West Virginia's penny wise and pound foolish legislators have passed a bill that would enable the Public Service Commission to approve the issuance of bond debt which would allow Appalachian Power to recover its cost of coal over the past 4 years.  The long-term debt will be repaid by electric consumers in their monthly bills over the next decade.  Coal prices are expected to continue to increase in the future.

I'm not going to harp on why this is completely wrong anymore.  I'll turn it over to an expert - James M. Van Nostrand, Director, Center for Energy and Sustainable Development and Associate Professor of Law, West Virginia University College of Law.  Read his analysis of West Virginia's big mistake here.  When our legislators and Public Service Commission won't listen to learned experts, but instead choose to buy into the pie-in-the-sky promises of corporate lobbyists, it's time to clean the state house, before we go bankrupt trying to stay warm in our own house.

It looks like Primary Power has had another revelation about the shifty state of affairs at PJM.  If you've been following the SVC issue, here's the latest.

Primary Power submitted a letter to PJM on February 29 to make a final plea to retain their prior selection to construct the projects.  FirstEnergy wants to swoop in at the last minute and take over the project and they have been whining like a milksop champ.

In the letter, Primary Power makes a couple of astute observations:

"Continuing to allow a re-opening of the original recommendations made by the OI is tantamount to allowing the incumbent transmission owners to take over PJM’s role as the Transmission Planner in its NERC reliability regions, and PJM’s management of the stakeholder process."

and

"There are real problems with FirstEnergy’s claimed estimate that make it not credible, and not a valid basis for comparison to Primary Power’s well-founded estimate. First, Primary Power’s estimate is based on five years of development work on the Meadowbrook SVC and a design-basis cost estimate provided by the EPC contractor for the Primary Power SVC projects. In comparison, FirstEnergy has done no development work on a Meadowbrook SVC and its estimate is just an unvetted assumption.

Second, FirstEnergy’s track record on cost estimates for this very type of facility demonstrates that FirstEnergy grossly underestimates the cost of the facility in its initial estimate.

In the case of FirstEnergy’s Black Oak SVC facility, which was designated to FirstEnergy in the 2005 PJM RTEP, FirstEnergy’s initial estimate was $35 million. Within a year after FirstEnergy was designated to build the facility, the original cost estimate had ballooned from $35 million to $50 million. FirstEnergy underestimated the cost by almost 50 percent, and PJM selected the project based on that estimate.

If FirstEnergy has similarly underestimated the costs here, which is likely given that FirstEnergy has done no development or design work on the Meadowbrook SVC, then FirstEnergy’s $60 million initial estimate could easily escalate to $90 million, well in excess of the cost for Primary Power’s Meadowbrook SVC project. The lesson learned from FirstEnergy’s prior cost estimating and its off-the-cuff estimate for a project that it has not developed, is that care should be taken when comparing cost estimates."

So, FirstEnergy severely undervalues their "off the cuff," unvetted cost estimates in order to have them selected by PJM.  And PJM continues to defer to the profit-driven bullying of its largest members.  Anything new and striking in that for you PATH opponents?  Nah, didn't think so.  PJM is a dangerous cartel and its continued biased favoritism of projects awarded to certain incumbent TOs keeps cropping up again and again.  Like water dripping on a stone...

TrAILCo recently made a filing with the WV Public Service Commission requesting blanket permission to divest itself of real property it currently owns that is "not useful or necessary to TrAILCo’s performance of its public service obligations."  Why would TrAILCo have imprudently spent ratepayers' money purchasing property that wasn't useful or necessary?  Some (but not all) of these properties are ones that TrAILCo was obligated to purchase, at owner's option, under one of the stipulations in its settlement.  In order to buy itself the necessary Certificate of Public Convenience & Necessity it needed from the WV PSC, former Gov. Joe Manchin engineered what were called "concessions" from the company.  The rest of us may view them as bribes.  The cost of these "concessions" to West Virginia were then recovered from ratepayers throughout the 13-state PJM region, except for TrAILCo parent company subsidiaries Mon Power and Potomac Edison's customers in West Virginia.  In another stipulaton, the parent company agreed to absorb those customers' cost of the TrAIL Project for a period of 7 years.  That date with a big rate hike is looming just over the horizon for those electric consumers, who will not be easing into the cost of TrAIL gradually over a period of years during construction as the other ratepayers did, but all at once.  The rate shock is coming, my friends.

