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Frontlines

Two new transcos wake up to a stack of protests.
Fortnightly Magazine - September 15 2000

muni's in Michigan that opposes DTE's clever scheme. Detroit Edison would spin off its grid assets to ITC and at the same time lock in rates at a high level equal to the revenue requirement for transmission service implicit in the transmission rate component of Detroit Edison's current retail rate for bundled electric distribution service, as set by the Michigan Public Service Commission in 1994 in a traditional state retail rate case. Edison would then accept a freeze on transmission rates—one that would mirror the freeze on retail electric rates imposed by Michigan's recently enacted restructuring legislation.

McDiarmid bristles at the whole idea. "What the filing really counts on," he argues, "is regulatory capitulation—the notion that the FERC will accept even a patently unreasonable and unsupported rate increase as a quid pro quo for Detroit Edison's transmission divestiture."

He sees DTE angling for advantage by being one of the first out of the box: "For obeying the law, and with no showing of materially changed circumstances, the DTE companies deem themselves entitled to double the rates."

DTE's gambit also has caught the eye of Michigan Attorney General Jennifer Granholm and the corporate advocacy group ABATE (Association of Businesses Advocating Tariff Equity), which includes large-volume industrial electric customers such as General Motors, Ford, and Daimler/Chrysler.

Granholm warns that DTE's plan would hike average transmission rates 48 percent higher than Edison's current, FERC-filed open-access transmission tariff (OATT). She says it would boost rates as much as 72 percent for firm point-to-point service.

"All customers taking service under grandfathered agreements predating Order 888 will be protected from the proposed rate increase." And Granholm also questions DTE's theory that you can extract a fair ROE for transmission from a state PUC order. She claims that back in Detroit Edison's 1994 retail rate case, the state PSC did not define and quantify unbundled generation, transmission, and distribution components consistent with current accepted methods.

In Wisconsin, Delgado would defend high profits in the name of expansion. In his case, ATC would belong to the Midwest ISO, but would collect its own ROE proposed at 12.2 percent—a figure chosen to mirror the highest state-approved ROE for any of the six transmission owners, and higher than the 11.5 percent ROE stipulated as acceptable by Midwest ISO members.

Moreover, ATC would earn that higher ROE on a jacked-up rate base. In what it called a "transmission expansion adder," ATC would calculate ROE on the current level of equity capital plus the equity value of future transmission construction planned by year's end. What a terrific way to justify profits—an incentive to expand the grid—what everyone wants.

Beyond that, ATC would run a single pricing zone within the Midwest ISO, at first charging a license plate rate for network service (reflecting the different cost structures of its individual members), but later phasing out license plate pricing to a single network rate over the five years starting with ATC's 2001 startup.

(One member of ATC, Wisconsin Public Service Corp., has complained about this phase-in plan. William L. Bourbonnais, WPSC's manager of rates and economic