On January 24, 2020, the Commission issued Opinion No. 554-A, its Order On Rehearing, Directing Briefs, And Accepting In Part And Rejecting In Part Compliance Filings in this proceeding. The Commission arbitrarily and capriciously ruled that Potomac-Appalachian Transmission Highline (“PATH”) should re-recover its costs for its civic and political expenditures and General Advertising, completely reversing and contradicting its own
findings in Opinion No. 554 issued on January 19, 2017, and in violation of PATH’s approved
Formula Rate. Opinion No. 554-A erroneously interprets the Commission’s existing accounting regulations, specifically exempting PATH’s expenses from Account 426.4 based on unstated and unwritten requirements, and introduces regulatory uncertainty. It also unduly intrudes into state jurisdiction by encouraging transmission owners to compromise the integrity of the state regulatory process at ratepayer expense. Opinion 554-A is based on substantial legal error, not supported by substantial record evidence, and is not the product of reasoned decision making for benefit of the ratepayers that the Commission serves. The Opinion is an extremely belated action that harms consumers and can only be deemed arbitrary and capricious and not the product of reasoned decision-making.
The Commission issued a well-reasoned and well-supported accounting determination in this proceeding in 2017. It followed that Opinion with further written guidance on calculating refunds (even going so far as to create spreadsheets for PATH to fill out), and an additional Order on compliance filings that required PATH to make additional refunds of advertising costs, or explain them in accordance with its Formula Rate. We note that the three Commissioners sitting today concurred in that Order. The refunds have been accomplished and the matter was headed for closure. If the Commission had concerns about its Opinion No. 554, it was not
evident during that time period. The Commission spent plenty of time making sure the refunds ordered were carried out, but could not find the time to consider PATH’s Request for Rehearing until after the refunds were accomplished.
What changed? The expenditures did not change. The Commission’s accounting regulations did not change. The Commission’s precedent did not change. The Commission’s
opinion is the only thing that changed. The Commission did not choose to clarify its previous opinion. It did not choose to modify its previous opinion. It did not choose to change its regulations to effect new policy in a separate proceeding. It chose to completely flip-flop on its prior opinion in a poorly supported new opinion, reverse its findings, and deem the expenditures recoverable using arguments and precedent that it initially rejected in Opinion No. 554. This is the epitome of an arbitrary and capricious action. The Commission appears to be fighting itself
here, not making well-reasoned decisions in the interest of the consumers it serves.
Therefore, in accordance with Rule 713 of the Commission’s Rules of Practice and Procedure, 18 C.F.R. § 385.713 (2016), Keryn Newman and Alison Haverty, parties pro se, submit this Request for Rehearing. The Commission should reverse Opinion No. 554-A and restore its findings in Opinion No. 554, approve compliance filings for amounts already refunded to ratepayers, and reestablish the regulatory certainty it once provided to the entities it regulates through long-standing precedent and guidance provided by its accounting regulations.
We began by wondering what had changed in the intervening years between Opinion No. 554 and Opinion No. 554-A. The only answer we can find is a clear instance of confirmation
bias where limited examination of the record, regulations, and precedent was performed to
support granting PATH’s Request for Rehearing. It’s almost like the Commission made the decision to grant PATH’s request in isolation, and then went on a futile search to find (or simply invent) support for its decision later. Opinion No. 554-A is an arbitrary and capricious decision by the Commission, completely unhinged from evidence, regulations, or precedent. This is a hallmark of a captured regulatory agency making arbitrary decisions in favor of those it regulates, and not based upon an impartial evaluation of the law for the benefit of the consumers it exists to serve. This is not regulation in the public interest.
We hereby request that the Commission set this matter for rehearing and restore its findings made in Opinion No. 554.
That's the beginning and the end. Want to read what came in between? You can read the entire filing here.
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I first heard about the PATH Transmission project in the summer of 2008. It was a horrible, unneeded idea that eventually met its fate, shelved in 2011 and cancelled for good in 2012. Many considered that the end of the PATH project.
