Blog Archives

How The Federal Government May End Up Paying Its Own Fine

9/29/2015

...or maybe we should call it a lesson in identifying good guys vs. bad guys?

Hey, Feds, your right hand should introduce itself to your left hand.

This article in Vista Today informs that FERC bad boy Rich Gates will apply for a "Whistleblower" reward from the U.S. Securities and Exchange Commission for his work in exposing Credit Suisse's "dark pool" after the penalty is announced. Gates estimates he could be in line for a reward in the neighborhood of $5 - $15 Million.

Meanwhile, the Federal Energy Regulatory Commission has fined the other Gates twin $30M for alleged "market manipulation" for exposing a loophole in PJM's poorly designed energy markets.

So, if Rich Gates takes in $15M from the SEC, could he use that money to pay off part of the FERC's $30M fine (assuming FERC can make it stick in court)? I'd say that's some pretty smart money management!

Next up... will Disney be making a good twin vs. bad twin flick starring Rich and Kevin Gates? This story has been done many times over, but I think some government employees might relish the chance to prance across the big screen as cartoon characters set to an inspiring theme song and cymbal-crashing, energizing score.

Rich can play the "good" twin, who developed tests of buying and selling the same security in numerous dark pools or exchanges to see if anyone was getting in front of client’s trades, as chronicled in Michael Lewis's book, Flash Boys.

Kevin can play the "bad" twin, who performed a similar test of PJM's MLSA payment market and ended up making money that would have gone to certain gigantic utility holding companies if not for his participation in the market and exposure of PJM's poor market design.

But, wait, which twin is good, and which twin is bad? They sort of look the same to me. Like maybe identical? Both twins demonstrated that they were much smarter than the regulators who are supposed to be monitoring both markets. Maybe it depends on where in the federal government you're standing when you blow your whistle. By offering a reward for whistleblowing, the SEC demonstrates that it could actually be helped by those who expose things the agency wasn't smart enough to catch. On the other hand, FERC punishes those who expose things they weren't smart enough to catch. I don't think FERC offers any rewards for exposing utility scams. In fact, it punishes those who expose incumbent utilities, dumb market design, and lazy regulation.

But now it can all end well, like it did in Disney's The Parent Trap, when the twins switch places and the SEC reward pays FERC's penalty... and they all live happily ever after.

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FERC ALJ Rules PATH Must Refund Costs of Influencing Public Officials

9/16/2015

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My challenge partner, Ali Haverty, reminded me this morning of a Facebook meme we shared months ago. It's a photo of two owls on a branch, and says, "Sometimes I just want someone to hug me and say, 'I know it's hard. You're going to be okay. Here is chocolate and 6 million dollars.'"

And that's what we got. Of course, the 6 million dollars belongs to the 61 million ratepayers in the PJM region. Our personal share is probably about a nickel.

On Monday, FERC ALJ Philip Baten issued his ruling on the PATH case that was heard back in the spring.

Ali and I were seeking the refund of just over $6M in expenses for the purposes of influencing the decisions of public officials that PATH incurred and recovered from PJM ratepayers in 2009, 2010 and 2011. Judge Baten ruled that all of the expenditures were not recoverable in PATH's rates and must be refunded.

This is my favorite part:

As a general proposition, the cases that are discussed above suggest that when utilities are seeking selection or CPCN approvals from governmental entities, the utilities should rely on the established governmental approval processes to persuade the officials and not indulge in collateral efforts such as public education, outreach, and advertising activities. If a utility should rely on these collateral activities while pursuing selection or CPCN processes, then it will risk the chance that these costs may not be recovered from ratepayers. If the selection or CPCN application has merit, the governmental selection process provides a sufficient vehicle for the utilities to present their engineering, marketing and economic studies and thereby hope to merit the vote of approval from these officials. In this regard the PATH Companies spent over $8 million on attorney fees to prosecute the CPCNs before the respective governmental bodies, which begs the need for these collateral expenses.

The judge's decision must now go before the Commission, who may affirm or deny, in whole or in part. That decision is several months down the road, at least, and requires another round of briefs.

Meanwhile... more chocolate. And champagne. And music. Let there be music!

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Important Preparation

9/12/2015

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More silly utility "educational" seminars. This one came in the mail yesterday. The Financial Accounting Institute has invited me to attend its Utility Finance & Accounting seminars in Las Vegas.

Well, woo hoo, party in Vegas! Except this party costs $1995, plus travel and expenses. Sad face. I guess I'll just have to learn utility finance & accounting on my own.

FAI will be teaching its students all sorts of utility accounting concepts, such as how to tell the difference between capital and expense, and "motivations of managers and top management with respect to the issue." Wait... let me guess, it's because capital expenses earn a bit, fat, juicy return? Therefore everything should be capital?

But here's the best part of the whole seminar... one of those really great "role playing exercises." Who doesn't love a good role playing exercise to introduce just the right amount of realism into your learning experience?

