Another quarter, another FirstEnergy earnings call
They sounded like they were all on some sort of doggie downer while reading their scripts for the first half of the call. It was only when the line was thrown open to questions that the party started.
Stupid business buzz word for this quarter: "glide path." Ex. FirstEnergy sees its glide path to riches dotted with the corpses of its customers.
It seems that FirstEnergy is about to take one in the shorts because much of its generation was offline during the polar vortex and it had to purchase power. Very expensive power. FirstEnergy also expects to be hit with a bundle of PJM charges resulting from the vortex, but that's okay, the company expects to either drop them on regulated customer doorsteps, stick it to competitive customers through contracts, or simply whine to PJM and FERC about the unfairness of it all. When asked (repeatedly) to put a ballpark number on this, Tony the Trickster avoided the question.
FirstEnergy expects 80% of its earnings to come from its regulated business in the future. That includes FirstEnergy's new found love of transmission upgrades. Once again, FirstEnergy puts all its eggs in one basket. Ooooh! Shiny object! Transmission spend!
Does anyone but FirstEnergy really think that milking regulated customers for transmission upgrades of questionable necessity isn't going to run into a regulatory buzz saw? My Magic 8 Ball tells me "it is certain." Maybe Tony needs to get a Magic 8 Ball to help him run the company?
FirstEnergy is all ticked off about PJM's markets not working. What they mean is that the markets are not working to make FirstEnergy a bundle of money. But, FirstEnergy seem intent on making a regulatory nuisance of itself.
One more thing before I go....
This is a vocabulary lesson for Leila:
The word you were searching for is exacerbate.
verb [ with obj. ]
make (a problem, bad situation, or negative feeling) worse: the forest fire was exacerbated by the lack of rain.
Here's a link where you can hear the word pronounced.
The word is not pronounced "exasperate." These are examples of incorrect usage:
"The situation with market power prices in January was a product of base load generation that was stretched to its limit and exasperated by gas units that were impacted by constrain gas transmission and high spot trading prices."
"The fact that JCP already has the lowest rate in the state of New Jersey, which again further exasperates the consequence of that."
Leila's misuse of exacerbate exasperates me.
A mysterious, new group advocating for "more ways to send Iowa's wind power out of state" appeared on TV screens all across Iowa on Monday. The mysterious group claims it includes "wind power activists, vendors and industry leaders" and that is it "neutral" about the Rock Island Clean Line. How could a group advocating for transmission lines in Iowa not be for RICL?
The Rock Island Clean Line is one for-profit company proposing to ship wind power produced in western Iowa to the outskirts of Chicago. None of that power would stay in Iowa and a number of landowners along the proposed 500-mile-long transmission line route have opposed the plan. Some owners and farmers have expressed concerns about potential damage to land from transmission tower construction and the threat of eminent domain to push a route if enough willing sellers aren’t found.
But Lang, and Mike Prior, interim director of the Iowa Wind Energy Association, hope the new organization could serve as a “go-between” to bridge some of the disagreements between land owners and the Clean Line developers.
"Neutral," my eye!
A front group is an organization that purports to represent one agenda while in reality it serves some other party or interest whose sponsorship is hidden or rarely mentioned. [or denied!] The front group is perhaps the most easily recognized use of the third party propaganda technique.
Larson Shannahan Slifka Group (LS2group) is a bipartisan public relations, public affairs, and marketing firm that guides its practices with one goal in mind: what others may do, we strive to do better. We offer clients an unparalleled commitment to excellence and take pride in our consistent delivery of successful outcomes. Our strength lies in the diversity of our team and its determination to apply creative solutions and unique perspectives to clients' needs. We see possibilities others cannot and have a track record of helping our clients reach their goals.
Right. I'm sure other public relations companies cannot "see" the wheels coming off the front groups they set up for their clients at roll out. But, that's neither here nor there.
Who are LS2Group's clients?
"LS2group has a thorough understanding of our needs and responds quickly to our requests, coupled with a vast network of strong relationships with key officials."
- Cary K., Director of Development, Rock Island Clean Line
Who are LS2Group's employees? I saw this one
minding the Clean Line information table at the first Mendota public hearing. Others have reported seeing her at other Illinois and Iowa public events.
This same LS2Group employee is also the named company contact on a recent press release about the Rock Island Clean Line project.
The claims that Windward Iowa is not advocating for Clean Line's RICL project, and has nothing to do with the company, are beyond credible belief.
Windward Iowa incorporated as a non-profit Iowa corporation on December 12, 2013. According to its Articles of Incorporation, its purpose is:
to promote social welfare by seeking to educate and encourage landowners to become familiar with wind energy production and transmission, and expand the wind industry in the state of Iowa to further the common good and general welfare of the people of Iowa and the Midwest.
