Evaluating the Benefits of Independently-Owned Transmission Companies

Abstract

Because of recent changes in the United States regulatory environment, it has become more commonplace for state-regulated utilities to sell transmission facilities to independently-owned, federally regulated entities. These transfers are subject to a plethora of financial and regulatory hurdles centered on the abilities of purchasers and sellers to justify their benefits. In analyzing such transactions, regulators, buyers, and sellers must address two key issues: First, what would a federally regulated, independent owner of transmission facilities do differently from a primarily state-regulated, vertically integrated owner of such facilities? Second, how can one evaluate the benefits and costs of this new pattern of transmission ownership? This article, through a case study, presents one method for quantifying these benefits and/or costs. There are two conclusions from the study. The first is that an evaluation of the asset in a broad regional rather than a local context is important, if not critical, in the analysis of a transmission investment. When this is done, the benefits of the transmission-only, federally regulated entity become clear. The second is that the analysis can be undertaken utilizing a “with and without” modeling structure that will effectively and efficiently show the producer, consumer, and societal benefits of the investment.