If you're a regular reader of this blog, you've seen the gigantic boil of corporate control of the federal government forming.  The boil has ripened and it's time to lance it!  Yesterday, The President's Council on Jobs and Competitiveness released this report.  The Jobs Council consists of corporations (see pages 46 & 47) and the report uses data compiled by their paid lackeys, such as the U.S. Chamber of Commerce.

We've long suspected that this push for a "national grid" of new high voltage, long distance transmission lines and federal control of transmission siting and permitting was filtering down from The White House.  What else could get all these politically appointed federal agency heads to scramble with such alacrity?  However, the agenda being championed here is that of big business, the very same big business who got us into this economic mess.  It's not intended to bail us out.  It's intended to further screw the American Consumer and increase corporate control.  Oh, and it's also going to make a bundle of money for the corporate elite.

• Energy Company Payoffs Buy Chamber of Commerce "Study"
• The NIMBY Monster is Winning!
  
• FERC Order No. 1000, The Push for Federal Siting & Permitting and Investor Owned Utility Propaganda
  

I tried to slice up this report to reduce file size and concentrate only on the transmission aspects, but guess what?  Someone has protected the file with a password so it cannot be altered or copied.  How very business like of them!  So, you're going to have to put up with the whole file and my direction to certain pages.  Some people have been unable to download the file at all, most likely due to its "protected" status.  Way to go, fellas, your paranoia is hurting your agenda!

Anyhow, Page 3 presents an executive summary.  Here are two of the Council's "recommendations" that are driving all this malarkey:  Accelerate job growth through new infrastructure projects and reduce regulation.

Page 8 shows "How the Council has been working."  They've been using their Chamber lackeys and other corporate players to control the outcome of their "work."  This isn't an honest effort to revive our economy, it's corporate lobbying.

Pages 13 - 16 details their plans and reasoning for building a new transmission grid.  They pretend that new transmission infrastructure will be "completely funded by the private sector."  This is a sneaky lie.  While investment that fronts the cost of building transmission indeed comes from the private sector, the ultimate financier of all this infrastructure is the electric consumer, who will pay all this money back to the investor, with double-digit interest, over the life of the project.  New transmission projects will drive up the cost of electricity, and this hurts businesses in the commercial and manufacturing sector who consume the lion's share of electricity in this country.  When their costs rise, they have to lay off workers in order to stay afloat.  Sometimes the rising costs of doing business simply put them out of business.

They whine about environmental regulation of Marcellus drilling, offshore drilling in the Gulf and the tar sands controversy.  It is implied that we should ease regulation and possibly sacrifice our environment in order to create jobs.  A job isn't going to do you much good when you're being poisoned by your environment.  Environmental regulation exists for a reason and to suggest that it be eased under the guise of "creating jobs" is a Trojan Horse that the industry thinks is hiding their desire to subvert environmental regulation that is hurting their profit initiatives.

On transmission, they whine about old transmission infrastructure and "congestion" but never recognize the simple solution to these problems -- rebuilding and modernization of existing transmission infrastructure completely within existing rights-of-way to increase its capacity and efficiency.  Rebuilds cost much, much less and are not faced with siting delays or cumbersome regulatory hurdles.

They whine about a broken permitting and siting process, which isn't really broken at all. 

They whine that "the best clean energy resources in the world" can't be utilized without a whole bunch of new transmission.  That is an outright lie.  The best wind energy resources are located off both coasts and in the Great Lakes.  These resources are located in close proximity to population centers, with enough existing transmission to get it to load.  The only thing missing is transmission to bring it ashore and the infrastructure to harvest it.  Tapping into offshore wind will end up being MUCH cheaper than trying to power the country from the Midwest via a series of huge, new transmission lines.  A "national grid" to transport land based wind is estimated to cost around $300B.  In comparison, the Atlantic backbone undersea transmission project is priced at $5B, a savings of $295B for electric consumers.

