WIRES, the voice of the electric transmission industry, has been as busy as a nasty, venomous, little bee trying to preserve its members’ ability to harvest buckets of ratepayer cash building new transmission of dubious necessity.

On another prong of its diabolical pitchfork, WIRES takes on the problem of recent FERC return on equity complaints alleging that transmission ROEs based on market conditions prior to the big crash are set too high.  One such complaint was ruled on yesterday, when a FERC administrative law judge found that the 11.14% base ROE for New England transmission owners was unjust and unreasonable and recommended that it be reduced to 9.7%.  The ALJ found that FERC’s ROE “zone of reasonableness” determined by the prior DCF analyses was inappropriate because there has been so much economic change.

With that in mind, we can approach WIRES’ petition to FERC requesting that it revamp or replace its current DCF process for setting returns, deny any future rate of return complaints under sec. 206 of the FPA as long as the ROE still falls safely within the zone of reasonableness, and that the “benefits” of a transmission project be considered as a factor worthy of a higher ROE than would ordinarily be found to be just and reasonable.   

“Petitioner asks the Commission to explore methodological options that will reduce or eliminate the uncertainties and risks to investors and to customers and avoid potential reductions in investment in needed transmission facilities, higher costs, project delays, and disruption to infrastructure planning and growth.”

WIRES intends to provide electricity consumers with greater stability and predictability regarding regulated rates of return on equity (or “ROE”) for existing and future investments in high voltage electric transmission infrastructure.  Well, gee, thanks, WIRES, I know that dilemma keeps everyone up at night… NOT.  Are you sure you’ve really got the welfare of electricity consumers in mind?  Who designated you as our representative anyhow?  WIRES does NOT speak for electric consumers.

WIRES is simply stamping its gold-plated feet because the usurious ROEs it had gotten used to have come to an end.  Now they want FERC to shore things up for them, and do it in a big hurry and in a way that shuts the consumers who will end up paying for it all out of the process.  WIRES is frightened by all the recent section 206 complaints that are eating into transmission profit margins, and that’s because the complaints are well-founded.

Rah!  Rah!  Rah!  Who loves transmission?  Gimme a W, gimme an I, gimme an R, gimme an E, gimme an S… what does that spell?  An expensive, unneeded transmission line in everyone’s back yard!  Hooooooo-rayyyyyyyy!

WIRES says it’s all FERC’s fault for making the transmission biz just so gosh darn lucrative:

“…a major and substantial impetus for new investment was supplied by federal regulatory initiatives promoting regionally competitive power markets and transmission open access. It is no accident that modernization and expansion of the nation’s transmission system has coincided with implementation of the Energy Policy Act of 2005 and its directive to the Commission to provide “incentive-based rate treatments” for jurisdictional public utility transmission projects, including “a return on equity that attracts new investment in transmission facilities (including related transmission technologies).”

And therefore, it is FERC’s responsibility to continue to champion more transmission because transmission owners now depend on it as a profit center:

“Despite the continuing challenges to its planning and siting, transmission is the “critical link” between generation and customers, and its vitality is key to FERC’s bulk power market policy objectives. The industry’s principal game-changing developments of the last two decades -- open access and comparability requirements, regional wholesale power markets, accelerating network integration, the arrival of non-utility transmission investors as well as utility diversification into commercial transmission, deployment of digital monitoring and control technologies, and new forms of renewable energy -- depend significantly on the adequacy and efficiency of the grid. In recognition of that fact, transmission has emerged as a separate business and profit center, even for many incumbent transmission providers whose transmission investments were historically the by-product of service to native load.”

Well, someone has worked quite punctiliously on a strategy to dig in a foothold for  transmission at a time when the composition of future energy generation and delivery is enormously uncertain, haven’t they?  I don’t think this is a wise strategy for consumers, who may end up holding a gigantic bill for infrastructure that is not useful or economic.  Instead of rushing headlong into $300B of new transmission intended to support more centralized generation and foster larger and costlier deregulated electricity markets, we should first be tackling the question of necessity.  Even WIRES agrees with this point.

“Micro-grids, distributed generation, and energy storage technologies represent new and potentially important competition for investors’ resources.”

WIRES’ petition makes all sorts of spurious claims that all begin with a version of  “once upon a time”:

“WIRES believes there is a binding norm obtained through rulemaking that would do more to ensure consistency than a policy statement. However, the need to address this particular matter within a short period of time and the familiarity of Commission staff and industry parties with the issues argue for a short comment period, followed by a Statement of Policy. Such action would shed light on the Commission’s intentions going forward while preserving its flexibility in the face of changing facts and events.”

Translation:  "Let’s hurry up and get this done before someone notices!"

“Petitioner believes the investment community is, or will soon become, apprehensive about the prospect of declining transmission-related ROEs and other regulatory uncertainties.”

Translation:  “Wah!  You’re impeding our profits!”

