Just how deep does the scheme to protect incumbent generators at PJM go?  You might be surprised!

PJM's "independent" Market Monitor filed a complaint at FERC earlier this month, seeking to make a certain state-sponsored generation project increase the price bid into PJM's RPM auction, or alternatively, allow all other bidders to re-work their prices.  The MM also asked that FERC delay the auction until this matter is settled.

At issue here are programs in the states of Maryland and New Jersey that have been put in place to encourage the development of new in-state generation, instead of continuing to rely on imported electricity (mostly produced from burning coal) from existing western generators which will be transported to the states via new high-voltage transmission lines hundreds of miles long.

PJM has been championing incumbent generators' strangle-hold over eastern markets at FERC, and recently had the rules changed as a means to prevent New Jersey and Maryland's generation projects from clearing the auction, which is a requirement for moving forward.

When "Project X" (okay, why are we pretending here?  we all know it's Maryland's project) made a bid that was low enough to clear, the IMM filed a complaint accusing them of not following the rules.  The IMM says:

"Selective use of favorable modeling assumptions also creates the potential to distort market outcomes because it can make a more expensive project appear to be cheaper. The result could be that the more expensive project clears in the RPM auction while the less expensive project does not clear. This would be a non-competitive outcome."

Let's talk about "fair" and "competitive," shall we, IMM?  If your incumbent generator PIGS were required to include the $6B cost of new transmission projects to transport their "cheap" electricity to eastern markets in the prices they bid into your auction, what would the true price of their electricity be?  If we're going to be truly fair, that's the only way to do it.

Instead, in PJM's unfair and uncompetitive electricity markets, the true cost of western generation is subsidized by all consumers in PJM via PJM's region-wide postage stamp cost allocation for transmission projects 500kV or over.  This enables PJM's incumbent generators to make artificially low bids into the RPM because new transmission necessary to get their generation to load on the east coast will be subsidized by ratepayers far from Maryland or New Jersey, with the beneficiaries of these transmission projects paying only a fraction of the cost of supplying them with electricity.  When new generation is built in Maryland or New Jersey, the entire cost of the project will be borne by that state's ratepayers.  When new transmission is built to import incumbent generators' electricity into the state, Maryland and New Jersey only pay a fraction of the cost.  This is not "fair" or "competitive."

PJM's ball of twine just keeps unraveling.  Now they've even screwed up their own auction with their continual kowtowing to the financial wants of certain incumbent utility conglomerates. What's next?  Are we going to see the incumbent generators' front group spring into action?  Spare us the posturing.  We aren't buying it.

Parties had 30 days to file requests for rehearing on FERC's March 30 Order on Remand reaffirming that PJM's "Postage Stamp" rates for transmission lines 500kV or greater are just and reasonable.  Several parties filed requests, and I've just now managed to plow through them all.

The Illinois Commerce Commission is the winner for style.  In addition to pointing out the reasons why FERC's Order fails to meet the 7th Circuit's standard of showing benefit commensurate with costs, ICC adds so many zingers, it's like a treasure hunt.  "The Commission’s statement in this regard calls to mind the story of the fellow with one arm in the freezer and one arm in the oven who, on average, was quite  comfortable." or "In making that statement, the Commission shows mastery in the art of understatement."

ICC points out that the 500kV lines (TrAIL, PATH, MAPP and Susquehanna-Roseland -- the Project Mountaineer collection) were designed to alleviate reliability violations in eastern PJM (New Jersey, eastern Pennsylvania, eastern Maryland, Delaware, Northern Virginia) caused by this area's demand for imported electricity.  In addition, these projects were touted to reduce economic congestion and cause a drop in electricity prices in eastern PJM.  They also get pretty tweaked about those PJM "positive externalities" that the Commission used to attempt to show benefit to western PJM flowing from their membership in PJM.  ICC pointed out that the PJM report cited was not properly brought into evidence and that the report is highly disputed.  It's apparently just some PJM fluff they issue every year to justify their miserable existence.  At any rate, the "benefits" of PJM membership flow from PJM itself, and not from the 500kV lines.  In other words, western PJM would receive those "benefits" whether the lines were constructed or not.  They also took issue with the Commission's redefinition of what is east and what is west by including West Virginia in western PJM in order to show that PATH and TrAIL were providing some benefit to western PJM.  West Virginia was never the intended "beneficiary" of those transmission projects, just the victim.