They suggest that Sec. 1221 of the Energy Policy Act can somehow be utilized to override state decisions and force a bunch of new transmission lines.  No, it can't. They suggest the President quickly issue an order for new transmission.  Well, that would help out the corporate bottom line, wouldn't it?  There wouldn't be a bunch of jobs created though.  I'm not going to repeat myself, so go read an expose on the propaganda myths being parroted by the Obama administration.  Then go check out all the Jobs Council's references on Page 48 -- either they're not reliable sources (industry biased) or they're a slice and dice of data.  Are we supposed to wager our economic recovery on a bunch of corporate propaganda?  Get real!

Pages 26 - 28 detail their plans for doing away with regulation.  C'mon, if you can't trust the industry to regulate themselves, who can you trust, right?  Ridiculous.  Pages 42 & 43 show corporate America's dream regulatory process.  They also want to stomp on "litigation" and confiscate your right to due process when your rights and property are affected by a corporate money-making initiative.

Page 36 contains a rosy summary.  However, the pot of gold at the end of this rainbow belongs to the super-rich corporate elite, not out-of-work Americans.  See Page 44 for a look at the corporations behind the "Jobs Council."  Lots of money to be made by these companies with less federal regulation, isn't there?

If these corporations want to create jobs, they need to get on with it and stop looking for more handouts.  We need to jettison this corporate agenda and create REAL energy policy.  This isn't the kind of "change" that America needs.

U.S. Energy Secretary Steven Chu declined today to pass DOE's authority to designate National Interest Electric Transmission Corridors to the Federal Energy Regulatory Commission.  A scheme for FERC to take over corridor designation was proposed by energy company lobbyists earlier this year and recently championed by FERC, the industry and certain "environmental" groups whose misguided enthusiasm for renewable energy turned them into the perfect patsies for championing new long distance transmission lines. Individual states, who have always had authority over transmission lines within their borders, along with a member of Congress and other environmental organizations who live in the real world, vehemently opposed the transfer of authority.

Don't kid yourself by thinking the battle is over.  DOE's statement says they "will work more closely with the FERC in reviewing proposed electric transmission projects under section 216 of the Federal Power Act (FPA), as an alternative to delegating additional authority to FERC."

So, in other words, instead of officially giving FERC the authority, DOE is just going to let FERC unofficially run the show.  FERC's plans included allowing transmission developers to designate corridors at will when proposing a new transmission project.  DOE's plan includes this as well.  In addition, DOE says they will:

• Begin immediately to identify targeted areas of congestion based on the evaluation of existing information and on comments submitted by stakeholders;
  
• Identify narrower areas of congestion than the broad areas previously studied; and
• Solicit statements of interest from transmission developers while considering what National Corridors to designate.

Just because a transmission developer wants to build a project does not mean "congestion" exists.  As well, transmission is probably the most expensive, most environmentally unfriendly, and least "reliable" solution to "congestion." 

At the same time, you've got FERC considering an update of their transmission incentives through a Notice of Inquiry.  Over a hundred sets of comments were submitted in that docket (RM11-26-000) and present a clear picture of what's driving development of new transmission development.  Money.  Transmission projects, whether they are "needed" or not, provide a tidy income for energy corporations and investors.  Since transmission projects are funded in their totality by electric consumers, the building of unnecessary transmission infrastructure has the potential to send electric rates skyrocketing.

Keep watching this one to see how much of FERC's original plan to anoint itself with federal transmission siting and permitting authority ends up being carried out in DOE's name.

This charlie foxtrot has reached critical mass.  Why are we still operating under 6 year old energy policy?  Six years ago, FERC, regional grid operator PJM, politicians and the energy industry thought expanded uses for coal fired resources was a good idea.  Energy and how we use it has come a long way since then.  The only smart solution is for Congress to develop new energy policy instead of observing and complaining while the energy industry, their lobbyists and the government political appointees manipulate bad policy to continue on this transmission highway to hell at electric consumer expense.

Radix malorum est cupiditas.

Only 2 days left!

