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Frontlines

Forced consolidation of RTOs would set transmission owners free to go after profits.
Fortnightly Magazine - August 2001

exists today, the Company must initially be able to demonstrate the basic elements of any viable business enterprise. It should have:

  • a definable market, preferably growing, with sustained demand for the product or service;
  • an ability to demonstrate a revenue/earnings model of framework that will result in [i] a reasonable expected return on invested capital, [ii] some level of earnings predictability and growth, [iii] a sustainable dividend;
  • a positive strategic direction with real growth opportunities through internal and external means;
  • an articulate management team that can describe and execute their business plan; and
  • some actual operating history prior to going public.

As of the date of this letter, the Company also has (1) no operating history; (2) no comparable group of public companies with which to compare; (3) an unidentified, untested management with yet unknown experience; (4) no alternative business other than transmission; and (5) no prior regulatory history. All other things equal, these factors obscure the merits of an investment in transmisison and reduce the ability of investors to make a more precise assessment of the potential opportunities and risks facing the Company. ...

To better attract capital investment, the Company should focus on eliminating as much uncertainty about its future as possible .. .

J. Scott Magrane
Vice President
Goldman Sachs
New York, N.Y.

Source: Florida Power & Light Co. & Tampa Electric Co., Request for Approval of Transmission Pricing Plan, FERC Docket No. ER01-2205-000, filed June 1, 2001.

"THE FERC HAS CREATED A WINDFALL FOR THE TRANSMISSION OWNERS," said Brown, "though I doubt that the commission or the staff or the utilities realize that yet.

"What they've done," he explained, "is to free the TOs from having to work to set up all those administrative conventions and protocols required for RTO formation - like governance, security, balancing market monitoring and OASIS node management, which don't return any dollars to the utility - and instead free up time in their schedules for the transco business, including marketing, asset management, spare parts control, creative tariff design and employee recruitment.

"The transcos now shed the administrative responsibilities that contributed to overhead. Now they can just run the money-making side of the business. This is a good deal."

To understand more of what Brown is talking about, consider the turmoil in the Alliance RTO process, where state PUCs have complained of little or no stakeholder input.

"The design process remains under the control of the Alliance companies," according to a protest filed in mid June by a coalition of state public utility commissions (PUCs) representing Michigan, Illinois, Missouri, Iowa, Ohio, Pennsylvania, Indiana and Virginia.

The PUCs complain of the "continued haze" surrounding the search for a managing member, but that's exactly the sort of process where collaboration gets in the way. (Of course, it now appears even less likely that the FERC would ever allow National Grid to become managing member of Alliance, as per plan.)

I CONFESS I WAS SURPRISED AT THE FERC'S MOVE. I did not see it coming when I sat in on the FERC's technical conference on RTO seams