“Petitioner believes that, even the most substantial increases in regulated transmission investment would rarely, if ever, result in transmission being more than one-fifth of retail rates regionally. Of course, the rate impact of regulated transmission investment on individual customers is reduced, perhaps dramatically, in relation to how broadly costs are shared. Moreover, adequate transmission enables more efficient use of generation resources; those savings will tend to offset, at least in part, any increases in transmission rates.”

Translation:  “Those pesky consumers won’t notice the disgustingly high profits we’re making if we can socialize the costs broadly enough.”  Again… who appointed WIRES to speak for consumers?

“Petitioner believes that the subjective judgments and evolving standards associated with application of DCF in litigated cases will significantly affect investor behavior and, if left to evolve solely through litigation, will add greater regulatory risk and uncertainty to the recognizable barriers that transmission development already faces.”

Translation:  “If FERC doesn’t put a stop to  ROE complaints, the investors are going to find other investments that pay higher returns, well, if they can find any that pay more than 12 – 14%, which they can’t.”

“In WIRES’ view, one key to sustaining transmission investment is rational application of the DCF methodology or such other methodologies as may appropriately fit the financial environment and Commission objectives.”

Translation:  “And only high ROEs are rational, so therefore, show us the money!”

“Petitioner contends that challenges to existing or proposed rates of return need not be resolved simply on the basis of a mechanical application of the DCF model. Regulation should maintain a reasonable relationship between a project’s (or group of projects’) long-term benefits, including those that planners and regulators expect and those that flow from evolving grid operations, and the costs customers pay for securing those benefits through new transmission facilities or upgrades.  Transmission benefits should therefore be part of any consideration of whether customers have been, or are likely to be, harmed by an existing allowed return.”

Translation:  “We’ll make up new “benefits” for consumers if you just let us keep robbing them!”

“We are not suggesting a performance-based regulatory regime, as that is necessarily beyond the scope of the brief generic reassessment that this Petition recommends.”

Translation:  “But let’s not be hasty here!  Even though Congress expressly ordered that transmission incentives be subject to performance standards, FERC has failed to hold us to any standards, and that’s the way we like it!”

FERC simply cannot continue to reward failure and poor planning with unjust and unreasonable rates.  If you’d like to read responses to this ridiculous and dangerous petition and/or follow this docket, you may find it here by searching for Docket No. RM13-18.

All this smoke and thunder signifies the wrath of a dying industry.  Change or die, fellas, the future is here!

The entities that stand to profit from building hundreds of billions of dollars worth of new high voltage electric transmission are at it again.  In the wake of FERC’s Order 1000 requiring cost allocation to be “at least roughly commensurate with estimated benefits,” and that those who receive no benefit shall not be allocated costs involuntarily, the industry has simply redefined the term “benefit” to suit their pecuniary purposes while toeing the line with FERC.  This is exactly what my Magic 8 Ball told me would happen, so we shouldn’t be surprised.

WIRES, which is a group of industry lobbyists and their sycophants, has bought a study prepared by The Brattle Group (proud industry whore since 1990) that supposedly identifies and analyzes a whole bunch of “new” benefits of building transmission that they feel will, when added to current planning evaluations, ensure that transmission wins every time!  *cha-ching $$$$* WIRES pretends that it is only concerned about the good of society.  Baloney.  It’s all about the money!

WIRES and their well-paid former FERC Commissioner counsel have submitted this study to FERC because, “It is our expectation that this new analysis will be helpful to the Commission and to parties filing in compliance with the regional and interregional planning provisions of Order No. 1000.  Although Order No. 1000 compliance involves numerous additional dockets, we believe the report should at least be part of the record in the overarching rulemaking proceeding so that parties are able to access and use its contents.” 

Right, let’s allow WIRES buy some new FERC policy with our money.  You know how I know this report is made-up crap?  Because it uses sources such as Clean Line Energy Partners’ self-serving analyses and other industry-commissioned “studies,” as well as clueless NYT blogger Matt Wald and other biased media sources.  Any trained monkey can compile a whole bunch of dubious sources to come to pre-determined conclusions.   Congratulations, Brattle Group!  I wonder how much they charged WIRES for something a 3rd grader could have accomplished?

So, how speculative are all these new “benefits” that transmission planners must consider in order to force unneeded transmission?

WIRES says, “An analysis that ignores or rejects benefits that are not measured with precision implicitly assumes that the value of such benefits is zero. This will systematically understate the overall value of transmission investments.  It will also, in turn, lead to the unintended consequence of rejecting valuable transmission projects that offer a broad set of long-term benefits with total values that exceed project costs.”

Or, perhaps there’s a reason these “benefits” have historically been given a value of zero in order to ensure that only cost-effective and needed transmission projects are actually built?

Here are the “benefits” that WIRES insists be calculated, no matter how specious they may be:

1. Production cost savings;
2. Reliability and resource adequacy benefits;
3. Generation capacity cost savings;
4. Market benefits, such as improved competition and market liquidity;
5. Environmental benefits;
6. Public policy benefits; employment and economic development benefits; and
7. Other project-specific benefits such as storm hardening, increased load serving capability, synergies with future transmission projects, increased fuel diversity and resource planning flexibility, increased wheeling revenues, increased transmission rights and customer congestion-hedging value, and HVDC operational benefits.