The utility can never be sure their position will prevail? Well, then the utility isn't doing something right! See section about "ethics considerations" where you can learn about unethical behavior at some utility companies. I wonder who's going to play that role?

Why should certain costs not be included in rates? Because they're below-the-line costs. Will FAI be providing some sort of effective strategy for the "utility CEO" to use to argue that below-the-line costs should be included in a rate? And since when does a utility CEO or CFO actually show up to argue anything during a rate case? For that matter, when does a consumer advocate or large industrial ratepayer show up to argue that below-the-line costs should not be included in rates? FAI can probably dispense with those roles entirely and replace them with a couple of honey badgers.

Now that's realism!

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Key Transmission Challenges in the Midwest

9/12/2015

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Who's a key transmission challenge in the Midwest?

You're a key transmission challenge in the Midwest! The biggest "challenge" to building transmission in the Midwest is the people who are expected to sacrifice their businesses, their homes, their retirement, for benefit of the illusive "communities that have a strong demand for renewable power."

Electric Utility Consultants, Inc. (EUCI) is having another "educational" shindig to discuss you "challenges," and once again, you're not invited.

On November 9 and 10, EUCI will be gathering its fattened cows to the trough in Indianapolis to be "educated" about the following:

Transmission as a Market Enabler: Today's "conservative" approach to transmission planning exposes customers and other market participants to greater risks and costs because by understating the benefits of and risks addressed by transmission, valuable investments in transmission facilities are either not made or delayed.

This session will address a study paid for by WIRES, "The Voice of The Electric Transmission Industry." WIRES is made up of corporations who stand to profit from building new transmission. Apparently we're not planning enough transmission for their balance sheets. Awwww.....

But then there's this:

State Regulatory Viewpoint on Transmission Developments in the Region

State Regulators will share their perspectives on:
Balancing priorities
The role of stakeholder involvement
How different states are looking at the challenges involved to collaborate with other states
The benefits and challenges that competition for regionally cost-shared transmission projects creates for the PUCs and the ratepayer.

Adam McKinnie, Chief Utility Economist, Missouri Public Service Commission

Did anyone tell EUCI that the Missouri Public Service Commission recently denied Clean Line's Grain Belt Express application for a 700-mile transmission line through the state? Fun times! I hope they're planning to create some space between that guy and...

KURT ALERT! Amy Kurt, Clean Line Energy Manager for the development of the Grain Belt Express Clean Line, will be "educating" participants about "The Challenges of Renewable Energy Integration," including the sub-topic "Maintaining grid security and reliability while integrating increased penetrations of renewable energy." I wonder when Amy got her engineering degree that qualifies her to expound on grid security? Maybe she's been doing it online, in secret? Or maybe Hans Detweiler taught her how to be an "engineer?" At any rate don't let Amy sit with Adam at lunch! "A" is for awkward!

Participants will learn about "Embracing New Communication Technologies." Good to see that Amy isn't teaching this one, because her communication skills haven't been working too well on the people of Missouri. Did I mention that the MO PSC denied the Grain Belt Express application Amy "managed" because its benefits didn't outweigh the harm to Missouri citizens?

So, what "new technologies" will be embraced?

Communicating with the public is a critical element to successfully building new transmission line projects. Strategic communication requires teams to go beyond traditional outreach tools by embracing new techniques including zip-code targeted social media ads (Facebook and Twitter), electronic communication, videos, online comment collection, and Story Maps. For the busy public, an online open house provides access to open house materials, information videos, interactive maps, and input opportunities. With tight project budgets, it's time to embrace new tactics to communicate and stretch dollars and gain the input necessary to identify smart routes and communicate with all stakeholders throughout the project construction process.

What? No unit on using change.org to send supportive (but off-topic) comments from your Mommy and Little Sis into a regulatory process? Well, maybe there's a role for Amy after all!

Unfortunately, the "busy public" interested in transmission isn't interested in a corporate-slanted version of web "facts." The "busy public" gets its facts from equally busy "public" opposition groups... live and in person, via email, via social media, etc. Hot time in the ol' tool shed tonight! Nobody trusts the corporation to be honest, with good reason.

Don't miss Amy discussing:

Illinois is home to two of Clean Line's projects, the Rock Island Clean Line and the Grain Belt Express Clean Line. The Rock Island Clean Line received its regulatory approval from the Illinois Commerce Commission (ICC) in November of 2014. The Grain Belt Express Clean Line filed its application with the ICC this April. This presentation will provide an overview of Clean Line's approach to developing multi-state, direct current, transmission lines to deliver renewable energy to market.

Be sure to bring your own copy of the "Motion for Leave to File Complaint for Order of Prohibition" pending before the Illinois Supreme Court so you can follow along.

Sounds like a real party, doesn't it? Unfortunately, it's going to cost you $1195, plus travel and expenses, to get inside. But who needs to get inside to be a "challenge?"

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When a "Grant" is Not a Bribe

9/10/2015

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...because it's simply an appetizer for a bigger "grant" down the line?

