RTO Insider reports that FERC has issued a proposed policy statement regarding "hold harmless" commitments made during utility mergers.

The policy is intended to further define merger costs and how they are accounted for, as well as proposed accounting mechanisms to track them.

As if it's about some accounting "confusion," and not about utilities willfully violating the commitments they make as a condition of approval for their merger.  But, hey, FERC has to start somewhere, I suppose.   Maybe some proactive monitoring of utility financial filings could begin to put a damper on the merger cost recovery free-for-all.  But then will the utilities just find more creative ways to improperly recover their merger costs?  How about some penalties for utilities found to have improperly recovered merger costs?  I think maybe a $30M fine for each occurrence would be appropriate.
...hit the "record" button!

New information in the Powhatan Energy Fund case reveals that FERC may be withholding information.

In a motion filed yesterday, Powhatan says that it has become aware that FERC's Office of Enforcement possesses a recording of a telephone conversation between PJM's market monitor and traders at another company who were engaged in trades similar to the ones in this case, where FERC is seeking over $30M in fines for alleged "market manipulation." 
On that tape, Dr. Bowring says that the trades did not violate the rules, that he understands why the traders engaged in them, and that the rules need to be changed to remove the incentives that drove the trading. He also says that he would not refer the trading conduct to Enforcement if the traders stopped the trading in question.
Powhatan says that accused trader Alan Chen had a similar conversation with Bowring, but did not record it.

The problem here stems from OE's failure to turn over the recording when it was asked to produce exculpatory evidence, i.e. to disclose all evidence that is "favorable to an accused" or "would tend to exculpate him or reduce the penalty."

This seems to be a bit of a double standard, since FERC is relying on the statements of a different trader to make its case to the Commission.

Powhatan also points out that Bowring is obligated to refer trading that he thinks might be market manipulation to FERC's Office of Enforcement.  I wonder how many little phone calls he's made to traders over the years, instead of fixing all the flaws in his "markets?"

How is anyone supposed to know what's allowed and what's prohibited?  Or do those rules reside only in Bowring's head?
  So, keep that recorder handy, just in case... unless you've got $30M or so laying around and don't mind parting with it.
So, Grain Belt Express announced the opening of its solicitation of bidders for its proposed transmission capacity yesterday.

Big deal.

Remember these three words:  Utilities Hate Risk.
The solicitation for commitments, expected to last about seven weeks, will be a gauge in determining the interest in using the line.
GBE is soliciting customers in accordance with the plan it filed with FERC last year to negotiate rates in a fair and non-discriminatory manner that results in just and reasonable rates.

Despite GBE's media push that FERC has "approved" its project, FERC has no jurisdiction to approve the siting and permitting of the project.  What FERC does have an interest in is ensuring that the rates GBE charges to its customers are just and reasonable.  FERC simply approved GBE's plan to undertake this process fairly.  Once GBE completes the negotiation process and assigns capacity, it must make a compliance filing with FERC demonstrating that it complied with the plan as approved.  That may be be the tricky part!

Who wants to make a contractual commitment to purchase capacity on a transmission line that may or may not be permitted, and may or may not be built?  It could be generators, that Clean Line admits have not yet been built.  It could also be utilities, who commit to purchase the capacity.  Or it could be no one at all.

In the case of generators, the generators would need to have customers (utilities) that want to purchase their generation delivered to Indiana (and incur additional transmission costs on other systems to get the power to load).  Since these generators have yet to be built, and the transmission to Indiana has yet to be built, committing to a purchase price for delivered power could be risky.  Utilities hate risk.  A utility seeking to add renewable generation to its portfolio has many options, including existing generators and transmission.  Utilities plan their resources many years in advance as part of their obligation to provide a public service.  They are obligated to seek the cheapest price.  They want to know the resources they commit to purchase will actually be there when needed, not possibly unavailable at some later date, which would leave the utility scrambling to fill some hole in its plan at whatever price they can find.  Utilities hate risk.  Risk is costly.