According to its Articles:
no substantial part of the activities of the corporation shall be the carrying on of propaganda, or otherwise attempting to influence legislation, and the corporation shall not participate in, or intervene in (including the publishing or publication of statements) any political campaign on behalf of or in opposition to any candidate for public office
and must abide by the laws for a 501(c)4 corporation
as determined by the Internal Revenue Service. This also means that donations to this corporation are not tax deductible.
Donations? Yes, that's one of the ways you can "get involved" with this group, in addition to "submitting a letter to the editor or opinion editorial; commenting online through Facebook, Twitter or LinkedIn, or on an article; commenting to the Iowa Utility Board; or contacting your legislator or local government official." Hey, wait a tick, doesn't that last one violate the Articles' prohibition on attempts to influence legislation? That's some pretty thin ice!
I also wonder what the legal implications are of this corporation involving itself in negotiations with property owners that eventually result in eminent domain takings?
Windward Iowa's Facebook
page contains numerous links to stories about RICL.
Windward Iowa's website makes sweeping statements
that it does not back up, such as: "Experts predict the U.S. will soon be in the midst of a transmission crisis. It is important to be proactive in addressing the issue and developing new infrastructure. We cannot afford to wait another 60 years for wind energy development.
The country’s electric grid is outdated and in need of attention and upgrades. Projects that bring wind energy through new avenues are part of the solution to providing clean, dependable, and renewable power."
Who are these "experts" and where have they made these statements? Or did the public relations firm just make it up out of whole cloth?
Compare this information to the signs of a front group here
1. The group does not report who they are really working for, who their members are, or the source of their funding. The idea that three individuals spontaneously decided to start an advocacy group managed by a pricey lawyer and a public relations group defies belief.
2. There is no physical address or list of staff on the website.
3. The group claims neutrality on some hot button issue and appears to be making general arguments about a topic only marginally related to the issue, and yet they mainly focus on a “secondary” issue (RICL).
This is all so classic. I've had experience uncovering and reporting on transmission company front groups in the past, and my opinion is that Windward Iowa is a front group being paid for by Clean Line Energy Partners.
Because RICL and Clean Line Energy Partners are no longer viewed as an impartial and trustworthy source of information in Iowa, the company and its public relations contractor have created a supposedly "neutral" third-party entity that will continue to advocate for its project under another name. If you wouldn't believe a word RICL says, then don't believe anything the company tells you when it is wearing its "Windward Iowa" mask.
Windward Iowa only has the same amount of credibility as RICL, and should be treated accordingly by opposition, elected officials, and the media. It's very disappointing that none of the reporters attending the group's "launch" yesterday had the curiosity to ask where this group is getting its funding. That's the literal "million dollar question."
FirstEnergy finally filed a public copy of its Electric Power Research Institute (EPRI) report
on its West Virginia billing problems. The report can only be described as a grammatical HOT MESS
The general gist of the report tells FirstEnergy to stop screwing around with its estimation algorithm because it works well, except that it overestimates customer usage an average of 14%.
EPRI tells us that when the meter is read every other month, both monthly kwh values are a forecast or estimate, because the first month is estimated and the second or "actual" month is actually a result of actual use plus any true-up amount from the first estimated month. In other words... you never get a monthly bill for the actual amount you use. Customers whose bill is read every month have accurate bills, but not you.
The report goes wrong in the first paragraph:
The focus of this assessment is to evaluate the BE protocols’ performance where bi-monthly
meter reading is the standard.
The General Investigation was not triggered by the inaccuracy of FirstEnergy's estimation algorithm. It was triggered by a huge outcry by customers whose electric meters had not been read as required by FirstEnergy's tariff. FirstEnergy made it about its algorithm by focusing on that during the investigation and hearing. By asking the wrong question, FirstEnergy shifts the focus off its willful disregard of its own tariff and the injury it caused (and continues to cause!) to its customers.
"If they can get you asking the wrong questions, they don't have to worry about the answers." - Thomas Pynchon
And, therefore, this hot mess should be tucked away in File 13 and forgotten. It's not relevant to the investigation.
Besides, it's the hardest read I've come across in a long time. Yes, it's hopelessly technical, but it seems that FirstEnergy also ran it through the Gibberish translator before approving its final content. This thing is chock-a-block full of typographical errors, missing words, extraneous words, incorrect words, and incomplete sentences, to the point that the reader is constantly stopping to reach for their secret Gibberish decoder ring. Here's just one of the hundreds of sentences that gave me pause. What does this mean?
When the values are designated as actual, then BSE assumes that they are actual meter reads and treats when according to the
protocols employees in levelization.
Here are a few quotes from sentences that didn't need decoding:
Note: "BE" stands for "Bill Estimation." Just think, if EPRI had named it the "Bill Simulator" instead, we could have been treated to a report full of "BS." Oh, wait, I think that happened anyhow...
As the number of consecutive estimates increases, the BE performance deteriorates.