Folks in New Hampshire are suspicious about "grant" money being handed out by Northern Pass Transmission and its sponsor, Eversouce. And one organization has returned the money when the "grant" didn't smell right.

“All our other grant awards come with letters of congratulations, including reporting requirements and specifications on how the funder would like to be recognized in Rec Center publicity,” she said, noting that the CCJCA award “came with no such letter.”

Morann said her board had recommended “that we apply for it (the CCJCA grant) and then wanted to see what the conditions were.”

“We were never able to discern the conditions” and whether they included giving public support to the CCJCA and Northern Pass, Morann said, “and after the check had been cut and I attended the ceremony at the request of the board of directors, the board met (Thursday) and decided to return the money.”

Grants are made for specific purposes, and usually the grant funder requires the recipient to make some demonstration that the grant funds were used for grant purposes, not simply pocketed for personal profit, or spent on things unrelated to the grant program.

There's lots of press about Eversource sprinkling "grant" money around the proposed route of its transmission project.

But, of course, there are no strings attached to the money.

The money came by way of the Coös County Jobs Creation Association, which was created by Eversource, formerly known as Public Service of New Hampshire.

John Gallus, who chairs the Coös County Jobs Creation Association and is a former state senator and representative from Berlin, said there were absolutely “no strings attached” to the CCJCA awards, other than they be used to create or keep jobs in Coos County.

While Eversource is the financial resource behind it, the jobs creation association is independent, said Gallus, who is disappointed that the recreation center returned the grant.

“They knew where the money came from,” Gallus said. “The grants aren’t based on how anybody feels about Northern Pass and nowhere on our application did it say you had to sign up to great feelings about Northern Pass. We would give money to the biggest opponent of that project if they were creating jobs in Coos County.”

But if there are no instructions, and no reporting requirements, how will the "Coos County Jobs Creation Association" ensure that the money is actually spent creating jobs? More importantly, HOW is the money supposed to create jobs? Will it fund a bunch of temporary, make-work "jobs" that aren't supported by any economic need in the county? How many permanent jobs would actually be created?

Is the "Coos County Jobs Creation Association" actually a legal entity that files an annual tax return? Or is it just an informal conduit to funnel this money into the community? Ut-oh, rabbit hole ahead!

The Coos County Job Creation Association is registered with the State of New Hampshire, to further the objects and purposes of the promotion and support of job creation for the growth and prosperity of the cities, etc. of Coos County. However, the organization doesn't seem to be registered with the IRS, or to have filed a tax return for 2014. How does New Hampshire keep track of its "non-profit" corporations if they don't file tax returns?

Even curiouser, there already seems to be an organization in Coos County that serves the same purpose. The Coos Economic Development Corporation has been in existence for many years and its purpose is to promote economic growth that fosters a strong and diverse workforce, sustainable employment, and a thriving business community in Coos County.

The documents show that a past president of CEDC was one of the initial directors of the CCJCA, but seems to have been omitted from the CCJCA's most recent annual state filing.

Why does Coos County need two separate non-profits doing the same thing? No wonder the Rec Center seemed uneasy and gave the money back.

Anyhow... the $200,000 in "grants" that the CCJCA has handed out with no strings attached, are just the tip of the iceberg, an appetizer if you will, for the $7.3M more the CCJCA will receive if the transmission project is approved and built.

Eversource has awarded grants to improve cellular service, and in founding the jobs creation association, it provided the entity with $200,000 in seed money while also pledging $7.3 million more if and when the transmission project is approved and built.

So, if Coos County wants more, it would be in its interest to make sure the project gets approved and built? No strings attached, of course.

How did Eversource "pledge" this additional funding? Is there a written legal agreement that this money will change hands? And I notice that Eversource also "founded" and "created" the CCJCA, according to this news source. If that's so, why is Eversource not mentioned anywhere in the company's Articles filed with the State of New Hampshire?

There's big money to be had for communities that support invasive infrastructure projects, not just in New Hampshire, but nationwide. It's an opportunity for those not directly affected to throw their neighbors under the bus for a little scratch, as long as the project is "not in my backyard." This reverse-NIMBY scenario causes unrest and bickering in the community, and pits neighbor against neighbor. It's divide and conquer in its purest form, often engineered by out-of-state corporations for their own profit. Greed is an enticing motivator.

And, finally, one organization stands up and says no. Bravo! There's a lesson to be learned here by other communities who care for each other and the long-term well-being of their community as a whole, and not their own immediate personal gain.

There ain't no such thing as a free lunch. How much is your personal integrity in the community worth?

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Renewable Energy Lies

9/6/2015

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Stop being dumb about energy, America!
The average person doesn't think twice when they flip the light switch. The lights come on. It's magic! No, it's not, but the energy corporations have made you believe it is over the years.

Now the energy corporations have made you believe something else that's just not true. All but the most flat-earth cretin believes in global warming, right? It's politically correct to be environmentally conscious, and to "do your part" to save the earth. The corporations have trained you to want... CLEAN ENERGY NOW!

