Round two of FERC's attempt to create a cost-socialized coast-to-coast electricity trading market has begun. On May 28, a motley collection of strange bedfellows filed a petition for review of Order No. 1000 in the D.C. Circuit of the U.S. Court of Appeals
. To make it even more fun, a whole bunch of parties intervened in the matter, in support of either the petitioners or FERC, depending on where their interests lie.The petitioners include publicly owned power providers and co-ops, investor owned utilities, states, an ISO, trade associations, and an informal "coalition" of utility interests.Intervenors include ISOs, states, investor owned utilities, public power and co-ops, well-meaning but sadly misguided
environmental groups, and trade associations.Objections to Order 1000 have finally been boiled down to three basic arguments (although the briefs go on and on and throw in all sorts of supporting arguments).1.
Whether FERC has the authority to mandate transmission planning and take other actions to force what it characterizes as “facilitating the development of more efficient and effective transmission expansion plans.”2.
Whether FERC has the authority to order broad socialization of cost responsibility for the building of new transmission lines.3.
Whether FERC can dispose of a utility's right of first refusal to build new transmission in its service territory.
Signatories to this brief raise a number of challenges to the Orders. Several object that the transmission-planning mandate exceeds FERC’s statutory authority, which they argue is limited to encouraging, not requiring, coordinated planning. Various petitioners argue that FERC’s Orders are arbitrary and capricious because they are aimed, not at correcting specific abuses or unreasonable existing rates, but at addressing what FERC describes as the “theoretical threat” that existing planning arrangements might not produce a “more efficient and cost-effective” transmission system. Several petitioners object that mandating consideration in planning processes of transmission needs driven by myriad federal, state, and local public-policy requirements violates the FPA by making the needs of load-serving entities (e.g., public utilities) an optional consideration and is arbitrary and capricious. Some petitioners object that the cost-allocation mandate exceeds FERC’s statutory authority by allowing and directing allocation of transmission costs to entities having no customer or contractual relationship with the transmission provider.
Several petitioners argue that FERC lacks authority to order public utilities to remove exclusive construction rights from their tariffs and to adopt mechanisms allowing third parties to develop the transmission facilities the utilities need to satisfy their service requirements. These petitioners argue that FERC’s actions reduce the efficiencies inherent in vertical integration and arbitrarily interfere with their public-service obligations to maintain reliable service. Some petitioners also challenge the Orders for infringing upon the authority reserved to the States as the States, not FERC, regulate transmission development. Non-jurisdictional utility customers contest FERC’s authority to expand the reciprocal-service condition on their receipt of transmission service to include the Orders’ planning and cost- allocation mandates. An association of jurisdictional utilities objects that FERC’s refusal to invoke FPA section 211A to impose the Orders’ mandates on non- jurisdictional utilities was arbitrary. These and several other challenges to the Orders are discussed in the issue-specific briefs.
Order 1000 concluded we need “transmission planning and cost allocation processes so that the transmission grid can better support wholesale power markets and thereby ensure that Commission-jurisdictional services are provided at rates, terms and conditions that are just and reasonable and not unduly discriminatory or
FERC got downright silly mincing words to create its authority to do what it did, and the briefs get into some really ridiculous debate of grammatical construction and the meanings of phrases and words. There's also discussion that brings to mind the old "if it ain't broke, don't fix it" idiom. According to petitioners, FERC did not have sufficient reason to "fix" transmission planning and cost allocation because it did not have a compelling reason to conclude that there was anything to "fix," nor that its "fix" would be an improvement.
The Orders, they noted, were based, not on evidence of specific problems, but on FERC’s determination that “inadequate transmission planning and cost allocation requirements may be impeding the development of beneficial transmission lines,” and that the Orders “could” or “may” identify transmission solutions that “meet the needs of a transmission planning region more efficiently or cost-effectively.”
In justifying its new "beneficiary pays" requirements to more broadly socialize the cost of transmission to ratepayers across multiple regions, FERC failed to define "benefit," which allows very loose interpretation of perceived "benefit" in exchange for cost responsibility. FERC determined that it was preventing "free ridership," whereby some beneficiaries did not pay for new transmission. The petitioners argument hinges on the fact that FERC cannot create cost responsibility between parties who do not have a contract for the service being provided. In addition, FERC may only approve rates proposed by companies it regulates, or fix the same when they are unjust or unreasonable. It cannot create and set rates on its own initiative.
