The 2005 Energy Policy Act provided a lavish banquet for energy companies. In an effort to incentivize new "needed" transmission projects, all kinds of sweet guarantees were subsequently made available for the taking by transmission developers. Incentives made new transmission projects a "can't lose" proposition; moreover, it made proposal of new transmission projects a guaranteed profit center, whether the project is ever built or not. In addition to encouraging needed transmission development, these incentives have caused a stampede of unneeded transmission projects intent on riding the incentive gravytrain in pursuit of an easy profit.
One of the incentives offered was recovery of 100% of prudently-incurred costs in the event a project is abandoned, provided the abandonment is beyond the control of the transmission owner. Prior to this, the best a transmission developer could hope for was recovery of 50% of abandoned project costs, with the remaining 50% written off as a loss. The cost of abandoned projects is recovered from ratepayers, and this means YOU. FERC awarded both TrAILCo (and PATH) recovery of 100% of project costs in the event of abandonment. Abandonment of a project ends additional spending, disposes of capital assets and credits their sale to reduce project costs and sets the remaining balance to be recovered over what would have been the project's useful life it if had been put in service.
Remember the TrAILCo abandonment of the Prexy facilities that we've been following? On Friday, FERC issued an order in that case which assuredly made a whole bunch of people scratch their heads and reach for the Advil. FERC has decided that TrAILCo's Section 205 filing for recovery of abandoned plant is inappropriate and therefore rejected. FERC advises that the costs of the abandoned Prexy facilities result from siting and engineering changes and therefore are includable as capital costs in TrAILCo's ratebase (recovered through TrAILCo's yearly revenue requirement). The effect of this decision can be analogized like this: TrAILCo is shopping at 7-11 and hands the clerk a $10 bill to pay for their purchase; however the clerk mistakenly gives TrAILCo change for a $50.
As discussed before, the Prexy facilities consisted of a certain portion of 500kV line and substation, as well as several 138kV lines and substations. Because lines 500kV and above are recovered from all PJM ratepayers, and lines below 500kV are recovered from only those ratepayers receiving benefit (in this case all former Allegheny Power customers) , the Prexy facilities were separated from the TrAIL project for accounting purposes for different cost allocation methods. The Prexy facilities also had their own PJM project number. They probably never should have been included in the TrAIL project in the first place, but Allegheny and PJM said they were "needed" as part of the project. Turns out Prexy was NOT needed after all. After the PA-PUC denied TrAILCo's project application, a "settlement" was eventually arranged whereby the PA-PUC would approve just 1 mile of TrAIL in the state and the Prexy facilities would be abandoned. In the settlement, the "need" for Prexy was solved by other repairs and equipment changes (much like the Mt. Storm-Doubs rebuild obviated the "need" for PATH). Prexy was not built at all, it was not merely re-configured or re-routed. It was abandoned by TrAILCo and PJM because of PA-PUC's denial. FERC contends that Prexy was somehow merely "re-engineered" into not being built at all. How is changing something into nothing a "re-engineering?" Prexy was "re-engineered" into non-existence! A situation where a state application for a project is denied is what abandonment is for!
I never thought I'd say it, but TrAILCo actually did the right thing by abandoning Prexy. FERC either doesn't understand the situation, or they're just wacky. FERC also took numerous opportunities to slap TrAILCo upside the head for answering Exelon's comments, incorrectly filing for abandonment in PJM's name and then joining the case, and incorrectly filing for recovery of abandoned plant at all. TrAILCo had planned on filing their 2010 ATRR, with abandoned costs included, on Monday. FERC waited until Friday to tell them that they had done everything wrong and should have included the Prexy costs in their existing formula rate years ago. The accountant in me cringes, but the PATH opponent in me is laughing like mad! :-) It couldn't have happened to a nicer bunch of...
However, FERC's decision has now prevented the intervenors in this case from challenging either the prudence of the abandoned expenses or TrAILCo's fault in the abandonment. One could certainly argue that TrAILCo had fault in the abandonment -- anything from including a project that wasn't really needed in the first place to the weight of TrAILCo's outrageous mistreatment of affected landowners in the PA-PUC's denial, this case is certainly ripe for challenges. Instead, FERC has instructed TrAILCo to recover the cost of their abandoned project through TrAILCo's ratebase and collect a 12% return on their investment for the life of the TrAIL project.
FERC has just incentivized incompetence! Will the intervenors speak up and tell FERC they've made a mistake? And, going back to my earlier analogy, will TrAILCo tell the 7-11 clerk that they've been given too much change? Or will they simply pocket the money they haven't earned and slink out of the store with a smirk on their face?