"Clearly, the Commission’s re-definition of “western PJM” is nonsense and the purpose of that re-definition is to obscure and mislead regarding the extent that true Midwestern utilities benefit from the 500 kV and above transmission lines planned and built in eastern PJM.  Notably, using the Commission’s creative new definition of western PJM, the Commission designates significant 500 KV projects such as TrAIL and PATH as being at least partially located in “western PJM”, particularly noting the State of West Virginia as being in western PJM.  The Commission states that TrAIL and PATH, which are both major 500 kV and above projects, “were approved to be located in western PJM, and to address reliability violations in western PJM.” Once again, the Commission particularly cites the state of West Virginia as being in western PJM."

Also be sure to read Bill's post about the history behind postage stamp rates and his take on the ICC filing.

Dayton Power & Light's filing has to be the substance winner.  Although it's 150 pages, their filing provides documentation of all points raised, ad nauseam!  If you like references and statistics, this is a great read!  DPL's filing starts out with this great quote that they attribute to Everett Dirksen, Senator from Illinois"

"A billion here and a billion there and pretty soon you are talking about real money."

In addition to fleshing out and backing up ICC's points, DPL spends ink pointing out the true beneficiaries of Project Mountaineer's transmission projects.

"Even the two transmission lines that start in western Pennsylvania or central West Virginia to points east were not proposed by PJM to resolve any reliability problems within West Virginia or western Pennsylvania."

They also provide granularity* on the congestion costs argument.  When construction of transmission lines cause lower prices on the east coast, they also cause the equal and opposite reaction of causing higher prices in the west, where the transmission line originates.  This is undisputed fact.  Here are the benefits received by eastern PJM from Project Mountaineer:  increased reliability, lower prices, and only a fraction of the costs of the transmission project.  In addition, DPL turns one of FERC's arguments about "benefits" received by western PJM on its head.  The supposed "benefits" to the western "generation" area all flow to the utilities owning generation and transmission, and not to the ratepayers!

DPL has great statistics, for instance: 

"...the TrAIL line alone (already built and in-service) provides Pepco (D.C. and Maryland) and BG&E (Maryland) annual benefits in the form of lower energy costs in excess of $100 million. PSEG in New Jersey receives an estimated $99 million annually, and the big winner is Dominion Resources in Virginia with annual LMP savings of $835 million. The PATH line (currently delayed) provides the same pattern of benefits, again with Dominion Resources, Pepco and BG&E receiving more than $100 million annually in a reduced LMP benefit."

Here's a breakdown of an analysis of the cost of the Susquehanna-Roseland Project (and the exhibits do a similar job on all 4 Project Mountaineer projects):

"PJM analyses identified numerous overloads on critical 230 kV circuits across Eastern Pennsylvania and Northern New Jersey and the proposed fix to the problem was the $1.161 billion Susquehanna-Roseland new 500 kV transmission line to be built from eastern Pennsylvania into New Jersey. Significantly, application of the DFAX methodology would result in virtually all
the costs of the line being allocated to New Jersey  utilities and eastern Pennsylvania utilities operating directly across the river from New Jersey. Eight  variations of a DFAX analysis were presented in this proceeding for this project using different time periods or other different assumptions, including multiple scenarios submitted by a witness opposed to the DFAX method. Under each analysis, 92% to 99% of the load on the facility that was overloaded and created the reliability problem came from the same eastern utilities that then would be assigned between 92% and 99% of the costs of the solution. 

Consider again the $1.161 billion Susquehanna-Roseland new transmission line. Socialization would result in the eastern Pennsylvania and northern New Jersey zones paying only 23% of the costs, while the rest of PJM would assume 77% of the costs."

And, just one of many comparisons in the data:

"Under socialization, PSEG‘s shareholders and/or customers pay only $12.6 million of the annual costs, but enjoy $31 million per year in energy savings..."

DPL also points out another eastern PJM benefit -- incentive rates of return (which FERC granted in part because of congestion cost reductions) that flow only to the utilities constructing these transmission projects.

