Category: $$$$$$

What's Really Driving Up Energy Prices?

1/13/2022

A group of Democratic lawmakers sent a letter to FERC Chairman Richard Glick last week. In it, they urge FERC to crack down on market manipulators because they believe that's what's driving up energy prices.

Under its statutory authority, FERC has the power to influence retail rates for natural gas and electricity, including by preventing market manipulation in wholesale natural gas and electricity markets and enforcing gas spot market transparency. We urge the Commission to use its existing regulatory authority to ensure that households’ energy bills are not driven up by manipulation, obfuscation, or other malfeasance from regulated entities, and to work collaboratively with other agencies to address energy debt.

Right... the corporations are evil. Energy prices would be low if there weren't any corporations involved. I can sort of see the point because investor owned utilities are all about raking in the dough by whatever means they can get away with. But pretending that the high energy prices are due solely to market manipulation is a false premise. It's an effigy erected to shift attention from the real problem. The real problem is the new energy policies and laws that are spewing forth from these same hypocrites.

High profile market manipulation cases tell the real story. Actual amounts allegedly obtained through market manipulation are small in comparison to the fines FERC attempts to levy on these supposed manipulators in order to get them to accept blame and settle.

Case in point - Powhatan and Alan Chen. Actual amounts Powhatan supposedly pocketed from "market manipulation" totaled $3,465,108. Actual amounts Alan Chen and his two funds supposedly pocketed from "market manipulation" totaled $1,253,676. That's a combined total around $4.7M in supposed "higher energy costs" shared by the low-income households these Congressional posers claim to care so much about. However, FERC also added fines totaling $16,800,000 to the Powhatan amount, and $13M to the Chen parties. When Chen settled last year, he paid only $600K in disgorgement (amount supposedly stolen, plus interest) and zero in fines. He was rewarded for dropping his defense by paying only half of what he supposedly stole and zero in penalties. Will that $600K recovered do anything to offset the energy bills of low-income households? Of course not. It's a fart in a windstorm.

Can FERC's outsized assessment of penalties for supposed market manipulation actually become a source of income for offsetting low-income energy bills? Of course not. The penalties are just for show... a carrot on a stick to encourage accused manipulators to give up and accept responsibility, whether they did anything wrong or not. FERC's overly aggressive enforcement is supposed to result in settlements like Chen's, which pays back little. It's more about the optics for FERC. Yee Haw, cowboys!

Attempting to lower energy bills by becoming even more aggressive is not a solution to high energy bills.

Any why is it that FERC so aggressively goes after these traders, instead of its stable of investor owned utilities? When a utility steals money from ratepayers, they just have to say, "Oops, my bad," and everything is forgiven. It was just a terrible mistake. They didn't mean to do it. But, yes they did. And there's a lot more money to be saved for low income consumers if FERC would aggressively audit these utilities and assess gigantic fines for "mistakes."

Is there actually such a thing as an accounting mistake that favors big utilities? My experience says no... they do it on purpose because getting caught results in no penalties whatsoever.

So, is there a mistake where traders make money in the energy markets? Probably the biggest mistake is the plain fact that traders are so much smarter than the ones who are supposed to be minding the store. Markets are so poorly designed that it's easy to find the sweet spot. When a trader does find the sweet spot, new rules are made. Great... but FERC prosecutes the traders who found the sweet spot in the first place. FERC thinks they should have known that making money in the electric markets was bad and avoided it.

If traders are so manipulative and bad for energy consumers, why does FERC allow them into the market in the first place? It's because the competition they bring lowers energy prices overall and makes the market function. Without traders, those big energy corporations the Democrats hate so much would create a market cartel and drive energy prices way up. So, what's to be gained by scaring traders away from energy markets with gigantic fines and aggressive prosecution? What if they all really did get discouraged and go away? It would be a veritable $$$ feast for utilities. And that would drive up energy prices for everyone.

It's not competitive energy markets that are driving up energy costs. It's the failed policies and bad laws enacted by the very same Democrats who are complaining about high energy prices. The "Building a Better Grid Initiative" is chock full of profitable handouts to big energy corporations.

Deploying more than $20 billion in federal financing tools, including through the Bipartisan Infrastructure Law’s new $2.5 billion Transmission Facilitation Program, $3 billion expansion of the Smart Grid Investment Grant Program, and more than $10 billion in grants for states, Tribes, and utilities to enhance grid resilience and prevent power outages, and through existing tools, including the more than $3 billion Western Area Power Administration Transmission Infrastructure Program, and a number of loan guarantee programs through the Loan Programs Office.

When you add up all those billions, it's a whole lot more than any trader ever "stole." And its being paid for by energy consumers, even the low-income ones.

But, wait, there's more!!!

(1) Transmission Facilitation Program. The IIJA establishes a new $2.5B revolving fund to
facilitate the construction of high capacity new, replacement, or upgraded transmission lines. This program will prioritize projects that improve resilience and reliability of the grid, facilitate inter-regional transfer of electricity, lower electric sector greenhouse gas emissions, and use advanced technology. DOE is authorized to do so through three separate tools.
• DOE is authorized to serve as an anchor customer on new and upgraded transmission lines in order to facilitate the private financing and construction of the line. Under this authority, DOE would buy up to 50 percent of planned capacity from the developer for a term of up to 40 years. A purchase of capacity will not be considered a “major federal action” that would trigger environmental review pursuant to the National Environmental Policy Act (NEPA). DOE will then market the capacity it has purchased to recover the costs it has incurred once the project’s long-term financial viability is secured.

DOE is authorized to make loans for the cost of carrying out eligible transmission projects.

DOE is authorized to enter into public-private partnerships to co-develop projects that are located in a National Corridor or that are necessary to accommodate an increase in demand for interstate transmission, among other criteria. Such co-development can entail the design, development, construction, operation, maintenance, or ownership of a project.

Such a big giveaway of our tax dollars that they can't even put a price tag on it. That's what's driving up energy costs.

So, why are they posturing like this? It seems like my creative adjective penning and name-calling buddies at Marcellus Drilling News have pinpointed the answer.

“Anti” in MDN’s parlance means “anti-fossil fuel.” Being anti-fossil fuel is a wholly insane philosophical position to take, yet many in the Democrat Party have taken that position. (Yes, we’re calling some Democrats insane.) People like Sen. Elizabeth “Pocahontas” Warren, Sen. Ed “Lackey” Markey, and Sen. “Crazy” Bernie Sanders, and others in Congress, bash away and demand the end of fossil fuels. Yet those same antis who demand an end to fossil energy have just sent a letter to the Federal Energy Regulatory Commission (FERC) demanding FERC do something to lower the price of oil, natural gas, and electricity in their blue states. Why? Because they don’t want to be voted out of office for their obviously failed policies.

Maybe traders should abandon energy markets where they are so unwelcome and become merchant transmission developers? There's lots more money to be made there... PENALTY FREE! In fact, filling your pockets at the expense of low-income energy consumers is actually encouraged!

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Better Building of Roads To Nowhere and Better Usurpation of State Authority

11/18/2021

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Special interests have successfully pushed through their plan to make two important changes to federal law regarding transmission. The "Infrastructure" bill is chock full of lots of stuff, but I'm only going to concentrate on two things that are going to waste an enormous amount of time and a whole bunch of taxpayer funds trying to build electric transmission roads to nowhere and usurp state authority to site and permit new transmission.