That's all fine and good, however the REAL reason for broader cost socialization is to hide the true cost of this transmission building craze from the billions of electric consumers who will finance it. The broader the cost is spread, the smaller the impact on each individual. Who in West Virginia is going to notice a couple extra cents on their monthly electric bill for new transmission lines in Kansas? However, if the cost is spread over a smaller pool of true "beneficiaries" closer to the actual transmission lines, it would cause greater monthly increases that would definitely be noticed and contested. In this way, federal regulators, and the for-profit generators and transmission owners they serve, are tricking you into failing to notice the immense profits you are paying to these companies in exchange for building new transmission of questionable necessity. It's not supposed to be about continued forced support of a dying, centralized energy paradigm, but about citizens' ability to consciously invest in smart, efficient and reliable energy systems of their own choosing. Long-distance transmission lines will soon be as necessary as land line phones, however we may be stuck with the huge investment we were forced to make in them now for many years after they cease to be useful to us.But wait... FERC wields the interstate commerce club that they have been quietly swinging behind their back for the past couple of years to trump any naysayers to Order 1000. FERC possesses
authority to regulate “the transmission of electric energy in interstate commerce”
and “the sale of electric energy at wholesale in interstate commerce.”
However, Congress has repeatedly mandated that states retain the authority to permit transmission lines within their borders. This state/federal conflict has been going on for years
, and the interstate commerce club makes its first appearance in the 7th Circuit MISO MVP decision
I wrote about earlier this week. Will it be enough to club states into submission?I still can't muster up the energy to care about the investor owned utilities excitement over losing their long standing right of first refusal ("ROFR"), and the arguments petitioners put forward are nothing short of humorous. The IOUs purport that
elimination of the ROFR "...would negatively affect reliability, impede planning, and substantially harm consumer
s." The ROFR that was eliminated allowed utilities to have first dibs on any new transmission lines in their service territory that were determined to be needed by the regional planning authority. In possessing this "right," the IOU was given the ability to determine the cost of the new transmission without competition. I'm not sure how that ever protected the consumers who pay for transmission. It didn't. FERC's elimination of the ROFR now provides that once a need for a transmission upgrade is identified, anyone can submit a bid to build it. Only through this kind of price competition will consumers be assured that needed transmission is built most cost-effectively.One of the side-shows going on under the authority to mandate transmission planning
category involves FERC's determination that "public policy" requirements be considered in regional planning. "Public policy" requirements are individual state or local laws or goals requiring jurisdictions to obtain a certain percentage of their power from renewable resources. In placing regional planners in the position of interpreting and fulfilling the laws of states or localities, FERC seriously oversteps its authority. Only the jurisdiction that enacts a public policy requirement has authority to implement and enforce the requirement. It is not up to FERC or regional planners to decide what a government may have meant by a certain requirement, or how the government will implement and meet it. As well, the cost of regional mandates to build transmission that would satisfy individual "public policy" requirements cannot be socialized among residents of other localities whose laws don't require it, or conflict in some way with the "public policy" being satisfied with the new transmission. But wait... here comes that interstate commerce sledgehammer again! The 7th Circuit ruled that the Commerce Clause of the Constitution trumped state autonomy to reject fees mandated by another state's law over which it has no control.If you're a geeky freak who enjoys pouring through lengthy legal briefs for occasional giggles, here are links to the ones filed at the D.C. Circuit:1. Statement of Facts Brief
(contains general housekeeping stuff and the most basic summary of the issues you're going to find. If you only read one, make it this one.)2. Cost Allocation Brief
(enough detail of the cost allocation arguments to lull you to sleep even after an entire pot of coffee!)3. Threshold Issues Brief
(why FERC has no authority to do what it did - ad nauseam).Well,
haven't they all created a fine mess for consumers when left unsupervised? This is going to drag on for years, but ultimately will determine how your electricity is generated, how it gets to you, and how much you're going to pay for it. Obviously your best interests are not being represented by any of these parties. You're going to have to speak up and let your elected representatives know what you want.
Briefs filed in federal court by environmental groups seeking to have a National Park Service permit to destroy the Delaware Water Gap National Recreation Area overturned contained some damning quotes from minutes of meetings between Secretary of the Interior Ken Salazar, Park Service Officials and representatives of investor-owned utilities PSEG and PPL, owners of the proposed Susquehanna Roseland transmission line.During an August 4, 2011 meeting, Salazar is quoted as saying: "So here's the deal: I want $60 m [million] and I want it now."An expose in the New Jersey Herald tells what happened next:
...the companies "choked/came back in/ and said it's a deal ... only ask is completion of NEPA by Oct '12."
Investor owned utilities must be running scared again while FERC dithers over complaints about transmission project base ROEs. The Edison Electric Institute, an investor owned utility lobby shop, has issued a white paper
and a press release
telling everyone that unless its members can continue to make money hand over fist building new transmission that the lights will go out.
Bitch, please!"The EEI report comes as FERC is reviewing a number of complaints over transmission ROEs, where states and others are urging FERC to reduce the returns in light of lower interest rates and other factors. For instance, ISO New England and several states in the region are in dispute over what the region's base ROE should be."
EEI states that FERC must roll over and do it their way...
