Seven years ago, in the midst of contemplating policy to encourage investment in the nation's transmission grid, FERC held a series of technical conferences to hear new ideas and opinions. One such conference, held in Charleston, WV on Friday, May 13, 2005, was entitled, "Promoting Regional Transmission Planning and Expansion to Facilitate Fuel Diversity Including Expanded Uses of Coal-Fired Resources." One might question exactly what kind of "fuel diversity" was being facilitated by expanding the use of coal-fired resources in 2005, since over 56% of generation in PJM came from coal during the previous year. However, Joe Manchin, Peabody Coal and American Electric Power were involved in the conference, so don't waste too much time thinking about it.
A transcript of this technical conference is available here. It's long, but definitely not boring. There are plenty of arrogant little nuggets spread throughout, documenting political, corporate and regulatory humor about how they were getting things "taken care of" without notice by the electric consumers who would pay for it all. (Hint: search the document for the word "laughter" to find the bulk of their little jokes at your expense.)
During this conference, PJM Western Region President Karl Pfirrmann unveiled his plan outlining "the potential for new transmission resources in the region to enhance opportunities for coal based generation to reach eastern markets." He called this plan "Project Mountaineer."
Project Mountaineer envisioned two or more new transmission "backbone" projects to "enhance [coal-fired] power flows by up to 5,000 MW."
Project Mountaineer's "transmission enhancements included potentially 550 to 900 miles of new backbone 500 or 765 kv transmission at an approximate cost of $3.3 to $3.9 billion. Although a large number, if such costs are spread to all customers within the PJM footprint, the cost to a typical retail customer would amount to only one mill/kwh."
Pfirrman envisioned that PJM's Regional Transmission Expansion Plan could be utilized as a "vehicle" to create a smokescreen to advance these purely economic projects under the guise of reliability. In the words of AEP's Mike Morris, "...it lends credibility to what you're trying to do." This resulted in power company propaganda telling electric consumers they would be subject to "brownouts and blackouts" unless Project Mountaineer was built.
In response to the profitable opportunities presented by Project Mountaineer, some of PJM's biggest investor owned utilities began proposing transmission projects that fit into the Project Mountaineer scheme, such as Allegheny Energy's "TrAIL" Project and AEP's I-765 Project.
Four projects that fit PJM's Project Mountaineer criteria were eventually selected as part of PJM's RTEP and "ordered" to be built. They are:
1. Allegheny Energy's modified TrAIL Project, a 500 kV line, 215 miles long, beginning in Southwestern Pennsylvania and ending in Northern Virginia. Dominion Resources was "ordered" to build a second, smaller segment of this project in their territory in Virginia. Estimated cost for this project was $960M. The sponsors of this project claimed it would relieve some portion of "congestion," which was purportedly costing PJM electric consumers $1.6B yearly in 2006. Allegheny Energy's portion of the project was awarded a return on equity of 12.7% by FERC. This project originally included additional project miles in Pennsylvania that were abandoned after the Pennsylvania PUC denied their application. TrAIL was ramrodded through approvals and built in 5 years, although purchasing approval in West Virginia resulted in millions of dollars worth of "concessions."
2. Allegheny Energy and American Electric Power's PATH Project, a combination of parts of both original TrAIL and I-765 projects. The companies formed a joint venture and were awarded an astounding 14.3% return on equity for their investment in the project by FERC. The 765 kV project was 275 miles in length, stretching from southern West Virginia, across Northern Virginia and ending in Mt. Airy, Maryland, and was estimated to cost $2.1B. PATH was supposed to save consumers $47M per year in "congestion" costs. PATH was shelved last year and is currently "held in abeyance" by PJM.
3. PSE&G and PPL's Susquehanna-Roseland Project. This 145 mile long, 500kV project, stretches from Salem Township, PA to Roseland, NJ, and is estimated to cost $1.25B. For its part of the project, PSE&G was granted a 12.93% return on equity by FERC. PPL is earning 11.68% ROE through their FERC formula rate. This project was originally proposed with additional segments in New Jersey that have since been tabled due to decreased demand for the project. This project is supposed to save consumers $200M per year in "congestion" costs. This project is still waiting for a permit from the National Park Service.