Let's look at the second issue first. Congress amended Section 216(a) of the Federal Power Act (16 U.S.C. 824p) to give the Federal Energy Regulatory Commission authority to issue a permit for a transmission project for which a state "has denied an application seeking approval pursuant to applicable law." See the law that was amended here. See the amendments to the law here in Section 40105.

But there's a whole bunch more to it that's going to practically guarantee more than a decade of process and court battles.

In order for FERC to exercise its newfound authority, the transmission project must be sited in a National Interest Electric Transmission Corridor (NIETC). These corridors may be designated by the U.S. Department of Energy after it performs a "study of electric transmission congestion." The law was amended to add that "the designation would enhance the ability of facilities that generate or transmit firm or intermittent energy to connect to the electric grid." Looks like it's not limited to renewables, although why should we designate corridors that would take private property to transmit "intermittent energy"? Only if we want our electricity to work "intermittently"? Also, "the designation would result in a reduction in the cost to purchase electric energy for consumers." Must result in cheaper energy. Renewables, with all costs included, are not cheaper. But never fear, our heroes in Congress have included a protective guardrail for landowners whose private property would be taken by a new FERC permit... "...in the determination of the Commission, the permit holder has made good faith efforts to engage with landowners and other stakeholders early in the applicable permitting process..." There, that solves everything. As long as transmission company land agents begin pestering you with incessant phone calls and by showing up at your property unannounced at their own whim early in the process, you're protected. This is just so much undefined garbage that it does absolutely nothing to protect landowners.

However, the congestion study and NIETC designation would take years to accomplish at DOE, where well-fed bureaucrats stumble lackadaisically through their work days. And then guess what? Any designation is a federal action that requires an Environmental Impact Study under NEPA. That can take perhaps 5 years... because bureaucrats, you know. After that, it's a surety that any corridor designation would be challenged in federal court. Add at least one year, possibly two. Also, these DOE congestion studies are only performed every 3 years (although DOE has never delivered like there is any deadline whatsoever). The last one was performed in 2020. It remains to be seen whether shifting political winds will cue up another study before the three-year deadline is up. It also requires that, in order for FERC to "permit" a transmission project, the project must first go through a state permitting proceeding and be denied. That will take another year or more.

So, let's put this on a timeline: 2023 - congestion study. Perhaps a designation a year later, after "consulting" with states and Indian tribes - 2024. Add EIS - 2029. Add court challenges - 2031. Meanwhile, the transmission project must first seek state approval. It remains to be seen whether this will occur before or after they try to establish a corridor. Most likely, the corridor designation will precede state application because what good is having FERC backstop authority if you can't threaten state utility commissions with losing jurisdiction if they deny? So, let's add another year for state permitting, and then how many years do you think it may take FERC to site and permit if it decides to use its new authority? I'm going to estimate at least three, because first FERC has to come up with regulations for its permitting process, which means a rulemaking and then possible court challenge on the rulemaking. And even if it manages to jump all these hurdles, FERC's permit and siting can still be, once again, appealed in federal court. Add another year. I think we're up to like 2036 now, but who's counting? Yup, this is REALLY going to help with immediate building of transmission for renewables. You morons! You've tied yourself up with new layers of Big Government process that's going to take at least 15 years to untangle. This is going to be a colossal waste of time and resources.

And then let's get down to basics... is this move to usurp state authority to site and permit new transmission even Constitutional? The Tenth Amendment to the Constitution provides that the “Powers not delegated to the United States by the Constitution, nor prohibited to it by the States, are reserved to the States respectively, or to the people.” Can the federal government simply mandate a takeover of state power to site and permit electric transmission like that? This is going to be an interesting slog through the federal court system.

Think that new law is stupid? You ain't seen nothing yet! Congress also added a new section creating a "Transmission Facilitation Program." (See Section 40106 of the new law linked above). In a nutshell, this is a federal effort to use our tax dollars to build transmission roads to nowhere. Lots of our tax dollars!

This new provision establishes a "fund" of $2.5 Billion for the Secretary of Energy to "enter into a capacity contract with respect to an eligible project prior to the date on which the eligible project is completed." What's a capacity contract? It's a contract to purchase capacity (use) of a new transmission project. A merchant transmission project is a market-based project. Although there is no regulated "need" for new transmission, an investor may propose to build one at his own expense with the hope of selling capacity to a voluntary market. If there are no volunteers to buy the capacity, then there is no market need for the transmission project and no one will use it. In that instance, the project is not built and the investor eats the cost of his own failure to attract market interest. However, this stupid new law props up unneeded projects using your tax dollars! If a proposed merchant project cannot attract any voluntary customers to pay for and use its project, then the federal government could buy the capacity, even though it is not going to use it. Because the federal government is underwriting this private profit project with your tax dollars, the merchant can go ahead and build, even though it has no customers of its own.

A transmission road to nowhere with no customers, paid for by you. We're going to build unneeded electric transmission across your property using eminent domain, and then let it sit there and rot because nobody is using it. Have we reached the pinnacle of stupidity yet?

Oh, but wait, the federal government has a solution... it can only "enter into capacity contracts that will encourage other entities to enter into contracts for the transmission capacity of the eligible project... for not more than 50 percent of the total proposed transmission capacity of the applicable eligible project." So, it's sort of like painting Tom Sawyer's fence. The federal government thinks that if it underwrites the cost of a transmission project that nobody wants to use or pay for, that will somehow "encourage" those customer to change their mind? If it wasn't economically attractive in the first instance before the government stepped in and added a bunch of additional costs and interest to the cost of capacity, it certainly won't be attractive to customers at an increased price. Did these folks fail elementary school math? A transmission project that did not attract any customers when it was first offered it not going to magically attract interest after the Secretary of Energy starts painting Tom Sawyer's fence using your tax dollars.

So, what's going to happen when the customers aren't "encouraged?" The federal government will continue to prop up the transmission road to nowhere that nobody uses "for a term of not more than 40 years".

How much of our money might the Secretary pay for this capacity that it isn't going to use?

the fair market value for the use of the transmission capacity, as determined by the Secretary, taking into account, as the Secretary determines to be necessary, the comparable value for the use of the transmission capacity of other electric power transmission lines; and (B) on a schedule and in such divided amounts, which may be a single amount, that the Secretary determines are likely to facilitate construction of the eligible project, taking into account standard industry practice and factors specific to each applicant, including, as applicable-- (i) potential review by a State regulatory entity of the revenue requirement of an electric utility; and (ii) the financial model of an independent transmission developer.

It's going to buy 50% of the project's capacity at a rate that will support 100% of the project's construction. There's nothing "fair market value" about that calculation. The federal government is going to underwrite the entire cost of unneeded transmission roads to nowhere and then try to sell capacity to a third party that didn't want to buy it in the first place. It doesn't matter if anyone is ever encouraged to buy the capacity from the federal government. That unused transmission line is going to sit there rotting for 40 years... or maybe forever. And what happens if the Secretary doesn't manage to sell the capacity to anyone else over that 40 year contract? It simply forgives the entire amount it paid to the private party over the life of the transmission road to nowhere to be used by nobody. What does the government care? It's not their money... it's yours.

