There’s plenty of capital available for investment in the transmission sector, but that money isn’t flowing more freely because of a lack of certainty that continues to permeate much of the power industry, a Senate hearing looking at the financial condition of the electric market was told last Tuesday.

“I think right now, a transmission type of an investment is perceived as [a] very attractive investment for the capital that’s out there,” said Evan Silverstein, president of the SILCAP hedge fund, in an appearance before the Senate Energy and Natural Resources Committee. Companies with deep pockets, such as Kohlberg Kravis Roberts & Co. (KKR), find investments in transmission lines compelling, but greater certainty needs to be given to the financial community in order to inject additional capital into the sector.

DTE Energy recently completed the sale of its transmission business subsidiary, International Transmission Co., to an investor group including KKR and Trimaran Capital Partners LLC for $610 million cash.

When pressed to explain why further transmission investment isn’t occurring, Silverstein noted that sellers of transmission face tax exposure. “There’s some suggestion about some tax modifications to give them an incentive.” He noted that FERC just recently provided incentives to move transmission into independent hands on a return on equity basis. “I think this is going to start to move the process along.” Transmission “looks a lot like what the traditional integrated utility model looked years ago when it was considered a very stable, low risk investment.”

The hedge fund executive said that impediments in getting transmission sited have collectively been the “major constraint” in preventing a further influx of funds into the sector.

Suzanne Smith, a director at Standard & Poor’s, told lawmakers that some of the incentives that have been structured recently related to the independent ownership of transmission are good from a credit perspective. Those incentives are positive because they offer “predictable, reliable returns for transmission owners and probably would be a good incentive for investment.”

“This country has been on a capital investment starvation diet, especially with regard to transmission, for about two decades,” said David Svanda, a commissioner with the Michigan Public Service Commission and chairman of the board of directors at the National Association of Regulatory Utility Commissioners.

Svanda said that transmission transfer capacity peaked in the 1980s. “Reasonable estimates are that we need something north of $55 billion invested in electric transmission upgrades alone, never mind the other components, never mind other related cornerstones, such as gas transmission.”

Load pockets “today, are in fact, crying for investment, but those cries are drowned out by headlines of national generation gluts and other circumstances.” He said that investors “really need help in seeing the trees in the forest.”

He also said that there should be a focus on technological advances in terms of spurring investment in “new, smart grid technologies that exist today, but have simply not been rolled out in any major fashion.”

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