In the case of utilities purchasing capacity directly... more risk!  Purchase of capacity on a transmission line that may or may not be there when needed, connected to unnamed generators that may or may not be there when needed, is risky.  Utilities hate risk.

I read an article long ago regarding Clean Line's business plan.  Some panned the plan, saying there is no market for this kind of risk.  So, I thought about it.  If Clean Line's plan is such a sure thing, why aren't there hundreds of transmission companies building merchant  lines outside the regional planning process?  Utilities have transmission affiliates, and they like to make money, too.  Maybe it's because experienced transmission developers know that there truly is no market for Clean Line's business plan?

Last year, Clean Line opened a different FERC-jurisdictional solicitation process for another of its projects, the Plains and Eastern Clean Line.  Regarding that process, Clean Line recently claimed:
It was encouraged by the strong response to a solicitation of customers for another power line it plans to build to deliver wind energy from Oklahoma to Southern states.
Encouraged?  Strong response?  If the response was strong and encouraging, Clean Line should have negotiated contracts with the respondents and made its compliance filing at FERC and announced to the world that it had committed customers for that project, right?  What happened?
From May through July of 2014, Clean Line conducted an open solicitation for transmission capacity on the Plains & Eastern Clean Line. 15 potential customers submitted more than 17,000 MW of requests for transmission service.
Clean Line's negotiated rate authority for Plains & Eastern requires the company to:
... make a compliance filing disclosing the results of the capacity allocation process within 30 days after the close of the open solicitation process, as discussed in the body of this order.

It's been 6 months.  No compliance filing.  No contracts.  No customers.  What happened?  Is Clean Line still negotiating?  Doesn't sound very strong and encouraging to me.  What if the bids Clean Line received were unacceptably conditioned to manage risk, or not satisfactory to economically support the project?  Remember, the bidding window has closed.  Would Clean Line have to award capacity to the top bidders, no matter the conditions?  If so, then perhaps it is busy evaluating the economic reality of its project.

Or is Clean Line planning to reject the first round of bidders and open a second solicitation window, hoping for better bids?  Would that be fair in FERC's eyes?

Don't forget to get your bids in. ;-)

Utilities hate risk.

It's really not news, per se, but it's now been verified by economic data -- regulated utilities with cost of service rates have no incentive to minimize their costs that are passed on to ratepayers.  In addition, state-regulated utilities may actually buy more expensive, in-state fuel to appease their political puppets.  And they get away with it because our state regulatory agencies are cozily captured by the entities they regulate.

These were some of the findings of a recent study by Asst. Prof. Steve Cicala from the Energy Policy Institute at Chicago that was
published in American Economic Review.  The study, When Does Regulation Distort Costs? Lessons from Fuel Procurement in US Electricity Generation, was undertaken to study regulation to find the characteristics of "bad" regulation, instead of simply doing away with all regulation.
This paper evaluates changes in fuel procurement practices by coal and gas-fired power plants in the United States following state-level legislation that ended cost-of-service regulation of electricity generation. I find that deregulated plants substantially reduce the price paid for coal (but not gas) and tend to employ less capital-intensive sulfur abatement techniques relative to matched plants that were not subject to any regulatory change. Deregulation also led to a shift toward more productive coal mines. I show how these results lend support to theories of asymmetric information, capital bias, and regulatory capture as important sources of regulatory distortion.
The study looked at fuel deliveries to coal- & gas-fired electric power plants, to compare regulated to deregulated.
He found that the deregulated plants combined save about $1 billion a year compared to those that remained regulated. This is because a lack of transparency, political influence and poorly designed reimbursement rates led the regulated plants to pursue inefficient strategies when purchasing coal.
Deregulated plants paid 12% less for coal... because they have an economic interest in the cost to run the plant.  Deregulated plants sell a product, and all their costs to produce that product are included in the cost of their product in a competitive market.  In contrast, regulated plants sell a service at their cost, the supply of power.  You will pay whatever it costs to produce the power, plus a guaranteed return.  The higher the cost, the bigger the return.  With ratepayers footing all the bills, these plants have absolutely no incentive to purchase the cheapest fuel available. 