There must be a need for every transmission project. We can't just build them because we think they're pretty, or they provide jobs, or maybe someone might want to use them someday. Need is determined either by a regional planning organization or a market need for the project demonstrated by signed capacity contracts. The federal government can't create a "need" by signing fake contracts for capacity that may never be used.

This craziness tap dances all over the current rate model of merchant transmission. FERC may grant a merchant transmission project the authority to negotiate rates with voluntary customers in order to pay for its project. The negotiation process must be fair and is subject to regulatory scrutiny. In addition, there may be no captive customers for a negotiated rate project. All participation is voluntary. When the federal government starts signing capacity contracts without any market competition that would serve to keep contract prices at fair market value, it is no longer a market-based process. In addition, when the federal government starts trying to resell unwanted capacity it has purchased, it would have to meet the same scrutiny as the original project owner. Not sure that can even happen without a whole bunch of new rules. FERC is going to have to have a huge, regulatory reckoning with its negotiated rate authority process and precedent before any of this nonsense happens. So, another time consuming, money-wasting dead end.

Also, a state may deny to approve a government-funded merchant project. Then they'd have to go back to square one designating a NIETC corridor. Round and round the regulatory revolving door they go!

Never let advocacy groups make new laws. They're not smart enough not to harm themselves and others.

The only drawback here is that fighting all these battles is also going to be time-consuming and expensive for affected landowners. But we never give up! Game on!

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FERC's New Nightmare

10/10/2021

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S&P Global tells us that some transmission owners and former energy regulators aren't exactly gung-ho over the congressional infrastructure thing. Two things stick in their craw... federal siting and permitting and taxpayer-funded anchor tenant contracts.

Strike up the band... it's not every day I agree with some transmission owners and former energy regulators!

On the possibility that FERC could take over siting and permitting of new transmission

"I think members of Congress are overestimating the federal government's ability to approve transmission lines in a speedy manner while underestimating the controversy this will foment amongst constituents," said Tony Clark, a Republican former FERC chair.

Oh yes, I've been fomenting since I was knee-high to grasshopper and have big plans for my fomenting future.

Clark continued:

But strengthening FERC's hand in permitting may not resolve those issues and could even create new ones, former FERC member Clark said. Intervenors will still be able to challenge new projects at the federal level, according to Clark. And allowing FERC to override states' decisions not to condemn private property in support of a transmission developer's plans could put the agency "in a difficult position."

"It looks to me like a nightmare scenario for FERC," Clark said.

And so it shall be. If FERC thinks it's finally gotten a handle on the gas pipeline protestors that have been disturbing their processes and haunting their headquarters for years, they've got another think coming.

And why would FERC want to attract this kind of attention when it could, instead, make transmission better and less likely to be opposed? You catch more flies with honey than you do with vinegar, FERC. More on this coming soon....

On the issue of taxpayer-funded anchor tenants:

Some market participants have also expressed concern with the anchor tenant program. Transmission developer ITC Holdings Corp. said the Senate improved the proposal by specifying that projects funded through the program should not conflict with projects emerging through the regional transmission organization stakeholder process. But the bill still risks subsidizing uneconomic projects, while overall program funding of $2.5 billion "is small," ITC's vice president of federal and regulatory affairs Nina Plaushin said.

That's right... regulated companies that build regionally planned transmission projects are protecting their golden goose from unregulated, unplanned merchant transmission that would be the sole beneficiary of the completely misguided anchor tenant proposal. In brief, this proposal would make the federal government purchase transmission capacity from a merchant project that doesn't have enough customers to become viable. Of course, the government wouldn't USE the capacity, but the merchant transmission developer would USE the cash provided by the anchor tenant contract to finance its project. But fake government customers do NOT make a merchant transmission project needed. Merchant transmission is a market-based concept where transmission is built in response to a market need. If there is no market for a particular merchant transmission project, then it should not be built. These roads to nowhere should not be artificially propped up using taxpayer funds. The whole idea is idiotic.

This entire article demonstrates that perhaps the "clean energy" crowd has proposed too many conflicting "good things" to encourage more electric transmission construction and that all these different goodie bags banging together are creating so much friction, it's going to blow the whole idea of new transmission off the map.

They don't realize that they're killing their golden goose.

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Shenanigans and Malarkey

7/15/2021

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Just like unsupervised children, our elected representatives get up to all sorts of hijinks when left unsupervised in Washington, D.C. What have they been doing lately that you should care about?

A "bi-partisan" energy bill was reported out of the Senate Energy and Natural Resources Committee yesterday. This proposed legislation, hundreds of pages long, does two things that may affect you personally.

Ranking Senator John Barrasso took issue with these two provisions. His statement is available here. Bravo, Senator!

Title I, Section 1005, allows the Federal Energy Regulatory Commission to site and permit an electric transmission project in the event that a State Utility Commission rejects or denies an application. It usurps state authority to make the decision. Just like the dreaded eminent domain authority, it demands that a state "voluntarily" approve the project, or else FERC will do it for them.

On this provision, Barrasso stated:

“To that end, the bill would empower the federal government to override states’ decisions on the siting of high voltage electric transmission lines.
Last week, the president of the National Association of Regulatory Utility Commissioners, wrote to this committee saying: ‘this new provision simply gives the state an ultimatum: ‘Approve the project or FERC will approve it for you.'

At a minimum, a change of this significance should be the subject of its own hearing before this committee."

Sen. Roger Marshall from Kansas proposed striking this offensive provision, but his amendment failed on a party line vote.

Also, Title I, Section 1007, requires that the Secretary of Energy to enter into capacity contracts for service on transmission lines. It's not that the Secretary is going to use this capacity for delivery of energy, it's that the Secretary is going to pay for the capacity and then try to resell it to others. The Secretary is going to use your money to financially support transmission projects that are so unnecessary that they cannot find any customers to use them.

...the Secretary shall seek to enter into capacity contracts that will encourage other entities to enter into contracts for the transmission capacity of the eligible project.

Say what? If an entity wanted to enter into a contract, it would do so. It doesn't need "encouragement" from the Secretary of Energy to take a white elephant off its hands. The legislation presumes everyone will step up to want a contract after the Secretary gets one. Sorry, transmission capacity is not Tom Sawyer's fence. What happens when no one is "encouraged?" Well, looks like the Secretary is stuck holding the hot potato... for 40 years... paying for transmission capacity nobody uses. Yes, it's as dumb as it sounds.

Senator Barrasso's take:

“This bill also gives the federal government the authority to buy electric transmission capacity.

There is no shortage of private sector investment in transmission capacity.

There is no reason to make the federal government a transmission buyer or seller.

Au contraire, Senator. There's 200 million reasons for this stupid, expensive and pointless provision. One reason for every investor dollar Michael Skelly* wasted on his Clean Line projects that failed because he couldn't find any customers to buy capacity. Skelly solves that problem by requiring the Secretary to buy his unneeded transmission capacity so that his unnecessary transmission projects can financially support themselves on the taxpayer dole. It's pure subsidy for absolutely no reason at all. A merchant transmission project, like Skelly wanted to build, is a market based project. If there is market for a project, it will find customers, and the amount of its profits are set by the market. Creating artificial market demand through captive, taxpayer-funded contracts does not create an actual market. It only creates the proverbial "bridge to nowhere" while filling Skelly's pockets.

