...hit the "record" button!

New information in the Powhatan Energy Fund case reveals that FERC may be withholding information.

In a motion filed yesterday, Powhatan says that it has become aware that FERC's Office of Enforcement possesses a recording of a telephone conversation between PJM's market monitor and traders at another company who were engaged in trades similar to the ones in this case, where FERC is seeking over $30M in fines for alleged "market manipulation." 
On that tape, Dr. Bowring says that the trades did not violate the rules, that he understands why the traders engaged in them, and that the rules need to be changed to remove the incentives that drove the trading. He also says that he would not refer the trading conduct to Enforcement if the traders stopped the trading in question.
Powhatan says that accused trader Alan Chen had a similar conversation with Bowring, but did not record it.

The problem here stems from OE's failure to turn over the recording when it was asked to produce exculpatory evidence, i.e. to disclose all evidence that is "favorable to an accused" or "would tend to exculpate him or reduce the penalty."

This seems to be a bit of a double standard, since FERC is relying on the statements of a different trader to make its case to the Commission.

Powhatan also points out that Bowring is obligated to refer trading that he thinks might be market manipulation to FERC's Office of Enforcement.  I wonder how many little phone calls he's made to traders over the years, instead of fixing all the flaws in his "markets?"

How is anyone supposed to know what's allowed and what's prohibited?  Or do those rules reside only in Bowring's head?
  So, keep that recorder handy, just in case... unless you've got $30M or so laying around and don't mind parting with it.
FERC bad-boy Kevin Gates says he's going to create an animated monkey for his website that explains how to make money in PJM's badly-designed markets.
Gates therefore said he stands by his earlier statement that FERC created a market "where a monkey could have made money that summer" by randomly picking nodes, MWs, congestion caps and hours. "We now have the data and I intend to prove it empirically," Gates added. "Once I'm done with the analysis, I intend to create an animated monkey to put on my website to present the results of my work and help explain the market that FERC created."
But what kind of monkey?  Will it be a nice monkey?
Or will it be a naughty monkey?
I suppose it's all in your perspective. 

And, speaking of perspective, that SNL Financial article puts some of FERC's "evidence" against Gates into perspective.
For instance, staff said Chen and Powhatan's investors, including Gates, should have known that it was improper for Chen to submit trades in PJM's up-to congestion, or UTC, market on the funds' behalf just to maximize the rebates PJM gives market participants that use its transmission lines when it collects excess line-loss payments.

Staff further alleged that Gates and Chen suspected as much, citing an email exchange between the two parties suggesting that they "contact a law firm, the FERC, or PJM to try to get more insight into this issue." They never did, however, but instead decided to have Chen ramp up the trading activity, staff asserted.

Gates told SNL Energy that the problem with most of the emails and other information cited by staff to support its case is that they were taken out of context.

For instance, when asked if he indeed suspected that the types of trades in which Chen was engaging might be improper and why he did not seek advice on the issue, Gates recalled that the email exchange regarding the potential need for guidance took place in March 2010 and Chen did not begin trading in an allegedly illegal manner until the following June.

“The timing and the content of the email shows we weren't talking about Alan's trading at all — it was about the rebates themselves. We were concerned that FERC would try to retroactively take them back — not just for us, but for everyone," Gates said. He insisted that he never thought Chen's trading would be considered illegal.

Gates further explained that he did not contact an energy attorney at that time because he thought the possibility that FERC might punish market participants retroactively for flaws in existing rules was "preposterous when those rules were clearly approved." He also thought that while an attorney could quantify the risk or the likelihood that FERC may do so, contacting one would do nothing to protect him from that risk.

According to Gates, his decision not to seek legal advice at that time was the right one. He noted that after FERC in July 2011 tried to retroactively "claw-back those rebates" by ordering virtual (financial) traders such as Powhatan to return the previously refunded amounts, a federal appeals court in August 2013 remanded that decision, finding that the agency failed to justify its mandate. Moreover, Gates stressed that FERC staff has not alleged that any of Chen's trading activities prior to June 2010 were improper.
To be fair, SNL Financial also did an article featuring FERC's perspective, but that one is behind a pay wall, so I guess nobody cares...