But it wasn't. A formal complaint about PATH's rates had been filed at the Federal Energy Regulatory Commission in January, 2011. I chose to stick with that complaint, even when PATH was no longer a threat. It's been a lot of work over the past nine years, coming in fits and starts. We prevailed on our complaint, and PATH was ordered in 2017 to refund more than seven million dollars, plus interest and undue return it had collected for its extensive public relations campaign and lobbying carried out for the purpose of influencing the decisions of public officials considering the project's applications. The correct precedent was set, and utilities under FERC's rate setting jurisdiction may no longer collect these kinds of costs from ratepayers. Done! But, not really. Several more orders were issued since then, correcting PATH's refund filings. Even though ratepayers officially paid off all the PATH debt in 2017, PATH has still managed to collect several million dollars a year from ratepayers while it bumbled its way through the FERC Orders and made required compliance filings. I continued to keep an eye on what was transpiring. Sometimes the kids get out of control if they don't have a babysitter. The twice-yearly rate filing phone meetings and data requests continued. And how much fun were those? Not much fun at all. I'm seriously over it. Twelve years after PATH began collecting its costs through rate filings at FERC, it's time to put this thing to bed. For good! We've all got other things to do. So, is it January again? It seems like a lot of the PATH things happen at FERC in January. New year, out with the old. Yesterday, FERC issued its agenda for its January, 2020, public meeting. PATH is on it. All of the open PATH matters are on it. They'll be settled one way or the other next Thursday. Nobody knows what to expect until the order is issued. But the fact that it ended up, once again, on a monthly meeting agenda indicates that the Commission sees some value in making this order more visible. The Commission issues orders every day, but only a handful are significant enough to end up on the monthly agenda, delivered before an audience in Hearing Room 1. I can't wait! No matter what happens, I'm am truly thrilled to put PATH behind me, for good! FERC gets a lot of rancor from the public and the industries it regulates. But, in this instance, FERC has done an outstanding job sorting through everything and meting out justice. The FERC employees I interacted with during this case have been fair, considerate, and dedicated. I had a great experience at FERC. I have faith that FERC works for for the citizens it serves. Twelve years... the lingering life of a transmission proposal that was concocted in haste... and repented at leisure. The ratepayer gravy train will now finally grind to a halt. Ya know how I suspect you don't have a cogent argument? You make crap up to try to scare people to support your position. And that seems to be what happened when the Federal Energy Regulatory Commission ordered a re-vamp of PJM Interconnection's capacity auction. PJM's markets are a confusing mess that not a lot of folks understand. Regular people understand pretty much nothing about PJM's electricity markets that supposedly serve their electric needs and provide power at prices that save consumers money. That's what PJM says anyhow, and since most consumers don't even know that PJM exists in the first place, it's pretty much an "I don't care" situation. But, in the energy world, PJM's markets are a big deal, a real big deal. PJM's markets have been gamed and influenced to provide the most profits to energy suppliers forever. That's why PJM has a Market Monitor to keep an eye on things to try to outsmart the gamers. Over the last decade, states who have authority over their own electric generation mix, have attempted to encourage the generation source of their choice by providing subsidies. But when those subsidies interfere with PJM's regional electric market, it becomes non-competitive. One time, a state wanted to provide subsidies to a new generator that made up the difference between the generator's revenue and the PJM market so that it could offer and be accepted into PJM's capacity market. The courts said that was not permissible. State subsidies cannot be tied to PJM's market. Since then, numerous states have found ways to subsidize their generation of choice without overtly tying it to PJM's market. But the subsidies DO affect PJM's market, making that generation source "cheaper" so that it can offer a lower bid into the capacity market because the state is covering some of the generator's costs. You only need a rudimentary knowledge of how PJM's capacity market works to understand this. Capacity isn't electricity. Capacity is the ability to produce electricity when called upon to do so. Generators are paid for their capacity separately from the actual power they provide. Because PJM has a need for a certain amount of electricity to keep the power on, it has to know that it will be available. PJM sets its resource number for each year three years in advance, then holds an auction of sorts. Generators with available capacity submit sealed bids. PJM stacks the bids by price. It then accepts bids, starting with the lowest, until it get up the stack to the amount of generation that meets its resource requirement. All generators accepted in this process are paid the top clearing price. Say the generator supplying the last bit of capacity bid $50, that means that every generator accepted gets paid $50, even though they may have bid in at a lower amount. It pays to be a lower bid in the capacity market. A generator can provide a lower bid because it receives subsidies. Without subsidies, it would have to bid in at a higher cost, and that could mean that it doesn't clear the auction. It would also mean that the ultimate price for all the capacity would rise if all generators had to bid in at their unsubsidized cost. This subsidy gaming of PJM's market has been going on forever, but in such small amounts that it didn't really affect the market. But in recent years, states have gone wild with the subsidies for renewables and other favored generation, such as nuclear. With all these new subsidies, the market price tanked and the unsubsidized resources were forced out of the market. Many have closed. A market made up of subsidized resources is artificially priced and not really a competitive market at all. So, FERC has been trying to fix this. One fix is to strip subsidies from offered resources to make them bid in at a realistic price. That's what FERC did just before Christmas. It ordered PJM to revise its MOPR (Minimum Offer Price Rule) to nullify the effect of state subsidies. And then all hell broke loose. The self-serving environmental groups and renewable and other generators benefiting from subsidies freaked out. And this happened. “Trump and FERC are selling us out to the fossil fuel industry. They are adding billions of dollars in subsidies for coal, oil, and natural gas at the expense of green jobs and our health. They will now be getting over $6 billion a year just from our PJM grid alone, in addition to $15 billion a year in direct federal subsidies and all types of indirect subsidies. These dirty industries cannot compete with cheaper and cleaner renewable energy, so they are looking for a massive subsidy at our expense. This will hurt green jobs and public health,” said Jeff Tittel, Director of the New Jersey Sierra Club. Honestly, what rubbish!!! He says that FERC added billions of dollars of subsidies for coal, oil and natural gas. They did no such thing. That's an outright lie. FERC did not give new subsidies to any generators, it simply mitigated the existing subsidies for renewables and nuclear. If all generators exist on an even playing field, it is not instituting new subsidies. And then he whines about "federal subsidies." The FERC order didn't touch federal subsidies, like the production tax credit for new wind generators. FERC felt it had no authority to nullify federal subsidies, just state subsidies.
