Is U.S. transmission gridlocked? CERA to forecast sector's potential paths

By Lisa Sanders, CBS.MarketWatch.com Last Update: 6:01 AM ET Oct 8, 2000 NewsWatch Latest headlines

WASHINGTON, D.C. (CBS.MW) - Is U.S. transmission of electricity in a hopeless gridlock?

Today on CBS MarketWatch Signs of market turn proving elusive IBM server rollout targeted at 'server farms' Satellite-based Net access service set for launch Analyst warning stirs VerticalNet debate Will Fed take cue from inflation or growth data? More top stories... CBS MarketWatch Columns Updated: 10/8/2000 11:10:52 AM ET Cambridge Energy Research Associates believes the industry to be in a state of flux because of a lack of infrastructure and the uncertainty surrounding deregulation. CERA plans to release the findings of a study commissioned by its clients, which range from transmission providers to financial firms, entitled "High Tension: The Future of Power Transmission in North America" on Tuesday in Washington, D.C.

The Electric Reliability Council of Texas says it depends on the region. According to Mike Greene, president of TXU Transmission, a subsidiary of TXU (TXU: news, msgs), Texas realized the potential transmission problems five years ago when the state legislature opened up wholesale power to deregulation.

The group created an independent system operator to ensure fairness in the marketplace in 1996. The monitoring group is responsible for security of the ERCOT bulk power system, market facilitation, and coordination of transmission planning in ERCOT.

"One of the things that we recognized was that to have a viable market, you have to have transmission facilities in place and generation in place," said Greene, a board member of ERCOT. "ERCOT created a standard interconnection agreement between transmission providers and merchant plant builders."

Greene noted that the transmission problems are best answered on a regional basis. California's issues are not necessarily issues in Texas, he said.

Competition challenges

For its part, CERA is trying to anticipate with three different scenarios how the transmission business will play out in a more general manner.

"Transmission is a very important part of the power business, and the challenge is to get this organized for competition," Larry Makovich, senior director of North American power at CERA. "Transmission was built to provide for reliability and not to facilitate a marketplace, and now that's changed."

In a study that took just under a year, CERA developed three different scenarios for the future of transmission, much like it did five years ago when it was asked to forecast a deregulated power business.

One scenario from the power study showed the muddle, which Makovich notes is how the power industry has progressed. One is virtual competition, and Makovich said that CERA predicted the reliability crisis and the price spikes that would lead to a political backlash.

"Except it turned out to be California in 2000 instead of 1999 in the Midwest," he said.

The third scenario was that the environmental agenda would take over the power business.

Investment lag

"One of the problems that exists today is that the transmission business is currently in a state of gridlock because it is not well-organized so no one has the incentive to invest," Makovich said. "So we've got electricity growing and new power plants being built, and a transmission system with minimal investment occurring."

Makovich said that the risks to progress include the poor investment climate and an uncoordinated set of policy initiatives.

"Under the right set of circumstances, transmission could become a growing and profitable business," he said.

Makovich noted that the current transmission network is worth about $60 billion and accounts for about $20 billion of revenue a year.

http://cbs.marketwatch.com/archive/20001008/news/current/cera.htx?source=htx/http2_mw

"Growth depends on the future path this industry takes," Makovich said. "I think the lessons we've learned so far is that deregulation hasn't played out the way most people expected."

-- Martin Thompson (mthom1927@aol.com), October 08, 2000