The U.S. District Court for the Eastern District of Virginia looks like the O.K. Corral in the aftermath of the recent paper showdown requesting dismissal of FERC's petition to request an Order Affirming the Commission's Order Assessing Civil Penalties of $34.5M
against defendants Powhatan Energy Fund and Alan Chen.
On October 19, Powhatan and Heep Fund, et. al. (Chen defendents) filed Motions to Dismiss FERC's request prior to trial.
The Powhatan Motion to Dismiss relies on FERC's failure to provide fair notice that the trades at issue were illegal at the time they took place. Powhatan says this raises serious due process issues.
The Heep Fund Motion to Dismiss relies on a contention that the statute of limitations had expired before FERC's filing in U.S. District Court for all but 4 days of the subject trading. Heep Fund also says that the complaint does not state a claim for market manipulation. They also claim the same due process issues raised in Powhatan's Motion. And, finally, Heep contends that the FPA does not authorize manipulation claims against individuals like Dr. Chen.
FERC responded on October 30, claiming Fair Notice precedent supports their claim and that Powhatan mischaracterizes the Commission's actions and precedent, and that none of their claims have merit. FERC's response to Heep Fund made similar claims that their Motion to Dismiss was all wet.
What I found interesting here was FERC's reading of its Black Oak precedent as recognizing that traders may make trades solely to capture MLSA payments, however FERC "fixed" that problem by requiring traders to also purchase transmission.
In March 2009, PJM followed the narrower approach, proposing to pay MLSA to all trades with paid transmission (physical or virtual). In response to that filing, no party suggested that UTC trading would be susceptible to the kind of perverse incentives that the Commission understood could apply to most virtual trades.
No party filed any comments rebutting this contention as to the narrow distribution method, and the Commission accepted it in September 2009. Black Oak Energy, LLC, et al. v. PJM Interconnection, L.L.C., 128 FERC ¶ 61,262 (2009).
So, the Commission believed it had closed any loophole that created an incentive to place trades with the intention of collecting MLSA payments by requiring traders to purchase transmission. But it didn't. And the trading happened.
FERC contends, nevertheless, that the trading was an illegal type of trading, and in an effort to build a villain it uses the word "Enron" 19 times. Everybody knows that Enron was bad, right? And because this whole issue is so technical and hard to think about, maybe people will just go with the bad aura created by glittering generalities? Here's another: FERC used the words "Death Star" 17 times. No average Joe knows what "Death Star" trading is, but it conjures up images of our Star Wars heroes being in jeopardy. And it sounds really, really bad!!
FERC also prattles on about the Powhatan & Chen defendant's trading depriving other market participants of MLSA payments they would have scored if the defendants didn't trade. But in this alternate universe where the defendants didn't trade, might others have traded instead, which would throw off any entitlement to MLSA payments by the other market participants? And FERC has still failed to convince me that the MLSA payments would have flowed through to the electric rates paid by customers of the other market participants, instead of into the corporate coffers that pay share dividends. Since FERC can't explain this properly, it must not be true that the other participants failure to receive MLSA payments caused higher rates for electric consumers. I'm still waiting here...
Yesterday, Powhatan and Heep filed Rebuttals to FERC's responses.
Powhatan pointed out that FERC has changed its position on what the Black Oak orders meant, and "misses the forest for the trees." Powhatan also points out a gap in FERC's logic: If the Black Oak orders prohibited the trading at issue, why did FERC find it necessary to change the tariff to prevent this kind of trading AFTER it discovered what the defendants had done. By closing the barn door after the horse got out, the Commission can now only retroactively fine Powhatan for trading that wasn't illegal when it happened. And, of course, that idea is preposterous.
The Heep Rebuttal also refuted FERC's contentions in its Response.
So, now we'll see if the rocket docket blasts off towards the Death Star, or dismisses this case, once the smoke clears in the corral.
The project announced last week only includes 475-miles of line in Pennsylvania and New York, and looks like this:
What happened to the New Jersey, southern Pennsylvania, and Maryland sections of the project? In the Fall of 2014, PPL had this to say
about its ginormous plan:
On a last quarterly call, we had just announced Project Compass, a proposed 725 mile transmission line through the shale gas regions of Pennsylvania and into New York and New Jersey and Maryland.
We’ve been meeting with officials at the state PUCs and governor's offices in the states where customers will benefit, Pennsylvania, New Jersey, New York and Maryland. Those meetings have gone well overall and we plan to have continuing dialogues on the project benefits. We're also meeting with other key agencies and other transmission operators in the region. We will continue to update you as we reach project milestones.
