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FERC Issues Order on PJM O1000 Compliance

4/7/2013

On March 22, FERC issued an Order on PJM's Order No. 1000 compliance filings. Earlier, we featured some of the posturing and nonsense going on that probably made the Commissioners want to just send everyone to bed without supper. Honestly... every time there's a new rule, the usual suspects are right on top of it trying to figure out a way to twist it to serve their own interests. Order 1000 is no exception.

I'm sure you just can't wait to jump right to it and read the entire 215 page order yourself. No? Don't need a sleeping pill? Okay... here are some highlights.

Cost Allocation:

Despite FERC sticking with 100% postage stamp allocation in its rehearing of the Illinois Commerce Commission 7th Circuit remand, FERC agreed a hybrid cost allocation method going forward.

The new method will apply to all lines approved that are at least double-circuited 345kV or higher voltages, which means more lines will qualify to be socialized across the entire PJM region. These lines will be allocated 50% via the postage stamp method, which assigns costs based on regional load share. This is supposed to recognize "benefits" everyone in the region receives from PJM's interconnected transmission system. Right. The other 50% will be allocated via two different DFAX methods, depending on the driver for the line. The other fifty percent of economic projects (those that are "needed" to reduce congestion and prices) will be allocated proportionally among those loads that receive the economic benefit of the lower energy costs. The other fifty percent of reliability projects (those that are "needed" to relieve future reliability violations) will be allocated proportionally among those who use the new facility, and allocations will be updated yearly to account for changes in load flows over time.

And I suppose getting kicked in the behind is better than getting kicked in the head.

And speaking of getting kicked in the behind... "Clean" Line's proposal to regionally allocate a portion of its merchant transmission projects got soundly punted.

In response to Clean Line’s request that the Commission allow partial cost allocation for merchant transmission projects found to meet economic or public policy needs, we note that, while Order No. 1000 requires each public utility transmission provider to have in place a method, or set of methods, for allocating the costs of new transmission facilities selected in the regional transmission plan for purposes of cost allocation, it does not require a public utility transmission provider to establish a cost allocation method that would apply to any portion of the costs of a merchant transmission project not recovered through negotiated rates. Therefore, we deny Clean Line’s request that the Commission require PJM to allow for partial allocation of the costs of a merchant transmission facility through the regional transmission cost allocation method as beyond the scope of Order No. 1000.

Clean Line got resoundingly (and satisfyingly) slapped down on all fronts. PJM (and FERC) don't love Clean Line the right way... but who can blame them? Clean Line is suddenly discovering that the four merchant transmission projects it dreamed up aren't a sustainable business plan and now it's desperate for some ratepayer subsidies to continue the farce. Because "Clean" Lines aren't needed, they're not going to be approved in a regional plan, and therefore cannot be regionally allocated. Clean Line tried to tell FERC that if it built these unneeded projects that they would magically provide some regional reliability and economic benefit and therefore should be partially allocated to captive ratepayers who wouldn't use any of the electricity carried by the lines. A merchant transmission project is paid for 100% by generators on one end and load on the other. There's no such thing as a quasi-merchant project. Quit your whining, Clean Line, pull up your big boy pants, and get on with wasting your investors' money. You're not getting any help from PJM ratepayers.

Further, while Order No. 1000 established the information requirement discussed above, the Commission also concluded that, because a merchant transmission developer assumes all financial risks for developing its transmission project and constructing the proposed transmission facilities, a merchant transmission developer is not required to participate in a regional transmission planning process for purposes of identifying the beneficiaries of its transmission project that would otherwise be the basis for securing eligibility to use a regional cost allocation method. Thus, a transmission developer is not required to submit a merchant transmission project into the regional transmission planning process, and the regional transmission planning process is not required to evaluate a merchant transmission project for potential selection in the regional transmission plan for purposes of cost allocation. However, nothing prevents a transmission developer from submitting its transmission project into the regional transmission planning process for potential selection in the regional transmission plan for purposes of cost allocation. In that case, the regional transmission planning process would evaluate the proposed transmission project as it would any other proposed project and, if the transmission project is selected in the regional transmission plan for purposes of cost allocation, it would be eligible to use the regional cost allocation method. If the proposed transmission facility is not selected in the regional transmission plan for purposes of cost allocation, then the transmission developer could choose to move forward as a merchant transmission facility.

