The Alliance RTO, which was substantially approved by the FERC on 24 January 2001, is expected to manage the electricity transmission systems of 10 companies in 11 states, including Indiana, Illinois, Kentucky, Michigan, Missouri, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, and West Virginia. Together, these companies serve a population of approximately 41 million, represent a peak load of around 108 gigawatts and own 57,100 miles of transmission lines. The concurring Alliance Companies have proposed to the FERC that the Alliance Transco be formed as a limited liability company and managed by an independent managing member. It would seek to commence operation on 15 December 2001, in line with the FERC's target date.

National Grid and the concurring Alliance Companies have reached agreement on the essential terms of the relationship. It is conditional upon the negotiation and execution of definitive agreements and regulatory approvals, including the FERC's finding that National Grid is not a market participant pertaining to the Alliance RTO and approval of the National Grid/Alliance RTO arrangements.

In a recent directive the FERC called for the formation of regional transmission organisations, to promote the creation of large electricity markets and provide reliable, cost-efficient services to customers. The Alliance RTO is anticipated to be the first transmission organisation of its kind in the United States to substantially fulfil the FERC's competitive market initiatives, as set out in that directive.
Roger Urwin, National Grid Group chief executive, said, "This is an important development for National Grid. It provides an excellent opportunity to leverage our skills and complement our existing operations in the northeastern US. We are very pleased that the Alliance recognise our experience gained in the UK, along with our existing US expertise, will enable us to manage this major transmission network efficiently, and in a way that provides reliable, cost-efficient services to customers."

As part of the agreement in principle, National Grid would make a $75 million (£50 million) initial capital investment in the Alliance RTO. In addition, as the RTO develops and as participating Alliance RTO companies elect to contribute transmission assets to the Alliance, the agreement provides for National Grid to invest between 5-20 per cent of the value of assets contributed to the Alliance, or a higher percentage upon mutual agreement, subject to various limitations. Alliance member company, Commonwealth Edison, already has announced its intention to divest its transmission assets, with a gross book value in excess of $1 billion, into the Alliance Transco.

Over the life of the initial seven-year contract, National Grid expects to receive an annual fee of $14 million, subject to adjustment, to manage the Alliance's transmission assets. Those assets have a gross book value of approximately $12 billion. National Grid also would be eligible to receive incentive-based earnings, subject to the FERC's approval, by delivering customer savings in tandem with enhanced system reliability.Stan Szwed, chairman of the Alliance Companies' Management Committee and FirstEnergy vice president responsible for transmission commented, "The concurring Alliance Companies strongly support the petition of National Grid to be our managing member. National Grid has an excellent track record for managing transmission assets effectively and in a way that is responsive to ensuring reliable delivery of energy."

In May 2001, National Grid petitioned the FERC for a determination that it is not a "market participant" and therefore an eligible candidate for managing member of the Alliance RTO. In response to the FERC's July request for additional information, National Grid yesterday (27 August 2001) submitted an additional filing demonstrating how the company will meet, by the Alliance's operation date, the FERC's independence requirements by divesting any remaining economic interests of affiliates in the power generation and supply markets.