The Captain Obvious award still sits on a shelf, however, because nobody pointed out how socialization of costs region-wide skews PJM's markets in favor of incumbent generators.  When an eastern PJM state, say for instance New Jersey, has reliability issues that need to be solved, the violations can be solved any of three ways:  increased transmission, increased generation near load, or load reduction.  Load reduction is the cheapest option, but is never PJM's choice to solve violations.  Increased generation will be paid for only by local load that benefits from it, making it the most expensive option.  However, new transmission lines will be paid for by the entire region, making local New Jersey costs for transmission less than building new generation.  This skewing of PJM markets in favor of transmission, as the "cheaper" solution, favors incumbent generators, and as we all now know, PIG rules!

DPL also uses a creative argument I know all you readers of this blog and TPL have heard a thousand times before.  Referencing the recommendations in the official report on the 2003 blackout, DPL points out:

"Not one of those 46 recommendations was to build new high-voltage transmission lines. The Joint Task Force
Report did not conclude, for example, that more high voltage lines should be constructed in Ohio, Michigan, Ontario or New York or eastern PJM (or within any PJM zone) to prevent future cascades."

PJM's (and their "pigs") plan to build new transmission lines to transport 5,000 MW of coal-fired electric power to the east coast provides no benefits to the state of West Virginia and in fact causes higher electricity prices, additional destruction of the environment and a higher than warranted share of the cost of the transmission projects.  Any "benefits" FERC proffered flow only to the utilities, such as increased generation, increased sale of power, transmission line return on equity incentives and ownership of the transmission lines.  No benefits derived from the building of new transmission lines are enjoyed by West Virginia's electric consumers!

Now the ball is back in FERC's court.  Will they man up and reconsider what was a bad decision, or would they rather be embarrassed before the 7th Circuit again?  Keep watching this one!


*stupid business buzzword I despise

Don't you just love the smell of audits in the morning?  I happened to catch this article on Friday.  It seems that FERC (Federal Energy Regulatory Commission),  performed an audit of NERC (North American Electric Reliability Corporation) over several months last year.  NERC didn't like FERC audit staff's findings and now they're having a big, ol' public tantrum about it and whining to the FERC Commissioners.  NERC thinks they are somehow "special" and should have been permitted to "work toward resolution" (read "sweep under the rug if we promise not to do it again") instead of being held accountable for their actions.  Because NERC decided to have a tantrum and contest the audit findings, the whole thing got made public on Friday.  Not too smart, NERC!

NERC describes its mission as: "to ensure the reliability of the North American bulk power system. NERC is the electric reliability organization (ERO) certified by the Federal Energy Regulatory Commission to establish and enforce reliability standards for the bulk-power system. NERC develops and enforces reliability standards; assesses adequacy annually via a 10-year forecast, and summer and winter forecasts; monitors the bulk power system; and educates, trains and certifies industry personnel."

NERC's statutory authority, once designated the ERO by FERC, comes from Section 215 of the Federal Power Act, and they may "allocate equitably reasonable dues, fees, and other charges among end users for all activities under this section;"  I didn't see a definition for "end users" in the FPA, but I will assume "end users" are electric consumers/ratepayers.

So, what did the audit turn up?  Lots of interesting stuff, including a couple of "Holiday Galas" NERC held in 2010 & 2011 that cost us ratepayers $74,748 and $109,474, respectively.  The totals included expenses such as travel, lodging, car rentals, "gifts," food and beverage, entertainment and "miscellaneous."  NERC prefers that FERC audit staff refer to them as "year-end events, or year-end employee dinners and meetings" (pg. 63), although the term "Holiday Gala" came from internal NERC documents.  NERC advertised the parties as "Holiday Galas" in-house, but when the auditors showed up they called them "year-end events."  You can download a copy of FERC's audit report here.  The Holiday Gala stuff starts on page 52 of the report.

So, while senior citizens on a fixed income and single parents are struggling to pay their monthly electric bills, NERC is spending nearly $185,000 on holiday parties.  Nice.  NERC is statutorily permitted to spend funds on activities necessary for its duties under Sec. 215.  Are Holiday Galas necessary to the reliability of the electric grid?  I wonder if there was no holiday party for NERC employees if the lights would have gone out?  Maybe we'll find out in 2012 :-)

NERC needs to get off its "special" pedestal and learn how to behave during an audit.  Don't argue with the auditors, you're not going to win.  Auditors are like The Child Catcher from Chitty Chitty Bang Bang, "There are improper expenses around here somewhere... I can smell them!"  If there's one transaction that isn't quite right in a computer printout 3 inches thick, an auditor will zero in on that particular transaction and start asking for documents, guaranteed.  Quit your whining, NERC, and clean up your act!

