News | November 3, 2006

Fitch: U.S. Electric Transmission System Shows Its Age

New York — Strains on the U.S. power delivery system are beginning to show with the current system characterized by aging infrastructure, significant underinvestment and outdated technologies, according to a Fitch Ratings report. Market participants and regulators are placing new functions on the system, such as facilitating competitive regional markets for which it was not designed.

Over the past decade, most transmission investment was directed toward constructing new facilities to meet demand, rather than refurbishing existing equipment. According to the U.S. Department of Energy (DOE), 70% of the transmission lines are 25 years or older, 70% of power transformers are 25 years or older, 60% of circuit breakers are more than 30 years old.

Compounding these problems are the duel challenges of parts availability and obsolescence of older equipment. Electricity demand and generation has doubled over the past 30 years and that, along with the advancement of wholesale power markets, transfers of large amounts of electricity across the network have increased significantly. Transmission constraints, while not affecting power supply, have led to material financial consequences in cases where lower cost power was unable to be delivered.

The underinvestment has just begun to be addressed by the investor-owned utilities (IOUs) and transmission-only companies (transcos). Getting new transmission on the ground continues to be hindered by sitting, historically the greatest hurdle to adding new transmission capacity.

'Transmission developers still face a struggle before state utility commissions despite Federal enhancements to FERC,' said Karen Anderson, Director, Fitch Ratings Global Power team.

From a credit perspective, Fitch expects that utilities will be able to finance their capital expenditures in a manner that is consistent with current ratings.

The full report 'Frayed Wires: US Transmission System Shows Its Age' is available on the Fitch Ratings Web site, at www.fitchratings.com. Also available is a Q&A on the electric transmission system titled 'Transmission 101.'

SOURCE: Fitch Ratings

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