Under the guise of CLEAN ENERGY NOW! the energy corporations have made you a soldier in their CLEAN ENERGY NOW! army. You've become so good at marching to the beat of their drum, that you'll support just about any energy project they propose, as long as they tell you it will bring you CLEAN ENERGY NOW! They've even brainwashed you to serve their purposes in their campaign against "dirty" energy. Fossil fuels are "bad" and CLEAN ENERGY NOW! is "good"!

Well, guess what? You've been used. Isn't it high time that you educate yourself about democratic energy and wean yourself off the media mind control of the energy corporations? What if you had the power to produce energy for your own use? But let's be realistic... unless you want to live with the capital costs and inconvenience of running your own power plant, you're still going to be somewhat dependent upon the common infrastructure system that the energy corporations have built. What happens when the wind stops blowing, or the sun goes down? The light switch magic stops, and you're once again dependent on the energy corporations. We've yet to develop a cost-effective, reliable, renewable, democratic energy system. That doesn't mean we can't be smart about energy though. Indeed, it's imperative that you to be smart about your energy future.

Think having your CLEAN ENERGY NOW! provided by energy corporations is a responsible and thoughtful way to be smart about your energy future? It's not. There are better ways to get to a cleaner, more democratic energy future than simply moving from one corporate trough to another.

If we believe that coal, oil, and gas are bad sources of energy and work toward eliminating the corporations that cling to them, what shall replace them? Do we want to replace them gradually with local, democratic sources of energy? Or do we want to spend billions building new centralized energy sources for our CLEAN ENERGY NOW! corporate overlords? The environmental community has become so goal-oriented and dependent on grant money (and where does grant money come from? energy corporations, of course!) that it wants CLEAN ENERGY NOW! at any price. The wants of the environmental community do not align with democratic energy, or your pocketbook. Going all in on CLEAN ENERGY NOW! supplied by energy corporations is going to be wildly expensive, and at the end of the day, it does nothing to revolutionize the way we produce and use energy.

After fighting the traditional energy corporations for years, the environmental community has suddenly found itself in bed with a bunch of new energy corporations, CLEAN ENERGY NOW! corporations. And these new corporations stand to make a bundle if you continue to demand CLEAN ENERGY NOW! in any form. Many of the new energy corporations are owned by foreign interests. They're not interested in cleaning up your air, they're interested in making money building centralized renewable energy generation and transmission for a society practically shrieking for CLEAN ENERGY NOW!

One such company is Clean Line Energy Partners. Riding the CLEAN ENERGY NOW! wave, this company wants to build more than 2,000 miles of new energy infrastructure across the country. In order to get there, Clean Line has been trying to keep you stupid by repeating the worst renewable energy lies. The more times a lie is repeated, the more it's believed. It's time you learned the truth.

The best wind energy resources are located in the middle of the country.

No, they're not. Clean Line is using the wrong map, one that conveniently omits offshore wind potential. Here's a comprehensive map that shows true U.S. wind energy potential. Notice that the strongest winds are located just offshore on both coasts and in the Great Lakes, conveniently near the biggest population centers. We don't need 2,000 miles of new transmission to harvest these wind resources.

Population centers are demanding clean energy from the Midwest.

No, they're not. While Clean Line has been pushing its projects for six years, not one eastern utility has signed an agreement to purchase Midwest wind power via a "Clean Line." In fact, other areas of the country are busy developing their own renewable energy resources that can provide jobs and economic development at home.

Exporting wind energy brings jobs and tax revenue to Midwestern states.

But at what cost? Wind power is highly subsidized, both federally and at the state level. Wind farms may pay little in the way of taxes in your state or locality, because the state is so focused on jobs and economic development that it may make a deal to abate tax responsibility for a number of years, hand out additional state tax credits, or some other economic development scheme where the wind farm doesn't pay. The federal production tax credit allows big tax credits - $4B per year, according to some recent press. Who do you think pays that $4B of taxes that wind generators don't? You do. When electricity is sold across state borders, it becomes interstate commerce and cannot be taxed. Exporting energy causes your local energy prices to go up through the simple principle of supply/demand. Once you open new pipelines to ship energy to higher priced markets, that's where locally produced energy will go first. If you want some, you're going to have to pay the same export price. For every penny new transmission lowers east coast energy bills, it raises yours by the same amount. New transmission levelizes energy prices between source and use. New transmission lines lower the taxable value of real estate, meaning less local property tax revenue. Still think new transmission is a good deal for your community? Why?

Clean Line will build its transmission lines in "fallow" or empty spaces not currently generating income.

No, it won't. Clean Line is proposing to build its transmission lines across some of our best farmland. Farmland is already economically useful terrain. New transmission takes prime farmland out of production and increases the cost of farming around it. Lower yields and higher costs lead to lost agricultural jobs and revenue, and harms local economies. Clean Line is proposing its transmission lines to cross farms that have been in production for centuries. People live and work on these farms that have been handed down through many generations. Much of a farmer's wealth is wrapped up in his land, so it's not a stretch to compare Clean Line's eminent domain taking of farmland to dipping their hand into your retirement fund. How much of your retirement would you donate to CLEAN ENERGY NOW!? The highest and best use of this land is farming.