This is compounded by the "confidential," opaque nature of coal markets, where regulators may not compare prices to know when plant operators are paying too much for fuel.  The same effect was not found in deregulated gas plants, and this was attributed to the transparent nature of natural gas markets.

In addition, the study found that regulated plant owners are more likely to curry favor with state regulators by purchasing more expensive in-state fuel for their plants.  With ratepayers picking up the tab, why not?  This is how states like West Virginia continue to be ruled by a dying coal industry, and part of the WV PSC's basis for approving the "sale" of an uncompetitive deregulated coal-fired plant into West Virginia's regulated environment in 2013.

The study also found that deregulated plants increase their purchase of low-sulphur coal from out-of-state mines as a cheaper way to meet environmental regulations.  Regulated plants will choose installing expensive scrubbers, because ratepayers pick up the tab and the utilities collect a return on their investment.

Although the study only concentrated on fuel costs of regulated v. deregulated generators, its findings can be liberally applied across the board to all aspects of regulated electric utilities, whose cost of service rates are padded with all sorts of uneconomic purchases.  When faced with the cost of its own inefficiency, the utility will always find a cheaper way to get things done, but not when ratepayers are picking up the tab.
FERC bad-boy Kevin Gates says he's going to create an animated monkey for his website that explains how to make money in PJM's badly-designed markets.
Gates therefore said he stands by his earlier statement that FERC created a market "where a monkey could have made money that summer" by randomly picking nodes, MWs, congestion caps and hours. "We now have the data and I intend to prove it empirically," Gates added. "Once I'm done with the analysis, I intend to create an animated monkey to put on my website to present the results of my work and help explain the market that FERC created."
But what kind of monkey?  Will it be a nice monkey?
Or will it be a naughty monkey?
I suppose it's all in your perspective. 

And, speaking of perspective, that SNL Financial article puts some of FERC's "evidence" against Gates into perspective.
For instance, staff said Chen and Powhatan's investors, including Gates, should have known that it was improper for Chen to submit trades in PJM's up-to congestion, or UTC, market on the funds' behalf just to maximize the rebates PJM gives market participants that use its transmission lines when it collects excess line-loss payments.

Staff further alleged that Gates and Chen suspected as much, citing an email exchange between the two parties suggesting that they "contact a law firm, the FERC, or PJM to try to get more insight into this issue." They never did, however, but instead decided to have Chen ramp up the trading activity, staff asserted.

Gates told SNL Energy that the problem with most of the emails and other information cited by staff to support its case is that they were taken out of context.

For instance, when asked if he indeed suspected that the types of trades in which Chen was engaging might be improper and why he did not seek advice on the issue, Gates recalled that the email exchange regarding the potential need for guidance took place in March 2010 and Chen did not begin trading in an allegedly illegal manner until the following June.

“The timing and the content of the email shows we weren't talking about Alan's trading at all — it was about the rebates themselves. We were concerned that FERC would try to retroactively take them back — not just for us, but for everyone," Gates said. He insisted that he never thought Chen's trading would be considered illegal.

Gates further explained that he did not contact an energy attorney at that time because he thought the possibility that FERC might punish market participants retroactively for flaws in existing rules was "preposterous when those rules were clearly approved." He also thought that while an attorney could quantify the risk or the likelihood that FERC may do so, contacting one would do nothing to protect him from that risk.

According to Gates, his decision not to seek legal advice at that time was the right one. He noted that after FERC in July 2011 tried to retroactively "claw-back those rebates" by ordering virtual (financial) traders such as Powhatan to return the previously refunded amounts, a federal appeals court in August 2013 remanded that decision, finding that the agency failed to justify its mandate. Moreover, Gates stressed that FERC staff has not alleged that any of Chen's trading activities prior to June 2010 were improper.
To be fair, SNL Financial also did an article featuring FERC's perspective, but that one is behind a pay wall, so I guess nobody cares...