Production cost savings are one of the traditional ways transmission “benefits” are derived.  However, “As noted earlier, production cost savings only measure the reduction in variable production costs, including fuel, variable O&M costs, and emission costs.  This means that production cost savings, even if the simulations capture the additional factors discussed above, will not capture the benefits associated with reliability, capital costs, increased competition, certain environmental benefits and other public policy benefits, or economic development benefits. These benefits provide additional value to electricity customers and to the economy as a whole.”

WIRES would rather have us concentrate on those hard to quantify “economy-wide benefits” that can be concocted out of whole cloth and come in handy to tip the scales in favor of questionable projects.  In addition, WIRES recommends that regions bundle a whole bunch of such dubious projects into “project portfolios” (as MISO has done).  When “benefits” of many projects are combined into an impossible to separate mega-project for regional transmission organization approval, WIRES believes this sleight-of-hand spread of “benefits” among a wider pool of consumers makes cost allocation easier. 

“We also suggest aggregating beneficial transmission projects into larger portfolios of projects to simplify the necessary cost allocation analyses, reduce misperceptions that benefits appear to accrue only to a limited subset of market participants, and facilitate less contentious cost allocation processes.”

And although the report fails to mention it, this combination of many small projects, owned by many different entities, into one big mega-project also allows for convenient re-separation of each smaller segment in order to sail through state or local approvals while shepherded by incumbent utilities that have developed relationships with communities, legislators and regulators.

Here are a couple of spurious gems from the WIRES “report” that had me snorting with laughter.  Do they actually think that intelligent people will fall for this dreck?

“For example, transmission lines that allow for increased imports of lower-cost generation from a neighboring region can provide benefits to both regions: the importing region through a lower cost of delivered power [to consumers] and the exporting region through increased revenues to the exporting suppliers. The increased export revenue can also be a benefit to electricity customers in the exporting region if these additional revenues are used to offset the cost of regulated generation assets or if wheeling out the revenues paid by exporting merchant generators can be used to offset the exporting region’s transmission revenue requirements.”

That’s right… new transmission simply levelizes electricity prices between regions.  While the importing region gets the benefit of lower electricity prices, the exporting region gets the “benefit” of higher electricity prices PLUS a share of the cost of the transmission project that raised their electric rates.  What a bargain!  All benefits to an exporting region go right into the coffers of generation companies.  And here’s a perfect example from the report:

“The economy-wide benefit of the deferred generation investments was estimated at $320 million, about half of which was estimated to accrue to customers in Texas, with the other half of the benefit to accrue to merchant generators in Louisiana and Arkansas.” 

Building transmission to import renewables from coast-to-coast is not economic, and when given a choice between high-priced renewables or affordable "dirty power" utility bills, consumers overwhelmingly vote with their wallet.  In spite of also being motivated by its collective wallet, WIRES just doesn’t get it:

“In such cases, despite the fact that both transmission and retail electricity rates may increase, the transmission investment can reduce the overall cost of satisfying public policy goals.”

Sometimes, new transmission has unintended effects.  Perhaps our Pollyanna environmental warrior friends, who are backing transmission expansion that they optimistically believe will result in renewable energy super-highways, should take a lesson:

“Similarly, the CREZ projects in Texas have also provided new opportunities for fossil generation plants to be located away from densely populated load centers where it may be difficult to find suitable sites for new generation facilities, where environmental limitations prevent the development of new plants, or where developing such generation is significantly more costly.”

In addition, new transmission can perpetuate environmental and social injustice whereby the poor and politically under-represented continue to bear a disproportionate share of the burden to supply the needs of the rich and politically connected in their own or other regions.

WIRES tried to give their dubious “report” more credibility by having it peer reviewed.  Despite being able to choose its reviewers and having sole power to approve or disapprove the content of the review, WIRES still couldn’t prevent a little sanity from sneaking in at the end of the report.  The peer reviewers opined: 

“The electric power system is a complex, interconnected whole. While the interconnection may be argued to be the transmission system, the whole incorporates generation (both central and distributed), storage (again central and potentially distributed), distribution in all of its complexity, and the interaction with end users at all levels and at all levels of complexity in use and control.

It is difficult, if not impossible, to fully evaluate the benefits of transmission without reaching into the competing benefits of investments in other sub-systems of the power system. Technology is not standing still in terms of the transmission system or in terms of the other sub-systems of the power system. Two examples of changes whose impacts upon asset growth in transmission have yet to be quantified are:

• The impact of significant investment in distributed generation and potentially storage within the distribution system. These changes are being brought about by public policy decisions combined with a dramatic expansion in communications and controls allowing for the development of distributed energy systems that interact with the larger utility system

• The impact of sensing and control of the transmission system that allows for dynamic reconfiguration of the topology of the transmission system. Often referred
to as “line switching,” the benefits have been known by system operators for decades. It is only with increased monitoring, advances in analytic techniques, and computation speed that these concepts can be brought into the operational time frame.