4. Pepco Holdings Inc.'s Mid-Atlantic Power Pathway (MAPP) was originally proposed as a 230 mile 500 kV project, stretching from a substation in Northern Virginia, across Maryland's Eastern Shore, through Delaware and ending in southern New Jersey. Small fragments of this project were also awarded to VEPCO, Baltimore Gas & Electric and PSE&G. The New Jersey and Delaware segments have since been tabled, again because of decreasing demand. The current project is 152 miles long and is estimated to cost $1.2B and has also been put "in abeyance" by PJM. MAPP earns a 12.8% return on equity for its owners and supposedly will alleviate $320M in annual "congestion" costs if built.
An attempt to add up the "benefits" for electric consumers in "congestion" cost savings provided by Project Mountaineer cannot be accomplished. All the different "congestion" savings claims made by these four projects is calculated differently, is at least 5 years out-of-date, and cannot be verified. In addition, it's not just a simple matter of adding the claimed savings because each project by itself changes the amount of remaining "congestion" and reduces possible additional savings by the other projects. The nature of "congestion" itself has also changed dramatically since these projections were made. Due to decreased demand projections, increased efficiency and demand response, and the TrAIL project going into service, the price differential between Western and Eastern PJM that formed the basis for these "congestion cost" claims has nearly levelized in PJM's 2011 RPM auction.
"In PJM's MAAC area the price of capacity will be $136.50 MW-day, a decrease of about $100 from last year. (The MAAC price applies to the transmission zones of Baltimore Gas and Electric Company, Metropolitan Edison Company, Pennsylvania Electric Company, and PPL Electric Utilities, Atlantic City Electric, Delmarva Power, Jersey Central Power and Light Company, PECO, Public Service Electric and Gas Company, and Rockland Electric Company.) The non-MAAC region, will pay the RTO price of $125.99, an increase of about $100. This region includes western Pennsylvania, western Maryland, Ohio, Indiana, Michigan, Kentucky and Virginia.
"The convergence of prices between the eastern and western regions of the market is primarily driven by the significant reduction in forecasted load growth through 2014/2015," Ott said.
According to PJM, congestion is now occurring at PJM's borders: "The trend of an increasing percentage of transmission congestion occurring on facilities at PJM‘s market borders is driven by 1) reduced west to east flows due to a relative increase in coal resource offer prices in the western part of the market and a relative reduction in gas-fired resource offer prices in the eastern part of the market, 2) increased wind resources impacting the western part of the market, and 3) the completion of the 500kV TrAIL Line." That's because Western PJM's generators are now trying to unload their unneeded product into other RTOs and can't get rid of it fast enough.
In addition, new gas-fired generation is being planned and built near load on the East Coast, further obviating any economic justification for more expensive coal-by-wire from Western PJM.
The savings are an illusion, but the costs to electric consumers are real. Let's add up the estimated project costs (although actual costs at completion will be much higher). $5,510,000,000 - that's $5.51 Billion.
Even this staggering figure is an mirage, however. It's going to cost electric consumers much, much more. $5.51B is the estimated total of project assets at completion. Electric consumers will pay these costs back to the power companies little by little over the projects' estimated 50 - 70 year lifespan. In addition to the annual, incremental pay off of the principal, electric consumers will also pay annual interest on the remaining balance at rates varying from 11.68 to 12.93 percent. Return is calculated and paid annually. Electric consumers are also responsible for yearly expenses such as income and other taxes, and operations and maintenance costs.
Let's take a look at how much the power companies have already spent on project assets:
1. TrAIL's rate base (assets) is $921,926,774.67. It currently earns them a return (interest) of $76,492,872 per year. TrAIL's annual revenue requirement (the amount you will pay per year) is $129,108,109, which includes the return. These figures do not include the cost of Dominion's segment of the TrAIL Project, so consider it a very conservative estimate.
2. PATH's combined current rate base is $139,771,892 and earns an annual return of $13,347,885. PATH's annual revenue requirement is $23,211,101, including return.
3. Susquehanna-Roseland's combined current rate base is $131,284,693 and earns a yearly return in the neighborhood of $17.5M. Revenue requirement is harder to calculate on this one because project totals are split between two different formula rates that also include other projects.
4. MAPP's current rate base is $74.2M, with a return in the neighborhood of $7.3M. Again, these are ballpark figures taken from a formula rate that also includes other projects. The small segments awarded to other partners amounting to around $70M aren't worth looking up, so consider these cost estimates as conservative.