Sen. James Lankford from Oklahoma proposed striking this ridiculous provision from the legislation, but his amendment also failed on a party line vote.

If you like these provisions and their effect that could ram a transmission line down your throat and across your property, you need do nothing. If, however, you object, get vocal. Contact your Senators. Contact Senators Barasso, Lankford and Marshall. Contact NARUC. Contact your state public utility commission. Let them know these provisions are completely unacceptable, and why. These people/organizations would probably agree with you. Please let them know you are standing by to take further action and ask them how you can help. This legislation must be defeated!

*And you won't believe what Michael Skelly is up to lately. More on that later...

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Transource Says It Will Seek Federal Appeal For IEC

6/17/2021

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There's no federal appeals court for a state transmission permitting decision you don't like. Transmission permitting and siting is state jurisdictional. The authority to issue permits begins and ends within the state.

However, in a letter to the Maryland Public Service Commission, Transource says that after being denied a permit by Pennsylvania it will seek appropriate judicial and regulatory relief at the federal level.

Appropriate? There's no appropriate judicial or regulatory relief at the federal level. Transource must be dreaming!

Here's Transource's scheme, in a nutshell...

Transmission planning is a federal affair carried out by regional transmission organizations (PJM) under the supervision of the Federal Energy Regulatory Commission. Transource thinks that because PJM found the Independence Energy Connection to be "needed" that prevents Pennsylvania from carrying out its own evaluation of need under the state statute. Transource purports that Pennsylvania must accept PJM's findings of "need" and therefore must issue a state permit.

Sorry, Transource, that just doesn't work! Good luck finding a federal court that will even accept jurisdiction of such a crazy contention. Even FERC can't help you in the regulatory realm. FERC does not have authority to issue transmission permits except in certain rare situations for which Transource doesn't qualify.

I think the Pennsylvania PUC was quite clear in its Order.

We expressly reject any argument that the authority granted by the Pennsylvania Legislature to this Commission under the Code, including the power to apply Commission Regulations in the present circumstances, is preempted by the federal power pursuant to which PJM conducts its selection process for regional transmission planning purposes, including Project 9A. To the extent Transource argues that this Commission is prohibited from rendering an independent determination of “need” for Project 9A, which may find that the weight of the evidence does not support a determination of “need” for the proposed project, pursuant to 52 Pa. Code § 57.76(a)(1), despite PJM’s selection of the project for regional planning purposes, we disagree.

Contrary to Transource’s asserted position, the federal authority under which PJM operates does not extend beyond PJM’s approval process, where approval is sought from a state commission. PJM approval for a project, including Project 9A, does not guarantee approval for siting and construction of transmission lines within the borders of the sovereign Commonwealth of Pennsylvania

There's simply nothing there on a federal level that could support a federal appeal.

FERC likewise recognizes this limitation stating the following as part of Order No. 1000:

We acknowledge that there is longstanding state authority over certain matters that are relevant to transmission planning and expansion, such as matters relevant to siting, permitting, and construction. However, nothing in this Final Rule involves an exercise of siting, permitting, and construction authority. The transmission planning and cost allocation requirements of this Final Rule, like those of Order No. 890, are associated with the processes used to identify and evaluate transmission system needs and potential solutions to those needs. In establishing these reforms, the Commission is simply requiring that certain processes be instituted. This in no way involves an exercise of authority over those specific substantive matters traditionally reserved to the states, including integrated resource planning, or authority over such transmission facilities. For this reason, we see no reason why this Final Rule should create conflicts between state and federal requirements.

The D.C. Court of appeals summarized Order No. 1000, as follows:

In Order No. 1000, the Commission expressly “decline[d] to impose obligations to build or mandatory processes to obtain commitments to construct transmission facilities in the regional transmission plan.” More generally, the Commission disavowed that it was purporting to “determine what needs to be built, where it needs to be built, and who needs to build it.” As the Commission explained on rehearing, “Order No. 1000’s transmission planning reforms are concerned with process” and “are not intended to dictate substantive outcomes.” The substance of a regional transmission plan and any subsequent formation of agreements to construct or operate regional transmission facilities remain within the discretion of the decision-makers in each planning region.

Trying to upend years of precedent and usurp state authority to site and permit electric transmission is a fools errand. It's not a prudent use of ratepayer funds that Transource is eventually going to have to ask to recover. Anyone who's been in the transmission regulatory world for more than 2.5 minutes is guaranteed to laugh at this harebrained scheme.

Is this just a delaying tactic that keeps the lawyer cash register running? Cha-ching $$$ Cha-ching!

IEC is dead. Put it out of its misery. Don't make yourself into the laughing stock of the transmission world. Quit wasting my money, AEP!

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Transmission Tax Credits Interfere With Negotiated Rate Authority

5/14/2021

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Well, someone's been doing a little reading, haven't they? Stick around, fellas, and maybe you'll learn enough about transmission rates to finally admit that your stupid ideas about building a useless and super expensive "macrogrid" just don't work.

The silly schemers behind the "22 shovel ready transmission projects" have finally recognized that there are two distinctly different types of transmission, traditional and merchant. Can we get a hallelujah, boys and girls? I'm guessing that they got a little worried that someone might recognize their lies, and that regulators certainly aren't going to fall for them. So, they issued a new "report." There's more "reports" in there than a 7th grade Social Studies class! However, their "we meant to do that" ass-cover report does nothing but make excuses for their ignorance. Do they really think regulators are going to buy this nonsense?

ACORE says that investment tax credits for transmission can be used by either type of transmission project.

Traditional: The tax credits lower the cost of the transmission project and lower the amount captive ratepayers must pay for cost-of-service rates. *

Merchant: The tax credits lower the amount of money the transmission owner needs to recover through rates, therefore the transmission owner can "offer" lower rates to voluntary customers it negotiates with, making the project more likely to find customers and be built.

Say what? This is the biggest bunch of misleading propaganda I've read in a while. Does ACORE really think regulators are going to buy that?

The tax credit would stimulate both of the main types of transmission projects—regulated rate- based projects and “merchant” lines whose costs are recovered through negotiated or market- based capacity reservations. In the case of regulated lines, a utility or Regional Transmission Organization (RTO) would allocate the costs through a state or federal (FERC) regulatory process across a set of wholesale or retail customers. In that case, the tax credit would reduce the costs paid by those customers and make the cost allocation and approval process easier so more projects can move forward. In the latter case of merchant projects, the transmission capacity reservation costs that developers need to recover from wholesale customers would be reduced by the tax credit. This would allow the transmission developer to offer a more attractive price to customers, increasing the odds of success.

A merchant project will have a set amount of capacity to offer through negotiation with willing buyers. The project offers that capacity, and then negotiates the highest price it can get in the open market with voluntary customers. Lowering the project's costs does not affect the market, or the negotiating power of the project. The transmission owner will still negotiate individually with a voluntary pool of customers to contract the highest rates it can negotiate. Paying less for the project because of a tax credit only increases the merchant transmission project's profit, it doesn't lower its rates. Whoever came up with that idiotic idea needs to belly up to the bar and think of something else because this dog don't hunt.