Transmission right-of-way payments are a highly sought-after source of income for farmers, so supporting transmission helps struggling farmers.

No, they're not. Paying "market value" for a strip of land through a larger parcel devalues the entire parcel, not just the strip of land. Nobody wants their land devalued... nobody. The payments offered by CLEP are insulting. Farmers have overwhelmingly rejected CLEP's offers. That is proof in itself. Clean Line's projects hurt struggling farmers, the same way having your retirement account cleaned out to provide energy and economic development to other states would hurt you.

Transmission is like a highway or a railroad.

No, it's not. There are already plenty of transmission "highways" in use, developed through a coordinated planning process and paid for by all electric ratepayers. If these highways are old or inefficient, then they should be upgraded by their owners. Building a new "railroad" next to an existing one is wasteful. Building a new "railroad" and not allowing the communities bypassed to use it is unfair. Building new "railroads" to places that nobody wants to travel, and then hoping that some customers develop, is a folly.

State denial of a transmission permit can be appealed to the federal government.

No, it can't. States have full authority to site and permit transmission within their borders. There is no federal override. However, an untested section of the 2005 Energy Policy Act allows the federal government to "participate" in a privately-funded transmission project sited within the set geographic reach of two federal power marketers. When the federal government participates, it may be able to use federal eminent domain to take land for the project from unwilling sellers. That's it. Bundy Ranch on steroids. There is no federal transmission permitting process. Clean Line wants the federal government to strong arm land acquisition, and then it plans to build its projects without permits of any kind.

Clean Line is privately funded so ratepayers won't have to pay for it.

All transmission is privately funded! There is no pot of "public" money used for other transmission projects. It's all private capital! All transmission projects are paid for by ratepayers (users). Other transmission projects are regulated and their profits are set by regulators. Clean Line will be unregulated -- its profits are set by market forces. Clean Line will charge users whatever rates it can get away with. The sky's the limit on Clean Line's profit, no wonder it's attracted big, foreign investors who believe the incredible riskiness of Clean Line is overcome by huge returns. While regulated transmission projects must submit their costs to public scrutiny, Clean Line can roll whatever costs it wants into the rates it charges for service. Every penny Clean Line spends on lobbying and influence, public relations and front groups, pulled pork and bouncy houses, will end up in the rates it charges. And who pays those rates? Whoever buys the energy transmitted over the line, possibly you!

We have been conditioned to believe that we must demand CLEAN ENERGY NOW! without taking the time to examine why or how, thinking a fairy tale image of a couple of wind turbines gently turning in a field of golden grain. We've been taught that this fantasy is a "good" way to control our energy future.

It's not. It's simply a way to transfer corporate energy control from one group of owners (fossil fuel companies) to another (clean energy companies). It enables them to collect billions keeping you captive and stupid about energy. Renewable energy isn't necessarily sustainable energy. Sustainable energy does no harm to others. Clean Line's plans are unsustainable and economically harmful. Take ownership of your energy future and seek out local, sustainable solutions. Break the energy corporate chains, America!

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PJM's Transmission Cost Allocation Process Fails Again

9/4/2015

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The Public Service Commissions of both Delaware and Maryland have filed a complaint at FERC over PJM's new transmission cost allocation process, specifically the cost allocation of PJM's Artificial Island transmission project. Under PJM's cost allocation rules, ratepayers of Delmarva Power in Maryland and Delaware would pay nearly 90% of the cost of the project, which is intended to improve transmission from the Salem/Hope Creek nuke in New Jersey. However, Delmarva customers will receive only 10% of the benefits flowing from the project.

Whoopsie, PJM! Your formulas still don't work! Didn't FERC's Order No. 1000 determine that costs would be commensurate with benefits? And didn't the 7th Circuit remand your prior cost allocation method TWICE because PJM and FERC couldn't show a correlation between benefits and costs?

It seems that PJM and FERC still haven't gotten it right on cost allocation. And the legal battle is just beginning. This could muck up PJM's cost allocation process for the transmission it orders up for years! As a result... transmission won't get built. Nice going, knuckleheads!

We have yet to see a massive transmission build out intended to ship renewables thousands of miles in an attempt to subvert state planning for compliance with the Clean Power Plan. Expect problems there, too! After all, not every state is going to receive the same kind of benefits from long-distance transmission that passes through in an attempt to meet the CPP goals of a different state.

I guess that's what happens when "regional" and federal interests attempt to overrun state regulators. This complaint is going to be interesting and eat up a lot of ink. Woo Hoo!

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What's An Appropriate Penalty?

9/3/2015

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Couple of interesting complaints at FERC recently.

