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[IMAGE] In an exclusive SCIENTECH PowerHitters interview, Envenergy President and= =20 CEO, Ed Richards, describes an option to building owners being "held hostag= e"=20 to proprietary closed systems. The open platform concept of Envenergy is=20 leveraging IP to connect the complete network of building systems across an= =20 enterprise. Read more at: www.scientech.com Did you know that SCIENTECH offers unbiased services for: =20 Strategic I/T Infrastructure Design for Generation, T&D, and Retail=20 Operations=20 I/T Strategic Sourcing Consulting=20 Customer Care Requirements Definition=20 Application Selection Services=20 Product and Service Plans=20 I/T Investment Due Diligence=20 Secure e-mail, web and operations hosting=20 To learn more, please contact Jon Brock at jbrock@scientech.com or call him= =20 at 1-505-244-7607, or toll free at 1-888-972-8676.=20 [IMAGE] [IMAGE] June 21, 2001 The Southeast RTO:=20 The "Backstory" Behind the Press Release=20 By Will McNamara Director, Electric Industry Analysis=20 [IMAGE]Owners of transmission systems across Alabama, Florida, Georgia,=20 Mississippi, and South Carolina have announced the signing of a memorandum = of=20 understanding (MOU) to develop a regional transmission organization (RTO) f= or=20 the Southeast. A full list of the Southeast RTO members appears at the end = of=20 this article. Two of the largest members of this new organization are=20 Southern Company (NYSE: SO) and Santee Cooper. If the transmission owners= =20 prove successful in their efforts to develop this transmission entity, the= =20 RTO would be one of the nation's largest, covering more than 39,000 miles o= f=20 transmission with an investment in assets in excess of $6 billion.=20 Analysis: The dynamics behind this announcement create a backstory that is= =20 not readily available in the press materials being circulated by Southern= =20 Company. However, the development of this much-anticipated RTO illustrates= =20 how transmission infrastructure in the Southeast is assimilating, answers= =20 questions about how Southern Company will comply with federal directives, a= nd=20 raises speculation about possible impact on the region's already-establishe= d=20 RTO, GridSouth. Further, as FERC has encouraged RTOs to form across the=20 country, much of the commission's focus has been placed on the Southeastern= =20 United States (along with the West). The Southeast is dominated by large IO= Us=20 that control massive transmission assets. Thus, seeing that Southeastern=20 transmission systems are ultimately conjoined has been a key priority for= =20 FERC.=20 You may recall that a few months ago Southern Company applied to FERC to fo= rm=20 its own RTO (the organization that will manage a transmission network withi= n=20 a particular region). FERC rejected the SeTrans Gridco concept because=20 Southern Company planned to funnel certain rate incentives to companies oth= er=20 than the RTO operator, which violated FERC policy. In addition, it is FERC'= s=20 general policy to consolidate operating RTOs across the country, and the=20 commission was concerned that Southern Company would remain too autonomous = if=20 it was the only utility involved in a transmission entity. Thus, FERC=20 unequivocally told Southern Company to not re-apply for RTO status until it= =20 had explored joining forces with neighboring companies.=20 Simultaneously, FERC gave conditional approval to GridSouth, an RTO formed = by=20 Carolina Power & Light, Duke Energy and South Carolina Electric & Gas=20 (SCANA), Southern Company's neighbors to the north. The conditional approva= l=20 came with the instruction that GridSouth should engage in dialogue with the= =20 SeTrans Gridco, Santee Cooper and Tennessee Valley Authority (TVA) about=20 joining GridSouth. Again, FERC sent the message that it ultimately hopes to= =20 see a single, large RTO serving the entire Southeast region.=20 Nevertheless, now Southern Company and Santee Cooper have joined forces wit= h=20 seven other companies to form a new RTO that will be a completely separate= =20 entity from GridSouth. I contacted GridSouth for a response regarding what= =20 impact (if any) the formation of the new Southeast RTO might have on=20 GridSouth. However, as of press time, representatives for GridSouth had not= =20 prepared a public statement regarding the proposed transmission entity. =20 I spoke with John Sell, a Southern Company spokesperson on June 19. Sell=20 informed me that Southern Company had indeed engaged in negotiations with= =20 GridSouth upon FERC's directive, but determined that GridSouth was "too far= =20 down the road" in terms of its development, and that Southern Company plann= ed=20 on taking a different approach toward its transmission assets. For instance= ,=20 while both entities are for-profit operations, the new Southeast RTO plans = to=20 hire an independent third party to oversee its operations. Further, althoug= h=20 the term "Southeast RTO" is being used in the press release, Sell told me= =20 that among the companies involved the RTO is actually being referred to as= =20 SeTrans (the name of Southern Company's rejected entity). Sell stressed tha= t=20 the name SeTrans was chosen only because it had been previously established= =20 by Southern Company and should not be seen as any indication that Southern= =20 has majority power over the RTO. In fact, the name will be changed to=20 something else later this year.