The environmental groups have been whining about subsidies for a number of years. As subsidies for renewable generators took off into a billion dollar industry, environmental groups chose to defend that by pointing to what it calls existing subsidies for fossil fuel generation. Try to have a debate with any cleaniac about renewable energy subsidies, and they deflect by claiming other generators are getting just as much in other subsidies. It's not true, but it serves to change the argument to one about dueling subsidies and away from public outrage at the juicy subsidies filling the pockets of renewable energy companies. There are no overt subsidies of fossil fuel generation that come even close to those provided by the federal government for utility scale wind and solar. Big Green insists renewable subsidies are no greater than those provided to fossil fuels. But when FERC removed all state subsidies for all generators, Sierra Club whines that renewables are hurt by it. If the subsidies are equal, then removing them all doesn't change anything. Apparently there are more subsidies for renewables than there are for fossil fuels, or renewables wouldn't be hurt by their removal. Big Green's favorite argument has flamed out. It no longer has any relevance. I'm going to guess that the Sierra Club guy crying about shameful giveaways didn't even bother to read the FERC Order before beginning to bellow. That's pretty shameful in itself. I actually did read the order, hard as it was to stomach, and I can't find any basis for the nonsense spewing from Sierra Club. What I find interesting is the whole state v. federal thing. If states are providing subsidies to certain generators, those subsidies are coming from state consumers and/or taxpayers. The subsidies are affecting a regional market, not just one contained within the borders of the state. So, if New Jersey subsidizes nuclear generators and that lowers the regional capacity market price, I would get a price benefit here in West Virginia. Thanks, New Jersey! And now, if New Jersey is still providing a subsidy to generators that does not lower prices in the regional market, and market prices go up, New Jersey citizens are sort of paying twice for the same subsidy. Maybe they should rethink their subsidy, instead of trying to visit it upon everyone else? Some claim FERC's Order will cause a great exodus from PJM and its regional market. Buh-bye, don't let the door hit you on the way out. If a state wants to subsidize certain kinds of generation that fits with its political goals, then it needs to keep that subsidy within its own borders. Go ahead, subsidize what you want. That's a state issue. I could be selfish and parochial here, since New Jersey and other states are subsidizing the regional capacity prices I have to pay, and only worry about my own bottom line. But the continued (and increased) state subsidies are causing existing generation to drop out of the market as uneconomic. That's generation that we've all paid for over the years, replaced by new generation that we're all going to have to pay for over the next 50 years. At some point, this kind of a market is going to explode. Regional capacity prices will be pure fiction, totally influenced by individual state policies. So, do we really need a regional capacity market? Do we really need to know that sufficient generation will be available 3 years from now to keep the lights on, or should we depend on state generation policies to provide adequate generation for their own state? Or, maybe we should just cross our fingers and hope the lights come on three years from now, when existing baseload generators are all gone and we're depending on a new crop of intermittent generators whose capacity factors are quite small? Remember, capacity is a generator's ability to generate power when called. Those coal and gas generators have high capacity factors because they can generate any time from stockpiled fuel. Wind and solar, however, have very small capacity factors because they rely on the vagaries of weather and sunlight to supply their fuel in real time. If we add huge battery capacity to create a stockpile, that has a huge additional cost. Because the capacity factors of renewable generators are so small, we need to hugely overbuild them to guarantee any amount of capacity. How would this end up being "cheaper"? State generation subsidies are merely skewing the market for now, with big problems down the road. Let's see what FERC's Order does to PJM's capacity market, and if we're actually getting some surety from the "increased" costs it imposes. Today's prices aren't really lower, they're subsidized and being paid outside PJM's market through state subsidies. What if you added up the current capacity market costs and all existing state subsidies that will now be nullified? That's the actual true cost of capacity. This order won't so much increase prices as it will re-allocate who pays the cost of capacity. The sky isn't falling. There's no slobbering wolf wandering through town. It's just Sierra Chicken Little and all his chickie friends telling us once again that the world is ending because they didn't get their way. Thank goodness there are energy professionals that actually understand these markets and don't base their decisions on a bunch of propaganda and whining. It was inevitable. FERC slapped down another one of Public Citizen's frivolous complaints on Thursday. What a complete waste of time and money. And I'm not talking about Public Citizen's time and money, I'm talking about YOUR money wasted both by FERC evaluating the complaint, and PJM having to spend time responding to it. YOU paid for that. Public Citizen was complaining that PJM was making political contributions and lobbying on the ratepayer dime. Sounds awful, right? However, it was nothing but a trumped up cloud of innuendo completely disengaged from FERC accounting policy and precedent. Like much of Public Citizen's FERC work, it was just crap on a self-aggrandizing bun of politics, liberally smeared with ignorance sauce. But, FERC is hard, you say, impossible to figure out, and therefore Public Citizen's effort was honest. No, it's not. I'm not even a lawyer, and I managed to figure out FERC. Sure, it took a lot of effort and time, something Public Citizen doesn't seem to want to invest, preferring its drive-by and dump strategy of being a persistent pain in FERC's ass. Fabulous. Whatever. But it's costing ratepayers a bunch of money responding to this unfounded crap. So, why was Public Citizen's complaint denied? It claimed that PJM had made payments to both the Republican Governors Association and the Democratic Governors Association. Said associations being political associations therefore made the payments campaign contributions, according to Public Citizen. PJM answered that the payments were for membership in the associations so that PJM could attend association functions and interact with state officials to educate same. It's pretty cut and dried and rooted in precedent that's at least 15-years old. This particular argument has been done and overdone in ISO New England, 117 FERC ¶ 61,070 (2006). Regional transmission organizations may recover their informational and educational costs, even when it enters the realm of politics. A court has found such expenditures reasonable given the “potential impingement of government action on all stakeholders” and the need for legislative access to information regarding RTO activity. RTOs enjoy this status due to their lack of a profit motive. RTOs are profit neutral. There's no way an RTO can put extra money in its pocket through political activity. In FERCenese, "...because an RTO lacks a profit motive, it is easier to see that the ISO/RTO is pursuing activities that benefit its ratepayers, when the RTO seeks recovery of costs associated with state policy monitoring." Agree with it or not, it's set in stone. A lightweight like Public Citizen has no chance in hell of overturning it. Public Citizen also whined about money paid to lobbying companies. FERC found the expenditures were related to educational and informational activities and