The West Virginia PSC has approved the settlement
reached by the parties to FirstEnergy's request to increase rates, and your rates will go up 8% overall on February 25. Yeah, rate increases suck, but I think the bigger question here is... Did you get a better deal in the settlement than you would have if this case had gone through the full evidentiary hearing and been decided by the Commissioners?
I'm thinking... yes. And here's why:
Actual base rate increase requested: $95.7M (9.3%).
Actual base rate increase granted: $15M (1.45%).
Vegetation Management Surcharge requested: $48.4M
Vegetation Management Surcharge granted: $47.5M HOWEVER, something good happened here that is not reflected in the number. For the first time, FirstEnergy will have to account for every dollar spent on vegetation management and file semi-annual reports that true up its actual expenditures to actual rates collected. The vegetation management expenses must be reviewed for prudence. In the past, the company was simply handed a certain amount annually for "vegetation management." The company never had to account for how (or if!) the amount was actually spent on vegetation management. What happened is that the company wasn't doing adequate vegetation management, resulting in more severe and frequent outages, but was using the money to bulk up its balance sheet and share dividends. Now all the money collected for vegetation management must be spent actually maintaining vegetation. This is a very good thing!
Depreciation rate change increase requested: $17M
Depreciation rate change granted: None.
Requested increase in monthly customer charge: $1 (up to $6 from the existing $5)
Monthly customer charge granted: $5 (no change).
Deferred expense for 2012 storm restoration: $45.8M. The companies wanted to collect this with an annual return calculated on the balance. Instead, they will collect this over 5 years ($9M/yr.) WITHOUT any return (interest) being paid.
The company wanted to collect $60M in expense it incurred in closing its Albright, Willow Island and Rivesville generating plants. Instead, it will collect zero. However, the companies are permitted to defer this expense (hold it on their balance sheet) for the time being, and may request recovery of it at a later date. At that later date, you bet the recovery request will include years of "interest" accrued during the deferral. This bears watching!
The companies had requested a surcharge to pay for the cost of upgrading their generators to comply with EPA regulations. They withdrew their request in the settlement, however, the settlement simply kicks that can down the road, allowing the companies to create a regulatory asset (deferral) for those costs and to collect them during its next base rate case. In the meantime, the accumulating costs will earn 8.19% return (interest), which will be payable at the next rate increase.
But, it looks like the apportionment of rates between customer classes was adjusted to lower rates of the industrial users, while residential rates were increased. Remember, industrial users were a party to this settlement.
Do you think you might have gotten a better deal from the PSC Commissioners? I doubt it. They're used to giving FirstEnergy everything it wants. The Commissioners aren't really fighting for you, but the staff of the PSC, and our Consumer Advocate WERE fighting for you here and I think they engineered the best deal possible. There was never any chance that the PSC would simply deny the rate increase in its entirety. It was all about "how much." And you kept the pressure on by filing comments and speaking at the public hearings. Get educated, stay engaged!
"Gotta read" post on UWUA Local 304's blog today. Utility’s “Cozy” Relationship With Regulators Questioned
tells the story of Pacific Gas & Electric (PG&E), whose lack of maintenance was responsible for a massive gas line explosion in 2010 that leveled a neighborhood and killed or injured many.
But, wait, there's more!
The story may have stopped there, except for a consumer advocacy group’s efforts for utility reform. Their allegations kept the San Bruno disaster front and center by claiming PG&E knowingly pumped up their balance sheets and pocketed funds that should have went to the maintenance and upkeep of the aging natural gas system and that it was a relationship with the California Public Utilities Commission, that the group described as “cozy”, that let PG&E to get away with it.
Both the regulator in question and a PG&E Vice President have lost their positions, but recently released e-mails between the two seemed to confirm the allegations, and the fact that both have since lost their jobs also is a strong indicator that the charges were well founded (click here for a great story on this subject).
Discussed in the e-mails are, among other things, talk of vacations, chats with invitations to private meetings at remote and luxurious locales, and a general feeling of collusion between close friends rather than a more professional and business-like exchange between the regulator and the regulated. There are even some chat about PG&E meeting then Governor Jerry Brown and strategies to diffuse the events of San Bruno.
However, the most disturbing aspect revealed in the e-mails is the how the utility targeted the The Utility Reform Network (TURN), which was the advocacy group highlighting and investigating the events of San Bruno.
UWUA links to this story originally published in the San Francisco Chronicle
Apparently the executive director of the California PUC and an "external affairs" schmoozer vice president were having a ton of fun making nasty jokes about the president of The Utility Reform Network (TURN), whose only crime was trying to protect customers and "reform" these dirty bastards.
The emails also detail the cozy relationship between PG&E and its regulators, as well as PG&E and elected officials. It was suggested by the president of the CPUC that PG&E should whine to Governor Jerry Brown about how the explosion disaster was hurting poor, poor pitiful PG&E stock prices, so he could "fix" things.
