I've been following the story of PJM's new capacity import limit via RTO Insider
over the past couple months. Last Friday, PJM made its filing with FERC to change an agreement and tariff to impose the new limits before the next base residual auction.
It seems there is a B-I-G problem with low capacity prices. In addition to causing havoc with incumbent generator profits, PJM has come up with other reasons to "fix" its capacity market.
First though, let's look at how PJM's capacity market works. Capacity is a generator's ability to produce electricity. This is unrelated to energy actually produced in real time. Because PJM has to make sure there is enough electricity available to meet peak demand every year, it secures capacity, or the ability to produce electricity, three years in advance. Generators submit capacity bids in the auction. PJM stacks the bids by price. Beginning with the lowest price, bids are accepted until the capacity target is met. The highest price accepted is the uniform capacity price paid to all generators whose bid cleared.
Now let's move on to imported capacity. Generators outside PJM have been bidding higher and higher amounts of generation into PJM's auction, often at low prices. PJM's rules have allowed imported capacity into the auction even though it has no firm transmission path to be used by load in PJM. This sets up a scenario where PJM has cleared capacity that may never be delivered. The effect of this is that PJM may not have enough capacity to serve peak load. It also creates an effect where it can lower capacity prices for other generators in PJM because acceptance of low bids of imported capacity lowers the high bid that sets the capacity price for all generators.
So, on the one hand, it's a reliability problem, but it's also an earnings problem for PJM incumbent generators. PJM believes that artificially lowered capacity prices created by generation that may never serve PJM load is also causing retirement of existing generators in PJM, as well as preventing new internal generation from being built. PJM's market is supposed to encourage new generation to develop when capacity prices are high, adding more supply to meet demand. Instead, it was getting fake bids from outside the region, and that has skewed capacity prices.
Maybe generation from other regions can supply PJM cheaper than existing internal generation, but who wants to rely on generators thousands of miles away to supply their electricity? The longer electricity has to travel between generator and user, the more unreliable the supply becomes and the more electricity is simply wasted by losses along the way. It's encouraging that PJM finally acknowledges these simple physics of electric transmission, but the challenge now is to see if this new found realization is going to have any effect on the midwest wind transmission gold rush.
PJM's new rules make an exception for any external generator with firm transmission service that can be controlled by PJM and agrees to PJM's "must offer" requirement. This still allows external generators like the hated Clean Line Energy to be excepted from the limit. However, Clean Line only has 700 MW of firm transmission service for one of its lines with a capacity of 3500 MW. This still doesn't make Clean Line imports any more reliable than other imports though, nor does it provide this merchant transmission company with any of the east coast customers forced to buy renewables at any price that it seeks.
Let's keep an eye on this one and see who intervenes and complains at FERC (Docket No. ER14-503).
I just had to click that link on my facebook feed yesterday. After months of trying to ignore the PJM Market Monitor's State of the Market Reports because it's like being sucked into an alternative universe and it makes my brain hurt, I saw a link to this
DOH! It’s worth it just for this sentence:
"Markets do not automatically provide competitive and efficient outcomes."
Here it is, with the full all-in-one option or separate sections:
3Q PJM State of the Market Report Page
Here’s the full version: 2013 3Q PJM State of the Market Report
And the short version, oh, how I love it when this happens:
"The market design should permit market prices to reflect underlying supply and demand fundamentals. Significant factors that result in capacity market prices failing to reflect fundamentals should be addressed, including better LDA definitions, the effectiveness of the transmission interconnection queueprocess, the 2.5 percent reduction in demand that suppresses market prices, the continued inclusion of inferior demand side products that also suppress market prices and the role of imports."
Got that: … the 2.5 percent reduction in demand that suppresses market prices…
Gee, sounds like we ought to pay to build some more power plants and transmission lines…
Okay, you got me, Carol. I clicked.... and soon found myself poking through the entire multi-volume set and reaching for my Magic 8 Ball translator.
Here's where I went first: Section 12, Planning
Blah, blah, generation queue, backbone transmission, blah, blah *screech*
The goal of PJM market design should be to enhance competition and to ensure that competition is the driver for all the key elements of PJM markets. But transmission investments have not been fully incorporated into competitive markets. The construction of new transmission facilities has significant impacts on energy and capacity markets. But when generating units retire, there is no market mechanism in place that would require direct competition between transmission and generation to meet loads in that area. In addition, despite Order No. 1000, there is not yet a robust mechanism to permit competition among transmission developers to build transmission projects.4 The addition of a planned transmission project changes the parameters of the capacity auction for the area, changes the amount of capacity needed in the area, changes the capacity market supply and demand fundamentals in the area and effectively forestalls the ability of generation to compete. There is no mechanism to permit a direct comparison, let alone competition, between transmission and generation alternatives. There is no evaluation of whether the generation or transmission alternative is less costly or who bears the risks associated with each alternative. Creating such a mechanism should be a goal of PJM market design.
