Here it is, fresh from Pillsbury Winthrop Shaw Pittman LLP, one of PATH's DC law firms.

I can't comment here, but the rest of you... feel free to knock yourself out in the comments section...

For reference, here's the Challenge.

We all know that PATH has as many different stories as Sybil had personalities.  Depending on the audience, PATH is "needed" to keep the lights on and avoid rolling blackouts; increase the "reliability" of the grid; save Maryland ratepayers money; or, during parent company earnings calls, to make a boatload of money for the company.  But, what would happen if someone doctored PATH's Pink Elephant cocktail with a little scopolamine and they were forced to tell the truth?

That's what happens in Allegheny Energy's Securities and Exchange Commission Form 10-K for 2009.  In this filing, they must reveal any risk factors to their investors.  Here are some quotes:

"The TrAIL Project and the PATH Project are subject to permitting and state regulatory approvals, and the failure to obtain any of these permits or approvals could have an adverse effect on Allegheny’s business.
The construction of both the TrAIL Project and the PATH Project are subject to the prior approval of various regulatory bodies. TrAIL Company has obtained the state siting approvals (subject to a pending appeal in Pennsylvania) necessary to construct TrAIL and is continuing to pursue necessary permits. Allegheny met with substantial political opposition, as well as opposition from environmental, community and other groups, in obtaining siting approval for TrAIL and is likely to encounter similar opposition with regard to the PATH Project. There can be no assurance that Allegheny will be able to obtain the regulatory approvals required in connection with these projects, particularly the siting approvals required to construct PATH, on a timely basis or at all. The inability to obtain any required state approval or other regulatory approval as a result of such opposition or otherwise, may have an adverse effect on Allegheny’s business, results of operations, cash flows and financial condition."

Remember that story about how PATH is "needed" due to increased demand?  Here's Allegheny's revelation on Risks Relating to Allegheny's Operations:

"Decreasing demand for electric power, as well as for certain commodities underlying the production of electric power and the related decline in market prices for power are adversely affecting Allegheny’s business.
During 2009, customer demand for electric power in Allegheny’s region fell significantly as a result of the ongoing economic recession and mild summer weather, among other factors. Overall demand for some of the commodities that underlie the production of electricity, and as a result the prevailing prices for those commodities, have also declined. Although power prices may be influenced by many factors, weakening demand for electricity, together with significantly lower commodity prices, have contributed to sharp declines in market prices for power over the past 12 to 15 months. Partly as a consequence of these declines, AE Supply generated significantly less power in 2009 than in 2008.
Allegheny can make no assurances regarding the impact of any economic recovery on demand and market prices for power. Improvements in demand and market prices for power, if any, may lag any future improvements in overall economic conditions, and it is also possible that the current economic climate could result in long-term reduction of demand for power in our region, particularly among large industrial consumers. It is also possible that changes in customer behavior, as a result of conservation programs such as EmPOWER Maryland and Pennsylvania’s Act 129 or otherwise, could result in long-term reductions in demand for power."

The paradox of this next revealed risk just gives me the giggles.  Remember, laughter is good for your health!

"Changes in weather patterns as a result of global warming could have an adverse effect on Allegheny’s business.  Allegheny also could be impacted to the extent that global warming trends affect established weather patterns or exacerbate extreme weather or weather fluctuations. Although Allegheny’s physical assets are located in a region in which they are unlikely to experience detrimental physical damage from the rising sea levels that have been modeled in various analyses that attempt to predict the effects of global warming, other weather-related effects that could be associated with global warming, such as an increase in the frequency and/or severity of storms or other significant climate changes within or outside of Allegheny’s service territory, may have an adverse impact on Allegheny’s business, results of operations, cash flow and financial condition."

