In the NOI, Promoting Transmission Investment Through Pricing Reform, FERC is seeking comments about the effect of its incentives in promoting transmission. If you're going to comment, you need to understand what the incentives are, and what they are intended to do.
One of FERC's incentives is the entitlement to seek recovery of 100% of the prudently incurred costs of transmission projects that are abandoned for reasons beyond the control of the transmission owner and are never built or put in service. In order to collect on this incentive once granted, the transmission owner must make a separate Section 205 filing to FERC showing that abandonment was beyond their control and that all costs proposed to be recovered are prudent. Other parties may intervene and challenge the filing. Granting of this incentive is not a guarantee of a favorable ruling, but use your own judgment on how you think FERC would rule when their incentive is tested.
Historically, FERC precedent was that the risk of abandoned projects would be shared equally between consumers and shareholders, with 50% being recovered over what would have been the life of the project, if it had gone in service, and 50% being written off as a loss by the transmission owner. However, in a 2005 case, FERC granted 100% recovery of abandoned plant in a California case because the transmission developer would not be controlling or profiting from the generation source and would be shouldering additional risk that the new generation would not be built. In 2006, FERC used this case as reasoning for offering the 100% recovery to incentivize new transmission.
Guaranteed ability to recover prudently incurred costs if a transmission project fails for reasons beyond their control removes all investment risk from the transmission owner and stockholders and places it all squarely on the shoulders of the consumers. The failure of a transmission project is even more beyond the control of the consumer than it is beyond the control of the owner!
If recovery of abandoned plant removes all risks, are other incentives necessary? FERC has granted multiple incentive package deals to many transmission projects, making them win-win for their developers and lose-lose for the consumers, who always wind up holding the bag. This is not "just and reasonable" and has created a proliferation of white elephant projects being proposed in PJM, such as PATH, MAPP and Susquehanna-Roseland, that are stalled or "suspended" due to lack of need. When there is no risk to the developer of a project and only further rewards to be gained by proposing new projects, whether they ever actually get built or not, how many unneeded projects will be proposed as transmission owners crowd the incentive buffet, intent on scoring their own piece of free pie?
As well, transmission projects now receiving abandonment incentives are directly benefiting from the proposed facilities by sourcing them from their own generation facilities, such as AEP's PATH project that would increase generation and market share for their John Amos coal-fired plant. PATH would provide free transportation to higher-priced markets for increased production at Amos, something that would benefit AEP shareholders by increased profit from both generation and transmission.
In the NOI, beginning on page 27, FERC discusses the abandonment incentive and asks several specific questions. Now that you know what abandonment is... go look at the questions and formulate your comments/suggestions for FERC. I'm sure you creative consumer "stakeholders" can make suggestions that the industry won't even ponder. The industry will be letting FERC know how they can and should sweeten the pot even further for them. It's up to you to provide balance with a little real world sanity.
Keep checking back... there's lots more incentives to come!
If you found this helpful in crafting your comments, you are encouraged to browse the entire FERC Transmission NOI category at StopPATHwv.com for other useful material. You don't have to comment on all aspects of the NOI if that's too burdensome. In fact, if you want to concentrate in detail on just one aspect that interests you and about which you have strong feelings, that's a perfectly acceptable approach to producing effective comments.
One of FERC's incentives is the entitlement to seek recovery of 100% of the prudently incurred costs of transmission projects that are abandoned for reasons beyond the control of the transmission owner and are never built or put in service. In order to collect on this incentive once granted, the transmission owner must make a separate Section 205 filing to FERC showing that abandonment was beyond their control and that all costs proposed to be recovered are prudent. Other parties may intervene and challenge the filing. Granting of this incentive is not a guarantee of a favorable ruling, but use your own judgment on how you think FERC would rule when their incentive is tested.
Historically, FERC precedent was that the risk of abandoned projects would be shared equally between consumers and shareholders, with 50% being recovered over what would have been the life of the project, if it had gone in service, and 50% being written off as a loss by the transmission owner. However, in a 2005 case, FERC granted 100% recovery of abandoned plant in a California case because the transmission developer would not be controlling or profiting from the generation source and would be shouldering additional risk that the new generation would not be built. In 2006, FERC used this case as reasoning for offering the 100% recovery to incentivize new transmission.
Guaranteed ability to recover prudently incurred costs if a transmission project fails for reasons beyond their control removes all investment risk from the transmission owner and stockholders and places it all squarely on the shoulders of the consumers. The failure of a transmission project is even more beyond the control of the consumer than it is beyond the control of the owner!
If recovery of abandoned plant removes all risks, are other incentives necessary? FERC has granted multiple incentive package deals to many transmission projects, making them win-win for their developers and lose-lose for the consumers, who always wind up holding the bag. This is not "just and reasonable" and has created a proliferation of white elephant projects being proposed in PJM, such as PATH, MAPP and Susquehanna-Roseland, that are stalled or "suspended" due to lack of need. When there is no risk to the developer of a project and only further rewards to be gained by proposing new projects, whether they ever actually get built or not, how many unneeded projects will be proposed as transmission owners crowd the incentive buffet, intent on scoring their own piece of free pie?
As well, transmission projects now receiving abandonment incentives are directly benefiting from the proposed facilities by sourcing them from their own generation facilities, such as AEP's PATH project that would increase generation and market share for their John Amos coal-fired plant. PATH would provide free transportation to higher-priced markets for increased production at Amos, something that would benefit AEP shareholders by increased profit from both generation and transmission.
In the NOI, beginning on page 27, FERC discusses the abandonment incentive and asks several specific questions. Now that you know what abandonment is... go look at the questions and formulate your comments/suggestions for FERC. I'm sure you creative consumer "stakeholders" can make suggestions that the industry won't even ponder. The industry will be letting FERC know how they can and should sweeten the pot even further for them. It's up to you to provide balance with a little real world sanity.
Keep checking back... there's lots more incentives to come!
If you found this helpful in crafting your comments, you are encouraged to browse the entire FERC Transmission NOI category at StopPATHwv.com for other useful material. You don't have to comment on all aspects of the NOI if that's too burdensome. In fact, if you want to concentrate in detail on just one aspect that interests you and about which you have strong feelings, that's a perfectly acceptable approach to producing effective comments.
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