"Otherwise, the nation's electric utilities and their investors could divert needed capital to investments with greater returns, jeopardizing transmission reliability."The funniest part is that EEI is still using the same lame, illogical arguments it trotted out last time when FERC was considering reforming transmission incentives, including ROE adders.Those arguments got shredded by a bunch of nobodies.Do you think EEI is also doing the visits from utility CEOs routine this time? I hope not. That would definitely be an ex parte no-no in this case."Given the numerous risks and challenges associated with developing large-scale transmission, it is critical that returns are sufficient to encourage EEI's members to focus on evaluating and building the larger, more challenging projects needed for a more robust electric grid that will provide reliability and other benefits to customers in both the short and long term," it said.What EEI is really saying is that its members prefer to build big, risky transmission projects because those projects offer the biggest profit. The transmission cash feeding frenzy continues at ratepayer expense. There's no "benefit" for customers.EEI "...believes the clear conclusion of governmental and regulatory bodies is that the public policy benefits of transmission investment are without dispute, and the need for greater transmission investments is clear."
No, that's simply wishful thinking on EEI's part, and EEI believes that if it continues to hammer this lie on regulators and the public that they might some day come to believe it. After all... "But the most brilliant propagandist technique will yield no success unless one fundamental principle is borne in mind constantly and with unflagging attention. It must confine itself to a few points and repeat them over and over. Here, as so often in this world, persistence is the first and most important requirement for success."― Adolf HitlerAnd speaking of repetition, EEI trots out one of the oldest, most over-used lies about transmission:"Investing in transmission infrastructure also provides grid resiliency, which helps to avoid major electricity
blackouts that can result in significant economic losses. For example, due to a transmission issue starting on
August 14, 2003, an estimated 50 million people in the Midwest and Northeast United States and Ontario,
Canada, experienced an area-wide blackout lasting up to four days in some areas."The "transmission issue" was not caused by lack of sufficient, reliable transmission. It was caused by human error and lack of right-of-way maintenance on the part of utility stooge FirstEnergy
. Building new transmission won't prevent another blackout, and, in fact, more interconnected transmission actually increases the risk of future blackouts over wider areas.
Now, EEI's just getting downright silly:"As the Nation’s Demand for Reliable, Affordable Electricity Grows, EEI Members Remain
Committed to Developing the Transmission Needed to Provide Reliable Electricity."I guess EEI missed all those news reports about tanking demand.
This doesn't even deserve the 2 seconds it would take for me to find a reference link. Google it yourself.EEI whines about the "riskiness" of projects that are approved by the regional electricity cartels, like PJM, and then subsequently proven unneeded by states and citizen opponents. The way I see it, the states and opposition groups saved us nearly $2B on wasteful construction of the PATH project, which turned out not to be "needed" after all.
Quit your bellyaching, EEI -- all "risk" is heaped on the backs of consumers, who find themselves reimbursing transmission owners for cancelled projects that should never have been approved in the first place. PATH was never anything more than a $$ generator for its parent companies and it got what it deserved."Prior to construction, transmission projects generally are evaluated using a Commission-approved transmission planning process, which rigorously evaluates the costs and benefits of each project, assesses the forecasted changes in regional supply and demand, and considers alternative solutions such as new generation or demand-side energy-efficiency measures. Once projects are selected, they still are subject to additional evaluations as part of federal agency and state commission reviews and siting processes.
In some jurisdictions, projects also are subject to additional reviews in subsequent planning cycles and may be delayed, scaled back, or cancelled. In addition, there is a wide disparity in how different planning processes evaluate the benefits of transmission, with some jurisdictions evaluating a significant number of the benefits while others rely mainly on reliability or narrowly defined analyses. However, these reviews and benefit analyses contribute to the riskiness of developing efficient transmission projects.
Lengthy, complicated, and costly siting and permitting processes continue to be major barriers to installing new transmission lines and upgrading existing lines. Since multiple federal, state, and local government agencies often are involved in right-of-way authorizations and related environmental permitting, the lack of inter-agency coordination forms another obstacle to permitting and siting. The challenge of locating lines across states and across federal lands, coupled with targeted, strong opposition from a variety of public interest groups, make the process even more daunting. Rerouting lines occurs with regularity, which increases construction costs."Since regulators have been loathe to restrain out-of-control
IOU greed, EEI offers you this suggestion:"Congress has not amended or taken other action to diminish the importance of transmission investment since EPAct 2005..."
YET. Contact your congressional representative today and tell him/her that it's time to bring our country's energy policy in line with today's realities.
On March 22, FERC issued an Order on PJM's Order No. 1000 compliance filings. Earlier, we featured some of the posturing and nonsense going on
that probably made the Commissioners want to just send everyone to bed without supper. Honestly... every time there's a new rule, the usual suspects are right on top of it trying to figure out a way to twist it to serve their own interests. Order 1000 is no exception.I'm sure you just can't wait to jump right to it and read the entire 215 page order yourself. No? Don't need a sleeping pill? Okay... here are some highlights.Cost Allocation:Despite FERC sticking with 100% postage stamp allocation in its rehearing of the Illinois Commerce Commission 7th Circuit remand, FERC agreed a hybrid cost allocation method going forward.The new method will apply to all lines approved that are at least double-circuited 345kV or higher voltages, which means more lines will qualify to be socialized across the entire PJM region
. These lines will be allocated 50% via the postage stamp method, which assigns costs based on regional load share. This is supposed to recognize "benefits" everyone in the region receives from PJM's interconnected transmission system. Right. The other 50% will be allocated via two different DFAX methods, depending on the driver for the line. The other fifty percent of economic projects (those that are "needed" to reduce congestion and prices) will be allocated proportionally among those loads that receive the economic benefit of the lower energy costs.