The stipulation causing TrAILCo's current filing reads:

Staff General Condition #2 - “The Company shall purchase any property containing residences that are within 400 feet of the centerline if the owner desires to sell their property.”
TrAILCo accepts this condition, provided that in each case the property owner will have until the first anniversary of the inservice date of the West Virginia Segments of TrAIL to notify TrAILCo in writing that the property owner has elected to exercise the option to require TrAILCo to purchase the property at a fair market value based on the median of three appraisals. One appraisal shall be prepared by a qualified appraiser selected by the property owner, another appraisal shall be prepared by a qualified appraiser selected by TrAILCo and a third appraisal shall be prepared by a qualified appraiser selected by agreement of the two other appraisers. TrAILCo shall pay the reasonable costs of all three appraisals.

So far, TrAILCo says it has purchased 24 properties, although they admit that they purchased some of these properties "through [their] own initiative." The properties purchased at TrAILCo's own initiative were not a requirement of the stipulation.  Why are ratepayers subject to the cost of "unneeded and useless" property that TrAILCo voluntarily elected to purchase?  Exactly how much unneeded property did they purchase on their real estate buying spree?  The offer to buy properties under the stipulation is valid until May 18, 2012.  How many more unneeded properties will TrAILCo buy and add to its "unneeded and useless property" list before the deadline?

TrAILCo does not put a purchase value on these properties in their filing, although the amount is certainly known.  The stipulation required TrAILCo to purchase these properties at "fair market value."  However, in its filing, TrAILCo says the properties will be revalued at "fair market value" before selling.  So, which "fair market value" is actually "fair market value?"  Apparently it's not the "fair market value" at which they purchased the properties.  Were these landowners cheated out of true "fair market value?"

TrAILCo's filing is made necessary by WV Code that requires approval of any sale of utility property by the WV PSC.  In order to consider the sale, the PSC requires all the information listed in TITLE 150 PROCEDURAL RULES PUBLIC SERVICE COMMISSION, Sec. 10.6. Sale of franchises, permits and plant.  However, TrAILCo does not provide all of the information and claims in their filing that the information "has little bearing, if any, on the Commission’s decision."

Some important, required information that TrAILCo conveniently omits from their filing is:

10.6.e. accounting history of the franchises, licenses, equipment etc., to be sold, assigned, etc., including the account numbers used, the original cost, and the date of purchase by the petitioner,
10.6.f. the proposed journal entries associated with the sale of the franchises, licenses, equipment etc., to be sold, assigned, etc., including account numbers and amounts,

This information is crucial to the Commission's decision since "Any gains or losses incurred will be recorded below the line, protecting ratepayers from any adverse impact from the sales.    Further, as TrAILCo will not include any costs, gains or losses associated with selling the Properties in its revenue requirement, TrAILCo’s customers will not be adversely impacted by the Properties’ sale."  TrAILCo says sale of the properties "will have no adverse impact upon TrAILCo, West Virginia ratepayers, or other public utilities within the Commission’s jurisdiction."

