Well, here we go again... a transmission company has made an announcement that it will be building 40 miles of new greenfield transmission, but the folks in the bullseye have no idea it's about to happen. Somehow Transource's press release failed to percolate down to the local media in affected areas. The local community has not been consulted, but will have this fait accompli dumped on them during a series of "open house" dog & pony shows next week. See maps of proposed transmission routes at the bottom of this page. A "greenfield" transmission project is one built across land that currently does not have transmission lines. Current routes run from Smithsburg, Maryland to a substation east of Letterkenny in Pennsylvania, and from Harford County, MD to York County, PA.
The inaptly named "Independence Energy Connection" pretends it's "critically" needed to "provide millions of customers throughout the Mid-Atlantic access to more affordable power". This project has been percolating at PJM Interconnection for more than a year, but conveniently waited to get its financial house in order before engaging the community.
How did they get their financial house in order? They developed the mechanism to get paid for developing it, even if it's never built. That's right... Transource has received a federal transmission incentive that allows the company to recover every dollar it spends on this project from electric ratepayers in 13 states, even if it is later abandoned and never built. It also established its rate mechanism, a formula rate, and received other transmission incentives from the Federal Energy Regulatory Commission, including a 50 point increase in its return on equity for being a member of the PJM cartel. FERC said this project was worthy of so many financial incentives because it was so risky (see paragraphs 21-26).
The inaptly named "Independence Energy Connection" pretends it's "critically" needed to "provide millions of customers throughout the Mid-Atlantic access to more affordable power". This project has been percolating at PJM Interconnection for more than a year, but conveniently waited to get its financial house in order before engaging the community.
How did they get their financial house in order? They developed the mechanism to get paid for developing it, even if it's never built. That's right... Transource has received a federal transmission incentive that allows the company to recover every dollar it spends on this project from electric ratepayers in 13 states, even if it is later abandoned and never built. It also established its rate mechanism, a formula rate, and received other transmission incentives from the Federal Energy Regulatory Commission, including a 50 point increase in its return on equity for being a member of the PJM cartel. FERC said this project was worthy of so many financial incentives because it was so risky (see paragraphs 21-26).
Transource states that it meets the nexus test because its requested incentives are narrowly tailored to the significant risks and challenges the Project presents. Transource states that it will face considerable risks and challenges in developing and constructing the Project, such as: (1) financial challenges; (2) regulatory and site control challenges; and (3) risks related to the Designated Entity Agreement (DEA) with PJM.
Moreover, Transource states that it will need to work with individual landowners to acquire the necessary land and easements to construct the 42-mile combined route of the two new 230 kV lines. Transource notes that the required easements are expected to cross approximately 300 parcels, including state game lands owned by the Pennsylvania Game Commission. In addition, Transource does not expect that it will be able to use any existing rights of way (ROW). Transource states that Transource Maryland cannot obtain electric utility status under applicable Maryland law, because it does not serve retail customers and thus will not have the authority to use eminent domain to acquire ROW along the approved route. Transource states that this lack of eminent domain authority presents significant additional risk to the Project development schedule.
Furthermore, Transource states that there is a risk for economic projects such as this because PJM could later find, based on changing conditions, that the Project is no longer needed to relieve congestion. Transource states that this risk is compounded by the long development lead time for the Project.
Other risk factors include the fact that this is the company's first transmission project and it currently has no revenue, that it has to receive numerous permits from federal and state offices, including two state utility commissions, and that its agreement to construct the project with PJM requires it to meet a development schedule with mandatory dated milestones or risk termination.
And still, this company has not even contemplated the public's reaction to its project or the likelihood that serious opposition will develop in affected communities? Transource doesn't really think it's going to get this project built, does it? Maybe it's just financially satisfying enough to spend buckets of development cash that can be recovered without ever putting a shovel to the ground? When all the financial risk of a transmission project becomes the risk of electric ratepayers, it's all gravy!
Transource has requested that it receive a 10.4% base return on equity for its project, and a 60% equity hypothetical capital structure until the project goes into service. The 50 additional bonus points would be added to that base, to create a 10.9% yearly return on 60% of its capital costs. The remaining 40% would earn at the cost of debt. With a total project cost of $197M, that's a lot of gravy for the company's investment. And where is a new company with no assets and no revenue going to get 60% of $197M to invest in this project? From its parent companies, that's where. Transource is a partnership between utility holding company giant American Electric Power and Great Plains Energy. Neither of these two companies are local, nor do they provide service to, Maryland or Pennsylvania. Of course, that probably also means they don't have any influence with state and local authorities who must approve their project, so cue the expensive lobbyists and gladhanders.
I certainly hope Transource isn't counting on PJM's "approval" of this project as their golden ticket to getting this thing permitted and built. Without eminent domain authority in Maryland, Transource is at the complete mercy of the community it's about to invade. This just can't end well for Transource. Lots of schmoozing must happen and lots of money is going to have to change hands... and maybe all those costs aren't recoverable from ratepayers.
Keep your eyes on this, it's going to be a scary ride!
And still, this company has not even contemplated the public's reaction to its project or the likelihood that serious opposition will develop in affected communities? Transource doesn't really think it's going to get this project built, does it? Maybe it's just financially satisfying enough to spend buckets of development cash that can be recovered without ever putting a shovel to the ground? When all the financial risk of a transmission project becomes the risk of electric ratepayers, it's all gravy!
Transource has requested that it receive a 10.4% base return on equity for its project, and a 60% equity hypothetical capital structure until the project goes into service. The 50 additional bonus points would be added to that base, to create a 10.9% yearly return on 60% of its capital costs. The remaining 40% would earn at the cost of debt. With a total project cost of $197M, that's a lot of gravy for the company's investment. And where is a new company with no assets and no revenue going to get 60% of $197M to invest in this project? From its parent companies, that's where. Transource is a partnership between utility holding company giant American Electric Power and Great Plains Energy. Neither of these two companies are local, nor do they provide service to, Maryland or Pennsylvania. Of course, that probably also means they don't have any influence with state and local authorities who must approve their project, so cue the expensive lobbyists and gladhanders.
I certainly hope Transource isn't counting on PJM's "approval" of this project as their golden ticket to getting this thing permitted and built. Without eminent domain authority in Maryland, Transource is at the complete mercy of the community it's about to invade. This just can't end well for Transource. Lots of schmoozing must happen and lots of money is going to have to change hands... and maybe all those costs aren't recoverable from ratepayers.
Keep your eyes on this, it's going to be a scary ride!
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