First, one that doesn't take a whole lot of explaining. Electric ratepayer Eric Morris filed a complaint against The North American Electric Reliability Corporation (NERC) and SERC Reliability Corporation (SERC) for violating the NERC Rules of Procedure (ROP) Appendix 4B Sanction Guidelines in NERC Full Notice of Penalty regarding Entergy, FERC Docket No. NP15-31 filed July 30, 2015.

In essence, the issue here is that

NERC has filed a settlement for your [Commission] review and approval in NP15-31 regarding Entergy. The settlement
involves six separate violations for two reliability standard requirements. The total penalty is $55,000. These violations had durations of multiple years.

The appropriate penalty (sanction) should be:

This violation is classified as Medium/Moderate on the VRF/VSL Table, which would associate to a base penalty range of $4,000 to $100,000 pursuant to Appendix A of NERC ROP App 4B.

For each day the violation persisted. SERC determined the duration of the violation to be from June 18, 2007, the date the Standard became mandatory and enforceable, through June 30, 2015, when Entergy completed its Mitigation Plan. Mr. Morris calculates that should amount to:

By my math, that is eight years and twelve days, or 2,934 days. Therefore, the base range should be $11,736,0004 to $293,400,000.

But FERC and the parties are okay with just $55,000. After all, penalties cannot be recovered from ratepayers and must be borne by utility stockholders.

Mr. Morris filed his complaint because he is not and cannot be a party to the settlement, however he has calculated that this egregious wrong could personally cost him $0.0179, therefore he has standing to file the complaint.

What I want to know is why FERC is okay with a measly $55K penalty for Entergy violating reliability standards that affected millions of people, while they went for the maximum penalty against Powhatan Energy Fund? Are there different standards for different market participants? Is reliability much less of a concern to FERC than traders profiting by exploiting a loophole in its loose market regulations? FERC fined Powhatan something north of $30M for what it says was $4M in unjust profits that should have gone to certain big utilities. Where's the logic?

Or is it just that FERC serves the interests of utilities, not consumers? I guess we'll find out if we watch Docket EL15-93. I really hope FERC can pull itself out of the gutter to restore consumer confidence in the fairness of its regulatory actions. Call me a dreamer.

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When Is "Economic Development" Really Lobbying?

9/3/2015

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From Indiana, where investigative journalists are on the trail of Gov. Mike Pence and his curious "economic development" junkets with his utility executive buddies...

When are a utility's "economic development" donations a back door to corporate favors and lobbying, and when do they benefit the consumers the utilities serve?

Curiosity was raised when Gov. Pence took several foreign and domestic junkets, with his utility executive buddies in tow, for the purposes of "economic development" in Indiana.

Gov. Mike Pence took a quick trip to New York City this week with a "delegation of Hoosier business leaders and economic development professionals" in an effort to coax businesses to relocate to Indiana to escape the "high-tax metropolitan area."

Oddly, the only business leaders from Indiana who accompanied Pence and eight economic development staff folks on the trip are all executives at public utility companies.

IEDC staff posted pictures of Pence in a corporate suite at a New York Yankees game where the home team was taking on the Boston Red Sox.

Who's paying for this?

Apparently the utilities are, by "donating" to the Governor's Indiana Economic Development Corporation, a nonprofit subsidiary of the state's economic development agency.

Donors have paid for Gov. Mike Pence to travel overseas, rent luxury sports suites, lobby lawmakers and fly to Iowa ahead of its first-in-the-nation presidential nominating contest.

The list reveals that more than 50 companies, trade groups and governmental entities contributed $2.19 million to the foundation from January 2014 to June 2015.

The majority of that money — about $1.7 million — came from utility companies. Duke Energy and its foundation gave the most — more than $456,000. Other contributors included lobbying firms, industry groups, regional economic development agencies, universities and large Indianapolis companies such as Eli Lilly and Co. and Dow Agro Sciences.

"We continuously seek donations for the foundation to support our business development efforts," said Indiana Economic Development Corp. spokeswoman Abby Gras. "As you can see, there are a number of donors from economic development groups to businesses who donate to the foundation. I can't speak for those donors, but I imagine they donate because they see the value of the state's economic development efforts and support the continued growth of business and job creation in Indiana."

Or maybe they donate for a different reason:

"It creates another opportunity, for example, with utility companies, which are heavily regulated at the state level, whose profits are really dependent on how they are treated by state government, it gives them the opportunity again to build relationships to be seen more as friends than somebody who needs some careful watching," said Julia Vaughn, policy director for Common Cause Indiana.

Executives from the same companies that fund the trade missions often accompany Pence on those trips, providing valuable access to the state's top executive.

"What they are effectively doing is looking for business, and so what we have as a result are policies at the administration level and the legislative level that favor the utility business plan, which isn't necessarily in the interest of the public," said Kerwin Olson, executive director of the Citizens Action Coalition.

And the line between economic development and lobbying is very blurry.

The foundation's funds have even been utilized for lobbying efforts.

