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Transmission Expansion: Risk and Reward in an RTO World

Some thoughts on who should take the lead and how to set up financial incentives.
Fortnightly Magazine - August 2002
  1. of use following formation. If so, the historical level is itself relatively generous as a PBR benchmark, until one figures in RTO fees and upward changes in total transmission charges. In instances where through and out rates may increase up to 50% to offset lost pancaking revenue, it remains to be seen whether and how much this rate impacts usage.
  2. Id.
  3. FERC Docket No. ER02-323, filed Nov. 13, 2001.
  4. TransConnect, Applicants' Motion for Leave to File Answer and Answer to Protests and Comments, FERC Docket No. ER02-323, filed Jan. 11, 2002.
  • All information provided is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. The views and opinions are those of the author and do not necessarily represent the views and opinions of KPMG Consulting, Inc.

Public-private upgrade breaks new ground on funding, need, and oversight.

On June 12 the Federal Energy Regulatory Commission (FERC) OK'd a three-party deal for upgrading California's notorious "Path 15" transmission bottleneck.

But the story was not yet over, as the state public utilities commission (PUC) was still arguing that the deal should wait until it could finish its own study on whether the project was cost effective.

In open session at the FERC meeting, chairman Pat Wood acknowledged that the state commission "has a role to play in permitting this facility," but others were not so sure.

The $306 million deal calls for merchant transmission developer Trans-Elect to supply most of the funds, with PG&E upgrading existing facilities (including substations and low-voltage facilities) and the Western Area Power Administration (WAPA) adding new construction and taking ownership of the transmission line and associated land. The upgrades to the already existing 84-mile stretch of transmission include a new 500-kV transmission line that will increase north-south transmission capacity from 3,900 MW to 5,400 MW. The expected completion date is in the fall of 2004.

Commissioner William Massey queried FERC staff about the approved target 50/50 capital structure for Trans-Elect for the first 36 months of the project, asking if it was "a good idea."

Staff replied that Trans-Elect was in a position to raise most of the funding of the project, so the capital structure was a predicate for obtaining financing.

Speaking at the FERC's June 12 meeting, chairman Pat Wood said he was "encouraged" by the "creative approach" of the three very different partners.

"I do think the need for this line has been made and proven in more different forms than just about any other transmission project in U.S. history," he added.

FUNDING RATIOS. Trans-Elect would raise $250 million in equity and debt to fund the construction. In return, the parties would receive entitlements to transmission rights in the following ratios: WAPA-10