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.

Appropriately - an adverb derived from the word "appropriate" meaning right or suitable; fitting. 

Appropriate is also a heteronym.  When pronounced differently it can also mean to take for one's own use, esp illegally or without permission.  Kind of fitting, don't you think?

See this story in yesterday's Town Courier regarding the challenge to PATH's formula rate.  My pal Todd Meyers says, “We are aware of the preliminary challenge and will respond appropriately.”  Uh huh, Todd.  "Appropriately" must mean "screw up really, really badly" in Todd's company dictionary.  Nice work!

Speaking of nice work (no, I mean the real kind in this instance) reporter Krista Brick does a fairly nice job with a very complicated, confusing subject.  Thanks, Krista, for hanging in there!

Good news!  PATH has finally complied with the WV-PSC's Order and submitted responses to Ali Haverty's requests.

Now I see why it took so long.  It had to be created.  And I mean that in the most complete, literal sense.

What has PATH been doing with your money?  And lest they attempt to tell you it's not your money, here's the truth:  These particular expenses revealed in the PSC case are booked as an income deduction.  PATH's only income comes from you, courtesy of the return they earn on capital expenditures in the ratebase.  PATH deducts these "donation" & "civic and political activity" expenses from their income to come up with a lower total income figure for tax purposes.  So, where does the actual cash they pay for these items come from?  Right out of your pocket because you're paying them that return every month in your electric bill.

So, what turned up in discovery?

For account 426.1  Donations.  This account shall include all payments or donations for charitable, social or community welfare purposes.

For account 426.4 Expenditures for certain civic, political and related activities. This account shall include expenditures for the purpose of influencing public opinion with respect to the election or appointment of public officials, referenda, legislation, or ordinances (either with respect to the possible adoption of new referenda, legislation or ordinances or repeal or modification of existing referenda, legislation or ordinances) or approval, modification, or revocation of franchises; or for the purpose of influencing the decisions of public officials, but shall not include such expenditures which are directly related to appearances before regulatory or other governmental bodies in connection with the reporting utility's existing or proposed operations.

I'm not going to comment on any of the individual entries here.  I don't have that much time on my hands.  If anything makes you curious, do a google search on the vendor.  I'll just make the observation that it doesn't add up.  So, was PATH cheating in their FERC filings, or are they cheating here?

Although I tried to give them the benefit of the doubt for much longer than I should have, it's now become quite obvious that this financial codswallop is being done on purpose in order to bolster the bottom line.  This would be cheating, in my book.  It's a stunning display of "error" after "error" after "error".  Can the accounting staff of a regulated corporation really be this inept?  No.  When something doesn't make sense, it's usually not true.  And Allegheny could not be that stupid and still manage to operate.  Yes, I said Allegheny.  It seems that's where most of the codswallop takes place.  I'm not absolving AEP here though.  They certainly had their finger in the pie too, although not as deep.  And when the manure hits the fan at game end, they're both going to be covered in it.

Yesterday, PATH filed another correction to their 2010 Formula Rate Annual Update.  Read the letter carefully and pretend you're FERC and this is the second correction you've received because of "errors" in PATH's accounting.  Are any alarm bells going off?  Although he tries to pretend that the "errors" were discovered by PATH, they were really discovered by Ali Haverty and myself and PATH was tipped off to them either through our discovery requests or our Preliminary Challenge.  Unfortunately for them, they still didn't fix them all!  This is a mere drop in the bucket.  It's so not over yet.  PATH has rather begrudgingly provided us with more than enough to hang them as we continue to move forward on the challenge to their Formula Rate filing. 

We all learned in kindergarten that George Washington supposedly said "I cannot tell a lie" when his father asked if he chopped down the cherry tree.  It's no coincidence that George's likeness appears on the dollar bill because, just like George himself, a dollar won't lie to you.  Follow the money and it will always lead you right straight to the truth.  That was always my favorite part of accounting.  It's black and white -- there are no shades of gray for crooked companies to hide behind.  And I get it, PATH.  I completely get it now.

I've been intending to post a link to this article since this morning, but shopping, baking and Bob Rivers Twisted Christmas got in the way (want a cookie?).  Bill beat me to it, so be sure to also read his take on it. 

A Missouri PSC Commissioner, Jeff Davis, gives his opinion of FERC's all-you-can-eat cash buffet for transmission developers in industry rag Transmission & Distribution World (how's that for some fun reading?)  He's got it exactly right and it lays bare the underlying motivation behind PATH and other unneeded transmission projects.  It's all about the money, boys!