This decision certainly isn't in line with FERC's mission to ensure electric rates are just and reasonable, when TrAILCo's parent company's stockholders are profiting at ratepayer expense from TrAILCo's mistakes.
One of the incentives offered was recovery of 100% of prudently-incurred costs in the event a project is abandoned, provided the abandonment is beyond the control of the transmission owner. Prior to this, the best a transmission developer could hope for was recovery of 50% of abandoned project costs, with the remaining 50% written off as a loss. The cost of abandoned projects is recovered from ratepayers, and this means YOU. FERC awarded both TrAILCo (and PATH) recovery of 100% of project costs in the event of abandonment. Abandonment of a project ends additional spending, disposes of capital assets and credits their sale to reduce project costs and sets the remaining balance to be recovered over what would have been the project's useful life it if had been put in service.
Remember the TrAILCo abandonment of the Prexy facilities that we've been following? On Friday, FERC issued an order in that case which assuredly made a whole bunch of people scratch their heads and reach for the Advil. FERC has decided that TrAILCo's Section 205 filing for recovery of abandoned plant is inappropriate and therefore rejected. FERC advises that the costs of the abandoned Prexy facilities result from siting and engineering changes and therefore are includable as capital costs in TrAILCo's ratebase (recovered through TrAILCo's yearly revenue requirement). The effect of this decision can be analogized like this: TrAILCo is shopping at 7-11 and hands the clerk a $10 bill to pay for their purchase; however the clerk mistakenly gives TrAILCo change for a $50.
As discussed before, the Prexy facilities consisted of a certain portion of 500kV line and substation, as well as several 138kV lines and substations. Because lines 500kV and above are recovered from all PJM ratepayers, and lines below 500kV are recovered from only those ratepayers receiving benefit (in this case all former Allegheny Power customers) , the Prexy facilities were separated from the TrAIL project for accounting purposes for different cost allocation methods. The Prexy facilities also had their own PJM project number. They probably never should have been included in the TrAIL project in the first place, but Allegheny and PJM said they were "needed" as part of the project. Turns out Prexy was NOT needed after all. After the PA-PUC denied TrAILCo's project application, a "settlement" was eventually arranged whereby the PA-PUC would approve just 1 mile of TrAIL in the state and the Prexy facilities would be abandoned. In the settlement, the "need" for Prexy was solved by other repairs and equipment changes (much like the Mt. Storm-Doubs rebuild obviated the "need" for PATH). Prexy was not built at all, it was not merely re-configured or re-routed. It was abandoned by TrAILCo and PJM because of PA-PUC's denial. FERC contends that Prexy was somehow merely "re-engineered" into not being built at all. How is changing something into nothing a "re-engineering?" Prexy was "re-engineered" into non-existence! A situation where a state application for a project is denied is what abandonment is for!
I never thought I'd say it, but TrAILCo actually did the right thing by abandoning Prexy. FERC either doesn't understand the situation, or they're just wacky. FERC also took numerous opportunities to slap TrAILCo upside the head for answering Exelon's comments, incorrectly filing for abandonment in PJM's name and then joining the case, and incorrectly filing for recovery of abandoned plant at all. TrAILCo had planned on filing their 2010 ATRR, with abandoned costs included, on Monday. FERC waited until Friday to tell them that they had done everything wrong and should have included the Prexy costs in their existing formula rate years ago. The accountant in me cringes, but the PATH opponent in me is laughing like mad! :-) It couldn't have happened to a nicer bunch of...
However, FERC's decision has now prevented the intervenors in this case from challenging either the prudence of the abandoned expenses or TrAILCo's fault in the abandonment. One could certainly argue that TrAILCo had fault in the abandonment -- anything from including a project that wasn't really needed in the first place to the weight of TrAILCo's outrageous mistreatment of affected landowners in the PA-PUC's denial, this case is certainly ripe for challenges. Instead, FERC has instructed TrAILCo to recover the cost of their abandoned project through TrAILCo's ratebase and collect a 12% return on their investment for the life of the TrAIL project.
FERC has just incentivized incompetence! Will the intervenors speak up and tell FERC they've made a mistake? And, going back to my earlier analogy, will TrAILCo tell the 7-11 clerk that they've been given too much change? Or will they simply pocket the money they haven't earned and slink out of the store with a smirk on their face?
This decision certainly isn't in line with FERC's mission to ensure electric rates are just and reasonable, when TrAILCo's parent company's stockholders are profiting at ratepayer expense from TrAILCo's mistakes.
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