I came across an editorial the other day with some thoughtful ideas about reforming an out-of-control federal regulatory system that often forgets that it is supposed to serve the consumers.  Reforming FERC is the work of Tyson Slocum, who the publication fails to inform you is with Public Citizen.

Slocum is just the latest to criticize the Regional Transmission Organization structure that FERC has created that, as Slocum puts it, "delegated sweeping Federal Power Act authority to [RTOs], creating private organizations on the front lines of federal law enforcement with little accountability to the public."

Indeed, there is no public accountability at regional transmission organizations, despite their claims of transparency and "stakeholder participation."  In fact, the vast majority of electric consumers do not even know these organizations exist. 

"Governance is also a problem. The RTOs assign voting shares to different stakeholders. PJM, NYISO and the others tilt the voting rights heavily in favor of generators, power marketers and utilities. End users always have a tiny minority of the voting shares, and therefore no influence. Sure, the RTOs have dozens of working groups that meet hundreds of times on an array of market topics, but at the end of the day, the RTO votes on policies, and the outcome of the election is rigged against the consumer's interest." 

As a friend recently observed, "The only way these organizations will ever be "stakeholder-driven" is when they get stakes driven through them by the holders!"  Must we gather our torches and pitchforks and storm the castle?

FERC's little experiment with allowing the industry to regulate itself through the formation of self-interested cartels is about an inch from failure and must be reformed.

Because they have been free to operate and "answer to no one" for years, it's been a very slippery slope.  Just as an unsupervised child toes the line to see what he can get away with, the RTOs are getting bolder and bolder.  One doesn't have to spend much time riffling through FERC dockets to find numerous examples of RTOs behaving badly.

For instance, PJM's recent revisions to the Minimum Offer Price Rule (Docket ER13-535) were concocted during secret meetings that purposely excluded state consumer representatives.  The new rule is intended to prevent the construction of new gas-fired generation ordered by two east coast states.  It doesn't take much imagination to determine that new generation will cut into incumbent generator profits, and incumbent generators and their affiliated investor-owned utilities hold huge "stakeholder" voting blocks.

In another example, one utility has filed a request for rehearing (Docket ER12-1178) of FERC's approval of recent planning scenario changes that allow for "PJM’s engineering expertise and experience as the transmission planner and operator for the PJM region" to be a mysterious surprise factor when selecting transmission upgrades through a "transparent" planning process.

And lest you think I'm just picking on poor, persecuted PJM, this "engineering judgment" black box decision making is also going on in other RTOs.  There's a dispute going on between a Wisconsin generator and MISO (ER12-1928) wherein MISO has "used its engineering judgment" to decide three years after the generator went into service that it is now responsible for new transmission builds as part of its interconnection agreement.  If MISO gets its way, no generator is safe from being assigned millions of dollars of transmission upgrades in order to continue to operate.  The generator actually pondered whether it would ultimately be cheaper to just retire its brand new wind farm than continue to operate and risk being ordered to pay for future upgrades that come out of MISO's "engineering judgment" black box.

This kind of railroading of the "stakeholder" process and black box decision making is plainly ridiculous and should serve as a wake-up call for FERC to re-examine its RTO construct.

Another suggestion Slocum makes is to establish a consumer advocate office at FERC.  There is currently nobody looking out for consumer interests in the federal regulatory world.  It's pointed out that state consumer advocates are underfunded and overworked and rarely get involved at FERC.  This does not mean that consumers cannot protect their own interests at FERC, however. 

Personally, I have no complaints about the way FERC treats consumers, however, it is extremely rare that a common end user dares to penetrate the barrier presented by a complicated regulatory process with an extremely steep learning curve.  Despite PATH's dire warnings to FERC that if it found consumers to have standing under Sec. 206 of the Federal Power Act that millions of consumers would storm the agency and file complaints, it just isn't going to happen.  Nobody else is lining up to put in the hundreds of hours of volunteer labor required to examine transmission rates, even though their learning curve would be substantially less steep than the one Ali and I faced.  Other transmission owners who may fudge their revenue requirements are probably quite safe from consumer intervention for the time being.

Slocum says, "Congress never expressly authorized the private organizations that run power markets; rather, FERC created them as voluntary organizations under Orders 888/889/2000."

Perhaps it's time for Congress to act, because it's highly unlikely that FERC will initiate Slocum's suggestion to "open an investigation into whether or not RTOs are producing just and reasonable rates."  Sometimes the truth is a bitter pill to swallow.

If you haven't been keeping an eye on PJM's Order No. 1000 compliance filing at FERC, you've been missing out on a remarkable display of overreaching greed and self-importance. 

The main issue of contention appears to be PJM's state agreement approach to cost allocation for "public policy" transmission projects driven by individual state renewable portfolio goals.  PJM's approach is to have these type of projects proposed by the states whose RPS requires them, and who agree to pay for them in their entirety.  Entities who stand to profit from building this type of transmission believe they should be free to develop these projects without input from the beneficiary states and that these projects provide some hard to identify regional benefit and therefore should be allocated to all consumers in the PJM region, either in whole or in part.

Since "public policy" is a state matter, decided by state legislators on behalf of their constituents, who the heck do these for-profit transmission builders and Pollyanna environmental organizations think they are to take over administration of individual state policies and direct how they will be fulfilled and paid for?