The other fifty percent of reliability projects (those that are "needed" to relieve future reliability violations) will be allocated proportionally among those who use the new facility, and allocations will be updated yearly to account for changes in load flows over time.And I suppose getting kicked in the behind is better than getting kicked in the head.And speaking of getting kicked in the behind... "Clean" Line's proposal to regionally allocate a portion of its merchant transmission
projects got soundly punted.
In response to Clean Line’s request that the Commission allow partial cost allocation for merchant transmission projects found to meet economic or public policy needs, we note that, while Order No. 1000 requires each public utility transmission provider to have in place a method, or set of methods, for allocating the costs of new transmission facilities selected in the regional transmission plan for purposes of cost allocation, it does not require a public utility transmission provider to establish a cost allocation method that would apply to any portion of the costs of a merchant transmission project not recovered through negotiated rates. Therefore, we deny Clean Line’s request that the Commission require PJM to allow for partial allocation of the costs of a merchant transmission facility through the regional transmission cost allocation method as beyond the scope of Order No. 1000.
Clean Line got resoundingly (and satisfyingly) slapped down on all fronts. PJM (and FERC) don't love Clean Line the right way... but who can blame them? Clean Line is suddenly discovering that the four merchant transmission projects it dreamed up aren't a sustainable business plan and now it's desperate for some ratepayer subsidies to continue the farce. Because "Clean" Lines aren't needed, they're not going to be approved in a regional plan, and therefore cannot be regionally allocated. Clean Line tried to tell FERC that if it built these unneeded projects that they would magically provide some regional reliability and economic benefit and therefore should be partially allocated to captive ratepayers who wouldn't use any of the electricity carried by the lines. A merchant transmission project is paid for 100% by generators on one end and load on the other. There's no such thing as a quasi-merchant project. Quit your whining, Clean Line, pull up your big boy pants, and get on with wasting your investors' money. You're not getting any help from PJM ratepayers.
Further, while Order No. 1000 established the information requirement discussed above, the Commission also concluded that, because a merchant transmission developer assumes all financial risks for developing its transmission project and constructing the proposed transmission facilities, a merchant transmission developer is not required to participate in a regional transmission planning process for purposes of identifying the beneficiaries of its transmission project that would otherwise be the basis for securing eligibility to use a regional cost allocation method. Thus, a transmission developer is not required to submit a merchant transmission project into the regional transmission planning process, and the regional transmission planning process is not required to evaluate a merchant transmission project for potential selection in the regional transmission plan for purposes of cost allocation. However, nothing prevents a transmission developer from submitting its transmission project into the regional transmission planning process for potential selection in the regional transmission plan for purposes of cost allocation. In that case, the regional transmission planning process would evaluate the proposed transmission project as it would any other proposed project and, if the transmission project is selected in the regional transmission plan for purposes of cost allocation, it would be eligible to use the regional cost allocation method. If the proposed transmission facility is not selected in the regional transmission plan for purposes of cost allocation, then the transmission developer could choose to move forward as a merchant transmission facility.
Right of First Refusal:
I'm finding it really hard to care about this issue at all. Why don't you all fight about it quietly and let me know when you're done? The only thing I found even remotely interesting was that the Market Monitor was trying to get FERC to make transmission owners stick to the submitted cost of their projects as approved in PJM's RTEP. Good idea! However, FERC slapped that down too. The cost of an approved transmission project -- one of the factors that made it the preferred, cost effective option in the selection process -- is mere suggestion and bears no resemblance to how much such project may cost to build. This allows incumbent transmission owners to undercut every other project developer on price, and then spend twice as much actually building the project. Remember Primary Power
"Public Policy" and PJM's State Agreement Approach: A handful of "clean" energy companies and their big green Pollyanna sycophants
submitted comments whining about PJM's State Agreement approach to "public policy" projects driven by individual state renewable portfolio standards. These cleaniacs think that they can force PJM to turn individual state policies into regional transmission needs, and socialize the cost as broadly as possible. The energy companies, of course, want this because they make money off renewables. The Pollyannas want this because they think they're saving the world, and they don't care how much it costs. Greedy and Clueless got slapped down.FERC determined that PJM's "consideration" of public policy requirements in planning sensitivities is adequate (although frighteningly opaque) and the State Agreement approach to cost allocation is supplemental to O1000. This means that a project "needed" solely to meet "public policy" goals will be driven by the state officials whose policy requires it, and voluntarily paid for by those states whose policies cause it
. But, never fear, I'm sure Greedy and Clueless aren't done with their whining yet -- they do it so well -- and will continue attempts to force everyone to consume socialized utility scale renewables
when better options such as distributed generation of local renewables are the more viable, sustainable choice.
