Sound like a pretty sweet set up? However, it's just not good enough for the investor-owned utilities, who are under enormous pressure to produce bigger and bigger shareholder profits every quarter. Ten percent isn't shabby, but management's spending on items that cannot legally be passed to ratepayers in a regulated environment cuts deep into profit margins. Therefore, the game is to find ways to cheat the system and create a way to meet profit targets without cutting expenses on the shareholder side of the balance sheet, such as lobbying, promotion, and political contributions, which the utility finds essential to a favorable regulatory environment.
Experiments with deregulation haven't worked out so well. Remember Enron? Deregulation and competition have been a miserable failure that usually ends up costing consumers more than a regulated environment.
Interstate high-voltage transmission lines are regulated by the Federal Energy Regulatory Commission, whose mission is to ensure that rates are just and reasonable and not unduly discriminatory. FERC also ensures that transmission is open access, in an effort to keep costs low through competition. What you end up with is another regulatory hybrid that may fail the consumers who are supposed to benefit.
Transmission owners are allowed to apply to FERC to be awarded "incentives" that encourage new investment in transmission. They are not required to apply, and the bar is set pretty high for companies that aren't part of the good ol' boy utility scene. PATH applied for and was awarded, among other incentives, a 14.3% return on equity (since reduced to 12.4%), and "recovery of 100 percent of prudently-incurred costs associated with abandonment of the Project, provided that the abandonment is a result of factors beyond the control of PATH, which must be demonstrated in a subsequent section 205 filing for recovery of abandoned plant." The incentives were awarded under the condition that the PATH Project was included in PJM's Regional Transmission Expansion Plan (RTEP). All risk for the PATH Project was shifted to consumers.
PATH was also awarded use of a forward-looking formula rate to collect expense and profit from the captive PJM-region customer base through the setting of a yearly rate. The formula rate allowed PATH to collect yearly expenses (such as taxes, certain types of advertising, certain contracted services, an allocation of corporate expenses, and other routine operation and maintenance expenses for the project), along with a yearly profit (ROE) on the amount of PATH's capital investment in the project. Capital investments included land, engineering, routing and siting, regulatory expenses, legal fees and other expenditures they made that were necessary for the construction of PATH.
PATH behaved as if their formula rate was a bottomless money fountain from which they could draw to buy whatever they wanted. How many of you thought it was outrageous that PATH was allowed to have all their costs at the PSC paid for by us (and even earn a profit on them!) while we were forced to spend our own money to defend our interests? We paid for them to fight us, and then we paid for us to fight them, which gave PATH a sense of superiority and entitlement. They felt entitled to spend our money on whatever they wanted to accomplish their goal of building the project.
How about being forced to pay for PATH's public relations campaign and millions of dollars of propaganda advertising? How outrageous was that? PATH's sense of entitlement, and greedy, perfidious public relations contractor Charles Ryan Associates, encouraged them to spend freely on an effort to sway public, political and regulatory opinion in PATH's favor. The more of our money PATH spent on this effort, the more Charles Ryan Assco. earned. However, in the case of these promotional expenses, it turns out that they should not have ever been billed to ratepayers, but absorbed by stockholders unless and until PATH made a sufficient showing at FERC that they provided benefit to ratepayers. PATH failed to do its homework before going on its spending spree. If PATH's stockholders (which only include parent companies FE & AEP) knew up front that they would be required to absorb these costs, would they have spent less? Of course!
Now PATH finds itself in a precarious position with a $130M stranded investment of its stockholders money that may not have exactly been prudently incurred, and a dead project that has been removed from the RTEP, on its hands. Never fear, the PATH project geniuses will just dump the whole stinking mess on its accounting and legal team for the daunting and impossible task of recovering the money and cleaning up the mess these arrogant blowhards created with their little spending spree. Won't we have fun!
PATH windbag Todd Meyers had a lot to say about PATH's sense of entitlement in a recent article in the Spirit of Jefferson newspaper.
"Potomac Edison spokesman Todd Meyers said only prudently incurred costs will be recovered and would not acknowledge that Newman's figures were accurate. "We will have to do a cost recovery filing to FERC" Meyers said. "We will only know then the amount of cost to be recovered".
Well, what do you know, it looks like Todd acknowledges that a portion of that current $130M rate base total might not be prudent and that there's going to be a need for a lot of legal and accounting skulduggery before PATH makes its FERC filing. Todd passes the hot potato to others, after upping the temperature a few degrees.
"Meyers said recovering costs is an allowable part of doing business because no company would take on a project that is as expensive as a large transmission line without it. "There are many risks associated with that" he said, citing a possible regulatory denial of the project. He said no one would attempt such projects without this assurance."
Todd's sense of entitlement deserves a medal for that little gem! PATH wanted to build the project and collect a 14.3% ROE from here to eternity. The "PJM ordered us to build it" line has worn threadbare long ago. What's that you said? "Regulatory denial?" I like the sound of that! As far as Todd's contention that "no one would attempt such projects without this assurance," I'd like to introduce Todd to the concept of merchant transmission lines. Or perhaps Todd wasn't paying attention when an independent company without a sense of entitlement or bottomless fountain of ratepayer cash proposed the Liberty Line as an alternative to the PATH project. Yes, it's true, other companies have proposed such projects without this "assurance," or the ability to shift all financial risk to consumers.
"Cost recovery will be spread across the entire PJM area, because they all would have benefited from PATH, had there been a need for it".
This is so crazy that it makes my head hurt. There wasn't a need for it! Todd finally admits there was no need for PATH! Progress. :-)