I guess those meetings didn't go as well as PPL thought they went, because those segments sort of well... disappeared, at least for the time being.
So, last week PPL said the "full project" consisted of 475-miles of transmission (down from 725) from western Pennsylvania into southern New York. They claim to have applied for interconnection to the NYISO transmission region. PPL claims that Project Compass will:
“This transmission line provides a significant opportunity to improve reliability and grid security and also provides benefits to customers,” Paul Wirth, spokesman for PPL Electric, said this morning. “When you add another path for power to flow, then that increases reliability because you are not relying as much on a single substation or power line.”
Another goal is to provide an estimated savings of at least $200 million per year for New York consumers by reducing transmission congestion.
But that's only the fox's opinion of the state of affairs in the chicken house. This isn't how we plan for needed transmission!
A need for new transmission is recognized by regional transmission organizations (such as NYISO or PJM) for either reliability, economic, or public policy purposes. Under FERC's Order No. 1000, the RTO next puts the transmission problem out for bid to transmission developers, who develop proposed solutions that are considered by the RTO in a competitive process. This ensures that we only build needed transmission and that the transmission we build is the most cost-effective.
Instead, PPL has dreamed up a solution that needs a problem to fix. Project Compass has not been deemed "needed" in any regional transmission organization's coordinated plan. And only a project that is included in a RTO plan and deemed the most competitive solution can recover its costs through regionally allocated transmission rates.
The exception to this process is what's known as a merchant line. In that instance, the transmission developer shoulders all risk and burden of building its project and then collects its costs from users through negotiated rates. Is this what PPL is building? You wouldn't know it from the way the company describes it to investors and the public:
Who will pay for the first segment of Project Compass?
According to the FERC guidelines for cost allocation, those who benefit from a new power line should pay its costs. The first segment would be paid for by electric customers in New York who will get the benefit of lower power prices. The costs would be paid over a period of many years on customers’ electric bills.
Wait a minute -- cart before horse! According to FERC guidelines for cost allocation, only a project included in a regional plan is eligible for cost allocation. According to FERC guidelines for negotiated rate authority, however, only those customers who agree to use the line pay a negotiated rate to do so. There is no guaranteed cost allocation recovery for a merchant project. And because there is no guarantee that costs will be recovered from consumers, the project's investors can lose their entire investment if the project does not go forward or attract customers. Doesn't sound like a very solid investment, when there are plenty of transmission projects included in regional plans with guaranteed recovery where the investor could plunk down their money instead.
Furthermore, PPL believes it can avoid all that messy competition in the regional planning process by segmenting its project:
Shah Pourreza - Guggenheim Securities LLC
I appreciate the new disclosures around the Compass Project. So how should we think about the remaining miles? Are you looking to potentially segment the rest? And then, is there an opportunity to potentially JV with some of the neighboring utilities to smooth out the process?
William H. Spence - Chairman, President & Chief Executive Officer
Sure. I think in both cases the answer would be yes. So there's an ability to continue to segment the line as well as partnering with adjacent or utilities that the project goes through their service territory. So I think in both cases we would look to do that.
Daniel Eggers - Credit Suisse Securities (USA) LLC (Broker)
Okay. Very good. I got that. And then just on Compass real quick. I know it's ways off, but does this get caught up in this Order 1000 workout because it's an economic line instead of a reliability line? Do you get more competition, and people prospectively bid away the cost of capital? Or how do you think you're going to be able to reserve some sort of competitive advantage in this line?
William H. Spence - Chairman, President & Chief Executive Officer
I'll let Greg take that question.
Gregory N. Dudkin - President, PPL Electric Utilities, PPL Corp.
Yes. So the way this is set up currently under New York law, this would not be considered a FERC 1000 Project, so we are going and making interconnection requests and will be filing our Article VII now. So if the approval path goes down that path there may be an opportunity for competition, but the probability is little bit lower. If the PSC opens up economic window next year then there could be competition, so we'll see how it plays out.
William H. Spence - Chairman, President & Chief Executive Officer
I think relative to the competitive nature of this, obviously just having completed a very major line essentially in the same region, I think our capability to be very competitive should we get to that point should be strong.
However, what I would say is the compass project, which is not included in our CapEx program, would be a program or a project if you will that would take advantage of some of the opportunities in the Marcellus shale to basically instead of bringing the gas pipelines across, we'd be bringing electric lines across to the potentially new power stations that could be built. So that would be our opportunity, if you will, that's shale gas-related.