Well, hot damn! Someone's been paying attention! But wait... the following paragraph indicates that the MMU's "solution" may just tip the scales toward imported transmission:
The PJM queue evaluation process needs to be enhanced to ensure that barriers to competition are not created. There appears to be a substantial amount of non-viable MW in the queues, which increase interconnection costs for projects behind them. The MMU recommends the establishment of a PJM review process to ensure that projects are removed from the queue, if they are not viable.
Perhaps this plan is intended to clear the way for viable generation in the queue to come online, but maybe its actually clearing the way for merchant transmission from other regions
, which acts as a generator at the interconnection point.
Big, mean frowny face! And he's serious, after helping to kill new generation in Maryland and New Jersey? So, let's go back to Carol's favorite quote: "Markets do not automatically provide competitive and efficient outcomes."
That's right! Because we need a "market monitor" to artificially adjust the markets to fit a pre-determined pecuniary outcome.
And the next little point to ponder comes here: Section 8, Environmental and Renewables.
Most interesting are the graphs near the end showing real time wind and solar generation by month. The graphs show that wind generation peaks late at night in winter months, when we don't need it. Solar, on the other hand, peaks in the middle of the day during the hottest months of the year.
I'm not even going to bother to search for the MMU's recommendation on that because it probably urges us to build more transmission lines to import wind for summer peak, instead of what would be logically obvious to a normal person -- to take advantage of on-site solar resources to reduce peak usage. How many roofs could we cover with solar panels for the cost of just one of these "clean" transmission line monsters? And why are the people who are supposedly served by all this market monitoring mumbo-jumbo disenfranchised from having any say in their own energy future?
Pipelines are monopolies regulated by a little-known agency, the Federal Energy Regulatory Commission, which is financed not with tax dollars, but with fees paid by the regulated companies. In 2007 the commission authorized pipelines to collect the corporate income tax in the rates charged to customers. But instead of just charging the 35 percent federal tax on profits, the commission let companies charge what is known as the “grossed up” tax of 54 percent.
But since 1987 pipelines have been exempt from paying the corporate income tax as long as they are organized not as corporations, but as Master Limited Partnerships.
Forcing customers to pay a tax that never gets to government sounds like an issue someone might want to get before a judge. This issue was taken before three federal judges on the District Court of Appeals in Washington. Judge David B. Sentelle, a conservative, wrote that while he was troubled that taxes were even considered in setting pipeline rates, the court had no authority to interfere.
Remember, these regulators exist for your protection, little ratepayers.
In a not at all surprising move today, the Kansas Corporation Commission conditionally approved
the 750-mile Grain Belt Express Transmission project. The project, proposed to plow through and ruin 370 miles of prime farmland in the state, has been greased since becoming the pet of Kansas Governor Sam Brownback when first proposed. Ol' Sam apparently believed all the pie-in-the-sky promises he was made by a couple of Texas speculators, who saw opportunity to profit off the backs of hard-working Kansans. Sam and his KCC Commissioners are now trying to hide behind some plainly illogical and assuredly "cooked" job numbers as cover for their betrayal of the people of Kansas.
In Kansas, the project is estimated to result in 2,340 jobs annually during the three-year construction period, and an estimated 135 jobs to operate and maintain the project on an ongoing basis. Additionally, construction of the associated wind facilities in Kansas is estimated to generate between 15,542 and 19,656 Kansas jobs, while operating and maintaining the wind farms is expected to generate 528 Kansas jobs.
135 jobs to operate and maintain the 370-mile length of this line in Kansas? Who are we kidding here? This is a ridiculous claim! Once built, the line will be operated by a handful of jobs at a control center outside Kansas, hundreds of miles away. These operators are already controlling hundreds of transmission lines, addition of Grain Belt Express won't cause an appreciable increase in operations jobs. Every 10 years or so, a tree company will be hired to clear the right-of-way to be in compliance with operation standards, maybe, if they can't get away with ignoring it any longer. When the line fails or is taken down by a natural disaster, a handful of specialized workers will be imported to Kansas to make repairs as quickly as possible to get it back in service. Where are the operation jobs, Sam? Does Sam think that an "operator" will be standing by every 2.7 miles, manually squeezing electricity through this line? Or maybe they'll just stand on the prairie, cheering the electricity along on its path to "states farther east?" Ridiculous! I guess Sam and the KCC have no common sense that would allow them to view the illogical nature of these unsubstantiated job claims.