=20 On a related note, one statement that I found particularly interesting in t= he=20 press release about the new RTO is that "the companies have also made it=20 clear that the process is not being controlled by any individual transmissi= on=20 owner, but rather all participants will help establish the rules by which= =20 they will operate and make decisions." This is clearly a veiled reference t= o=20 Southern Company, which was criticized by FERC for being too autonomous in= =20 its original RTO filing. When I spoke with John Sell, he volunteered that= =20 Southern "is not the driver behind this RTO."=20 Santee Cooper's involvement in the SeTrans RTO also came about in a somewha= t=20 precarious fashion. As noted, FERC specifically asked GridSouth to find a w= ay=20 to incorporate Santee Cooper, a state-owned utility located in South=20 Carolina, into its RTO. As Santee Cooper controls about 4,200 miles of=20 transmission lines covering 75 percent of South Carolina, it is no wonder= =20 that the commission would want to make sure that the public utility was=20 conjoined in some way to developing RTOs. There was just one problem with= =20 this plan: the South Carolina constitution prohibits Santee Cooper from=20 joining for-profit enterprises. =20 The case was closely followed throughout the energy industry as other publi= c=20 power agencies across the country are also involved in pending negotiations= =20 to join RTOs. New reports indicate that, if the SeTrans RTO is approved by= =20 FERC, it will be the largest RTO in the country to include a public power= =20 entity. However, it is important to note that Desert Star, an RTO based in= =20 Phoenix that connects transmission assets of seven Western states, includes= =20 the Western Area Power Administration (WAPA), which owns about one-third of= =20 the transmission system that serves Colorado and provides power to 28 of 29= =20 of the state's municipal electric systems. =20 Naturally, as the SeTrans RTO is also classified as a for-profit entity, th= e=20 question has been raised of how Santee Cooper will be allowed to join as a= =20 member given the South Carolina law. I spoke with Stephen Pelcher, associat= e=20 general counsel of rates and regulations for Santee Cooper, about this=20 conundrum. There is an important distinction that should be understood.=20 GridSouth is a wholly owned company under its three utility parents (Caroli= na=20 Power & Light, Duke and SCANA). The obstacle facing Santee Cooper's=20 participation in GridSouth was that the company could not be a shareholder = in=20 a private corporation. Under the SeTrans RTO, in which Santee Cooper is now= a=20 participant, none of the participating companies will have ownership over t= he=20 transmission entity. As noted, this was one of Southern Company's main=20 interests in forming its own RTO as the company intends to hire an=20 independent third party to oversee its operations. Pelcher told me that the= =20 SeTrans RTO is still in a "preliminary stage" and thus it appears at this= =20 time that participants in the SeTrans RTO will retain ownership of their=20 transmission assets and only turn over operational control to the independe= nt=20 third party. Interestingly, Pelcher also told me that Santee Cooper (and, b= y=20 extension, the SeTrans RTO) remains in consultation with GridSouth for a=20 "coordination and implementation service agreement" that would in some way= =20 interconnect the two entities.=20 One issue that will continue to impact RTOs throughout the country is how= =20 electricity will be transported across independent transmission systems.=20 Specifically, FERC has been concerned about how power will be traded from o= ne=20 RTO to another and the possibility that boundaries between two separate RTO= s=20 could become "speed bumps" in the flow of electricity. In fact, the=20 commission met this week on the issue and continues to formulate policy=20 related to these "seam issues." Part of the reason that Southern Company's= =20 original, independent RTO plan was rejected was FERC's concern that the=20 utility was resisting efforts to form a cohesive, interconnected system in= =20 the region. At this point, it appears that FERC favors standardization in h= ow=20 adjacent RTOs will relate to each other, and thus has instructed developing= =20 RTOs to consult with each other on seam agreements. FERC reportedly is=20 planning to have a formal policy on the subject ready by the end of this=20 year. Related to the development of this policy is the debate over whether = or=20 not FERC should take a more active role in forcing consolidation among=20 developing RTOs so that only a limited number of separate entities exist.