Technological changes are adding points of pressure to the power system in general and specifically to the transmission sub-system as the interchange network that allows the system to remain balanced.”

While WIRES is trying to hurry along the filling of its members’ pockets, the electric utility industry is undergoing a sea change that’s going to make most of this new transmission obsolete before it becomes used and useful.  But these guys don’t care if a huge investment in unneeded transmission is left for their grandchildren to repay, as long as the money comes rolling in today.

If we’re going to make up a whole bunch of new transmission “benefits” that must be considered in any regional planning cost-benefit analysis, how about if we also now consider the true cost of building new transmission?  WIRES thinks that the true cost of building transmission is contained in the annual transmission revenue requirement of any particular project.  However, that does not consider the true costs to communities, individuals, landowners, ratepayers, or society as a whole.  But where are we going to get the money to hire an industry whore economist to make up a bunch of crap like WIRES did?  Oh, not to worry… the way transmission opposition is expanding lately, it’s only a matter of time before some transmission routing doofus uses his etch-a-sketch to draw a line through the backyard of an economist or two (or maybe that’s already happened, or maybe the opposition leadership is quite capable of preparing their own cost-effective analysis and report -- The Costs of Electric Transmission: Identifying and Analyzing the True Cost of Transmission!)  If you want to be part of our brain trust and help us identify the true cost of new transmission, just let me know!

A friend sent me a link to this article on Grist yesterday.  The five most important names in renewable energy that you’ve never heard of not only improperly ends a sentence with a preposition, but the author just plain, old makes crap up.  While waxing poetic kissing the rear ends of FERC Commissioners current and future, Bill White,  manager of the National Clean Energy Transmission Initiative for the Energy Future Coalition, contends that only Big Wind can save us:

This, of course, is incorrect, but still an arguable opinion (and it is, read the comments).  However, next Bill demonstrates his mastery of FERC finance:

What an idiot (and you will notice he gets called on his misunderstanding of ROE in the comments as well)!  ROE = Return on Equity = the percentage of yearly return (interest) investors earn on their equity (investment) in transmission projects.  It has nothing to do with how long it would take to recoup the costs of a project.  That's called depreciation, Bill.  The two have only a cursory connection in that depreciation pays back a portion of the investment every year, plus interest (ROE) on the outstanding balance.  The length of time it takes to recoup an investment is directly tied to its depreciable life.  Investments should be paid for during their used and useful life.  I'll do Bill a favor and stop there without even mentioning salvage value.

Now, don't you feel stupid, Bill?  You should.  You should also feel stupid about all those other brainless things you said in your Grist rant, like the fact that state regulators, who are complaining about FERC returns, are "misguided." What makes a financial genius like you qualified to judge the actions of professional regulators?

Yup, ol' Bill just doesn't know what he's talking about.  Crash and burn.

On July 3, the Federal Energy Regulatory Commission dismissed a complaint brought by Wisconsin-based citizen/consumer groups Citizens' Energy Task Force and Save Our Unique Lands against MISO, the Midwest Reliability Organization, and a long list of utilities.  You can read FERC's Order here.  The complaint alleged that a transmission line included in MISO's MTEP plan in 2008 violated reliability standards and would make the bulk electricity system unstable.

The Commission did not launch an investigation into the reliability of the MISO transmission system, and no testimony by an expert alleging reliability violations was submitted with the complaint.  Instead, FERC treated the complaint as an unsubstantiated allegation, upon which it is not required to act. 

FERC's dismissal was also based on the premise that the citizens are RTO/ISO stakeholders, and should have been participating in MISO's transmission planning process that approved the subject transmission line all the way back in 2008.  FERC gives great deference to the decisions of its regional transmission organizations.  If FERC started second guessing RTO/ISO decisions, it would be a never-ending spiral into micro-managing approval and siting of transmission projects, something FERC has no authority to do.

FERC's authority extends to ensuring that the regional transmission planning process is open and transparent. MISO (and other RTOs/ISOs) are complying with the spirit of FERC's Order No. 890 by theoretically making their planning process open to citizen participation.  If the citizens choose not to participate, they cannot complain about the process later.  Let's make an analogy here:  It's not okay to violate a law and then claim you were unaware of the law, so therefore you are innocent of breaking the law.

However, citizen "stakeholder" participation in the regional transmission planning process only works on paper (or in theory).  It doesn't translate to real life.  Regional transmission organizations are not consumer friendly.

An RTO/ISO is an association of manufacturers or suppliers (of electricity) with the purpose of maintaining prices at a high level and restricting competition in order to promote their own self-interest.  Coincidentally, this is also the defined construct of a cartel.  Only members of the regional planning cartels are permitted to vote on inclusion of transmission projects in the regional plan.  Consumers can never legally be members entitled to vote.  Consumer participation is limited to attempts to convince the voting membership to see things differently and in what may not be the company's financial best interests (which is the functional equivalent of screaming into a pillow).  A consumer can never be a stakeholder with footing equal to that of an investor owned utility with a planned for-profit transmission project.