And that's just the problem here, folks. KCC's approval was based on the unsubstantiated claims of the applicant. Unrealistic claims and biased "studies" are a part of every transmission line application. The applicant attempts to show its project is needed and will provide some benefit. However, in states with knowledgeable and professional regulators, the information provided with the application is subjected to some expert scrutiny to verify its truthfulness. Professionally regulated states will hire their own subject matter experts to study the application and provide testimony. In addition, in professionally regulated states, other parties to the case will hire their own experts to review the information and file testimony. Only in this way are exaggerated and untruthful claims weeded out to allow the truth to emerge and be considered by the regulators making the decision.
But, the KCC relied completely on two members of its own staff to provide "expert" opinion on subjects ranging from health problems related to EMF exposure to the reasonableness of the route. Both staff members are electrical engineers. Their expertise is in electrical engineering, not health, routing, farming impacts, oil operations, jobs, PJM and MISO electricity markets, renewable portfolio standards of eastern states, or any of the other myriad topics upon which Tweedledum and Tweedledee provided "expert" verification of the applicant's claims. In its Order approving the project, the KCC claims:
However, there was no competing
evidence in the record to suggest that consumers would not benefit in some manner.
The KCC makes it sound like the opposing parties failed to do their part. The truth of the matter is that the opposing parties were prohibited from entering any evidence or testimony into the record, and were also prohibited from cross-examining GBE's witnesses to test the veracity of the claims made. This is how the KCC and GBE maintained complete control of an unverified, biased body of evidence upon which to base approval. This was not due process, but a double time race to approval before the truth was exposed.
The KCC claims that it based its decision on the "necessity and reasonableness of the location of the proposed electric transmission line, taking into consideration the benefit to consumers in and outside Kansas as well as economic development benefits in Kansas."
Here's how KCC "considered" consumers inside and outside Kansas:
BENEFITS TO CONSUMERS INSIDE AND OUTSIDE OF KANSAS
Grain Belt's Executive Vice President of Strategy and Finance, David Barry, sponsored a study of the benefits of the project to consumers in and outside of Kansas. The general approach taken was to develop a simulation model of electric demand in the MISO and PJM states, to make assumptions about future demand in those states in 2019, and to simulate how the sale of Kansas wind energy into these markets would affect aggregate electric generation costs (which drive the prices consumers pay) and emissions levels of various pollutants (which affect health). Four future scenarios were assumed for the analysis:
Business As Usual - Energy demand grows under a moderate economic recovery with no
major changes to existing environmental policy, generating technologies, fuel commodity prices, or other key energy market assumptions.
Slow Growth - Continuation of depressed economic conditions characterized by slow demand growth, continued low fuel commodity prices, and minimal transmission/generation expansion.
Robust Economy - Strong recovery in economic activity characterized by accelerated growth in electrical demand, higher fuel prices and emission allowances prices, and increased
activity in new generation and transmission projects.
Green Economy - Expansion in environmental policy including carbon regulation and a
federal renewable portfolio standard under robust economic conditions including high
demand growth, an increase in fuel prices, and increased activity in new generation and transmission projects.
Using PRODMOD software, the impacts of selling Kansas wind energy into the PJM and
MISO markets were simulated and the following results were reported:
Thus, Grain Belt's analysis of consumer benefits is that consumers-largely in the PJM
and MISO states-benefit by reducing the cost of electric power ranging between $354 million annually to $546 million annually depending on the assumption one makes about demand levels in 2019. Grain Belt also asserts that consumers also benefit by reductions in emissions levels.
The Commission is not an environmental regulator and estimating the economic benefits with any precision based on assumptions six years from now over many states included in the PJM and MISO footprints seems questionable to me. However, there was no competing evidence in the record to suggest that consumers would not benefit in some manner. Certainly, the simulation model does provide some indication of the range and magnitude of benefits. At a conceptual level, Grain Belt does not have the power to force anyone to purchase its power. Thus, if utilities in the MISO and PJM markets purchase power from Grain Belt, they must believe that the purchase makes them better off in some manner--either by reducing emissions mandates, meeting a state renewable portfolio standard, or reducing costs. In my view, if there is a viable market for Kansas wind energy in eastern states-the business premise
upon which this project is based - then there must be some benefit to be gained in eastern states.
Ridiculous! The data upon which the conclusions were based was wholly unverified, and the conclusions themselves were based on questionable assumptions.
The KCC even rolled over and failed to condition the permit in any effective way. The staff had recommended that the permit be conditioned upon GBE obtaining approval to construct the project from the other three states in which it is sited. GBE objected, claiming that "federal siting approvals" could be substituted for state permission. The KCC rolled over and adopted this condition, clearing the way for GBE to thumb their noses at the other three states, instead of "considering consumers outside Kansas." I don't know about you, but I'm certainly not looking for Kansas to protect my interests, no matter what state statutes they adopt.