This is a really stupid idea left over from the last century, where "mine mouth" electric generation plants burned coal where it was mined and transported the electricity hundreds of miles to load because the load didn't want any of those dirty coal plants located in their neighborhood. This solution simply doesn't work any more. It's a lot easier to build a gas transmission line (and the fracking and exploitation of Pennsylvania to collect this gas is going to happen either way) than it is to build an electric transmission line. What a truly stupid idea.
PPL's audacious Project Compass still has so many hurdles to jump
, they might as well just quit now:
What approvals will be required for the first segment?
The first segment will require approval from various regulatory and regional planning entities including the public utility commissions of Pennsylvania and New York, New York Independent System Operator, PJM Interconnection, and FERC. Siting and construction of the line will require permits from appropriate environmental and resource agencies.
FERC, you say? But FERC doesn't have authority to permit transmission lines. It only has authority over transmission rates
. So, either PPL is planning to ask FERC for negotiated rate authority for a merchant line, or it's planning to ask FERC for some rate incentives for its cost allocated project. Which is it?
And what kind of approval are they looking for from NYISO and PJM? Is it an interconnection for a merchant project, or is it inclusion in a regional, competitive transmission plan? Does PPL even have a clue what it's trying to accomplish? This has to be the dumbest transmission plan I've ever seen, and it's based on both the public and investors being equally dumb. I don't think the RTOs and state commissions are supposed to be dumb, because they're not.
Since PPL answered the last question this blog posed about where it came up with the name "Project Compass"
Where does the name “Compass” come from?
This project charts a new course in the way we think about and plan the electrical grid of the future.
we will expect them to answer the current questions about just what in the heck they're trying to accomplish with approvals as well.
The only course Project Compass is charting now is one of confusion that they hope will lead to corporate profits. I think the needle is still pointing toward failure.
What's been happening in transmission news this week? The Virginian Pilot
took a look at Dominion's Skiffes Creek 500kV transmission project... and it sort of looks like the project itself is up the creek. Dominion has lots of excuses for why it needs to build a ginormous transmission line across the James River, but none of them are exactly logical. Skiffes Creek is not really the only option to ensure reliability, it's just the one that regional grid planner PJM Interconnection approved a long time ago in an uncompetitive environment. If the transmission project is not approved by the U.S. Army Corps of Engineers, then PJM will have to go back to the drawing board and re-engineer another solution to what it views as a reliability problem.
Gotta wonder... if this problem was put out for bid in PJM's new competitive transmission process, would other companies have better solutions? Solutions that solve the problem without creating an eyesore and river hazard of an aerial crossing of the James River? Probably.
Dominion contends that the technology doesn't exist to run a reliable line of the caliber and kind needed under 4 miles of riverbed - at least not without a price tag in the billions.
Oh, baloney, Dominion! Take a look at the Artificial Island project
that is proposed to cross underneath the Delaware River just a couple states to the North. When transmission solutions are evaluated in a competitive environment, a submarine crossing suddenly becomes viable, not only from a cost standpoint, but also with an eye toward "constructability," a measure of the ease of getting a project approved and constructed with minimal opposition. In the case of the Artificial Island project, PJM ultimately selected a proposal by LS Power that uses a 3.5 mile submarine crossing of the river in which the company capped its construction costs
. Dominion needs to re-evaluate its submarine options.
The Skiffes Creek project is a cash cow for incumbent utility Dominion. Under PJM's old, pre FERC Order No. 1000 transmission project selection process, the incumbent was allowed to propose all solutions. The incumbent could propose only those solutions that would provide a healthy shot to its balance sheet. FERC recognized that this process didn't necessarily inspire the best and cheapest solutions and has revolutionized the way regional grid planners select new transmission projects.
Dominion tries to hide behind an aura of concern for ratepayer issues.
Curtis said the Skiffes over-the-river plan, at $60 million, is indeed on the lower cost end of the dozens of routes and options the company considered. Whatever the expense, though, customers will reimburse Dominion. Rate hikes are automatically allowed for utilities that build infrastructure to strengthen the grid.
"So these are rate-payer dollars, not Dominion dollars," Curtis said. "But the opposition is still committed to the conspiracy theory."
Curtis tells only part of the truth here. The part he leaves out is that Dominion will be earning a double-digit return on its $60M investment in the project over its useful life of approximately 40 years. The more the project costs, the more Dominion makes in pure profit. Dominion is hardly agnostic about ratepayer costs. Also, if Dominion had to compete to build this reliability solution, it would face giving up this potential profit entirely to another company with a cheaper, less intrusive proposal. There IS a conspiracy... because the investment is Dominion's dollars, not ratepayer dollars. And Dominion earns a healthy return on every dollar it invests in this project.