Here's why the "stakeholder" premise does not work for consumers:

1.    Most consumers are unaware that regional transmission organizations exist.  The RTO/ISO does nothing to foster understanding or recruit the interest and participation of consumers.

2.    The regional planning process is highly technical and incomprehensible to nearly every consumer.

3.    The regional planning process is time consuming and getting more so every day.  As recently reported in the former PJM Insider, PJM is hav­ing trou­ble pro­vid­ing enough facil­i­ta­tors to run meet­ings on the prob­lem state­ments (because there are too many of them).  Consumers don't have the kind of time necessary to participate as a fully-engaged stakeholder.

4.    State agencies tasked with protecting residential consumers are too underfunded and understaffed to effect meaningful stakeholder participation (see #3 above).

Therefore, consumers are not, and can never be, equal stakeholders, except on paper in FERC orders.

What's the solution? 

PJM states have formed The Consumer Advocates of PJM States (CAPS) group and have been recruiting for someone to serve as a PJM monitor/participant on their behalf.  While this is a step in the right direction, it still doesn't solve problems 1, 2 and 3 above.  The same majority of consumers who don't know regional transmission organizations exist also don't know that state consumer advocates exist (which makes their jobs thankless, sort of like wetting your pants in a dark suit -- it gives you a warm feeling, but no one notices).  We'll have to wait to see if this approach is effective.

There is no designated or funded consumer advocate on a federal level.  While consumers have state advocates to participate on their behalf, there is no federal counterpart to help with the regional or federal workload.  Congress has flirted with setting up a consumer advocate at FERC, but nothing has ever been accomplished.

Must the townsfolk storm the regional planning castle in huge numbers?  They'll probably come fully decked out with torches and pitchforks... and stakes, they'll be holding stakes that they intend to pound through the heart of the transmission building cartel beast that taxes, frustrates and confounds them.

Round two of FERC's attempt to create a cost-socialized coast-to-coast electricity trading market has begun.  On May 28, a motley collection of strange bedfellows filed a petition for review of Order No. 1000 in the D.C. Circuit of the U.S. Court of Appeals.  To make it even more fun, a whole bunch of parties intervened in the matter, in support of either the petitioners or FERC, depending on where their interests lie.

The petitioners include publicly owned power providers and co-ops, investor owned utilities, states, an ISO, trade associations, and an informal "coalition" of utility interests.

Intervenors include ISOs, states, investor owned utilities, public power and co-ops, well-meaning but sadly misguided environmental groups, and trade associations.

Objections to Order 1000 have finally been boiled down to three basic arguments (although the briefs go on and on and throw in all sorts of supporting arguments).

1.    Whether FERC has the authority to mandate transmission planning and take other actions to force what it characterizes as “facilitating the development of more efficient and effective transmission expansion plans.”

2.    Whether FERC has the authority to order broad socialization of cost responsibility for the building of new transmission lines.

3.    Whether FERC can dispose of a utility's right of first refusal to build new transmission in its service territory.

Order 1000 concluded we need “transmission planning and cost allocation processes so that the transmission grid can better support wholesale power markets and thereby ensure that Commission-jurisdictional services are provided at rates, terms and conditions that are just and reasonable and not unduly discriminatory or
preferential.”

FERC got downright silly mincing words to create its authority to do what it did, and the briefs get into some really ridiculous debate of grammatical construction and the meanings of phrases and words.  There's also discussion that brings to mind the old "if it ain't broke, don't fix it" idiom.  According to petitioners, FERC did not have sufficient reason to "fix" transmission planning and cost allocation because it did not have a compelling reason to conclude that there was anything to "fix," nor that its "fix" would be an improvement.

In justifying its new "beneficiary pays" requirements to more broadly socialize the cost of transmission to ratepayers across multiple regions, FERC failed to define "benefit," which allows very loose interpretation of perceived "benefit" in exchange for cost responsibility.  FERC determined that it was preventing "free ridership," whereby some beneficiaries did not pay for new transmission.  The petitioners argument hinges on the fact that FERC cannot create cost responsibility between parties who do not have a contract for the service being provided.  In addition, FERC may only approve rates proposed by companies it regulates, or fix the same when they are unjust or unreasonable.  It cannot create and set rates on its own initiative.

That's all fine and good, however the REAL reason for broader cost socialization is to hide the true cost of this transmission building craze from the billions of electric consumers who will finance it.  The broader the cost is spread, the smaller the impact on each individual.  Who in West Virginia is going to notice a couple extra cents on their monthly electric bill for new transmission lines in Kansas?  However, if the cost is spread over a smaller pool of true "beneficiaries" closer to the actual transmission lines, it would cause greater monthly increases that would definitely be noticed and contested.  In this way, federal regulators, and the for-profit generators and transmission owners they serve, are tricking you into failing to notice the immense profits you are paying to these companies in exchange for building new transmission of questionable necessity.  It's not supposed to be about continued forced support of a dying, centralized energy paradigm, but about citizens' ability to consciously invest in smart, efficient and reliable energy systems of their own choosing.  Long-distance transmission lines will soon be as necessary as land line phones, however we may be stuck with the huge investment we were forced to make in them now for many years after they cease to be useful to us.