The second recommended condition included a requirement that GBE remain a "merchant transmission project." GBE objected, most likely because it is looking to submit its project for regional cost allocation (ratepayer funding) in PJM and/or MISO (neither of which include Kansas, which is located in SPP). Once again, the KCC rolled over and worded the condition to simply prohibit recovery of project costs from Kansas ratepayers.
Approval of Grain Belt Express in Kansas is a travesty of justice. The KCC will now become the laughing stock of other state regulators. But the battle now shifts to other states with strong regulators, like Illinois and Missouri, who perform their jobs with a little more professionalism, and perhaps to a fateful battle at the Department of Energy, Congress and federal court over federal eminent domain taking of private property in order to facilitate the profits of a private entity. We're only just getting started...
Remember the Atlantic Wind Connection, the auspicious offshore wind backbone transmission project first unveiled in 2010? At the time, AWC intended to build a $5B, 350-mile network of underwater cables to bring 6,000MW of offshore wind power to 1.9 million homes
along the Atlantic seaboard. This could be accomplished with very little new onshore transmission (and without time-consuming and costly opposition to same), therefore this project should be a quick and easy build, a win-win, an environmentalist's and landowner's dream, right?Wrong. AWC has faced hurdle after hurdle tossed in its path by regulators and competing transmission interests. They're all crying boo hoo about how this is going to cost too much. Instead, these same regulators have plunked down over 2 billion dollars on the unneeded Susquehanna Roseland transmission project in New Jersey, designed to increase the transfer of both nuclear and coal-fired electricity from the Ohio Valley to New Jersey's east coast. We've also financed the more than a billion dollar TrAILCo transmission project, designed to do the same thing by importing western resources into the Washington, D.C. suburbs. Most heinously, these same regulators and regional planners have also wasted approximately half a billion dollars of consumer cash on the failed PATH and MAPP transmission projects that were never built (also designed to move power from west to east). If we add all this up, we're
probably in the ball park of what it would have cost to build AWC three years ago, instead of the failed Project Mountaineer
.And east coast regulators and the PJM cartel still struggle to waste consumer cash on generation subsidies, public policy requirements, market efficiency project windows, inter-regional import/export battles
and other dumb ideas designed to maintain historical west to east power flows, all while shoving AWC under the bus again and again. Why? Is it because AWC would take market share from all these competing interests? Or maybe AWC just isn't a member of the PJM good ol' boys club? Or maybe it's both.I came across a story the other day announcing that AWC
is "shifting its goal to moving electricity across New Jersey instead of connecting offshore wind farms."
The new plan is called the New Jersey Power (or Energy?) Link
and is a $1.8B project "[b]uried under the ocean floor and running the length of the coastline, the New Jersey Energy Link will bring power to shore at three locations serving southern, central and northern New Jersey. When complete, it will be capable of carrying 3,000 megawatts of offshore wind and conventional electricity generated in New Jersey – enough to power more than 1 million homes."This new "focus" will reduce high energy prices in northern New Jersey by "...mov[ing] power from southern New Jersey to the northern part of the state where energy prices are higher."
It's no longer about offshore wind or renewables. Seems like AWC has thrown in the towel on "saving the environment" for the time being, and who could blame them? The big green groups who are busy sucking on the teats of midwest wind and transmission interests
have made it clear that they're not interested in offshore wind.Of course, this now means that AWC is going to be looking for regionally allocated, PJM-ordered, consumer financing for its project, instead of the merchant (self-funded) project it was originally intended to be. And what do the regulators say about that?
“For us, it’s generally about cost effectiveness,” said New Jersey Rate Counsel Director Stefanie Brand. “It’s hard for us to support a project like this” because there are less expensive options."I'm starting to see why AWC might be just a little frustrated by now.
So now AWC will be built in phases
over a ten year period. Whatever works to get the job done, because the alternative is a whole bunch of new overland transmission. On paper, some think overland transmission might be "cheaper." I'm thinking not. Building new land based transmission is becoming more expensive and time consuming every day, and time is money in the transmission development game. The price of building transmission is skyrocketing due to increased information dissemination and networked organization of opposition groups. Transmission opposition has gotten much more sophisticated and is coming together nationwide. Uninformed country bumpkin landowners who sell fast and cheap are a thing of the past.AWC has changed its website and tactics. It sort of looks like they copied our "friends" at Clean Line. Check out the "Supply Chain" graphics here. The handshake and pencil graphics look a lot like these, don't they? There's also a whole bunch of jobs, jobs, jobs stuff and other claims of dubious merit that look pretty familiar. However, AWC doesn't have "a bunch of ticked off farmers" barking at its heels and tossing banana peels in its path. How much do you think opposition costs? It's getting more and more expensive every day.