Personally, I'm looking forward to the animated monkey!  I hope it's an evil monkey!  They're ever so much more fun!
Isn't that amazing?  FirstEnergy has learned to work faster for shale clients.  Remember that next time you want some service... pretend you're a shale gas company.

And here's another amazing fact:
Their promise and rapid pace of development happen to coincide with the Akron-based electricity company’s recent focus on making its transmission segment the lead revenue growth generator for FirstEnergy, where Mr. Bridenbaugh serves as vice president of transmission.
Serendipity, right?

So, who pays to supply electricity to new shale gas companies?  You do.
Most of the time, when the company upgrades a transmission line or builds a substation to service a new gas processing plant, the investment is recovered from the utilities that benefit from the upgrade.
Utilities.  Got that?  Not shale gas companies.

How much will you pay?
...the company has said it wants to retrench in its utility and transmission businesses, both of which provide a guaranteed rate of return. For transmission projects, the return is often in the double digits.

Why are you paying?  Because the new shale gas companies make the existing grid unreliable, and you need reliability!  (which came first?  the chicken or the egg?)
Because the new, shale-related loads are springing up in rural areas with older or nonexistent infrastructure, the new pull on the lines often presents a reliability risk for other customers drawing electricity in the area. Therefore, many such projects end up going before PJM Interconnection, a Valley Forge-based organization that manages the nation’s largest grid, servicing 13 states in the northeast including Pennsylvania.

PJM has a formula to determine who’s responsible for the cost of upgrades.

Typically, for projects like those on FirstEnergy’s shale plate, it’s shared between the direct beneficiary — a compressor station or processing plant — and the regional utilities whose customers also see a benefit from improved service and reliability.
Hmm... I wonder if regional utilities want to pay half my electric bill this month?  Because, you know, I could jump up from my chair and turn on every electric appliance and light in the house right now.  And that might hurt regional reliability... right?
As if PJM's electric market rules aren't already complicated enough, now PJM is insisting that RPM participants follow rules that aren't even rules yet.

Well, yeah, we all know that PJM answers to no one.  No, really, a certain PJM employee actually told a reporter once, "PJM answers to no one," when he was trying to sell the PATH project to West Virginia citizens. 

And PJM's market monitor told a newspaper once, "following the rules does not mean you are not manipulating the market."

So, it appears that PJM gets to make up its own rules, often before or after the fact, and nobody can protect you, because PJM is omnipotent and all.  Following the tariff doesn't appear to offer any protection against being accused of manipulation.  And, now it seems that PJM members have obligations to abide by proposed rules that aren't even in the tariff...

Recently, PJM filed changes to the capacity market portion of its tariff which, if approved, will establish a deadline for data submittal.  The new deadline will occur in early January each year.  In its filing, PJM has asked FERC to approve the tariff revisions by April 1st. 

But, PJM and Monitoring Analytics seem to think the proposed portion of the tariff is already in effect and are requiring capacity suppliers to submit certain data now.  FERC has yet to approve these new rules!  But, what could happen if the new data is not submitted by the proposed deadline in January, even though the tariff revisions are proposed to be effective in April and are NOT YET IN EFFECT?  Could the market participant be referred to FERC under a tariff violation claim?

So, not only is it possible to be guilty of something without actually violating PJM's rules, it is now also unacceptable to violate new rules that are not yet in effect! 

I think the bloated bureaucracy that is PJM needs to be slimmed down and cleaned up, because free M&Ms only have so much charm.

Do you agree that the three market  participants he named were “bad eggs”?
Why or why not?
What kind of a question is that?  How are "bad eggs" legally defined?  Does FERC have an educated egg-dicator used to make this determination?
Those are the kind of questions FERC has been asking  folks not involved in its investigation as it tries to scrounge up some witnesses against Kevin Gates and Powhatan Energy Fund.  In November, FERC sent ten pages of questions (including the egg question, along with one about "bad apples") to a guy who talked to Kevin Gates about a job in the summer of 2010.  Bryan Hansen, who bravely chose not to be represented by a lawyer after FERC pounced on him, didn't seem to have much dirt to spill after all.

But FERC hit paydirt with another guy who was looking for work in 2010 -- the guy with the opinion about the eggs and apples.  In an email to Gates back in 2010, this guy worried that Alan Chen was going to "kill the goose that laid the golden egg," a badly-designed PJM market product that was profitable for everyone.  I think this guy was just watching too much Willy Wonka.