So, are there other solutions? Opponents accuse Dominion of not examining and considering all options.
"What's frustrating is that people think we're being disingenuous," Curtis said. "They don't believe we've looked at all the alternatives, or they think we're only concerned about making the most money for our shareholders."
The article reveals
Several lines already feed outside power to the Peninsula, but it won't be enough without the Yorktown plant, which Dominion says is too costly to upgrade in the face of new federal clean-air standards.
Did Dominion consider upgrading and rebuilding the existing lines to increase capacity before settling on an entirely new transmission line? C'mon, Dominion, you're no stranger to this plan... after all, your plan to rebuild the 500kV Mt. Storm-Doubs transmission line to increase its capacity is what killed the entirely new 300-mile PATH transmission line. Or are much cheaper rebuilds only considered when Dominion finds itself in a competitive environment?
How much time and money will Dominion's effort to keep itself from being propelled "up the creek" with Skiffes Creek cost ratepayers? Dominion's blind pursuit of this project in the face of better alternatives is what may cause "rolling blackouts" on the peninsula. The longer Dominion delays by backing a lame horse, the closer the peninsula gets to a genuine reliability issue. Get with it, Dominion, and switch to a solution that everyone can agree upon. Don't you have a legal obligation to keep the lights on? Or only one to increase shareholder dividends every quarter?
...or maybe we should call it a lesson in identifying good guys vs. bad guys?
Hey, Feds, your right hand should introduce itself to your left hand.
This article in Vista Today
informs that FERC bad boy Rich Gates will apply for a "Whistleblower" reward from the U.S. Securities and Exchange Commission for his work in exposing Credit Suisse's "dark pool" after the penalty is announced. Gates estimates he could be in line for a reward in the neighborhood of $5 - $15 Million.
Meanwhile, the Federal Energy Regulatory Commission has fined the other Gates twin $30M for alleged "market manipulation" for exposing a loophole in PJM's poorly designed energy markets.
So, if Rich Gates takes in $15M from the SEC, could he use that money to pay off part of the FERC's $30M fine (assuming FERC can make it stick in court)? I'd say that's some pretty smart money management!
Next up... will Disney be making a good twin vs. bad twin flick starring Rich and Kevin Gates? This story has been done many times over, but I think some government employees might relish the chance to prance across the big screen as cartoon characters set to an inspiring theme song and cymbal-crashing, energizing score.
Rich can play the "good" twin, who developed tests of buying and selling the same security in numerous dark pools or exchanges to see if anyone was getting in front of client’s trades, as chronicled in Michael Lewis's book, Flash Boys.
Kevin can play the "bad" twin, who performed a similar test of PJM's MLSA payment market and ended up making money that would have gone to certain gigantic utility holding companies if not for his participation in the market and exposure of PJM's poor market design.
But, wait, which twin is good, and which twin is bad? They sort of look the same to me. Like maybe identical? Both twins demonstrated that they were much smarter than the regulators who are supposed to be monitoring both markets. Maybe it depends on where in the federal government you're standing when you blow your whistle. By offering a reward for whistleblowing, the SEC demonstrates that it could actually be helped by those who expose things the agency wasn't smart enough to catch. On the other hand, FERC punishes those who expose things they weren't smart enough to catch. I don't think FERC offers any rewards for exposing utility scams. In fact, it punishes those who expose incumbent utilities, dumb market design, and lazy regulation.
But now it can all end well, like it did in Disney's The Parent Trap, when the twins switch places and the SEC reward pays FERC's penalty... and they all live happily ever after.
My challenge partner, Ali Haverty, reminded me this morning of a Facebook meme
we shared months ago. It's a photo of two owls on a branch, and says, "Sometimes I just want someone to hug me and say, 'I know it's hard. You're going to be okay. Here is chocolate and 6 million dollars.'"
And that's what we got. Of course, the 6 million dollars belongs to the 61 million ratepayers in the PJM region. Our personal share is probably about a nickel.
On Monday, FERC ALJ Philip Baten issued his ruling on the PATH case that was heard back in the spring.
Ali and I were seeking the refund of just over $6M in expenses for the purposes of influencing the decisions of public officials that PATH incurred and recovered from PJM ratepayers in 2009, 2010 and 2011. Judge Baten ruled that all of the expenditures were not recoverable in PATH's rates and must be refunded.