And while you're scheming up your new scheme, don't lose sight of the fact that merchant transmission accepts all risk. Any subsidization of merchant projects invalidates their merchant status and ability to fairly negotiate rates. You can't give government or other handouts to merchant transmission and still call it merchant. If you want to do that, we're going to have to regulate merchant transmission rates. So, which is is going to be?

*The schemers have turned traditional transmission rates into Robin Hood Rates by replacing the current system of beneficiary pays with a new system where taxpayers fund the electric system based on income. This upends the way utilities are paid for, and wrecks the regulatory system.

By reducing the cost of electricity, a transmission tax credit can significantly reduce the burden of electricity costs on lower-income Americans. Electricity costs are regressive in that they hit the lowest income Americans disproportionately hard. Electricity accounts for 3.7 percent of total household expenditures for lower-income Americans, versus only 1.4 percent for the highest-income Americans. This is because electricity is a necessity for many aspects of modern life, so the poorest Americans can only reduce their electricity consumption to a limited extent. Unlike other products, it is not possible to use a lower-cost substitute, as a kiloWatt-hour used by a lower-income family is the same and costs the same as one used by a higher-income family. In addition, lower-income Americans have less ability to invest in cost-saving energy efficiency upgrades. As a result, those in the highest 10 percent income bracket only spend twice as much on electricity as those in the lowest 10 percent bracket; for other goods, those in the top 10 percent spend nearly six times as much.In contrast, the federal taxes used to offset the cost of a transmission tax credit are much more progressive, with the top 10 percent of earners paying 60 percent of total federal taxes, and the bottom 30 percent paying negative tax rates due to policies like the earned income tax credit. As a result, a transmission tax credit that moves costs from utility bills to tax bills is very progressive.

It's also very illegal!!! A public utility with an obligation to serve must charge the same rate to all similarly situated customers. This means by customer class (residential, business, industrial) and not by individual customer income. A public utility is prohibited from charging different rates to different customers based on their income. A rich person pays the same for a kilowatt hour as a poor one because both use the same system at the same rate, and the sale of kilowatt hours is for the purpose of building and maintaining the system that produces and delivers that kilowatt hour. Regulated utility rates are not about how much the consumer can or wants to pay, but about the consumer's share of how much the system costs to build and operate.

You cannot change regulated electric rates into some Robin Hood system based on income, race, or political affiliation by shifting the cost responsibility for electricity from ratepayers to taxpayers. I think this idea might just be laughed out of regulatory venues. Again, belly up to the bar... more ideas, more reports, more spinning your wheels doing dumb things.

The "macrogrid" just isn't going to happen.

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When Merchant Transmission Is No Longer Merchant

5/6/2021

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I touched on this the other day... merchant transmission is now looking for a handout of public money to finance their speculative transmission projects.

According to this old article, merchant transmission is an offshoot from traditional transmission projects built by utilities and approved by regulators on a cost-plus, rate-of-return basis. Not all transmission projects are the same.

"Traditional" transmission is planned by independent grid operators and assigned to incumbent public utilities. The grid operator plans transmission for a reason, whether to keep the grid reliable, to avoid costly transmission congestion in order to lower prices for electric consumers, or in some instances for "public policy" reasons to meet state or local energy goals. The reason is never overtly just for the transmission owner to make a profit. Once the need for a new transmission project is determined by the grid operator, different proposals are evaluated using a number of factors, chiefly price. Does the transmission project provide more benefits for electric consumers than costs? Because captive electric consumers must pay for the project they need, this is designed to prevent building transmission that costs more to build than it provides in consumer benefits. Hence, the "cost-plus, rate-of-return basis" in the description. Electric consumers pay the cost of building the project, and the transmission owner collects its costs plus a regulated rate of return on their investment. Because transmission is a utility monopoly (it's more efficient to build one line to serve many than it is to build multiple, competing lines to serve the same population) the amount of profit it can collect from captive consumers, who have no other options for service, must be held to a reasonable level. Regulators determine the amount of profit to be fair to both the consumers who must pay it, and the utilities who invest their money in the project.

"Merchant" transmission is different. It's strictly a money-making proposition whose profit is held in check by market conditions, not artificially set by regulators. A merchant project gambles that its cost to build the project will be less than it can charge for service in a free, unregulated market. Therefore, merchant projects do not need to go through rigorous vetting processes run by grid operators. Because there are no captive customers who are required to pay the cost, no entity must determine a merchant project is needed, or that it is cost effective. All the risk is on the merchant transmission developer. A merchant developer pays all its own costs to develop and build its project. In order to recoup its costs, plus profit, a merchant transmission project sells capacity (essentially a roadway to move electricity from one place to another) on its project to voluntary customers on a negotiated basis. A merchant announces it is building a project, and opens a bidding window for willing customers to negotiate a price for service. No one is required to take service, it's completely voluntary. A customer will only sign up if the service is economic for the customer's purposes. How much profit a merchant makes on its project is dependent upon the value of its service to potential customers. If the cost to build the project is less than the rates a project can negotiate with its customers, then the merchant project is viable and successful. Regulators consider this free market setting of rates to provide the mechanism to keep rates in check. If a merchant charges too much for service in order to make a larger profit, then it won't have customers. A merchant tries to hit that sweet spot between cost and rates where its project is attractive, but still provides a profit for the company. Therefore, merchant projects are not regulated beyond some generalized review of the open season offering to customers and negotiations to ensure the merchant fairly evaluates bids and does not give undue preference to certain customers. When a merchant project is owned by an entity with interests in generation or load-serving utilities, it is especially important to make sure the merchant does not give preference and lower prices to its own affiliates. The amount a merchant can charge and the profit it can make are not regulated in any way.

This works on paper, but has been generally unsuccessful in real life. I've concluded that the main reason for merchant transmission failure is that it cannot attract enough customers to hit that sweet spot for success. A merchant relies on load-serving utilities to purchase its capacity (or contracts with generators to purchase power that includes merchant transmission capacity). Many load-serving entities are affiliates of huge investor-owned utility conglomerates that also own generation and transmission of their own. The transmission these companies own is the "traditional" variety, where the utility collects its transmission investment from captive customers. Traditional transmission is a cash cow for these utility conglomerates because it supplies a slow and steady, regulated profit. Utilities build transmission because it provides around a 10% return on their investment. Do you get that kind of return on your investments? Probably not. This is why owning transmission is lucrative.

Merchant transmission asks the utility to purchase capacity from another company, and let that company earn a return. The utility in this situation is only reimbursed on a dollar-for-dollar basis for the transmission capacity it purchases. There is no profit in purchasing transmission from others. So, why would a utility want to purchase transmission from a merchant when it could, instead, build and own the transmission project itself and realize a guaranteed profit? To make it simpler, why buy the milk when you can own the cow?

Now that you know all there is to know about merchant transmission, let's go back to that "shovel-ready" transmission project proposal that was released with such fanfare last week. The vast majority of the projects on the list are merchant transmission projects. They've been ineffectively spinning their wheels for years trying to find enough customers to become commercially viable. If a merchant does not have enough contracted customers, it does not have a sufficient revenue stream to be successful. Utilities are generally eschewing merchant projects in favor of building their own transmission. This situation is unlikely to change. But merchant transmission really, really, really wants to be successful, and renewable energy companies want it to be successful so they don't end up paying any of the costs of new transmission planned by regional grid operators. Renewable energy companies want to build profitable wind and solar farms in remote locations, but they don't want to pay the cost of getting their newly created product to market. They want to rely on merchant transmission to do it for them, but merchant transmission can't attract customers. This is the problem they're all trying to solve.

