NGI The Weekly Gas Market Report / NGI All News Access

Shareholders, Regulators Could Gain from Transmission Sales

April 10, 2000
/ Print
| Share More
/ Text Size+

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 operated transmission.

Richard Nemec, Los Angeles

©Copyright 2000 Intelligence Press, Inc. All rights reserved. The preceding news report may not be republished or redistributed in whole or in part without prior written consent of Intelligence Press, Inc.

ISSN © 2577-9877 | ISSN © 1532-1266
Comments powered by Disqus