Right of First Refusal: I'm finding it really hard to care about this issue at all. Why don't you all fight about it quietly and let me know when you're done? The only thing I found even remotely interesting was that the Market Monitor was trying to get FERC to make transmission owners stick to the submitted cost of their projects as approved in PJM's RTEP. Good idea! However, FERC slapped that down too. The cost of an approved transmission project -- one of the factors that made it the preferred, cost effective option in the selection process -- is mere suggestion and bears no resemblance to how much such project may cost to build. This allows incumbent transmission owners to undercut every other project developer on price, and then spend twice as much actually building the project. Remember Primary Power?

"Public Policy" and PJM's State Agreement Approach: A handful of "clean" energy companies and their big green Pollyanna sycophants submitted comments whining about PJM's State Agreement approach to "public policy" projects driven by individual state renewable portfolio standards. These cleaniacs think that they can force PJM to turn individual state policies into regional transmission needs, and socialize the cost as broadly as possible. The energy companies, of course, want this because they make money off renewables. The Pollyannas want this because they think they're saving the world, and they don't care how much it costs. Greedy and Clueless got slapped down.

FERC determined that PJM's "consideration" of public policy requirements in planning sensitivities is adequate (although frighteningly opaque) and the State Agreement approach to cost allocation is supplemental to O1000. This means that a project "needed" solely to meet "public policy" goals will be driven by the state officials whose policy requires it, and voluntarily paid for by those states whose policies cause it.

But, never fear, I'm sure Greedy and Clueless aren't done with their whining yet -- they do it so well -- and will continue attempts to force everyone to consume socialized utility scale renewables when better options such as distributed generation of local renewables are the more viable, sustainable choice.

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Formal Challenge to PATH's 2011 Revenue Requirement Filed

4/1/2013

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Keryn and Ali filed a third Formal Challenge to PATH's rates at FERC today. The previous two Challenges, which were granted in part and set for settlement and hearing by FERC last fall, covered PATH's spending in 2009 and 2010. The Challenge filed today covers PATH's 2011 expenses.

Remember, the project wasn't put into abeyance until Feb. 28, 2011, and then PATH had the rest of the year to wind down its unneeded project and wallow in the financial and logistical mess it had made.

The total of this third challenge is $4.4M, and when added to the $5.7M set for hearing in the previous challenges, the amount challenged totals more than $10 million dollars. What could you have done instead with that $10M?

The Challengers ask for the Commission to grant the Challenge and consolidate it with the existing Challenges, which were consolidated with PATH's abandonment.

We do hope you enjoyed your April Fool's day as much as we did...

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FERC Stubbornly Clings to PJM Postage Stamp Rate Scheme

3/29/2013

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FERC issued a whole bunch of interesting decisions at its meeting last week. Unfortunately, I've been too busy over the last week writing FERCenese* to spend much time reading it.

Finally, here's your first FERCenese translation from last week about FERC's Order on Rehearing regarding postage stamp rates in PJM.

Not surprisingly, FERC reconfirmed it's original Order on Remand and brushed off all the arguments made by parties in their requests for rehearing. The Commission continues to cling to its illogical presumption that “When a system is integrated, any system enhancements are presumed to benefit the entire system.”

Also not surprisingly, Commissioner LaFleur dissented (again). However, joining her in dissenting this time around was the newest addition to the FERC stable, Commissioner Tony Clark.

Both dissenting Commissioners mentioned that FERC is reaching by assigning PJM "system wide benefits" to "Western PJM" entities like ComEd in exchange for bearing 14.7% of the costs. These "system wide benefits" accrue from membership in PJM, and not from construction of the subject transmission projects. Commissioner Clark also opined that FERC has fallen short of the 7th Circuit's directive in remanding the case back to FERC.

Although I usually encourage you all to read these filings yourself, this Order is a real deja vu snoozer that doesn't say anything new. Everything you need to know is contained in the dissents.