They're trying to solve it using YOUR money, and not their own. They do stuff like release lists of merchant transmission they pretend is "shovel-ready" to try to interest a sadly uninformed federal government into showering them with taxpayer cash in the name of "infrastructure." It's your money, little taxpayer, not the government's. The schemers behind the 22-project "list" include merchant transmission companies and renewable energy generators. These are the companies who will make a whole bunch of money if they can only get merchant transmission off the ground. It includes Michael Skelly, famous for losing $200M of private investor cash on a failed merchant transmission scheme.

The schemers want the federal government to help them out. If that happens, merchant transmission is no longer merchant. It's dependent upon taxpayer money to succeed, and if it fails again it's only taxpayer money that is lost. Private investors won't be risking anything if the government backs up the scheme with loan guarantees, tax credits, and customer mandates. The schemers propose that the federal government power marketers be required to sign up as customers of merchant transmission and become resellers of the transmission capacity that the merchants are unable to sell to utilities. This does not require utilities to become customers, and they won't. It merely leaves the federal power marketer holding the bag on transmission capacity no one wants. They don't consider that the federal power marketers are essentially running a utility. They are a zero-sum game. Their customers pay all their costs to operate, but because they are a government entity, they aren't trying to make a profit. Their captive customers depend on the power marketer (such as TVA) to supply power. All the costs of the power marketer are paid for by their captive customers. If TVA gets left paying for transmission capacity that it cannot sell to investor-owned utilities, the cost falls to TVA customers, not the federal government. If the merchant is guaranteed to collect its costs from the TVA, then it can no longer negotiate prices in a free market that provides the necessary cap on profit. If TVA is required to purchase capacity from merchants, the merchant can charge whatever it wants. Where's the necessary regulation? It does not exist!

There are also problems with federal loan guarantees. When Michael Skelly spent $200M on his failed merchant projects, the only ones who lost money were the investors. If the federal government now guarantees a loan for a merchant project will be repaid, then the U.S. taxpayers are the investors who will be left with nothing but debt. The merchant has absolutely no risk and will still be whole after failure. This is NOT a merchant construct!

And let's talk about those tax credits... where does the money for those come from? Taxpayers. If a merchant transmission company pays less taxes, that means you have to pay more to maintain the same amount of government. What's more, the proposed tax credits are supposed to be convertible to cash. If a company eligible for the tax credit cannot use the credit to reduce its tax burden because it pays little to no tax, the government will PAY them the amount of the tax credit as a refund. Outrageous! The schemers say tax credits are necessary for merchant projects because:

One of the most urgently needed policy changes, several clean energy experts and transmission developers argue, is an investment tax credit specifically for transmission projects, which would allow developers to deduct a certain percentage of their costs from their federal taxes. A bill establishing a tax credit for transmission lines has already been introduced by Senator Martin Heinrich, a Democrat from New Mexico, and the concept also appears in Biden’s major infrastructure proposal, the American Jobs Plan.

Whereas utilities know they can recover the cost of new transmission lines from the ratepayers they already serve, private developers need to confirm that at least a portion of the energy they transport will be purchased, whether it’s by utilities themselves or large corporate energy users like data companies. Many developers, Gramlich said, are ready to begin building, but don’t have quite enough customers to comfortably pull the trigger on construction. A tax credit would help the “project economics pencil out,” he explained, boosting transmission projects over the hump toward completion.

So tax credits are to be used to reduce the cost of merchant transmission so they don't have to find as many customers in order to make their projects profitable? Again, providing a risk-free environment for a market based project obliterates its "merchant" construct.

Merchant transmission assumes all financial risk for its project. In exchange for little to no regulation on its profits, a merchant assumes all financial risk of its project's viability. Handing a merchant taxpayer cash shifts risk to taxpayers. If we're going to make taxpayers captive investors in merchant projects, then they are no longer merchants and must be regulated like "traditional" transmission. There must be a need for the project, it must be cost effective as determined by an independent grid operator, and its profits must be kept in check by regulators.

Instead, these greedy schemers are asking for you to become a captive investor in their project without earning any return at all for your risk.

The schemers might be able to pull the wool over the media's eyes, and also those of government bureaucrats that don't know the difference between merchant and traditional transmission, but they'll never succeed at pulling the wool over the eyes of experienced regulators. Maybe when merchant negotiated rate authority begins being vacated and denied, people will get wise. Until then, it's a merchant transmission feeding frenzy on taxpayer funds, even though these projects are no longer actually merchants.

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The Assault on Rural America Has Begun

4/14/2021

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Have you ever really contemplated the crackpot conspiracy theory fleshed out on various TV shows that there is some secret entity actually running our country? That elected officials are mere puppets of some secret global cabal? Why is it that most of the wealth is concentrated within a very small group of people? Does money buy power? If you've ever wondered about these things, pull up a chair, this blog is for you...

Last week I told you about Biden's plan for investment tax credits for electric transmission lines, though there was actually little information to be had. My Alexa must have been on the job reading my mind, because the very next day the text of new legislation introduced in Congress to make the transmission investment tax credit a reality was revealed. Thanks, Jeff Bezos, what would I do without you and your AI spy? If I can think it, you can deliver it!

Here's a link to the bill. Go ahead, click through. It's amazingly brief and facile. Not what you'd be expecting for a complicated giving away of hundreds of millions of dollars of your money. The real "guts" are contained in the IRS code -- this just establishes a transmission investment tax credit at 30%. The IRS has to figure out how to run the program. The legislation just sets the parameters for it, such as what kind of electric transmission qualifies for the tax credit?

Are you ready?

‘‘(c) QUALIFYING ELECTRIC POWER TRANSMISSION LINE PROPERTY.—The term ‘qualifying electric power transmission line property’ means— ‘‘(1) any overhead, submarine, or underground transmission facility which—
‘‘(A) is capable of transmitting electricity at a voltage of not less than 275 kilovolts,
‘‘(B) has a transmission capacity of not less than 500 megawatts,
‘‘(C) is an alternating current or direct current transmission line, and
‘‘(D) delivers power produced in either a rural area or offshore, and

‘‘(2) any conductors or cables, towers, insulators, reactors, capacitors, circuit breakers, static VAR compensators, static synchronous compensators, power converters, transformers, synchronous condensers, braking resistors, and any ancillary facilities and equipment necessary for the proper operation of the facility described in paragraph (1).

Power produced in a rural area? So transmission for power produced in an urban area cannot qualify for this tax credit? You may be thinking that they don't need transmission for power produced in an urban area because it can be used where it's produced. But think a little harder... this discourages any future power production in urban areas and encourages lots of future power production in rural areas. It provides the carrot on a stick to a future where rural areas operate as the power production serfs that serve their powerful masters in the cities. Power production in rural areas is encouraged through a giveaway of your tax dollars.