Twice a year, PATH is required to hold an "Open Meeting" to discuss their transmission revenue requirements with "interested parties."  If you're interested in grilling PATH about how they're spending your money, or simply listening in as others do, then you're an "interested party."

PATH used to have real meetings at their outside counsel's DC office, but then they got all shy and punted on the live meetings in favor of phone "meetings."

Just because PATH is a party-pooper doesn't mean we are!  We're still having breakfast parties twice a year, only instead of some stuffy legal conference room where the sound system doesn't work, we're holding the meeting on my patio (weather permitting) and serving donuts and mimosas.  We'll connect to the "meeting" via phone and you're all invited to listen in and ask questions.

However, you need to "RSVP" for the meeting with PATH's counsel so you will be allowed to participate.  Seating is limited (over the phone?) so reserve your seat today!  The deadline to RSVP is Thursday, October 13.  Details of what you need to do can be found here.

The "Open Meeting" will be held on October 19 at 10:00 a.m. and will last about an hour (or until we run out of questions, so bring your questions!)  Once you have sent in your RSVP, you will receive meeting materials and details for hooking into the phone meeting via email the afternoon before the meeting.  Just in case PATH sends you a toll call number (in order to discourage your attendance, since you'll have to pay for the call), check back here before the meeting to see if we've found an 800 number to use instead.

If you're coming to the party at my house, let me know at least a day in advance so I can have enough food and drink for everyone.  If you can't make the party, you can still listen in to the call from where ever you are, but you need to RSVP with PATH to do so.

I promise you the "meeting" will be entertaining!

It's been a year in coming, but PATH's ROE Settlement was finally made public on Friday.  No more 14.3% ROE!

Here's a summary of what's in the Settlement (warning, gigantic file).

1. PATH's base ROE will change from 12.3% to 10.4%, effective January 1, 2011.  That was the only part of the ROE that was subject to change as per FERC order.  The 200 incentive points they were awarded back in 2008 (50 pts. for membership in PJM and 150 pts. for the "risks and challenges" of the project) will not change.  When the existing 200 pt. incentive ROE adders are added to the new base ROE, this brings PATH's ROE down to 12.4%.
2. PATH will pay the PJM ratepayers a lump sum refund of $2,741,000.55, which includes interest, on the difference between the 14.3% that has been collected since March 2008 and the new 12.4% ROE that was effective January 1, 2011.  This refund will be made in the next billing cycle after approval of the settlement by FERC.
3. Within 7 days of approval by FERC, PATH will file a Re-Revised 2011 Projected Transmission Revenue Requirement, which will include a refund of the difference between the 14.3% ROE they have collected thus far this year and the new 12.4% ROE.
4. Within 14 days of approval by FERC, PATH will file a Revised 2012 Projected Transmission Revenue Requirement reflecting the new, lower ROE.
5. PATH will also file a revision to their 2010 Actual Transmission Revenue Requirement within 14 days of approval.  The settlement states that this will change the refund of over recovered revenue to ratepayers from $4,899,780.42 to $4,597,741.90.  I'm not sure why PATH is now keeping $300K of the refund they owed to us, but the filing should tell us eventually.
6. None of the settling parties can request a change to PATH's base ROE or incentive adders for 4 years.  However, in the event PATH is cancelled, this will not affect the rights of any party to argue what ROE (if any) should be applied to abandoned plant costs.

PATH got taken to the cleaners in this settlement!  Hats off to the other power companies who engineered this settlement while "our" state consumer advocates sat on their hands instead of protecting our interests.  PATH should have been paying attention to the enemies they were making when they insisted on keeping all the gold in their own pot way back when.

PATH's original award of incentives was completely ridiculous, and everyone's been aware of that for over three years.  PATH's 14.3% ROE was way outside of any other project's ROE.  So, let's see how PATH's ROE stacks up now when compared with its three sister Project Mountaineer projects, who were also awarded incentives in 2007 & 2008:

• Susquehanna-Roseland            12.93%
• MAPP                                      12.8%
• TrAIL                                       12.7%
• PATH                                       12.4%

How does it feel to go from the top of the heap to the bottom of the pile, PATH?