Commissioner LaFleur's Dissent

Commissioner Clark's Dissent

The only thing different this time around is that a new cost allocation process for PJM transmission projects has been approved as part of PJM's Order No. 1000 compliance. The new cost allocation method became effective February 1, 2013. Therefore, this Order on Rehearing affects only a specific set of transmission projects approved between June 20, 2006 and February 1, 2013 (aka The Project Mountaineer Era). These projects (TrAIL, Susquehanna Roseland and the dearly-departed, abandoned PATH and MAPP) will continue to be allocated and paid for by the postage stamp rate methodology that has been decided in this Order.

PJM's new cost allocation methodology will allocate 50% of the cost of transmission 345kV and over by postage stamp methods, with the remaining 50% allocated via a DFAX methodology, which more accurately assigns costs to those who cause them and to those who receive current benefits from the project. (More on that in a future FERCenese translation).

So, while "Western PJM" will continue to pay an equal share of 500kV+ Project Mountaineer lines that are exclusive to the east coast, the current 345kV expansion going on in "Western PJM" (where they don't build 500kV lines) won't be allocated to "Eastern PJM" in the same proportions. Sound fair to you?

FERC reasons that since this postage stamp business now applies only to a finite, historical set of projects that this decision will put the matter to rest.

Probably not. The parties can now bump it back to the 7th Circuit.

And, curiously enough, the Illinois Attorney General intervened out of time in the PATH abandonment docket today.... because now Illinois is going to be stuck paying 14.7% of PATH's abandonment costs. Coincidence?

*FERCenese: [fur ken ees] noun
Style of technical, legal prose utilized in filings and orders at the Federal Energy Regulatory Commission. To the average layperson, the filings appear to be written in a language other than the familiar English. The Scott Thorsen Dictionary, 2013.

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Update on PATH's Abandonment and Formal Challenges

3/12/2013

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If you've been wondering what's going on with PATH's abandonment and the Formal Challenges at FERC, here's your update.

Sorry, that's the only public information that's available.

While you wait for closure, perhaps you can entertain yourself contemplating the meaning of FERC's paper mache sculpture that sits in the hallway outside the hearing room.

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New Report: RTO Markets Don't Save Electric Consumers Money

3/10/2013

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"The evidence is clear that generators are profiting excessively from RTO power markets, and that sellers’ rates are not ‘just and reasonable’ as the law requires. Consumers are paying the price, to their detriment and that of the overall economy."

That's the conclusion of a report on FERC's restructured regional electricity markets published in December by Elise Caplan of American Public Power Association and Stephen Bobeck of the Consumer Federation of America.

The report takes a look at how FERC has restructured regulation of wholesale power to rely on market based rates and regional transmission organizations. "FERC has chosen to rely on supposed market “competition” to ensure that prices are “just and reasonable,” as required under the Federal Power Act."

Do these markets work to protect consumers? No. The report opines that, "Instead, evidence is mounting that customers have been harmed by the markets."

Despite repeated attempts to get FERC to do some sorely needed analysis and adjustment to its competitive market experiment, "FERC has still not undertaken such an analysis. But there is a wealth of data available to support the conclusion that consumers actually have been harmed by the restructuring of wholesale electricity markets and that access to alternative retail suppliers does not solve the fundamental problems of the wholesale market from which those suppliers must purchase power."

In the report, "...we discuss specific RTO rules and structure that have provided opportunities for excess generator earnings at the expense of consumers."

In uncompetitive RTO cartel electricity markets, "Offers into the energy market need not reflect the sellers’ actual costs of generation, as FERC would have required under a traditional cost-of-service ratemaking regime. Rather, the sellers set their own price offers, regardless of their actual costs, subject only to review and possible adjustment by the RTOs’ market monitors. In PJM, the market monitor typically mitigates less than one percent of the energy offers in both the real-time and day-ahead markets."

Thanks, Market Monitor! Always looking out for my interests, aren't you? It's just too bad that PJM's attempt to replace the Market Monitor isn't intended to provide more protection for consumers, but LESS.

And here's another problem we've written about before that pops up in the report: "The conceptual basis for LMP is that these differential prices will send “price signals” to indicate where there is a need for new generation or additional transmission capacity, or to reduce load through conservation or shifting the times when energy is consumed. As discussed below, this theory has not borne fruit in practice."