...ascertain if using the Prior Period should not be considered for the Base Period if the Prior Period was estimated, and especially if there are indications that there was a large but unwarranted reconciliation.
In the case of scenario 10b (Figure 7-13), which imposed two months of 33%
underestimation followed by a large reconciliation, the performance was not quite as good. The R-value distribution became less compacted around R = 1.0, and the
percentage extreme R-value increased to 8%, four time that of scenario 1b. This might
result because underestimation of usage results in systematically poorer performance of the BE in situations where the estimated month’s usage and the reconciliation amount is large. More testing is called for to verify this result before changes are made to the BE
protocols to mitigate this apparent bias.
Missed scheduled meter reads resulted in a modest increase in the extent of
overestimation measured by the mean R-value, but more importantly more individual
customer R-values are in the extreme tails.
Blah, blah, blah, who cares? But if you can manage to get through nearly 100 pages of this Gibberish, there's a treat at the end for you. It's a 12 slide deck of FirstEnergy's "response" to the EPRI report. Why did FirstEnergy need a slide deck? Maybe it's because:
EPRl was asked to perform objective statistical testing of our estimation processes. While we (FirstEnergy) agree with EPRl that the estimation algorithm performs well for most customers we also believe that performance can be improved.
As such we recognize the need to mitigate any unintended impact to customers in the interim and will as proposed in the settlement:
Bill message customers who received a bill varying by more than 25% from previous year following multiple estimates to remind of
payment options (February 2014);
Exception customers whose current estimate vary by more than 25% from their previous year’s bill for manual review (May 2014).
Settlement? What settlement? Is the Commission going to allow FirstEnergy to skip out with a slap on the wrist in a settlement?
Remember when FirstEnergy told the WV PSC in its February 3 brief
on the General Investigation that its customers in Pennsylvania haven't had issues with estimated bills?
The two major storms were the largest impact cause of the disruption to obtaining scheduled meter reads. That conclusion is supported by the experience of sister company, West Penn Power, which experienced all the same integration issues (system integration, renumbering, meter reading restructuring) as the Companies experienced, but did not experience the same level of damage and widespread outages from these two super storms. Consequently, West Penn has not had the level of customer complaint and billing issues that the Companies and their customers experienced.
UWUA brings this complaint in its capacity as the representative of meter readers and other Penelec employees who are being directed by Penelec to continually and willfully violate the Commission's meter reading regulations and the provisions of Penelec's own tariff.
UWUA states on information and belief that Penelec routinely estimates bills for thousands of residential customers three, four, or even five consecutive months when there are no exigent circumstances and no problems with utility personnel gaining access to the customer's meter.
UWUA states on information and belief that Penelec fails to read meters as required because it has failed to fill vacant meter-reading positions and has otherwise failed to properly staff its meter reading function. That is, Penelec has made a business decision to save the expense of hiring additional meter readers and instead issue numerous consecutive estimated bills to residential customers in violation of the Commission's regulations.
Oh, so it's not about salt-laden snow after all? Maybe it's about the company deliberately failing to read meters as a cost-cutting measure?
Shame on you, FirstEnergy!
Sharon, an organic farmer from north central Kansas, recently had the opportunity to pause and ponder one of nature's wonders
on her way to work. Here are her words:
"Oh beautiful for spacious skies... " What a perfect Kodak moment! As I drove into town to my off the farm job, I was so lucky to witness yet another of Mother Nature's magic moments. I am so grateful that I was born and raised and returned back to our old family farm located in North Central Kansas. Most of you already know from geography class, that puts me on the western edge of that grand land many of us call Mayberry. Watching Mother Nature produce some of the most breathtaking artwork is one of the many perks of living out here, in the "boonies". I am so very blessed.
It's just too bad the next time many of us will see this spectacular and rare sight, the pasture fence will most likely be upstaged by 150'-200' tall, steel lattice poles with high voltage transmission lines carrying 3x the power of Hoover Dam from one end of our great state to the other and into our just as great, neighboring states. And they will stand there for--"FOREVER"!
We are assured they will be carrying all this clean? green energy which will be carried “out," not in or throughout our state. But we needn't worry, the company tells us. All is well, even though a project of this magnitude has never been built before and this company has never built a high voltage transmission line of any size.
The company and their expert witnesses assure us that we are in good hands, all is safe, there are no dangers, for "forever" and ever. Our children's grandchildren will just be fine, don't worry. They may never get to see or even know what an eagle is, nor the family farm. But what's a few sacrifices, for the greater good?
While I have spent many hours reading, re-reading, researching, searching for truth, there's still one problem I can't quite figure out in all of this. Exactly what is the "greater good" or maybe I should ask, for whom is this greater good? I'm certain Eminent Domain will let me know soon enough. Let's hope by then, it's not too late!