The transmission builders are representing their own interests to profit from new transmission to meet "public policy" goals, and the environmental organizations are representing their own ivory tower, academic, environmental goals.  Neither of these groups represents the consumers who will pay for new transmission.  The only entities here representing the most important "stakeholder" of all (YOU!) are the states.  The Organization of PJM States makes it quite plain that transmission owners and environmental organizations simply don't have the authority to propose and force "public policy" projects.

"Absent an explicit legislative directive for a project’s construction, turning a “public policy” into a “transmission need” for a project that is not economic or needed for reliability will likely require the interpretation and/or extrapolation of laws or regulations. Such policy decisions and pronouncements are appropriately made by governmental entities and not by private interests or regional transmission planners. OPSI agrees with FERC that the regional transmission planning simply is not the forum for making policy decisions as “[i]t is not the function of the transmission planning process to reconcile state policies.” No employee in the PJM chain of command is appointed or elected by the citizenry to interpret, implement, or reconcile state laws and regulations. The State Agreement Approach appropriately identifies that only authorized policymakers should make the policy decisions and pronouncements that will be required to convert “public policies” into “transmission needs.”

PJM knows that allowing self-interested entities to dictate how individual state energy policy is implemented is a recipe for disaster and has wisely chosen to allow the states to direct and allocate costs of these projects.  It's the only way anything is going to get built, ever.  However, these gung-ho entities refuse to see how their rabid attempts to force the issue are going to tie "public policy" transmission up in the courts forever.  Whatever, fellas, the lights aren't going to go out if these projects don't get built, and the delay will only serve to prove that the most reliable and economic deployment of renewables is through distributed generation, not centralized utility-scale generation.  So, keep on holding your breath until you turn blue, it's quite amusing!

I do, however, have to hand out an Audacity Award to the glad-handing shysters at Clean Line Energy Partners for their suggestion that merchant "public policy" projects should also be partially allocated on a regional basis.

A merchant project is paid for entirely by the entity who builds it.  All risk is assumed by the transmission owner, who may recover their costs of building the line from the generators and customers who subscribe the line.  No costs are allocated to captive customers.  Costs are voluntarily assumed by entities who buy the "renewable" transmission.

However, Clean Line's merchant business model is falling apart before their very eyes and now they want YOU to help them pay for it.  "Renewable" merchant projects like Clean Line's are not economically feasible.  The cost of building the line makes the cost of its product more expensive than competing "renewable" generation.  Clean Line has been relying on subsidization of generation costs through the production tax credit to lower the cost of its product.  Now with the PTC on the chopping block, Clean Line is looking for another sugar-momma to subsidize its uneconomic business model through allocation of costs to captive ratepayers who will not purchase one electron transmitted over the line.  Give up, Clean Line and quit wasting the Zilhkas' money.  Thanks for pointing out how ridiculous the rest of the whiner entities' proposals about regional allocation of "public policy" projects can be when extrapolated out to fill your own pockets.  Every circus needs a clown.  Or is it a monkey on a bicycle? ;-)

As 2012 draws to a close, let's take a look at the decrepit corpse of the PATH project.  Although it's true that PJM officially cancelled the project in August and PATH will never be built, our little zombie continues to shamble about feeding on consumer wallets.

Back in 2008, FERC awarded several financial incentives to the PATH project.  One of the incentives was the ability to apply at FERC to recover 100% of prudently incurred expenses from consumers in the event the project was abandoned (cancelled).  Although you've been paying a yearly revenue requirement for PATH's Operations & Maintenance expenses and return (profit) every year since 2008 (grand total through Dec. 31, 2012 = $95M), PATH has been spending its own money on project capital expenses such as land, engineering, permitting, etc.  These expenses get tucked away in PATH's rate base as "Construction Work in Progress" where they have been earning a return of 12.4% yearly.  The amount PATH has invested in their project totals $121M.

In January and December of 2011, two West Virginia consumers filed formal challenges to PATH's yearly revenue requirements for the years 2009 and 2010 (part of that $95M).  In September of this year, FERC granted the two formal challenges and set them for hearing.  Expenses challenged include PATH's advertising and dishonest public relations activities totaling around $6M.

A week after FERC set the Challenges for hearing, PATH made their abandonment filing with the Commission, seeking to recover their $121M investment without any examination of the actual costs incurred.  Then PATH turned right around and asked the Commission to consolidate the abandonment with the formal challenges for settlement and hearing.

More than 30 parties intervened in PATH's abandonment filing, including a dozen consumers from West Virginia and Maryland.  FERC found that PATH was entitled to collect prudently-incurred project investment, however it set the prudence of the actual expenses for settlement and hearing.  FERC also denied PATH's request to retain part of the incentive return on equity they were granted in 2008. 