But wait... FERC wields the interstate commerce club that they have been quietly swinging behind their back for the past couple of years to trump any naysayers to Order 1000.  FERC possesses authority to regulate “the transmission of electric energy in interstate commerce” and “the sale of electric energy at wholesale in interstate commerce.”  However, Congress has repeatedly mandated that states retain the authority to permit transmission lines within their borders.  This state/federal conflict has been going on for years, and the interstate commerce club makes its first appearance in the 7th Circuit MISO MVP decision I wrote about earlier this week.  Will it be enough to club states into submission?

I still can't muster up the energy to care about the investor owned utilities excitement over losing their long standing right of first refusal ("ROFR"), and the arguments petitioners put forward are nothing short of humorous.  The IOUs purport that elimination of the ROFR "...would negatively affect reliability, impede planning, and substantially harm consumers."  The ROFR that was eliminated allowed utilities to have first dibs on any new transmission lines in their service territory that were determined to be needed by the regional planning authority.  In possessing this "right," the IOU was given the ability to determine the cost of the new transmission without competition.  I'm not sure how that ever protected the consumers who pay for transmission.  It didn't.  FERC's elimination of the ROFR now provides that once a need for a transmission upgrade is identified, anyone can submit a bid to build it.  Only through this kind of price competition will consumers be assured that needed transmission is built most cost-effectively.

One of the side-shows going on under the authority to mandate transmission planning category involves FERC's determination that "public policy" requirements be considered in regional planning.  "Public policy" requirements are individual state or local laws or goals requiring jurisdictions to obtain a certain percentage of their power from renewable resources.  In placing regional planners in the position of interpreting and fulfilling the laws of states or localities, FERC seriously oversteps its authority.  Only the jurisdiction that enacts a public policy requirement has authority to implement and enforce the requirement.  It is not up to FERC or regional planners to decide what a government may have meant by a certain requirement, or how the government will implement and meet it.  As well, the cost of regional mandates to build transmission that would satisfy individual "public policy" requirements cannot be socialized among residents of other localities whose laws don't require it, or conflict in some way with the "public policy" being satisfied with the new transmission.  But wait... here comes that interstate commerce sledgehammer again!  The 7th Circuit ruled that the Commerce Clause of the Constitution trumped state autonomy to reject fees mandated by another state's law over which it has no control.

If you're a geeky freak who enjoys pouring through lengthy legal briefs for occasional giggles, here are links to the ones filed at the D.C. Circuit:

1.    Statement of Facts Brief (contains general housekeeping stuff and the most basic summary of the issues you're going to find.  If you only read one, make it this one.)

2.    Cost Allocation Brief (enough detail of the cost allocation arguments to lull you to sleep even after an entire pot of coffee!)

3.    Threshold Issues Brief (why FERC has no authority to do what it did - ad nauseam).

Well, haven't they all created a fine mess for consumers when left unsupervised?  This is going to drag on for years, but ultimately will determine how your electricity is generated, how it gets to you, and how much you're going to pay for it.  Obviously your best interests are not being represented by any of these parties.  You're going to have to speak up and let your elected representatives know what you want.

Briefs filed in federal court by environmental groups seeking to have a National Park Service permit to destroy the Delaware Water Gap National Recreation Area overturned contained some damning quotes from minutes of meetings between Secretary of the Interior Ken Salazar, Park Service Officials and representatives of investor-owned utilities PSEG and PPL, owners of the proposed Susquehanna Roseland transmission line.

During an August 4, 2011 meeting, Salazar is quoted as saying: 

"So here's the deal: I want $60 m [million] and I want it now."

An expose in the New Jersey Herald tells what happened next:

And guess whose money the companies were giving away?  Yours, little ratepayer, your $60M in increased electric bills, plus 12.9% interest yearly.

The "mitigation fund" extorted from the utilities will be reimbursed to them by all electric consumers in the 13-state PJM region, plus a 12.93% yearly return on equity on the unpaid balance.  The utilities are using YOUR money to pay their "blood money" bribes needed for permission to destroy YOUR park, and earning interest on it.  PSEG representative Karen Johnson explains:

Johnson said the rate of return is in fact 12.93 percent and said it is true PSE&G would earn a rate of return on the land purchase.
"The current rules say the cost of a project such as this will be shared by electric customers who will benefit," she said.

Want to challenge the possible collection of bribe money in your electric bill?  PSEG recently filed its trueup of 2102 rates at the Federal Energy Regulatory Commission and the filing is open to your examination and questions.  Any bribe money that was paid in 2012 would be contained in this filing.  FERC does not review and audit the filing.  If you want to ask questions and challenge it, you must take the initiative.