But what about the ratepayers in the other 13 states?  TrAILCo's claims of "no impact" are not necessarily true.  The "gains or losses" are to be recorded "below the line."  Below the line expenses are those that are absorbed by the company and not recovered from ratepayers.  Conversely, above the line expenses are those that are the responsibility of ratepayers and are recovered through rates.  TrAILCo does not provide a clear picture of where the expense of purchasing the properties, maintaining the properties, paying taxes on the properties, and other costs such as the demolition of several buildings on the properties, was originally booked.  TrAILCo merely states, "TrAILCo will record each sale of Property in accordance with the Uniform System of Accounts."  That's hollow assurance, since TrAILCo's parent's accounting practices have been proved incorrect in numerous corrections to its FERC Formula Rate filings, and TrAILCo is currently the subject of an audit being performed by FERC's Office of Enforcement.  TrAILCo is seeking the West Virginia PSC's permission for rate accounting over which they have no jurisdiction.  TrAILCo wants to book any gains on the sale of these properties below the line.  The proceeds will go directly to TrAILCo's shareholders, which happens to be the parent company, FirstEnergy.  If the property purchase and expenses were the responsibility of ratepayers, any gains should flow back to ratepayers, not to FirstEnergy's pocket.

TrAILCo insists, "TrAILCo needs to sell the Properties in order to prevent deterioration and to maximize their resale value."  Isn't it ironic that TrAILCo's related subsidiary's PATH Project has purchased numerous properties at ratepayer expense that they continue to hold, year after year, while those properties "deteriorate" while that project sits "in abeyance."  PATH is in no hurry to sell properties it purchased in order to protect ratepayers' investment.

In addition, TrAILCo claims that the information required in Sec. 10.6.h (description of how purchaser became aware of TrAILCo’s intent to sell the Property) "would have little, if any, impact..."  That requirement is in there to ensure that all sales are "arm's length" transactions.

TrAILCo states, "The sales of the Properties will benefit TrAILCo..."  Well, that much is clear.  The rest remains ambiguous.

In this press release the Coalition for Fair Transmission Policy (CFTP) points out that investment in new transmission is expected to increase 43% between 2011 and 2014.

"According to the Edison Electric Institute, shareholder-owned electric utilities and stand-alone transmission companies for the first time in 2010 surpassed the $10 billion mark for a yearly investment in transmission infrastructure. Spending on transmission increased nine percent from 2009 to 2010, EEI reported. Utilities and others are expected to invest $54 billion on transmission between 2011 and 2014, a 43 percent increase over transmission investment during the previous four-year period, 2007-2010, EEI reported."

That's because transmission is a tidy profit center for investor-owned utilities.  In return for their investment, these companies earn an immediate, guaranteed double-digit return on equity courtesy of federal transmission incentives and formula rates, even if the projects they invest in never get built!

While the CFTP makes some good points about broad socialization of transmission costs, the wisdom and ultimate cost of a "national grid" build out to support on-shore wind, and federal control of transmission siting and permitting, it's pretty hard to take them seriously or to want to support their "coalition."

That's because their membership (bankrollers) is composed of some of the worst perpetrators of the same bad policies they denounce.  For instance, member PSE&G is currently gouging over 60 million ratepayers throughout the 13-state PJM region for their unneeded Susquehanna-Roseland Project, as well as multiple other transmission projects they are undertaking.  If Susquehanna-Roseland had to be paid for solely by the ratepayers that benefit from it, it would not be cost effective.  S-R will purportedly reduce electric costs in New Jersey and load centers located at its eastern terminus.  According to CFTP, that's who should pay for the entire line.  Instead, PJM's cost recovery policy socialized PSE&G's cost across their entire region.  If we believe that S-R will reduce prices in New Jersey, we also accept the fact that S-R will increases prices to the west of it's starting point.  This "levelizing" of prices within the region is what PJM's screwed up markets promote.  Why is it that ratepayers who bear the direct brunt of proximity to "cheaper" generation must not only pay the cost of new transmission to make electricity cheaper for other load centers without enough generation to support their needs, but also have the prices they pay for electricity raised by the ultimate "benefit" of these same transmission projects?  This is the bad logic that PJM has been getting away with for years with their destructive "markets."