Tony Alexander - President and Chief Executive Officer
Kit, I think it's important to recognize we haven't had rate cases for quite some time now. And we've been a part of - in recognition of what's been happening in from a customer standpoint in terms of the depressed economic conditions we've tried our best to hold off. As we move more towards regulation in terms of - we also anticipate having more rate applications. For example, some time this year, going into '15 or '16, the Pennsylvania and West Virginia decisions will be made. The New Jersey decision will be made. Those will all set baselines and new baselines for going forward.
So as we transition more towards a rate case model in terms of improving service to customers and getting them reset at new baselines, there will be a lot of things changing. For example, over the last several years and in part because of the major emphasis on reliability that we've had and because of our desire not to have interim rate cases, we have shifted a lot of our capital, particularly our vegetation management to a lot of our expense to capital, I should say, particularly our vegetation management. We are now about closed in many areas. We're not done yet, but we are about closed in many areas. That doesn't get rid of veg management, but it does move it from capital to expense. And that will happen naturally as we're moving towards these rate case applications in the various jurisdictions that we will have.
Kit Konolige - BGC
Just a final question to follow on that. Can you address at all what we should expect the growth rate to be in earnings in the distribution segment? Obviously you've addressed that in transmission.
Tony Alexander - President and Chief Executive Officer
That's going to depend primarily on our effectiveness as we move through the rate case process. And I think at this point, it's a little early to begin to try to address that.
Right, FirstEnergy's "effectiveness." Who can resist a build up like that? The news reports I've been reading about New Jersey's rate case haven't painted FirstEnergy as very "effective." So, I went to the source documents
(because they're ever so much more interesting than news reports, if you like that geeky rate stuff).
The New Jersey case presents a well-marked road map for Tony the Trickster's anticipated upcoming rate cases in West Virginia and Pennsylvania. The New Jersey Rate Counsel has expertly revealed the places where FirstEnergy cheats in a rate case. Forewarned is forearmed, I always say!
FirstEnergy didn't file a rate case in New Jersey willingly. The company had to be dragged to it, kicking and screaming. And, it looks like FirstEnergy is getting its clock cleaned. The company requested a $31M increase. Instead, New Jersey's Rate Counsel is asking for a more than $200M decrease in rates.
This matter began when Rate Counsel filed a Motion in September, 2011 alleging
that Jersey Central Power & Light (“JCP&L” or “the Company”) was over-earning and
asking the Board of Public Utilities (“Board” or “BPU”) to require the Company to file a
base rate case to protect ratepayers from continued excessive rates. The record that has
been developed since then shows clearly that Rate Counsel’s concerns were well-founded.
While the Company has sought an increase in rates, the record demonstrates that the
Company has been over-earning and that ratepayers are entitled to a rate reduction of
over $200 million. The record also supports a reduction in the Company’s overall rate of
Rate Counsel recognizes that a rate reduction of this magnitude is extraordinary.
Yet the evidence is clear and Your Honor and the Board must fulfill the statutory
obligation to establish rates that are just and reasonable based on the evidence in the
record. Unfortunately for JCP&L’s ratepayers, however, the story does not end there.
While this matter was pending, the State suffered several severe storms that led to
extensive and long outages throughout New Jersey. JCP&L’s territory was hit
particularly hard and customers suffered through outages of extraordinary scope and
duration. In many ways, the pendency of the rate case was fortuitous, as it led to an
opportunity to examine the Company’s reliability spending and practices as well as its
What that examination has shown is of great concern. While JCP&L was granted
additional funds in the second phase of its last base rate case in 2005 to address ongoing
reliability concerns, it substantially decreased spending on reliability once the initial work mandated by the BPU was completed. Between 2008-2010 the Company’s reliability spending was reduced and its tree-trimming budget was cut back significantly. During this same period, JCP&L was sending a whopping 170% of its earnings to its sole shareholder and parent corporation, FirstEnergy.
While the money paid by New Jersey’s ratepayers was being sent off to Ohio,
insufficient funds were being invested in JCP&L’s infrastructure in New Jersey. While some of that spending has now been increased as a result of the storms, ratepayers need the protection of their regulators to ensure not only that the Company’s rates are just and reasonable, but that ratepayers’ investment in this Company is spent for their benefit.
Ratepayers are entitled to better reliability and for this reason Rate Counsel seeks relief in
this case that would require more rigorous reliability reporting and standards as well as
consequences if the Company fails to provide that reporting or meet those standards.
The record also demonstrates that while JCP&L steered its extensive earnings to its parent, the credit rating of FirstEnergy has negatively impacted the credit worthiness of JCP&L. It is fundamentally unfair for the ratepayers to pay more than enough to maintain the stability of the utility and then potentially pay more because of the negative impact of JCP&L’s parent on the utility’s cost to borrow money. For this reason Rate Counsel is also asking the Board to order the Company to conduct a study to determine ring-fencing measures to protect JCP&L’s credit worthiness and thus protect New Jersey ratepayers.