We were right. About everything.
That is all.
FERC issued a whole bunch of interesting decisions at its meeting last week. Unfortunately, I've been too busy over the last week writing FERCenese* to spend much time reading it. Finally, here's your first FERCenese translation from last week about FERC's Order on Rehearing regarding postage stamp rates in PJM.Not surprisingly, FERC reconfirmed it's original Order on Remand and brushed off all the arguments made by parties in their requests for rehearing. The Commission continues to cling to its illogical presumption that
“When a system is integrated, any system enhancements are presumed to benefit the entire system.”Also not surprisingly, Commissioner LaFleur dissented (again). However, joining her in dissenting this time around was the newest addition to the FERC stable, Commissioner Tony Clark.Both dissenting Commissioners mentioned that FERC is reaching by assigning PJM "system wide benefits" to "Western PJM" entities like ComEd
in exchange for bearing 14.7% of the costs. These "system wide benefits" accrue from membership in PJM, and not from construction of the subject transmission projects. Commissioner Clark also opined that FERC has fallen short of the 7th Circuit's directive in remanding the case back to FERC.Although I usually encourage you all to read these filings yourself, this Order is a real deja vu snoozer that doesn't say anything new. Everything you need to know is contained in the dissents.Commissioner LaFleur's DissentCommissioner Clark's DissentThe only thing different this time around is that a new cost allocation process for PJM transmission projects has been approved as part of PJM's Order No. 1000 compliance. The new cost allocation method became effective February 1, 2013. Therefore, this Order on Rehearing affects only a specific set of transmission projects approved between June 20, 2006 and February 1, 2013 (aka The Project Mountaineer Era). These projects (TrAIL, Susquehanna Roseland and the dearly-departed, abandoned PATH and MAPP) will continue to be allocated and paid for by the postage stamp rate methodology that has been decided in this Order.PJM's new cost allocation methodology will allocate 50% of the cost of transmission 345kV and over by postage stamp methods, with the remaining 50% allocated via a DFAX methodology, which more accurately assigns costs to those who cause them and to those who receive current benefits from the project. (More on that in a future FERCenese translation).So, while "Western PJM" will continue to pay an equal share of 500kV+ Project Mountaineer lines that are exclusive to the east coast, the current 345kV expansion going on in "Western PJM" (where they don't build 500kV lines) won't be allocated to "Eastern PJM" in the same proportions. Sound fair to you?FERC reasons that since this postage stamp business now applies only to a finite, historical set of projects that this decision will put the matter to rest.Probably not. The parties can now bump it back to the 7th Circuit.And, curiously enough, the Illinois Attorney General intervened out of time in the PATH abandonment docket today.... because now Illinois is going to be stuck paying 14.7% of PATH's abandonment costs. Coincidence?
*FERCenese: [fur ken ees] noun
Style of technical, legal prose utilized in filings and orders at the Federal Energy Regulatory Commission. To the average layperson, the filings appear to be written in a language other than the familiar English. The Scott Thorsen Dictionary, 2013.
"The evidence is clear that generators are profiting excessively from RTO power markets, and that sellers’ rates are not ‘just and reasonable’ as the law requires. Consumers are paying the price, to their detriment and that of the overall economy."That's the conclusion of a report on FERC's restructured regional electricity markets published in December by Elise Caplan of American Public Power Association and Stephen Bobeck of the Consumer Federation of America.The report takes a look at how FERC has restructured regulation of wholesale power to rely on market based rates and regional transmission organizations. "FERC has chosen to rely on supposed market “competition” to ensure that prices are “just and reasonable,” as required under the Federal Power Act."Do these markets work to protect consumers?
No. The report opines that, "Instead, evidence is mounting that customers have been harmed by the markets."
Despite repeated attempts to get FERC to do some sorely needed analysis and adjustment to its competitive market experiment, "FERC has still not undertaken such an analysis. But there is a wealth of data available to support the conclusion that consumers actually have been harmed by the restructuring of wholesale electricity markets and that access to alternative retail suppliers does not solve the fundamental problems of the wholesale market from which those suppliers must purchase power."
In the report, "...we discuss specific RTO rules and structure that have provided opportunities for excess generator earnings at the expense of consumers."
In uncompetitive RTO cartel
electricity markets, "Offers into the energy market need not reflect the sellers’ actual costs of generation, as FERC would have required under a traditional cost-of-service ratemaking regime. Rather, the sellers set their own price offers, regardless of their actual costs, subject only to review and possible adjustment by the RTOs’ market monitors. In PJM, the market monitor typically mitigates less than one percent of the energy offers in both the real-time and day-ahead markets."Thanks, Market Monitor! Always looking out for my interests, aren't you? It's just too bad that PJM's attempt to replace the Market Monitor isn't intended to provide more protection for consumers, but LESS.
