To illustrate these conflicts in energy transportation, Professor Rossi used two transportation examples that differ in geography, product transported, governing body historically responsible for regulation, and often in public perception. Despite these differences, both means of transportation face legal hurdles that require consideration of federalism principles. The examples include the Constitution Pipeline, a natural gas pipeline segment connecting Pennsylvania to New York, and the Plains & Eastern Clean Line Project, a direct current transmission line transporting wind energy from Oklahoma, Kansas, and Texas to Tennessee, Arkansas, and the rest of the south and southeast.

After presenting these conflicts, Professor Rossi engaged the audience in discussions about the need for future collaboration between the federal and state authorities and the impact of the new administration on these battles.

"There's blood in the water," Jones said in an October interview.

He added, "We've reduced benefits, we've reduced 401(k) matches, we froze wages. We've done a lot of things to try and offset lost revenue, but couldn't offset it entirely … We're evaluating everything we do as a company to try and find a way to close that gap. Because (what's been done so far) is not enough to get us into the position with the credit rating agencies that we need to be in."

Pleasants, currently owned by a Mon Power sister company, Allegheny Energy Supply, is an aging, coal-fired plant that hasn’t been generating the returns investors want in Ohio’s deregulated energy marketplace. FirstEnergy CEO Charles E. Jones, on at least two occasions in 2016, told analysts the company wanted to shift plants like Pleasants that weren’t making investors enough money in Ohio into West Virginia’s regulated market, saying, “I think later this year, they’ll start (looking) at it seriously, and it’s up to (the West Virginia Public Service Commission) to decide, would Pleasants be the appropriate solution.”

If the Companies determine in any annual PJM Base Residual Auction (“BRA”) that their combined capacity obligations for the delivery year covered by the BRA (“Delivery Year”) exceed the Companies’ owned or contracted-for capacity resources for the Delivery Year by 100 MW or more (“Capacity Shortfall”), then not later than the end of the calendar year following the BRA, the Companies will develop an RFP for capacity resources to address the Capacity Shortfall and submit the RFP to the Commission and the Parties for their review and comment. The RFP will allow proposals from both supply-side and demand-side resources.

Mon Power’s Long Term Load Forecast indicates a capacity shortfall starting in 2016, with the shortfall exceeding 700 MW by 2020 and extending to over 850 MW by 2027.

We will continue to seek opportunities both within the competitive realm and the states to further de-risk the business and convert megawatts from competitive markets to a regulated or regulated-like construct.

We also plan to work with the West Virginia Public Service Commission when they are ready to address the generation shortfall included in Mon Power's integrated resource plan.

So we previously filed the IRP. It showed a need for generation going out a couple of years from now. But that case right now is concluded. So there is nothing that would, unless we were to file something, initiate something, that would come out of that case. So we would be looking as we go forward and continue to monitor the forecast for that company to see how we might want to present something consistent with the IRP in terms of bringing additional generation to Mon Power.

Michael Lapides - Goldman Sachs & Co.

Got it. So there's no formal like RFP process that's about to kick off or that will be undertaken in 2016 or 2017?

Leila L. Vespoli - Executive Vice President, Markets & Chief Legal Officer

Correct. There's no time line associated with that. We would initiate it when we believe it to be the appropriate time.

The decisive regulator makes decisions (1) required by the public interest, (2) when the public interest requires it, (3) regardless of discomfort felt, (4) using a logical method and an active approach.

At this time, however, we do not see any short-term solutions to the current challenging market situation. Longer-term, we do not believe competitive generation is a good fit for FirstEnergy and are focused regulated operations. And we cannot put investors and our company at risk as we wait for the country and PJM to address the issues with the current construct.

The PATH project is an example of a project that faced significant public opposition.

As part of its analysis of the public interest, the PSC acknowledged the substantial opposition to the project expressed by business owners, farmers, and individual landowners across whose properties the project was proposed to cross. The Missouri PSC noted, “In this case, the evidence shows that any actual benefits to the general public from the Project are outweighed by the burdens on affected landowners.”

The National Park Service, for example, required significant and expensive mitigation measures from the developers for the Susquehanna-Roseland project in order to gain its approval for completion of the portion of the line that crossed the Delaware Water Gap National Recreation Area, which it is mandated to protect.

The development of a transmission project is a commercial venture involving investors who are prepared to incur significant, yet ultimately limited, up-front development costs in return for the opportunity to earn future profits from the sale of transmission services and/or a regulated return on invested capital. Adopting a developer’s perspective enables us to look at the factors reviewed in this report as ones that affect either the cost or time required to construct a transmission project. The extent to which these factors represent barriers to the implementation of transmission projects is thus an assessment of whether these costs or time requirements are avoidable or necessary.

There are documented examples of project developers who have sought to reduce these costs and associated time requirements through up-front information sharing and joint (and early) development of mitigation approaches (including abandonment of early proposed and development of new routing options). The success of these activities has hinged largely on the extent to which they lead to meaningful engagement and tangible commitments to address public concerns over line routing.