In the wake of FERC's December 18 Show Cause Order, the accused had 30 days to respond.  Gates, Chen and the companies requested a 30-day extension due to the holidays and new information that needed to be reviewed.  OE opposed it.  The Commission did what it often does... it split the baby and granted a 2-week extension.  The response is now due on Groundhog Day.  Auspicious!

FERC held a technical conference today about UTC transactions, where one of the panelists was from Twin Cities Power Holdings, LLC (any relation to the Twin Cities Power LLC that recently settled with FERC for $3.5M in a different market manipulation case?)  It seems that FERC and PJM are still trying to figure out the markets they have designed to "benefit consumers."  Maybe they should read the glossary at FERClitigation.com to figure some things out.

Meanwhile, it looks like Harry Reid's angry and sarcastic staffing services for federal energy commissions may be on the way out.

And new FERC Commissioner Collette Honorable, former chairwoman of the Arkansas Public Service Commission, is on the way in.  She's a breath of fresh air for this struggling federal commission.

Maybe she'll open her own twitter page, like Commissioner Moeller did last month.  He's tweeted four times (once about the Powhatan mess), has followed no one, but already has 192 followers, which I'm sure includes every suck up energy lawyer in DC, but probably not Harry Reid.  Isn't it nice to be so popular?
More bad decision-making on the part of the Illinois Commerce Commission brought to light, this time courtesy of the Request for Rehearing filed by Exelon subsidiary ComEd.

Because nobody trusts Clean Line Energy Partners to actually remain a merchant project, the ICC conditioned its recent approval on Clean Line having to come back before the ICC for approval before the cost of RICL can be allocated to Illinois ratepayers, either through PJM or MISO's planning process.

(Raise your hand if you suspect Clean Line is approaching the permitting and cost allocation process backwards -- getting its state permits first before approaching PJM and/or MISO to have its project added to the regional plan and cost allocated to consumers).

The allocation of transmission costs to ratepayers is a FERC-jurisdictional process.  It is not decided by individual states (except it may be addressed through the RTO planning process, but good luck there, Illinois, if RICL gets included in a regional plan).

ComEd has taken issue with this stipulation:
Throughout this proceeding RI has claimed that Illinois customers will not pay the
Project’s costs. Because this fact is critical not just to protect customers, but also underlies RI’s economic case, the Order includes a condition stating that RI must seek Commission approval “prior to recovering any Project costs from Illinois retail ratepayers through PJM or MISO regional cost  allocation[.]”  While ComEd agrees fully with the Commission’s intent, this condition cannot be relied upon to protect customers, for several reasons.

FERC has exclusive authority over  transmission rates under federal law. It is far
from clear that FERC or a federal court would find that Illinois can require an applicant to waive the ability to petition FERC to approve any specific type of transmission rate, or could enforce such a waiver against a FERC finding that it was “just and reasonable” to pass costs on to customers. 

Even if the Commission could void the CPCN if RI (or a successor) made such a request to FERC, it is not clear what effect that “remedy” would have on customers’ rates. By then, the costs would be incurred and the line would be transmitting power in interstate commerce.

The Order’s condition does not apply to other parties (e.g., generators, shippers) who
could ask FERC to modify the rate to shift costs to customers, even if RI never did.

Similarly, the Order does not limit the  authority of FERC itself, which could sua
sponte revise RI’s rates, either in a RI-specific or a more broadly based investigation
proceeding. FERC has the power to “determine the just and reasonable rate … to be
thereafter observed” (16 U.S.C § 824e (2012)) in response to such a complaint or
upon its own motion, not just a filing by RI.

At a minimum, given the critical importance of shielding Illinois customers from Project
costs, the viability of this condition as a means of protecting customers – and potential
alternatives including financial security – warrants deeper examination on rehearing.
In other words, the ICC has been had by empty promises.  FERC can order Illinois ratepayers to pick up the RICL costs and there's nothing the ICC can do about it, except be sucked into a prolonged legal battle at FERC. 

Meanwhile, the ICC's condition does NOTHING to protect ratepayers in other states from having the cost of RICL foisted upon them.

