It's been a year in coming, but PATH's ROE Settlement was finally made public on Friday. No more 14.3% ROE!
Here's a summary of what's in the Settlement (warning, gigantic file).
PATH got taken to the cleaners in this settlement! Hats off to the other power companies who engineered this settlement while "our" state consumer advocates sat on their hands instead of protecting our interests. PATH should have been paying attention to the enemies they were making when they insisted on keeping all the gold in their own pot way back when.
PATH's original award of incentives was completely ridiculous, and everyone's been aware of that for over three years. PATH's 14.3% ROE was way outside of any other project's ROE. So, let's see how PATH's ROE stacks up now when compared with its three sister Project Mountaineer projects, who were also awarded incentives in 2007 & 2008:
Look at it this way -- PATH's ROE fell by 1.9%, which nearly equals their 2% incentive adders and pretty much negates them in their entirety. PATH isn't as profitable as it once was, so why doesn't AEP & FirstEnergy just take their ball and go home? We all know this project is never going to happen. However, until the project is officially "cancelled," they will continue to collect this ROE on the amount they have invested in the project. The difference between ROEs is going to lower their yearly return (profit) by about a million bucks.
Here's how it works (which I was trying to explain in vain in Bill's comments over the weekend):
The amount of money PATH invests in project assets will be returned to them through depreciation over the life of the transmission line. PATH has invested $138,773,015 in the project through the end of 2012. In exchange for investing their capital in the transmission project, PATH will earn a return (profit or interest) on their money yearly. The amount they earn each year is determined in their Formula Rate template and based on the incentives they were granted back in 2008. PATH was granted a hypothetical capital structure of 50% equity and 50% debt. This means that until the project is actually completed, no one knows how much of the cost will be equity (PATH's money) and how much they will have to borrow to finance it (debt). FERC has set the percentages at 50-50. This means every year PATH will now earn 12.4% on the hypothetical equity half of the amount in the rate base, and a much lower percentage on the half that is hypothetically debt, or borrowed money. The debt percentages are 6.64% for the PATH-WV (AEP) half of the project and 6.76% for the PATH-Allegheny (FE) half of the project. As shown on this redlined template sheet from PATH's settlement, the two different percentages are averaged and the resulting percentage is applied to the rate base and becomes PATH's yearly return, or profit, which is recovered along with all other yearly expenses (such as marketing, administrative costs, a share of PATH's parent company expenses, a portion of their start-up costs incurred prior to incentives being granted in 2008, taxes and depreciation) every year. As a result of the settlement, PATH's yearly profit margin has dropped from 10.47% on PATH-WV's half and 10.53% on PATH-Allegheny's half to 9.52% for PATH-WV and 9.58% for PATH-Allegheny.
If you actually look at the new templates submitted as an attachment to the settlement, you will notice that PATH neglected to change these numbers in the template, however, mistakes like that seem to be par for the course for PATH and its team of crack accountants.
What some of us are wondering now is if the filing of another revised PTRR for 2011 and a revised ATRR for 2010 will extend the discovery period currently underway on previous filings. Since PATH's Formula Rate Implementation Protocols sets out a 150 day discovery period for interested parties to request information, and another 30 days to file a Challenge, a whole bunch of new filings near or after the closing of discovery on the original filings leaves no time for interested parties to avail themselves of the procedures outlined in the protocols. As we've found out over the past couple of years, when the protocols are put into practice they are quite inadequate as written, aren't they? No one ever envisioned the sticky situations PATH has gotten itself into in the past couple of years, apparently. Planning for the unexpected should have been a "best practice" when planning an unneeded transmission project.
Any questions? Or is it still about as clear as mud?
Here's a summary of what's in the Settlement (warning, gigantic file).
- PATH's base ROE will change from 12.3% to 10.4%, effective January 1, 2011. That was the only part of the ROE that was subject to change as per FERC order. The 200 incentive points they were awarded back in 2008 (50 pts. for membership in PJM and 150 pts. for the "risks and challenges" of the project) will not change. When the existing 200 pt. incentive ROE adders are added to the new base ROE, this brings PATH's ROE down to 12.4%.
- PATH will pay the PJM ratepayers a lump sum refund of $2,741,000.55, which includes interest, on the difference between the 14.3% that has been collected since March 2008 and the new 12.4% ROE that was effective January 1, 2011. This refund will be made in the next billing cycle after approval of the settlement by FERC.