This is my favorite part:
As a general proposition, the cases that are discussed above suggest that when utilities are seeking selection or CPCN approvals from governmental entities, the utilities should rely on the established governmental approval processes to persuade the officials and not indulge in collateral efforts such as public education, outreach, and advertising activities. If a utility should rely on these collateral activities while pursuing selection or CPCN processes, then it will risk the chance that these costs may not be recovered from ratepayers. If the selection or CPCN application has merit, the governmental selection process provides a sufficient vehicle for the utilities to present their engineering, marketing and economic studies and thereby hope to merit the vote of approval from these officials. In this regard the PATH Companies spent over $8 million on attorney fees to prosecute the CPCNs before the respective governmental bodies, which begs the need for these collateral expenses.
The judge's decision must now go before the Commission, who may affirm or deny, in whole or in part. That decision is several months down the road, at least, and requires another round of briefs.
Meanwhile... more chocolate. And champagne. And music. Let there be music!
The Public Service Commissions of both Delaware and Maryland have filed a complaint
at FERC over PJM's new transmission cost allocation process, specifically the cost allocation of PJM's Artificial Island transmission project. Under PJM's cost allocation rules, ratepayers of Delmarva Power in Maryland and Delaware would pay nearly 90% of the cost of the project, which is intended to improve transmission from the Salem/Hope Creek nuke in New Jersey. However, Delmarva customers will receive only 10% of the benefits flowing from the project.
Whoopsie, PJM! Your formulas still don't work! Didn't FERC's Order No. 1000 determine that costs would be commensurate with benefits? And didn't the 7th Circuit remand your prior cost allocation method TWICE because PJM and FERC couldn't show a correlation between benefits and costs?
It seems that PJM and FERC still haven't gotten it right on cost allocation. And the legal battle is just beginning. This could muck up PJM's cost allocation process for the transmission it orders up for years! As a result... transmission won't get built. Nice going, knuckleheads!
We have yet to see a massive transmission build out intended to ship renewables thousands of miles in an attempt to subvert state planning for compliance with the Clean Power Plan. Expect problems there, too! After all, not every state is going to receive the same kind of benefits from long-distance transmission that passes through in an attempt to meet the CPP goals of a different state.
I guess that's what happens when "regional" and federal interests attempt to overrun state regulators. This complaint is going to be interesting and eat up a lot of ink. Woo Hoo!
I saw lots of your tax dollars at work over the past couple weeks. They're everywhere.
Long, boring road trips allow lots of time for pondering. Lots of wind farms allow for lots of comparison.
Why were some turning while others were not? It sure seemed like the closer to the road they were, the more they turned. Like stage dressing for eager Sierra Club motorists, puttering along in their polluting conveyances. Or perhaps the ones encroaching on highways were newer and earning the $0.023/kWh production tax credit, while the ones farther away had been abandoned or were simply priced out of the market at the time? Why was a wind farm on the right hand side of the road turning away, while one on the left hand side sat idle? I did see more turning than not, which probably means there's adequate wind transmission capacity for what's been built.
This report says that wind is curtailed for 3 main reasons:
1. Transmission constraints. Not enough transmission for peak periods. Since the capacity factor for wind averages 35%, is it economic to build additional transmission for the odd times when wind is producing at a higher rate? Probably not.
2. System balancing. High wind penetrations make it hard to keep the system in balance because they require curtailment of base load generators during periods of low load. That's not economic either. "Some utilities or grid operators have curtailed generation from wind plants when minimum generation levels on fossil-fuel plants are reached, because stopping and restarting fossil units within a few hours can be significantly more expensive than paying for a few hours of wind curtailment."
3. Other reasons: voltage issues, interconnection issues, frequency and stability issues. Too much intermittent wind can make the grid unstable. Wind generators also "self-curtail" to protect bats and enable de-icing. Probably not a problem, since it was well over 100 degrees when clusters of wind turbines sat idle.
The expired production tax credit pays wind farm owners $.023/kWH generated. How much is that on an annual basis? Not information easily found. Why not? This article says that the PTC has cost American taxpayers $30B over the past 35 years. Of course, the Koch monster gets blamed for spreading "misinformation," but nobody offers a corrected figure.
Warren Buffet has bragged that the production tax credit is the only reason to build wind farms, "they don't make sense without the credit."
The PTC allows wind generators to bid into energy markets at low, or even negative, prices. This makes it harder for unsubsidized base load generators to stay afloat. As a result, these generators beg for ratepayer subsidies and foist the cost of their failing generators off onto ratepayers. Who thinks that we can replace all fossil fueled electric generation with intermittent renewables like wind?