Let's hope the ICC thinks this one through a little more.
FERC is in love with the idea that "competition" between transmission developers will result in lower costs for consumers, but that's not necessarily true.  While competition between developers for a project identified in a regional plan could provide lower cost projects, it completely fails when developers create and submit projects before any need for them is independently recognized by the RTO, or when merchant developers propose transmission projects outside of regional plans.

Hopefully we've seen the last of the transmission projects designed simply to increase profits for a vertically integrated utility that is conceived before the RTO determines a "need" for it.  In this cart before the horse scenario, the RTO will create a smokescreen of need for an unneeded project and "order" it to be built.    These projects usually fall apart when they are examined with any amount of sincere effort.  When this happens, the RTO will cancel the project, but not before millions are spent for a transmission project that will never be built. 
When an RTO "orders" a project, its cost is allocated to ratepayers in the region.  How much are ratepayers paying each year for cancelled projects resulting from bad planning?

But an even more serious problem is developing as a result of merchant projects proposed outside the regional planning process.  These projects are never submitted into the regional planning process, therefore there is no need for them, either reliability, economic or public policy.  The only review they get from regional planners looks at how their interconnection will affect reliability.   These projects are not "ordered" to be built by regional planners. They are constructed at the expense and initiative of their owners, who recoup their costs through charging negotiated rates for transmission service.  The only goal of merchant lines is to make money.  If they aren't economically feasible, they won't be built.  The choice to build them lies entirely with their owners, even after they have a permit in hand.

But a merchant project proposed outside the regional planning process is never "ordered" and must prove itself "needed" to state and federal regulators in order to receive necessary permits or eminent domain authority.  In that instance, the state or federal regulator is stepping into the regional planning position to determine the need for a transmission project.  State and federal regulators are ill-equipped to make such a determination because they lack the kind of expertise found at an RTO.  The best a regulator can do is rely on the evidence submitted by experts in the case.  Merchant transmission developers can afford any number of experts who will say whatever they're paid to say.  Regulators can only afford in-house expertise, or rely on the experts hired by other parties. The decision is not based on any inherent knowledge, but on expert testimony.

So, what happens when a state finds a merchant transmission project serves some purpose and issues it a conditional permit to construct?  Now we've got two competing regional transmission planners with different projects in their plan.  The RTO version of the plan includes projects it has ordered that it has determined are needed for reliability, economic or public policy purposes, and these projects are being paid for by ratepayers.  The state uses the same plan, but it also includes the permitted merchant project, that doesn't serve any RTO-identified need.  Isn't this too much transmission?

What happens to the ordered regional plan if the merchant project is constructed?  Sometimes this effect is modeled into the plan so that other "ordered" projects may not be needed after all.  A permitted merchant project could cause cancellation of transmission projects in the regional plan before they are completed (but long after they start collecting their costs from ratepayers).  But, remember, a merchant project that has not been "ordered" by a RTO may never be built.  So, if a merchant project causes the cancellation of one or more RTO projects, it could jeopardize reliability if it is suddenly abandoned by its developers before being built.

Dilemma!  Perhaps FERC should take notice of the mess it has created and find a remedy.  I would suggest that projects must be part of a regional plan (whether RTO/ISO or other existing planning authority), and that unneeded merchant projects be prohibited.

Think I'm just nuts?  The Illinois Commerce Commission's recent conditional approval of the Rock Island Clean Line merchant transmission project is already causing doubt about other regionally planned transmission projects that are currently before the ICC.  As the Illinois Farm Bureau pointed out in its recent request for rehearing of the RICL decision, the RICL order is already having "a negative impact on consumers."  The IAA says that the RICL approval is having an immediate effect on two other transmission projects currently before the ICC, a MidAmerican project and an Ameren project, where the ICC staff has suggested that RICL's approval draws into doubt whether these two projects are needed.  And who pays for the other two regionally planned projects if they are cancelled by RICL?  Consumers.
As multiple intervenors have pointed out in this docket that Rock Island’s failure to produce a needs analysis from PJM and/or MISO hurts all of the stakeholders, it seems like this problem could have easily been avoided. The absence of this global analysis produces increased unpredictability and either slows or jeopardizes other legitimate transmission projects. This risk to the consumers could have easily been prevented.
In addition, the IAA points out that there has been no comparative analysis by the ICC as to which of these projects are necessary to promote the development of an effectively competitive electricity market that operates efficiently, are equitable to all customers, and are the least cost means of satisfying those objectives.  Regional planners say that the MidAmerican and Ameren projects are the best options.  The ICC has determined that RICL is the best option, without any attempt at making a fair comparison.