And, from an electric ratepayer's perspective... Thank you, FERC audit staff!  We appreciate you, even if NERC doesn't.

Update:  Check out NERC's latest ridiculous hissy fit here.

Yesterday, FERC conditionally accepted PJM's new planning scheme.  However, it seems that FERC is also a bit suspicious about those mysterious "modeling assumptions and scenario planning analyses" that PJM wants to rely on to cook their RTEP determinations and has ordered a compliance filing.  Dance, PJM, dance!

"We find that PJM’s proposed revisions to its RTEP process that enable PJM to identify and evaluate potential transmission system needs through sensitivity studies, modeling assumption variations, and scenario planning analyses that will consider public policy, are reasonable. We, however, find persuasive protesters’ arguments claiming that PJM’s proposed revisions lack sufficient detail, and, therefore, accept PJM’s proposed revisions subject to a compliance filing, made within 30 days of this order. In the compliance filing, we direct PJM to submit tariff revisions that broadly clarify how sensitivity studies, modeling assumption variations, and scenario planning analyses will be utilized in its RTEP process."

FERC also rejected the arguments of certain states that inclusion of "public policy objectives" in planning criteria are vague and not a good idea:

Let's check in and see what's cookin' on the docket for PJM's new RTEP planning process at FERC.

A plethora of parties have filed motions to intervene, including (of course!) power companies and their transmission affiliates, environmental organizations, land-based wind's front group, renewable companies,  Atlantic Wind Connection (not to be confused with their land-based wind opponents) and a handful of states.  Some parties have filed brief comments.  Among these, there's a couple worth reading.

New Jersey BPU seems to think that PJM has gone off the deep end by including "public policy objectives" as a driver for transmission projects.

"While NJBPU is sympathetic to PJM’s perceived need to include non-codified policy-based factors into its RTEP process, this requirement greatly broadens the pool of assumptions that drive transmission development. This expansive reading of Order 1000 exposes stakeholders to the real risk that costly and undesirable policy-based projects linger in the planning analysis. The longer “specter” projects are modeled, the more likely they become a fixture in the RTEP process. This scenario could drive the development of policy-driven transmission assets based solely upon their recurring presence in PJM’s RTEP models, and further emphasizes the need to prominently include state veto authority in any future filings regarding Order 1000."

And about that "state veto," NJ suggests:

"NJBPU also strongly supports a cost allocation methodology whereby the states that will incur the financial burden of developing a policy-driven transmission asset retain veto power over the project. No party should bear the costs of developing a policy-driven asset that does not comport with that state’s guiding principles, regardless of any collateral reliability or economic benefit identified by PJM.

Moreover, policy is dynamic and changes quickly in response to political, social, and economic factors. By contrast, the decision to develop and build multi-billion-dollar transmission assets cannot change in lockstep with policy; the costs and impacts are simply too significant. Therefore, any cost allocation methodology flowing from a policy-driven framework must contain a safety-valve veto whereby the states may refuse ratepayer financed projects that fail to produce a benefit commensurate with the policy’s long-term value."

They also get their digs in about NJ's frowned-upon LCAPP:

"NJBPU believes that PJM’s resource planning must include an assessment of transmission and non-transmission solutions to identified reliability violations as acknowledged by the Commission in Order 1000. From this perspective, PJM’s resource planning process should include state sanctioned generation solutions. This approach allows PJM to fulfill its federal mandate of ensuring that the bulk transmission system remains reliable, while preserving the states’ constitutionally protected right to site generation resources within their territory."

NJ also had this to say:

"PJM deserves praise for seizing an opportunity to expand its interaction with the entities representing the individuals who ultimately shoulder much of this fiduciary burden – the state ratepayers. However, while these efforts are commendable, to date they are incomplete. Without the ability to measure these changes against a clearly articulated and comprehensive cost allocation methodology, state stakeholders are unable to adequately assess the impact of PJM’s proposal."

This comment was filed prior to last Friday's postage-stamp rate justification.  Ut-oh!  So, how is FERC thinking that "public policy" projects 500kV or above are going to be allocated?  Shall we charge everybody in the region for one state's law?  FERC seems to think that's okay, as long as that state gets some of those ethereal "integration" benefits that PJM provides.  This just keeps getting more convoluted and unreasonable as we go along.