Since November, the Pence administration has spent at least $2,950 on a website to promote his $84 million "regional cities" initiative, which is intended to boost economic development across the state by leveraging private investment. During this year's legislative session, when lawmakers threatened to reduce the amount Pence was seeking, the website criticized his fellow Republican lawmakers and urged people to "TAKE ACTION!" by sending a form letter to their legislators.

Foundation money also was used to purchase gift bags for 25 key lawmakers. The bags included letters of support for the initiative from local mayors and a magnetic paperweight with paper-clip men.

The recently released list of donors shows why utility executives get to share in the junket spoils:

Indiana Michigan Power $424,000

Duke Energy $381,654

Vectren $267,150

Northern Indiana Public Service Company $260,000

Indianapolis Power & Light $157,500

Duke Energy Foundation $75,000

NIPSCO $50,000

Hoosier Energy $37,500

Indiana Municipal Power Agency $28,883

American Electric Power $10,000

That's a lot of donations. Assuming the IEDC's purpose is purely the creation of jobs and tax revenue in Indiana to benefit the citizens, what do utilities get out of it, aside from a private conversation with Gov. Pence in a suite at a baseball game?

"Economic development benefits everyone," said Brian Bergsma, director of communications and government affairs for Indiana Michigan Power. "Job creation creates better streets, better schools, better economic opportunities for everyone."

Duke Energy spokesman Lew Middleton said the company has an ongoing relationship with the IEDC, where it meets with state economic development officials on a regular basis.

"We do hope to attract new businesses to our service area," Middleton said, "and at the same time, then be able to increase the number of jobs in any given community where a business might be thinking about locating. It sort of helps raise the quality of life for all the citizens in a particular community when new jobs come to the area."

And jobs and economic development increase power company sales of electric power, increasing a utility's profit. The utilities may also argue (but they didn't think of it yet, so I'll help them out) that spreading their fixed costs over a bigger customer pool lowers each customer's overall share of those costs, incrementally lowering their bills.

But who's doing the math? Will each customer's savings outweigh his share of the "economic development" donations, plus the utility's increased costs to serve additional customers? In addition, the donations are spread over all customers of the utility, while the economic development is actually taking place in a very small portion of its service area.

For example -- Indiana Michigan Power serves customers in both Indiana and Michigan. What benefits are the customers in Michigan getting from economic development in Indiana?

And how much of the "economic development" donations are really being spent on economic development? Could economic development be undertaken without expensive sports junkets? How many other benefits are being given away at these "economic development" schmooze-fests? Are the utility executives there to promise cheaper (or free?) electric rates for industries that relocate to Indiana? If so, are the captive ratepayers picking up the tab for that in exchange for a few jobs? Why do only a few benefit at the expense of the majority? And when does "economic development" cross the line into straight up political pandering and lobbying?

The list of "donors" also includes many non-utility corporations, however the amounts of these donations were small. Non-utility corporations must balance their "donations" against their profit margin. They must include the costs of their donations in the cost of their product, so that holds "donations" in check. If generous giving increases the cost of a company's product, it will suffer in the marketplace as customers go elsewhere for a cheaper product.

However, in the case of a regulated utility monopoly, customers are captive, and must pay whatever costs a utility incurs, subject to regulatory approval. Does sharing a red hot and a beer with Pence at a ball game grease that approval? Everybody wins! Except the consumers. They lose.

4 Comments

The Hackers Have Been To Your Valley And Now They Want To Be Paid

9/1/2015

3 Comments

More uproar this morning as word spreads that yesterday FirstEnergy subsidiaries Potomac Edison and Mon Power filed for ANOTHER 3.6% (Residential) rate increase to cover the cost of its vegetation management program ordered by the PSC in 2013.

Just like the ENEC case filed mid-August, this rate increase is simply the result of more bad decision-making by the WV PSC. The vegetation management program (VMP) has already been ordered and the company has already spent this money. They will recover it. What remains to be seen is how much.

According to FirstEnergy's filing, the Commission decided to cover the cost of the VMP with an additional surcharge, instead of including it in base rates. However, the surcharge didn't go into effect until 2015, so now FirstEnergy wants to collect all the money it spent before the surcharge, the amount of the surcharge it undercollected to date, and the amount of the surcharge it is predicted to undercollect in 2016 and 2017 if the surcharge rate remains unchanged. Total for you: $75.8M.

So, what's in this filing, and what are you getting for your money?

FirstEnergy says its program has increased your reliability by demonstrating "a remarkable decline in the
customers affected per mile from tree-related outages."

And it demonstrates with a evidentiary slide show of some before and after photos of its tree hacking prowess. Here's just one example of the work FirstEnergy did on its unfortunately named circuit "Hacker Valley." Indeed!

Prior to the VMP surcharge, the company recovered its cost of maintaining rights-of-way through its base rates. Base rates are determined in periodic filings, where the company demonstrates its costs. A fixed rate is set allowing the company to recover the costs. The rate is not changed until the company files another base rate case at their own prerogative. In between base rate cases, nobody is minding that the company is actually spending its base rates on what it said it was spending them on. Therefore, a company can cut services, while still recovering the cost of them, and increase its profits.

