators" are
leading the utility performance curve, Buckman said.
In the months and years ahead, the key question for utilities
will be whether to spin off or sell their transmission assets,
which traditionally equate to about 80% of the generation holdings
of vertically integrated electric utilities.
"The advantage that we have is that FERC sees us as completely
independent and completely new in ownership and operations," said
Trans-Elect's Mitchell, who acknowledged that his company
interprets FERC Order 2000 as incenting more merchant owned and
Richard Nemec, Los Angeles