therefore recoverable. ...the Commission permits RTOs to recover expenses related to RTO informational and educational efforts. Further, in affirming the Commission’s finding that ISO-NE’s external affairs expenses were recoverable, the court in Braintree explained, “it seems eminently reasonable to encourage legislature access to such an informational resource . . . [and] allowing recovery of [ISO-NE’s] costs in monitoring legislative activity, so that it may consider how such activity might affect its operations, appears quite reasonable.” The only request Public Citizen made that could hold a tiny bit of merit was asking that PJM's political activities be publicly posted so that they may be monitored by stakeholders. Sunshine is a lovely thing! However, the Commission slapped that down too, saying that PJM's finance committee already combed through these expenses to make sure they were recoverable and that we should trust them. I'm not so sure about that, but it may have been more about Public Citizen's approach that caused FERC to shoot the messenger. Another federal energy legal gaffe by Public Citizen comes to a close. Public Citizen published a whiny press release full of drama that no news outlets bothered to pick up, although a couple had run earlier articles touting Public Citizen's complaint. Blah, blah, blah... and then there's this: FERC-regulated industries should understand, however, that FERC’s decision does not mean that all bets are off. The commission appears to acknowledge that ratepayer funds may not be used for political contributions. Unfortunately, however, the commission bought the assertion that the pervasively political governors’ associations are engaged in nonpolitical educational activities and that PJM’s payments related solely to those nonpolitical purposes. Utilities shouldn’t be misled into thinking they have free rein to use ratepayer funds for partisan political purposes. Oh, for goodness sake! No utilities think that. They know better (much better than Public Citizen, apparently). Public Citizen acts like their actions here set some sort of precedent prohibiting the recovery of political expenditures. That precedent has been in place for more than 50 years! It was most recently enforced in Opinion No. 554 issued in 2017.
Public Citizen fails to understand the distinction between RTOs and utilities that FERC made in its order denying its complaint. Although an RTO may technically fall under some definitions of "utility," they're not actually a utility. They don't own any utility infrastructure, they merely operate the infrastructure of real utilities. Real utilities have profit motives that can be satisfied through political activities. RTOs do not. All RTO money comes from ratepayers. They have no other source of funds. There's no place to put any profits. Utilities are already prohibited from recovering the costs of their political activities and rejection of Public Citizen's frivolous complaint didn't change that one bit. It's been tried before by much better lawyers than Public Citizen, based on the same precedent, and it failed. Spectacularly failed. No utility is going to use that decision as precedent to say that they believed FERC gave them permission to collect political activity costs from ratepayers. Honestly, Public Citizen's hubris is stunning. Why does this matter? Because Public Citizen has also been engaged in a continual whine that FERC establish an office of the public advocate and provide taxpayer funding to "public interest organizations" like Public Citizen. They want to be funded by someone else to do even more of this worthless, costly filing of frivolous complaints. I object. I spent my own time and money on a successful FERC complaint. Nobody gave me one thin dime for what I did, however PJM ratepayers received more than $20M in refunds. I never asked for money. I did what I did because it was the right thing to do. And I found that utilities (not RTOs) actually DO wrongly recover the costs of their RGA and DGA memberships and lobbying expenditures. PATH was ordered to refund those to ratepayers, however even though utilities should be on notice as a result of that decision, I'm pretty sure they still do it. They do it because nobody is minding the store. FERC does not normally audit utility rate informational filings, and other utilities and state agencies don't have the expertise or funding to do it. Utilities get away with it all the time because no one investigates and challenges them. If, perchance, they do get the hairy eyeball from FERC, a customer, or ratepayer advocate, the utility simply claims it was a mistake and makes a refund. This game works because the chance of anyone actually discovering the utility "mistake" is slim to none and definitely worth the risk to the utility, who fattens its own bottom line the majority of the time. Perhaps Public Citizen should spend more time investigating the political expenditures of utilities, instead of taking the easy road of making off the cuff complaints on rate matters it doesn't understand in order to grandstand for the media? They could actually save ratepayers buckets of money and do something useful for a change. In no instance should the public, or ratepayers, financially reward Public Citizen for this counterproductive, wasteful behavior. Innovation... isn't it wonderful? In the wake of several long-distance transmission failures, some transmission developers are getting smarter. New long-distance transmission on new right-of-way is a non-starter. No matter where proposed, landowner and community opposition forms. Nobody wants this intrusion on their property, especially when they receive no benefit from it. The only way new long-distance transmission is going to happen is without new rights-of-way. Last year, we examined SOO Green Renewable Rail's proposal to bury new transmission on existing railroad rights of way. It seemed like a good idea. Recently, an even better idea has surfaced. Shipping the electricity itself by rail. Basically, it's the storage of electricity in rail cars at its generation source, which are then dispatched to places where the electricity will be used. Unlike a fixed transmission line between Point A and Point B, this new idea is completely flexible and can be dispatched anywhere as need arises. No new rights-of-way, no wires, no stranded investment when the need for transmission changes, no fire danger, no community impacts. No transmission line is needed at all! The company proposing this revolutionary new way to move energy filed a petition at the Federal Energy Regulatory Commission asking to declare its plan "transmission of electric energy in interstate commerce" and grant it public utility status so that it may compete in RTO transmission planning processes. And then all hell broke loose. I mean, what if transmission of the future didn't include any wires, any towers, any rights-of-way, any fixed assets that depreciate over their useful life while earning a generous return? That would be a huge blow to investor owned utilities, who see transmission as a profit center. Multiple entities intervened and filed protests, including transmission trade group Edison Electric Institute, who whined that without wires (oh, those lovely profit-producing wires!) it's just not transmission. Alternative Transmission Inc. (ATI) filed an answer to all that sound and fury signifying nothing the other day. Go ahead, read it, references to Nikola Tesla and all. It is noteworthy that when Congress was considering the FPA legislation, many years earlier the polymath Nikola Tesla was testing wireless transmission of electric energy. FPA legislators likely were aware that wireless transmission was being researched, even though Tesla’s specific concept being developed at Wardenclyffe Tower on Long Island ultimately proved commercially unsuccessful. May the ghost of Tesla haunt you and zap your cafeteria coffee maker into useless oblivion, EEI. Innovation is the future, even if we have to drag you into it, kicking and screaming the whole way. If the electric transmission industry does not evolve, it's headed for Dinosaur Land.