CFTP is just another corporate-funded "coalition."  These "coalitions" always have ulterior motives because, let's face it, corporations aren't in the "warm & fuzzy" business of helping consumers.  They exist to turn a profit every quarter.  Every expenditure is geared toward increasing those profits.  So, while their "coalition" has some good arguments, they're also a bunch of hypocrites.

Despite PJM's lingering uncertainty about the PATH Project, it's deader than dead at FirstEnergy.  In today's Q4 2011 Earnings Call shindig in New York (which YOU get to pay for in your electric bill), there was no mention of PATH in any discussion of their transmission plans. 

In fact, FE seems to have lost their taste for big joint venture projects like PATH entirely:  "...one thing I don't see in our future is investing in large scale transmission projects outside of our utility footprint. We plan to stay close to home, make investments that have high certainty of completion and transparency as far as financial returns."

It's probably a good thing, considering:

"The skill sets acquired from Allegheny on transmission siting and construction will also be invaluable going forward as future projects are completed."

Well, based on Allegheny's "skill sets" utilized in trying to site the PATH Project, good luck with that, FE!  It's just too bad about any future transmission projects you may undertake with those morons "applying best practices."  They got thoroughly trounced by a tri-state coalition of ordinary citizens.  They're just not the brightest bulbs in the string...

FirstEnergy doesn't even seem to understand why Allegheny was interested in the PATH Project in the first place:

"We aren't sure on the reasons for investing in Transmission either."

It was all about the money, boys!

If you want to download the slides, you can find them here.

SB162, Least Cost Planning, died in committee today.  So ends my involvement with legislation this year.  Now I can get back to the things I do best, like, oh I don't know... maybe researching and reporting on corporate campaign donations?

Many thanks to the many of you who made phone calls and wrote emails.  Once again, our collective efforts produced the biggest response to a piece of legislation and made our corporate representatives at the Capitol distinctly uncomfortable.  Unfortunately, it wasn't enough to drown out the "free speech" of the electric and coal corporation campaign cash.  This will most likely continue until we hold "our" elected representatives accountable for their actions and make them earn our respect.  As my poor mother was fond of saying many years ago, "I brought you into this world, and I can take you out!"  The current status quo will only survive as long as you allow it.  The power is in your hands.

So, the next time your electric rates go up (hey, that's this Thursday for you ApCo customers -- they're going to file for ANOTHER rate increase), you can send your personal thanks to the members of Senate Judiciary who tabled the least cost planning bill.  It turns out that the problem was that the coal companies were scared that when their power company friends were forced to put real numbers on a public piece of paper, maybe coal wouldn't be the cheapest fuel to generate electricity going forward.  Therefore, the corporations and their friends in the Senate decided it was better to kill the bill and hope that the consumers never find out that their electric bills keep going up in order to subsidize West Virginia's coal industry.

This is far from the end for least cost planning, however, it merely served as a launch pad.  There's much more to come!

On the positive side, we scored a huge victory in the House by limiting Appalachian Power's Consumer Debt Bond Bill to only one bailout for the company.

Sometimes the victory is immediate and obvious.  Sometimes it's a long term process, but a victory all the same.

Heroes

Del. Nancy Guthrie, who amended Appalachian Power's Consumer Debt Bond Bill to limit it to a one-time occurrence to bail APCo out of its current precarious situation.

Sen. Dan Foster, who sponsored the Least Cost Planning bill and continued to support it to the bitter end.

Zeros

Well now, that just wouldn't be "nice," would it? ;-)  I don't really need to put a list of names here, do I?

One of the advantages West Virginia has historically enjoyed when attracting and supporting businesses in the state has been low electric rates.  However, that advantage has been severely challenged over the past four years with rates soaring nearly 50 percent.  If we allow "business as usual" to continue and make no attempt to develop a logical plan to keep electric rates reasonably in check, that advantage will be lost forever.