In January 2011, Peevey sent an e-mail to Cherry urging him to share with a Brown aide, former PG&E executive Nancy McFadden, a financial analyst’s views that the San Bruno case was hurting PG&E’s stock. The report credited Peevey for his “even-handed” approach in controlling the situation.
‘‘As I suggested before, this info should go to the governor’s office, probably best to Nancy McF,” Peevey wrote to Cherry. “Jerry has to be made aware that actions have consequences and the economy is best off with a stable utility sector.”
No, you're not reading a John Grisham novel. This stuff actually happened. In fact, I'm pretty certain this is not an isolated incident. This stuff happens all the time at just about any investor owned utility you can name.
UWUA finishes up their report with some very good advice:
The real news here is that when people stand together, no matter what derisive things business executives may say against them or how small they may view their fellow citizens, America is still America and people can still make a difference.
The story above is also a reminder that as Americans we have a responsibility to hold the people that serve the public interests in any capacity accountable, and by doing so, we can discourage such insular and covert “cozy” relationships from developing.
Wow, what a shocker, right? What happens when a cartel has to make new rules whereby its members have to compete for projects?
Complete and utter failure.
On Thursday, PSE&G filed a complaint against PJM at FERC. The complaint is just a new wrinkle in PJM's failure to carry out a competitive transmission planning process ordered by FERC and set out in PJM's own rules. PJM didn't seem to have any problem coming up with a competitive process in order to comply with Order No. 1000, but it completely failed at carrying out its own rules in its first attempt at a competitive transmission project window.
The complaint alleges that PJM altered all projects submitted in the Artificial Island competitive window, substituting its own project creations for the ones actually submitted, and then allowed a select set of project sponsors to continually alter their projects throughout the evaluation process. PJM still has not selected a "winner," although the process has been dragging on for nearly two years. PJM simply cannot resist using its heavy hand to unfairly influence selection of transmission projects that need to be built.
Funny that when PJM has to operate competitively, it cannot. Everything falls apart.
Is it really about keeping the system reliable and cost effective, or is it about ensuring profits for its most favored members? Where do consumers fit in?
So, why don't we just do away with PJM transmission planning altogether? It's a miserable failure.
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.
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.
Clean Line President Michael Skelly recently told a Tulsa World reporter that his company is going through a federal permitting process for its Plains & Eastern Clean Line because the project wants to cross three states. (watch the video
There's no such thing as a "federal permitting process" for high-voltage electric transmission lines!
Skelly calls the U.S. Department of Energy the "permitting agency." However, what he's referring to is Clean Line's application to have the U.S. DOE "participate" in its for-profit transmission venture undertaken outside the normal regional transmission planning process.
Section 1222 of the Energy Policy Act of 2005, Third Party Finance, allows federal power marketing agencies to "participate" in transmission projects that are built within their territories. As noted in the title of the statute, Sec. 1222 projects must be financed by third parties (in this case, Clean Line's private venture capitalists). Section 1222 does not give U.S. DOE authority to PERMIT or site transmission projects. It simply allows "participation." In Clean Line's case, the company is only interested in DOE's "participation" in order to anoint itself with the power marketing agency's federal eminent domain authority to condemn and take right of way from private landowners.
DOE and Southwestern understand and agree that their ability to acquire through condemnation proceedings property necessary for the development, construction and operation of the Project is one of the primary reasons for Clean Line’s interest in developing the Project with DOE and Southwestern and through the use of EPAct 2005 section 1222.
DOE and Southwestern agree that, if the Secretary of Energy ultimately decides upon the conclusion of such evaluation as DOE and Southwestern deem appropriate that (i) the Project complies with section 1222, and (ii) to participate in the Project’s development pursuant to section 1222, then, DOE and Southwestern will use their condemnation authority as may be necessary and appropriate for the timely, cost-effective and commercially reasonable development, construction and operation of the Project.
Section 1222 is not purposed to "permit" transmission lines when a state has denied a permit.
d) Relationship to other laws
Nothing in this section affects any requirement of--
(1) any Federal environmental law, including the National Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq.);
(2) any Federal or State law relating to the siting of energy facilities; or
(3) any existing authorizing statutes.
It simply allows DOE to "participate" in designing, developing, constructing, operating, maintaining or owning transmission. It permits DOE to assume liability for the actions of a third party in order to utilize federal power marketing authority for benefit of transmission that is not part of or necessary to their systems.