So, you may be asking yourself... how did the rights-of-way get so overgrown that they were seriously affecting reliability? What in the hell was the company doing with all the tree-trimming money it was collecting in base rates? Obviously, not trimming trees.

Instead of asking this question, the PSC acted proactively to fix the problem by making ratepayers responsible for the cost of all this unperformed maintenance. FirstEnergy got off scott-free in terms of financially owning up to its years of neglect. However, the PSC, in removing VMP costs to a surcharge, are now going to be monitoring that your money is actually spent on tree-trimming. Hurray! So now you will notice how much it actually costs.

How much does it cost? Customers have reported, "...they cut HEALTHY trees for no reason on our driveway. Some sat in the truck hidden back on the power lines for hour at a time waiting for quitting time." Yup, plenty of job milking going on by the tree contractors. In addition, FirstEnergy says that their costs to begin this program were high because it needed to double its work force in order to actually do something, and it was in competition with rival power company Appalachian Power to find new workers for this new program. Because of that, FirstEnergy needed to import tree hackers from out-of-state and pay them travel costs and per diem. Also, the company had been paying its contractors on a time & materials basis, instead of a firm bid, job-based contract.

But don't you worry, little hack-ee, FirstEnergy has been looking out for your interests by finding ways to reduce the cost of the VMP. They have now switched to 70% firm bid contracts, have managed to train all the new employees (and supervisors, you know, those guys who sit in the truck and sleep) and are diligently looking for ways to cut costs.

And if you believe that, I've got a bridge to sell you. That's because the cost of the VMP is projected to be split almost evenly between captial costs and operations and maintenance costs. An O&M cost is reimbursed dollar for dollar as incurred. However, capital costs are depreciated over the life of the line trimmed, taking many years to pay off. And guess what? Capital costs will earn FirstEnergy 8.19 percent interest yearly! The more "capital" they spend, the more profit they make! Who's minding the capital and expense split? Nobody.

FirstEnergy also says they will cut costs by increasing the amount of herbicide spraying they do vs. manual clearing. Get ready for lots more dead, brown, right-of-way strips and overspray killing adjacent vegetation and polluting your water supply. But don't worry, your government would NEVER let a company use chemicals that could harm you.

FirstEnergy has also changed its tree hacking game plan, to include many new trees outside its right-of-way that could fall on the line... maybe... if the stars align... or something. So this means they're widening their rights-of-way without paying the property owners for this additional taking. Tsk, tsk!

As of June 15, the company has trimmed over 1.8 million trees, removing over 400,000 trees and
controlling/clearing over 19,000 acres of rights of way. To provide some perspective, the 19,308 acres of right of way cleared and sprayed during the 14 month Review Period is the equivalent of the size of 19,000 football fields, since a football field approximates one acre in size.

I think the trees are screaming! Can you hear them?

So, what should you do about all this? Participate in any upcoming opportunities for public comment!

You also need to support your underfunded Consumer Advocate, who is run ragged trying to protect consumer interests in all these smaller, frequent rate increases.

But that effort was criticized by the Consumer Advocates Division, which said the move set a bad precedent and weakened the traditional rate making policies of the PSC, where nearly all facets of a utility’s business were considered in a single rate case.

At that time, Jackie Roberts, the CAD director, said allowing electric companies to assess additional surcharges to customers’ bills for tree trimming programs was just the most recent step in a trend toward companies filing a number of smaller rate cases.

According First Energy’s testimony, the company is expected to receive an 8.19 percent return on the cash expenditures under the program before taxes.

In these cases, Roberts said the commission needs to weigh what is needed for the utility to provide safe and reliable service against the customers interest in having reasonable rates.

“On its face, it certainly appears this filing would fail that test,” she said.

And wait... we're not done yet! The Gazette article mentions another rate increase that has not yet received much public scrutiny... MonPower and Potomac Edison customers are being asked to pay an additional $85 million between 2017 and 2036 in order to save the financially-troubled Grant Town Power Plant in Marion County through a new power purchase agreement. Here we go again with the WV PSC saddling ratepayers with additional costs to prop up West Virginia's coal industry through over-priced power produced by old, inefficient, coal-burning power stations.

Just hand over your wallets, little ratepayer, and nobody gets hurt. Except when they can't pay their electric bill...

Will enough ever be enough for FirstEnergy?

3 Comments

How The Federal Government May End Up Paying Its Own Fine

FERC ALJ Rules PATH Must Refund Costs of Influencing Public Officials

Important Preparation

Key Transmission Challenges in the Midwest

When a "Grant" is Not a Bribe

Renewable Energy Lies

PJM's Transmission Cost Allocation Process Fails Again

What's An Appropriate Penalty?

When Is "Economic Development" Really Lobbying?

The Hackers Have Been To Your Valley And Now They Want To Be Paid

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