In its filing, PATH voluntarily agreed to forfeit 1.5% of the incentive rate of return they were granted in 2008.  However, PATH asked to retain the extra .5% return FERC granted them as an incentive for joining the PJM cartel.  Several parties protested this rather bald money-grab by PATH.  Because the PATH shell companies were created by parent companies AEP and FirstEnergy (Allegheny Energy) as single-purpose entities to construct and own ONLY the PATH project, and the PATH project has now been cancelled, there is no purpose to PATH's continued membership in PJM, except to collect an additional .5%  interest from consumers every year.  PATH will never build, own or turn over any transmission infrastructure to the PJM cartel.  PATH is simply limping along trying to maximize its profit on its failed endeavor.  PATH's proposal was found to be unjust and unreasonable by the Commission, and PATH was denied the extra .5% interest, which reduced its yearly return to 10.4%.

FERC also ordered PATH to provide the cost detail that was missing from its abandonment filing.  PATH asserted that its expenses were prudently-incurred and that no detail of how it spent $121M was necessary.  Ridiculous much?  Other abandonment filings have all included cost detail.  Turns out that PATH had not even sorted its costs before filing for abandonment and needed another 45 day extension to get their act together.  But we were supposed to believe that everything was prudently-incurred ;-)

Today, PATH filed a request for rehearing on the abandonment, claiming that FERC had made legal errors in their Order denying that .5% PJM cartel membership incentive.  *sniff*  *sniffle* *whiiiiiiiiiiiiiiiine*  Pretty revolting, I've seen better tantrums from 3-year olds.

Just remember, all this legal nonsense is being paid for by all 60-some-odd million consumers in PJM's 13-state "region."  No big deal for PATH to continue to stomp its feet and demand more money, it won't cost them a dime.  So, just how much money are we talking about here?  Around $240K in 2013, with lesser amounts in each of the following 4 years PATH has proposed as the amount of time given to ratepayers to pay off project debt.  Wanna bet PATH wastes more of our money on legal fees whining about that .5% interest than it stands to gain overall?

So, here's where PATH stands at the end of this year:

$121M in abandoned project costs + $6M in prior O&M expenses set for settlement and hearing at FERC.  Currently, settlement conferences are scheduled to begin at the end of February, 2013 and will continue as long as negotiations are productive.  If settlement ultimately fails, some or all issues may actually proceed to hearing, adding another couple years and mounting legal fees to consumer misery. 

The PATH zombie -- the gift that keeps on giving!

Pepco has been taking a lesson from the way PATH is getting kicked around at FERC.  After watching PATH run willy-nilly into the abandonment pool without any little arm floaties, or even a bathing suit, at the end of September, Pepco filed with FERC to collect $87.5M in stranded investment for its MAPP (Mid-Atlantic Power Pathway) Project on December 21.

Pepco says they had $101M sunk into the project, but have "mitigated" the damage to consumers by transferring some materials and overhead to other projects and putting the $11M Burches Hill substation upgrades (that will now never be used) into service.  Pepco is asking for $87.5M, to be further "mitigated" by transferring or selling other project assets in the future.

Rights-of-way acquired by Pepco will simply be transferred elsewhere to be held for future use.  If you were unfortunate enough to have signed an agreement with MAPP/Pepco to allow the company a right-of-way on your property, rest assured that the company will be sure to put a transmission line on your property at some time in the future.  You're not off the hook, like the majority of the landowners who caved in to pressure from PATH land agents.

While PATH voluntarily gave up its 150 basis point incentive ROE adder when it filed for abandonment, and had the remaining 50 bpa for membership in PJM wrested away from it by the Commission, Pepco thinks the Commission should award it the full 12.8% incentive ROE it was originally awarded.  Seriously, Pepco?  Got into the holiday spirits a little early this year?  Here's Pepco's silly justification for continuing to collect a 12.8% return over its proposed 5-year amortization period: 

"The PHI Companies are aware of the recent order in PJM Interconnection, LLC and Potomac-Appalachian Transmission Highline, L.L.C., 141 FERC ¶ 61,177, P 71 (2012) (“PATH Abandonment Order”), in which the Commission found that the 50 basis point  RTO participation adder should not continue because the applicants in that case would not be taking steps to turn over operational control of their facilities to PJM and would have no future physical facilities. The Commission’s finding in this regard should not apply to the instant filing for several reasons. First, in contrast to PATH, which is a stand-alone entity that will cease operations after its recovery period, the PHI Companies have turned over operational control of all their transmission facilities to PJM (including the Burches Hill substation and related facilities constructed during the development of the MAPP Project). Moreover, as stated above, the Commission already has approved the ROE applicable to the MAPP Project (150 basis points above the PHI Companies baseline approved equity return and the 50 basis point adder for RTO participation). Although the Commission’s statement in the PATH Abandonment Order, 141 FERC ¶ 61,177, at P 71, indicates that ROE adders are not appropriate in abandonment filings, such direction must be construed as applying prospectively only. That is, if the determination in PATH is now the Commission’s policy for RTO participation adders, it must apply only to transmission incentive orders issued after the date of the PATH Abandonment Order."

*hiccup*  *WAHHHH!*

Pepco also includes some very detailed cost breakdowns of the investment they are now proposing to collect.  In contrast, PATH provided NO cost data.  PATH was in a real big hurry to make their abandonment filing and consolidate it with the Challenges, after the Commission set the $6M Formal Challenges for hearing on September 20.  PATH was in such a hurry, it filed no cost data at all.  That seems to have worked out really swell for PATH so far, hasn't it?

