The third Challenge added another $4.4M to the total amount in dispute.
You can read a copy of the Commission's Order here.
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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.
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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."
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 MISO's outdated formula rate protocols (and those of its regional transmission owners) were woefully inadequate to ensure just and reasonable transmission rates.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. On March 22, FERC issued an Order on PJM's Order No. 1000 compliance filings. Earlier, we featured some of the posturing and nonsense going on that probably made the Commissioners want to just send everyone to bed without supper. Honestly... every time there's a new rule, the usual suspects are right on top of it trying to figure out a way to twist it to serve their own interests. Order 1000 is no exception. I'm sure you just can't wait to jump right to it and read the entire 215 page order yourself. No? Don't need a sleeping pill? Okay... here are some highlights. Cost Allocation: Despite FERC sticking with 100% postage stamp allocation in its rehearing of the Illinois Commerce Commission 7th Circuit remand, FERC agreed a hybrid cost allocation method going forward. The new method will apply to all lines approved that are at least double-circuited 345kV or higher voltages, which means more lines will qualify to be socialized across the entire PJM region. These lines will be allocated 50% via the postage stamp method, which assigns costs based on regional load share. This is supposed to recognize "benefits" everyone in the region receives from PJM's interconnected transmission system. Right. The other 50% will be allocated via two different DFAX methods, depending on the driver for the line. The other fifty percent of economic projects (those that are "needed" to reduce congestion and prices) will be allocated proportionally among those loads that receive the economic benefit of the lower energy costs. The other fifty percent of reliability projects (those that are "needed" to relieve future reliability violations) will be allocated proportionally among those who use the new facility, and allocations will be updated yearly to account for changes in load flows over time. And I suppose getting kicked in the behind is better than getting kicked in the head. And speaking of getting kicked in the behind... "Clean" Line's proposal to regionally allocate a portion of its merchant transmission projects got soundly punted. In response to Clean Line’s request that the Commission allow partial cost allocation for merchant transmission projects found to meet economic or public policy needs, we note that, while Order No. 1000 requires each public utility transmission provider to have in place a method, or set of methods, for allocating the costs of new transmission facilities selected in the regional transmission plan for purposes of cost allocation, it does not require a public utility transmission provider to establish a cost allocation method that would apply to any portion of the costs of a merchant transmission project not recovered through negotiated rates. Therefore, we deny Clean Line’s request that the Commission require PJM to allow for partial allocation of the costs of a merchant transmission facility through the regional transmission cost allocation method as beyond the scope of Order No. 1000. Clean Line got resoundingly (and satisfyingly) slapped down on all fronts. PJM (and FERC) don't love Clean Line the right way... but who can blame them? Clean Line is suddenly discovering that the four merchant transmission projects it dreamed up aren't a sustainable business plan and now it's desperate for some ratepayer subsidies to continue the farce. Because "Clean" Lines aren't needed, they're not going to be approved in a regional plan, and therefore cannot be regionally allocated. Clean Line tried to tell FERC that if it built these unneeded projects that they would magically provide some regional reliability and economic benefit and therefore should be partially allocated to captive ratepayers who wouldn't use any of the electricity carried by the lines. A merchant transmission project is paid for 100% by generators on one end and load on the other. There's no such thing as a quasi-merchant project. Quit your whining, Clean Line, pull up your big boy pants, and get on with wasting your investors' money. You're not getting any help from PJM ratepayers. Further, while Order No. 1000 established the information requirement discussed above, the Commission also concluded that, because a merchant transmission developer assumes all financial risks for developing its transmission project and constructing the proposed transmission facilities, a merchant transmission developer is not required to participate in a regional transmission planning process for purposes of identifying the beneficiaries of its transmission project that would otherwise be the basis for securing eligibility to use a regional cost allocation method. Thus, a transmission developer is not required to submit a merchant transmission project into the regional transmission planning process, and the regional transmission planning process is not required to evaluate a merchant transmission project for potential selection in the regional transmission plan for purposes of cost allocation. However, nothing prevents a transmission developer from submitting its transmission project into the regional transmission planning process for potential selection in the regional transmission plan for purposes of cost allocation. In that case, the regional transmission planning process would evaluate the proposed transmission project as it would any other proposed project and, if the transmission project is selected in the regional transmission plan for purposes of cost allocation, it would be eligible to use the regional cost allocation method. If the proposed transmission facility is not selected in the regional transmission plan for purposes of cost allocation, then the transmission developer could choose to move forward as a merchant transmission facility. Right of First Refusal: I'm finding it really hard to care about this issue at all. Why don't you all fight about it quietly and let me know when you're done? The only thing I found even remotely interesting was that the Market Monitor was trying to get FERC to make transmission owners stick to the submitted cost of their projects as approved in PJM's RTEP. Good idea! However, FERC slapped that down too. The cost of an approved transmission project -- one of the factors that made it the preferred, cost effective option in the selection process -- is mere suggestion and bears no resemblance to how much such project may cost to build. This allows incumbent transmission owners to undercut every other project developer on price, and then spend twice as much actually building the project. Remember Primary Power?