In PJM, new transmission is always proposed before new generation has a chance to happen, and demand side resources aren't given serious consideration. This is why consumers are now paying half a billion dollars for two failed transmission projects -- transmission projects that were approved and intended to be quickly rammed through before demand side resources and new generation could be recognized. Ultimately, PJM's Project Mountaineer scheme failed, along with the transmission projects, when demand side resources and generation developed despite PJM's best efforts to squelch them.

"The theory behind locational pricing is to provide price signals indicating where new transmission and generation is most needed. But in reality, new resources have not developed to respond to higher prices in these markets. Instead of inducing new resource development, the higher prices provide a financial incentive for incumbent generation owners to keep supplies constrained, or at least to ensure that prices bid by new market entrants remain high.

The financial benefits of constrained supplies can be seen in the candid presentations by merchant generation owners to the financial community wherein the potential closure of coal plants is touted as a benefit to their earnings."

You know... like how FirstEnergy's wave of coal plant closures last year provided the company with jacked up capacity prices in ATSI and a whole bunch of new transmission projects in which to invest its "transmission spend" to increase the company's earnings. Remember that?

So, what protections are built into RTO markets, and do they work? "FERC relies solely on market monitors for each RTO to determine whether the wholesale electricity markets are competitive. These market monitor analyses are based on a limited frame of analysis that ignores evidence, such as the profitability data presented later in the report, which raises questions about the competitive nature of these markets. Moreover, the reports issued by the market monitors do not always support a definitive finding of competition. For example, in the most recent State of the Market Report for PJM, the market monitor found that the local market structure in the energy market and both the local and aggregate market structure in the capacity market were not competitive, as was the structure and the performance in the regulation market."

Go ahead, click through and read this analysis:

"Prior to examining the empirical evidence of the effects of RTO markets on electricity prices paid by utility customers, this section describes the structural flaws in RTO markets – conceptual problems that have led to higher prices than would have occurred absent such markets. These fundamental features of RTO markets, discussed below, provide both incentives and opportunities for merchant generators to earn excess revenues at the expense of consumers".

How does PJM "fix" their markets when things go awry? "When a given market structure does not achieve its goal of providing satisfactory revenue to RTO generators, the response – prompted by generators, many of them the spun-off affiliates of formerly vertically-integrated utilities – has been to induce the RTO to add a new, more complex market or a rule to prop up prices, such as a tightening of the minimum offer price rule in PJM." This kind of "make the rules up as you go" is the basis for the most recent bickering over new MOPR rules secretly concocted by PJM and its incumbent generators. This is the behavior of a cartel, not a competitive market.

If competitive markets save money for consumers, why do "RTO generation owners’ 10-K reports to the Securities and Exchange Commission list restrictions on competition as a potential risk to their earnings?"

The evidence examined in the report "lead[s] to a conclusion that the restructured RTO-operated markets have increased prices above what would be seen in the absence of restructuring."

How much? "...a possible $12 billion excess payment from consumers to generating companies that do not face genuine market competition – demonstrates the scope of restructuring’s negative impact."

And this about sums it up:

"The greatest beneficiaries of restructuring have been not consumers, as was promised, or innovative companies that were expected to emerge, but the “usual suspects” – owners of previously regulated, largely depreciated generating units."

How do we fix this mess? "It is crucial that FERC, as the regulator responsible for ensuring under law that wholesale prices are just and reasonable, determine whether RTO markets are achieving their cost-reducing potential, and, if not, to implement needed reforms."

Don't hold your breath. FERC refuses to even examine the results of their RTO experiment, much less take any action to fix it. Perhaps it's time for Congress to step in.

