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Transcos Reborn

Recent attrition raises the question: Consolidation or death spiral?

Fortnightly Magazine - July 2005

it into service in 2004. The project received accolades for its innovative public-private structure, which involved the Western Area Power Administration, Trans-Elect, Pacific Gas & Electric, and the California Independent System Operator. Private equity funds ArcLight Capital and EIF Group provided equity for the deal, with debt from banks led by Citigroup and Macquarie Securities.

"In the utility sector, there is more private equity and hedge-fund money available than there are deals," says Robert Mitchell, a managing director with Trans-Elect, based in Reston, Va. "The key is not so much the structure as it is putting together deals that make sense and have enough regulatory and economic certainty to get financing."

Another key for Trans-Elect is flexibility. On the Path 15 project, for example, the company financed the project and owns long-term capacity rights, but the facility itself is owned by WAPA and operated by the California ISO.

As a result, Trans-Elect is pursuing opportunities that might resemble the model of a merchant-transmission developer or turnkey contractor. "Our ideal model is to own and operate a transmission system, but we don't always have to do that," Mitchell says.

"A lot of utilities have expressed the desire to participate as an investor in a Trans-Elect project," adds Paul McCoy, Trans-Elect managing director. "We'd accept that equity as long as it is passive, and doesn't give the utility control over planning, budgeting and operation of the facility. We believe you can do that at the same time you are meeting the FERC's independence requirements."

Whether and when this approach might translate into new deals for Trans-Elect remains to be seen, but recently the company gained access to a deeper pool of development capital. In mid-April, GFI Energy Ventures LLC acquired 87 percent of Trans-Elect's preferred equity for an undisclosed sum, with commitments to provide additional capital funding for the company.

"We now have serious funding behind us," Mitchell says. "What we accomplished to date we did without a lot of capital in the company, so we feel like we are poised to take off in a bigger way now." -MTB

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