"Public Policy" and PJM's State Agreement Approach: A handful of "clean" energy companies and their big green Pollyanna sycophants submitted comments whining about PJM's State Agreement approach to "public policy" projects driven by individual state renewable portfolio standards. These cleaniacs think that they can force PJM to turn individual state policies into regional transmission needs, and socialize the cost as broadly as possible. The energy companies, of course, want this because they make money off renewables. The Pollyannas want this because they think they're saving the world, and they don't care how much it costs. Greedy and Clueless got slapped down. FERC determined that PJM's "consideration" of public policy requirements in planning sensitivities is adequate (although frighteningly opaque) and the State Agreement approach to cost allocation is supplemental to O1000. This means that a project "needed" solely to meet "public policy" goals will be driven by the state officials whose policy requires it, and voluntarily paid for by those states whose policies cause it. But, never fear, I'm sure Greedy and Clueless aren't done with their whining yet -- they do it so well -- and will continue attempts to force everyone to consume socialized utility scale renewables when better options such as distributed generation of local renewables are the more viable, sustainable choice. Keryn and Ali filed a third Formal Challenge to PATH's rates at FERC today. The previous two Challenges, which were granted in part and set for settlement and hearing by FERC last fall, covered PATH's spending in 2009 and 2010. The Challenge filed today covers PATH's 2011 expenses.
Remember, the project wasn't put into abeyance until Feb. 28, 2011, and then PATH had the rest of the year to wind down its unneeded project and wallow in the financial and logistical mess it had made. The total of this third challenge is $4.4M, and when added to the $5.7M set for hearing in the previous challenges, the amount challenged totals more than $10 million dollars. What could you have done instead with that $10M? The Challengers ask for the Commission to grant the Challenge and consolidate it with the existing Challenges, which were consolidated with PATH's abandonment. We do hope you enjoyed your April Fool's day as much as we did... FERC issued a whole bunch of interesting decisions at its meeting last week. Unfortunately, I've been too busy over the last week writing FERCenese* to spend much time reading it. Finally, here's your first FERCenese translation from last week about FERC's Order on Rehearing regarding postage stamp rates in PJM. Not surprisingly, FERC reconfirmed it's original Order on Remand and brushed off all the arguments made by parties in their requests for rehearing. The Commission continues to cling to its illogical presumption that “When a system is integrated, any system enhancements are presumed to benefit the entire system.” Also not surprisingly, Commissioner LaFleur dissented (again). However, joining her in dissenting this time around was the newest addition to the FERC stable, Commissioner Tony Clark. Both dissenting Commissioners mentioned that FERC is reaching by assigning PJM "system wide benefits" to "Western PJM" entities like ComEd in exchange for bearing 14.7% of the costs. These "system wide benefits" accrue from membership in PJM, and not from construction of the subject transmission projects. Commissioner Clark also opined that FERC has fallen short of the 7th Circuit's directive in remanding the case back to FERC. Although I usually encourage you all to read these filings yourself, this Order is a real deja vu snoozer that doesn't say anything new. Everything you need to know is contained in the dissents. Commissioner LaFleur's Dissent Commissioner Clark's Dissent The only thing different this time around is that a new cost allocation process for PJM transmission projects has been approved as part of PJM's Order No. 1000 compliance. The new cost allocation method became effective February 1, 2013. Therefore, this Order on Rehearing affects only a specific set of transmission projects approved between June 20, 2006 and February 1, 2013 (aka The Project Mountaineer Era). These projects (TrAIL, Susquehanna Roseland and the dearly-departed, abandoned PATH and MAPP) will continue to be allocated and paid for by the postage stamp rate methodology that has been decided in this Order. PJM's new cost allocation methodology will allocate 50% of the cost of transmission 345kV and over by postage stamp methods, with the remaining 50% allocated via a DFAX methodology, which more accurately assigns costs to those who cause them and to those who receive current benefits from the project. (More on that in a future FERCenese translation). So, while "Western PJM" will continue to pay an equal share of 500kV+ Project Mountaineer lines that are exclusive to the east coast, the current 345kV expansion going on in "Western PJM" (where they don't build 500kV lines) won't be allocated to "Eastern PJM" in the same proportions. Sound fair to you? FERC reasons that since this postage stamp business now applies only to a finite, historical set of projects that this decision will put the matter to rest. Probably not. The parties can now bump it back to the 7th Circuit. And, curiously enough, the Illinois Attorney General intervened out of time in the PATH abandonment docket today.... because now Illinois is going to be stuck paying 14.7% of PATH's abandonment costs. Coincidence? *FERCenese: [fur ken ees] noun