Not PJM, whose recent capacity auction provides additional money to generators who can produce when called upon (you know, those baseload fossil fueled generators). This is going to cost consumers an additional $3.4B in yearly capacity charges.
And there we are. New intermittent wind capacity is being built at an alarming rate because it is profitable. New wind transmission capacity is being overbuilt at an alarming rate because it is profitable. All this intermittent generation is causing increased costs for consumers.
But the industry is raking it in. Thoughts to ponder...
Apparently FERC's Office of Enforcement had nothing better to do yesterday than to enjoy a summer drive down to Richmond for an enjoyable afternoon of venue shopping.
I guess they found exactly what they were looking for, because they dropped off a petition requesting a jury trial at the U.S. District Court for the Eastern District of Virginia, Richmond Division, in the matter of:
PETITION FOR AN ORDER AFFIRMING THE FEDERAL ENERGY REGULATORY COMMISSION'S MAY 29, 2015 ORDER ASSESSING CIVIL PENALTIES AGAINST POWHATAN ENERGY FUND, LLC, HEEP FUND, INC.,
HOULIAN "ALAN" CHEN, AND CU FUND, INC.
Although the Commission issued an Order assessing civil penalties on May 29, the accused had 60 days to cough up the roughly $34.5M in penalties and disgorgement. They didn't pay. FERC wasted no time filing its petition after the 60 days were up.
"It has taken Powhatan almost five years to get to court for a very simple spread trading strategy that has been blessed by 12 independent experts at our website, ferclitigation.com," said Powhatan's Richard Gates.
FERC listed six, count 'em, six lawyers as counsel for the plaintiff. It listed only two lawyers for the defense, one for Powhatan Energy Fund and one for Alan Chen, HEEP Fund and CU Fund. Does it really take six FERC lawyers to equal one defense lawyer? Who is paying for this? How much has FERC spent on this investigation over the past 5 years, and how much will it spend down in Richmond? At what point will the cost of this litigation be more than the recovery?
"While the costs of fighting off the bogus allegations have been huge and will just grow for us, we're glad we are able to stand our ground and not be forced into settlement the way others firms have. Plus, it will be nice to be in the neutral venue of a courtroom instead of this Orwellian organization that has trapped us the last 5 years," added Gates.
Richmond? FERC says it selected Richmond because:
Venue is also governed by FPA section 317, 16 U.S.C. § 825p, which provides that “[a]ny suit or action to enforce any liability or duty created by . . . this Act, or any rule, regulation, or order thereunder may be brought in [the district wherein any act or transaction constituting the violation occurred] or in the district wherein the defendant is an inhabitant.”
And the trades occurred in PJM. And Powhatan's "principal place of business" is in Henrico, Virginia. Of course FERC probably knows that the Gates brothers actually live in Pennsylvania and Chen in Texas.
Oh, there it is!
Respondents’ unlawful scheme resulted in
the misdirection and capture of over $10 million in PJM market payments, including
approximately $1,147,087 that would otherwise have flowed to Dominion Virginia Power and inured to the benefit of Dominion and its ratepayers, including ratepayers in this District.
So, FERC wants this case heard before jurors who might believe they were personally cheated out of more than a million bucks? I do hope they fully explain their use of "to the benefit of Dominion and its ratepayers" to show how much would have ended up in Dominion's pocket and how much would have ended up in Dominion's ratepayer pockets if not for the defendant's actions. Maybe FERC can also explain how much of the $34.5M in penalties and disgorgement will end up in Dominion's pocket and how Dominion will flow that recovery into the rates that will make the ratepayers on the jury whole (or not). And do tell where the rest of the money will go, FERC...
I will admit that I haven't read everything in this case, but FERC has yet to convince me that any actual ratepayers were damaged here. If Dominion had collected the MLSA payments instead of Powhatan and Chen, would they have directly reduced rates, or simply gone into Dominion's corporate coffers? Since FERC has yet to adequately explain, I'm leaning toward the latter option. Who is FERC really protecting here? Ratepayers or its pet incumbent utilities?
Gates seems to agree, "By filing the lawsuit, FERC has shown the world it continues not to support open and competitive power markets. Instead, FERC favors incumbent utilities that function without incentives to do better. Indeed, earlier this year the WSJ* described how utilities get profits by just spending more. While we believe in the societal benefits of competition, and know the law allows for it in these markets, it makes sense utilities may not want any."
Is FERC confused about who it serves? Is this case supposed to hinge on a jury's failure to understand it and instead be swept away by platitudes and grandstanding from FERC's sextet of lawyers? FERC used the word "Enron" something more than 30 times in its District Court Petition. Maybe the defense can use the word "McCarthyism" an equal number of times just to keep things fair? I suppose the jury's view of these two competing terms is going to depend on its average age.
