Blog Posts

Update on PATH's Abandonment and Formal Challenges

3/12/2013

If you've been wondering what's going on with PATH's abandonment and the Formal Challenges at FERC, here's your update.

Sorry, that's the only public information that's available.

While you wait for closure, perhaps you can entertain yourself contemplating the meaning of FERC's paper mache sculpture that sits in the hallway outside the hearing room.

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U.S. Utilities are Killing Themselves

3/10/2013

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Interesting article in Reuters.

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New Report: RTO Markets Don't Save Electric Consumers Money

3/10/2013

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"The evidence is clear that generators are profiting excessively from RTO power markets, and that sellers’ rates are not ‘just and reasonable’ as the law requires. Consumers are paying the price, to their detriment and that of the overall economy."

That's the conclusion of a report on FERC's restructured regional electricity markets published in December by Elise Caplan of American Public Power Association and Stephen Bobeck of the Consumer Federation of America.

The report takes a look at how FERC has restructured regulation of wholesale power to rely on market based rates and regional transmission organizations. "FERC has chosen to rely on supposed market “competition” to ensure that prices are “just and reasonable,” as required under the Federal Power Act."

Do these markets work to protect consumers? No. The report opines that, "Instead, evidence is mounting that customers have been harmed by the markets."

Despite repeated attempts to get FERC to do some sorely needed analysis and adjustment to its competitive market experiment, "FERC has still not undertaken such an analysis. But there is a wealth of data available to support the conclusion that consumers actually have been harmed by the restructuring of wholesale electricity markets and that access to alternative retail suppliers does not solve the fundamental problems of the wholesale market from which those suppliers must purchase power."

In the report, "...we discuss specific RTO rules and structure that have provided opportunities for excess generator earnings at the expense of consumers."

In uncompetitive RTO cartel electricity markets, "Offers into the energy market need not reflect the sellers’ actual costs of generation, as FERC would have required under a traditional cost-of-service ratemaking regime. Rather, the sellers set their own price offers, regardless of their actual costs, subject only to review and possible adjustment by the RTOs’ market monitors. In PJM, the market monitor typically mitigates less than one percent of the energy offers in both the real-time and day-ahead markets."

Thanks, Market Monitor! Always looking out for my interests, aren't you? It's just too bad that PJM's attempt to replace the Market Monitor isn't intended to provide more protection for consumers, but LESS.

And here's another problem we've written about before that pops up in the report: "The conceptual basis for LMP is that these differential prices will send “price signals” to indicate where there is a need for new generation or additional transmission capacity, or to reduce load through conservation or shifting the times when energy is consumed. As discussed below, this theory has not borne fruit in practice."

In PJM, new transmission is always proposed before new generation has a chance to happen, and demand side resources aren't given serious consideration. This is why consumers are now paying half a billion dollars for two failed transmission projects -- transmission projects that were approved and intended to be quickly rammed through before demand side resources and new generation could be recognized. Ultimately, PJM's Project Mountaineer scheme failed, along with the transmission projects, when demand side resources and generation developed despite PJM's best efforts to squelch them.

"The theory behind locational pricing is to provide price signals indicating where new transmission and generation is most needed. But in reality, new resources have not developed to respond to higher prices in these markets. Instead of inducing new resource development, the higher prices provide a financial incentive for incumbent generation owners to keep supplies constrained, or at least to ensure that prices bid by new market entrants remain high.

The financial benefits of constrained supplies can be seen in the candid presentations by merchant generation owners to the financial community wherein the potential closure of coal plants is touted as a benefit to their earnings."

You know... like how FirstEnergy's wave of coal plant closures last year provided the company with jacked up capacity prices in ATSI and a whole bunch of new transmission projects in which to invest its "transmission spend" to increase the company's earnings. Remember that?