Every landowner between here and the midwest ought to be lining up to support AWC, instead of the snarl
of expensive, uncoordinated "renewable" transmission lines from land based wind farms that's currently being proposed. And every state government on the east coast needs to make a decision -- offshore wind and economic development at home, or sending your energy dollars out of state for imported and unreliable "renewable" energy? Short term cost decisions may not be wise or sustainable over the long term. What we don't need, however, is AWC and a whole bunch of western "renewables," which is what we may get if AWC is used only as a new north-south transmission "superhighway" as currently proposed. AWC claims it's not a "build it and they will come" project. Right, fellas ;-)
What if states just checked out of their "voluntary" participation in the PJM cartel? Would this signal a reversion to 1920s-era state-regulated electricity lawlessness, or will it be historically viewed as the important first step toward a modern, sustainable, affordable, and independent energy future?Maybe we'll find out soon, as the PJM cartel and its 800-pound incumbent gorillas continue to
rankle states chafing at their continued captivity in the increasingly expensive electricity zoo.Following on the heels of the U.S. District Court for Maryland's decision that Maryland's RFP program to stimulate the building of new generation in state violated the Supremacy Clause of the Constitution several weeks ago, on Friday the U.S. District Court for New Jersey also found that New Jersey's LCAPP program violated the Supremacy Clause. The second decision really is no surprise, if you read the first one.The only bright spot is the court's rejection of the secondary argument that LCAPP also violated the Commerce Clause.
Despite the abovementioned evidence, the plaintiffs fail to overcome the most persuasive evidence that substantiates the reasons the State is seeking in-state development. A significant portion of the trial focused on locational deliverability areas (LDAs). (Stipulated Fact ¶ 30). As previously noted, New Jersey is located in such an area that is known as EMAAC. In addition, there are two other locational deliverability areas within New Jersey known as PSEG and PS North (T. 1529, 3-13). Generally, these LDAs have higher capacity prices than other PJM areas due to transmission costs. Even the Plaintiffs agree that a capacity price cannot be set for an entire region. (Pl.’s Ex. 26, at 34). As a result, there is separation in price which is authorized by PJM and the Commission. The record as a whole supports the proposition that the closer the generation facility is to the delivery area, transmission costs will subside. As Mr. Herling concluded when discussing the reliability crisis, reliability issues could only be resolved in one of two ways – transmission via the Susquehanna Connection or additional generation in or near the location where the reliability issue will occur. (Def.’s Ex. 563, at 33) (emphasis added). As such, it appears reasonable that the Board would incentivize construction in areas where reliability concerns are in flux. As such, the Board has the authority to incentivize construction within New Jersey. What is good for the goose is good for the gander. As such, the incentive for community benefits to generators in New Jersey appears reasonable. Since Plaintiffs have not briefed or argued the commerce clause in such a fashion, the Court finds that Plaintiff has not met its burden of proof.
This should come in handy in the future when PJM and big wind try to force eastern states to pay for new transmission lines in Kansas and Iowa by preempting any preference for in-state renewables to attain RPS goals. But that's an argument best left for another day...If you've read both of these court decisions, you may have noticed that they manifestly document that, despite its protestations to the contrary
, PJM does in fact and indeed control where and when generation gets built or retired. And this has always been the rub with PJM's failed markets and the reason they don't work.PJM's markets are supposed to create incentives for generation to develop where electricity prices are high. PJM's markets don't work. This is because PJM will always force a transmission "solution" to artificially lower prices before the market can work. Why? Because PJM is a transmission building cartel, therefore the only tool PJM has is a hammer, and every problem looks like a nail.
Because PJM builds new transmission before new generation has a chance to develop, PJM controls the development of generation.And when PJM builds new transmission to lower prices in a particular area, everyone in PJM pays. However, when new generation gets built in Maryland or New Jersey
, it's paid for by consumers in those states who use it. PJM's preference for transmission costs YOU money.And if you think the states of Maryland and New Jersey are the only ones calling foul on the PJM cartel's deference to its incumbent utilities, check out this little back and forth between the Chairman of the Pennsylvania PUC and PJM's Board of Managers.
The PA PUC is irritated at the way FirstEnergy continues to game PJM's markets with its plant closure game.Chairman Powelson Letter to PJMPJM's "shocking" Response to Chairman PowelsonChairman Powelson Threatens to Go to FERCSounds scary, but FERC is what gives PJM its power to serve its incumbents first. Going back to the 1935 law that gave FERC its power, we might ask why FERC has seen fit to delegate that power to regional transmission organizations that are merely thinly disguised cartels of for-profit utility interests?