But what if they used that money instead to develop power production in the cities and suburbs that use so much of it? That would probably be a cheaper scenario, by far. But our government is pushing for a different reality where the cities are mere power parasites feeding off the sacrifice of rural areas.

Let's peel this onion to see just how many layers there are to this bold plan to enslave rural areas... and discover that they're not even trying to hide it anymore. When the elites control every aspect of the narrative, plus the puppets who will carry it out, there is nothing to fear from plebeians.

This article in Renewable Energy Magazine ties this legislation to ACORE, the American Council on Renewable Energy. Of course the legislators who are sponsoring this legislation are nothing but lobbyist puppets, doing what they're told. If they don't buck the system, they are rewarded with campaign contributions that keep them in office. If legislators don't do any real work writing or reading legislation, what do they DO all day? Run around like remote-control robots making sure things happen like they are ordered to happen, preening for the cameras, feeding their egos.

ACORE put out a brief press release. Very proud of themselves and their legislative puppets. ACORE says this tax credit will serve their Macro Grid initiative.

“Sen. Martin Heinrich, Rep. Steven Horsford and Rep. Susie Lee’s introduction today of the Electric Power Infrastructure Improvement Act adds to the growing momentum for a federal transmission investment tax credit (ITC). As we saw this winter, America’s outdated grid infrastructure is hurting consumers and our economy. With a transmission ITC, we can enhance grid reliability, create jobs, save consumers money, and provide developers with the long-term certainty they need to invest in a 21st century Macro Grid that’s capable of delivering the clean energy future Americans want and deserve. We look forward to working with lawmakers on both sides of the aisle to pass this critically important legislation this year.”

So what, or who, is ACORE? Here's a lovely photo collage of their rather extensive Board of Directors (for even more fun, there's also a doubly large Board of Directors Emeritus). 24 people on the BOD. 24! How do they ever manage to get things done? But, all that aside, look at who these 24 people are, and what "member companies" they represent. NextEra, Pattern, Avangrid, Invenergy, Berkshire Hathaway -- all companies who stand to profit significantly by building new renewable generation and transmission to serve it. The list also includes equipment suppliers of renewable energy technology and equipment. But perhaps most disturbing of all is that it also includes lots of big investors such as BlackRock, JP Morgan, Bank of America, Morgan Stanley, Goldman Sachs. And then there are some really odd, but powerful, additions, such as Facebook and Amazon. Hang on... my Alexa is going crazy trying to take my order for renewables right now...

ACORE's mission pretends it's just an educational, tax exempt organization that doesn't lobby.

The American Council on Renewable Energy (ACORE) is a 501(c)(3) national nonprofit organization that unites finance, policy and technology to accelerate the transition to a renewable energy economy.

I guess they don't have to actually lobby... just place an Alexa in every legislator's home, office and car.

But isn't it funny that all these companies stand to make a bundle of money from new legislation that enables their business and profits? And legislators get so "educated" about it that they write bills about things they know nothing about? Wow! Serendipity!

But wait... let's see what's in the next layer of this onion. ACORE's Macro Grid initiative. Who came up with that? ACORE's 2020 Annual Report reveals:

Thanks to generous support from Breakthrough Energy, ACORE and Americans for a Clean Energy Grid (ACEG) launched the Macro Grid Initiative to promote investment in a 21st century transmission infrastructure that enhances reliability, improves efficiency and delivers more low-cost clean energy.

And is extremely profitable for ACORE's Board of Directors, don't forget that part. Your beneficent pose isn't working for me.

Who is "Breakthrough Energy?" Here's the layer where you really start to smell the rot that pervades this entire charade...

Breakthrough Energy Ventures is an investor-led fund that aims to build the new, cutting-edge companies that will lead the world to net-zero emissions.
Our strategy links government-funded research and patient, risk-tolerant capital to bring transformative clean energy innovations to market as quickly as possible.

Again, it's not about beneficence, it's about making money, lots of it. And in order to do that, they have to influence government policies and programs at the highest level.

Even more revealing, take a good, close look at Breakthrough Energy's Board & Investors.

There you'll find some very familiar names... multi-billionaires you've heard of, along with a host of other filthy rich people from around the globe that you've never heard of.

The cast of characters includes: Bill Gates, Michael Bloomberg, Jeff Bezos (Alexa, shut up, I'm trying to work here), and some Walton family members.

And it also includes a huge list of other multi-billionaires from around the globe and includes members from Saudi Arabia, India, England, China, Canada, Germany, South Africa, France and Japan. And China. Did I mention China?

These folks who funded ACORE's Macro Grid initiative are intending to invest in renewable energy projects in order to get even richer. But it's not just that... let's dial back out.

Where did the transmission investment tax credit first get mentioned? In President Biden's "Infrastructure" thing. Do you suppose he independently came up with that idea and it was just happy coincidence that it lined up with what the global elite wanted?

Or do these global elites, who control a substantial portion of the world's wealth, also control our elected officials?

Who really wants to make sure all energy of the future is produced in rural areas, and not in the cities? Is it really about climate change, or is it simply a rent seeking operation? And how would the .00001% distract the hoi polloi from their bold scheme? Maybe they buy up the media, control the narrative, and create a crisis that pits the average American against his neighbor and uses up all their energy and attention fighting each other while the robber barons help themselves to what little wealth we have left.

So... transmission investment tax credits.... yes or no?

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Transmission Investment Tax Credits Make No Sense

4/9/2021

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Infrastructure. An increasingly meaningless word that you may associate with prosperity and new "free" things for your use. Don't lose sight of the obvious... there's no such thing as a free lunch.

As part of a poorly planned boondoggle-to-be, our federal government wants to throw our money at merchant transmission, however it's ultimately going to be an exercise in futility.

Tax credits for new electric transmission. What is that, exactly? Do you know? The proposal is completely devoid of details or any kind... I've been searching for over a week and I'm coming up empty. Either there is no real and thoughtful plan to accomplish this, or the government is hiding its true intentions. Tax credits for new electric transmission don't make sense, and they certainly don't fit into the reality of how transmission is funded and recovered through the electric rates we pay. It's almost like the government has picked up the only tool at its disposal (money) and is going to try to use it to hammer everything in sight.

An investment tax credit would allow an investor in new transmission to recover 30% of its investment through tax credits. Those tax credits would lower the investor's tax burden so it could pay less taxes. Say an investor plunks $100M into a transmission project... he would receive a credit of $30M against his consolidated tax bill. It's attractive because the investor could end up paying no taxes at all. If he pays no taxes (or $30M less than he would otherwise owe), everyone else would have to pay more taxes to cover the government's income gap. It's money directly out of your pocket given to big corporations who invest in transmission. And it's not like they're not expecting to earn a hefty return on their $100M investment... they certainly are. Nobody invests in something like transmission with the idea that the tax credit is their only reward. To make matters worse, it is proposed that this tax credit can be monetized to create a tax refund for credits not used to reduce the investor's tax bill. In the past, tax credits that could not be used because the investor didn't pay taxes in an amount equal to the credit were sold to other corporations who needed them to reduce their own tax burden. But, like any secondary market for free government cheese, these credits were sold at a discount on their face value. Perhaps a company would pay $10M for a $20M tax credit. The tax credit did not have any cash value. Now, however, a company with a $30M investment tax credit who could only use $10M to reduce its tax burden to zero would actually get paid the balance in the form of a $20M tax refund. And where would that $20M come from? You, Mr. Taxpayer. It would come directly out of your pocket.

