"Fortress California?" With statements like that, how can you possibly eschew politics? We received an e-mail recently from an avid industry watcher complete with cartoon showing some jack-booted "electron police" at a remote desert outpost arresting Reddy Kilowatt as he rode in over a high-voltage line.

Anyway, we find it curious that in all the statements and in all the stories we've followed about the CA debacle, little lip service has been given to one of the core problems of this marketplace: transmission planning. In fact, throughout this mess, the only mention of the grid at all was a statement by the state treasurer suggesting the government should take over the transmission assets of the big ailing utilities in the state. He proposed issuing up to $10 billion in bonds toward acquiring these assets.

"I'm not sure where that particular idea is headed, but I can say I've not heard any sunset clause, no exit strategy for such a state move," says PwC's Elliot Roseman, a transmission expert in the firm's securities practice in Washington, DC. "Would such a new state entity operate in perpetuity? I don't think so."

But, for the sake of argument, how might such a state acquisition play out? Let's look at facts: The state's IOUs own about 75 percent of the transmission in the state. The rest is owned by munis, coops and so on, many of which have entitlements to power from the Northwest, from Bonneville, etc. They also have access and rights to high-voltage DC lines from the Northwest. The federal government owns some transmission assets. Under new state ownership, it could be argued that many such entitlement and access deals would have to be unwound. And all of this in our lifetime.

Regardless of how we think the state of California might operate its own grid, the fact is the market has generally done a lousy job itself. For all the attention and investment that new generation around the country has received, Roseman tells us there has been an almost "de-investment" in transmission. A recent NERC report cites extremely low projections for new transmission. In the next 10 years the figures look like about a 3.5 percent increase to transmission capacity.

"What is needed to create a more efficient marketplace? That's a moving target. It's going to be a different answer on a region-by-region basis. These transmission planning reports are, after all, given to the NERC by utilities. The utilities have been relatively frozen in their approach to adding new transmission until they see some clarity in the creation of all the RTOs," he says.

You might recall, these RTOs are the same entities that are supposed to do all the planning and the expansion of the lines. But even before the latest FERC order and the creation of RTOs, utilities had not invested much at all in transmission during the past few years.

"Without a clear view on ROI, why should they spend the money? The for-profit Transco's are viewing expansions as "what is this business proposition in new transmission?" It's an interesting dichotomy. On the one hand, and for some companies, congestion isn't a bad thing. If you know how to work the system, congestion can be profitable. Yet the RTOs, which these same companies are participants in, but not owners of, one of their charges is to facilitate transactions. And to open up barriers where there would have been constraints. How aggressively will these utilities implement the orders the RTOs pass down to expand the system? So much effort and thought is going into setting up these RTOs and not enough on visualizing how it will actually be implemented."

To the extent that more transmission will be built, there still has to be sufficient generation for the wires to carry to wherever the load is. Just building transmission doesn't solve anything. Where should the generation be built?

"It's hard to say. In California, developers are a bit reluctant these days to even think about it. But there is new generation being planned in the WSCC region, and actually being built in California. About two months ago there was some incentive in CA to build peakers in advance of next summer. They're gone now."

Another issue compounding the problem out West, Roseman says, is that besides the fact there are three different RTOs charged with managing the region, there are also seams between the RTOs. Call them interconnections. Who's in charge of planning RTO interconnection? Good question. The PJM has a working committee between it and the NYISO. But, even they admit the interconnects are not fully optimized.

"I think transmission and planning issues will be the big front-burner issue in 2001. It's difficult to see how this market can progress without greater emphasis on the wires. The market may have been split up through this restructuring process, but the pieces still have to work together. And after observing the CA situation, we all now realize the implications go far beyond worrying about whether or not Mrs. Smith's lights come on at night."

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