The state-centric public-interest issue that arises most vividly for multi-state transmission projects involves the so-called “fly-over” states. These states are situated between the states that are the starting and ending points for a long-distance transmission project. The initial decisions by the Missouri PSC to deny the CPCN application for Grain Belt Express exemplify this issue. The public-interest issue raised by states in the middle is that, at bottom, they are being asked to bear significant portions of the cost or adverse impacts of a project, yet they do not believe they are being provided with sufficient opportunities to share in the benefits of the project.

The need to satisfy a middle state’s public-interest requirements is a classic example of what economists describe as the role and importance of “side payments.” In this instance, the gains from trade must be sufficient to cover side payments to affected parties who have standing but who would not otherwise benefit from the transaction. Thus, the situation faced by developers, such as those for the Grain Belt Express project, is tangibly and fundamentally (but not solely) commercial in nature. Notably, as discussed, the developers for Grain Belt Express recently reached an agreement to sell power from the project to an association of municipal utilities in Missouri and, based on this agreement, plan to re-file their request for state regulatory approval. It remains to be seen whether the fact of a Missouri entity signing an agreement that could be seen as demonstrating the public-interest value of the project in Missouri will result in the Missouri PSC approving the project on its third attempt in the state.

Developing a transmission project involves simultaneously managing two categories of commercial risk. One is the risk associated with securing the capital necessary to build the project. Eto (2016) focused on one example of capital risk: that associated with seeking regional cost allocation. The other category encompasses risks associated with the actual construction of a project. This report is focused on a key subset of these project-construction risks: the cost of satisfying the due process requirements of state and federal agencies involved in permitting and siting lines, which is often increased when there is organized public opposition to the project. These are necessary costs associated with transmission-line construction. Some can made more manageable through proactive actions by developers. Still others can be made more manageable through the actions of federal and state agencies to enhance the efficiency and accountability of their processes. Thus, while the project review process can be slow and add costs to project development, on the whole transmission lines are being built. Moreover, there are promising signs that both groups are taking actions to improve the processes, both in terms of their duration and the quality of the decisions that get made. We found examples of merchant transmission projects successfully gaining needed approvals and being constructed. Their experiences, in particular, suggest that if the economics of potential projects are sound, someone will find a way to build them.

Another challenge facing the industry is the need to insulate state utility regulators from political pressure.

In instances around the country, he said, "you're seeing the confluence of politics challenging that independent regulatory model."

It's a reason the California Public Utilities Commission was located in San Francisco instead of Sacramento back in the 1800s when it was the California Railroad Commission, to protect regulators from the political influence of the powerful monopoly railroads.

Clark cited the Nevada Public Utilities Commission decision late last year in which regulators posted fixed charges for NV Energy customers with solar energy systems and slashed rates for compensation for excess energy put back on the grid (ClimateWire, Jan. 11).

He quoted a solar industry executive who told reporters that Republican Gov. Brian Sandoval should "get control of his appointees."

The comment, Clark said, "drives home that large segments of the public -- and sometimes fairly sophisticated people that operate in this space -- view regulatory commissions as just another extension of politics."

 Participation Amount. Commencing on and after the Project Completion, Clean Line shall pay to the easement grantor (landowner) at the end of each fiscal quarter an amount equal to 2% of the gross revenues received by the Clean Line Parties from the Project during such fiscal quarter resulting from the sale of transmission service in connection with the Project (as such gross revenue amount is reflected in Clean Line's Financial Statements for such fiscal quarter, including, with respect to the first such fiscal quarter, sales of transmission service which occurred at any time prior to Project Completion) (the “Participation Amount”).
The Participation Amounts shall be paid to landowner to offset costs associated with having their property devalued and their quality of life disturbed in perpetuity, or for any other landowner authorized purpose.

GBX is asking for a back-up plan for its field of dreams approach to recovering costs, by coming back to the Commission to comply with the financing condition proposed in the Final Order.

As the Farm Bureau previously argued before this Commission, the denial of GBX’s Application by the MPSC, along with the recent Circuit Court of Caldwell County Order which held that GBX has no authority to construct the proposed line through Caldwell County, Missouri, there will be no construction in Illinois by GBX due to the denials in Missouri. This Commission should consider additional evidence on this issue which occurred after the close of the evidentiary hearings, as described in Exhibit A, the Affidavit of Paul A. Agathen, a Missouri attorney who represents the Missouri Landowners Alliance (“MLA”). The Final Order erred on this issue. Thus, the Commission should rehear this issue.

The record in this docket is devoid of any evidence that the Project would promote the convenience or necessity of anyone other than GBX and certain West Kansas wind developers who said they would use the Project if it ever gets built.

Boiled down, GBX merely asserts that a beneficial project like the Project is needed. Why is it needed? Because it is so beneficial. GBX’s argument that a need for the project exists based on a set of alleged benefits amounts to question-begging on a grand scale. GBX assumes what the Commission should require it to prove. Rather than focus on whether there is any need for the project, GBX jumps right into a show-and-tell on how beneficial the Project will be. The Commission concludes from this that a project with this many benefits must be needed.