This article "suggests" that a new Order 1000 proceeding could be coming at FERC. Why is FERC so frustrated that its Order No. 1000 isn't working as intended? What was it intended to do, anyhow? Order 1000, issued in July 2011, was intended to expand transmission to help meet the growing demand for renewable generation. It revised rules on transmission planning, on allocating transmission costs and on competitive bidding. Well, there we go. FERC issued an order intended to expand transmission. Except FERC has no jurisdiction over actually doing so. Transmission siting and permitting, which is the ultimate word on actually expanding transmission, is state jurisdictional. Individual state utility commissions make this decision. Even if FERC got down on its knees and begged transmission developers to build more transmission, FERC cannot control state decision making. FERC has jurisdiction over interstate transmission rates. It has chosen to use that jurisdiction to entice transmission development with financial rewards. Except financial reward does not substitute for FERC's missing jurisdiction. Financial rewards for new transmission doesn't influence state utility commission decisions on need and siting. Perhaps they may even have a detrimental effect by overpricing the transmission project. And here's another fact about the effect of Order No. 1000 and FERC's efforts to expand the transmission system without siting and permitting authority: New transmission has come online, but 70% of the system is over 25 years old. FERC has awarded transmission incentives exclusively to new transmission after directed by Congress to develop incentives in the Energy Policy Act of 2005. It's more profitable to build new transmission than it is to upgrade existing lines, therefore the result is new transmission connected to old lines.
This article blathers on incessantly about something completely unrelated and totally un-newsworthy. Competitive transmission. We're still talking about new transmission. That doesn't fix the old lines connected to it. Wow, a competitive transmission builder paid for a "study" that found the conclusion they wanted... that competition to build new transmission saves money for consumers. But how much money could the consumers actually save if old lines were upgraded to do more? Re-building existing lines is cheaper and faster. Shouldn't re-builds be competing against new transmission, instead of new transmission builders competing against themselves? The most FERC can do is monkey with Order No. 1000 to make new transmission more competitive. It still doesn't have authority to make transmission happen. Whether it's financial incentives, transmission planning, transmission competition, or other things in FERC's jurisdiction stable, it's just a lot of expensive busy work. Without authority to site and permit new transmission, FERC's gun is loaded with blanks. It's not that FERC hasn't tried to take jurisdiction over electric transmission siting and permitting. It's that Congress has resisted all its efforts, preferring to leave this piece of the energy pie with states who are familiar with their own needs and people. And that's probably a good idea. How hard is it for affected landowners to have a voice in their own state? Imagine that removed to Washington, DC. Affected landowners and consumers wouldn't have a voice at all because it is not only geographically removed, but overly expensive to participate as well. How bad is our existing transmission system, where 70% of the system is over 25 years old? Transmission lines are paid for over an expected useful life of 40 years. Many of these lines are young yet as far as usefulness goes. As well, utilities are expected to meet rigorous reliability standards to keep the system working. Age is not the defining factor in system reliability. These knuckleheads who like to whine about the age of the transmission system love to quote the American Society of Civil Engineers' annual report card on infrastructure. As if this means anything. Go ahead, read the latest. It's presumptive fluff with no factual basis. It's opinion. It's self-serving dreck. Well, gosh, a bunch of civil engineers whose continued livelihood depends on building new infrastructure think we should build more. Stunning. Stunningly biased, I mean. Likewise, how influenced is FERC by the utilities who make their money building new transmission, whether we need it or not? Why is FERC so determined to expand the transmission system? We're not talking about reliability, that's handled by NERC. What possible reason is there aside from reliability? Growing demand for renewable generation? This isn't FERC's bailiwick. FERC cannot pick and choose between generation sources in order to discriminate against certain ones, in favor of others. That's a political function. FERC isn't a political creature (at least it's not supposed to be). It's a regulator. Regulators enforce laws created by legislators. Legislators are the ones who wrestle with political things when creating laws. So, hey, maybe FERC will re-open Order No. 1000 for public comment. Won't that be fun? It's been eight years since FERC opened a proceeding to examine its transmission incentives. That attempt ended in a bit of a punt, with FERC basically doing nothing to actually effect change. Incentives have continued to reward transmission expansion as a utility profit center, and consumers have been saddled with more costs of abandoned projects. Perhaps FERC's incentives aren't working the way Congress intended. FERC posted its agenda for its monthly meeting last Thursday. Front and center on the docket are: Perhaps the second time will be the charm? The last attempt produced a mountain of comments, both for and against change (change including both increasing and decreasing incentives). Utilities and banksters, of course, were looking to increase their take. State utility commissions, consumer advocates, and consumers were looking to decrease the financial burden of incentives. This upcoming proceeding is guaranteed to produce more of the same.