As is evident by the way it started, this is not a standard rate case. It is an opportunity for the Board to reinforce its mandate to ensure safe, adequate and proper service for New Jersey’s ratepayers at just and reasonable rates. It is an opportunity to rein in JCP&L’s persistent reliability problems, to ensure appropriate and continued investment in New Jersey’s infrastructure, and the financial health of a local utility.
Get that? While the local subsidiary had increased rates to pay for reliability improvements, it was sending the money to its parent, FirstEnergy, and not spending it on reliability. As well, FirstEnergy's financial problems caused higher rates for New Jersey customers. All this is sounding strikingly familiar, isn't it, West Virginia?
And there's more... oh, so much more!
- In the wake of an earlier rate increase for reliability repairs, "...after making initial repairs, it is unclear whether the Company continued to use all
the funds collected for continued reliability investment. Instead, it appears that excess
funds went to shareholder dividends."
- The company has increased the number of "major event days" that are not required to be included in reliability statistics. For example, in 2004 there were 4 "major events." In 2011, there were 62. Rate Counsel recommends "...the Board should better define “major events” so that the definition cannot be modified to skew the Company’s performance results."
- The company deferred, or performed less than adequate, vegetation management work prior to the two hurricanes. "The evidence in the record shows... JCP&L deferred needed vegetation management and reallocated revenues to other projects."
While JCP&L enjoys cost savings by deferring projects, a substantial amount of revenue are being collected from ratepayers that has not been invested in JCP&L’s infrastructure. At that same time JCP&L was giving its parent FirstEnergy a generous dividend. Over 70 percent of JCP&L’s profits during 2009 to 2011 were paid out in dividends to its parent FirstEnergy instead of reinvesting its profits in its New Jersey electric distribution utility. The Company claims that “necessary” right of way vegetation management was deferred due to an off right of way vegetation management program called the Corridor Widening Initiative. However, in light of the millions of dollars sent to Ohio in dividends, it appears that the Company collected sufficient ratepayer funds to maintain its vegetation management spending and still complete the Corridor Widening Initiative.
- Rate Counsel recommends that the company conduct at ring fencing study. "'Ring fencing' refers to corporate structural protections and business practices that can help separate the utility subsidiary from its riskier parent and corporate affiliates. These measures, if properly designed, could help the utility avoid becoming involved in a
bankruptcy in the event of a parent (or affiliate) bankruptcy and/or reduce the likelihood that the utility subsidiary would be downgraded by credit rating agencies due to the parent being downgraded. Properly designed ring fencing measures can help to protect the financial health of the utility, avoid unwarranted credit downgradings, and provide reassurance to utility bond investors."
- "Aside from the less tangible adverse effects related to its lower debt rating, FirstEnergy over time drained cash from JCP&L. The record shows that JCP&L has paid much of its earnings over recent years to its parent FirstEnergy in the form of dividends and a $500 million “return of capital.”
- The company requested an 11% return on equity. Rate Counsel recommends 9.25%. The company's ROE expert's testimony was rife with error and inventive conclusions.
- The company included $1.8B in goodwill acquisition premium in its proposed capital structure.
First, a merger acquisition premium should not be considered to be part of the cost of providing utility delivery service, since this is a cost that shareholders should be required to bear. The Company did not cite a single instance of another utility commission or electric utility rate case where inclusion of goodwill in capital structure was sanctioned. Goodwill does not represent actual utility assets or investor-supplied funds, which Mr. Kahal found adversely affects the quality of JCP&L’s balance sheet and the Company’s credit agency ratings. Mr. Kahal concluded that this goodwill is “an accounting adjustment to the Company’s balance sheet that occurred in conjunction with the GPU/FirstEnergy merger approximately a decade ago.”
- The company played a lot of games with items included in its proposed rate base. The Rate Counsel's laundry list of no-no's include: storm costs not yet found prudent, inclusion of non-distribution items, excess cost of removal reserve, materials and supplies, cash working capital (lead/lag study), customer refunds, operating reserves, depreciation, including a bunch of stuff from the test year after the debt has expired, number of customers, inclusion of Allegheny Energy/FirstEnergy merger costs and employee bonuses related thereto, inflated forestry expenses, inflated general plant maintenance costs, executive incentive compensation tied to financial performance that benefits shareholders (“Payment of any short-term incentive [STIP] award is contingent upon the Company [FirstEnergy] achieving the Earnings Per Share threshold level, after accounting for the cost of the payout."), Supplemental Executive Retirement Program costs (extra perks for the bigwigs!), and Pension & OPEB expenses.
- The company has been charging customers for income taxes it doesn't pay. Because FirstEnergy files a combined return that includes all its subsidiaries, it can leverage the different companies' tax burdens to pay NO income tax.
The Company’s manipulation of its cash working capital requirement for federal
income taxes is especially bothersome when one considers the fact that JCP&L is a
member of the FirstEnergy consolidated tax group and, therefore, is making these
quarterly tax payments, not to the IRS, but to its parent corporation, FirstEnergy. And, in
fact, in 2011, parent corporation FirstEnergy paid no income taxes to the IRS.