And here's another problem we've written about before that pops up in the report: "The conceptual basis for LMP is that these differential prices will send “price signals” to indicate where there is a need for new generation or additional transmission capacity, or to reduce load through conservation or shifting the times when energy is consumed. As discussed below, this theory has not borne fruit in practice."In PJM, new transmission is always proposed before new generation has a chance to happen, and demand side resources aren't given serious consideration. This is why consumers are now paying half a billion dollars for two failed transmission projects
-- transmission projects that were approved and intended to be quickly rammed through before demand side resources and new generation could be recognized. Ultimately, PJM's Project Mountaineer scheme failed, along with the transmission projects, when demand side resources and generation developed despite PJM's best efforts to squelch them."The theory behind locational pricing is to provide price signals indicating where new transmission and generation is most needed. But in reality, new resources have not developed to respond to higher prices in these markets. Instead of inducing new resource development, the higher prices provide a financial incentive for incumbent generation owners to keep supplies constrained, or at least to ensure that prices bid by new market entrants remain high.
The financial benefits of constrained supplies can be seen in the candid presentations by merchant generation owners to the financial community wherein the potential closure of coal plants is touted as a benefit to their earnings."You know... like how FirstEnergy's wave of coal plant closures last year provided the company with jacked up capacity prices in ATSI
and a whole bunch of new transmission projects in which to invest its "transmission spend" to increase the company's earnings. Remember that?
So, what protections are built into RTO markets, and do they work? "FERC relies solely on market monitors for each RTO to determine whether the wholesale electricity markets are competitive. These market monitor analyses are based on a limited frame of analysis that ignores evidence, such as the profitability data presented later in the report, which raises questions about the competitive nature of these markets. Moreover, the reports issued by the market monitors do not always support a definitive finding of competition. For example, in the most recent State of the Market Report for PJM, the market monitor found that the local market structure in the energy market and both the local and aggregate market structure in the capacity market were not competitive, as was the structure and the performance in the regulation market."
Go ahead, click through and read this analysis: "Prior to examining the empirical evidence of the effects of RTO markets on electricity prices paid by utility customers, this section describes the structural flaws in RTO markets – conceptual problems that have led to higher prices than would have occurred absent such markets. These fundamental features of RTO markets, discussed below, provide both incentives and opportunities for merchant generators to earn excess revenues at the expense of consumers".
How does PJM "fix" their markets when things go awry? "When a given market structure does not achieve its goal of providing satisfactory revenue to RTO generators, the response – prompted by generators, many of them the spun-off affiliates of formerly vertically-integrated utilities – has been to induce the RTO to add a new, more complex market or a rule to prop up prices, such as a tightening of the minimum offer price rule in PJM."
This kind of "make the rules up as you go" is the basis for the most recent bickering over new MOPR rules secretly concocted by PJM and its incumbent generators. This is the behavior of a cartel, not a competitive market.
If competitive markets save money for consumers, why do "RTO generation owners’ 10-K reports to the Securities and Exchange Commission list restrictions on competition as a potential risk to their earnings?"
The evidence examined in the report "lead[s] to a conclusion that the restructured RTO-operated markets have increased prices above what would be seen in the absence of restructuring.
How much? "...a possible $12 billion excess payment from consumers to generating companies that do not face genuine market competition – demonstrates the scope of restructuring’s negative impact."
And this about sums it up: "The greatest beneficiaries of restructuring have been not consumers, as was promised, or innovative companies that were expected to emerge, but the “usual suspects” – owners of previously regulated, largely depreciated generating units."
How do we fix this mess? "It is crucial that FERC, as the regulator responsible for ensuring under law that wholesale prices are just and reasonable, determine whether RTO markets are achieving their cost-reducing potential, and, if not, to implement needed reforms."Don't hold your breath. FERC refuses to even examine the results of their RTO experiment, much less take any action to fix it. Perhaps it's time for Congress to step in.
The new and mysterious "PJM Insider" employs one of the most annoyingly trite and overused headline words in today's "Commenters Blast PJM Plan to Shop for Market Monitor."