= =20 Thus, as the SeTrans RTO continues to grow, it will need to determine how i= t=20 will be connected to GridSouth and GridFlorida (and any other adjacent RTOs= ).=20 In addition, Southern Company's John Sell disclosed to me that the SeTrans= =20 RTO has formed an MOU with TVA for a seam agreement. At this point, TVA has= =20 made no announcement that it is planning to join the new Southeast RTO and = in=20 fact, as a federal agency, is under no obligation to join an RTO.=20 The SeTrans RTO plans to file an application with FERC and is preparing for= =20 the commission's deadline of being formed by Dec. 15 of this year. If the= =20 SeTrans RTO (or whatever it is ultimately called) gains FERC's approval, it= =20 will represent a significant part of the Southeast's development into a=20 functionally competitive electric market. If FERC's stated policy of=20 consolidating RTOs is effectively applied, ultimately we could see that=20 GridSouth becomes conjoined to this new RTO, which now includes Southern=20 Company, Santee Cooper and (through a seam agreement) TVA. Moreover, the=20 development of the new Southeastern RTO illustrates the complexities of=20 conjoining companies that transcend federal, state and municipal levels,=20 along with the challenges of ensuring that adjacent RTOs form synergistic= =20 policies regarding the flow of power.=20 Members of the Southeast (SeTrans) RTO:=20 Alabama Electric Cooperative=0F-generation and transmission cooperative=20 providing wholesale electricity to 21-member distribution systems=01*17 in= =20 Alabama and four in Florida.=20 City of Dalton (Ga.) Utilities=0F-full-service utility providing electric,= =20 water, wastewater, natural gas and telecommunications services to the city = of=20 Dalton and portions of Whitfield, Murray, Gordon, Floyd, and Catoosa counti= es=20 in Georgia.=20 City of Tallahassee (Fla.)—maintains more than 2,200 miles of=20 transmission and distribution lines, serving some 98,000 homes and business= es=20 in the Tallahassee area.=20 Georgia Transmission Corporation=0F-not-for-profit cooperative owned by 39= =20 electric membership corporations in Georgia. GTC owns approximately $910=20 million in assets, including more than 2,400 miles of transmission lines an= d=20 500 substations across the state.=20 JEA—Formerly known as Jacksonville Electric Authority, a municipally=20 owned electric supplier serving 35,000 customers in four-county area in=20 northeast Florida.=20 Municipal Electricity Authority of Georgia=0F-joint-action state authority= =20 providing wholesale electric generation and transmission to 48 city- or=20 county-owned electric systems in Georgia.=20 Santee Cooper—South Carolina's state-owned electric and waste water=20 utility and the state's largest seller of power. The utility is the direct= =20 and indirect source of power for 1.6 million South Carolinians and maintain= s=20 4,223 miles of transmission lines.=20 South Mississippi Electric Power Association=0F-non-profit wholesale electr= ic=20 power cooperative serving the power requirements of the 350,000 retail=20 customers of its 11-member distribution cooperatives in the state of=20 Mississippi.=20 Southern Company=0F-super-regional energy company with more than 32,000 MW = of=20 electric generating capacity in the Southeast and 26,000 miles of=20 transmission lines.=20 An archive list of previous IssueAlerts is available at www.scientech.com [IMAGE] The most comprehensive, up-to-date map of the North American Power System b= y=20 RDI/FT Energy is now available from SCIENTECH. =20 Reach thousands of utility analysts and decision makers every day. Your=20 company can schedule a sponsorship of IssueAlert by contacting Nancy Spring= =20 via e-mail or calling (505)244-7613. Advertising opportunities are also=20 available on our website.=20 SCIENTECH is pleased to provide you with your free, daily IssueAlert. Let = us=20 know if we can help you with in-depth analyses or any other SCIENTECH=20 information products. If you would like to refer a colleague to receive ou= r=20 free, daily IssueAlerts, please reply to this email and include their ful= l=20 name and email address or register directly on our site. =20 If you no longer wish to receive this daily e-mail, send a message to Issue Alert, and include the word "delete" in the subject line.=20 SCIENTECH's IssueAlerts(SM) are compiled based on the independent analysis= =20 of SCIENTECH consultants. The opinions expressed in SCIENTECH's IssueAlert= s=20 are not intended to predict financial performance of companies discussed, = or=20 to be the basis for investment decisions of any kind. SCIENTECH's sole=20 purpose in publishing its IssueAlerts is to offer an independent perspecti= ve=20 regarding the key events occurring in the energy industry, based on its=20 long-standing reputation as an expert on energy issues. =20 Copyright 2001. SCIENTECH, Inc. All rights reserved.
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