JCP&L is therefore not only charging ratepayers for income taxes that were never
paid to the IRS, it also seeks to charge ratepayers for a phantom cash working capital
requirement on those phantom taxes. This is unfair and should not be allowed. Properly
measuring the expense lead days associated with the payment of federal income taxes
reduces JCP&L’s claimed CWC requirement by approximately $10.5 million.
- Payment of executive "incentives" to increase shareholder dividends don't provide benefit to ratepayers.
FirstEnergy’s incentive compensation programs are heavily weighted toward the achievement of certain financial objectives, with no payout being made unless certain financial goals are met. Incentive plans that are based largely on earnings criteria are not sufficiently related to the provision of safe and reliable utility service to justify passing this cost onto ratepayers. If incentive compensation programs are tied to increased corporate and shareholder earnings, then the corporate shareholders, not ratepayers, should pay for them. To do otherwise violates all sense of fairness to the ratepayers of the regulated entity. Accordingly, Rate Counsel recommends that JCP&L’s proposed incentive compensation expenses of $8.4 million be disallowed for rate making purposes in this case.
- Inclusion of certain "miscellaneous" O&M expenses, such as goodwill advertising; memberships in private clubs; employee rewards, outings, parties and gifts; and company memberships in a number of civic organizations such as chambers of commerce, mayor associations, area associations, Jersey Shore partnership association and economic development association. Oh, so it's not just me? This is nonsense, FirstEnergy! The free ride is over!
As these miscellaneous expenses are not related to the provision of safe, adequate
and reliable service, they are not appropriate for inclusion in rates set for utility service.
Certainly the Company has not demonstrated how funding of retiree clubs and parties will have a positive impact on the provision of electric service. Moreover, it is long standing Board policy in this state that institution and goodwill advertising shall be paid by shareholders, not ratepayers.
The Company has failed to demonstrate that these various expenses provide any “measurable benefit to its ratepayers” and therefore “the mandate of Title 48 for just and
reasonable rates precludes the captive ratepayer from subsidizing those costs.”
Accordingly, Your Honor and the Board should reject the Company’s proposal to include
the above listed $79,258 in miscellaneous expenses in claimed operating expenses.
It should also be acknowledged that the West Virginia PSC ordered FirstEnergy to file a base rate case by April 2014 as a condition of its approval of the Harrison power station "sale" to its WV jurisdictional utilities. This isn't a voluntary rate case FirstEnergy is filing simply to increase revenues. And if parties to the upcoming West Virginia case pay attention and prepare properly, it's going to be an absolute bloodbath. I can't wait! :-)
Big article in the Wall Street Journal yesterday, Assault on California Power Station Raises Alarm on Potential for Terrorism, that reports on a coordinated attack at a California substation that sounds like a scene from an action film.
According to the article, the information came from former FERC Commissioner Jon Wellinghoff, who has taken up lurking around substations in his dotage. Apparently Wellinghoff was horrified at the substation attack last April and the subsequent realization that our grid is astonishingly vulnerable and there's not much FERC can do about it.
I know what FERC can do about it... Stop promoting centralized generation and an increasing network of high voltage transmission lines to trade electricity like a commodity from coast to coast!
If you think substations are vulnerable, spend a few minutes pondering the thousands of miles of high voltage transmission lines strung everywhere. True, an attack on one remote tower may not have much effect and could be easily fixed, but what about a coordinated attack on hundreds of towers that supply our cities at the same time?
Our military isn't dumb enough to rely on a power supply this vulnerable, so why should we? As far back as 2007, the U.S. military was studying electric grid vulnerability and concluded that "distributed generation" (yes, they used quotes, like Dr. Evil with his "laser") was our best defense.
And so it is - our military is practicing distributed generation.
So, when is Congress going to put a stop to the transmission feeding frenzy and start protecting the rest of us?
It appears that FirstEnergy didn't learn a thing from its recent trip to the PSC hot seat over the company's shocking disregard for its customers who were trampled on the way to "merger synergy savings." FirstEnergy maintains that it never did anything wrong, but has magnanimously offered a few ineffectual parting gifts for its customers as a fig leaf to cover its hoped-for ruling by the Commission that would let the company off scot-free.
The PSC Staff and the Consumer Advocate Division have different ideas, and the Staff, in particular, rakes FirstEnergy over the coals in its own blistering brief. That's all fine and good, but I hope a bunch of scathing words in a brief isn't all we get out of this. Staff says:
The Companies responding to this General Investigation proceeding have provided a lot of excuses to the Commission as to why so many customers received multiple consecutive poorly estimated bills that led to dramatically high “true up” bills.
Originally, the Companies tried to convince the Commission and the public the problems
were mainly caused by the timing and size of the Derecho and Super Storm Sandy.