Look at it this way -- PATH's ROE fell by 1.9%, which nearly equals their 2% incentive adders and pretty much negates them in their entirety.  PATH isn't as profitable as it once was, so why doesn't AEP & FirstEnergy just take their ball and go home?   We all know this project is never going to happen.  However, until the project is officially "cancelled," they will continue to collect this ROE on the amount they have invested in the project.  The difference between ROEs is going to lower their yearly return (profit) by about a million bucks.

Here's how it works (which I was trying to explain in vain in Bill's comments over the weekend):

The amount of money PATH invests in project assets will be returned to them through depreciation over the life of the transmission line.  PATH has invested $138,773,015 in the project through the end of 2012.  In exchange for investing their capital in the transmission project, PATH will earn a return (profit or interest) on their money yearly.  The amount they earn each year is determined in their Formula Rate template and based on the incentives they were granted back in 2008.  PATH was granted a hypothetical capital structure of 50% equity and 50% debt.  This means that until the project is actually completed, no one knows how much of the cost will be equity (PATH's money) and how much they will have to borrow to finance it (debt).  FERC has set the percentages at 50-50.  This means every year PATH will now earn 12.4% on the hypothetical equity half of the amount in the rate base, and a much lower percentage on the half that is hypothetically debt, or borrowed money.  The debt percentages are 6.64% for the PATH-WV (AEP) half of the project and 6.76% for the PATH-Allegheny (FE) half of the project.  As shown on this redlined template sheet from PATH's settlement, the two different percentages are averaged and the resulting percentage is applied to the rate base and becomes PATH's yearly return, or profit, which is recovered along with all other yearly expenses (such as marketing, administrative costs, a share of PATH's parent company expenses, a portion of their start-up costs incurred prior to incentives being granted in 2008, taxes and depreciation) every year.  As a result of the settlement, PATH's yearly profit margin has dropped from 10.47% on PATH-WV's half and 10.53% on PATH-Allegheny's half to 9.52% for PATH-WV and 9.58% for PATH-Allegheny.

If you actually look at the new templates submitted as an attachment to the settlement, you will notice that PATH neglected to change these numbers in the template, however, mistakes like that seem to be par for the course for PATH and its team of crack accountants.

What some of us are wondering now is if the filing of another revised PTRR for 2011 and a revised ATRR for 2010 will extend the discovery period currently underway on previous filings.  Since PATH's Formula Rate Implementation Protocols sets out a 150 day discovery period for interested parties to request information, and another 30 days to file a Challenge, a whole bunch of new filings near or after the closing of discovery on the original filings leaves no time for interested parties to avail themselves of the procedures outlined in the protocols.  As we've found out over the past couple of years, when the protocols are put into practice they are quite inadequate as written, aren't they?  No one ever envisioned the sticky situations PATH has gotten itself into in the past couple of years, apparently.  Planning for the unexpected should have been a "best practice" when planning an unneeded transmission project.

Any questions?  Or is it still about as clear as mud?

One of the surest ways to win any battle is to sit back smugly and watch while your enemies exhaust themselves attacking each other.  Ohio electric customers could see cheaper bills when the dust finally settles in an epic battle going on that pits 3 different power companies against each other and Ohio's PUC.

AEP and FirstEnergy have been busy trying to undercut each other and lock in a bunch of new customers.  The Ohio Consumers' Counsel is against AEP's plan to lock in a bunch of customers and overcharge them.

FirstEnergy is trying to do away with a state-ordered all-electric discount.  Oh, and by the way, they want to steal AEP's customers by offering them lower rates.

Now Duke Energy jumps in and wants to undercut FirstEnergy's "savings."

Isn't "competition" great, fellas? 

Deregulation = not really saving the consumer any money, but the show is pretty entertaining to watch!