When did the regulated become the regulator?Not that any of this is going to matter much 10 years from now when distributed generation and consumer-owned, onsite energy production has made PJM, FERC and utility holding companies that control them about as useless as teats on a bull.
FirstEnergy has been preternaturally verklempt
about its "victory" in the Harrison Power Station transfer case at the West Virginia Public Service Commission. Reporters have been hard pressed to get much more than the usual "we are reviewing the decision and will respond appropriately" line.
However, congratulations are due to the rather clueless reporters at WDTV
, who inspired Toad to say something different, but equally clueless.
"Once we review this agreement will are hoping that it will lead to a decrease in rates for customers right off the bat with a reduction of about a $1.50 to the average residential customer." said Todd Meyers, First Energy Spokesman.
Right, Toad, but that "decrease" is only a temporary result of taking the entire credit for the sale of Pleasants in the first year. Once that $25M credit has been used to reduce rates, it's gone for good, and so is the rate "decrease." So, what is FirstEnergy so afraid of in the PSC's favorable Order? The PSC has allowed the sale and twisted itself in legal knots to do it. What's not to like?It's the "Put Your Money Where Your Mouth Is"
conditions the PSC added to the transaction. FirstEnergy's evil henchmen
and their bean counting lap dogs are busy running the numbers and scheming up ways to manipulate the conditions so that they don't end up losing any money in the deal.
FirstEnergy told the PSC that the transaction would not damage the credit or financial position of Mon Power & Potomac Edison. FirstEnergy also told the PSC that recovery of the acquisition adjustment ($589M of funny money added to the value of Harrison at the Allegheny Energy/FirstEnergy merger) was proper under FERC regulations. They promised the PSC that Harrison would be able to sell excess generation not needed by Mon Power & Potomac Edison at a hefty profit, which would flow back to benefit the West Virginia ratepayers.The PSC wants FirstEnergy to "Put Your Money Where Your Mouth Is," therefore, the PSC added the following conditions to its approval of the transaction:
1. First Energy and Mon Power must agree through written verified statements filed in the record in this case within ten days of the date of this Order that they understand and agree that if First Energy does not make additional equity investment in Mon Power to cover the decline in equity caused by the write-off of the $332 million (pre-tax) Acquisition Adjustment, Mon Power must agree not to pay, and First Energy must agree that it will not receive, any dividends from Mon Power until the equity to total capital ratio of Mon Power returns to forty-five percent.
FirstEnergy is going to have to cover that $332M write-off with an equity contribution to Mon Power, or else they're going to have to forgo any dividends from the company until the write-off amount is restored to Mon Power's capital ratio. Obviously, the PSC didn't agree with FirstEnergy's contention that the transaction wouldn't damage Mon Power's credit ratings. Poor ratings costs ratepayers money through increased credit costs. The PSC wants FirstEnergy to Put Your Money Where Your Mouth Is. Ut-oh! How is FirstEnergy going to agree to this now, then plan to violate it later? What creative bookkeeping or legal nonsense are they going to commit?
2. First Energy, AE Supply, Mon Power and Potomac Edison must agree through written verified statements filed in the record in this case within ten days of the date of this Order that they understand and agree to allow the initial $257 million Acquisition Adjustment to be subject to adjustment through a refund from First Energy or AE Supply if the FERC determines that purchase price paid by Mon Power exceeds the fair market valuation of Harrison. If the FERC makes such a determination, the portion of the $257 million Acquisition Adjustment that exceeds fair market value will be returned to Mon Power by either First Energy or AE Supply, and the refund will be credited to the Acquisition Adjustment account.
I find this one most puzzling. Is FERC going to come motoring into West Virginia just to evaluate the purchase price? Is there a pending FERC case that's not mentioned in the Order? Is there a case that needs to be filed? By whom? FERC does not allow the recovery of acquisition adjustments. But, of course, that's not what the condition says. But, obviously, the PSC was not satisfied with FirstEnergy's insistence that recovery of acquisition adjustments is allowed by FERC as part of purchase price, so the PSC wants FirstEnergy to Put Your Money Where Your Mouth Is.