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Wisconsin Citizens' Groups Ask FERC to Revoke MISO Approval of Transmission Project

3/2/2013

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Citizens Energy Task Force and Save Our Unique Lands filed a complaint at FERC yesterday alleging that a transmission line approved by the Midwest Independent Transmission System Operator will cause instability of the electric grid. The complaint asks that FERC:

"...order that the MTEP 08 addition of the Hampton-Rochester-La Crosse transmission line is prohibited because electrical impacts of the addition of this project to the grid were not considered, and that instead of improving the reliability of the system, it contributes to and/or causes electrical system instability, that the Midwest Reliability Organization (MRO) has neglected its duty to preserve the reliability of the system, and that the Commission Order revocation of the Midwest Independent Transmission Service Operator (MISO) approval of the CapX 2020 Hampton-La Crosse transmission project because the addition of the Hampton-Rochester-La Crosse transmission line contributes to and/or causes system instability."

The citizen groups' complaint relies on the segmented approval and construction of the CapX 2020 lines. While the projects are supposedly parts of a larger plan, the utilities have admitted that construction of the subject segment without an additional transmission line to Madison will bring about instability that will cause the system to "reach a tipping point." An additional line to Madison has not yet been applied for or approved.

MISO's piecemeal project portfolio will cause system instability if all parts are not built. Construction has already begun on portions of the project in Minnesota, but without an extension of the line to Madison, it is merely a radial line dumping excess electricity into LaCrosse that has no outlet. Because the second line has not been approved, there is no guarantee it will be built. The complainants also point out that previous arguments by the applicants that the two lines are separate projects have clearly violated the National Environmental Protection Act prohibiting the segmentation of dependent projects.

So, which is it? Are these separate projects or are they integral parts of a single project? MISO cannot have it both ways.

Will FERC take the initiative to administer some sorely needed discipline upon one of its regional transmission organization darlings? Or will it continue to let its unruly children run wild until we're all sitting in the dark?

Read more here, here here and here.

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FERC Says No to Pepco's Plan to Collect Incentive ROE on Abandoned MAPP Project

3/1/2013

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Remember Pepco's silly plan to collect a 12.8% incentive ROE on $87.5M of abandoned plant costs for its unneeded MAPP project?

Although it granted Pepco the right to recover its prudently incurred investment yesterday, FERC denied the continuation of MAPP's 150 basis point incentive ROE on abandoned plant. No big surprise -- Pepco's arguments were absurd.

"We find that the continuation of the additional 200 basis points of incentives, on top of the base ROE, on an abandoned project is not appropriate. Once a project has been canceled, none of the incentives granted other than the ability to recover prudently incurred abandonment costs continues to apply, as explained below."

FERC also denied Pepco its 50 basis point incentive for continued membership in PJM. The Commission reconfirmed its determination in the PATH abandonment order:

"We therefore find that the 50 basis point adder for RTO participation is not appropriate for recovery in an abandonment application. This finding is appropriate in the context of abandonment even though the Commission has found that the RTO participation incentive is unrelated to any particular project but instead is intended as an incentive for joining and remaining in an RTO. This is because even though the public utility project developer has joined an RTO, the facility at issue in an abandoned plant cost recovery situation will not be transferred to the RTO's control, and therefore the benefits from that project’s inclusion in an RTO will not materialize.

This outcome is consistent with the PATH Abandonment Order, where the Commission clarified that continued recovery of a 50 basis point adder for RTO participation is not appropriate for recovery in an abandonment application."*

Do you think the Commission was clear enough this time? Greed seems to be interfering with utility understanding of this concept.

In addition, the Commission also determined that Pepco can recover only 50% of its incurred costs prior to issuance of their incentives order in 2008. Because Pepco incurred these costs before being granted the 100% abandonment recovery incentive, they are only eligible for 50% recovery. Pepco wasn't greedy enough to ask for amortization of its pre-incentive costs over its construction period like PATH did. Silly Pepco, that's going to cost ya...

However, the Commission also awarded Pepco a 10.8% ROE on its recovery of abandoned plant, instead of setting ROE for hearing like it did on PATH's abandonment. Pepco's brazenly ridiculous request to recover an incentive ROE on abandoned plant captured the attention of all the protestors, who failed to advance any arguments against Pepco's base ROE. You gotta admit, it was pretty smart. Maybe PATH's counsel could take some lessons from Pepco's. Or maybe PATH just needs smarter counsel.

As it did with PATH, the Commission set the prudence of MAPP's abandoned plant costs for settlement and hearing.

