Power Grid Changing Hands In New Year

June 4, 2002
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DEARBORN — With D-Day (Deregulation Day) at hand, Consumers Energy is moving to comply with the state’s requirement to divest itself of its entire high-voltage transmission system.

Almost exactly a year ago, the Michigan Public Service Commission gave approval for Consumers’ owner, DMS Energy Corp. (NYSE: CMS), to sell the company’s transmission system to Trans-Elect, a limited partnership based in Washington, D.C.

The $290 million sale will involve about 5,400 miles of 345 kilovolt and 138 kilovolt transmission lines.

The sale also will include other facilities, such as switching stations, plus the system’s associated easements throughout what has been the electricity provider’s entire service territory — covering roughly 75 percent of the Lower Peninsula (see map). 

Michigan’s electricity restructuring law, Public Act 141 of 2000, requires the state’s major utilities to either divest themselves of their transmission systems or to turn over operating control of them to an independent entity.

The deadline for the action is midnight tonight. The actual transfer of ownership will occur pending approval — presumably during the first quarter of the new year — of the Federal Energy Regulatory Commission (FERC).

Trans-Elect, which bills itself as America's first independent electric transmission company, operates under the leadership of Fred Buckman, a former president of Consumers Power (which since has become Consumers Energy). 

Buckman, Trans-Elect’s chairman and CEO, also is the former president and CEO of PacifiCorp.

He describes Trans-Elect as buying, owning and operating electric transmission systems under the jurisdiction of the Federal Energy Regulatory Commission (FERC). The systems acquired by Trans-Elect act as wholesalers between the electric generation companies and electric distribution companies.

The firm, which was founded two years ago, currently co-owns and co-operates about 7,200 miles of transmission lines in North America. A limited partner with Trans-Elect in the purchase will be GE Capital Global Energy, part of the GE Capital Structured Finance Group.

The energy-financing group claims to have investments and structured financings involving more than $18 billion in capital costs and a capacity of over 15 gigawatts of electricity.

Trans-Elect and CMS have indicated they formally will apply for FERC approval sometime in the next few weeks.

According to CMS, the change will have no effect upon the service or bills received either by residential or business customers of Consumers Energy. Moreover, transmission rates charged to Consumers will be capped at current levels until New Year’s Eve of 2005 and, after that, will be subject to FERC approval.

Under the provisions of Public Act 141, the buyer of the transmission system also must complete a capital program to expand the transmission system’s capability to import power into Michigan.

The requirement is a response to recognition that in times of electrical shortages, Michigan’s electrical transmission systems don’t lend themselves to easy importation of power.

Part of the problem apparently is that the power grid evolved disjointedly as electrical service began expanding early in the last century, and partly because — proportionate to its total electricity demand area — the Lower Peninsula has the country’s smallest land border across which to import power.

Because of Michigan’s deepwater environs, power can come into the Lower Peninsula only via Ontario, Ohio and Indiana. Moreover, until the Upper Midwest’s power demands began threatening to outgrow static power supplies a decade ago, the need for Michigan to import power was never a prominent public issue.

Worries about importing power have abated somewhat in the past two years because weather has been relatively moderate so that predicted “brown-out” level demand never has occurred.  Moreover, starting late in 1999, construction began on several merchant power plants within the state.

One of the plants, being built by Southern Energy, of Atlanta, is on the outskirts of Zeeland. Its first phase operation, fueled by natural gas, is already on line, with construction underway on its steam co-generation units, which will substantially increase its output.

Construction possibly will start in the spring on a similar generating plant adjacent to the Talmadge Township industrial park.

The project, still in the permitting process, is being undertaken by Panda Energy International, out of Dallas.

Beyond that, Consumers itself has refurbished some of its old power coal-burning generation units, making them available at times of peak demand. Because of their age and obsolescent technology, electricity generated by so-called peaking power units is costly.

But being able move electrical power seamlessly across Michigan’s borders will give all power generating companies greater flexibility and efficiency not only in times of peak demand, but also when severe weather damages part of the power grid.

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