You might have thought the Feds closed the book on any broad, region-wide sharing of sunk transmission costs—especially after FERC ruled last spring in Opinion No. 494 that PJM could stick with...
The need to invest in new and upgraded transmission has been getting a lot of airtime recently. Some big bucks likely will be spent on new facilities in the next several years.
Yet, there is another way in which investment in transmission is likely to surge in the near future-in the buying and selling of transmission assets and in the restructuring of the transmission business. It may be that the dollar volume of such financial transactions rivals that of investment in new and upgraded facilities in the next three to five years. Further, this together with continuing merger activity among utilities will increase the concentration of ownership of transmission assets.
Mergers and acquisitions in the utility industry have already resulted in increased concentration of ownership of transmission assets. Table 1 presents the U.S. transmission assets, reported by investor-owned utilities in their FERC Form 1 filings and shown in the POWERdat database, for the top 10 largest owners. The top 10 own almost half-44.6 percent-of U.S. transmission assets. This number would be higher if federal power marketing agenci es were also included.
The corresponding data for 1995 show that the top 10 formerly owned 37.2 percent. M&A activity between 1995 and 2001 resulted in some consolidation and shuffling of the largest owners and an increase in cumulative ownership share of the top 10 companies by nearly 20 percent.
Transmission asset ownership is more concentrated than generation ownership. The corresponding generation data for 2001 show that the 10 largest generation owners have only a 33.7 percent share of the market, compared with 44.6 percent for the top 10 transmission owners.
Transmission ownership is likely to become even more concentrated as utility M&A activity continues, but also on account of another driver-RTOs. FERC continues to press for independent, non-discriminatory operation of transmission systems through transfer of control of transmission assets to independent RTOs. Utilities are at the same time re-evaluating the businesses they are in and refocusing their commitments. Some utilities have already decided they would be better off to sell their transmission assets; others will likely follow.
Trans-Elect provides a case study. This company was formed in early 1999 and bills itself as the first "truly independent" transmission company. Trans-Elect's goal is to acquire the transmission systems of two utilities each year for five years. That goal was achieved for 2001. Trans-Elect made its first acquisition on July 4, 2001, with the purchase of the TransAlta transmission system in Alberta. In October 2001, it acquired the transmission system of Consumers Energy. With these two acquisitions, the company owns 12,600 miles of line.
Transmission is the "next big thing" in power. Currently, the topics of RTOs and investment in new or upgraded facilities are getting most of the attention. As the RTO issues are resolved, and responsibility for physical infrastructure improvements is established, more transmission projects will move forward. However, financial transactions involving existing systems may be bigger in the next few years.
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