Just like last time, anyone can comment and participate in the inquiry. The first step is to watch Thursday's commission meeting via webcast to listen to any comments on the items. When issued, the Inquiry will most likely pose numerous questions the Commission wants to contemplate, and will include a comment deadline. Who knows where this inquiry will take us. It's Incentives Groundhog Day! Last week, the Federal Energy Regulatory Commission (FERC) approved an abandonment incentive for both companies to recover their investment in the Cardinal Hickory Creek transmission line across Wisconsin and Iowa. FERC has been allowing incentive rate treatments for transmission investment since the mid-2000's. As incentives go, this is one that doesn't have immediate rate impacts and may never actually be used... unless the Cardinal Hickory Creek project is abandoned before being completed. What's abandonment and what does the incentive do? Abandonment is just a fancy term for project cancellation. In order to collect on this incentive, the utility must have no fault in the abandonment. The project must be cancelled for reason. A utility can't simply cancel a project without reason, and then collect its investment. Like most projects granted this incentive, Cardinal Hickory Creek is the product of a regional planning process. Once ordered to construct the project by the regional authority, the utility must proceed until ordered to stop by the authority. Regional planning authorities sometimes cancel projects before they're built, usually because the case for "need" falters and the authority can no longer support building it. Another reason to abandon a project is if it fails to receive all needed approvals, such as from a state regulator or agency, from a local government, or from a federal agency. Is there ever a "sure thing" when it comes to transmission approvals? There shouldn't be, since states have sole jurisdiction on transmission permitting and siting. Many consider the abandonment incentive unnecessary, because every transmission project faces the risk that it may not be permitted. Why are only some of them awarded the incentive, and not all of them? Is the permitting risk so pervasively routine that incentives to lower the risk are unnecessary? It all depends on what the utility asks for. FERC doesn't award incentives that aren't requested. So, is it indicative of a higher risk when a project applies for the abandonment incentive and is approved? Perhaps... but maybe it's more a product of the amount of money that must be expended before approvals are secured. The more money the utility must put into the project before the approval risk is ameliorated, the greater the loss it may suffer if approvals are not received. Having the abandonment incentive turns on the money spigot, allowing the utility to invest large sums in a transmission project with little to no risk that they won't be able to recover it later, plus interest (return on equity). And it should be noted that FERC is guaranteeing that the utility can apply to recover this investment from ratepayers. There is no special governmental fund behind this incentive, it's your money at risk here. Now on to how it works... if a project is abandoned, the utility must make a filing with FERC that demonstrates the abandonment wasn't their fault, and detailing the project costs it seeks to recover, as well as the suggested time period for recovery. Other parties may intervene to protest any of these contentions, and eventually FERC makes a determination of whether the abandonment was through no fault of the utility, how much of the claimed expense may be recovered, and over what amount of time. Also likely would be requests by the other parties to reduce the return on equity percentage. On the matter of how much may be recovered, FERC allows "prudent" expenses to be recovered. What's "prudent?" It is defined as an action that would be taken by a similarly situated utility manager at that particular point in time. And there is no Monday morning quarterbacking going on here... nothing that happens AFTER the expense matters because it could not be known to the utility at the time it made the expenditure. As well, the burden of prudence gets shifted to the other parties. All utility expenses are presumed prudent unless another party proves they are not. It's a heavy burden to carry. Because a utility's FERC formula rate segregates capital (or plant) expenses from Operations & Maintenance expense that is recovered dollar for dollar as it is spent, the abandonment incentive only applies to abandoned plant. Plant expenses are capital expenses -- the cost of the infrastructure, or physical plant. These expenses are not reimbursed through the formula rate until the plant goes in service (is completed and working). Therefore, they're accumulating while the plant is in the approvals, engineering, and construction phases. Once plant is put in service, it slowly depreciates during its useful life, and the utility is paid for its use over that period of time (plus return, or interest) on the remaining balance. If FERC approves an abandonment filing, it would allow the utility to begin recouping its investment in plant, even though it never went in service. Usually recovery times are shortened here to a period between 1 to 5 years, depending on the plant balance and its effect on ratepayers. What can a utility put in its plant accounts? It's tricky and nuanced and comes with thousands of pages of instructions, known as FERC's Uniform System of Accounts. But generally it includes physical assets, engineering costs, land costs, surveying costs, siting costs, regulatory and permitting costs, and labor. It shall NOT include public relations or advertising costs. (yay, precedent!) So if you notice your utility spending a lot of money on advertising, public relations or lobbying, do not wait until abandonment happens to try to get those costs deemed imprudent. Those costs may have been recovered as O&M in previous years. It's unclear where ATC may try to fit these costs into its recovery (but they do recover them, according to a former executive testifying before a FERC ALJ). FERC's Opinion No. 554 determined that advertising and public relations are not recoverable project cost in any account. Keep this in mind going forward. This article covers FERC's approval of ATC/ITC's abandonment incentive, but gets somewhat lost on process. It claims: In 2012, the developers of a proposed transmission line between West Virginia and Maryland sought to recover $121.5 million the company had spent before grid operators decided the $2.1 billion project was no longer needed. Of the $6.2M disallowed, only a very small portion was ever incorrectly recorded in plant accounts. That disallowance flowed from a number of formal challenge rate proceedings that had absolutely nothing to do with PATH's abandonment. Unfortunately FERC consolidated the formal challenges with the abandonment for "consolidation" of two issues that were not at all similar. I can see how the confusion happens. It's a FERCenese problem. (FERCenese |ferk in knees| noun: The incomprehensible, acronym-laden gibberish spoken at FERC that is hard for common folks to understand. Origin: Electric ratepayer Scott Thorsen, standing in a field in Illinois.) There are some who want to celebrate the fact that ATC/ITC believe they need the abandonment incentive because they believe it indicates a real chance at failure. And there are some who are believe that the granting of the incentive makes the utilities more likely to persist instead of abandoning the project. Let's take a look at what the utilities said to FERC to convince them to grant the incentive. ITC says: There is significant uncertainty and risk to the Project due to its scope, size and long lead times, and because the Project requires approval from Iowa, Wisconsin and multiple federal agencies. In particular, there is a risk that the federal agencies may select a different river crossing than that authorized by the IUB or the PSCW. If this occurs, there is a risk of additional delay that may threaten the ability of the Project to move forward. These approvals and permits are not guaranteed to be granted, and the Project could be delayed or terminated, or the final route changed, if ATC is unable to obtain any of these approvals or permits. In particular, the federal agencies may select a different Mississippi River crossing than that authorized by the IUB or the PSCW, which could delay or result in termination of the Project. Both companies are concerned about the Mississippi River crossing. Both companies are concerned about permitting. Both companies are concerned about easement acquisition. Aren't these all things that the utilities can seek to overcome by spending more money?