So, the abandoned PATH project is proposed to cost consumers $250M, and now the MAPP project isn't far behind.  Cost of PJM's failed Project Mountaineer initiative to electric consumers in 13 states, plus the District of Columbia, could approach a half billion dollars, while absolutely NO benefit was received for this outrageous consumer expenditure.

Consumers can't afford the PJM cartel's poor planning any longer.

In its Order on PATH's abandonment filing last week, FERC tossed thousands of opponents of the Project Mountaineer transmission line projects a bone.  It won't reimburse you for all the time and money you've invested fighting transmission projects that were never needed in the first place, and it won't unbuild the TrAIL Project or make affected landowners and consumers whole, and it won't stop the unneeded Susquehanna-Roseland Project from continuing to proceed with stunning haste.  But if a little validation and personal satisfaction makes a tasty snack for you, here's your bone:

"The PATH Project concept was originally introduced by PJM in May 2005 at a Commission technical conference as Project Mountaineer- a major east-to-west transmission corridor.  In early 2006, AEP and Allegheny separately filed petitions for declaratory order with the Commission requesting transmission incentives to build this multi-corridor concept in their respective zones in Docket Nos. EL06-50-000 and EL06-54-000,  respectively. The Commission affirmed abandoned plant recovery for the proposals subject to approval in the PJM Regional Transmission Expansion Plan (RTEP) and requiring a future section 205 filing, among other things. On June 27, 2007, PJM’s Board of Directors approved the projects for inclusion in PJM’s RTEP, changing the route and scope from those originally conceived, combining portions of both AEP and Allegheny’s projects into a single project (the PATH Project) with a requested completion date of June 2012."

That's right... FERC says that the PATH Project (and TrAIL, MAPP and Susquehanna-Roseland) originated as a concept in 2005.  The Commission technical conference referred to is what we've been calling "The Coal Love Fest."  Its goal was to increase the use of coal-fired resources.  It wasn't about increased demand, congested transmission lines or reliability.  It wasn't until 2007 that PJM created the reliability violations that caused a "need" for the PATH Project under the guise of reliability and "ordered" AEP & Allegheny (now FirstEnergy) to build PATH.

1.    Project Mountaineer.
2.    Creation of PATH Project concept.
3.    Creation of "need" for PATH Project.

Nibble slowly, PATH opponents.  It's all you're going to get.

Of course, this isn't news to any of you.  We've been telling you this for the past 4 years.  But now FERC agrees with us.

The PATH Project is a bit of ugly and expensive history now.  However, the lesson could live on.

PJM, FERC and the midwest wind industry are busy concocting a new Project Mountaineer right now but instead of coal, this time it's about moving "midwest wind" to both coasts via $300B of new transmission lines.  We don't need that anymore than we needed Project Mountaineer in 2005.  Those who fail to learn from history are doomed to repeat it.  Consumers can't afford another expensive mistake.

In an order issued today, FERC set the prudence of every last penny of PATH's claimed $121.5M of abandoned project cost for settlement and hearing.

What this means is that despite PATH's claims in their abandonment filing that all expenses were prudently incurred, and although PATH enjoys a presumption of prudence, contentions and evidence submitted by intervenors in the case raised enough doubt to set the matter for a trial-type evidentiary hearing by a FERC Administrative Law Judge.

FERC found that PATH had not demonstrated the prudence of costs it incurred while trying to site and permit its project.  Every issue raised by intervenors was set for settlement and hearing.  Intervenors raised doubt in every category of cost, therefore, the entire cost will be examined.

The only point PATH won was the finding that abandonment of the project was beyond the company's control (blamed on PJM).  Therefore, PATH can collect abandonment costs that are prudent.  The prudence of PATH's expenses will be examined to determine the amount they will be able to collect from ratepayers over the next 5 years.

The ordered hearing has been held in abeyance so parties can attempt a negotiated settlement before spending time and money on a hearing.  Settlement conferences will be conducted at FERC, administered by an Administrative Law Judge, and are confidential, so don't expect to be reading any news about what's going on in settlement.  Settlement could last a while.

In addition to the prudence of expenses, FERC also set the issue of PATH's disposal of land for settlement and hearing, where certain controls can be placed on how PATH disposes of land it currently owns.

FERC also found that PATH is no longer entitled to the 50 point adder for continued membership in PJM because the PATH Project will never be built and turned over to PJM, which was the intent of the incentive.  The extra half percent interest that this incentive adds to a transmission project's ROE has now been attached to the specific project.  If the project is not built and turned over to the RTO for control, then it cannot be continued.  PATH was at a distinct disadvantage here because the company had only one project.  When the one and only project died, there was nothing to turn over to PJM.  This reduces PATH's ROE to 10.4% (from the previous 12.4%).  The PATH project has now lost ALL their above-cost incentive ROE adders.  No rewards for failure, PATH!

FERC was not convinced to consolidate the abandonment with the ongoing formal challenges settlement and hearing in its Order.  Instead, the Commissioners punted that off to the Chief Administrative Law Judge to decide in the future.

In addition, FERC determined that PATH had made errors in its proposed changes to the formula rate and erred in transferring abandoned plant to create a regulatory asset.  FERC ordered PATH to correct its accounting mistakes, submit additional detail of project costs for which PATH had requested a waiver, and resubmit its proposed rate within 30 days.  Merry Christmas, PATH!  :-)

PATH has been reduced to nothing but a contentious battle about money.  But isn't that what it's always been about?

