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His company, he admits, is all about cherry picking.
Fortnightly Magazine - May 1 2002

financed the TransAlta line purchase in Alberta through not only the Ontario Teacher's pension fund, but via an Australian bank's Macquarie fund. "

This is the kind of project that pension funds would like, because it's the closest thing to a blue-haired ladies stock-you have the low, but steady growth kind of return company like utilities were in yesteryear," Schroeder explained. And while Trans-Elect has not yet gone public, it plans to in the next three to five years.

When asked if Trans-Elect had any interest in joining some of the new direct current (DC) merchant transmission projects such as Neptune, Lake Erie Link, and the proposed mammoth TAGG transmission project led by Siemens that would link Chicago with Los Angeles, Schroeder said no. But Trans-Elect is looking at some merchant line opportunities.

We also asked Schroeder about FERC's announcement this spring that it would soon issue a white paper on a standard market design.

"You want to go from [a]current pancaked situation to the local license plate rate and then eventually you'll move to a regional and even national rate," he said. "I think that is where the real debates are going to come and that FERC is likely providing the path to getting to that debate."

Closing the Deal

When it comes to making the deal, Schroeder predicts that prices for transmission assets may go down as more transmission assets are sold. He feels there is an "early mover advantage" whereby companies that are being innovative and are selling early are getting a premium.

"As it becomes more and more apparent what FERC is trying to do-which is to get companies to divest the transmission assets and they get to the point where they simply have to do that-that price probably will look more like book," he believes.

Schroeder believes the market will get better, not worse. But he insists that regulators must learn to tolerate a premium over book value, or else the buyers won't show up.

"The question for the selling utility is how much of that premium can they keep?" he added.

For example, by statute, Michigan required a 50-50 split between the shareholder and the ratepayer. "In some states, we have been asked by the utility not to bid any more than book, because the utility can't keep it anyway," he said. Also, "the bigger the book, the more likely it is that the state commission is going to take a look at it and divvy it up.

"That is what makes this dramatically different than generation, where you can get 2 or 3 times book for some purchases in a deregulated environment," he explained.

Locking in Profits

Schroeder believes FERC is going to give the Midwest ISO some sort of pay raise-perhaps high enough to boost return on equity up to around 12 to 12.5 percent. He thinks that will make room for an even higher return for a "truly independent" transco like Trans-Elect.

"So can a company like mine then get 13 to 13.5 percent, or even 14 percent," he asks, for putting in