Transco law opens the door to munis and co-ops.
As the electric industry awaits a final rule from the Federal Energy Regulatory Commission on regional transmission organizations, Wisconsin has moved to create its own stand-alone transmission company, or transco.
In the process, Wisconsin will allow grid-dependent utilities to get a piece of the action.
The Legislation. On Oct. 27, Wisconsin Gov. Tommy Thompson signed Assembly Bill 133, an omnibus budget bill that incorporated original Assembly Bill 389. AB 389, or "Reliability 2000," is a comprehensive legislative package that, among other things, will restructure the state's electric grid. The new law, introduced in June, will consolidate ownership, operation and maintenance functions of four transmission owners in eastern Wisconsin. Grid expansion is encouraged, as the law allows the governor to offer incentives to local communities where new lines are planned.
The transco eventually would transfer operational control to the Midwest Independent System Operator. Assembly Bill 389 makes it all possible by amending the "asset cap" in the state's public utility holding company act, which heretofore had barred Wisconsin holding companies from holding nonutility assets through affiliate companies exceeding 25 percent of total utility company assets.
Under the carrot-and-stick approach in the new law, utilities will transfer both grid facilities and any associated deferred tax reserves. Thus, assets are transferred in a neutral way - at net book value. In return, the compensation for the utility is stock in the new company.
RTO Qualified? In a news release issued Oct. 7, Wisconsin Public Power Inc. said, "This transco will not be 'independent' in the FERC sense, since the previous transmission owners will have partial ownership of the company and representation on the board of directors."
"It's an affiliated transmission company," explained Roy Thilly, CEO of WPPI. "When the companies divest their transmission facilities, they take back stock. It makes them investors in the transmission system." Thilly added that the transco would need to join the Midwest ISO to be neutral in providing services.
The statements of Thilly and WPPI imply that the transmission owners in the Wisconsin transco will hold interests in other affiliates that participate in wholesale power markets. According to the FERC and its RTO notice, mere ownership of transmission does not automatically confer status as a "stakeholder" or "market participant" under the RTO independence test. Such status does not arise unless the transmission owner also holds a financial interest in a marketing affiliate or other company that buys and sells power (See FERC Docket No. 99-2-000, May 13, 1999, p. 123, n. 187.)
A Better Model? Importantly, the new model does not leave transmission-dependent utilities out in the cold. Municipal utilities and rural cooperatives may become owners in the transco by purchasing equity in the transco based on their electric load, and thus get a seat on the board of directors.
"The return gets passed through to shareholders," explained Mike Stuart, general counsel at Wisconsin Public Power. "The intent is to keep utilities and customers as close as possible to revenue neutral," noted Stuart.
"This is a significant first step," remarked Erroll Davis, president and CEO of Alliant Energy. Stuart summed up the mood: "We have merged the best of the ISO model with the best of the transco model."
Lori A. Burkhart is a contributing legal editor with Public Utilities Fortnightly.
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