Before you get all carried away praising the Commission for this Order, remember that it is because the Commission continually fails to enforce any discipline on their little darling PJM that consumers in 13 states and D.C. will have paid nearly half a billion dollars for these two abandoned transmission projects. PATH and MAPP (and TrAIL and Susquehanna Roseland) were never truly needed. It was all about increasing the use of coal-fired resources, not reliability or economics. The utility cartel that is PJM has cost us all higher electric bills that we can ill afford and will not be held accountable for its machinations.

*This bodes well for PATH's rehearing, doesn't it?

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Recycled Expert Opinion - The "Regulatory 'Gotcha'"

2/20/2013

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Research for another project turned deja vu this morning when I ran across this phrase:

“Awarding a downward-biased ROE by hewing only to a ‘knee-jerk’ application of recent precedent would result in a regulatory ‘gotcha’.”

Now where have I heard that bumptious phrase lately? Could it be in PATH's "case-in-chief?"

"Now that investors are captive, awarding a downward-biased ROE would result in a regulatory “gotcha” that would violate regulatory standards and undermine the Commission’s own incentive policies."

Yup, same "expert." How many times will AEP pay this guy to theatrically yell "wolf?" As many as necessary, since they're using ratepayer funds to pay this "expert" to say the same thing over and over on different cases.

Quick, someone grab a violin, FERC is single-handedly destroying our economy! *shudders in horror*

I wonder if the Commission's eyes also roll back in their heads every time they read "regulatory 'gotcha"? Maybe they have a sort of office football pool going where they make bets on when Avera will pop up wailing "regulatory 'gotcha'" in a case. If not, they should consider it. Might be fun. At least more fun than reading Avera's billowing opinions over and over again.

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PATH's Abandonment Case-in-Chief

2/17/2013

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If you've been following PATH's abandonment recovery case at FERC, here's the latest.

PATH filed what it called its "case-in-chief" last week. Not sure why PATH couldn't have filed its case when it applied to recover its abandonment costs on September 28. I guess PATH was seriously expecting the Commission would rubber stamp that dreadful mess it filed last year so PATH wouldn't actually have to go to the trouble of filing a case?

At any rate, some of it may be worth a read. The testimony of Archie Creepyfreak and Snidely Whiplash is worthy of a scoffing snort or two. The testimony of the accounting ladies and Milo -- eh, probably over the average person's head and not worth your time.

Don't miss the testimony of PATH's hired ROE "expert," Dr. William Avera because it's the most amusing part of this whole 500+ page filing. Now, keep in mind that PATH is paying this guy a pretty penny (from YOUR piggy bank, little ratepayer) to blather on for 78 pages about PATH's ROE during the 5-year amortization period. 78 pages! Plus 24 more pages of exhibits! One hundred and two pages to say what can be simply paraphrased as: When we do the DCF analysis, the median that the Commission usually uses is 9.1%. We even tossed out a bunch of low numbers while keeping in the high ones, but that was the highest we could get it. But we want 10.4% *stomps feet*!!! Therefore, the Commission should abandon their usual approach (that provides regulatory certainty) and just give PATH what it wants. PATH needs a higher number because this ROE is going to be be in place for five whole years, during which time they expect that the cost of equity is going to rise. Gee, I didn't hear this guy talking about the longevity of PATH's original 14.3% ROE when the cost of equity went down in following years. PATH's "expert" comes up with several other ways to twist and massage numbers and make crap up that would give the Commission an excuse to award PATH the 10.4% ROE it wants. And if that doesn't work, Dr. Avera is going to try to confuse you or bore you to death with his financial diarrhea. I'm betting his testimony (102 pages!) cost more than PATH stands to gain by maintaining the 10.4% ROE, however, you're paying the bill!

Don't bother with the last 350 pages or so. PATH actually tells the truth for a change when it characterizes the Period I and II data as useless and "trying to fit a square peg in a round hole."

And now parties to the abandonment case have less than two weeks to go through all this before the first settlement conference on Feb. 26. Happy reading, everyone :-)

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FERC Grants Rehearing on PATH's RTO Membership Incentive

1/29/2013

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Yesterday, the Commission granted rehearing on its previous order denying PATH the continued benefit of a .5% return on equity incentive for membership in PJM during the amortization period for recovery of abandoned plant.