So, what protections are built into RTO markets, and do they work? "FERC relies solely on market monitors for each RTO to determine whether the wholesale electricity markets are competitive. These market monitor analyses are based on a limited frame of analysis that ignores evidence, such as the profitability data presented later in the report, which raises questions about the competitive nature of these markets. Moreover, the reports issued by the market monitors do not always support a definitive finding of competition. For example, in the most recent State of the Market Report for PJM, the market monitor found that the local market structure in the energy market and both the local and aggregate market structure in the capacity market were not competitive, as was the structure and the performance in the regulation market."

Go ahead, click through and read this analysis:

"Prior to examining the empirical evidence of the effects of RTO markets on electricity prices paid by utility customers, this section describes the structural flaws in RTO markets – conceptual problems that have led to higher prices than would have occurred absent such markets. These fundamental features of RTO markets, discussed below, provide both incentives and opportunities for merchant generators to earn excess revenues at the expense of consumers".

How does PJM "fix" their markets when things go awry? "When a given market structure does not achieve its goal of providing satisfactory revenue to RTO generators, the response – prompted by generators, many of them the spun-off affiliates of formerly vertically-integrated utilities – has been to induce the RTO to add a new, more complex market or a rule to prop up prices, such as a tightening of the minimum offer price rule in PJM." This kind of "make the rules up as you go" is the basis for the most recent bickering over new MOPR rules secretly concocted by PJM and its incumbent generators. This is the behavior of a cartel, not a competitive market.

If competitive markets save money for consumers, why do "RTO generation owners’ 10-K reports to the Securities and Exchange Commission list restrictions on competition as a potential risk to their earnings?"

The evidence examined in the report "lead[s] to a conclusion that the restructured RTO-operated markets have increased prices above what would be seen in the absence of restructuring."

How much? "...a possible $12 billion excess payment from consumers to generating companies that do not face genuine market competition – demonstrates the scope of restructuring’s negative impact."

And this about sums it up:

"The greatest beneficiaries of restructuring have been not consumers, as was promised, or innovative companies that were expected to emerge, but the “usual suspects” – owners of previously regulated, largely depreciated generating units."

How do we fix this mess? "It is crucial that FERC, as the regulator responsible for ensuring under law that wholesale prices are just and reasonable, determine whether RTO markets are achieving their cost-reducing potential, and, if not, to implement needed reforms."

Don't hold your breath. FERC refuses to even examine the results of their RTO experiment, much less take any action to fix it. Perhaps it's time for Congress to step in.

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PJM Wants to Replace Independent Market Monitor With Cheaper and Less Independent Variety

3/7/2013

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The new and mysterious "PJM Insider" employs one of the most annoyingly trite and overused headline words in today's "Commenters Blast PJM Plan to Shop for Market Monitor." Who pays for this slop anyhow? Geek overload alert!

Who is the Market Monitor and why should you care, little consumer?

The Market Monitor describes its function as PJM's electric market babysitter this way:

"Since 1999, the PJM Market Monitoring Unit has been responsible for promoting a robust, competitive and nondiscriminatory electric power market in PJM by implementing the PJM Market Monitoring Plan. Under the PJM Market Monitoring Plan, the PJM Market Monitoring Unit has been responsible for monitoring compliance with the rules, standards, procedures, and practices of PJM markets. We observe and comment on actual and potential design flaws in market rules, standards, and procedures, and identify structural problems in PJM markets that may inhibit robust and competitive markets. We monitor the potential of market participants to exercise undue market power, the behavior of market participants that is consistent with attempts to exercise market power and the market performance that results from the interaction of market structure with participant behavior. We monitor the actions of PJM and the impact of those actions on market outcomes."

PJM Insider wraps up the Market Monitor history very succinctly:

"Monitoring Analytics is headed by Joseph Bowring, a Ph.D. economist who has served as PJM’s market monitor since 1999. In April 2007, Bowring sparked a firestorm at a FERC technical conference when he accused then-PJM President Phil Harris and his allies of attempting to muzzle him by squelching his reports and cutting his budget.

More than a dozen PJM stakeholders, including several of those who filed the letters this week, responded by filing a complaint calling on FERC to take steps to ensure the monitor’s independence.