One of PJM Interconnection's purposes is to provide reliable power at the lowest possible price.  As part of its attempt to accomplish this goal, PJM plans for transmission "enhancement" and administers an artificial market construct that is supposed to foster competitiveness that will ensure market prices for electricity are "the lowest possible."

Although PJM can order new transmission to artificially adjust electricity markets, they cannot order new generation to shape the market.  This unbalanced "market" is what set up the investor owned incumbent utility transmission feeding frenzy we've had to put up with over the past few years.  Instead of ordering new economic generation near load, PJM orders expensive new transmission lines that source from existing generation farther from load.  PJM believes that "the market" (that is the REAL economic market, not PJM's artificially constructed and controlled market) will stimulate new generation without interference.  However, PJM will not rely on "the market" to drive transmission expansion.  If they did, would the lights go out while we wait for "the market" to catch up?  PJM thinks so.

Because PJM cannot order new generation, the states of New Jersey and Maryland took matters into their own hands and ordered new generation in their own states.  This upset PJM, the Market Monitor, and the incumbent generators, who have been scheming to actually prevent new generation.  So much for allowing "the market" to encourage new generation.

PJM "ordered" four new high capacity long distance transmission lines between 2006 and 2008 in order to increase the use of coal-fired resources.  These lines were supposed to bring lower cost electricity to the east coast, instead of waiting for "the market" to encourage new east coast generation.

The lines were economic projects, designed to decrease the "congestion" on existing lines that prevented the import of additional coal fired generation to the east coast during peak load.  However, PJM also floated these projects as reliability projects, insisting that eastern load would continue to attempt to draw cheap coal fired power from the west over congested lines until the lines simply overheated and failed, pitching the entire region into the dark.  That would never have happened because the east coast had plenty of their own generation, albeit more expensive (at the time) gas fired generation, that would increase prices when relied on to support peak load.

In order to decrease prices on the east coast through the building of these new lines, the cost of the lines is shared by all consumers in the entire PJM region.  The east coast only paid a fraction of the cost of the lines that lowered their prices.  And, in fact, the lowering of prices on the east coast by building new transmission actually increased prices in the western region by providing new markets for previously constrained generation.  Eliminating "congestion" serves to levelize prices between different markets.

But, something amazing happened between 2006 and 2012.  Demand for electricity on the east coast tanked due to increased energy efficiency and demand side management.  By shaving peak load, the east coast made great strides to solving the "problem" of not having access to cheaper, western coal fired generation.  Something else happened during that time as well.  Shale gas flooded the market, opening up a cheap, plentiful, new supply of natural gas that lowered the cost of previously expensive gas fired generation on the east coast and motivated new gas fired generation builds near east coast load.

The combination of decreased load and more economic east coast generation completely obviated PJM's "need" for the four new transmission lines.  Unfortunately, TrAIL had already been built at enormous cost and personal sacrifice by the people of West Virginia.  However, two other projects, PATH and MAPP, have finally been abandoned by PJM and won't be built.  But, the PJM consumers will still pay for these abandoned projects they never wanted and no longer need.  PJM's transmission planning has failed on a massively expensive scale.

But I've only accounted for three of the four projects thus far.  The last one is PSEG & PPL's struggling Susquehanna Roseland project in Pennsylvania and New Jersey.  Although there is no economic or reliability need for this project anymore either, the project owners and PJM continue to insist on constructing it at enormous cost to consumers, landowners and the citizens who own the Delaware Water Gap National Recreation Area.

PSEG & PPL read the economic writing on the wall over the past few years and stepped up their efforts to ramrod their project into reality by making it "too big to fail" even though the economic justification for it had evaporated.  The companies still claim that S-R "will save consumers $200M per year in congestion costs," therefore it is urgently needed and justifies enormous cost that will raise electric prices, take land from property owners, force those living in close proximity to risk their health being bathed in the line's continuous EMF soup, and destroy a priceless and irreplaceable national park.

In order to do so, PSEG & PPL bribed towns and landowners with "mitigation" payments and began a lobbying program that reached all the way to the White House with the goal of obtaining the approval of the National Park Service.  The cost of all this, of course, will be borne by all consumers in PJM.

Last week, I watched FERC Commissioner Moeller extoll the virtues of new transmission while disparaging the efforts to hinder Susquehanna Roseland, a project that "would save consumers $200M a year in congestion costs," according to Commissioner Moeller.

So, where did that congestion figure come from?  PJM and the project owners floated it at the time the project was approved, many years ago.  Does that figure still bear any resemblance to reality?  No. The "congestion" driving S-R has evaporated.  The building of S-R will actually cost consumers more than any subset of consumers will ever save on their electric bills.  Whether or not there is a "reliability" need for this project I really can't say, but if there is one, a simple rebuild of the existing line may suffice to fill that void.  S-R as planned is overkill.

Every quarter PJM's Market Monitor publishes a "State of the Market" report.  The one for the third quarter of 2012 was released the other day.  The report has a section about "congestion."  If S-R was still going to save consumers "$200M per year" that information would show up in the report.  It does not.

