In the NOI, Promoting Transmission Investment Through Pricing Reform, FERC is seeking comments about the effect of its incentives on promoting transmission. If you're going to comment, you need to understand what the incentives are, and what they are intended to do.
Let's look at CWIP in rate base. This is an incentive that costs you money every year for projects that are stalled or may never ever be built.
CWIP (pronounced quip) stands for Construction Work in Progress. CWIP represents the capitalized project costs such as land, fixtures, regulatory expense, engineering, surveys, the federal EIS process, land agents, and other items that will become a part of the rate base, which is recovered over the useful life of the project (with return).
Without this great incentive, transmission developers would have to accrue these costs and begin recovering them (with carrying charges - a form of interest) when the project is completed and goes into service.
With this incentive, transmission developers begin earning a return on their capital investment in the project during the construction period. FERC's reasoning for this incentive is that it reduces the amount of capital needed and therefore reduces the cost of borrowing needed capital. The idea is that the yearly return will be invested back into the project as capital (unless the transmission owner fritters it away on "donations" and lobbying as PATH has done). As an example, let's look at our favorite poster child, the PATH project. When PATH's incentives and formula rate (formula rate is the mechanism for recovering project costs and return in your electric rates) were granted in February, 2008, ratepayers began paying for the PATH project immediately. All ratepayers in the PJM region have been paying a return on PATH's rate base (including CWIP) since 2008, although no state permits have been granted and nothing has been built. PATH has been spending money on CWIP (millions) and we have been paying them a return on it every year, in addition to the yearly taxes, depreciation on plant in service and Operations & Maintenance costs. The ratepayers have nothing to show for their investment. PATH has not been built and has not delivered any electricity anywhere, and may never do so. PATH is "suspended" for an unknown period of time, however, they will still collect a return this year on accumulated CWIP in rate base, and also every year thereafter, as long as this project drags on. There's no impetus to ever get this project built. PATH will continue to collect millions of dollars in return every year and will be required to do absolutely nothing for it.
In the NOI, beginning on page 30, FERC discusses the CWIP in rate base incentive and asks several specific questions.
I know this particular question will be of interest to all of you PATH opponents. In fact, it looks like it was crafted to relate particularly to the PATH project in response to all your recent comments to FERC. This is one you should definitely answer in your comments to FERC (can we get a resounding chorus of "Oh! Hell, yes!"?).
Q60) Should the CWIP incentive not apply or be suspended in circumstances where an incentives project has been suspended for an indefinite period of time and there is no additional construction activity on the project?
FERC wants to know if PATH should be allowed to continue to collect a return on it's "suspended" project indefinitely; or, if FERC took this incentive away from them, would PATH be jolted into action to either fold or get on with things?
Now that you know what CWIP in rate base is... go look at the rest of the questions and formulate your comments/suggestions for FERC. I'm sure you creative consumer "stakeholders" can make suggestions that the industry won't even ponder. The industry will be letting FERC know how they can and should sweeten the pot even further for them. It's up to you to provide balance with a little real world sanity.
Keep checking back... there's lots more incentives to come!
If you found this helpful in crafting your comments, you are encouraged to browse the entire FERC Transmission NOI category at StopPATHwv.com for other useful material. You don't have to comment on all aspects of the NOI if that's too burdensome. In fact, if you want to concentrate in detail on just one aspect that interests you and about which you have strong feelings, that's a perfectly acceptable approach to producing effective comments.
Let's look at CWIP in rate base. This is an incentive that costs you money every year for projects that are stalled or may never ever be built.
CWIP (pronounced quip) stands for Construction Work in Progress. CWIP represents the capitalized project costs such as land, fixtures, regulatory expense, engineering, surveys, the federal EIS process, land agents, and other items that will become a part of the rate base, which is recovered over the useful life of the project (with return).
Without this great incentive, transmission developers would have to accrue these costs and begin recovering them (with carrying charges - a form of interest) when the project is completed and goes into service.
With this incentive, transmission developers begin earning a return on their capital investment in the project during the construction period. FERC's reasoning for this incentive is that it reduces the amount of capital needed and therefore reduces the cost of borrowing needed capital. The idea is that the yearly return will be invested back into the project as capital (unless the transmission owner fritters it away on "donations" and lobbying as PATH has done). As an example, let's look at our favorite poster child, the PATH project. When PATH's incentives and formula rate (formula rate is the mechanism for recovering project costs and return in your electric rates) were granted in February, 2008, ratepayers began paying for the PATH project immediately. All ratepayers in the PJM region have been paying a return on PATH's rate base (including CWIP) since 2008, although no state permits have been granted and nothing has been built. PATH has been spending money on CWIP (millions) and we have been paying them a return on it every year, in addition to the yearly taxes, depreciation on plant in service and Operations & Maintenance costs. The ratepayers have nothing to show for their investment. PATH has not been built and has not delivered any electricity anywhere, and may never do so. PATH is "suspended" for an unknown period of time, however, they will still collect a return this year on accumulated CWIP in rate base, and also every year thereafter, as long as this project drags on. There's no impetus to ever get this project built. PATH will continue to collect millions of dollars in return every year and will be required to do absolutely nothing for it.
In the NOI, beginning on page 30, FERC discusses the CWIP in rate base incentive and asks several specific questions.
I know this particular question will be of interest to all of you PATH opponents. In fact, it looks like it was crafted to relate particularly to the PATH project in response to all your recent comments to FERC. This is one you should definitely answer in your comments to FERC (can we get a resounding chorus of "Oh! Hell, yes!"?).
Q60) Should the CWIP incentive not apply or be suspended in circumstances where an incentives project has been suspended for an indefinite period of time and there is no additional construction activity on the project?
FERC wants to know if PATH should be allowed to continue to collect a return on it's "suspended" project indefinitely; or, if FERC took this incentive away from them, would PATH be jolted into action to either fold or get on with things?
Now that you know what CWIP in rate base is... go look at the rest of the questions and formulate your comments/suggestions for FERC. I'm sure you creative consumer "stakeholders" can make suggestions that the industry won't even ponder. The industry will be letting FERC know how they can and should sweeten the pot even further for them. It's up to you to provide balance with a little real world sanity.
Keep checking back... there's lots more incentives to come!
If you found this helpful in crafting your comments, you are encouraged to browse the entire FERC Transmission NOI category at StopPATHwv.com for other useful material. You don't have to comment on all aspects of the NOI if that's too burdensome. In fact, if you want to concentrate in detail on just one aspect that interests you and about which you have strong feelings, that's a perfectly acceptable approach to producing effective comments.
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