Following an investigation by an independent counsel hired by PJM, Harris resigned and FERC approved a settlement between PJM and Bowring. The settlement called for Bowring to form an independent company, which was awarded a six-year contract as PJM’s market monitor."

Six years will be up next year. The PJM Cartel's Board of Managers has proposed issuing a Request for Proposals for a new Market Monitor. It seems that the Board hasn't articulated why they would want to replace the current one, just mumbling something about budgets and costs. I guess they've never heard the phrase, "if it ain't broke, don't fix it."

Instead PJM's Board wants to make some changes to the way the Market Monitor operates.

1.    Selection of the new Market Monitor will be subjective and secret.

2.    Conflict of interest disclosure does not include any prior relationships with market participants (you know, those 800-pound gorilla incumbent generation & transmission companies who are supposed to operate "separately") or relationships with Board members. I kind of find this last one distinctly odd... why would so many entities objecting to this RFP be pointing this out if it wasn't a real possibility. Scary.

3.    There is no minimum service level. Any company could work up a proposal for minimal monitoring for a minimal price, then turn around and jack it all up if they are selected and then find out they can't handle the job. Sound familiar, PATH opponents? Or maybe a new Market Monitor could just do a crappy job for a lower price. Collectively, we may all save a million or two, however, the savings will most likely come at the price of higher electric rates as our gorillas rob us blind with shady practices. Now, isn't that a great idea?

4.    The Board wants to control the Market Monitor by having sole power to make the Monitor jump through hoops and report when they whistle. The Board wants to know who gets reported to FERC for market manipulation, even though FERC regulation prohibits this disclosure to the Board.

Sort of sounds like the PJM cartel is reverting to its previous behavior that got them into trouble in 2007. Not really surprising, since PJM thinks they answer to no one. They really do answer to someone though, however FERC plays the part of the distracted and absent parent and never asserts its authority over it's regional transmission cartels. And this is what happens. What's next? Couple more billion dollar transmission projects that the consumers don't want or need?

You're going to have to make up your own mind on whether you think this is a good idea or not. There's a ream or two of comments about the RFP on PJM's website. The Consumer Advocates of Maryland, Pennsylvania and West Virginia don't like it. PJM's Industrial Customer Coalition doesn't like it. Municipal and co-op electric service providers don't like it. The PA-PUC doesn't like it. The Organization of PJM States doesn't like it. These are all entities focused on consumer issues or are not-for-profit. Funny not to see any comments from the gorillas, isn't it?

And of course, the Market Monitor has its own issues with its impending demise, however there are plenty of logical points and a couple of zingers buried in here.

So, what do you think, little consumers? Should they stay or should they go?

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"Unbridled Management Greed"

3/7/2013

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Someone asked me a question the other night that set me thinking. The question was, "Does anyone like FirstEnergy?" I couldn't think of one single person or entity that has anything nice to say about the company, and in fact, I started mentally ticking off all the persons or entities who dislike the company and are simply taking notes and biding their time to build the perfect storm.

Here's another group that doesn't like FE. Their own employees.

A recent article in the State Journal headlined, "UWUA locals unite against FirstEnergy management practices" tells a tale of union solidarity against what they characterize as "unbridled management greed."

I agree, and I know I'm far from alone in my opinion.

The unions issued a Resolution of Solidarity that highlights dirty management practices and complaints against the company that I have heard over and over again. Among them are these gems:

"FirstEnergy CEO Tony Alexander received over $18.3 million in total compensation during 2011, a staggering increase of 58% over his total pay of $11.6 million during 2010; and the six top executives of FirstEnergy received nearly $57 million in total compensation during 2011."

"Top bosses at FirstEnergy are living high on the hog while they cut the wages and benefits of the utility workers who generate and distribute and service the electricity."

The unions are joining forces "...to assist each other to make certain that we obtain justice and fair contracts for our members throughout the FirstEnergy empire."

Empire? Tony's little fiefdom?

The union members "will not be divided and conquered."