The Secretary, acting through WAPA or SWPA, or both, may design, develop, construct, operate, maintain, or own, or participate with other entities in designing, developing, constructing, operating, maintaining, or owning, a new electric power transmission facility and related facilities (“Project”) located within any State in which WAPA or SWPA operates if the Secretary, in consultation with the applicable Administrator, determines that the proposed Project--
(1)(A) is located in an area designated under section 216(a) of the Federal Power Act [16 U.S.C. 824p(a)] and will reduce congestion of electric transmission in interstate commerce; or
(B) is necessary to accommodate an actual or projected increase in demand for electric transmission capacity;
(2) is consistent with--
(A) transmission needs identified, in a transmission expansion plan or otherwise, by the appropriate Transmission Organization (as defined in the Federal Power Act [16 U.S.C. 791a et seq.]) if any, or approved regional reliability organization; and
(B) efficient and reliable operation of the transmission grid;
(3) will be operated in conformance with prudent utility practice;
(4) will be operated by, or in conformance with the rules of, the appropriate (A) Transmission Organization, if any, or (B) if such an organization does not exist, regional reliability organization; and
(5) will not duplicate the functions of existing transmission facilities or proposed facilities which are the subject of ongoing or approved siting and related permitting proceedings.
There's simply nothing in Section 1222 that authorizes DOE to issue a "permit" for new transmission lines that have been denied by a state. If a state created laws requiring merchant transmission projects to receive a permit from the state before beginning construction, Section 1222 is a worthless exercise in federal usurpation of state authority. Transmission siting and permitting is state-jurisdictional. The federal government has no authority to override state laws.
Clean Line is currently trying to get the DOE to agree to accept liability for its actions and "participate" in its project. Before making a decision whether or not to "participate," DOE is undertaking an Environmental Impact Statement, which is required for any federal actions that affect the environment. In the video, Skelly encourages people to "weigh in" during the Draft EIS comment window (ends March 19). Skelly tells people to comment whether or not they like the project and where it should be routed. This is wrong. Comments should be directed around aspects of the draft EIS, which examines the environmental and social factors of the project. There will be a separate 45-day comment period for the public to "weigh in" on the DOE's decision whether or not to "participate" in the project, which will begin AFTER the EIS is completed. Skelly wants you to think that the EIS is your only avenue to comment on Section 1222. It's not, but you should comment on it nonetheless by going to this link.
Skelly also goes on about state and local property taxes, claiming that localities will benefit to the tune of $20K per mile, or half a million bucks a year. How did he do that math, considering each county has a different amount of proposed line mileage? He also forgets to mention that Clean Line has pursued and received tax abatement in a number of states and localities for periods of up to ten years. That will be 10 years of Clean Line using your local roads, infrastructure and services to construct and operate its project before you receive a dime of reimbursement for what it costs you to support it.
Skelly also tells the reporter that "the grid is maxed out" and Clean Line is "a vital piece of the puzzle to get wind online." Not so. The grid is not "maxed out." It is a carefully planned machine that is operated by regional transmission organizations and balancing authorities. These authorities undertake long-term planning that allows for needed expansion of our grid. If wind farms, or other generators, submit requests to interconnect to the grid, they get placed in a queue that allows the authority to consider new generation and how transmission may be needed and planned to move the generation to where it is needed in within the region.
Clean Line has bypassed this process and is proposing its project without any recognized need for the transmission or generation it proposes to bring online. Section 1222 requires that any project in which the DOE "participates" be consistent with, and not duplicative of, any regional plan.
IS CONSISTENT WITH: transmission needs identified, in a transmission expansion plan or otherwise, by the appropriate Transmission Organization (as defined in the Federal Power Act [16 U.S.C. 791a et seq.]) if any, or approved regional reliability organization; and (5) will not duplicate the functions of existing transmission facilities or proposed facilities which are the subject of ongoing or approved siting and related permitting proceedings.
Clean Line fails this very important stipulation in Sec. 1222. Needed transmission is already being undertaken by our regional authorities. Clean Line is unnecessary duplication intended to stimulate construction of generation purposed only to export power between regions. It also fails to present any evidence that there are buyers for this power in other regions. It's just not true that new generation cannot be built without Clean Line providing a way to get it to "market," considering there is no identified market. Clean Line is in a chicken/egg scenario, supposing if it builds its project that generation and customers will develop, however, Clean Line cannot build without generators and customers developing FIRST. So, which came first? Clean Line, or generators and customers? We'll probably never find out because I don't think Clean Line is ever going to happen.
Skelly says that in order to utilize Clean Line's maximum capacity of 4,000 MW, 3,000 new wind turbines will have to be constructed near the project's Oklahoma converter station. Each turbine requires 1/2 a square mile of land, so we're talking about covering 1,500 square miles of land with wind turbines. That's roughly an area comparable to the entire State of Rhode Island. Skelly also points out that his project will simply waste 5% of the energy it carries through line loss. By comparison, a renewable generator sited near or at the electric load wastes little to none of the energy generated. Taking huge tracts of land out of production to generate energy that is transported long distance to load is simply wasteful.
Skelly shares that he believes "energy is a big deal" and his long journey from idea to reality will be "worth it." Classic words from a guy using someone else's money to dream the impossible dream.
At some point in the near future, Secretary of Energy Ernest Moniz will have to read and make a decision on Clean Line's "updated" application to utilize Sec. 1222 of the Energy Policy Act to forcibly take land from people in Oklahoma and Arkansas to build an unnecessary transmission line.
Last night he practiced his face for that moment.
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.
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?
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!