When electric rates rise, businesses must find a way to cover the increased cost.  That could mean cutting back on staff, resulting in increased job loss throughout the state.  It could also mean that businesses will simply throw in the towel and close altogether.  Or, perhaps they will simply relocate to another state where sensible planning provides electric rate certainty that businesses can rely on.  The ultimate outcome of West Virginia's lack of planning to control skyrocketing electric rates will most likely be a combination of all the above.

The Power Line blog reports today that a "whispering campaign" has been started at the legislature by power company lobbyists who contend that SB162, requiring electric companies to submit least-cost plans to the Public Service Commission, will cause job loss in the state.

The power company's scare tactics are completely untrue, as The Power Line aptly points out.  In fact, the opposite is true.  Failure to institute least-cost planning will lead to wide-spread job loss across all industry and business sectors in the state.

Power company lobbyists say least-cost planning "would result in coal miners losing jobs and the power companies’ coal fired plants closing down."  The coal industry may be in trouble, but it has nothing to do with least-cost planning in West Virginia.  The price of coal has gone up due to an increase in exports to other countries who will pay dearly for it.  In contrast, there has been a corresponding decrease in gas prices due to excess production.  The gas vs. coal electricity generation war has begun.  West Virginia's electric consumers have absolutely no fault in this and cannot solve it by paying more for electricity.  It's an economic problem we can't afford to straighten out.  Electric consumers don't have a dog in this fight.

Adding to the dilemma is decreased electric demand related to energy efficiency and demand response occurring in east coast states.  West Virginia exports 80% of the electricity generated in the state to east coast markets.  When the east coast isn't buying it, and is in fact building new gas-fired generation to meet their own needs, it causes electric rate increases here in West Virginia because power company sales to the east coast are part of what has kept our rates low in the past.  This fact is also beyond the control of West Virginia electric consumers.

As well, there's an incredible amount of waste going on at West Virginia's electric utilities that has nothing to do with fuel costs.  For instance, did you know that AEP's former CEO was allowed free use of the corporate jet for personal travel as part of his employment contract?  There's certainly plenty of belt-tightening that can be done at the corporate level before placing their economic woes at the doorstep of West Virginia's electric consumers.

The power company lobbyists are lying to your elected representatives.  The legislators who continue to stall SB162 are choosing to throw their constituents under the bus, and are embarking on a very slippery slope which will endanger the prosperity of West Virginia business and industry.

Look no further than Ohio for a recent example of what can happen when huge electric rate increases, cooked up through a corrupted Public Utilities Commission process, hurt business. 

West Virginia can, and must, do better by instituting least-cost planning.

PJM is still refusing to give up on the PATH Project boondoggle.  With the 2011 RTEP just a week away, PJM continues to recommend that PATH and fellow Project Mountaineer boondoggle, MAPP, remain in the la-la land of "abeyance" until the May 2012 RPM auction.  Project Mountaineer boondoggle Susquehanna-Roseland is supposedly still "needed," according to these slides.

There is no longer any "reliability" or economic justification for these projects!  They simply hang around like a stale house guest and continue to cost electric consumers in thirteen states higher electric bills that they can ill afford.

The last RPM auction in May 2011 showed that prices between eastern and western PJM have nearly levelized:

"In PJM's MAAC area the price of capacity will be $136.50 MW-day, a decrease of about $100 from last year.  (The MAAC price applies to the transmission zones of Baltimore Gas and Electric Company, Metropolitan Edison Company, Pennsylvania Electric Company, and PPL Electric Utilities, Atlantic City Electric, Delmarva Power, Jersey Central Power and Light Company, PECO, Public Service Electric and Gas Company, and Rockland Electric Company.) The non-MAAC region, will pay the RTO price of $125.99, an increase of about $100. This region includes western Pennsylvania, western Maryland, Ohio, Indiana, Michigan, Kentucky and Virginia.

"The convergence of prices between the eastern and western regions of the market is primarily driven by the significant reduction in forecasted load growth through 2014/2015," Ott said."

