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Transcos Reborn

Recent attrition raises the question: Consolidation or death spiral?

Fortnightly Magazine - July 2005

non-profit entities—came together in an informal planning coalition known as CAPEX 2020 (see www.minnelectrans.com). “We are using a cooperative planning approach to develop a long-term vision of the growing transmission infrastructure needs of Minnesota and neighboring states,” Jaeger says.

The CAPEX 2020 initiative was not envisioned as a transco, but legislative developments in Minnesota have paved the way for further progress in that direction. Specifically, on May 25, Minnesota Gov. Tim Pawlenty, R, signed a bill (SF 1368) that, among other things, codifies the state PUC’s authority to approve the transfer of transmission assets to a transco. The provision eliminates one of the key barriers that prevented TRANSLink from moving forward in Minnesota—namely the state attorney general’s opinion that the PUC did not have such authority, and therefore increased the likelihood of a court battle if a Minnesota utility attempted to divest its transmission assets.

Whether and when such legislative groundwork might lead to a new transco is uncertain, but Minnesota utilities’ cooperative efforts, as well as signals coming from south of Minnesota’s border, suggest a successor to TRANSLink might lie over the horizon.

MidAmerican Energy, the Des Moines, Iowa-based utility owned by Warren Buffet’s Berkshire Hathaway, announced in mid-May that it plans to acquire PacifiCorp of Portland, Ore. In briefings after the announcement, MidAmerican Chairman & CEO David Sokol said the company is exploring the idea of forming a transco similar to TRANSLink, combining transmission systems owned by MidAmerican and other utilities of various types across several states.

“It’s very important that we have cooperative relationships with investor-owned utilities, municipal utilities, electric cooperatives and federally owned agencies,” Sokol reportedly said. “[FERC will] find that far superior to just us joining MISO.”

Public-power and cooperative utilities own a large share of U.S. transmission assets, and many have been reluctant to join RTOs. The native-load concerns that irk IOUs and state regulators are doubly worrisome for munis and co-ops, whose sole focus, by definition, is ratepayer interests.

By invoking the memory of TRANSLink, MidAmerican is re-invigorating the debate over transmission ownership structures, emphasizing that independent transmission needn’t be a Hobson’s-choice proposition— i.e., alternatives exist to simply joining an RTO or divesting transmission assets. Non-profit utilities and IOUs alike particularly are attracted to TRANSLink’s flexible and inclusive structure.

TRANSLink provides a flexible approach allowing transmission owners to participate in any of several ways, including outright divestiture, passive ownership, lease arrangements, and operating contracts.

“TRANSLink failed, and that was very unfortunate,” said Roy Thilly, president of Wisconsin Public Power Inc., at the April 22 FERC conference. “TRANSLink was a hybrid, with a shared system that would morph into a transco with new facilities. Allowing passive investment, with careful restrictions, definitely will advance the model. We never would have gotten ATC created in Wisconsin without that ability to retain [the transmission] investment, which is a hedge against generation investment.”

By floating the transco concept in concert with its acquisition plans, MidAmerican is positioning the merger as a benefit for wholesale electric competition. While the transco idea is not explicitly part of MidAmerican’s acquisition plan,

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