3. First Energy, Mon Power and Potomac Edison must agree through verified written statements filed in the record in this case within ten days of the date of this Order that they understand and agree that the return on, and return of, the $257 million Acquisition Adjustment will be allowed in base rates only to the extent that fifty percent of the net margins from off-system transactions from the additional Harrison capacity acquired by Mon Power will support that return. The full return requirement will be allowed each year subject to prospective adjustment based on a review of the achieved net margins from off-system sales in relation to the amount of return requirement built into the initial surcharge, and thereafter base rates. During the initial Surcharge true-up period, and thereafter when the return component on the Acquisition Adjustment is built into base rates, we will consider fifty percent of net margins on off-system sales attributable to the additional Harrison capacity as available for return on, and of, the remaining balance of the $257 million Acquisition Adjustment authorized in this case. This will not affect the ENEC calculations. If the monthly accumulation of return requirements previously built into the initial surcharge and thereafter base rates of MPPE between base rate cases exceed the allowable amount based on the achieved net margins on off-system sales, a prospective adjustment credit will be embedded in prospective base rates, If the monthly accumulation of return requirements previously built into the initial surcharge or base rate of MP/PE between base rate cases is less than the allowable amount based on the achieved net margins of off-system sales, no prospective adjustment will be made to base rates. Each base rate case will reset the balance of the net return components to allowable amount on the achieved net margins of off-system sales to zero.
This one looks really confusing, but it's not. FirstEnergy is only allowed to recover the remaining $257M acquisition adjustment, along with interest on same, if
the amount recovered is no greater than 50% of the profit margin from Harrison power sales to other utilities during the same period of time. This means that FirstEnergy must "Put Your Money Where Your Mouth Is" and make the sale of Harrison's excess generation as profitable as possible. This is going to be a real problem for FirstEnergy. After all, PJM's energy market prices are depressed... that's why FirstEnergy wanted to "sell" Harrison into West Virginia's regulated system in the first place! The evil empire
is undoubtedly sitting around the poker table, wreathed in a cloud of cigar smoke, devising new and different ways to manipulate PJM's markets.In addition, the PSC has taken exception to FirstEnergy's proposed Revised Affiliate Agreements.
The Commission will not authorize Mon Power and Potomac Edison to enter into the Revised Agreement at this time because of concerns regarding certain aspects of the Revised Agreement, including (i) operation of public utility generation and market-regulated plants of First Energy by FE GenCo, (ii) separation of responsibilities for economic dispatch, market offers, and planned outages between utility regulated plants with captive customers and market-regulated plants, (iii) whether provision of generation services by FE GenCo will be provided at cost or at higher market-based price if that exceeds the FE GenCo costs of operating the Mon Power generation plants, and (iv) liabilities that FE GenCo may have if there are claims or damages related to the Mon Power plants resulting from operating decisions made by FE GenCo,
The agreements allow FirstEnergy's unregulated generation affiliate to "manage" Harrison. In this way, FirstEnergy can continue to stick it to the union workers who keep the plant running, and there's not a thing the PSC can do because it does not regulate FE GenCo. The PSC also has corporate separation concerns about FirstEnergy manipulating energy markets. Welcome to the club, fellas! (not that we actually expect you two to DO anything about it if that occurs) The PSC has ordered a separate proceeding to deal with these agreements. In the meantime, Harrison will continue to operate under existing agreements.
So, now you know why Toad is huddled under his desk, sucking his thumb, and waiting to be reprogrammed.
Be careful of the lies you spin, FirstEnergy, you might just have to live with them.
No win-win here
, folks, and it's gonna cost you. How much? Let's start with the difference between capacity prices ($195 vs. $167.46) = $27.54 MWD for the SWMAAC zone, plus a monthly credit of $.49 for all customers who have not switched to a competitive provider. This is what Maryland electric consumers will lose in this "victory for competitive markets."Consumers all over PJM will also lose the health and environmental benefits of the difference between locally generated natural gas-fired electricity and that generated by antique coal burners in the Ohio Valley and shipped hundreds of miles to point of use. They'll also lose the cost of any new transmission lines needed to take the place of the eastern Maryland generation that was "competitively" killed by PJM's electricity markets and the incumbent generators that control them.But, there may be a tiny bit of poetic justice for these generation bullies waiting down the road, when PJM's "competitive markets" and rabid transmission expansion planning force states with renewable portfolio standards to purchase expensive imported "renewables" from the midwest
, which is going to cut into these "competitive" generators' market share. Whom is going to club whom with the Commerce Clause when the time comes? Reply hazy. Ask again later.If you enjoy long, complicated geek-reads, check out the actual decision here. The court actually did a great job explaining deregulation, PJM, "the grid," and electricity markets. Too bad the law is what it is, because if you take the time to read this, you'll see how deregulation, regional transmission organizations and electricity markets
are a farce that inflates your electric rates.Maryland's problem in setting up a mechanism to stimulate the development of new in-state generation is that it is a deregulated state, and Maryland's contract relied on PJM's "competitive" markets, which are FERC jurisdictional
. Let's hope Maryland does a better job next time, now that they know the ground rules.Do the bullies think that Maryland and New Jersey are going to give up and go away with their tails between their legs now and continue to pay the highest electricity prices in the region because PJM's "competitive markets" don't work? Don't count on it. My Magic 8 Ball says this saga will continue...
