Transmission Buzz Reaches Critical Mass

Steven Brown, editor in chief

Between late December and late January, when this issue was completed, we saw more major transmission news announcements come across the wires than we had in the previous 12 months put together-maybe even longer. This would seem to indicate that a combination of necessity and policy have finally resulted in a favorable climate for transmission investment in North America.

The first major news announcement came just before Christmas as AES Corp., a company with $11 billion in annual revenues-most of it from generation and distribution-announced it would enter the transmission business by buying the rights to the Trans-Elect name. Through the acquisition, AES also now owns Trans-Elect’s “development pipeline” of more than 15 transmission projects.

“We see significant potential for transmission development in North America with grid investment expected to nearly double by 2010,” said David Gee, president of AES North America, when the acquisition announcement was made.

About a month later, on Jan. 19, it was announced that ITC Midwest LLC, a subsidiary of ITC Holdings Corp., would acquire the transmission assets of Interstate Power & Light, a subsidiary of Alliant Energy Corp., in a transaction valued at about $750 million. The acquisition extends ITC’s reach from Michigan into the transmission business in Iowa, Minnesota and Illinois.

Four days after the ITC/Alliant announcement, two more stories related to electric transmission crossed the wires. This time the news was not about an acquisition, but about alliances between neighboring utilities.

The morning of Jan. 23, MidAmerican Energy Holdings and American Electric Power announced that the two companies would move forward with the formation of Electric Transmission Texas LLC (ETT), a joint venture aimed at building transmission facilities in Texas. The two companies anticipate more than $1 billion worth of transmission projects could be included under the auspices of the newly formed ETT, which will operate as a transmission utility and would be subject to the same rules as other utilities operating within ERCOT.

Less than 90 minutes after the ETT news was released, another transmission-related alliance was announced by five utilities in the Western U.S. The Northern Tier Transmission Group, composed of investor-owned, cooperative and public power utilities, was launched with the goal of improving operation and promoting expansion of the transmission network in Idaho, Montana, Oregon, Utah, Washington, California and Wyoming. Members of this new alliance are Deseret Power Electric Cooperative, Idaho Power, Northwestern Energy, PacifiCorp and the Utah Associated Municipal Power Systems.

So what does this flurry of news tells us? Companies like MidAmerican, AEP and AES don’t invest this kind of money in new ventures unless there’s a fairly certain and lucrative return on the horizon. Annual transmission investment in the U.S. increased from $2.5 billion in 1998 to $5.5 billion in 2005. The Edison Electric Institute estimates that it could reach $8 billion by 2008 and $10 billion, or even more, by 2010.

The transmission boom that the power industry has been anticipating for two decades would appear to be upon us. The need-and the business case-for new transmission has finally eclipsed the risk involved in building it. As a result of EPAct 2005 provisions, rising congestion costs, and FERC approval of incentives and cost allocations in New England and the Midwest ISO, it now makes sense for companies like AES and MidAmerican to enter the transmission game in a significant way.

Transmission has finally become big business again.

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