And the quality of the public relations battle deployed.
*If you don't subscribe to WSJ and can't read this article via the link, type the phrase "Utilities’ Profit Recipe: Spend More" into Google and click through on that link. No, we're not advising that you engage in newspaper subscription link manipulation, through a scheme to engage in fraudulent Headline Googling (HG) transactions in internet search engine markets to garner excessive amounts of certain free reads of stories behind a paywall. I also recommend that you not engage in any views that constitute a wash viewing scheme in violation of the WSJ’s prohibition of that practice.
As if it's not bad enough that investor owned utility regional transmission organization cartels decide which of their members get to profit from building new transmission of questionable worth, now ITC thinks these cartels should take over transmission ratemaking from the Federal Energy Regulatory Commission.
In a Petition for Declaratory Order filed yesterday, ITC wants the Commission to rule:
1) that binding revenue requirement bids selected as the result of Commission-approved, Order No. 1000-compliant, and demonstrably competitive transmission project selection processes will be deemed just and reasonable when filed at the Commission as a stated rate pursuant to Federal Power Act (“FPA”) Section 205; and 2) that such binding bids are entitled to protection under the Mobile-Sierra standard, and may not subsequently be changed by means of a complaint filed under FPA Section 206 unless required by the public interest.
FERC's Order No. 1000 was supposed to open the doors to competition in order to make transmission cost competitive. RTOs are now supposed to consider costs when deciding who gets to build a project. Some, like PJM, require bidders to submit a total project cost with their bid. It is not subject to accuracy checks, so a company can submit a low bid to win the project, and then recover cost overruns. This makes the cost bid worthless. Other RTOs, such as MISO and SPP, require the bidder to submit yearly revenue requirements for the life of the project (40 years). Unlike a "total project cost" estimate of a project's total capital investment, a revenue requirement also includes the utility's return, Operations and Maintenance costs, taxes, and other costs to more accurately represent a ratepayer's actual cost. Of course, these revenue requirements are just estimates, actual rates may differ.
On top of that, competition has inspired transmission companies to offer not to exceed "cost caps," where a transmission company eats any overages. This serves to make cost bids more accurate and encourages the company to actually perform, instead of its usual apathy to cost concerns because the company is simply passing its costs into rates that someone else pays.
Good idea, right? Except when a cost cap and company performance actually makes the project come in under budget, ratepayers can reap the benefits of even lower rates. ITC wants that to stop. It wants to recover the full amount of its cost cap, even if it spends less. How rickety will transmission become once corporate greed and shareholder returns enter the picture? How many equipment cost and construction practice corners will be cut to decrease costs and increase profits?
Here's a better idea: Dangle a fixed reward of a percentage of cost underruns for the economical company when a project is successfully constructed, instead of encouraging them to adopt a culture of greed by proposing an endless cycle of cost cutting to increase profits. ITC's proposal is crap.
First of all, RTOs don't know diddly doo about rates and ratemaking and care even less. RTOs are NOT regulators in the public interest. They operate in the interest of their investor owned members. There is no real public involvement in any of their decisions, and more importantly, no due process for ratepayers to participate in examination of the rates proposed in the cost cap "revenue requirements" that ITC wants to lock in at the RTO level.
There's a whole lot that goes into ratemaking aside from known costs, such as the company's rate of return. How is an RTO supposed to decide that? In addition, only the Commission has jurisdiction over transmission rate incentives that can increase return. Does ITC propose that the RTO take over this process in order to set the return at a "competitive" rate decided through the bidding process? And what about incentives that don't have anything to do with rates, such as guaranteed recovery in the case of abandonment? Would those still be the domain of the Commission, or shall they delegate those to RTOs as well?
Message unclear. Ask again later.
Having the utility design its own rates in a "competitive" manner would do nothing but encourage collusion that results in rates that are not just and reasonable. No rate should ever be bullet proof.
Well, isn't that cute? FirstEnergy has mated with itself and given birth to MAIT, Mid-Atlantic Interstate Transmission, LLC. Who thinks up these stupid names? This one rolls off the tongue with as much excitement and pleasure as the phrase "hand over your wallet and nobody gets hurt," or perhaps the descriptive "hot turd."
So, FirstEnergy needs to create another "independent" transco in order to energize its balance sheet by creating the world's sweetest investment account that will pay lucrative double-digit returns for many decades to come? Well, that's good for everyone, right? No, it's not.