- Too much generation and equipment offline for routine maintenance. PJM pretends to be surprised that the weather was really hot during the first part of September. I wasn't. September can produce some really hot days -- do these guy live on the same planet as the rest of us? Maybe PJM's historical data didn't warn them that this could happen, but have they noticed that climate change has produced some really "unusual" weather over the past few years? Also, we could ponder what effect an odd really hot day would have on a system that keeps getting bigger and more interconnected while generators get bigger and farther away from load.
- Equipment failures. Transformers and transmission lines in AEP & FirstEnergy's service territory failed, causing operators to have to shift loads, which caused overloads elsewhere. Maybe if PJM didn't promote the building of new transmission to the detriment of maintenance and upgrading of existing transmission lines, equipment wouldn't be so vulnerable to failure at the first sign of stress. As well, both companies involved routinely brag to investors about cutting their maintenance costs in order to toss a few more cents into quarterly dividends. When is PJM going to enforce proactive maintenance over shareholder dividends? And, again, what if the PJM region wasn't increasingly dependent on long distance transmission to deliver electricity from greater and greater distances? "Economies of scale" mean nothing when they cause expensive "load shedding" (aka BLACKOUTS).
- Reserve generation didn't come online when called. We pay these clowns to be ready to provide extra generation when PJM says it's needed. But they just couldn't get it together -- because they weren't ready.
And speaking of clowns, let me introduce you to my "friend" Raymond from International Transmission Company (ITC) who opines:
Why would you say we need less transmission if a transmission failure triggered a brownout or blackout. I work for a transmission company and we have been prevented from building transmission between regions designed solely to prevent situations like happened. Also, what you don't know much about is that whereever there is a lack of transmission, power plants must be run out of economic order to relieve the line congestion. This causes electric customers (everybody) to pay more. Not only are lines needed for reliability (keep the lights on) but also for economics. Economic studies determine if it's cheaper to add new lines/equipment or just redispatch generation occasionally. If done properly based on well thought out criteria, tranmission is only added when needed and is economic.
Ray needs to ponder number 1 and 2 above. This "event" can probably be blamed on increased transmission, which wasn't really "economic" at all when the lights went out in Michigan, Pennsylvania and Ohio. Bigger, inter-regional transmission lines aren't the answer.
Ray also needs to ponder the wonders of distributed generation microgrids, but that's not what ITC pays him to do.
Who wants to guess how much time and money PJM spends "investigating" itself... and will the lights stay on while they dither over avoiding the obvious?
After issuing a preliminary opinion that FirstEnergy's Hatfield's Ferry and Mitchell power stations were necessary for grid reliability, PJM ultimately changed its mind last week and approved closure of the plants on October 9
.FirstEnergy, PJM and state officials have been playing a confusing game of life or death with these plants for months now.Pennsylvania legislators and regulators have been raising a ruckus, giving plant employees false hope that they could find a way to keep the plants open. Ultimately, all this posturing was only harmful to the actual working men and women at the plants, who have been buoyed along on false hopes, and may have squandered valuable time in securing alternative employment or training for other jobs. Very sad.At least nobody is playing FirstEnergy's plant closure game this time though. Last time, FirstEnergy scored some very valuable reliability must run contracts to keep plants slated for closure open until new transmission could be built. However, in the end, those plants will close too, and when they do FirstEnergy has nothing to offer to loyal employees. The company simply doesn't care.Of course we shouldn't be surprised. PJM is a transmission operating and building cartel. Its annual planning is based on a Regional Transmission Expansion Plan (RTEP).
Transmission is all PJM does, therefore when the only tool PJM has is a hammer, every problem looks like a nail. While many uninformed people will blame some imaginary "war on coal," they'd be more effective pointing the finger at the pro-transmission lobby that is PJM. Pay attention to PJM's new transmission project proposal window
to find out why FirstEnergy decided to close these plants and replace them with transmission from other generators. As PJM continues to expand, generation is increasingly centralized at generators located farther and farther from load. This isn't economic or reliable, but it puts money in the pockets of transmission owners, developers and suppliers. This is the REAL
enemy that closed Mitchell and Hatfield's Ferry.So, FirstEnergy employees being kicked to the curb can develop new careers in transmission far from home, or they can invest in new opportunities in distributed generation in their own communities
and join with the consumers opposing unnecessary transmission. Whatever they choose, we wish them well.