- Within 7 days of approval by FERC, PATH will file a Re-Revised 2011 Projected Transmission Revenue Requirement, which will include a refund of the difference between the 14.3% ROE they have collected thus far this year and the new 12.4% ROE.
- Within 14 days of approval by FERC, PATH will file a Revised 2012 Projected Transmission Revenue Requirement reflecting the new, lower ROE.
- PATH will also file a revision to their 2010 Actual Transmission Revenue Requirement within 14 days of approval. The settlement states that this will change the refund of over recovered revenue to ratepayers from $4,899,780.42 to $4,597,741.90. I'm not sure why PATH is now keeping $300K of the refund they owed to us, but the filing should tell us eventually.
- None of the settling parties can request a change to PATH's base ROE or incentive adders for 4 years. However, in the event PATH is cancelled, this will not affect the rights of any party to argue what ROE (if any) should be applied to abandoned plant costs.
PATH got taken to the cleaners in this settlement! Hats off to the other power companies who engineered this settlement while "our" state consumer advocates sat on their hands instead of protecting our interests. PATH should have been paying attention to the enemies they were making when they insisted on keeping all the gold in their own pot way back when.
PATH's original award of incentives was completely ridiculous, and everyone's been aware of that for over three years. PATH's 14.3% ROE was way outside of any other project's ROE. So, let's see how PATH's ROE stacks up now when compared with its three sister Project Mountaineer projects, who were also awarded incentives in 2007 & 2008:
- Susquehanna-Roseland 12.93%
- MAPP 12.8%
- TrAIL 12.7%
- PATH 12.4%
Look at it this way -- PATH's ROE fell by 1.9%, which nearly equals their 2% incentive adders and pretty much negates them in their entirety. PATH isn't as profitable as it once was, so why doesn't AEP & FirstEnergy just take their ball and go home? We all know this project is never going to happen. However, until the project is officially "cancelled," they will continue to collect this ROE on the amount they have invested in the project. The difference between ROEs is going to lower their yearly return (profit) by about a million bucks.
Here's how it works (which I was trying to explain in vain in Bill's comments over the weekend):
The amount of money PATH invests in project assets will be returned to them through depreciation over the life of the transmission line. PATH has invested $138,773,015 in the project through the end of 2012. In exchange for investing their capital in the transmission project, PATH will earn a return (profit or interest) on their money yearly. The amount they earn each year is determined in their Formula Rate template and based on the incentives they were granted back in 2008. PATH was granted a hypothetical capital structure of 50% equity and 50% debt. This means that until the project is actually completed, no one knows how much of the cost will be equity (PATH's money) and how much they will have to borrow to finance it (debt). FERC has set the percentages at 50-50. This means every year PATH will now earn 12.4% on the hypothetical equity half of the amount in the rate base, and a much lower percentage on the half that is hypothetically debt, or borrowed money. The debt percentages are 6.64% for the PATH-WV (AEP) half of the project and 6.76% for the PATH-Allegheny (FE) half of the project. As shown on this redlined template sheet from PATH's settlement, the two different percentages are averaged and the resulting percentage is applied to the rate base and becomes PATH's yearly return, or profit, which is recovered along with all other yearly expenses (such as marketing, administrative costs, a share of PATH's parent company expenses, a portion of their start-up costs incurred prior to incentives being granted in 2008, taxes and depreciation) every year. As a result of the settlement, PATH's yearly profit margin has dropped from 10.47% on PATH-WV's half and 10.53% on PATH-Allegheny's half to 9.52% for PATH-WV and 9.58% for PATH-Allegheny.
If you actually look at the new templates submitted as an attachment to the settlement, you will notice that PATH neglected to change these numbers in the template, however, mistakes like that seem to be par for the course for PATH and its team of crack accountants.
What some of us are wondering now is if the filing of another revised PTRR for 2011 and a revised ATRR for 2010 will extend the discovery period currently underway on previous filings. Since PATH's Formula Rate Implementation Protocols sets out a 150 day discovery period for interested parties to request information, and another 30 days to file a Challenge, a whole bunch of new filings near or after the closing of discovery on the original filings leaves no time for interested parties to avail themselves of the procedures outlined in the protocols. As we've found out over the past couple of years, when the protocols are put into practice they are quite inadequate as written, aren't they? No one ever envisioned the sticky situations PATH has gotten itself into in the past couple of years, apparently. Planning for the unexpected should have been a "best practice" when planning an unneeded transmission project.
Any questions? Or is it still about as clear as mud?
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