The PATH companies continue to taint their parent companies' reputations with increasingly unsavory business practices intended to win approvals for their project by any means, fair or foul.  No matter how much lipstick they put on this pig, it's still a pig, and therefore:

"Energy companies are subject to adverse publicity, which may make Allegheny vulnerable to negative regulatory and litigation outcomes.
The energy sector has been the subject of negative publicity, most recently in the context of the dialogue regarding climate change. Allegheny has come under some scrutiny in this regard, and also has faced public opposition in connection with its transmission expansion initiatives, as well as certain of its demand-side conservation efforts and ordinary utility rate increases. Negative publicity of this nature may make legislators, regulators and courts less likely to take a favorable view of energy companies in general and/or Allegheny, specifically, which could cause them to make decisions or take actions that are adverse to Allegheny."

Not so sure of themselves, are they?  Fight on, people!

Two West Virginia citizens have filed a formal complaint with the Federal Energy Regulatory Commission alleging that the PATH Company subsidiaries of Allegheny Energy and American Electric Power have wrongly charged over $3 million in improper expenditures to electric ratepayers in 13 states and the District of Columbia.

In their Formal Challenge to the Potomac-Appalachian Transmission Highline, LLC 2010 Formula Rate Annual Update, filed Friday, January 21, with the Commission, Keryn Newman of Shepherdstown and Alison Haverty of Chloe say their review of 2009 project costs revealed a pattern of misleading marketing efforts using funds inappropriately charged to ratepayers and a range of accounting errors.  The complaint asks that the FERC not accept PATH's Annual Update and begin a broader investigation.

Newman and Haverty allege that the PATH Companies wrongly recovered expenses for a $2 million advertising campaign and over $1 million for creation and management of front groups and a propaganda program carried out with private groups and inappropriately billed as "public education."  The women describe improper lobbying and charitable donations, and actions to suppress citizen opposition in Loudoun County, Va.

"This Challenge tells the story of PATH's public relations war against the customers they are supposed to serve, as revealed to us by the money they spent -- our money," said Newman.

The 275-mile PATH electric transmission project is currently being considered by state regulatory commissions in West Virginia, Virginia and Maryland.   Regional grid operator PJM Interconnection has collected an annual revenue requirement for yearly PATH expenses from PJM's 51 million ratepayers every year since 2008.

"We all see our rates going up, but rarely do we understand why.  It is extremely upsetting to know PATH spent almost 20 percent of their collected costs on front groups and advertising for a project they can't get approved. They just asked for another delay in the approval process.  It's a nightmare for the thousands of West Virginians whose lives are in limbo.  When you see injustice like this, you have to try to do something," said Haverty.

Bill Howley, who writes The Power Line blog that has focused on the PATH project for the last three years, said, "The FERC challenge reveals just how out of control FERC's cost recovery system has become.  This rate increase scheme for PATH was created by FERC almost four years ago, and now Dominion Virginia Power's Alternative One has made PATH completely unnecessary.  Ali and Keryn are right, and all West Virginia consumers should stand by them in their fight against this crazy system."

Newman and Haverty have been examining PATH's costs since last summer using rules designed to provide public transparency.  The two citizens filed a Preliminary Challenge on the PATH Companies last November, which was not answered to their satisfaction.

"The burden has now shifted to the PATH Companies to prove the accuracy of their accounting and the prudence of their expenditures," said Newman.

The PATH Companies have 20 days from the filing date to produce their answer to the Commission.

A copy of the complaint can be viewed on the following FERC docket:  ER08-386-000

Or downloaded here  (small file - complaint only) or here  (large file - complaint and exhibits)

ACTION YOU CAN TAKE!

We are asking for you to add your voices to our FERC Challenge. It will only take a few minutes of your time and/or a stamp but here is the deal.  Comments on the challenge will only be accepted until the 10th of Feb. (20 days after the filing).

You can brave FERC's e-comment system and try to submit comments online  Update:  Nevermind FERC's online system -- it is set to take comments on hydro projects only.  You will have to go with the snail mail option detailed below.