North Carolina also got offended by the "public policy objectives" thing:

"The North Carolina Agencies have an over-arching conviction that the FERC’s regulation of transmission planning, especially as articulated in Order 1000, over-steps the FERC’s jurisdiction under the Federal Power Act. PJM’s proposed amendments, especially its introduction of the concepts of “public policy requirements” and “public policy objectives,” echo and even go beyond Order 1000 requirements, and therefore raise serious concerns.

Setting aside the thorny jurisdictional issues which the North Carolina Agencies have already articulated in their request for rehearing of Order 1000, the North Carolina Agencies oppose the proposed introduction into PJM’s Operating Agreement of the new concept, “public policy objectives.” While the inclusion of “public policy requirements” in transmission planning raises significant concerns, the inclusion of “public policy objectives” is inappropriate, particularly given the potential for its inclusion to cause transmission planning and cost allocation to become even more controversial than they currently are.

The North Carolina Agencies are concerned that the inclusion of such objectives will result in the enlargement or expansion of the size and scope of otherwise appropriately defined transmission projects. Such enlargement or expansion could be based on a “public policy objective” that is not supported by some or all of the states in PJM’s footprint, and such expansion could cause a transmission project to become subject to PJM’s postage stamp cost allocation methodology, thus burdening customers throughout PJM’s footprint."

They also brought up the postage-stamp cost allocation method that FERC just blessed last Friday:

"To date, PJM’s postage stamp cost allocation method has proven controversial, even for transmission that is being built for reliability or economics.6 The North Carolina Agencies oppose allowing the vague and uncertain concept of “public policy objectives” to create the potential for inclusion of enlarged projects into PJM’s Regional Transmission Expansion Plan (RTEP). Such objectives might not be in the best interests of North Carolina’s citizens, and a fair cost allocation method has not been established for the incremental costs of such projects. Therefore, the North Carolina Agencies oppose the inclusion of “public policy objectives” in PJM’s transmission planning process."

Stay tuned... this is shaping up to be another epic FERC fracas.

Supplemental to the Order on Remand FERC issued last Friday, two of the Commissioners also issued statements explaining their decision.

Commissioner Norris's statement was a basic agreement with the Order and a hope that FERC's decision won't be used as a model for Order No. 1000 cost allocation methods.

However, Commissioner Moeller preferred to explain how western PJM will "benefit" from Project Mountaineer transmission lines that were intended to transport 5,000 MW of "cheap" coal-fired electricity from the Ohio Valley to eastern markets and lower high electricity prices on the east coast.

"Long-distance transmission lines are constructed because they greatly reduce the cost of electricity in comparison to the alternatives. Without long-distance transmission lines, energy consumers would need to construct enough local generating plants to ensure the availability of power. The cost of building smaller and local generating plants can be overwhelming in comparison to the cost of building a new transmission line. The cost can be especially high when local requirements make the construction of a generating plant effectively impossible."

That's only true when the cost of the transmission line is shared by the entire region, whereas the cost of local generation is paid by those who would benefit from it.

"In addition to the often overwhelming benefits of building a network of long-distance transmission lines, energy consumers at both ends of a transmission line often receive substantial benefits from the line. Even when a transmission line is directional, in the sense that power on the line tends to flow from regions where power is less costly to regions where power is more costly, energy consumers receive benefits on both ends of the transmission line. These benefits on both ends of the line derive generally from economies of scale and the efficiency of sharing the power that can be produced by generating plants. For example, the linkage of two cities by a transmission line can result in lower power prices in both cities due to the lower costs associated with the need to have fewer generating plants “spinning” as a reserve, but prices can also be reduced by building larger generating plants and by expanding the options for locating plants, so that plants can be located and sized at lowest cost. "

That's how it used to work, however, things have changed.  West Virginia exports something like 80% of the electricity produced in the state, and 99% of the electricity produced in West Virginia comes from burning coal.  Our rates used to be low because of the sale of exports, but a huge sea change is occurring.  Demand is decreasing in traditional export markets due to implementation of demand management, increased efficiency and the availability of local renewables.  West Virginia's former electric purchasers don't want our dirty, coal-fired power any longer and they aren't buying it.  In addition, the price of coal has skyrocketed, while the cost of natural gas has fallen, making the east coast's gas-fired plants a cheaper option for purchasing power.  As a result of this, West Virginians are being required to pick up the slack and make up for power sale losses through huge rate increases.  More transmission lines from West Virginia to the east coast are NOT needed!