Here's more on the situation between the New Jersey BPU, PJM and FERC and industry manipulation of New Jersey's energy market.

As reported last week, New Jersey wants to site several new gas fired generation plants in New Jersey in order to bring down the price of electricity in the state.  The high prices are caused by lack of generation near load.  PJM pretends that the markets it runs encourage market solutions, such as siting of new generation in areas of high load, to reduce cost.  These load pockets experience higher prices because they don't have enough local generation and must rely on long-distance transmission lines to supply enough power.  The more power these load pockets demand, the more "congested" transmission lines become.  When generation is sited near load, "congestion" on transmission lines disappears.  But then so do the enormous profits for the power companies that supply that high-priced electricity via "congested" transmission lines.  "Congestion" also keeps the old, decrepit, dirty coal plants these energy supply companies own on standby to provide generation via transmission lines at times of peak load through "reliability must run" contracts.  These generators are paid handsomely to keep their plants available to supply generation just a few days a year.  They essentially get paid to sit idle.  This "congested" situation is a huge financial windfall to coal-lovin' companies like FirstEnergy and AEP, who also score big profits by building more new transmission to supply more of their coal-fired generation to relieve "congestion" in areas of high load.

If another company builds a gas-fired plant in New Jersey near load, then FE & AEP's profits from RMR contracts, as well as both existing and new transmission lines, goes bye-bye.  PJM has a history of favoring AEP & FE and other big energy corporations in their decisions.  Therefore, PJM is fighting with New Jersey to prevent these new plants from being built.  FERC has weighed in on PJM's side of the argument and New Jersey is now being held hostage by all this market manipulation being carried out by the very entities tasked with ensuring that energy markets are fairly run.

Maryland has also experienced a similar situation where they were prohibited from building new generation near load.

Now, New Jersey says they are not going to tolerate it any longer.  A new transmission line project that will bring more coal-fired power into the state, which was approved by the BPU last year, is now being appealed.  New Jersey's BPU is no longer in favor of the project.  If their earlier decision is kicked back to them, they are free to reconsider.  They could reverse their approval of the Susquehanna Roseland transmission line in the hope of forcing PJM and FERC to acquiesce. 

Who will win this game of chicken?

And I like a little help now and again digging up juicy web tidbits such as, Orphans & Executives at American Electric Power…  Although it was originally written in March, it's still quite interesting, in a barf-a-licious, trainwreck, kind of way.

Be sure to click on that link to AEP's proxy form to see lots more enlightenment that the article doesn't mention, such as how all the AEP executives had their perquisites snatched from them in 2010  :-(  Well, except for Mikey, who was wily enough to get his promise of free personal use of the corporate jet penciled into his employment contract, along with a lot of other goodies.

Why are some senior citizens having to choose between paying their AEP subsidiary electric bill or paying for medication on a monthly basis?  I guess they won't be playing canasta with Mikey down at the Senior Center any time in the near future...

Guess what, "Potomac Edison" and "Mon Power" customers?  FirstEnergy wants you to pay more for electricity in 2012.  The company filed for another ENEC rate increase on September 1, 2011.

According to their filing with the WV-PSC,

"The Companies propose a $31,909,406 annual increase in rates effective January 1, 2012, representing an overall increase of 2.7%.    This amount is comprised of an actual $57,313,276 under-recovery balance at June 30, 2011, offset by a projected $22,903,870 over- recovery for the 2012 rate period at current rates and a $2,500,000 reduction to rates during 2012 to share synergy savings resulting from the merger of Allegheny Energy, Inc. and FirstEnergy Corp. earlier this year."

Here's a translation:

Total amount of increase:  $31,909,406 -- 2.7%

They hadn't recovered enough to pay their costs of providing electricity to you when evaluated on June 30, 2011 (despite all those previous increases in the past couple of years).  This is due to the high cost of fuel (coal) used to produce all their electricity.  The cost of coal, and burning coal to produce electricity, is only expected to go up even higher in the future.