At this link you will find a basic template w/the address and docket nos. for download.  All you need to do is add the date, your comments and your signature. You will need to stick it in the U.S. mail in enough time to be received by the 10th. If you want the FERC Commissioners to know what you think about the challenge and our assertion that PATH has over-collected from you, here is your chance. Ali and I would honored to have you join us.

We spent six months on this thing... please take six minutes and add your voice!

Any questions, let us know, and please feel free to forward this to all your contacts.

We are talking about over 3 million dollars we allege PATH had no business collecting from all of us as electric ratepayers in PJM's region.  If you pay an electric bill, this affects you!   Don't miss this chance to say NO!!

Thanks for your support!

In this week's episode of The (not so) Secret Storm, our heroine, Ali Haverty, files a Response to Applicants' Response to Motion to Compel.

Ali asks that counsel read her motion with as much care as she uses while choosing her words.  She then again states that she does not intend to disparage the Applicants in the previously mentioned forums, and adds a new one.  Ali doesn't intend to wear a sandwich board and pass out leaflets on Brooks Street either, just in case someone else does and the Tweedle twins decide to blame her for that too.  Hmmm... the list of things Ali doesn't intend to do, but which the Tweedles may think are possibilities, could be endless (and very entertaining!)  I'll leave the list of things that Ali could intend to do to disparage the applicants that she hasn't included on her list up to all of you readers in the comments section.  Since our Tweedle pals are such fans of this blog, you can help them write their next motion in this battle by giving them ideas!

Ali also doesn't intend to hypothesize the intentions of other parties in the case.  I guess that means she doesn't own a crystal ball, or maybe it's a Magic 8 Ball that Phil the Psychic uses in his mind reading tricks?

She also tries to clear up a little of their confusion regarding just what is being argued here.  I think they got so far off track in their last motion that they're having a hard time recalling what the argument was about before they turned it into a third party whine fest.  Maybe they lost track, but the rest of us haven't, despite their ridiculous antics designed to distract attention from the real issue.  The real issue here is why the Applicants felt the necessity to spend over $300,000 on state and federal lobbyists in 2009 when PATH is such a "sure thing".  Ali asks, “'Why should intervenors and this Commission be constricted so severely to PJM's figuring of future forecasts, as Applicants have repeatedly asked for, when the Applicants themselves have shown such
hesitation to heavily rely on them, as evidenced by their 2009 $300,000 hedge of civic, political, and related activities?' If this issue of need were such a sweet pitch, to be hit out of the park, Applicants would not be constantly reminding this Commission of FERC's backstopping authority. There would be no need, backstops are for the wild pitches."

Why, Tweedle twins, why?

Will the ticked-off Tweedle twins issue a Response to Haverty's Response to Applicants' Response to Motion to Compel?  Will Ali then pen a Response to Applicants' Response to Haverty's Response to Applicants' Response to Motion to Compel?  Or will the PSC Commissioners finally issue their response and cancel this soap opera?  Find out next week on The (not so) Secret Storm...

Here are some of the news links regarding the Formal Challenge Ali and I filed last Friday.

The Hur Herald (this is a great internet news source!)

The Journal (Martinsburg, WV)

The Journal's story got picked up by the AP (great job, Matt!!), and resulted in these two stories so far (sure to be many more to follow).

The Charleston Gazette

WRIC (Richmond)

Both power companies have fourth quarter 2010 earnings calls coming up.  A little birdie told me that these earnings calls could prove to be very interesting to the PATH opposition.  Perhaps the investment community is starting to suspect that the PATH project is on its last leg?

If you don't listen to them when they happen (sometimes you can find a link to an audio replay), you'll have to wait for transcripts to be posted on the web at a later date... sometimes it's months later.  So, here's a rundown on what I've been able to run down...

AEP's Earnings Call is scheduled for 9 a.m. on January 28 (that's tomorrow).  See this link to listen live.

