Transmission Asset Sales: Running the Regulatory Gauntlet

There are many considerations and obstacles to overcome before transmission assets can be bought or sold.

By now, everyone has heard of the first high profile, large-scale transmission system sales that have taken place in the industry, which were made to look like a smooth and easy process by leveraged buyout kings such as Kohlberg Kravis Roberts & Co. (KKR), and independent transmission operators such as Trans-Elect (see Chart 1). But most will agree that buying or selling a transmission system requires careful planning and is not always feasible; the transactions carry with them a whole host of financial risks and regulatory obstacles that must be traversed before the deal is done.¹

Some potential sellers may choose to stay on the sidelines. There always will be utilities that prefer to stay vertically integrated and do not want to deal with tax issues and questions of what to do with the money, or the implications to the future health and earnings power of the utility company (see sidebar, p. 48).

Other potential sellers may be willing to move forwared if they can get comfortable with the business risks and regulatory issues. Having the best market intelligence and understanding of the regulatory climate will be essential for transmission asset sales in the near future among utilities and utility holding companies anxious to raise cash and improve their balance sheets in the wake of the Enron debacle.