Here are the eye-opening, conservative totals:
Project Mountaineer has already put you in debt to the tune of $1,267,183,359 - that's $1.26 Billion that is earning the project owners a yearly profit of $114.6M. In return for the substantial price paid by electric consumers in 13 states and the District of Columbia for Project Mountaineer, only one out of four projects is actually completed and delivering electricity, in order to save East Coast ratepayers some fanciful amount of "congestion" costs.
In addition, these four projects have affected, and continue to affect, thousands of directly impacted citizens in Virginia, West Virginia, Maryland, Delaware, Pennsylvania and New Jersey in other ways.
The TrAIL Project required new rights-of-way, which thousands of landowners were forced to sacrifice at "fair market value." In addition, it devalued thousands of properties in its proximity, for which damages were never paid. Allegheny Energy contractors destroyed the environment while building the project. A complaint about the environmental damage is still pending before the West Virginia PSC.
The Susquehanna-Roseland project has been "filibustered" by the federal Environmental Impact Statement and its owners are now offering a $40M "mitigation" concession to the National Park Service in exchange for a permit. The cost of any concessions will be added into the ultimate cost of the project that ratepayers must repay to the companies.
MAPP continues to contract for long-term supplies, such as the underwater cable needed to cross the Chesapeake Bay, that may never be needed!
In addition, Project Mountaineer has cost thousands of landowners and project opponents hundreds of thousands of dollars in legal costs to intervene in state permit cases in order to protect their interests. National non-profit organizations, such as The Sierra Club and EarthJustice and Virginia's Piedmont Environmental Council, have also spent heavily on legal costs to participate in permit cases in 6 different states. And then there's the day-to-day costs of grassroots citizens' opposition groups that have formed to oppose the four Project Mountaineer transmission lines. Although the cost of grassroots public relations campaigns are an incredible bargain when compared to the ratepayer funded PR campaigns of project owners, they still rely on donations from affected and sympathetic citizens.
I'd be remiss if I didn't mention the indeterminable societal costs imposed on millions of people who are affected by the increased pollution and destruction of their environment caused by increased mining and burning of coal.
Project Mountaineer is an embarrassing faux pas on the part of both PJM and FERC that should now be retired to the annals of history, along with other politically gauche misconceptions spawned by corporate greed. The sheer cost of it alone, at a time when electric consumers can least afford it, is not sufficiently offset by any illusory "benefits." It's time to cancel the remaining three Project Mountaineer transmission lines and move forward with new, smart energy policy.
A transcript of this technical conference is available here. It's long, but definitely not boring. There are plenty of arrogant little nuggets spread throughout, documenting political, corporate and regulatory humor about how they were getting things "taken care of" without notice by the electric consumers who would pay for it all. (Hint: search the document for the word "laughter" to find the bulk of their little jokes at your expense.)
During this conference, PJM Western Region President Karl Pfirrmann unveiled his plan outlining "the potential for new transmission resources in the region to enhance opportunities for coal based generation to reach eastern markets." He called this plan "Project Mountaineer."
Project Mountaineer envisioned two or more new transmission "backbone" projects to "enhance [coal-fired] power flows by up to 5,000 MW."
Project Mountaineer's "transmission enhancements included potentially 550 to 900 miles of new backbone 500 or 765 kv transmission at an approximate cost of $3.3 to $3.9 billion. Although a large number, if such costs are spread to all customers within the PJM footprint, the cost to a typical retail customer would amount to only one mill/kwh."
Pfirrman envisioned that PJM's Regional Transmission Expansion Plan could be utilized as a "vehicle" to create a smokescreen to advance these purely economic projects under the guise of reliability. In the words of AEP's Mike Morris, "...it lends credibility to what you're trying to do." This resulted in power company propaganda telling electric consumers they would be subject to "brownouts and blackouts" unless Project Mountaineer was built.
In response to the profitable opportunities presented by Project Mountaineer, some of PJM's biggest investor owned utilities began proposing transmission projects that fit into the Project Mountaineer scheme, such as Allegheny Energy's "TrAIL" Project and AEP's I-765 Project.