Allegheny Energy is being a bit cagier with their information.  The only reference I have been able to find says their earnings call is scheduled for January 31 at 18:00 (6:00 p.m. - what an odd time for an earnings call!)  It's almost like they don't want you to listen in and take notes and hear the questions they will be asked by their investors...

Gosh, I wonder why?

Here's a downloadable quick version of the Formal Challenge for those who are having trouble with file size.  This version strips out the exhibits and is only just over 300kb -- quick and easy.  For those who prefer the entire package, the full version is still available here (or those who read the quick version and want to cross-reference with exhibits afterward).

This morning, Ali Haverty and I filed with FERC a Formal Challenge to Potomac-Appalachian Transmission Highline, LLC 2010 Formula Rate Annual Update, with a copy served on PATH's Counsel.  PATH now has 20 days to respond to the Challenge.

Just a warning:  It's a large file -- begin downloading and then go do something else -- like file your tax return, and come back later.  But don't give up on the link, it works.  You didn't expect a nearly $4 million dollar campaign of imprudent and improperly recovered expenses, advocacy-building and influence buying to come on the back of a gum wrapper, did you?

Have fun reading, everyone.  I'm going to go catch up on all those things I've neglected for the past two weeks while I've been working on this, like eating and sleeping.

Note to Randy and Phil:  Since we can all stop pretending that you're not reading this now, I'd just like to mention that you completely misinterpreted the meaning of my comment that you submitted to the WV-PSC the other day.  This Challenge is what I meant when I said, "this program of influence buying with ratepayer money".  Got it now?  I'll expect an apology and correction to be filed next week.  Have a nice weekend!  :-)

I've seen this done way too many times now -- multiplying PATH's $2.1 billion price tag by 14.3% and calling the result the amount of profit PATH will walk away with.  This is not accurate.

The truth is much more expensive than that and no clear total profit number can be calculated right now.  Their profit is endless.

So, how do they calculate that 14.3%?  Stick with me here... it's not going to be hard and I promise not to go off on more complicated concepts.

There are two main components of PATH's Formula Rate.  One is the Revenue Requirement.  The other is the Ratebase.  There are also two different categories of costs for PATH. Depending on the nature of the cost, each dollar spent ends up in either the Revenue Requirement or the Ratebase.  These two different components are further explained below.

One set of costs, that I will call Operation & Maintenance (O&M) for simplification puposes, is reimbursed by ratepayers at dollar-for-dollar as it occurs.  No interest or inflating of expenses here (at least that's the way it's supposed to work when PATH isn't creating "errors" in its formula rate filings that work in their favor).  O&M, in its largest part, includes their advertising, public relations and marketing expenses and many other "general" day-to-day expenses of dragging this thing out day after day, month after month, year after year.  O&M becomes a large part of what is known as the Revenue Requirement. 

The other set of costs are composed in large part by what are known as Construction Work in Progress (CWIP) costs.  This is the cost of land and land rights (easements), the actual physical components of the line, the engineering of the line and their regulatory expenses (there's more to it, but we'll stop there).  These costs are capitalized (that is, they become an asset) and are placed in what is known as the Ratebase.  In the Ratebase, these costs are subject to depreciation.  Depreciation calculates the useful life of the asset.  Everything wears out and needs to be replaced eventually, right?  So these costs slowly disappear over time, just like the value of your new car once you drive it off the lot.  However, the cost of land and land rights NEVER depreciates.  Keep that in mind as we work through to the end.  The amount in the ratebase does not zero out each year because the capitalized items have not fully depreciated.  Instead, new CWIP is added to the ratebase every year, creating an even bigger number for PATH to earn a return on. 

The ratebase earns PATH a yearly return.  This is where the 14.3% comes in.  PATH's Formula Rate was approved to consider the financing of PATH at 50% debt and 50% equity.  So, in order to calculate the actual profit percentage PATH earns each year, you basically find the average of that 14.3% return on equity and whatever percentage at which the debt is currently being calculated.  Right now, it's at something like 6%.  So that makes about 10% profit for PATH every year on the amount in the ratebase.  This is PATH's "return", or profit.  Return is calculated by multiplying the total amount in the ratebase by that 10%.  The amount in the ratebase keeps increasing every year, right up until the date the project is put in service and construction is complete.