So, what shall it be?  Should we cancel regionally planned projects that conflict with merchant plans and hope the merchant projects are eventually built?  Will the lights go off if none of them get built?  We simply cannot have it both ways. 
Now, other potentially viable and successful transmission projects will have to wait on the sidelines to see if Rock Island can get its act together by, among other things, finding money, qualified employees, suppliers, and numerous regulatory approvals. None of this benefits Illinois consumers, the market, or the reliability of the electric system. Instead, it puts everything at greater risk.
Independent transmission projects based on greed are now actively hurting consumers.  This game must stop.
Looks like FERC has its Grinch hat on this Christmas.  On Wednesday, the Commission issued an Order to Show Cause and Notice of Proposed Penalty to Kevin Gates, his companies, and trader Alan Chen and his companies.

FERC proposes that Gates and his companies cough up $22,358,208.00, while Chen is supposed to come up with $12,160,576 in penalties and disgorgement.  That's nearly $35M.  I'm wondering if Gates and Chen even HAVE $35m?

I've read some of the OE FERC staff report, and I gotta say I'm not feeling the outrage in the same way everyone was outraged at the Enron schemes.  It reads like a witch hunt, and I kinda feel sorry for Gates and Chen.  So, FERC staff is all up on its high horse about protecting consumers, but I'm left wondering where that $4.7M in marginal loss surplus allocations would have ended up if Chen had not made these trades.  It would have ended up in the pockets of other traders.  It would not have ended up in the pockets of electric ratepayers. 

What is FERC going to do with the money, if it manages to prevail in this matter?  $4.7M will be re-distributed to other traders, Robin Hood style.  That leaves $30M in penalties.  What is FERC going to spend that on?  Maybe they could spend it hiring some smarter guys to design and monitor their markets... like Gates and Chen?
The National Park Service and grant-money-grubber The Conservation Fund are misleading the public about land being "donated" to the Delaware Water Gap National Recreation Area.

In recently-generated press, the entities claim that additional park land was purchased by The Conservation Fund and "donated" to the park.
The purchase of these lands by The Conservation Fund from willing and interested sellers without the use of any taxpayer dollars, and their subsequent transfer to the NPS, ensures that they remain in the public trust for future generations to learn from and enjoy and that they will continue to provide both ecological and economic benefits to the region.
The Conservation Fund used YOUR money to purchase these lands, and skimmed a nice "administrative fee" for themselves off the top.  How nice of them to "donate" the land to you. 

The land was purchased with a $66M mitigation fund that the Department of the Interior extorted from utilities PSE&G and PPL, who were allowed to build a gigantic electric transmission project through the heart of the park in exchange for the payoff.  In turn, PSE&G is recovering the $66M from all electric ratepayers in the 13-state PJM Interconnection region.  Under federal rate schemes, PSE&G is even allowed to earn a 12.9% return on the bribe as it slowly depreciates over the life of the transmission line.  In exchange for acting as the middleman and giving your crooked government cover for its outrageous abuse of the public trust, The Conservation Fund is allowed to skim generous "administrative fees" off the fund every year.  The Conservation Fund didn't "donate" anything, they just served as the nonprofit "purchaser" to so that these shady transactions may not shoulder their fair tax burden.

It's a lie and a scam of the highest order.  Addition of border properties to the park does not make the transmission line disappear out of the middle of the park.  Mitigation means your park assets are for sale to the highest bidder.  In this case, the highest bidder was YOU.  Why are the citizens paying to buy additional park property at the Delaware Water Gap NRA, and why is The Conservation Fund being allowed to claim it as a "donation" on its taxes?

The National Park Service ought to be ashamed of itself for lying to the public this way.
Like a persistent nightmare...
Richard and Kevin Gates say that they received this Notice of Release of Materials Obtained in Investigation late last week, and that it may suggest that Powhatan may receive an Order to Show Cause from the FERC later this week.

Tit for tat...

FERCLitigation.com is now back online after a month-long truce, and the Gates brothers are ready to talk to the media.  Looks like it's game on again.  Merry flippin' Christmas!