Four projects that fit PJM's Project Mountaineer criteria were eventually selected as part of PJM's RTEP and "ordered" to be built. They are:
1. Allegheny Energy's modified TrAIL Project, a 500 kV line, 215 miles long, beginning in Southwestern Pennsylvania and ending in Northern Virginia. Dominion Resources was "ordered" to build a second, smaller segment of this project in their territory in Virginia. Estimated cost for this project was $960M. The sponsors of this project claimed it would relieve some portion of "congestion," which was purportedly costing PJM electric consumers $1.6B yearly in 2006. Allegheny Energy's portion of the project was awarded a return on equity of 12.7% by FERC. This project originally included additional project miles in Pennsylvania that were abandoned after the Pennsylvania PUC denied their application. TrAIL was ramrodded through approvals and built in 5 years, although purchasing approval in West Virginia resulted in millions of dollars worth of "concessions."
2. Allegheny Energy and American Electric Power's PATH Project, a combination of parts of both original TrAIL and I-765 projects. The companies formed a joint venture and were awarded an astounding 14.3% return on equity for their investment in the project by FERC. The 765 kV project was 275 miles in length, stretching from southern West Virginia, across Northern Virginia and ending in Mt. Airy, Maryland, and was estimated to cost $2.1B. PATH was supposed to save consumers $47M per year in "congestion" costs. PATH was shelved last year and is currently "held in abeyance" by PJM.
3. PSE&G and PPL's Susquehanna-Roseland Project. This 145 mile long, 500kV project, stretches from Salem Township, PA to Roseland, NJ, and is estimated to cost $1.25B. For its part of the project, PSE&G was granted a 12.93% return on equity by FERC. PPL is earning 11.68% ROE through their FERC formula rate. This project was originally proposed with additional segments in New Jersey that have since been tabled due to decreased demand for the project. This project is supposed to save consumers $200M per year in "congestion" costs. This project is still waiting for a permit from the National Park Service.
4. Pepco Holdings Inc.'s Mid-Atlantic Power Pathway (MAPP) was originally proposed as a 230 mile 500 kV project, stretching from a substation in Northern Virginia, across Maryland's Eastern Shore, through Delaware and ending in southern New Jersey. Small fragments of this project were also awarded to VEPCO, Baltimore Gas & Electric and PSE&G. The New Jersey and Delaware segments have since been tabled, again because of decreasing demand. The current project is 152 miles long and is estimated to cost $1.2B and has also been put "in abeyance" by PJM. MAPP earns a 12.8% return on equity for its owners and supposedly will alleviate $320M in annual "congestion" costs if built.
An attempt to add up the "benefits" for electric consumers in "congestion" cost savings provided by Project Mountaineer cannot be accomplished. All the different "congestion" savings claims made by these four projects is calculated differently, is at least 5 years out-of-date, and cannot be verified. In addition, it's not just a simple matter of adding the claimed savings because each project by itself changes the amount of remaining "congestion" and reduces possible additional savings by the other projects. The nature of "congestion" itself has also changed dramatically since these projections were made. Due to decreased demand projections, increased efficiency and demand response, and the TrAIL project going into service, the price differential between Western and Eastern PJM that formed the basis for these "congestion cost" claims has nearly levelized in PJM's 2011 RPM auction.
"In PJM's MAAC area the price of capacity will be $136.50 MW-day, a decrease of about $100 from last year. (The MAAC price applies to the transmission zones of Baltimore Gas and Electric Company, Metropolitan Edison Company, Pennsylvania Electric Company, and PPL Electric Utilities, Atlantic City Electric, Delmarva Power, Jersey Central Power and Light Company, PECO, Public Service Electric and Gas Company, and Rockland Electric Company.) The non-MAAC region, will pay the RTO price of $125.99, an increase of about $100. This region includes western Pennsylvania, western Maryland, Ohio, Indiana, Michigan, Kentucky and Virginia.
"The convergence of prices between the eastern and western regions of the market is primarily driven by the significant reduction in forecasted load growth through 2014/2015," Ott said.
According to PJM, congestion is now occurring at PJM's borders: "The trend of an increasing percentage of transmission congestion occurring on facilities at PJM‘s market borders is driven by 1) reduced west to east flows due to a relative increase in coal resource offer prices in the western part of the market and a relative reduction in gas-fired resource offer prices in the eastern part of the market, 2) increased wind resources impacting the western part of the market, and 3) the completion of the 500kV TrAIL Line." That's because Western PJM's generators are now trying to unload their unneeded product into other RTOs and can't get rid of it fast enough.