FirstEnergy proposes that its "eastern" retail distribution companies "sell" their transmission assets to the newly formed "MAIT" in exchange for a backseat interest in the company and annual "lease" payments for right-of-way and other real estate interests that the retail companies will continue to own (along with the tax liability). Will the "lease payments" be enough to cover all the liabilities of owning the real estate? Or will the retail distribution customers end up financing a portion of that to make the "lease" cheaper for MAIT? Who's going to be supervising that to make sure it's an arm's length transaction?
FirstEnergy says they need to do this because it is consistent with the public interest. You know, you "public" are supposed to benefit from it. So, what are the benefits?
MAIT will not result in cross-subsidization of a non-utility associate company or the pledge or encumbrance of utility assets for the benefit of an associate company.
It supposedly won't have an adverse impact on competition, rates, or regulation.
FirstEnergy commits to hold customers harmless from transaction costs. (oh, like they did in the FirstEnergy/Allegheny Energy merger?)
So, "the public" won't be harmed? Even if we believe that, it's not a "benefit." It's "do no harm."
But, wait, there's more!!
MAIT results in the creation of a stand-alone transmission company, which provides a number of
benefits to customers and the PJM region!
Tell us more, Rod Roddy....
FirstEnergy is in the midst of a major investment cycle in transmission infrastructure. In 2014, FirstEnergy commenced its EtF initiative, which is intended to identify the need for, and facilitate the investment in, improvements to the security, resiliency, efficiency, and operational flexibility of its transmission systems. EtF projects include building and re-conductoring transmission lines; building and enhancing substations; modernizing transmission
communication infrastructure; and installing dynamic reactive resources to regulate system
voltage. In all, FirstEnergy plans to invest approximately $2.5 to $3 billion in the FirstEnergy East Operating Companies’ service territories through this program over the next five to ten years.
FET formed MAIT in preparation for this significant planned investment. As Mr. Staub
explains in his testimony, utilities face significant challenges in their efforts to simultaneously meet the service requirements of retail customers while also making sustained investments in their transmission assets. A utility’s investment in transmission infrastructure competes with other business lines of the utility for capital, and transmission investments “can be deferred in favor of more immediate or emergency investments in distribution” facilities. The singleminded
focus as a transmission-only entity will enable MAIT to commit to addressing the significant investment needs of the transmission system.
This stand-alone structure also will allow MAIT to attract capital on more commercially reasonable terms. Mr. Staub explains that lenders view stand-alone transmission companies favorably due to their transparent and easy-to-assess risk profile. The Commission has also observed that stand-alone transmission companies typically enjoy an enhanced ability to respond to transmission needs and have a superior track record of investing in new infrastructure.
MAIT’s improved access to capital will increase the likelihood that the planned investments are carried out and completed in a timely fashion and at a lower cost. Moreover, MAIT will incur debt in its own name, without a parent guarantee. Any debt MAIT incurs to finance new transmission projects, therefore, will not affect the financial condition and credit ratings of the FirstEnergy East Operating Companies. Hence, the migration to a stand-alone transmission model not only better supports the sustained level of transmission investment needed at MAIT but also preserves and enhances the FirstEnergy East Operating Companies’ capacity to issue debt for their respective retail and distribution needs.
Oh bull...oney, FirstEnergy! You forgot to mention FERC's extra special .5% ROE adder for transmission only companies, or "transcos." And, hey, if MAIT joins PJM, you can get another .5%!! You also forgot to mention in that breath that you do plan to immediately make a section 205 filing to set up a formula rate for MAIT that provides a lot of financial goodies that you can't get through a stated rate. Are you also going to be applying for all the other FERC transmission incentives? I bet you are, you coy little company!
So the real benefits here are for FirstEnergy, not "the public." Since the public is not receiving a benefit, and if we believe FirstEnergy that this won't increase rates (and profits), then why in the hell would FirstEnergy want to do this and shell out the "transaction costs" it can't pass to ratepayers? Do you really expect us to believe there's nothing in it for Y-O-U, FirstEnergy? I mean, you guys are kind of stupid, but I didn't think you were complete idiots.
And I do believe you are attempting to remove a whole bunch of transmission from state regulatory oversight so that you can plow your "transmission spend" into making "investments" of questionable worth in your lower voltage transmission lines that aren't part of any PJM transmission plan.
So, does anyone care? Apparently not much. The only parties to intervene in this docket are competitor PSEG and FERC settlement gadflies AMP and ODEC.
Remember, these companies are regulated to protect you. Except there's nobody minding the store on your behalf.