If they don't raise our rates on January 1, 2012, but continue with current rates, they will end up overcharging us nearly $23M for the year.  However, this surplus will be used to offset that under recovered balance from prior years of $57M, still leaving us with a balance due to the power company of around $34M.

That $34M is slightly reduced by the $2.5M "synergy savings" (where do they get these stupid phrases?) that were our consolation prize for the WV-PSC approving the merger of Allegheny Energy and First Energy last year.  As you can see, $2.5M sounds like a lot, but it's really just chump change to the power company in the grand scheme of things.

In addition to those "synergy savings," FirstEnergy was also required to launch an Energy Efficiency program in West Virginia.  According to their filing for a proposed program, that will cost us an additional $11M in rate increases over the next 5 years.  This case is running in parallel to the ENEC rate case and is expected to be combined with it to create just one increase to our bills, therefore, we need to add the cost of the EE plan to the $32M ENEC rate increase to come up with an even bigger jump in rates.

The Energy Efficiency program that FirstEnergy is proposing will provide the following benefits for low-income residential customers:

CFL lightbulbs, water saving devices like faucet aerators and shower heads, and new energy efficient refrigerators.

The program will also provide rebate incentives for commercial/industrial customers to install energy efficient lighting in their facilities.

The program will be paid for by all residential and commercial customers.  Industrial customers (who use the lion's share of the electricity and pay the highest bills) are exempt from paying for the program, but they are still eligible to receive benefits under the program.  However, if a lot of industrial customers take advantage of it, they may be charged for a portion of it in the future.

There are many things wrong with FirstEnergy's Energy Efficiency plan.  First, they set the bar too low.  This plan is much weaker than existing plans FirstEnergy runs in neighboring states.  In addition, FirstEnergy will recover all the costs of this program, including administrative and marketing costs, from residential and commercial ratepayers, many of whom are not eligible for any benefits under the plan.  However, FirstEnergy will offer benefits to industrial customers, who will not pay for the plan.  FirstEnergy will also collect their "lost revenue" caused by the program saving customers money on their electric bills.  This "lost revenue" is overestimated by around 250% in the plan by way of some really creative math.  The low-income residential program is available for both homeowners and tenants in rental property.  The refrigerator replacement program is ripe for abuse by shifty landlords trading used appliances for new ones, then selling the new ones, and replacing them with cheaper used ones, repeat, repeat, repeat, over and over again.  It also looks like FirstEnergy will be paying a contractor to haul away the old refrigerators that are replaced.  As StopPATH's Steve Smith can tell you, there's big money in recycling old metal appliances, like refrigerators.  Steve made over a thousand bucks for our organization by recycling old appliances.

Fortunately, there are two grassroots citizens groups who will be working at the PSC to protect your interests in these two, parallel rate increase cases.  Energy Efficient West Virginia and The Coalition for Reliable Power have teamed up to take on FirstEnergy.  However, we're going to need your involvement to succeed!  Visit The Coalition for Reliable Power and join the organization to receive news updates, action alerts and notification of our public forums that explain ratemaking, energy efficiency programs and how citizens can become involved to protect their interests.  It's free (unlike anything FirstEnergy wants to "give" you).  Also visit Energy Efficient West Virginia to read more about the issues and join their list to get updates and notices of upcoming events.

There's also one more step you can take to make sure that the rate increase that's put into effect will be the lowest one possible, and that's to effect change at the WV-PSC!  The Coalition for Reliable Power is supporting the appointment of Robert Rodecker to the Commission to fill the expired seat of Jon McKinney, but they need YOUR help to get this accomplished!  The Coalition asks that you contact Governor Tomblin by phone at 1-888-438-2731 and tell them, "I support the appointment of Robert Rodecker to the Public Service Commission."  Alternatively, you can use the Governor's email submission form available here.  It will only take you one minute!  Do it right now!

Being an informed and active consumer is our only defense against continued rate hikes by out-of-state energy conglomerates!