Style of technical, legal prose utilized in filings and orders at the Federal Energy Regulatory Commission. To the average layperson, the filings appear to be written in a language other than the familiar English. The Scott Thorsen Dictionary, 2013. If you've been wondering what's going on with PATH's abandonment and the Formal Challenges at FERC, here's your update. Sorry, that's the only public information that's available. While you wait for closure, perhaps you can entertain yourself contemplating the meaning of FERC's paper mache sculpture that sits in the hallway outside the hearing room. "The evidence is clear that generators are profiting excessively from RTO power markets, and that sellers’ rates are not ‘just and reasonable’ as the law requires. Consumers are paying the price, to their detriment and that of the overall economy."
That's the conclusion of a report on FERC's restructured regional electricity markets published in December by Elise Caplan of American Public Power Association and Stephen Bobeck of the Consumer Federation of America. The report takes a look at how FERC has restructured regulation of wholesale power to rely on market based rates and regional transmission organizations. "FERC has chosen to rely on supposed market “competition” to ensure that prices are “just and reasonable,” as required under the Federal Power Act." Do these markets work to protect consumers? No. The report opines that, "Instead, evidence is mounting that customers have been harmed by the markets." Despite repeated attempts to get FERC to do some sorely needed analysis and adjustment to its competitive market experiment, "FERC has still not undertaken such an analysis. But there is a wealth of data available to support the conclusion that consumers actually have been harmed by the restructuring of wholesale electricity markets and that access to alternative retail suppliers does not solve the fundamental problems of the wholesale market from which those suppliers must purchase power." In the report, "...we discuss specific RTO rules and structure that have provided opportunities for excess generator earnings at the expense of consumers." In uncompetitive RTO cartel electricity markets, "Offers into the energy market need not reflect the sellers’ actual costs of generation, as FERC would have required under a traditional cost-of-service ratemaking regime. Rather, the sellers set their own price offers, regardless of their actual costs, subject only to review and possible adjustment by the RTOs’ market monitors. In PJM, the market monitor typically mitigates less than one percent of the energy offers in both the real-time and day-ahead markets." Thanks, Market Monitor! Always looking out for my interests, aren't you? It's just too bad that PJM's attempt to replace the Market Monitor isn't intended to provide more protection for consumers, but LESS. And here's another problem we've written about before that pops up in the report: "The conceptual basis for LMP is that these differential prices will send “price signals” to indicate where there is a need for new generation or additional transmission capacity, or to reduce load through conservation or shifting the times when energy is consumed. As discussed below, this theory has not borne fruit in practice." In PJM, new transmission is always proposed before new generation has a chance to happen, and demand side resources aren't given serious consideration. This is why consumers are now paying half a billion dollars for two failed transmission projects -- transmission projects that were approved and intended to be quickly rammed through before demand side resources and new generation could be recognized. Ultimately, PJM's Project Mountaineer scheme failed, along with the transmission projects, when demand side resources and generation developed despite PJM's best efforts to squelch them. "The theory behind locational pricing is to provide price signals indicating where new transmission and generation is most needed. But in reality, new resources have not developed to respond to higher prices in these markets. Instead of inducing new resource development, the higher prices provide a financial incentive for incumbent generation owners to keep supplies constrained, or at least to ensure that prices bid by new market entrants remain high. The financial benefits of constrained supplies can be seen in the candid presentations by merchant generation owners to the financial community wherein the potential closure of coal plants is touted as a benefit to their earnings." You know... like how FirstEnergy's wave of coal plant closures last year provided the company with jacked up capacity prices in ATSI and a whole bunch of new transmission projects in which to invest its "transmission spend" to increase the company's earnings. Remember that? So, what protections are built into RTO markets, and do they work? "FERC relies solely on market monitors for each RTO to determine whether the wholesale electricity markets are competitive. These market monitor analyses are based on a limited frame of analysis that ignores evidence, such as the profitability data presented later in the report, which raises questions about the competitive nature of these markets. Moreover, the