Any justification for Project Mountaineer has long since evaporated.  "Congestion" has eased, coal-fired electricity has become more expensive, and gas-fired generation in the East Coast load pockets has become cheaper than coal-by-wire.  In addition, new gas-fired generation is being proposed near load.  Any supposed "reliability" or "congestion" crisis has eased.

As far as Susquehanna-Roseland, PJM really needs to take a fresh look at that project.  Their current plan is complete overkill.  The existing line may be near the end of its useful life, however a simple rebuild may be the answer, instead of a brand new double-circuited 500kV line.

It's always "one more auction" with these guys, and there is always another auction down the road for the project owners to pin their hopes on.  Project Mountaineer was an embarrassing blunder on the part of PJM.  Let's put it to rest, move on, and quit wasting the scarce resources of PJM electric consumers on useless boondoggles!

I think someone handed the Little Drummer Boy the wrong script a couple weeks ago when he sat down with a reporter from the State Journal.

LDB says, "APCO – this territory – has borne the brunt of pretty sizable (rate) increases, and it's mainly due to environmental retrofitting of coal units. Still, the rates are lower than they are in other parts of the country, but that doesn't matter to the people paying the bills. The fact is that we've gotten ahead at APCO, so it should moderate future increases."

He also says that 35% rate increases are "needless."

But last week, AEP's spokes-flack said the rate increases were caused by coal that has already been burned:

"We have already bought the coal, we have already made the power and customers have already used that power," Matheney said. "We're facing this large amount of money that has already been spent."

I'd like to introduce you to

You two should get together some time and get to know each other.

Or, maybe the rate increases are caused by excessive AEP executive salaries

Or maybe the rate increases are caused by zombies?

FERC's Commissioners rubber stamped PATH's ROE Settlement today.  No surprise there.  The 14.3% ROE they were originally awarded is history, replaced by 12.4% and bolstered by a refund to ratepayers of over $2M.  Watch for it in your next bill ;-)  (I'm being sarcastic here folks, you're not going to notice any difference).

The small bit of news came from the Commissioners' attempts to do a little housekeeping on PATH's open FERC dockets.

In their letter order, FERC wants to inform all of you citizen ratepayers who submitted comments about PATH's suspension last year that the comments are "beyond the scope of the proceeding, and therefore will not be addressed in this proceeding."  I think that means that you are dismissed, but read it for yourself.  The "you" referred to by FERC is our pal Randy Palmer.

"On March 7, 2011, you also filed in Docket No. ER08-386-000, for informational purposes only, an update on the status of the PATH Project (Project Update). You indicate that PJM Interconnection, L.L.C. directed PATH to suspend development of the PATH Project other than activities needed to maintain the  PATH Project in its current state. Several individuals filed comments in response to this informational filing on the
Project Update, and PATH filed answer to these comments. These comments raise various challenges regarding the location of the Project, the need for the Project, and its costs. These comments raise issues which are beyond the scope of this proceeding, and
therefore will not be addressed in this proceeding."

I guess the Commissioners missed those parts of certain comments where it was pointed out that PATH's rebuttable presumption, upon which the granting of incentives was based, has run away from home.

However, the two outstanding Formal Challenges live on:

"Consistent with the Commission’s delegated letter order issued in Potomac-Appalachian Highline Transmission, L.L.C., Docket No. ER09-1256-000 at 2-3 (February 2, 2010), PATH’s Annual Updates and any related  challenges filed in the above dockets and Docket No. ER09-1256-000 will be addressed in Docket No. ER09-
1256-000, consistent with the formula rate  implementation protocols providing specific procedures for notice, review, and challenges to these Annual  Updates."

FERC also wanted to let Randy know:

"The Commission retains the right to investigate the rates, terms, and conditions under the just and reasonable and not unduly discriminatory or preferential standard of section 206 of the Federal Power Act, 16 U.S.C. § 824e (2006)."

And I think that will about do it for now.