When the problems continued, the Companies started providing further excuses, but did
not take responsibility for their role in creating many of the problems themselves and compounded the problem further by making unreasonable demands for payments from the impacted customers. In Staffs opinion, they still have not taken that responsibility.
The Derecho and Super Storm Sandy undeniably played a significant role in the problems underlying this case. However, all along the way, the Companies made poor decision after poor decision with little to no thought as to how it might impact their customers.
These poor decisions lead to multiple and continued violations of their tariffs. Staff takes
these violations very seriously and believes it is time the Companies own up to their mistakes and provide the Commission with concrete evidence these types of problems
will not reoccur. Further, the Companies should be required to either correct the ongoing problems with their estimation routine or switch from bi-monthly to monthly meter reading.
Hurricane Sandy struck the service territories with large amounts of heavy, salt-laden, snow that tore down trees and power lines...
Really, FirstEnergy? That's a meteorological first -- it snowed heavy "salt-laden" snow on the trees and power lines? What the heck, FirstEnergy? How does that happen? How does the salt get into the atmosphere and how does it become encapsulated in snowflakes? When "salt-laden" snow melts, does it leave a residue behind? That defies common sense! Got a little carried away there, didn't you?
So, what was the REAL cause of the problems? Staff says:
It is easy, and some may say unfair, to play Monday morning quarterback with the decisions of the Companies. Staff does not believe it is unfair to do so in this circumstance. A poor decision here or there is just that, a decision that did not work out.
What we have here is something completely different, poor decision on top of poor
decision on top of devastating storms on top of more poor decisions with no management
thought of potential impacts to customers. This is a pattern of behavior. It appears FirstEnergy had a plan for integration and was determined to follow through with that
plan no matter the result. Little consideration was given to the customers, “merger
synergy savings” had to be captured. Indeed the Companies suspected as early as
September of 2012 there may be problems, but did nothing to attempt to resolve them
until April 2013. At that point, the problems had become so widespread the Companies
had no choice but to try and address them. However, shockingly, the Companies
continue to act as though they were simply a victim of circumstance. Generally, Staff believes the Commission should send a strong message to the Companies that this type of behavior will not be tolerated, that the Commission believes the Companies did indeed violate their tariff in multiple ways and that continued violations will be looked upon
The Consumer Advocate's brief
was not kind either. The Consumer Advocate is still requesting that FirstEnergy be ordered to read every meter, every month, for one year
Bad historical usage data begets bad data and, thus, CAD believes the only way to correct the problem caused by the Companies’ failure to conduct bi-monthly reads of residential meters is to obtain one year’s worth of reliable data from actual monthly meter reads. It is the goal of the CAD that this matter be resolved in the best possible manner for customers of MP and PE, who have undeniably suffered - and, in some instances, continue to suffer - the ill effects of the Companies’ meter reading and billing practices.
The Consumer Advocate also thinks the companies' storm excuses are a feeble attempt to pretend that the real culprit isn't the company's merger:
Throughout the course of this proceeding, the Companies have attempted to place the
majority of the blame for their billing and meter reading problems on the Derecho that occurred in June 2012 and Superstorm Sandy, which occurred in October 2012. However, while the storms may have exacerbated the Companies’ existing problem, it is inaccurate to contend that the storms caused the billing problems so many customers have faced. In actuality, the evidence shows that the merger of Allegheny Power into FirstEnergy in 2011 and subsequent transition issues in the wake of the merger, including understaffing, transitioning from the Allegheny billing system to the FirstEnergy billing system, and the questionable timing of the meter route “renumbering” project, created this problem.
The Consumer Advocate also noted that, contrary to the company's contentions, customer complaints have been trending up again this winter. We ain't seen nothin' yet!
Underestimations in January bills, combined with this month's prolonged frigid temperatures, are sure to cause a charlie foxtrot of unprecedented proportions in February. Enough is enough.
Even though FirstEnergy's EPRI report still seems to be suspiciously missing, it's time for the Commission to act, if nothing else than from a position of self-preservation. I'm starting to lose track of all the "let's punish the PSC" legislation that's been introduced in Charleston this session. Although we'd rather see the company punished for its transgressions, I guess someone has to take the fall for this.
Ever listened to an investor owned utility's earnings call? They're an acquired taste, because your first one sounds like complete and utter gibberish. Are these people speaking English? Is there some fancy 1% business speak language that they didn't teach you in school? Nope. I think company management just plain ol' makes crap up to keep the investment analysts guessing.
Case in point -- Nick Akins and his "block and tackle spending."
And then, when you look at the other capital that we're spending, it's block and tackle spending that typically is recovered from a regulated standpoint.