reports issued by the market monitors do not always support a definitive finding of competition. For example, in the most recent State of the Market Report for PJM, the market monitor found that the local market structure in the energy market and both the local and aggregate market structure in the capacity market were not competitive, as was the structure and the performance in the regulation market." Go ahead, click through and read this analysis: "Prior to examining the empirical evidence of the effects of RTO markets on electricity prices paid by utility customers, this section describes the structural flaws in RTO markets – conceptual problems that have led to higher prices than would have occurred absent such markets. These fundamental features of RTO markets, discussed below, provide both incentives and opportunities for merchant generators to earn excess revenues at the expense of consumers". How does PJM "fix" their markets when things go awry? "When a given market structure does not achieve its goal of providing satisfactory revenue to RTO generators, the response – prompted by generators, many of them the spun-off affiliates of formerly vertically-integrated utilities – has been to induce the RTO to add a new, more complex market or a rule to prop up prices, such as a tightening of the minimum offer price rule in PJM." This kind of "make the rules up as you go" is the basis for the most recent bickering over new MOPR rules secretly concocted by PJM and its incumbent generators. This is the behavior of a cartel, not a competitive market. If competitive markets save money for consumers, why do "RTO generation owners’ 10-K reports to the Securities and Exchange Commission list restrictions on competition as a potential risk to their earnings?" The evidence examined in the report "lead[s] to a conclusion that the restructured RTO-operated markets have increased prices above what would be seen in the absence of restructuring." How much? "...a possible $12 billion excess payment from consumers to generating companies that do not face genuine market competition – demonstrates the scope of restructuring’s negative impact." And this about sums it up: "The greatest beneficiaries of restructuring have been not consumers, as was promised, or innovative companies that were expected to emerge, but the “usual suspects” – owners of previously regulated, largely depreciated generating units." How do we fix this mess? "It is crucial that FERC, as the regulator responsible for ensuring under law that wholesale prices are just and reasonable, determine whether RTO markets are achieving their cost-reducing potential, and, if not, to implement needed reforms." Don't hold your breath. FERC refuses to even examine the results of their RTO experiment, much less take any action to fix it. Perhaps it's time for Congress to step in. Citizens Energy Task Force and Save Our Unique Lands filed a complaint at FERC yesterday alleging that a transmission line approved by the Midwest Independent Transmission System Operator will cause instability of the electric grid. The complaint asks that FERC:
"...order that the MTEP 08 addition of the Hampton-Rochester-La Crosse transmission line is prohibited because electrical impacts of the addition of this project to the grid were not considered, and that instead of improving the reliability of the system, it contributes to and/or causes electrical system instability, that the Midwest Reliability Organization (MRO) has neglected its duty to preserve the reliability of the system, and that the Commission Order revocation of the Midwest Independent Transmission Service Operator (MISO) approval of the CapX 2020 Hampton-La Crosse transmission project because the addition of the Hampton-Rochester-La Crosse transmission line contributes to and/or causes system instability." The citizen groups' complaint relies on the segmented approval and construction of the CapX 2020 lines. While the projects are supposedly parts of a larger plan, the utilities have admitted that construction of the subject segment without an additional transmission line to Madison will bring about instability that will cause the system to "reach a tipping point." An additional line to Madison has not yet been applied for or approved. MISO's piecemeal project portfolio will cause system instability if all parts are not built. Construction has already begun on portions of the project in Minnesota, but without an extension of the line to Madison, it is merely a radial line dumping excess electricity into LaCrosse that has no outlet. Because the second line has not been approved, there is no guarantee it will be built. The complainants also point out that previous arguments by the applicants that the two lines are separate projects have clearly violated the National Environmental Protection Act prohibiting the segmentation of dependent projects. So, which is it? Are these separate projects or are they integral parts of a single project? MISO cannot have it both ways. Will FERC take the initiative to administer some sorely needed discipline upon one of its regional transmission organization darlings? Or will it continue to let its unruly children run wild until we're all sitting in the dark? Read more here, here here and here. Remember Pepco's silly plan to collect a 12.8% incentive ROE on $87.5M of abandoned plant costs for its unneeded MAPP project?
