US Electricity Grid Gets a Boost (GE, ABB, SI, AMSC, SATC, PWER)

More than a year ago the Federal Energy Regulatory Commission issued a proposed rule for planning and paying for upgrades to the national electricity grid. The agency released its final rule yesterday on how public utilities must approach grid upgrades and how the costs for the upgrades will be paid.

The new rule eliminates some of the uncertainty related to grid improvements and clears the way for what could be the beginning of a concerted effort to put the US grid on a path to becoming a smart grid. Potential beneficiaries are large transmission and connection construction firms like General Electric Co. (NYSE: GE), ABB Ltd. (NYSE: ABB), and Siemens AG (NYSE: SI). Component suppliers like American Superconductor Corp. (NASDAQ: AMSC), Satcon Technology Corp. (NASDAQ: SATC), and Power-One Inc. (NASDAQ: PWER).

The primary beneficiaries of the FERC ruling will be wind and solar projects that are typically located in remote areas far from existing transmission lines. Large solar developers like First Solar Inc. (NASDAQ: FSLR) and MEMC Electronic Materials Inc. (NYSE: WFR) should also benefit from the new rules because it will make it easier for them to sell new power generation.

Also Read: Expanded SunCoke IPO Unlocks Sunoco’s Value

The rule requires that transmission operators include regional planning, consider public policy requirements, and consult with neighboring transmission operators to ensure the cost-effectiveness of new transmission lines. The tricky bit was always the question of who pays for the development, and the new rule answers that as well.

The FERC ruling now levies the cost of building new transmission more directly on the utility customers who benefit from the additional supply. New electricity generation in Montana, for example, does not serve the people of Montana, but rather those who live in Las Vegas and Southern California. Yet under the old rules Montana customers paid for the transmission lines to carry the electricity to points south.

While the rule applies specifically to public utilities, it will also benefit merchant power suppliers that have already have access to the grid, but are often crowded out by public utilities. Under the new rule, new grid capacity is virtually guaranteed because if the regional operators fail to come up with a plan for new transmission, then the FERC will.

Like most FERC rules, there is little sex appeal in this one. But its impact is relatively long-term and, as always, the devil is in the details. In any event, a more efficient, effective, and robust US electricity grid got a much-needed boost yesterday.

Paul Ausick

Sponsored: Attention Savvy Investors: Speak to 3 Financial Experts – FREE

Ever wanted an extra set of eyes on an investment you’re considering? Now you can speak with up to 3 financial experts in your area for FREE. By simply clicking here you can begin to match with financial professionals who can help guide you through the financial decisions you’re making. And the best part? The first conversation with them is free.

Click here to match with up to 3 financial pros who would be excited to help you make financial decisions.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.