Personally, I'm looking forward to the animated monkey!  I hope it's an evil monkey!  They're ever so much more fun!
Despite Clean Line's song and dance about how it has consulted with all stakeholders about its projects, it somehow  missed the Cherokee Nation.

Last week, The Cherokee Nation passed a Resolution “opposing the establishment of an energy line route by the Plains & Eastern Clean Line in Sequoyah County, Oklahoma located within the Cherokee Nation jurisdictional area.”

WHEREAS, the Cherokee Nation since time immemorial has exercised the sovereign rights of self-government in behalf of the Cherokee people; and,
WHEREAS, the Cherokee Nation is a federally recognized Indian Nation with a historic and continual government to government relationship with the United States of America; and,
WHEREAS, The Plains and Eastern Clean Line organization is proposing an energy line route to go through Sequoyah County and Sequoyah County land owners do not want it.  The towers will be at least 200 feet high and it appears that this energy line will be going across the Stokes Smith Ceremonial Grounds and also along the pathway where the Trail of Tears crossed in Sequoyah County where some historical markers are located; and,
WHEREAS, although the Cherokee Nation does support positive environmental activities, this activity does not appear positive, landowners do not want this and it could impact Cherokee Historical Areas and Ceremonial Grounds; and, the Council of the Cherokee Nation opposes the establishment of this energy line; and, therefore,
BE IT RESOLVED BY THE CHEROKEE NATION, that the Council of the Cherokee Nation, on behalf of its citizens and residents in the Sequoyah County area and due to concerns of the impact on the Tribal Historical and Ceremonial Grounds, hereby opposes the establishment of this energy line by Plains and Eastern Clean Line in Sequoyah County which is within the jurisdictional area of the Cherokee Nation.
Doesn't sound like the work of a Nation that's been working hand in glove with Clean Line and the DOE, does it?  In fact, it sort of seems like the reaction of a Nation that has been blindsided by a project they knew nothing about.

Janelle Fulbright, deputy speaker of the of the Cherokee Nation Tribal Council, who sponsored the resolution said:
“There is no benefit to us in any way,” Fullbright said of the transmission line. “We’re just seen as the pass through for a monstrosity that will lower our property value. Even if the proposed routes didn’t go right along the Trail of Tears and through our ceremonial ground, I’d be against it because we like to live in the country and not see anything out our back door.”
Three Arkansas County Quorum Courts (the local county government system) have also passed Resolutions opposing Clean Line.  More to come.
Will the U.S. ever get an offshore wind industry started?  One step forward, two steps back.  Just when Cape Wind might finally lay oar to the water, the utilities that signed power purchase agreements to purchase it have canceled their contracts, saying that Cape Wind failed to meet its obligations under the contract.  Cape Wind says the contracts are still valid, citing force majeure.  The companies are further squawking because they were "forced" to sign the power purchase agreements to get the state of Massachusetts to approve their merger. 

The article forgot to mention that the company has made a $40M investment in hundreds of miles of transmission lines for onshore wind since the power purchase agreement was signed in 2010.  Did National Grid cancel its contract with Cape Wind in order to stifle competition to its investment in Midwest wind?

Offshore wind continues to struggle, while Midwest wind is trying to court the U.S. Department of Energy to invoke an as yet untested section of the Energy Policy Act to "participate" in the Clean Line projects in order to usurp state authority to site and permit them, and use federal eminent domain to take land Clean Line was denied by the states.  Clean Line's projects have not been reviewed or approved in any regional transmission planning process under FERC's Order No. 1000's competitive transmission scheme.  The proposed action of the DOE would not only put the federal government in the business of transmission planning, it would also actively interfere with electric markets, two areas where the DOE does not have jurisdiction or expertise. 

Why is Midwest wind a bad idea?  Because it's located too far away and building overland transmission simply to ship electricity to the east coast is expensive, time consuming, and unfair to landowners crossed, who will receive none of the benefits, but all of the burden.