PATH is riding along on an abundant gravy train, courtesy of you!  All their "prudently incurred construction and development costs" are recovered from you as they are incurred.  This expense is in your electric bill every month, if you're one of the 51-million electric customers in PJM's 13-state region.  They also make a hefty profit, which is where that 14.3% ROE comes in.  The power companies have all their costs covered, they even make a profit on the recovered costs, and they get to sell more of their filthy coal-fired electricity to the east coast population centers.  The costs are "socialized" (paid for by electric customers) while the profits are "privatized" (they go in the pockets of Allegheny Energy, AEP, their super-rich CEOs, investors and shareholders). 

Davis puts it like this, "FERC's repudiation of the “beneficiaries pay” doctrine along with all the “candy” incentives they are offering have created a modern-day gold rush to the transmission sector. Unfortunately, all the gold in this mine winds up in the hands of the transmission owners who get paid handsomely to build assets they end up owning. Consumers won't even realize they have gotten “the shaft” until a few years from now when their electric bills start going up to pay for these projects. The more these projects get rolled into rates, the madder those consumers are going to get. And who can blame them? If FERC has its way, we'll all be spending the next 30 years depositing our gold into someone else's mine. All we get is the shaft."

Couple of points:  this isn't happening "a few years from now" here in PJM territory, it's happening NOW, and many consumers are still blissfully unaware of why their electric bills keep going up quite mysteriously.  It's courtesy of PATH, TrAIL, Susquehanna-Roseland and other gravy train "backbone" transmission projects.  Also, I'm not sure where he got the figure of "30 years", but you're going to be paying for PATH forever.  The land and land rights they are purchasing and stuffing in the ratebase NEVER depreciate, so you'll be paying a return (that 14.3% ROE) on them into eternity.

Think if PATH is halted we'll all get our money back?  No, PATH has been awarded the ability to recover all their costs in the event that a project is abandoned due to circumstances beyond their control.  It's not quite as simple as that though, and remains to be tested.  I think PATH should pony-up and become the test case, don't you?  There's a whole bunch of hoops they'll have to jump through at FERC, and with their accounting problems hanging off their ankles like lead weights, I don't think they'll be jumping too sprightly.  What fun!

Another important quote:  "More importantly, there's no accounting for what will happen to customers' bills when it comes time to calculate all of the incentives with interest, taxes, depreciation and amortization."  Precisely!  This is what puts lie to PATH's $2.1 billion cost estimate.  Their "estimate" (which is probably as phony as a three dollar bill anyhow) doesn't take any of these costs into account.  The real price tag for PATH is going to be astronomical if we don't put paid to this nonsense now.

And last, but certainly not least, there's this:  "Transmission builders can get 100% of their costs capitalized, guaranteed cost recovery for pretty much all their expenses, little or no regulatory oversight on costs and cost-overruns, as well as a hypothetical capital structure to combine with a 13% to 14% return on equity for their projects."  While he's right that there is little or no regulatory oversight on costs and cost-overruns (as long as the utility fills out the forms properly and submits them on time, nobody at FERC pays attention), there is also a necessary public oversight provision in the tariff used to recover these costs.  Any "interested party" (meaning you customers) can utilize an existing discovery and challenge procedure to get inside the utility's accounting and protest this unbridled spending spree.  In fact, it's already happened to PATH, and what we found when we started getting data was a stunning display of bad accounting practice and imprudent expenditures.  PATH has a lot to answer for before FERC.

Familiarize yourself with the process now -- keeping these utilities honest with your money is nobody's job but your own.  Sad but true.

What a bunch of whiners PATH is turning into!  The mom in me wants to send them to their room to contemplate those less fortunate for several hours and not return to civilized society until they can stop sniveling and crying, "poor me!"

Yesterday, PATH filed this on the FERC docket regarding their soon to be history 14.3% ROE.  Randy and Monique cry some big crocodile tears about how unfair FERC is being by insisting that the median of their new proxy group be used to calculate their new ROE.

Let's have a quick talk about median vs. midpoint.  Yes, it's math, but I promise it won't be hard.  Don't look away, it will be virtually painless and I promise you'll "get it".  You're probably all familiar with "average" and how to calculate it -- you add up all the figures in your series and then divide by the number of figures to find the average or "midpoint".  Median is a slightly different animal and can result in a lower figure.  To calculate median, you sort your figures in numerical order and then select the middle number.  If you have an even number of figures, you calculate the mean of the two middle figures to arrive at median.  To see an example of this, see the link above.  The link explains how median is a popular mathematical trick favored by shysters, or in this case our slippery PATH friends, Randy and Monique.

