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Grid Investment & Restructuring: Two Challenges, One Solution

FERC must align the immediate self-interest of profit-maximizing entities with its own view of what is in the public interest.

Fortnightly Magazine - August 2005
  1. FERC ¶61,215 (2000) . We believe that, while ATC has not been found to satisfy specific independence criteria, it has delivered the benefits expected of ITCs.
  2. For example, A Special Report of the Problems in the Organized Markets , (2005).
  3. FERC’s recent Market Report states (at page 28) that stand-alone transmission companies in the Midwest “continued [in 2004] to pursue investment levels that far exceeded what they had pursued when they were part of integrated utilities and far exceeded the 3 percent investment planned by investor-owned utilities.”
  4. See, e.g., TRANSLink  Transmission Co. LLC., et al., 99 FERC ¶ 61,106 (2002) .
  5. American Jobs Creation Act of 2004, Pub. L. No. 108-357, sec. 909, 118 Stat. 1476. The U.S. Senate Finance Committee is now considering extending for an additional year (until January 1, 2007) the deadline for closing eligible transactions.
  6. We note that the operation of the massive transmission systems of the Tennessee Valley Authority, Bonneville Power Administration and other PMAs lies outside FERC jurisdiction. Congress should consider disaggregation of those taxpayer-subsidized operations as well.
  7. See ITC Holdings Corp, et al., 102 FERC ¶61,182, P 68 (2003).
  8. See Offer of Settlement filed in Docket Nos. ER01-677-00 and ER01-1577-000, proposing transmission rates for American Transmission Co., accepted by a letter order reported at 97 FERC ¶ 61,139 (2001).
  9. See  American Transmission Company LLC, 107 FERC ¶ 61,117 (2004).
  10. The principle is that an asset may have a shorter economic life than principal life.
  11. See ITC, 102 FERC at PP 69, 74.
  12. FERC has long accepted formulae that accurately reflect FERC ratemaking principles as a "just and reasonable rate."
  13. The use of such language, when agreed by affected parties, is common place in FERC practice.
  14. Note that in ITC, FERC authorized the use of a capital structure comprised of 60 percent equity, a level higher than typical for regulated utilities.  FERC accepted the applicant’s assertion that the nature of the investment required the return offered by such a capital structure. See ITC, 102 FERC at PP 64, 68.
  15. By “uneconomic,” we mean that the level of transmission congestion produces out-of-merit order dispatch costs that would make the annual cost of the transmission expansion less costly than projected annual incurrence of the out-of-merit order dispatch costs. The cost of the transmission expansion could be assigned to identified beneficiaries or rolled in, depending on whether the projected cost savings were predominately limited to a defined set of users or predominately general to all users.
  16. For more detail on these concepts, see “Independent Transmission Companies: The For-Profit Alternative in Competitive Electric Markets,” Stephen Angle and George Cannon, Jr., 19 Energy L.J. , 229 (1998).