FERC approves rates for new transmission company
The Federal Energy Regulatory Commission approved rates for DTE Energy�s International Transmission Co. that will allow the first independent transmission company to be formed from assets divested by an electric utility. DTE Energy formed the transmission company in late June and filed for rates with the FERC. The new company will become a completely stand alone independent transmission company that will give open access to the grid in Michigan.
Ann de Rouffignac
The Federal Energy Regulatory Commission approved rates for DTE Energy�s International Transmission Co. that will allow the first independent transmission company to be formed from assets divested by an electric utility.
DTE Energy formed the transmission company in late June and filed for rates with the FERC. The company will become a completely stand alone independent transmission company that will give open access to the grid in Michigan. DTE says an independent for-profit company is the best way to attract the investment necessary to expand the transmission system in the state.
�The transfer of the transmission assets will attract much needed new capital investments into the decades old US electric transmission grid,� said Fred Schultz, analyst with Raymond James & Associates in a report issued today.
International Transmission Co. through DTE is a member of Alliance, a large for-profit regional transmission organization that is formed by several utilities in the upper Midwest including American Electric Power Co. Inc., Consumers Energy Corp., Detroit Edison Co., FirstEnergy Corp. and Dominion Resources� Virginia Electric & Power Co. and Dynegy�s Illinois Power unit. The regional transmission organizations to be approved by FERC will oversee the operation, maintenance, and fair and open access to regional grid systems.
FERC approved rates for International Transmission Co. that are lower than the transmission charge portion of retail rates approved by the Public Service Commission of Michigan. These rates were approved and frozen by the commission for transition to full competition. Michigan is in the process of deregulating its electricity industry, and there is a rate freeze in effect until 2002 when full competition for all customer classes is expected.
Under the freeze, the revenue that Detroit Edison could generate from the transmission portion of the bills for existing retail customers was $155 million/year. FERC approved rates for the retail customers that would generate only $138 million, says Linda Blair, principal analyst with DTE. Transmission charges for other existing transmission dependent utilities or large wholesale customers were set even lower, she says. New customers wanting access to the transmission system will pay a new FERC approved rate, Blair says.
Critics contend the transmission rates charged customers who use a supplier other than Detroit Edison will be higher than rates charged by the incumbent utility during this transition. This discourages choice on the wholesale level. By the structure of the deregulation process in Michigan, observers say there will be little competition on the retail level during this rate freeze period.
�Is this ITC going to play favorites with Detroit Edison? Just how independent will it be?� questions Brennan Higgins, Summit Energy Services.
DTE�s Blair says the new transmission company will be sold or spun off to shareholders or possibly to the Alliance RTO within 2 years. FERC said the company must be completely independent from the parent utility or the difference between the current transmission rates and the new rates will have to be returned to customers, Blair says.
Detroit Edison assets consisting of 6,472 miles of transmission facilities will be transferred to the transmission company at book value which is about $400 million.