Why is offshore wind a good idea? 
Responsibly developed offshore wind power offers a golden opportunity to meet our coastal energy needs with a clean, local resource that will spur investments in local economies - creating unparalleled job growth and avoiding the need to export hard-earned energy dollars outside the region.
Or so says a mid-2014 report from the environmental community, Catching the Wind.  But yet, some of the same groups who touted the benefits of offshore wind in this report were simultaneously intervening in Midwestern wind transmission line cases and telling state utility commissions that there's a "need" for Midwestern wind on the East coast.  So, which is it?

Or is the Sierra Club just a bunch of hypocrites?  I'm leaning toward that hypothesis, since the Sierra Club is all over the map on the issue of eminent domain for energy projects, as pointed out by an Arkansas landowner.
The eminent domain issue has become a key point of contention between Pilgrim and the Sierra Club. An attorney for the Sierra Club has said that Pilgrim has no rights of eminent domain because it is a private company and not formally designated as a utility by the Board of Public Utilities.
But yet, the Sierra Club thinks that Clean Line, a private company not formally designated as a public utility in Arkansas, should use eminent domain as "the middle ground" to take the rights of way it finds necessary through the state.
On the other side are landowners who see the power lines marching across their land as more big government intrusion into their lifestyles and even interfering with their livelihoods.

Additional arguments against construction of the lines are possible health effects, and the fact that the entities proposing the construction are private companies.

It seems strange an argument against private industry would be made. The United States to a very large degree operates that way. It’s capitalism, right?

Rights of way must be secured for these power line projects private or otherwise, just as any project in the public interest such as a toll road or a railway. Fair market price must be paid for any property taken for rights of way.
I think the Sierra Club is an opportunist, using whatever arguments it thinks will delay or alter energy plans it does not like (those involving fossil fuels).  Sierra Club has no qualms about using landowners as pawns to further its environmental agenda and has shown it will jump on board even the worst energy projects, if they are only cloaked in "clean" labels.  Sierra Club needs to develop a rational and coherent energy policy and stick with it because people are abandoning the club in droves.  Maybe Sierra Club thinks that's okay, since it can more than make up for the members it loses with more grant money from big, mysterious, "environmental" funds.  However, true grassroots integrity shall remain elusive.
Let's get on with the offshore wind, shall we?  If the East coast wants "clean" power, they need to make it in their own backyard.  Once they get over the initial direct cost shock (as opposed to the hidden incremental cost increase of building new transmission lines across the country -- they're not going to avoid the costs), they may realize that being clean and green and responsible for their own environmental footprint provides other social and economic benefits as well.
Isn't that amazing?  FirstEnergy has learned to work faster for shale clients.  Remember that next time you want some service... pretend you're a shale gas company.

And here's another amazing fact:
Their promise and rapid pace of development happen to coincide with the Akron-based electricity company’s recent focus on making its transmission segment the lead revenue growth generator for FirstEnergy, where Mr. Bridenbaugh serves as vice president of transmission.
Serendipity, right?

So, who pays to supply electricity to new shale gas companies?  You do.
Most of the time, when the company upgrades a transmission line or builds a substation to service a new gas processing plant, the investment is recovered from the utilities that benefit from the upgrade.
Utilities.  Got that?  Not shale gas companies.

How much will you pay?
...the company has said it wants to retrench in its utility and transmission businesses, both of which provide a guaranteed rate of return. For transmission projects, the return is often in the double digits.

Why are you paying?  Because the new shale gas companies make the existing grid unreliable, and you need reliability!  (which came first?  the chicken or the egg?)
Because the new, shale-related loads are springing up in rural areas with older or nonexistent infrastructure, the new pull on the lines often presents a reliability risk for other customers drawing electricity in the area. Therefore, many such projects end up going before PJM Interconnection, a Valley Forge-based organization that manages the nation’s largest grid, servicing 13 states in the northeast including Pennsylvania.

PJM has a formula to determine who’s responsible for the cost of upgrades.