Stated another way, the Commission fails to distinguish a benefit from a need. It merely accepts GBX’s catalog of purported benefits as proof of need. Under the Commission’s look-only-at-the-benefits logic, it could just as easily conclude that residents of Point Barrow, Alaska need Frigidaires.

...the Illinois RPS may be satisfied by buying RECs generated in GBX’s targeted west Kansas resource area, and those west Kansas-generated RECs can be purchased without having to build a $2,750,000,000 transmission line across four states.

...the GBX Project is “[l]ike that old 1970s song about Oz and the Tin Man, [because GBX] will give nothing to PJM that it doesn’t already have.”

While the Commission makes soothing noises that it takes seriously the landowners’ concerns about GBX’s ability to use the power of eminent domain against them, it immediately and blatantly contradicts itself by dismissing their concerns as unwarranted because GBX has not specifically requested eminent domain authority in this docket.  Less than a moment’s thought suffices to show the absurdity of the Commission’s position on this issue. If GBX is granted a CPCN it could ultimately use the power of eminent domain against landowners under Section 8-509.
Instead of coming to grips with the power of eminent domain as an integral component of public utility easement acquisitions, the Commission adopts the Pollyanna Principle and accepts at face value GBX’s well-oiled talking points about its voluntary “code of conduct” when dealing with landowners, its promises of respectful treatment, its commitment to negotiate reasonably, and so forth. For the Commission to completely discount the potential impact of eminent domain on landowners simply because GBX did not ask for it in this docket is arbitrary and capricious, and an utter abdication of the Commission’s duty to Illinois citizens.

The Commission’s attitude toward GBX is one of serene and nearly limitless benevolence: whatever GBX can’t do now, it can certainly do later. The Commission will grant GBX its CPCN here and now even though it can’t satisfy most of the requirements of Section 8-406.1 until some unknown point in the future.

But when the landowners raise the issue of GBX’s potential future use of the power of eminent domain against them, which the Commission knows full well inheres in every easement negotiation between GBX and a landowner, the Commission summarily dismisses their concerns as premature because GBX hasn’t asked for eminent domain power here and now, in this docket. In this the Commission subjects the landowners to an egregious double standard, and indulges itself in arbitrariness and caprice of the grossest sort.

GBX’s least cost argument thus rests entirely on its claim that it has no alternative but to be least cost because its entire corporate existence will be some kind of Darwinian
market struggle where only the fittest survive.

The unmistakable irony here is that GBX destroys its own claim to be least cost by asserting that it can exempt itself from those same inexorable free market forces if the going gets tough: GBX reserves to itself the right to seek cost allocation to ratepayers, and in so doing proves itself just another corporate dissembler trying to evade committing itself irrevocably to the ups and downs of the market. And if there are too many downs, the ratepayers can bail GBX out.

But in this docket GBX tells the Commission that it is a “merchant transmission owner” not because it has assumed the full market risk of the Project, but because it plans to earn revenues through discrete transmission services contracts with shippers. This definition of “merchant” transmission owner” appears nowhere in FERC’s orders. That’s because it is a definition concocted entirely by GBX itself, and it differs fundamentally from FERC’s.

Understanding the term “assumption of all market risk” does not require a degree in economics: an assumption of all market risk means exactly that, all market risk, come Hell or high water.

This Commission has no jurisdiction to determine whether or how much of an interstate transmission operator’s costs may be recovered from anyone. The rates, terms and conditions of service for interstate transmission are exclusively matters of federal jurisdiction.

...GBX has no power to confer on this Commission subject matter jurisdiction over the rates, terms and conditions of service on interstate transmission facilities.

If GBX were really a “merchant” transmission owner as defined by FERC, then there would be no questions concerning cost allocation,
and this entire discussion would be unnecessary. GBX simply wants to have it both ways, eating its free market cake while having its cost allocation too.

The purchase power agreement (PPA) [with Public Utilities Commission of Ohio] was the last missing piece: balance sheet shored up; equity overhang removed — we see no more surprises for investors.

"FirstEnergy’s proposal will put safeguards in place to protect our customers from increased price volatility that’s expected to occur in the years ahead," said Doug Colafella, a company spokesman.

... other utilities will want profit guarantees in Ohio and in neighboring states. This, in turn, will undermine a competitive market in which many companies do not have the resources to secure government help the way that FirstEnergy does.

Independent power companies competing against FirstEnergy for customers in Ohio and throughout the 13-state region where high-voltage transmission lines are controlled by PJM Interconnection are not asking for special deals like FirstEnergy is, said Glen Thomas, president of PJM Power Providers Group.

"Our members are competing to provide the most efficient and economic power to consumers in Ohio as possible. We oppose this deal.  We see it as destroying all the benefits Ohio has gained from competitive markets.

"By going down a road where you subsidize plants that are not able to compete economically with other plants, you crowd out these economic advantages as well as send a terrible signal to the market that the best way ... is not to operate at most efficient levels but to seek a bail out from the PUCO."