"Even under an assumption that prices to some energy consumers will rise as a result of a new transmission line, the FERC, as a regulator concerned with interstate commerce, cannot favor prices in one state at the expense of the region. Plus, it is difficult to raise prices merely by increasing the ability of the power grid to transfer energy."

But that's exactly what you are doing in your order!  You are favoring the east coast with lower prices by building transmission lines intended to reduce economic "congestion" at the expense of the entire region.

"Using a simple example in a different market, strawberries are not more expensive in California because strawberries can also be shipped to New York. Rather, strawberry farmers will grow fewer strawberries if they cannot sell strawberries to New York. But even assuming that local power prices are higher when markets expand, lower power prices are not the only benefit associated with transmission. Arguably the most important benefit of the transmission network is not the access to markets, but the increase in the reliability of the entire network. As stated above, the benefits of avoiding one blackout can far exceed the entire cost of a transmission line.  While strawberries need to be consumed quickly or they become worthless, electricity differs in that it must be used instantly due to constraints imposed by physics. Also, while preparing land and acquiring water rights for strawberry farming can be capital intensive and requires advance planning, power plants involve substantial risk in that they require extensive capital investment long before revenues can be recovered."

Perhaps Commissioner Moeller is unfamiliar with West Virginia's "strawberry farm."  These are the "benefits" West Virginia reaps from it's production of "strawberries."

Environmental Effects of Coal Mining

Coal Impoundments

Political/Social Effects of Coal Mining

The Dirty Truth About Coal

And don't forget those transmission lines which transport all that sweet, juicy, "strawberry" goodness to Washington, D.C. and other markets, such as these transmission corridors through Jefferson County, West Virginia.

And these are just the existing 50 year old (or older) transmission lines.  Project Mountaineer aims to add an additional, larger line (PATH) parallel to the existing corridor, expanding it another 200 feet, right on top of many of the homes shown in the photos.

Project Mountaineer's TrAIL project gave West Virginia a taste of "fresh strawberries," demonstrating what construction of new transmission lines will mean for the people and environment.

Maybe the people of West Virginia (not including paid-off politicians and the greedy, out-of-state corporations who own West Virginia generation and transmission) are tired of "farming strawberries" in exchange for "benefits" like those shown above.

Perhaps Commissioner Moeller should take a tour of The Mountain State, while we still have a few mountains left, and find out exactly how his "strawberries" are farmed and transported to market.

FERC issued an Order on Remand last Friday.

Back in 2007, while gearing up for the billions of dollars that PJM's coal-fired Project Mountaineer transmission projects would cost, FERC issued Order No. 494, which socialized the cost of these exorbitantly expensive, unneeded projects over a larger customer base. Once authorized by FERC in the Order, PJM changed its cost allocation methods to adopt the “postage-stamp” method of allocating the cost of new transmission in its RTEP that operates at or above 500 kV.  Prior to Order No. 494, all new transmission was paid for through a “license plate” methodology whereby those who directly benefited from the project would shoulder the cost.

Under a license-plate (or zonal) rate design, a customer pays the embedded cost of transmission facilities that are located in the same zone as the customer. A customer does not pay for other transmission facilities outside of the zone, even if the customer engages in transactions that rely on those zones.

Under a region-wide, postage-stamp methodology, all transmission service customers in a region pay a uniform rate per unit-of-service, based on the aggregated costs of all covered transmission facilities in the region.

Due to these new postage stamp rates, a high percentage of regional load, and the  wide geographic reach of the PJM region, customers in Illinois suddenly found themselves being charged the second highest percentage of eastern PJM’s Project Mountaineer costs.

“However, the cost shifts that would be incurred by switching from the DFAX methodology to the postage-stamp methodology are significant, resulting in western zones paying between 1,260 percent and 22,500 percent more for these facilities.”

The Illinois Commerce Commission objected to this inordinate cost, compared to “benefits” received, and the issue ended up before the 7th Circuit Court of Appeals.  In October of 2009, the Court remanded the rate methodology back to FERC, finding that the Commission had not provided sufficient record evidence to justify its findings that the existing allocation practice for new facilities at and above 500 kV was unjust and unreasonable, and the Commission had not adequately supported its conclusion that the postage-stamp methodology was just and reasonable. The court found that the Commission’s reliance on the difficulty of measuring benefits for above 500 kV facilities, and the resulting likelihood of litigation, failed to justify the Commission’s decision. The court stated that the Commission had failed to show “the absence of any indication that the difficulty exceeds that of measuring benefits to particular utilities of a smaller-capacity transmission line.” The court further found that the Commission failed to justify requiring PJM to adopt a region-wide, postage-stamp cost allocation methodology for new transmission facilities that operate at or above 500 kV.