Typically, for projects like those on FirstEnergy’s shale plate, it’s shared between the direct beneficiary — a compressor station or processing plant — and the regional utilities whose customers also see a benefit from improved service and reliability.
Hmm... I wonder if regional utilities want to pay half my electric bill this month?  Because, you know, I could jump up from my chair and turn on every electric appliance and light in the house right now.  And that might hurt regional reliability... right?
As if PJM's electric market rules aren't already complicated enough, now PJM is insisting that RPM participants follow rules that aren't even rules yet.

Well, yeah, we all know that PJM answers to no one.  No, really, a certain PJM employee actually told a reporter once, "PJM answers to no one," when he was trying to sell the PATH project to West Virginia citizens. 

And PJM's market monitor told a newspaper once, "following the rules does not mean you are not manipulating the market."

So, it appears that PJM gets to make up its own rules, often before or after the fact, and nobody can protect you, because PJM is omnipotent and all.  Following the tariff doesn't appear to offer any protection against being accused of manipulation.  And, now it seems that PJM members have obligations to abide by proposed rules that aren't even in the tariff...

Recently, PJM filed changes to the capacity market portion of its tariff which, if approved, will establish a deadline for data submittal.  The new deadline will occur in early January each year.  In its filing, PJM has asked FERC to approve the tariff revisions by April 1st. 

But, PJM and Monitoring Analytics seem to think the proposed portion of the tariff is already in effect and are requiring capacity suppliers to submit certain data now.  FERC has yet to approve these new rules!  But, what could happen if the new data is not submitted by the proposed deadline in January, even though the tariff revisions are proposed to be effective in April and are NOT YET IN EFFECT?  Could the market participant be referred to FERC under a tariff violation claim?

So, not only is it possible to be guilty of something without actually violating PJM's rules, it is now also unacceptable to violate new rules that are not yet in effect! 

I think the bloated bureaucracy that is PJM needs to be slimmed down and cleaned up, because free M&Ms only have so much charm.

The Columbus Dispatch reports today that AEP has hired Goldman-Sachs to explore the potential sale of its unregulated coal-fired merchant generation fleet.

Coal-fired power plants are no longer profitable.  AEP and FirstEnergy have been unloading these liabilities on the backs of ratepayers in regulated states, and even have cases pending to unload them in unregulated states. 

The power plants are no longer profitable because the price of power has fallen below the cost to operate them, and these plants need a bunch of expensive retrofits to comply with new EPA regulations.  AEP and FirstEnergy are in a bind because they placed all their eggs in the same basket by hanging onto coal plants way past the time when smart utilities unloaded them at fire-sale prices.  Corporate greed strikes again!

The WV PSC just recently approved an AEP subsidiary's purchase of all but 140MW of one of the company's merchant plants, making Wheeling Power and Appalachian Power customers responsible for operating it and absorbing any losses.

In 2013, the WV PSC approved FirstEnergy's plan to dispose of its Harrison Power Station the same way, by making customers of Mon Power and Potomac Edison responsible for it.

The WV PSC never met a coal-fired power plant or rate increase that it didn't like.

Encouraged by the WV PSC, the Ohio companies next decided to try to unload more of their coal-fired assets on ratepayers in Ohio.  Except... Ohio is a deregulated generation state.  Demonstrating extreme creativity, the tedious twins came up with ingenious plans to shift responsibility for the plants to ratepayers anyhow.  FirstEnergy came up with its "Powering Our Profits" plan.  I don't know if AEP came up with a cutsie-poo name like FirstEnergy, but it also put forth a proposal to transfer responsibility for its
plants to Ohio ratepayers.

Gotta wonder how those cases are going to turn out at the PUCO, considering:

AEP has proposals pending with Ohio regulators that would provide a profit guarantee for five plants, four of which are part of the unregulated fleet. The company has said the plans would allow it to continue operating the plants, as opposed to a potential sale or shutdown.
But now it looks like AEP is getting ready to sell them instead.  Smart move.  Finally.

FirstEnergy is still too dumb to buy a clue.