Who pays for this slop anyhow? Geek overload alert!Who is the Market Monitor and why should you care, little consumer?The Market Monitor describes its function as PJM's electric market babysitter this way:"Since 1999, the PJM Market Monitoring Unit has been responsible for promoting a robust, competitive and nondiscriminatory electric power market in PJM by implementing the PJM Market Monitoring Plan. Under the PJM Market Monitoring Plan, the PJM Market Monitoring Unit has been responsible for monitoring compliance with the rules, standards, procedures, and practices of PJM markets. We observe and comment on actual and potential design flaws in market rules, standards, and procedures, and identify structural problems in PJM markets that may inhibit robust and competitive markets. We monitor the potential of market participants to exercise undue market power, the behavior of market participants that is consistent with attempts to exercise market power and the market performance that results from the interaction of market structure with participant behavior. We monitor the actions of PJM and the impact of those actions on market outcomes."PJM Insider wraps up the Market Monitor history very succinctly:"Monitoring Analytics is headed by Joseph Bowring, a Ph.D. economist who has served as PJM’s market monitor since 1999. In April 2007, Bowring sparked a firestorm at a FERC technical conference when he accused then-PJM President Phil Harris and his allies of attempting to muzzle him by squelching his reports and cutting his budget.
More than a dozen PJM stakeholders, including several of those who filed the letters this week, responded by filing a complaint calling on FERC to take steps to ensure the monitor’s independence.
Following an investigation by an independent counsel hired by PJM, Harris resigned and FERC approved a settlement between PJM and Bowring. The settlement called for Bowring to form an independent company, which was awarded a six-year contract as PJM’s market monitor."Six years will be up next year. The PJM Cartel's Board of Managers has proposed issuing a Request for Proposals for a new Market Monitor. It seems that the Board hasn't articulated why they would want to replace the current one, just mumbling something about budgets and costs.
I guess they've never heard the phrase, "if it ain't broke, don't fix it."Instead PJM's Board wants to make some changes to the way the Market Monitor operates.1.
Selection of the new Market Monitor will be subjective and secret.2.
Conflict of interest disclosure does not include any prior relationships with market participants (you know, those 800-pound gorilla incumbent generation & transmission companies who are supposed to operate "separately") or relationships with Board members. I kind of find this last one distinctly odd... why would so many entities objecting to this RFP be pointing this out if it wasn't a real possibility. Scary.3.
There is no minimum service level. Any company could work up a proposal for minimal monitoring for a minimal price, then turn around and jack it all up if they are selected and then find out they can't handle the job. Sound familiar, PATH opponents? Or maybe a new Market Monitor could just do a crappy job for a lower price. Collectively, we may all save a million or two, however, the savings will most likely come at the price of higher electric rates as our gorillas rob us blind with shady practices. Now, isn't that a great idea?4.
The Board wants to control the Market Monitor by having sole power to make the Monitor jump through hoops and report when they whistle. The Board wants to know who gets reported to FERC for market manipulation, even though FERC regulation prohibits this disclosure to the Board.Sort of sounds like the PJM cartel is reverting to its previous behavior that got them into trouble in 2007. Not really surprising, since PJM thinks they answer to no one.
They really do answer to someone though, however FERC plays the part of the distracted and absent parent and never asserts its authority over it's regional transmission cartels. And this is what happens. What's next? Couple more billion dollar transmission projects that the consumers don't want or need
?You're going to have to make up your own mind on whether you think this is a good idea or not. There's a ream or two of comments about the RFP on PJM's website. The Consumer Advocates of Maryland, Pennsylvania and West Virginia don't like it. PJM's Industrial Customer Coalition doesn't like it. Municipal and co-op electric service providers don't like it. The PA-PUC doesn't like it. The Organization of PJM States doesn't like it. These are all entities focused on consumer
issues or are not-for-profit. Funny not to see any comments from the gorillas, isn't it?And of course, the Market Monitor has its own issues with its impending demise, however there are plenty of logical points and a couple of zingers buried in here.So, what do you think, little consumers? Should they stay or should they go?
Remember Pepco's silly plan to collect a 12.8% incentive ROE on $87.5M of abandoned plant costs for its unneeded MAPP project
?Although it granted Pepco the right to recover its prudently incurred investment yesterday, FERC denied the continuation of MAPP's 150 basis point incentive ROE on abandoned plant
. No big surprise -- Pepco's arguments were absurd."We find that the continuation of the additional 200 basis points of incentives, on top of the base ROE, on an abandoned project is not appropriate. Once a project has been canceled, none of the incentives granted other than the ability to recover prudently incurred abandonment costs continues to apply, as explained below." FERC also denied Pepco its 50 basis point incentive for continued membership in PJM. The Commission reconfirmed its determination in the PATH abandonment order:"We therefore find that the 50 basis point adder for RTO participation is not appropriate for recovery in an abandonment application. This finding is appropriate in the context of abandonment even though the Commission has found that the RTO participation incentive is unrelated to any particular project but instead is intended as an incentive for joining and remaining in an RTO. This is because even though the public utility project developer has joined an RTO, the facility at issue in an abandoned plant cost recovery situation will not be transferred to the RTO's control, and therefore the benefits from that project’s inclusion in an RTO will not materialize.
This outcome is consistent with the PATH Abandonment Order, where the Commission clarified that continued recovery of a 50 basis point adder for RTO participation is not appropriate for recovery in an abandonment application."
