CMS Energy’s Chairman William T. McCormick Jr. cited “asignificant lack of adequate transmission capacity,” and noincentives to build more, as threats to the reliability of thenation’s power delivery system in a deregulated environment.

According to McCormick there are two major barriers to buildingtransmission capacity. First FERC’s set rate of return isinsufficient to attract investor’s capital to expand transmissionsystems. Secondly, opposition from landowners and local governmentscan make it nearly impossible to build or upgrade transmissionlines since utilities do not receive the same rights of eminentdomain that FERC approval confers on pipelines.

The U.S. power transmission systems in existence today were notbuilt with the intention of transmitting large amounts of powerover extended distances. “In fact, utility transmission systemswere built to be somewhat independent of each other to serve thelocal loads bringing power from the generation facilities to thelocal load centers. They were really only interconnected forreliability reasons.”

“What we have is a patchwork of interconnected electricalsystems. It is not a national transmission network, never has been,never will be, at least in the foreseeable future,” explainedMcCormick.

Pipelines were built for long distance transportation;transmission lines were not. To develop a nationwide grid of highvoltage lines there needs to be some sort of incentive. FERC shouldbump up the allowed rate of return two to three points to makeinvestment an attractive proposition. “Historically FERC has had avery low rate of return for transmission investment, mainly becausethey see it as a low risk field. But the fact of the matter is, itdoes entail a substantial amount of risk. The bottom line isgetting transmission built,” McCormick said at a Washington mediabriefing this week.

The CMS executive also blamed FERC for providing a strongdisincentive for long line construction with its “unwarranted focuson ownership and governance.” McCormick disagrees with thecommission’s limit of 5% ownership interest for utilities intranscos. This, in effect, “is forcing divestment..and is badpublic policy.” McCormick believes utilities should be able tocollectively own up to 49% of transmission entities.

McCormick supplied a wish list for restructuring legislation,but added that he rated the chances Congress would pass arestructuring bill this year as slim to none.

A “sleeper issue” that poses the threat of severe electricreliability problems is the 2003 deadline set by the EnvironmentalProtection Agency for the implementation of clean air rules,McCormick said. Compliance will require retrofitting of coal-firedplants that provide about 56% of the nation’s electricity. The newtechnology necessary to achieve compliance is largely untested andhas not been installed by any utilities so far. In addition, theretrofit will cost several hundred billion dollars and impose adowntime burden on an already stressed system.

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