The SOM report says, "The AP South interface was the largest contributor to congestion costs in the first nine months of 2012. With $50.9 million in total congestion costs, it accounted for 12.0 percent of the total PJM congestion costs in the first nine months of 2012.
The top five constraints in terms of congestion costs together contributed $112.5 million, or 26.5 percent, of the total PJM congestion costs in the first nine months of 2012. The top five constraints were the AP South interface, Graceton – Raphael Road transmission line, Woodstock flowgate, Belvidere – Woodstock line and Clover transformer."

None of these congestion contributors is located anywhere near the Susquehanna Roseland project area.  And the biggest contributor to congestion costs is $50.9M per year, not $200M.

The SOM report also provides a nifty map on page 221 that shows congestion points.  There's no congestion showing up in the geographic area where S-R is being constructed.

Need and justification for Susquehanna-Roseland have completely evaporated.  If the project is abandoned now, or reconfigured to more closely align with any actual need, the cost to consumers will be dramatically lowered.  Stop constructing this project now.  Just stop.  Consumers can't afford PJM's artificial markets and planning failures any longer.  Stop it.

Yesterday, FERC issued a Policy Statement intended to further refine their policy for awarding financial incentives to transmission projects.  The Policy Statement was the Commission's response to the extensive, 42-page, 74-question Notice of Inquiry it issued in May of 2011.

The financial feeding frenzy has been scaled back for now and transmission owners have had their bag limits on consumer wallets reduced.

If you want the quick and dirty summary, here's FERC's press release.

If you want to know exactly what was in the Policy Statement, read on.

"In particular, the Commission: reframes its nexus test to focus more directly on the requirements of Order No. 679; expects applicants to take all reasonable steps to
mitigate the risks of a project, including requesting those incentives designed to reduce the risk of a project, before seeking an incentive return on equity (ROE) based on a project’s risks and challenges; provides general guidance that may inform applications for an incentive ROE based on a project’s risks and challenges; and promotes additional transparency with respect to the impacts of the Commission’s incentives policies."

1.  "The Commission will no longer rely on the routine/non-routine analysis adopted in BG&E as
a proxy for the nexus test."

What this means:  The nexus test requires an applicant for incentives to demonstrate a connection between the incentive(s) requested and the risks and challenges that a project faces.  Previously, once an applicant demonstrated that a project was not routine, the nexus test was satisfied and the project was deemed to face risks and challenges that merit incentives.  In the refined policy, FERC tosses out the routine/non-routine analysis and will require project applicants seeking incentives to demonstrate how the total package of incentives requested is tailored to address  demonstrable risks and challenges and must provide sufficient explanation and support to allow the  Commission to evaluate each element of the package and the interrelationship of all elements of the package. If some of the incentives would reduce the risks of the project, that fact will be taken into account in any
request for an enhanced ROE.  In short, applicants will have to do more to demonstrate risks and challenges that merit incentives.

2.  "The Commission expects incentives applicants to seek to reduce the risk of transmission investment not otherwise accounted for in its base ROE by using risk-reducing incentives before seeking an incentive ROE based on a project’s risks and challenges."

What this means:  A transmission's base ROE (the interest a project earns on its investment) is already set to account for the riskiness of transmission investment.  However, when a transmission project is riskier than a "normal" transmission project, it can be granted additional incentives to compensate for additional risk.  However, a project must request and utilize risk-reducing incentives before requesting an incentive ROE (extra interest) on a particular project.  A project owner must show how their project is riskier than "normal" and then how certain risk-reducing incentives will compensate for or reduce risk.  If the project is still so risky that risk has not adequately been reduced through the base ROE and risk reducing incentives, it may also request further risk compensation in the form of an enhanced ROE (extra interest).  The Commission is getting tougher judging risk and the need for a full spectrum of every available incentive.  No more using the same risk as the basis for every incentive.  Each incentive granted will reduce risk and a company would have to prove further risk that has not already been compensated for with other incentives in order to be awarded an incentive ROE.

3.   "Investments in the following types of transmission projects may face the types of risks and challenges that may warrant an incentive ROE based on the project’s risks and challenges that are not either already  accounted for in the applicant’s base ROE or could be addressed through risk-reducing incentives:

1. projects to relieve chronic or severe grid congestion that has had demonstrated cost impacts to consumers;
2. projects that unlock location constrained generation resources that previously had limited or no access to the wholesale electricity markets;
3. projects that apply new technologies to facilitate more efficient and reliable usage and operation of existing or new facilities."

What this means:  I think it's pretty self-explanatory.

4.  "The Commission will no longer consider requests under Order No. 679 for a stand-alone incentive ROE based on an applicant’s utilization of an advanced technology."

What this means:  No more incentive ROEs based solely on advanced technology, this will be considered as part of a project's risks and challenges (see 3 above).

5.    "Risks may be reduced through the risk-reducing incentives described in section II.B, or through mitigating costs by implementing best practices in their project management and procurement procedures. Applicants should consider taking measures tailored to mitigate the various risks associated with their transmission projects and to identify such measures
in their applications."

What this means:  Transmission Owners need to stop creating risks through poor management or bad choices and then asking to be compensated for it.