I think there's merit to both arguments. First, the utilities have tipped their hand to reveal their greatest weaknesses. Yay! But they have also been encouraged by the incentive to spend whatever it takes to steamroll permitting agencies and resistant landowners and drag this project out as long as possible before abandoning it. Boo! What happens when a transmission company can't keep track of its own finances? FERC to the rescue! In the wake of FERC's Opinion No. 554 ordering PATH to refund all of its advertising, civic and political costs at issue in the formal challenge proceeding, PATH was ordered to make a compliance filing and refund report. Except what PATH filed was incomprehensible gibberish. FERC has tried valiantly to make sense out of it ever since. PATH made additional compliance filings to correct previous errors which created nothing more than a huge quagmire of inconsistency. That's pretty much standard procedure for PATH's accounting. *I'm not sure these people know what they're doing!* But FERC did not give up and run exasperated and screaming from the room. I appreciate that. FERC says We find discrepancies between the General Advertising amounts reclassified by PATH in its Compliance Filings compared to the General Advertising amounts the Commission required PATH to reclassify in Opinion No. 554. FERC has found further errors on PATH's part and ordered them corrected. Let's put an end to this quagmire and drain the PATH swamp! Meanwhile, PATH wants the Commission to approve its request to liquidate the $70M of profit PATH has accumulated and give it to the parent companies, FirstEnergy and AEP. $70M! For a transmission line project that never put a shovel in the ground. That's quite a participation trophy! But first, the Commission needs PATH to make a COMPLIANCE FILING detailing its post-Opinion No. 554 land sales. Did you make a compliance filing, PATH? It would almost be funny, if it wasn't so costly to ratepayers. PATH has 30 days to make the compliance filing it should have made after its land auctions, and 30-days to make its compliance filing on the removal of advertising costs. PATH has 60 days to make its refund report. PATH was also ordered to wrap up its business at the Commission. Won't we all be happy when PATH quits sliding its claws into our ratepayer wallets? As much as I look forward to the twice yearly phone gab fests, I would like to see this done. It's time to move on! PATH must submit a compliance filing with the Commission describing either: (1) its plan for ending its operations and a timeline for when it intends to file a notice of cancellation of its transmission formula rates, or (2) the type of “transmission or sale of electric energy” that requires its rates to stay in effect. We direct PATH to submit this compliance filing within 30 days of the date of this order. To the extent that PATH intends to unwind, PATH must make the appropriate filings under FPA section 205, as necessary, to implement this action. PATH shall notify the Commission within 10 days of the date that the closing out of business is complete. Can we get a hallelujah, brothers and sisters?