Blink. Blink. What? Just for shits and giggles I plugged "block and tackle spending" into google. I got a wikipedia description of block and tackle
that describes it thus: "...a system of two or more pulleys with a rope or cable threaded between them, usually used to lift or pull heavy loads,"
and a whole bunch of boating websites. So, Nick is going to rig up some contraption that spends money using a system of pulleys and rope? Sounds complicated. I guess that's why they pay him the big bucks!
Anyhow... once you realize that the emperor has no clothes and that these corporate elitists are really not speaking in some special language, like pig latin, that your plebeian self doesn't understand, earnings calls are quite entertaining. AEP's 4Q 2013 call on Monday was no exception.
AEP's CFO finally gets around to admitting that energy efficiency has flattened out residential demand growth and it's not expected to recover.
Residential sales, shown in the upper left quadrant, were up 0.9% for the quarter, which brings the annual sales flat to 2012. We continue to see modest customer growth in our Western service areas, while our East customer accounts were essentially flat. Average usage per customer has been impacted by home energy efficiency programs. For these reasons, we are expecting normalized residential sales to be down nearly 1% in 2014.
Too bad he's arriving late for the party. How much do they pay this guy to make these brilliant conclusions?
AEP also got some apt questions about its planned "transmission spend," such as what it's going to take to make AEP fall out of love with transmission as an investment vehicle... oh, say, maybe as a little section 206 complaint or two:
Michael J. Lapides - Goldman Sachs Group Inc., Research Division
Yes, 2 questions unrelated. First, on the transmission side. We've seen in the MISO and in New England dockets where interveners are seeking lower transmission base ROEs. If same things happens in some of -- whether it's the Southwest Power Pool, whether it's in PJM, how -- what do you think that tipping point is where we change or, I don't know, you're incentive or your desire to be a sizable investor in transmission in the U.S.?
Nicholas K. Akins - Chairman, Chief Executive Officer, President, Member of Executive Committee and Member of Policy Committee
I think, as long as transmission is, at a premium or equal to the state rates, we're in good shape. And I think, clearly, there is an incentive being placed on building transmission. We're happy with that. And if -- really, once again, the FERC needs to send some messages here that from a policy perspective that we want to continue building transmission in this country. And as long as that premium is at or above the state rates, then we're in good shape.
Brian X. Tierney - Chief Financial Officer and Executive Vice President
FERC was clearly, Michael, looking to attract a capital into this space. And what they've done with their ROEs has done exactly what FERC wanted to happen. So as long as they, as Nick was saying, as long as they continue to send a signal that they want increased investment in this area, we'll respond to that signal.
Nicholas K. Akins - Chairman, Chief Executive Officer, President, Member of Executive Committee and Member of Policy Committee
Okay, I think it's good -- I think, it continues to be part and parcel to the overall grid expansion that's going on in the resilience of the grid. And there's going to continue to be spin regardless. The question is, do you really want to satisfy that precursor of transmission being build out to respond to the generation retirements and so forth to optimize the grid so that you can do that as a prerequisite and then focus on the rest of the underlying system. That's what key. I think you got to get through this transitional process we're at in this industry. So transmission needs to be incentivized in that regard because that will provide the greatest benefit in terms of resiliency of the grid, but also in terms of the optimization of the resources that are attached to the grid.
Blah, blah, blah, grid expansion, transmission build out, blah, blah, what could go wrong
What about fierce, organized opposition to AEP's transmission plans? The people have spoken and their action has seriously complicated or delayed many of AEP's transmission plans, in the past, currently, and in the future. In fact, opposition is getting more organized and more knowledgeable. And we're not going away.
AEP needs a new business plan. Transmission is not the carefree investment vehicle Nick thinks it is...
Rob Danielson of SOUL of Wisconsin
, and Deb Severson of Citizens' Energy Task Force
, are asking state regulators to join them in supporting financially and environmentally sustainable energy solutions.
In a recent editorial in The Wisconsin State Journal, the pair of ratepayer advocates is asking the Wisconsin Public Service Commission to make utilities accountable for the financial and community costs of building more transmission, and for using the term “reliability” so loosely that ratepayers are led to think these lines are about “keeping the lights on.”
Danielson and Severson contend that energy efficiency contributes to grid reliability by reducing stress on the grid. Efficiency is also the best way to save ratepayers’ money and reduce our carbon footprint. It has no negative impacts, other than reducing utility profits.
Utilities and state regulators need to acknowledge how cost-effective it is to shave peak-demand during those very limited hours in the summer or winter when demand spikes — and that this, too, increases grid reliability. Paying customers to turn off their air conditioners for 15 minutes, or an industrial customer to use back-up diesel, makes far more economic sense than spending billions to add wires to bring in rarely needed extra power. Energy spikes can also be addressed by adding local renewables, which have the added benefit of creating additional local, ongoing jobs.
There are many ways to address need without building new transmmission, and Danielson and Severson are asking for equal consideration of them. Consumers are demanding that ratepayer and community interests — not utility and Wall Street profits — drive our future transmission planning decisions.