"Socialized Cost, Privatized Gain," read one of StopPATH WV's PATH protest signs that took up real estate in my garage for several years until we burned them all in a symbolic bonfire during our PATH Funeral Victory Party this past May.

This phrase succinctly describes the business model of high voltage transmission line developers.  Electric consumers finance these projects through their electric bills, but receive none of the tremendous profits that transmission owners rake in with these projects.  Transmission lines are owned by corporations that intend to make a profit on their product, electric transmission, so let's compare the electric transmission industry's business model to the business model of other corporations who sell products for profit.

We'll use a hypothetical example of a fictional company to flesh out a typical business plan.  The Widget Company makes and sells widgets.  They sell their product for more than it costs them to make it, therefore, they make a profit.  The amount of profit is called their profit margin.  Some companies rely on a small margin on a large number of product sales, while others make a large margin on a smaller number of sales.  However, this particular aspect of profit margins will end up being irrelevant in this example.

The Widget Company needs to determine how much to charge customers for their new SuperWidget.  They must take into account the parts used to build it, the cost of obtaining the parts (shipping, purchasing, accounting functions, storage and handling of parts, the cost of the manufacturing facilities and equipment), the cost of labor necessary to produce the SuperWidget (including all costs related to employees, such as insurance and other benefits, and the labor of the human resources department to administrate it) and the cost of storing, selling, shipping and billing for their finished product.  But wait, that's not all.  The Widget Company still needs to pay a salary to its CEO, rent an office, and make sure there's plenty of fresh coffee for the employees when they arrive to make SuperWidgets every morning.  Every penny that The Widget Company spends on anything must be accounted for and an appropriate share of those costs assigned to the cost of producing the SuperWidget.  Every penny that a corporation spends has to be accounted for and applied to the cost of the products they sell so they can pay their expenses and develop a profit margin that will allow them to make an overall profit.

Now let's suppose the CEO of The Widget Company gives himself a million dollar raise, replaces the coffee with Dom Perignon, and sends all the employees on all-expense-paid vacations to the French Riviera every summer.  He's got to cover the costs of these purchases, so he will have to raise the price of the SuperWidget, and other products, or reduce the profit margin.  If the new price of the SuperWidget ends up being higher than the price of a competitor's MegaWidget because of excess corporate spending, he will not sell enough SuperWidgets to make a profit and the The Widget Company will collapse.  This is why a corporation pays attention to how much they spend, because it all ends up in the price of their product.

Guess what?  You now have a working knowledge of the sub-set of accounting known as Cost Accounting -- these are the guys who figure out prices and profit margins based on company expenses.  If I'd told you this post was about cost accounting, you wouldn't have read past the first sentence, would you?  But now that I've tricked you into reading this far, please keep reading to find out what's different about the electric transmission industry's business model.

The cost of building a high voltage transmission line is shifted to electric consumers through federal and state ratemaking processes.  It exists to provide you with a service, transportation of electricity to your home or business.  When a new transmission line is needed, the transmission owner raises enough capital to cover the cost of building the line (or uses their own capital, but often it's a combination of both).  This capital pays for the physical components of the new line, the purchase of necessary land and rights-of-way, the design and engineering, the cost of necessary capital, and the cost of the regulatory process to gain approval to build.  This capital will be tied up for at least 70 years because electric ratepayers will reimburse the transmission owner for their invested capital little by little, over the useful life of the transmission line.  Therefore, the Transmission Owner is guaranteed a certain profit margin to make it worth their while to tie up their capital in a transmission project.  The Transmission Owner is also reimbursed for other non-capital expenses as they are incurred, such as the cost of marketing, the cost of employees whose time is spent on the project, and other non-capital items and expenses necessary to complete the project.