And be sure to sign up to continue to question the components of the utility's transmission rate going forward, because you're going to continue to pay for Salazar's bribe for many, many years to come.

This kind of shakedown perpetrated on the public by government officials and regulated utilities is nothing short of completely outrageous!

Investor owned utilities must be running scared again while FERC dithers over complaints about transmission project base ROEs.  The Edison Electric Institute, an investor owned utility lobby shop, has issued a white paper and a press release telling everyone that unless its members can continue to make money hand over fist building new transmission that the lights will go out.

Bitch, please!

"The EEI report comes as FERC is reviewing a number of complaints over transmission ROEs, where states and others are urging FERC to reduce the returns in light of lower interest rates and other factors. For instance, ISO New England and several states in the region are in dispute over what the region's base ROE should be."

EEI states that FERC must roll over and do it their way...

"Otherwise, the nation's electric utilities and their investors could divert needed capital to investments with greater returns, jeopardizing transmission reliability."

The funniest part is that EEI is still using the same lame, illogical arguments it trotted out last time when FERC was considering reforming transmission incentives, including ROE adders.

Those arguments got shredded by a bunch of nobodies.

Do you think EEI is also doing the visits from utility CEOs routine this time?  I hope not.  That would definitely be an ex parte no-no in this case.

"Given the numerous risks and challenges associated with developing large-scale transmission, it is critical that returns are sufficient to encourage EEI's members to focus on evaluating and building the larger, more challenging projects needed for a more robust electric grid that will provide reliability and other benefits to customers in both the short and long term," it said.

What EEI is really saying is that its members prefer to build big, risky transmission projects because those projects offer the biggest profit.  The transmission cash feeding frenzy continues at ratepayer expense.  There's no "benefit" for customers.

EEI "...believes the clear conclusion of governmental and regulatory bodies is that the public policy benefits of transmission investment are without dispute, and the need for greater transmission investments is clear."  No, that's simply wishful thinking on EEI's part, and EEI believes that if it continues to hammer this lie on regulators and the public that they might some day come to believe it.  After all... 

"But the most brilliant propagandist technique will yield no success unless one fundamental principle is borne in mind constantly and with unflagging attention. It must confine itself to a few points and repeat them over and over. Here, as so often in this world, persistence is the first and most important requirement for success."
― Adolf Hitler

And speaking of repetition, EEI trots out one of the oldest, most over-used lies about transmission:

"Investing in transmission infrastructure also provides grid resiliency, which helps to avoid major electricity
blackouts that can result in significant economic losses. For example, due to a transmission issue starting on
August 14, 2003, an estimated 50 million people in the Midwest and Northeast United States and Ontario,
Canada, experienced an area-wide blackout lasting up to four days in some areas."

The "transmission issue" was not caused by lack of sufficient, reliable transmission.  It was caused by human error and lack of right-of-way maintenance on the part of utility stooge FirstEnergy.  Building new transmission won't prevent another blackout, and, in fact, more interconnected transmission actually increases the risk of future blackouts over wider areas.

Now, EEI's just getting downright silly:

"As the Nation’s Demand for Reliable, Affordable Electricity Grows, EEI Members Remain
Committed to Developing the Transmission Needed to Provide Reliable Electricity."

I guess EEI missed all those news reports about tanking demand.  This doesn't even deserve the 2 seconds it would take for me to find a reference link.   Google it yourself.

EEI whines about the "riskiness" of projects that are approved by the regional electricity cartels, like PJM, and then subsequently proven unneeded by states and citizen opponents.  The way I see it, the states and opposition groups saved us nearly $2B on wasteful construction of the PATH project, which turned out not to be "needed" after all.  Quit your bellyaching, EEI -- all "risk" is heaped on the backs of consumers, who find themselves reimbursing transmission owners for cancelled projects that should never have been approved in the first place.  PATH was never anything more than a $$ generator for its parent companies and it got what it deserved.

"Prior to construction, transmission projects generally are evaluated using a Commission-approved transmission planning process, which rigorously evaluates the costs and benefits of each project, assesses the forecasted changes in regional supply and demand, and considers alternative solutions such as new generation or demand-side energy-efficiency measures.    Once projects are selected, they still are subject to additional evaluations as part of federal agency and state commission reviews and siting processes.
In some jurisdictions, projects also are subject to additional reviews in subsequent planning cycles and may be delayed, scaled back, or cancelled. In addition, there is a wide disparity in how different planning processes evaluate the benefits of transmission, with some jurisdictions evaluating a significant number of the benefits while others rely mainly on reliability or narrowly defined analyses. However, these reviews and benefit analyses contribute to the riskiness of developing efficient transmission projects.
Lengthy, complicated, and costly siting and permitting processes continue to be major barriers to installing new transmission lines and upgrading existing lines. Since multiple federal, state, and local government agencies often are involved in right-of-way authorizations and related environmental permitting, the lack of inter-agency coordination forms another obstacle to permitting and siting. The challenge of locating lines across states and across federal lands, coupled with targeted, strong opposition from a variety of public interest groups, make the process even more daunting. Rerouting lines occurs with regularity, which increases construction costs."