Personally, I'm a little surprised they missed that whole Cleveland Browns stadium thing -- how far could $102M over 17 years go toward salaries and benefits for the workers who actually do the jobs that keeps our lights on?

At FirstEnergy, it's all about squeezing as much profit out of customers and O&M as possible. For management's efforts, they "live high on the hog." However, for every dirty affair Tony Alexander and FirstEnergy management perpetrates, the company makes a new enemy.

The list of enemies is growing and the perfect storm continues to churn and gather strength. Karma's a real bitch.

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Take Action Now: Integrated Resource Planning Bill Introduced in West Virginia State Legislature

3/4/2013

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Legislation requiring West Virginia's electric utilities to perform Integrated Resource Planning was introduced in the House today.

Integrated Resource Planning (IRP) legislation requires our power companies to submit long-term plans to the Public Service Commission every two years to determine the mix of resources to best meet future energy needs. Power companies would be required to give investments in energy efficiency (reducing demand) equal consideration to investments in traditional power plants, which they currently do not do. Over half the states in the country currently require their utility companies to use IRP. Learn more at EEWV's website.

Integrated Resource Planning is also supported by James Van Nostrand, Director of WVU College of Law's Center for Energy and Sustainable Development, in this report.

Integrated Resource Planning will help to keep your electric bills manageable by optimizing the mix of resources needed to provide electric service at least cost.

It would also prevent further scurrilous schemes from our out-of-state investor owned utilities to dump their uncompetitive, antiquated resources into West Virginia's captive rate base where YOU will continue to pay the utility a profit on resources that are long past ripe for retirement.

Here's what you need to do: Visit EEWV's Action Alert page here and click the link to email Delegate Morgan to show your support for the bill. All you have to do is add your name and click "send." Three clicks to keep your electric rates low. It couldn't be simpler. Do it now!

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Au Revoir, Clueless Blogger

3/4/2013

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The New York Times has finally done away with Clueless Blogger Matt Wald's soapbox. Now what are the investor-owned energy companies going to do when they need a journalistic patsy to re-package their press releases as "news?"

Here's hoping that Matt has a nice, soft landing on some investor-owned utility's flack couch where he can finally be among his own kind.

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Wisconsin Citizens' Groups Ask FERC to Revoke MISO Approval of Transmission Project

3/2/2013

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Citizens Energy Task Force and Save Our Unique Lands filed a complaint at FERC yesterday alleging that a transmission line approved by the Midwest Independent Transmission System Operator will cause instability of the electric grid. The complaint asks that FERC:

"...order that the MTEP 08 addition of the Hampton-Rochester-La Crosse transmission line is prohibited because electrical impacts of the addition of this project to the grid were not considered, and that instead of improving the reliability of the system, it contributes to and/or causes electrical system instability, that the Midwest Reliability Organization (MRO) has neglected its duty to preserve the reliability of the system, and that the Commission Order revocation of the Midwest Independent Transmission Service Operator (MISO) approval of the CapX 2020 Hampton-La Crosse transmission project because the addition of the Hampton-Rochester-La Crosse transmission line contributes to and/or causes system instability."

The citizen groups' complaint relies on the segmented approval and construction of the CapX 2020 lines. While the projects are supposedly parts of a larger plan, the utilities have admitted that construction of the subject segment without an additional transmission line to Madison will bring about instability that will cause the system to "reach a tipping point." An additional line to Madison has not yet been applied for or approved.

MISO's piecemeal project portfolio will cause system instability if all parts are not built. Construction has already begun on portions of the project in Minnesota, but without an extension of the line to Madison, it is merely a radial line dumping excess electricity into LaCrosse that has no outlet. Because the second line has not been approved, there is no guarantee it will be built. The complainants also point out that previous arguments by the applicants that the two lines are separate projects have clearly violated the National Environmental Protection Act prohibiting the segmentation of dependent projects.

So, which is it? Are these separate projects or are they integral parts of a single project? MISO cannot have it both ways.