*Do you think the Commission was clear enough this time? Greed seems to be interfering with utility understanding of this concept.In addition, the Commission also determined that Pepco can recover only 50% of its incurred costs prior to issuance of their incentives order in 2008. Because Pepco incurred these costs before being granted the 100% abandonment recovery incentive
, they are only eligible for 50% recovery. Pepco wasn't greedy enough to ask for amortization of its pre-incentive costs over its construction period like PATH did. Silly Pepco, that's going to cost ya...However, the Commission also awarded Pepco a 10.8% ROE on its recovery of abandoned plant, instead of setting ROE for hearing like it did on PATH's abandonment. Pepco's brazenly ridiculous request to recover an incentive ROE on abandoned plant captured the attention of all the protestors, who failed to advance any arguments against Pepco's base ROE
. You gotta admit, it was pretty smart. Maybe PATH's counsel could take some lessons from Pepco's. Or maybe PATH just needs smarter counsel.As it did with PATH, the Commission set the prudence of MAPP's abandoned plant costs for settlement and hearing.Before you get all carried away praising the Commission for this Order,
remember that it is because the Commission continually fails to enforce any discipline on their little darling PJM that consumers in 13 states and D.C. will have paid nearly half a billion dollars for these two abandoned transmission projects. PATH and MAPP (and TrAIL and Susquehanna Roseland) were never truly needed. It was all about increasing the use of coal-fired resources,
not reliability or economics. The utility cartel that is PJM has cost us all higher electric bills that we can ill afford and will not be held accountable for its machinations.*This bodes well for PATH's rehearing, doesn't it?
Yesterday, the Commission granted rehearing
on its previous order denying PATH the continued benefit of a .5% return on equity incentive for membership in PJM during the amortization period for recovery of abandoned plant.So, what does this mean? Not much. It simply means PATH is hog-tied and can't proceed on appeal to the D.C. Circuit and waste even more of our money having a legal tantrum over .5% interest that it's not entitled to.The Commission will take another look at its previous decision and decide whether or not to change its mind. There's no time limit on how long the Commission can take to make its decision. It could be years. Meanwhile, PATH can shut up and sit down.If the Commission had denied the request for rehearing, PATH would have been given the green light to appeal FERC's decision in federal court. Now PATH can't proceed until the Commission reconsiders and issues another order on the issue. The Commission can change its mind, or simply confirm its original decision.Here's the issue: In the Energy Policy Act of 2005, Congress instituted certain financial incentives to encourage investment in transmission for the purposes of benefiting consumers. Congress tasked FERC with coming up with policy and awarding incentives. One of the incentives Congress specifically mentioned was financial reward for a transmission builder who joined a regional transmission organization and turned control of its facilities over to the organization. FERC put this into practice in the form of an additional .5% interest on each project that applied for it, if the owner joined or continued an existing membership in an RTO. Therefore, a company with membership in an RTO could be awarded this incentive on each project it owned as long as it maintained its membership.AEP and Allegheny (now FirstEnergy) set PATH up as a joint venture and created a bunch of single-purpose shell companies. The parent companies did this because a "new" company produced tax and financial benefit and it could be awarded a higher incentive return on equity because this independent "start-up" company was taking a greater risk than it would if each established parent company owned its own portion of the project. PATH tried to pretend it was an independent company whose stock just happened to be owned by its parents. PATH chose this corporate structure because it benefited the parent companies.
Nobody forced PATH to do it.Now that PATH's one and only project has been abandoned without being built
, the Commission determined
that the company will never have anything to turn over to an RTO, and there is no benefit to consumers from PATH's continued membership in PJM, and therefore denied continuation of this incentive.PATH is arguing that the Commission is punishing it for its choice of business construct. PATH says that its parent companies have other transmission projects that have been turned over to PJM, so therefore the parent company actions entitle PATH to the same benefit. All of a sudden, PATH wants to be a part of its parent companies. But wait... PATH separated itself from its parent companies when it benefited financially. Now PATH wants to be included with its parent companies when it can financially benefit from that construct. Can you smell the desperation?PATH also complains that the Commission is being inconsistent because other transmission projects that have been abandoned managed to keep the RTO membership incentive, therefore PATH is entitled to do so as well. PATH feels it should have been put on notice that it would lose this incentive if it abandoned the project. *sniff, sniffle, whine*Other transmission projects have kept this incentive because they aren't single-purpose entities and their companies will continue to exist and maintain membership in an RTO. There is no point to PATH's continued membership in PJM because it doesn't own any transmission and will cease to exist as soon as the abandoned plant debt is paid off.Despite a rule prohibiting answers to requests for rehearing, the Joint Consumer Advocates filed an answer supporting the Commission's original decision and arguing against continuation of this incentive.The Commission's granting of rehearing won't affect the scheduled settlement conference coming up at the end of February, since that issue was never set for hearing but decided in the original Order. However, parties will be aware that a reversal of the Order could grant PATH an additional .5% return at any time in the future and may keep that in mind while negotiating a settlement. Happy now, PATH? :-)