The calculated return is added to PATH's  other set of costs, the O&M, to come up with the total Revenue Requirement every year.  The yearly Revenue Requirement is the amount the PJM ratepayers pay in any particular year.

In an ideal world, once construction is complete, the amount in the ratebase would begin to decrease because of depreciation.  It would eventually disappear -- but, we have those land and land rights in there that will NEVER depreciate.  This means that we're going to pay PATH a return on them forever.

So, that 14.3% is the profit PATH earns every year on 50% of the amount in the ratebase.  Every year from here to eternity.

Any math geniuses who want to work that problem out and come up with the amount of profit PATH (really their parent companies, AEP & Allegheny Energy) stands to earn if they can ram this project through approvals?

This why they continue to hang onto this loser project in the face of all sane reality that it's NOT GOING TO HAPPEN.  It's a gravy train they plan on riding well into the future to provide a steady stream of income.

An amendment recently approved by the New Jersey Assembly has upset the PJM cartel's apple cart and spells more bad news for the hugely unpopular PATH project.  This article and this post on Calhoun Power Line does a great job of explaining what's going on here.  In a nutshell, New Jersey wants to increase subsidies to encourage the building of new generation within its borders.  If New Jersey expanded home-grown generation and produced enough power to meet its own needs, what use is PATH?  New Jersey has said again and again that they don't want or need PATH's dirty coal-fired power.  However, the PJM cartel has consistently backed this project, even to the point of sullying their own reputation with accusations of bias and conflict of interest.  As we've discussed before, PJM is wholly controlled by a few bullies within its ranks, whose corporate profit margins are of the utmost importance, to the detriment of both "reliability" and the wallets of PJM's ratepayers. 

According to the article, PJM is expected to run crying to FERC like a kid whose lollipop has been taken away.  Boo Hoo, boys!  FERC isn't as friendly to your cartel as it once was.  And guess what?  The citizens know your game now!

The article also quotes some whining about rate increases.  These subsidies could cost up to a billion dollars.  What does PATH importing power to New Jersey cost us in rate increases?  More than $2.1 billion!  Continuing to import power instead of generating it within their own borders also has a huge cost that they fail to consider.

Notice also that the whole "jobs" thing gets brought up.  That really doesn't do any favors for the arguments of transmission proponents.    "Opponents said the argument about job creation is a red herring, saying that it will create hundreds of temporary construction jobs, but typically only 20 to 30 people will be needed to run the plants once they are operational."  Precisely!  PATH will create a few temporary jobs (which will be filled in large part by out-of-state technical specialists) and after that, it's over.  It will only take a few people to maintain after its built.

In some of the other articles about what's going on in New Jersey, the word "Enron" gets a mention.  That right there should be enough for pause.  The PJM cartel's focus on energy trading is a dangerous game that has always made little sense.

Way back in 2008, I attended a meeting in Shepherdstown engineered by our now-Senator Joe Manchin.  Joe was annoyed that Patience Wait and I had been dogging him during campaign season for his second term as governor.  In order to shut us up (which failed miserably -- we're still here!) he summoned all his bigwig friends at the power companies to come here and meet with us and a group of citizens we gathered from within the ranks of newly forming citizen opposition groups.  At that meeting, we questioned why the answer to the east coast's electricity shortages were transmission lines from West Virginia.  "We (PJM) can't order new generation, we can only order new transmission."  and "Building of new generation keys off market demand."  Sounded like crap at the time (walked out of there scraping brown, smelly stuff off the bottom of my shoes) and it's still crap.  PJM still "can't order new generation" because, for them, transmission and increasing profits for their most powerful cartel  members is what it's all about.  Enron.  It's the word.