Frontlines

Pancakes for Breakfast?

Two new transcos wake up to a stack of protests.

With the first deadline only a month away , electric utilities have launched trial balloons before filing plans at the Federal Energy Regulatory Commission for regional transmission organizations (RTOs).

And, like water flowing uphill, these balloons want to float upwind, toward the money.

I'm thinking in particular of two new ventures. The first is International Transmission Co., proposed by DTE Energy, the parent company of Detroit Edison. The second is American Transmission Co. LLC., the transco (stand-alone transmission company) created in Wisconsin by state legislation that claims six utility members plus a municipal utility as an equity partner.

Regardless of motive, these two balloons share the same goal: Lock in the profits before the feds close the door. For credibility, each looks to state PUC ratemaking.

In some regions that have formed independent system operators (ISOs), and in others that failed, and in the Midwest, where the rules are still in doubt, the utilities say they must accept a pay cut to join the club. In a column I wrote exactly one year ago, I quoted José Delgado, vice president of electric system operations at Wisconsin Electric Power Co., on the cost of joining an ISO. Delgado, who now moonlights as CEO of ATC Management, the corporate manager of the ATC transco, had testified last year in the Midwest ISO proceedings, showing how WEPCO (and others) enjoyed a much higher return on equity (ROE) on transmission plant from state regulators than they would under ISO protocols.

This past summer I cornered Bill McCormick, CEO of CMS Energy, at a press luncheon in Washington, D.C. CMS Energy owns Consumers Energy, the electric utility located just to the North of DTE, and the other big transmission player in Michigan. I asked McCormick about DTE's proposal, and he talked freely about the idea of spinning off transmission.

"You ask yourself whether you're getting enough on your investment, and if not, you think about getting rid of it," he told me. And the FERC's grudging acceptance of an 11.6 percent ROE on transmission service in the recent Southern California Edison case doesn't really ease the pain. Utilities want more. But now McCormick and Delgado have learned how to play the game.

It's simple. Call the FERC's bluff. The feds say they want innovative ratemaking ideas, so oblige them. Before you take the vow of poverty, design your tariffs and ROE on your own terms. Then bring those dollars with you as a fait accompli. Your transco will operate within the ISO/RTO as a separate profit zone, outside the low-rent district.

There's a problem, however. While you're boosting your bottom line, you're adding a middleman. In the jargon of electric transmission, that's one extra "pancake" on the plate. And pancakes sit heavy on a regulator's stomach.

"Did the commission mean what it said about not offering bribes?" That's Robert McDiarmid talking, from the Washington, D.C. law firm of Spiegel & McDiarmid, a staunch ally of municipal utilities. He represents a coalition of transmission-dependent