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Bundled against Change

Mississippi draws a line in the sand.

Fortnightly Magazine - January 2014
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On December 13, the day ITC gave up on buying Entergy’s multi-state transmission network (three days after Mississippi regulators had scuttled the deal) Fortnightly spoke with Linda Blair, ITC’s executive v.p. and chief business officer:

“This was in no way a transaction we needed to do,” said Blair.

“Our pipeline is still pretty full.”

As evidence, Blair cited the Thumb Loop line in Michigan, now nearing completion, and also its “V” Plan in Kansas, as examples of ITC key grid projects still moving ahead.

“That’s a testament to our model,” she noted, “to our singular focus on transmission.”

And Blair is probably right; ITC likely can prosper without Entergy’s lines. But can we say the same for the power industry as a whole, and for the Federal Energy Regulatory Commission? Because with this deal’s rejection, FERC comes out the big loser.

FERC has long promoted the Transco concept – one company owning nothing but transmission – as a useful adjunct to its vision of market-based pricing. And Justice Department’s Antitrust Division had said back in 2012 that if Entergy would spin off its lines to form a Transco, it would refrain from taking action to address allegations that Entergy had used its monopoly control to foreclose rivals from obtaining long-term firm transmission service. But the December 10 ruling by the Mississippi Public Service Commission consigns any would-be Entergy Transco to the trash heap.

The Mississippi opinion features a 20-page retrospective on the history of the Transco model – how various state commissions have dealt with Transco proposals over the years (GridFlorida, etc.) – that concludes with Mississippi PSC clearly rejecting FERC’s thesis that discrimination in transmission service provided by a vertically integrated utility justifies consideration of the Transco model:

“[A] ‘perception of bias’ is not proof of bias …,” as the PSC states.

“ITC’s independence is touted as a virtue, but approval of the transaction would leave ITC independent of [the PSC] and the local concerns of Mississippi ratepayers, the economy and the State.”

On first glance, perhaps, the PSC ruling appears to draw on public interest principles – calling the deal bad for ratepayers after crunching the numbers – to justify the decision to flatly reject any transfer of T lines from local utility Entergy Mississippi Inc. (EMI), to ITC Holdings, the out-of-state grid conglomerate. Despite claims by ITC that its single focus on transmission would yield benefits, the state commission remained unconvinced: “the benefit to Mississippi ratepayers,” it wrote, “is dubious.”

The PSC explains, rightly, that if the local utility sells off its transmission lines used to serve native load – unbundles them from retail distribution – then ratemaking authority passes to FERC. That means a higher revenue requirement, forged from generous federal grid incentives and a higher, federally authorized return on equity. The Mississippi commission finds that a selloff of grid assets to ITC could cost Entergy ratepayers at least $348 million over 30

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