Now that you're an official cost accountant for a day, you'll be appalled that the Transmission Owner isn't held to the same standards as The Widget Company when it comes to cost accounting.  It doesn't matter how much the Transmission Owner spends because it never affects their profit margin!  Since they aren't selling a product when they're building a new transmission line, it doesn't matter how much it costs to produce one.  They can give their CEO a million dollar raise, serve Dom Perignon in the lunchroom and send their employees on expensive vacations because the ratepayers are picking up the tab and none of those type of expenses are considered "capital" and therefore won't affect budget for the estimated cost of the project (in PATH's case $2.1B).  These expenses are a free-for-all!

The Transmission Owner will make their profit by selling transmission service.  Here's where they are finally subject to an actual profit margin like a normal corporation.  However, the cost of producing their product, the transmission line, is free.  It would compare to The Widget Company obtaining SuperWidgets free from The Sucker Corporation and then selling them for a profit.  Since The Widget Company paid zero for the SuperWidgets, whatever profit they make comes in at 100%, so they have plenty of latitude for Dom Perignon and gold-plated urinals in the Men's Room, and can still make a killer profit.  Of course, The Sucker Corporation has already gone completely bankrupt by then.

A real corporation utilizing the transmission industry's business model would not only go broke, they would find themselves in debt for years because maintaining a decent profit margin does not serve as an important safeguard to control outrageous corporate spending in this business model.  Corporate spending that ends up in the construction cost of a transmission project has no limit, it's a blank check signed by ratepayers.  And as we have found out, there's no one paying the least bit of attention to Transmission Owner spending.

Socialized Cost - Privatized Gain.  Now you know how the electric transmission industry's business model could drive a cost accountant crazy.  It's actually more outrageous than you ever imagined! 

Today was the due date for PATH to file it's 2012 Projected Transmission Revenue Requirement.  The revenue requirement is the amount ratepayers in the 13-state PJM region will collectively pay to finance the PATH project during 2012.  These amounts are collected from your electric provider and passed through to you in your monthly bill.  In Potomac Edison's WV territory, these are not a separate line item, so you never notice it.  It's a mystery brought to you through the federal and state ratemaking processes.

Although the PATH project is "suspended," we still pay to keep it on life support at the federal level as long as the "suspension" goes on.  We are responsible for paying PATH a yearly return on the amount of capital they have invested in the project.  In addition, we cover their taxes on income (including that return), their taxes on the real estate they continue to hold, their operating and maintenance costs for the project.  It looks like there isn't a lot of planned spending in 2012 that would indicate they intend to do anything other than linger in a zombie state in 2012.  This zombie state will earn them a $14,675,718 profit on their investment in 2012.

PJM and PATH told us that their project would be re-evaluated this fall and a determination made on the future need for it under the new planning scheme.  That's not going to happen.  PJM's new planning process has been delayed until sometime next year, according to the latest update I've heard.

Other items of interest in the PTRR -- CWIP balances will fall for both operating companies.  This indicates that the forfeiture of property purchase options will most likely continue on both sections of the line, northeast and southwest of the proposed Welton Springs substation.  PATH is dead, dead, dead along its entire formerly planned route.

As part of the publication of this proposed budget, PATH is required to hold an "Open Meeting" to explain it to "interested parties," and answer your questions.  You are an "interested party."  Don't think you have to be an accountant to participate -- the discussions can get pretty general.  We got a really good group participating in PATH's 2010 ATRR meeting in July, and we look forward to even more participation this time. 

Once again, PATH has chickened out on holding a live, in-person meeting in D.C.  It must be pretty hard to look into the eyes of real people who are personally affected by your company's greed.  The meeting, on October 19 at 10:00 a.m., will be held via conference call -- dial in and ask a question, or merely listen in as others grill PATH, and hear PATH's attorneys sputter, deny and make stuff up.  It's quite entertaining!  :-)

In order to attend, you must send in a R.S.V.P. to PATH's counsel either via email or telephone before October 13.  Instructions are here.

If you're in the tri-state and want to come to a live, in-person, PATH Open Meeting breakfast party on the patio that day, just let me know sometime before the meeting.  Last time we had a lot of fun -- before, during and after the "meeting," which we jointly participated in via speaker phone.