How will the technology and policy changes now sweeping through the industry affect the architecture of the utility grid? Will America build an increasingly robust transmission infrastructure, or...
Recent attrition raises the question: Consolidation or death spiral?
mergers while strengthening FERC’s hand to realize the goals of Order No. 888 through its merger-review authority. While FERC is unlikely to force merging companies to pursue any specific approach to achieving functional independence of transmission, commissioners’ interest in the transco model amply was demonstrated in their strong positive reaction to MidAmerican’s transco concept, as well as in the overall tenor of the April 22 conference.
Whether merging utilities will see more to gain from joining an RTO or spinning off transmission assets into a transco remains difficult to predict. “Is Exelon/PSEG a strategic merger for the transmission, the generation assets, or both?” asks Oppel of Navigant. “We might see them maintaining an integrated structure, or spinning off a separate wires company. It’s hard to say whether that idea will be a key driver.”
What seems certain, however, is that FERC will continue pushing the ideals of Order No. 888, and merging companies undoubtedly will feel this pressure in the months ahead. In addition to MidAmerican/PacifiCorp, the Exelon/PSEG and Duke/Cinergy mergers will face market-power questions from FERC, irrespective of whether the energy bill becomes law.
In mid-May, Chairman Wood noted that FERC likely would require Duke Energy to surrender control of its transmission system to an RTO as a condition of the commission approving its merger with Cinergy. “That has generally been the way to address vertical market power,” Wood told reporters. “That’s not to say there aren’t other ways to address that. [It] could be some form of independent ownership or spinoff of transmission.”
Wood’s pending retirement from the commission might, in fact, signal a softening in FERC’s drive toward RTOs. Wood’s possible heir apparent on the commission, Joseph Kelliher, is known to be less determined to drive the formation of RTOs in every region of the country. Whether this leads toward development of stand-alone transcos or some other solution might depend on how flexible the various stakeholders are willing to be in conceiving approaches to transco structures.
“Flexibility is the key,” says Mitchell of Trans-Elect. “I don’t think there will ever be two deals that look exactly alike.”
Transco advocates believe such flexibility can satisfy the independence aims of Order No. 888, the short- and long-term planning needs of various utilities, and the commercial interests of investors. If they can convince more IOUs and state regulators they are right, the transco model just might become the turnaround story of the decade.
Successful Transco Models
Despite the difficulties transcos have encountered, three of them have established solid positions in the U.S. electric transmission industry. Their experience demonstrates how various transco models can succeed in operating stand-alone transmission systems and attracting new capital to an industry that sorely needs investment dollars.
American Transmission Co.
Starting operations at the beginning of 2001, ATC combined transmission assets of several utilities serving Wisconsin, Michigan's Upper Peninsula and a small portion of northern Illinois. ATC now operates nearly 9,000 miles of high-voltage transmission lines and 450 substations.
One of the company's key strengths has been its inclusive nature; although the company gained the bulk