Money may be difficult to come by for Wall Street financiers in these dark days, but apparently not for electric transmission construction—at least so far. A rash of recent orders from FERC shows...
Recent attrition raises the question: Consolidation or death spiral?
of its assets through the divestiture of transmission systems by five vertically integrated utilities, more than 20 municipal and cooperative entities contributed transmission resources or cash to ATC. In fact, the company behaves much like a cooperative, in that its owners are its customers. Additionally, the company uses a postage-stamp tariff that gives ATC's owners a hedge against rising costs as the company invests in new facilities. In other words, ATC's structure helps small participants ensure the transmission upgrades they need are accomplished without undue concern about the rate impact for their small sub-set of customers.
"There is synergy in the fact that our owners are our customers," says Dale Landgren, ATC's vice president and chief strategic officer. The fact the original transmission owners retain a share of ATC means the company doesn't fit everyone's definition of an "independent" transmission company. Landgren says ATC takes pains, however, to ensure the company makes investment and operational decisions in an independent way. The company has several independent members on its board of directors, and gives owner-members on the board one vote each, irrespective of the size of their holdings in the company.
Ultimately ATC's owners likely will sell their stake in the transco. "We set up the company so we could do a public offering of stock, but so far our owners haven't chosen to do that." ATC's owners regularly consider the option, however. "How ITC does [in its pending IPO] will affect whether our owners want to pursue that option," Landgren says.
Thus far, however, ATC has had little trouble obtaining financing; the company is authorized to issue corporate debt totaling more than $700 million, and it already has secured $500 million in a combination of commercial paper and senior notes, which are rated investment grade by the major rating agencies. Its credit is bolstered by a relatively modest debt ratio of about 49 percent.
In the next 10 years, ATC plans to invest more than $2.5 billion in transmission infrastructure, both upgrades of existing systems and new lines to access regional markets. "We built our biggest project from Wausau to Duluth, and we will pay for and own the rights to a line being built by Commonwealth Edison," Landgren says. "When we started we knew we had quite a bit of work to do. We inherited some reliability problems. Some of the system was built in the 1920s and '30s, and is literally falling down."
As a result, ATC has its hands full with projects inside its Wisconsin, Michigan, and Illinois footprint, and it is not planning to expand far beyond that territory. "If an opportunity presents itself to acquire neighboring transmission assets, we will look at that, but it's not part of our current strategy," Landgren says. "We have significant opportunities in our own backyard."
International Transmission Co.
Despite their similar acronyms and the fact they both operate transmission systems in Michigan, ATC and ITC are structured very differently.
ITC started operations in June 2001 when Detroit-based utility DTE Energy Co. unbundled its transmission assets into a wholly owned subsidiary. In