Except there's this... "Interested parties may “file comments on PATH’s compliance filing 30 days from the date PATH makes its compliance filing.” And this... "We note that PATH’s refund obligations may change as a result of further Commission orders in this proceeding." Can PATH find its way out of the FERC maze and collect its $70M? Or will FERC snatch it out of their hands before they get to the exit? Stay tuned... FirstEnergy's attempt to transfer its risky, money-losing coal generating plant to West Virginia ratepayers has failed. Finally. It's just too bad all that time and money got wasted on an idea that had no real chance of succeeding. Only a corrupt regulatory system and galling arrogance made it seem like a good idea. Because the WV Public Service Commission had approved a similar deal for a different company transfer several years ago, FirstEnergy thought it didn't have to try so hard. Its idea to transfer the Pleasants Power Station from its competitive generation company to its WV distribution affiliate was a bold joke, flimsily wrapped in "need" and bad economic projections, submitted with a wink and a nod. FirstEnergy knows that the WV PSC is more interested in the needs of the company than the needs of the ratepayers it was created to protect. Oh, sure, the WV PSC pretends its mission is to "balance" the needs of ratepayers with the needs of the community at large and the needs of the utility. However the utility is perfectly capable of advocating for its own needs, and the communities are so bought out by corporate profits that they act like yappy lap dogs, barking at corporate direction. It is the ratepayers who rely on the regulatory system to protect their interests. Indeed it is the very nature of a monopoly situation that requires regulation to protect ratepayer interests. FirstEnergy's WV affiliate has been granted a monopoly franchise to serve West Virginians. Because FirstEnergy has a monopoly, regulation serves to provide competition where none exists naturally. It is regulation that controls utility actions to ensure a monopoly does not exert market power over captive ratepayers. Therefore, the WV PSC exists first and foremost to protect the needs of WV ratepayers captive in a monopoly system. Perish the thought that FirstEnergy would have to perform and earn its right to own a monopoly franchise. That thought has probably never even crossed the minds of WV's PSC Commissioners. They seem to think they exist to make sure the utility is treated fairly. And that's what they did in the recent Pleasants transfer case. Knowing that the WV PSC is a captured agency who dances at corporate will, it was much more productive for ratepayers to look beyond the first string of regulators who are supposed to protect them. The Federal Energy Regulatory Commission isn't as wrapped up in the needs of West Virginia's economy or corporate profits, and is not captured in the same way as the WV PSC, whose commissioners are appointed as lobbied by state franchised utilities. The chances were better that an impartial decision would be made at the federal level. And it was. The FERC rejected FirstEnergy's proposal to transfer the plant between affiliates, finding that the transfer resulted in improper cross-subsidization. In plain speak, that means that it was not a fair arm's length transaction. But FirstEnergy, in its sheer arrogance, attempted to apply its West Virginia bag of tricks to influence the federal agency. That's right, FirstEnergy had its attorney call up a FERC Commissioner to try to influence the agency's decision. Somehow, FirstEnergy was aware "that the Commission would shortly issue an order adverse to the interests of Monongahela Power." How was it that a party to a FERC proceeding was aware of a decision of the agency before it was issued? Because FERC is as much a revolving door regulatory agency as any. It's a great landing spot for attorneys fresh out of law school with a mountain of student debt. With just a few years of effort at marginal pay, a FERC staff attorney can make himself marketable to private industry as an "insider." The regulated entities prize these FERC insiders and pay them handsomely. FERC is just a springboard to fat paychecks for some attorneys. That's not to say that all FERC attorneys are using the agency to pad their resumes, I found that there are plenty of staff who take their charge to protect public interests seriously and make a career out of it. Those public employees are treasures, but as you can see, it only takes a handful of bad ones to trash FERC's public service mission. I'm happy to realize, though, that one of FERC's Commissioners put a stop to this underhanded effort and reported the illegal contact from FirstEnergy's attorney. Bravo! But what happens to the attorney who attempted this improper influence? I'm thinking that FirstEnergy's attorney knew calling up the Commissioner like that was against the rules. But he did it anyhow. Why isn't he barred from practice before the agency in the future? The only thing he seems to have received is some exposure. No harm, no foul, he's free to repeat this behavior in the future, perhaps with a Commissioner who may not blow the whistle on him. It is only when improper behavior comes with significant consequences that it will end. And why did FirstEnergy think improper influence on FERC would save their bacon? Probably because it works in other jurisdictions. I believe that if the same situation played itself out in West Virginia, for instance, that ending the contact and reporting the encounter would not occur. FirstEnergy only does this because it works. So here we are again at regulation acting as safeguard in a monopoly situation. It's a lesson the WV PSC never seems to learn. And what happened in West Virginia after FERC disapproved the transaction? The WV PSC approved the transfer, saying that the unfairness of affiliate transactions didn't matter. The WV PSC was totally unconcerned about the fairness of the transaction and whether it violated the concept of competition in an open market where a utility did not have a monopoly. The WV PSC tried to pretend it actually listened to public comment and considered it in its decision. That's a first, but it was contrived nonsense. The WV PSC's decision to approve the transfer was nothing short of a display of disgusting arrogance. Someone's fee-fees seemed pretty bruised that the company did not accept their offer to approve the transaction with a delay. Everyone got some backlash. The Consumer Advocate gets chastised for protecting consumers: The CAD takes no prisoners in its attempt to “advise” the Commission of its responsibilities. In its Reply Brief, the CAD emphasizes the gravity of the situation by stating that, if this Transaction is approved, “the harm that redounds to West Virginia captive ratepayers will be a legacy of this Commission.” Seriously? The CAD exists to protect ratepayer interests. Why shouldn't it be direct about the harm to ratepayers? Its job IS to advise the Commission, no quotation marks needed. If the CAD can place a little nugget of guilt into the mind of a compromised Commissioner, it's still not a fair trade for years of increased electric rates. And a Commissioner who resents this effort obviously doesn't have the best interests of ratepayers in mind. If he did, then the CAD's attempt to inspire guilt would have no effect. Think about that. The WV PSC treats "risk" as a non-starter. The PSC thinks risk exists everywhere and assumption of risk should not be a primary concern in their decision. Except the company failed to accept the PSC's conditions on approval, stating: Additionally,the Companies will not accept the conditions included in the Commission Order that would result in Mon Power assuming exposure and significant commodity risk, which is inconsistent with FirstEnergy’s announced corporate strategy. So it is about the risk after all? While the ratepayers are supposed to be unconcerned about taking on additional risk from the transaction, the company can base its decision to abandon the transaction on its aversion to risk? FirstEnergy was trying to transfer its risk to WV consumers, but it was unsuccessful. And that's the bottom line.
FirstEnergy failed. Although it was a rough ride with some hairy, scary moments, ultimately the company ends up stuck with their own mess. We just get the bill. |
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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