Since regulators have been loathe to restrain out-of-control IOU greed, EEI offers you this suggestion:

"Congress has not amended or taken other action to diminish the importance of transmission investment since EPAct 2005..."  YET.  Contact your congressional representative today and tell him/her that it's time to bring our country's energy policy in line with today's realities.

The Federal Energy Regulatory Commission granted Ali & Keryn's third Formal Challenge (2011 rate year) and consolidated it with the other two Challenges (2009 and 2010 rate years) for settlement and hearing.

The third Challenge added another $4.4M to the total amount in dispute.

You can read a copy of the Commission's Order here.

Here's your next piece of puzzling FERC art to ponder, little ratepayers.  This paper mache sculpture located in the lobby leading to the hearing rooms is entitled "Redtape."

1. Who do you think is represented by the fella in the gray suit?
2. Who do you think is represented by the little briefcase carrying blue suits?
3. Is there a big pile 'o ratepayer cash just out of the photo on the left?
4. Do you think different participants in any particular conference would interpret this sculpture differently?
5. Do the people who work at FERC ever contemplate the message they send to ordinary folks with stuff like this?

You gotta admit it's better than nondescript landscape paintings or boring galleries of old Commissioners dressed in the height of 1950s fashion.

More to come from future trips...

One last question:  Will FERC run out of whimsical art to feature before we conclude this settlement?

Last year, the Federal Energy Regulatory Commission opened an investigation of formula rate protocols in the Midwest Independent Transmission System Operator (MISO) region.  MISO's outdated formula rate protocols (and those of its regional transmission owners) were woefully inadequate to ensure just and reasonable transmission rates.

At issue was participation, transparency and a recognized procedure to challenge rates.  MISO's pro forma protocols and those of the subject transmission owners lacked clarity on all three issues.  Yesterday, FERC ordered the parties to make compliance filings to revise their formula rate protocols within 60 days to set methods to define participation, ensure transparency and provide a method for challenge. 

Formula rates provide a mechanism for transmission owners to set a yearly revenue requirement that enables the transmission owner to recover its costs in real time as they are incurred.  Under a formula rate, a transmission owner files a yearly projected revenue requirement, which is then collected from customers over the upcoming year.  After the year ends, the company must file a true-up comparison between the estimate it collected and the actual amount it spent.  If too much has been collected, ratepayers will receive a refund in a subsequent year.  If not enough has been collected, ratepayers will pay the balance due in a subsequent year.  The formula rate (which is a series of calculations used to arrive at the actual dollar amount of the revenue requirement) is the transmission owner's FERC-approved, filed rate.  Formula rates produce an annual revenue requirement, which can change from year to year.  This obviates the need for transmission owners to file traditional rate cases at set intervals and prevents regulatory lag.  The annual formula rate filings are informational only and deemed to be just and reasonable unless an interested party raises a challenge to the revenue requirement as filed.  FERC does not audit, review or approve annual formula rate filings.  FERC relies on those who pay these annual revenue requirements to review them yearly, settle any disputes with the transmission owner, or to challenge the formula rate annual update if a transmission owner and interested party cannot settle their dispute without intervention by the Commission.

Formula rate protocols are a set of rules for yearly filing and review of the particular formula rate that the transmission owner and interested parties must follow.  If you want to review transmission rates you are paying, the protocols are your instruction manual.  

FERC toughened up the lax protocols under which MISO had been operating, requiring that revised protocols more closely resemble formula rate protocols in use in the PJM region.

MISO transmission owners are going to have to clean up their act or they may be facing annual challenges to the accuracy and prudence of the costs making up their annual revenue requirements.  Several challenges to formula rates in the PJM region have been filed and granted by the Commission.

The best part of this Order comes right at the end, where FERC makes reference to a prudence challenge that it granted as an example to follow:

"We will, however, continue to apply our well-established precedent with respect to challenges to the prudence of costs incurred by a transmission owner.  The Commission has historically recognized that “managers of a utility have broad discretion in conducting their business affairs and in incurring costs necessary to provide services to their customers.”[1]  Consequently, parties seeking to challenge the prudence of a transmission owner’s expenditures must first create a serious doubt as to the prudence of those expenditures before the burden of proof shifts to the transmission owner.[2]"

[1] New England Power Co., 31 FERC ¶ 61,047, at 61,084 (1985).

[2] Potomac-Appalachian Transmission Highline, LLC, 140 FERC ¶ 61,229, at P 81 (2012) (citing Midwest Indep. Transmission Sys. Operator, Inc., 115 FERC ¶ 61,224, at P 28 (2006)).

Despite a whole bunch of transmission owner and MISO whining that FERC was wrecking formula rates, FERC believes it is preserving the use of formula rates.  It's only transmission owner imprudence and over recovery that took a hit.  This is good news for consumers in MISO states, but only if someone steps up to actually use the new protocols.