ITC CEO: Investment in US transmission in its ‘infancy’

Investment in the nation’s transmission infrastructure has increased from the meager levels it had reached by the end of the 20th century, but is nowhere near the levels needed to ensure reliability, ITC Holdings (NYSE:ITC) CEO Joseph Welch said during the company’s 4Q12 earnings call Feb. 28.

After the last investment cycle of the 1960s and 1970s, investment in the transmission system declined in the 1990s to an average of $117m per year, the CEO said.

Welch spoke at length about the Northeast blackout of 2003, which exposed the weaknesses of the grid and galvanized policymakers into action.

“The current fragile state of the grid was brought to the forefront of the infrastructure issues with the blackout of 2003, which raised significant concerns around the reliability of existing aged transmission across the country,” Welch said. “However, like many catastrophic events, this is now a distant memory for most, yet the underlying issues around the reliability of the transmission grid are a long away from being solved.”

After the blackout, policies focused on offering financial incentives to address reliability concerns, he said. Today, policies like Order 1000 focus on reducing impediments to transmission investment.

“Consistent and constructive policies and regulation have resulted in increases in transmission investment in recent years,” he said. “However, in no way has the transmission infrastructure that existed a little over nine years ago when the blackout occurred been transformed into a reliable 21st century grid capable of meeting current and future demands. We are still very much in the infancy of an intense investment cycle on this front.”

There are numerous drivers that support investment in transmission beyond a mere reversal of the underinvestment of the last few decades, Welch said, listing as examples the nation’s changing generation resource mix, expanding regional competitive markets and evolving energy policies. While all of these drivers may not materialize, he said, some certainly will.

“Regardless of the drivers, the most consistent need that materializes is a flexible backbone transmission system that can quickly adapt to the new and changing energy policies,” Welch said.

ITC completed its largest capital program in its 10-year history in 2012, with investments totaling nearly $820m, Welch said during the company’s 4Q12 earnings call Feb. 28.

The company invested $819.8m last year, including $231.2m at ITC Transmission, $149m at Michigan Electric Transmission Co. (METC), $343.3m at ITC Midwest and $96.3m at ITC Great Plains, CFO Cameron Bready said during the call.

For 2013, the company has a $760m to $860m capital program, which includes $200m to $230m at ITC Transmission; $160m to $180m at METC; $270m to $300m at ITC Midwest; and $130m to $150m at ITC Great Plains.

Welch also addressed investor concerns about the stability of rates of return, a concern that has been magnified by a proceeding at FERC initiated by Massachusetts Attorney General Martha Coakley.

“As I have indicated in the past, we believe it’s counterintuitive for FERC to reduce historically granted ROEs which can be determined to be in a current zone of reasonableness, particularly with the commission simultaneously developing policies that are reliant on transmission expansion and promoting enhanced transmission investment,” Welch said.

About Rosy Lum 525 Articles
Rosy Lum, Analyst for TransmissionHub, has been covering the U.S. energy industry since 2007. She began her career in energy journalism at SNL Financial, for which she established a New York news desk. She covered topics ranging from energy finance and renewable policies and incentives, to master limited partnerships and ETFs. Thereafter, she honed her energy and utility focus at the Financial Times' dealReporter, where she covered and broke oil and gas and utility mergers and acquisitions.