6.   "The Commission expects applicants for an incentive ROE based on a project’s risks and challenges to demonstrate that alternatives to the project have been, or will be, considered in either a relevant transmission planning process or another appropriate
forum. Such a showing should help identify the  demonstrable consumer benefits of the proposed project and its role in promoting a more efficient, reliable and cost-effective transmission system."

What this means:  No more PATHetic projects!  An applicant must demonstrate to the Commission how its project was compared to alternatives and found to be the most cost-effective solution.  Of course, a showing could be that an RTO/ISO has made this determination.  And since RTO/ISOs are nothing but industry cartels that will choose the projects of their favored incumbents and then make up a justification to support their choice afterward, this really doesn't solve the problem.  However, the transmission owner now has to convince the Commission that it was done properly.

7.   "The Commission expects applicants for an incentive ROE based on a project’s risks and challenges to commit to limiting the application of the incentive ROE based on a project’s risks and challenges to a cost estimate."

What this means:  Any incentive ROE will only be applied to a project cost amount that was used to determine the project's cost effectiveness as evaluated by an RTO/ISO.  So, say a project is found to be superior to other alternatives at a certain price when evaluated by an RTO/ISO, and then is awarded an incentive ROE by FERC.  The project can no longer apply the incentive to amounts that go over budget.  Historically, projects have floated bogus cost estimates at RTOs in order to get projects approved, and then spent a lot more actually building the project, and collected extra interest on the overspend.  This situation perpetuated the "the more you spend, the more you make" scenario that has plagued transmission projects and is breaking consumers while unjustly enriching transmission owners and contractors.  The Commission also gives a nod to SPP's cost containment proposal submitted in comments as a reasonable example.

While these are generally positive changes, they don't go nearly far enough and completely fail to tackle the underlying problems with FERC's transmission incentives policy.  FERC has merely set the stage for another long, slow decline toward lazy rubber stamp approval of ridiculous incentive packages that cause consumer concern.  The PATH project was the impetus for the NOI and the refinement handed down yesterday.  How long before another PATH happens?

I'm not sure what happened between FERC's rather auspicious and ambitious beginning in issuing such a great NOI, and this Policy Statement that feels like a punt.  It could be that there was too much controversy among the Commissioners.  It could be that there was too much political pushback from a greedy industry.  And don't forget those personal visits to the Commissioners from transmission owning CEOs.  Whatever happened, it looks like the Commission lost their nerve and took what they feel is the easy way out.

See statements of Commissioners Norris and LaFleur here.  It's interesting that they didn't publish a statement from Commissioner Moeller, since he had plenty to say yesterday.  Maybe he's part of the problem.  Wellinghoff didn't have much to say about it, and Clark was not participating.

It seems like the Commission was afraid if they came down too hard on transmission incentives that they would stifle investment.  However, they have quite effectively managed to do just that with their Policy Statement.  Which transmission owner do you think is going to be brave enough to step into the void and be the first to apply for incentives under the refinement (which was effective yesterday, btw)?  Not a one of them.  They're all going to hang back and wait for someone else to poke the first stick into the lion's cage so they can begin the process of finding ways to work around well-intended changes in order to continue to unjustly enrich themselves building unnecessary transmission.

I guess if Congress really wants transmission incentive policy reform, they're going to have to do it themselves through amendments to the Energy Policy Act.  I can only wish them luck.

PATH never could resist having the last word in any argument, even if doing so burned PATH like a moth circling too close to an enticing flame.

PATH didn't disappoint today and filed a second "response" to the answer of one of the other parties to PATH's answer to protests of its abandonment filing at FERC.

Old Dominion Electric Cooperative filed an answer to PATH's answer last week pointing out that PATH was only remaining a "member" of PJM in order to collect an extra half a percentage point of interest over the amortization period.  Since PATH does not plan to own any transmission that would receive benefit from a PJM membership, the extra interest to be derived from this "membership" is just another way to gouge consumers without any corresponding benefit.  ODEC also pointed to PATH's ridiculous contention that its parent companies' memberships in PJM entitled PATH to receive this benefit.

What is it that PATH fails to understand here?  Sec. 219 of the Energy Policy Act directs FERC to "provide for incentives to each transmission utility or electric utility that joins a Transmission Organization."  Now that PATH's project is abandoned and PATH has no plans to own any other transmission, ever, PATH is no longer a "transmission utility or electric utility."  Therefore, PATH is no longer eligible to retain this incentive.  Does someone need to draw PATH a picture?  Any further answers or responses should include artwork, preferably in crayon.

In their "response" today, PATH rambles on accusing ODEC of conflating and confusing PATH's answer.  Fail!  Considering that I read the same thing in PATH's answer that ODEC did, chances are that the Commission will also read it that way, despite PATH's suicidal attempt today to rehabilitate its own bleary legal work.  And speaking of bleary legal work... who is the "Virginia Service Corporation Commission" that PATH mentioned in their "response" today?  Any parties here by that name?  Didn't think so.  Thanks for the laugh, PATH!  Watch out for that fire, it's hot!