They're quite familiar with median resulting in a lower number.  In the TrAILCO order, they managed to screw a bunch of property owners out of a fair price for their property by using the median of three appraisals to determine the price to be paid to property owners within 400 feet of TrAIL, instead of the midpoint.

"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."

Oh, boo-hoo-hoo, cry me a river, you two.  Do you really think FERC is going to fall for your skulduggery?  Hypocrites.

Sometimes, it's just not your day -- PATH seems to be having a lot of those lately.  Today definitely wasn't their day either.

In an order issued today, WV intervenor Ali Haverty was granted her motion to compel.  This means that PATH will have to produce:

"For account 426.1 please provide recipient, amount given, and purpose of the donation."

"For account 426.4 please provide recipient, amount given, and purpose of the expenditure."

To fully appreciate the magnitude of Ali's accomplishment, see the following blog post Does Character Count?

Congratulations and thank you, Ali!

Here's mud in your eye, Randy... or should I say ale in your fist?  Drink up!  :-)

Here's another filing on PATH's FERC docket that was issued yesterday.

Reality sets in -- PATH is going to lose that absurd 14.3% ROE and has begun to bend over in preparation.

On January 31, PATH will file a settlement proposal with a new rate of return on equity.  It won't be 14.3%.

"Counter-offers" will be proposed by the other parties to the case.  This is where WV's CAD, Byron Harris, will stick up for us, right?  Not unless you force him to.

How many of you have ever said, "If we could only do something about that 14.3%, Allegheny Energy & AEP's devotion to this foolish project would evaporate"?  Here's your opportunity.  Go.

An investigation by two West Virginia citizens has uncovered approximately $3 million that has been wrongly passed on to ratepayers footing the bill for the Potomac Appalachian Transmission Highline’s (PATH) high-voltage line project. The 275 mile transmission line would carry coal power from West Virginia up through Virginia and Maryland.

Keryn Newman of Shepherdstown and Alison Haverty of Chloe, filed a Preliminary Challenge to PATH’s Formula Rate showing that the company improperly charged lobbying expenses, work of its propaganda arm (PATH Education and Awareness Team), membership dues for groups like the American Coalition for Clean Coal Electricity (ACCCE), and over half a million on “reliable power coalitions” in each of the three states, to ratepayers under the guise of construction and development costs. Newman and Haverty are both customers of Allegheny Energy, who has partnered with AEP on PATH.

“The challenge to PATH’s formula rate reinforces what the Sierra Club has been saying for years,” said Jim Kotcon, Chair of the Energy Committee for the West Virginia Chapter. “Ratepayers should not have to pay for PATH’s lobbying and advertising campaigns because the project simply is not needed.” 
 
Jim Sconyers, chair of the West Virginia Sierra Club Executive Committee added, "This is the definition of outrageous! First we hold bake sales to raise money to fight PATH. Then PATH makes us pay for them to fight us!”

Under an agreement with the regional grid operator, an annual revenue requirement for yearly PATH project expenses has been collected from the organization’s 51 million ratepayers every year since 2008. This includes the addition of pre-construction costs that were accrued prior to March 2008 and are currently being amortized over the 5-year construction period.

The PATH project is currently being considered by the state regulatory commissions in West Virginia, Virginia and Maryland.

Testimony filed by Sierra Club before the Virginia State Corporation Commission last year demonstrated that the line was not needed and that cheaper, simpler alternatives are available.  PATH withdrew its application in Virginia at that time, but has since refiled. PATH is facing other hurdles as well. Frederick County, Maryland recently denied zoning approvals for the terminus substation for the PATH line as inconsistent with local land use plans. 
 
“Treating the wallets of West Virginia electric customers as ATMs is just not right. It is hard enough to pay the bills without the likes of PATH nickel and diming us – hoping we don't notice,” said Haverty, a mother of four.

Newman and Haverty have been examining PATH’s 2009 Formula Rate Annual Update since August. “The more questions we asked, the worse PATH’s accounting looked,” said Newman, who has a background in corporate accounting.

Allegheny and AEP have until January 3, 2011 to resolve the Preliminary Challenge.  If a resolution cannot be achieved, Newman and Haverty plan to file a Formal Challenge with the Federal Energy Regulatory Commission (FERC).

A copy of the Preliminary Challenge can be viewed here