Will FERC take the initiative to administer some sorely needed discipline upon one of its regional transmission organization darlings? Or will it continue to let its unruly children run wild until we're all sitting in the dark?

Read more here, here here and here.

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"Epic Rant" Against FirstEnergy

3/1/2013

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Just read it.

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FERC Says No to Pepco's Plan to Collect Incentive ROE on Abandoned MAPP Project

3/1/2013

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Remember Pepco's silly plan to collect a 12.8% incentive ROE on $87.5M of abandoned plant costs for its unneeded MAPP project?

Although it granted Pepco the right to recover its prudently incurred investment yesterday, FERC denied the continuation of MAPP's 150 basis point incentive ROE on abandoned plant. No big surprise -- Pepco's arguments were absurd.

"We find that the continuation of the additional 200 basis points of incentives, on top of the base ROE, on an abandoned project is not appropriate. Once a project has been canceled, none of the incentives granted other than the ability to recover prudently incurred abandonment costs continues to apply, as explained below."

FERC also denied Pepco its 50 basis point incentive for continued membership in PJM. The Commission reconfirmed its determination in the PATH abandonment order:

"We therefore find that the 50 basis point adder for RTO participation is not appropriate for recovery in an abandonment application. This finding is appropriate in the context of abandonment even though the Commission has found that the RTO participation incentive is unrelated to any particular project but instead is intended as an incentive for joining and remaining in an RTO. This is because even though the public utility project developer has joined an RTO, the facility at issue in an abandoned plant cost recovery situation will not be transferred to the RTO's control, and therefore the benefits from that project’s inclusion in an RTO will not materialize.

This outcome is consistent with the PATH Abandonment Order, where the Commission clarified that continued recovery of a 50 basis point adder for RTO participation is not appropriate for recovery in an abandonment application."*

Do you think the Commission was clear enough this time? Greed seems to be interfering with utility understanding of this concept.

In addition, the Commission also determined that Pepco can recover only 50% of its incurred costs prior to issuance of their incentives order in 2008. Because Pepco incurred these costs before being granted the 100% abandonment recovery incentive, they are only eligible for 50% recovery. Pepco wasn't greedy enough to ask for amortization of its pre-incentive costs over its construction period like PATH did. Silly Pepco, that's going to cost ya...

However, the Commission also awarded Pepco a 10.8% ROE on its recovery of abandoned plant, instead of setting ROE for hearing like it did on PATH's abandonment. Pepco's brazenly ridiculous request to recover an incentive ROE on abandoned plant captured the attention of all the protestors, who failed to advance any arguments against Pepco's base ROE. You gotta admit, it was pretty smart. Maybe PATH's counsel could take some lessons from Pepco's. Or maybe PATH just needs smarter counsel.

As it did with PATH, the Commission set the prudence of MAPP's abandoned plant costs for settlement and hearing.

Before you get all carried away praising the Commission for this Order, remember that it is because the Commission continually fails to enforce any discipline on their little darling PJM that consumers in 13 states and D.C. will have paid nearly half a billion dollars for these two abandoned transmission projects. PATH and MAPP (and TrAIL and Susquehanna Roseland) were never truly needed. It was all about increasing the use of coal-fired resources, not reliability or economics. The utility cartel that is PJM has cost us all higher electric bills that we can ill afford and will not be held accountable for its machinations.

*This bodes well for PATH's rehearing, doesn't it?

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Forward>>

Update on PATH's Abandonment and Formal Challenges

U.S. Utilities are Killing Themselves

New Report: RTO Markets Don't Save Electric Consumers Money

PJM Wants to Replace Independent Market Monitor With Cheaper and Less Independent Variety

"Unbridled Management Greed"

Take Action Now: Integrated Resource Planning Bill Introduced in West Virginia State Legislature

Au Revoir, Clueless Blogger

Wisconsin Citizens' Groups Ask FERC to Revoke MISO Approval of Transmission Project

"Epic Rant" Against FirstEnergy

FERC Says No to Pepco's Plan to Collect Incentive ROE on Abandoned MAPP Project

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