Although FERC rules prohibit an answer to a protest, PATH has 121 million reasons to ignore the rule and waste everyone's time simply rehashing and reiterating its original section 205 filing to collect its stranded $121M investment in its failed PATH project.  Exceptions can be made by the Commission if the answer provides new information that informs the Commission's decision.  Did PATH bother to provide any new information in its answer?  Perhaps they should have highlighted any actual "new" information to make it more easily detected among all the flimsy excuses and incorrect information.

PATH tells the Commission that although it has the ability to suspend proposed changes to existing rates, that PATH's changes to the Formula Rate (which is PATH's rate) aren't changes to its rate after all.  PATH also urges the Commission to hurry up and approve the changes to its Formula Rate without hearing because PATH has submitted a fraudulent 2013 Projected Transmission Revenue Requirement that they need to revise before January 1, 2013.

PATH believes the Commission should summarily reject protests that the company had control over the abandonment of its project, otherwise, PJM's authority will be undermined!  Would that be a bad thing, really?  PJM's imprudent actions brought about by its Project Mountaineer initiative to build new transmission to increase the use of coal-fired resources, and intended to provide significant profit to its favored incumbents, has just cost millions of consumers in its region a quarter billion dollars for the failed PATH project alone, not to mention the additional amount wasted on the also-cancelled MAPP project.  How much more will PJM's erroneous and failed initiatives be permitted to steal from struggling electric consumers if this costly failure is swept under the rug and not examined?

PATH believes that it is entitled to receive an extra half of a percent interest on its abandoned plant during the amortization period.  The extra interest is a reward for membership in PJM.  PATH states that it intends to remain a member until the consumers finish paying for its project, although it does not intend to own any transmission during that time.  PATH is simply maintaining its membership to receive the extra interest.  Is this really prudent?  PATH whines that the Commission should not discriminate against it for the business structure it voluntarily constructed.  "Revisiting the 50 basis point ROE adder would deny AEP and FirstEnergy an opportunity to apply the ROE-based incentive adder to their abandoned plant investment in the PATH Project merely because of the business structure they chose as a vehicle for fulfilling the construction obligations assigned to them by PJM."  Bingo!  Ya know what, PATH?  Life ain't fair.  You set up that business structure voluntarily because it benefited you and now you're stuck with it.  Quit your sniveling and take your lumps.  Your parent company memberships in PJM do not make PATH eligible to receive this incentive either.  That was really PATH-etic!

PATH has 121 million excuses for why its spending wasn't imprudent.  After asking the Commission to set the issue of prudence for a hearing wherein the prudence of its expenses can be debated, PATH wastes page after page trying to justify its spending on things like property and option purchases.  So, PATH, do you want a hearing or do you want the Commission to rule here?  It's hard to tell.  PATH falsely accuses protestors of not providing any "basis or support" for prudence challenges and proceeds to neglect to provide any "support or basis" for its own contentions that the spending was prudent, except for the ridiculous assertion that AEP and FE routinely buy property before a permit is received.  PATH holds its parent companies up as the industry standard in the face of evidence showing that one of these same parents doesn't buy land prior to the issuance of a permit.  So, was AEP lying to the Department of Energy earlier this year or are they lying to FERC now?  Inquiring minds want to know.

PATH attempts to color all its property purchases the same.  The reality is that PATH was split into two different companies, PATH-West Virginia (owned 50-50 by AEP and FE) and PATH-Allegheny (owned 100% by FE).  PATH-WV made minimal land purchases for substation sites and was slower to option property.  However PATH-Allegheny purchased lots of property that had nothing to do with substations and was quick to option property long before the permit process had even begun rolling.  This is a distinction that most likely has roots in the two different corporate philosophies behind the PATH project.  Now AEP gets to help FE hold its little doggie bag of imprudence, however.  Didn't your mommy ever tell you that you will be known by the company you keep, AEP?

PATH goes out of its way to admit that its property purchases in River's Edge were for the purposes of forcing the release of a conservation easement.  PATH goes into a long diatribe attempting to justify its imprudent property purchases as cost saving measures.  Yes, that's right, if PATH had not attempted to nullify a conservation easement in which Loudoun County had invested taxpayer funding, it would have cost more to re-route the line around it (using the most destructive route possible in an attempt to make releasing the conservation easement and allowing PATH's preferred route look preferable).  This same theme continues in flimsy justifications for other purchases.  PATH claims if it had not bought certain properties, it would have had to route its line around them in order to avoid homes or other obstacles.  Is this what PATH told landowners?  That if they didn't prefer to voluntarily sell their property that PATH would simply route their line around the property?  No, of course not.  PATH told landowners that if they didn't sell voluntarily that the company would take the property by eminent domain or simply "run the line right over the top of your house."  So, now PATH wants to test its word against that of thousands of landowners?  Isn't this going to be fun?

PATH also points out to the Commission that other abandoned projects that requested much, much smaller recoveries were not RTO-ordered projects.  So, I guess PATH's point must be that when there is some risk to the transmission owner that spending is prudently curtailed.  However, in PATH's case it was a giant, bleeding spend-a-thon because PATH believed that ratepayers were on the hook for all of it.  Now when the specter of shareholders being responsible for some or all of PATH's spending spree rears its ugly head, all of a sudden the amount of spending becomes a big deal.  Don't you just love karma?

So, now it's up to the FERC Commissioners to wade through the facts presented and make a decision that ensures that PATH's rates are just and reasonable.