In addition, new gas-fired generation is being planned and built near load on the East Coast, further obviating any economic justification for more expensive coal-by-wire from Western PJM.
The savings are an illusion, but the costs to electric consumers are real. Let's add up the estimated project costs (although actual costs at completion will be much higher). $5,510,000,000 - that's $5.51 Billion.
Even this staggering figure is an mirage, however. It's going to cost electric consumers much, much more. $5.51B is the estimated total of project assets at completion. Electric consumers will pay these costs back to the power companies little by little over the projects' estimated 50 - 70 year lifespan. In addition to the annual, incremental pay off of the principal, electric consumers will also pay annual interest on the remaining balance at rates varying from 11.68 to 12.93 percent. Return is calculated and paid annually. Electric consumers are also responsible for yearly expenses such as income and other taxes, and operations and maintenance costs.
Let's take a look at how much the power companies have already spent on project assets:
1. TrAIL's rate base (assets) is $921,926,774.67. It currently earns them a return (interest) of $76,492,872 per year. TrAIL's annual revenue requirement (the amount you will pay per year) is $129,108,109, which includes the return. These figures do not include the cost of Dominion's segment of the TrAIL Project, so consider it a very conservative estimate.
2. PATH's combined current rate base is $139,771,892 and earns an annual return of $13,347,885. PATH's annual revenue requirement is $23,211,101, including return.
3. Susquehanna-Roseland's combined current rate base is $131,284,693 and earns a yearly return in the neighborhood of $17.5M. Revenue requirement is harder to calculate on this one because project totals are split between two different formula rates that also include other projects.
4. MAPP's current rate base is $74.2M, with a return in the neighborhood of $7.3M. Again, these are ballpark figures taken from a formula rate that also includes other projects. The small segments awarded to other partners amounting to around $70M aren't worth looking up, so consider these cost estimates as conservative.
Here are the eye-opening, conservative totals:
Project Mountaineer has already put you in debt to the tune of $1,267,183,359 - that's $1.26 Billion that is earning the project owners a yearly profit of $114.6M. In return for the substantial price paid by electric consumers in 13 states and the District of Columbia for Project Mountaineer, only one out of four projects is actually completed and delivering electricity, in order to save East Coast ratepayers some fanciful amount of "congestion" costs.
In addition, these four projects have affected, and continue to affect, thousands of directly impacted citizens in Virginia, West Virginia, Maryland, Delaware, Pennsylvania and New Jersey in other ways.
The TrAIL Project required new rights-of-way, which thousands of landowners were forced to sacrifice at "fair market value." In addition, it devalued thousands of properties in its proximity, for which damages were never paid. Allegheny Energy contractors destroyed the environment while building the project. A complaint about the environmental damage is still pending before the West Virginia PSC.
The Susquehanna-Roseland project has been "filibustered" by the federal Environmental Impact Statement and its owners are now offering a $40M "mitigation" concession to the National Park Service in exchange for a permit. The cost of any concessions will be added into the ultimate cost of the project that ratepayers must repay to the companies.
MAPP continues to contract for long-term supplies, such as the underwater cable needed to cross the Chesapeake Bay, that may never be needed!
In addition, Project Mountaineer has cost thousands of landowners and project opponents hundreds of thousands of dollars in legal costs to intervene in state permit cases in order to protect their interests. National non-profit organizations, such as The Sierra Club and EarthJustice and Virginia's Piedmont Environmental Council, have also spent heavily on legal costs to participate in permit cases in 6 different states. And then there's the day-to-day costs of grassroots citizens' opposition groups that have formed to oppose the four Project Mountaineer transmission lines. Although the cost of grassroots public relations campaigns are an incredible bargain when compared to the ratepayer funded PR campaigns of project owners, they still rely on donations from affected and sympathetic citizens.
I'd be remiss if I didn't mention the indeterminable societal costs imposed on millions of people who are affected by the increased pollution and destruction of their environment caused by increased mining and burning of coal.
Project Mountaineer is an embarrassing faux pas on the part of both PJM and FERC that should now be retired to the annals of history, along with other politically gauche misconceptions spawned by corporate greed. The sheer cost of it alone, at a time when electric consumers can least afford it, is not sufficiently offset by any illusory "benefits." It's time to cancel the remaining three Project Mountaineer transmission lines and move forward with new, smart energy policy.
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