Although it granted Pepco the right to recover its prudently incurred investment yesterday, FERC denied the continuation of MAPP's 150 basis point incentive ROE on abandoned plant. No big surprise -- Pepco's arguments were absurd. "We find that the continuation of the additional 200 basis points of incentives, on top of the base ROE, on an abandoned project is not appropriate. Once a project has been canceled, none of the incentives granted other than the ability to recover prudently incurred abandonment costs continues to apply, as explained below." FERC also denied Pepco its 50 basis point incentive for continued membership in PJM. The Commission reconfirmed its determination in the PATH abandonment order: "We therefore find that the 50 basis point adder for RTO participation is not appropriate for recovery in an abandonment application. This finding is appropriate in the context of abandonment even though the Commission has found that the RTO participation incentive is unrelated to any particular project but instead is intended as an incentive for joining and remaining in an RTO. This is because even though the public utility project developer has joined an RTO, the facility at issue in an abandoned plant cost recovery situation will not be transferred to the RTO's control, and therefore the benefits from that project’s inclusion in an RTO will not materialize. This outcome is consistent with the PATH Abandonment Order, where the Commission clarified that continued recovery of a 50 basis point adder for RTO participation is not appropriate for recovery in an abandonment application."* Do you think the Commission was clear enough this time? Greed seems to be interfering with utility understanding of this concept. In addition, the Commission also determined that Pepco can recover only 50% of its incurred costs prior to issuance of their incentives order in 2008. Because Pepco incurred these costs before being granted the 100% abandonment recovery incentive, they are only eligible for 50% recovery. Pepco wasn't greedy enough to ask for amortization of its pre-incentive costs over its construction period like PATH did. Silly Pepco, that's going to cost ya... However, the Commission also awarded Pepco a 10.8% ROE on its recovery of abandoned plant, instead of setting ROE for hearing like it did on PATH's abandonment. Pepco's brazenly ridiculous request to recover an incentive ROE on abandoned plant captured the attention of all the protestors, who failed to advance any arguments against Pepco's base ROE. You gotta admit, it was pretty smart. Maybe PATH's counsel could take some lessons from Pepco's. Or maybe PATH just needs smarter counsel. As it did with PATH, the Commission set the prudence of MAPP's abandoned plant costs for settlement and hearing. Before you get all carried away praising the Commission for this Order, remember that it is because the Commission continually fails to enforce any discipline on their little darling PJM that consumers in 13 states and D.C. will have paid nearly half a billion dollars for these two abandoned transmission projects. PATH and MAPP (and TrAIL and Susquehanna Roseland) were never truly needed. It was all about increasing the use of coal-fired resources, not reliability or economics. The utility cartel that is PJM has cost us all higher electric bills that we can ill afford and will not be held accountable for its machinations. *This bodes well for PATH's rehearing, doesn't it? |
About the Author Keryn Newman blogs here at StopPATH WV about energy issues, transmission policy, misguided regulation, our greedy energy companies and their corporate spin.
In 2008, AEP & Allegheny Energy's PATH joint venture used their transmission line routing etch-a-sketch to draw a 765kV line across the street from her house. Oooops! And the rest is history. About
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