So, what does this mean? Not much. It simply means PATH is hog-tied and can't proceed on appeal to the D.C. Circuit and waste even more of our money having a legal tantrum over .5% interest that it's not entitled to.

The Commission will take another look at its previous decision and decide whether or not to change its mind. There's no time limit on how long the Commission can take to make its decision. It could be years. Meanwhile, PATH can shut up and sit down.

If the Commission had denied the request for rehearing, PATH would have been given the green light to appeal FERC's decision in federal court. Now PATH can't proceed until the Commission reconsiders and issues another order on the issue. The Commission can change its mind, or simply confirm its original decision.

Here's the issue: In the Energy Policy Act of 2005, Congress instituted certain financial incentives to encourage investment in transmission for the purposes of benefiting consumers. Congress tasked FERC with coming up with policy and awarding incentives. One of the incentives Congress specifically mentioned was financial reward for a transmission builder who joined a regional transmission organization and turned control of its facilities over to the organization. FERC put this into practice in the form of an additional .5% interest on each project that applied for it, if the owner joined or continued an existing membership in an RTO. Therefore, a company with membership in an RTO could be awarded this incentive on each project it owned as long as it maintained its membership.

AEP and Allegheny (now FirstEnergy) set PATH up as a joint venture and created a bunch of single-purpose shell companies. The parent companies did this because a "new" company produced tax and financial benefit and it could be awarded a higher incentive return on equity because this independent "start-up" company was taking a greater risk than it would if each established parent company owned its own portion of the project. PATH tried to pretend it was an independent company whose stock just happened to be owned by its parents. PATH chose this corporate structure because it benefited the parent companies. Nobody forced PATH to do it.

Now that PATH's one and only project has been abandoned without being built, the Commission determined that the company will never have anything to turn over to an RTO, and there is no benefit to consumers from PATH's continued membership in PJM, and therefore denied continuation of this incentive.

PATH is arguing that the Commission is punishing it for its choice of business construct. PATH says that its parent companies have other transmission projects that have been turned over to PJM, so therefore the parent company actions entitle PATH to the same benefit. All of a sudden, PATH wants to be a part of its parent companies. But wait... PATH separated itself from its parent companies when it benefited financially. Now PATH wants to be included with its parent companies when it can financially benefit from that construct. Can you smell the desperation?

PATH also complains that the Commission is being inconsistent because other transmission projects that have been abandoned managed to keep the RTO membership incentive, therefore PATH is entitled to do so as well. PATH feels it should have been put on notice that it would lose this incentive if it abandoned the project. *sniff, sniffle, whine*

Other transmission projects have kept this incentive because they aren't single-purpose entities and their companies will continue to exist and maintain membership in an RTO. There is no point to PATH's continued membership in PJM because it doesn't own any transmission and will cease to exist as soon as the abandoned plant debt is paid off.

Despite a rule prohibiting answers to requests for rehearing, the Joint Consumer Advocates filed an answer supporting the Commission's original decision and arguing against continuation of this incentive.

The Commission's granting of rehearing won't affect the scheduled settlement conference coming up at the end of February, since that issue was never set for hearing but decided in the original Order. However, parties will be aware that a reversal of the Order could grant PATH an additional .5% return at any time in the future and may keep that in mind while negotiating a settlement. Happy now, PATH? :-)

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<<Previous

Forward>>

FERC Issues Order on PJM O1000 Compliance

Formal Challenge to PATH's 2011 Revenue Requirement Filed

FERC Stubbornly Clings to PJM Postage Stamp Rate Scheme

Update on PATH's Abandonment and Formal Challenges

New Report: RTO Markets Don't Save Electric Consumers Money

Wisconsin Citizens' Groups Ask FERC to Revoke MISO Approval of Transmission Project

FERC Says No to Pepco's Plan to Collect Incentive ROE on Abandoned MAPP Project

Recycled Expert Opinion - The "Regulatory 'Gotcha'"

PATH's Abandonment Case-in-Chief

FERC Grants Rehearing on PATH's RTO Membership Incentive

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