However, the court also recognized that, in comparing costs and benefits, the Commission “does not have to calculate benefits to the last penny, or for that matter to the last million or ten million or perhaps hundred million dollars.”  FERC seems to have taken this to heart in their Order on Remand, issued on Friday.  To summarize, the Order determined that allocating costs of transmission enhancements that operate at or above 500 kV to utility zones using a postage-stamp cost allocation methodology is a just, reasonable and not unduly discriminatory method of allocating the costs of these new facilities.

In order to get there, FERC provided what it feels is the justification the court found missing in Order No. 494.

“In summary, ComEd, along with the other western utilities, will receive significant benefits from the new 500 kV and above projects that prevent the degradation of the PJM transmission system and maintain the capability to continue to produce up to $2.2 billion in estimated system-wide savings each year, as indicated by the ISO/RTO metrics report, along with additional estimated annual savings associated with decreased service interruptions and power quality disturbances, reduced line losses, and reduced congestion. These estimated annual, system-wide savings totaling approximately $2.2 billion compare favorably to the annual, system wide costs of approximately $1.3 billion for the facilities at issue here. In total, PJM’s transmission system provides ComEd’s customers with access to savings of approximately $320 million to $468 million each year.  While we recognize that there is imprecision in valuing the benefits of new 500 kV and above facilities, these estimated savings identified herein provide sufficient justification for allocating approximately $198 million per year in costs to ComEd under the postage stamp methodology for new transmission facilities necessary to maintain the integrity and reliability of the existing system so that customers will continue to have access to savings and to provide for future needs.”

As I'm sure you all remember quite fondly, last year around this time, the PATH Project was "held in abeyance" by PJM, who also said they would continue to evaluate the project for inclusion in a future RTEP.  What they also said at that time was that they were embarking on a process to retool the way they do their planning. 

Here's the result of PJM's work over the past year.

PJM uses PATH (and MAPP) as an example of how their planning process "ha[s] impeded PJM’s ability to plan for its system with any certainty."  PJM ended up with a whole bunch of egg on their face when they persisted with their Project Mountaineer plan to use their RTEP process as a vehicle to promote purely economic projects as reliability projects.  It was embarrassing and inconvenient for PJM and its profit-driven transmission owner "stakeholders" to have the projects they determined were "needed" drop out of the RTEP in future years because they weren't "needed."  PJM's planning process was too rigid and based on clearly defined criteria with no room for opaque, subjective camouflage of superfluous projects.  PJM set out to create a new process where a project, once included in the RTEP, could never be omitted.

It didn't turn out much different than I thought it would.

PJM has added what they call "sensitivity studies, modeling assumption variations and scenario analysis" to their process.  In the future, when need for a dead dog like PATH becomes shaky, PJM will have the ability to just add a few more mystery spices to the planning pot in order to create a new reason to continue to pursue a loser project.  It's not just about "reliability" anymore:

"PJM believes there is merit in allowing for flexible planning criteria and proposes to expand its analyses
beyond a strict application of the reliability criteria in order to identify the most effective transmission system upgrades to satisfy the needs of the system. This proposed balanced approach starts with defined criteria and then allows PJM to look further to identify and evaluate potential transmission system needs using sensitivity studies, modeling assumption variations and scenario analyses, including Public Policy Objectives."

And about those "public policy objectives"...  PJM isn't just going to consider "public policy requirements" of state (or federal) mandates that are actually enacted statutes and regulations, but also "public policy objectives" that are "public policy initiatives of state or federal entities that have not been codified into law or regulation but which nonetheless may have important impacts on long term planning considerations."  So, as if it's not bad enough that you may end up having your property taken for a transmission line made necessary by the laws of another state, you may now also lose your property to a transmission line made necessary by the idea for a "public policy" in another state.  I can't wait to see this tested in a court.  I'm sure the wait won't be long.

PJM has also made a couple other changes, in order to show FERC how impartial, open, transparent and loved their planning process turned out.  PJM has added a new committee to their stable of "stakeholders."  The "Organization of PJM States, Inc. (“OPSI”), by unanimous resolution officially endorsed forming an Independent State Agencies Committee (“ISAC”) comprised of interested state agencies within the PJM footprint."  This committee will be composed of state public service commissions, who are still your only official line of defense against unneeded, prohibitively expensive, greed-driven transmission projects.  Despite PJM's attempt to make it sound like the states are enthusiastically supporting their new planning process and their new role at PJM, it looks like the states are suspicious.  And they should be.  Their authority to permit and site transmission projects within their borders has been under constant attack by the industry, FERC and PJM, who are pushing for a single federal transmission siting and permitting process whereby the states and citizens have a very limited voice.

PJM also proposes that they will "expand and enhance its planning procedures with respect to the communications and interaction around all phases of the process":

"The Transmission Expansion Advisory Committee shall be open to participation by: (i) all Transmission Customers, as that term is defined in the PJM Tariff, and applicants for transmission service; (ii) any other entity proposing to provide Transmission Facilities to be integrated into the PJM Region; (iii) all Members; (iv) the electric utility regulatory agencies within the States in the PJM Regional and the State Consumer Advocates; and (v) any other interested entities or persons."

Yeah, they talk a big game, but they get madder than a wet cat when a mere ratepayer intrudes into their playground.

Because PJM's new plan is a Section 205 filing, anyone, including YOU can comment, protest or intervene within the next 21 days.  If you need more info. about these processes, let me know.

FERC's Commissioners rubber stamped PATH's ROE Settlement today.  No surprise there.  The 14.3% ROE they were originally awarded is history, replaced by 12.4% and bolstered by a refund to ratepayers of over $2M.  Watch for it in your next bill ;-)  (I'm being sarcastic here folks, you're not going to notice any difference).

The small bit of news came from the Commissioners' attempts to do a little housekeeping on PATH's open FERC dockets.

In their letter order, FERC wants to inform all of you citizen ratepayers who submitted comments about PATH's suspension last year that the comments are "beyond the scope of the proceeding, and therefore will not be addressed in this proceeding."  I think that means that you are dismissed, but read it for yourself.  The "you" referred to by FERC is our pal Randy Palmer.

"On March 7, 2011, you also filed in Docket No. ER08-386-000, for informational purposes only, an update on the status of the PATH Project (Project Update). You indicate that PJM Interconnection, L.L.C. directed PATH to suspend development of the PATH Project other than activities needed to maintain the  PATH Project in its current state. Several individuals filed comments in response to this informational filing on the
Project Update, and PATH filed answer to these comments. These comments raise various challenges regarding the location of the Project, the need for the Project, and its costs. These comments raise issues which are beyond the scope of this proceeding, and
therefore will not be addressed in this proceeding."

I guess the Commissioners missed those parts of certain comments where it was pointed out that PATH's rebuttable presumption, upon which the granting of incentives was based, has run away from home.

However, the two outstanding Formal Challenges live on:

"Consistent with the Commission’s delegated letter order issued in Potomac-Appalachian Highline Transmission, L.L.C., Docket No. ER09-1256-000 at 2-3 (February 2, 2010), PATH’s Annual Updates and any related  challenges filed in the above dockets and Docket No. ER09-1256-000 will be addressed in Docket No. ER09-
1256-000, consistent with the formula rate  implementation protocols providing specific procedures for notice, review, and challenges to these Annual  Updates."

FERC also wanted to let Randy know:

"The Commission retains the right to investigate the rates, terms, and conditions under the just and reasonable and not unduly discriminatory or preferential standard of section 206 of the Federal Power Act, 16 U.S.C. § 824e (2006)."

And I think that will about do it for now.

Pam Kasey did a great article about the PATH Formal Challenge in today's State Journal.  Easily one of the brightest and most knowledgeable reporters I have been interviewed by regarding the Challenge, Pam also asked the most pointed questions.  She spent a little time reading some of the background documents and investigating before calling.  She's a shining example of true investigative journalism.

I love the way she ended with my favorite quote from PATH's Answer.  Yeah, Randy, we'll see just who "fails to grasp the distinction between efforts to influence decision makers during the process of obtaining approval to construct a transmission project, and broad-based activities and distribution of information intended to educate government officials, business and community leaders, and the public at large...," won't we?