Now let's examine this tax credit and how it would work in the world of electric transmission. There are two main types of transmission projects: Cost Allocated projects, and Merchant projects.

A cost allocated project is ordered by a grid operator and its cost is allocated among ratepayers in the region who benefit from the project. A regionally ordered project is reviewed by an independent grid operator to make sure it meets some need, such as reliability, or market efficiency (making the cost of electricity cheaper). This identifies the benefits and beneficiaries of the project, and informs the allocation of costs among ratepayers. The developer assigned to build the project collects its cost to build from captive ratepayers using a "cost of service" rate scheme. Cost of service means the transmission owner can only collect its cost to serve, plus a regulated return (profit, or interest) on its investment. Its transmission rates are dependent upon the true cost of the project. The cheaper the project is to build, the less it costs ratepayers. One example is land acquisition costs, which are a huge line item for new transmission. If a transmission developer acquires eminent domain authority to keep land acquisition at low "market based" prices using the threat of condemnation against landowners who hold out for higher prices, it can hold its land acquisition costs to budget. A lower budget flows through to the ratepayers who pay for the project. If a transmission owner acquires property at a low price, the benefit of that low price flows through to consumers as lower electric prices.

Merchant transmission projects, on the other hand, do not require any independent review by grid operators. A developer would propose a merchant project as a strictly for-profit endeavor. The developer thinks it sees a fat pay day by moving electricity from an area with low electricity prices to an area with high electricity prices. That way the cost differential could be leveraged as profit by selling a cheap product into an expensive market. Because it is not reviewed and its benefits to captive ratepayers identified, a merchant transmission project is not cost allocated to ratepayers. Instead, a merchant project collects its costs to develop and build through negotiated rates with voluntary customers. A merchant proposing a project puts its new transmission capacity out for bid by potential customers, and sells the new capacity it creates to the highest bidders. If a merchant sells its capacity at a price high enough to support the cost to build its project and still make a profit, then the project goes ahead. The amount of profit a merchant can make is not regulated. It can make as big a profit as its negotiated rates provide. Therefore, a merchant's cost to build its project determines its profit. Using eminent domain to lower land acquisition costs does not flow through to its ratepayers... it only increases the merchant's profit. The negotiated rates stay the same whether the merchant acquires land at low "market based" rates, or pays the amount necessary for the landowner to sell without the coercion of eminent domain. The only difference between these two scenarios is the amount of profit a merchant makes between its cost to build and the amount it charges in rates.

Because cost-allocated projects are ordered by regional grid operators, the transmission developer is isolated from any loss if a project does not get completed. Cost-allocated projects are guaranteed to be reimbursed to their owners even if they are abandoned. The captive ratepayers would be forced to re-pay a cost-allocated transmission developer. However, merchants have no captive ratepayers and therefore no ratepayers to cover its cost in the event of abandonment. If a merchant transmission project is not built or completed, its owners absorb the loss. They are not getting their investment back because they never delivered anything to contracted customers. Therefore, merchant transmission developers are taking a huge risk that their investment may never produce any return, and in fact, may disappear entirely.

That's exactly what happened to the investors in Clean Line Energy. Various investors sunk around $200M into the development of Clean Line projects and lost every last penny. Merchant transmission is inherently more risky because the investment is not guaranteed. Would a 30% investment tax credit encourage investors to take more risks on merchant transmission? For a failed project, the investor would still lose 70% of its investment. I'm not sure that would make a big difference to me if I was investing that kind of money.

And let's look at how an investment tax credit would be applied to cost-allocated projects with regulated rates. Cost of service rates pass on the utility's cost to provide the service. This includes any taxes the utility pays. Taxes are passed through to ratepayers. Therefore, tax credits are also passed through to ratepayers. However, utilities may bank credits and use them over a longer period of time. Turning those credits into tax refunds does nothing for utilities recovering their costs through rates. In addition, big utility conglomerates often pay little to no taxes by leveraging their different businesses into one consolidated tax bill. A recent list of corporations who pay no taxes was flush with utility companies. In fact, utilities were the greatest percentage of non-taxpaying companies.

What use do corporations who already don't pay taxes have for more tax credits? I guess they could sell them at a discount... but that doesn't necessarily encourage them to invest in more transmission.

Who is this investment tax credit for, exactly? Seems more geared toward merchant transmission projects, but the reality is that tax credits will do little to ameliorate the investment risk of merchant transmission.

The biggest risks for merchant transmission are finding customers and getting their projects permitted. Investment tax credits do nothing to solve these problems. It's just a giveaway; a government boondoggle that's going to increase your own tax burden. The government is lying to you by asserting that investment tax credits for transmission are going to spur new investment in transmission. There's plenty of new transmission investment happening already. Major U.S. electric utilities spending increased to $40 billion in 2019 from $9.1 billion in 2000, according to federal officials.

Is transmission investment really a "problem" that needs to be solved? The Federal Energy Regulatory Commission already provides financial transmission "incentives" designed to increase transmission investment. In fact, FERC has put new transmission incentives on its monthly agenda for next week. How would FERC's incentives work with investment tax credits? Do we really need two different systems of financial incentives? The issue may be that FERC's incentives are paid by captive ratepayers. They don't work for merchant projects. Is the government trying to create handouts for merchant projects? Perhaps one of the most distinguishing characteristics of merchant projects is that they cover their own costs and recover them through negotiated rates with voluntary customers. Nobody is "on the hook" to pay for merchant projects, therefore they escape scrutiny and regulation. If we're going to start handing taxpayer funding to merchant transmission, perhaps it's time they become regulated to rein in their profits?

There ain't no such thing as a free lunch.

And there is no way siting and permitting issues will be ameliorated by increasing corporate welfare. Tax credits also will not compel utilities to become voluntary customers of merchant transmission. Lack of customers was the biggest reason Clean Line Energy Partners failed. You can build it, but they may not come. Merchant transmission looks to distribution utilities for a customer base. However, many local distribution companies are owned by large utility conglomerates that also build and own transmission. Why would they want to pay for merchant milk when they could own their own cow? If a distribution company needs new transmission, it's more likely to favor new transmission built by affiliates. Because transmission is such a cash cow, utilities would rather build it themselves than pay someone else to build it.

But wait... there's another shoe that is in the process of dropping. Our government also wants to create a new "Grid Deployment Authority" at the Department of Energy that will enable lots of new transmission. Another bright idea without much description. But that's a topic for another day...

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Cockamamie Congress

3/25/2021

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What do "we" need? I mean, really. Do we all "need" to spend trillions on a collection of new high-voltage transmission lines overlaying our existing grid? Bill Gates thinks we do. The media thinks we do. But what makes them think they're experts on the subject of dictating what energy consumers "need"?

A plethora of cockamamie energy ideas has been let loose in the re-watered D.C. swamp lately, and the public is being fed a pack of propaganda about the "need" for all of them.

The Bloomberg OpEd (coincidentally in cahoots with Bill Gates and maybe other filthy rich guys) tells us what "we" need... We need an omnipotent Federal Energy Regulatory Commission (FERC) run amok:

FERC’s powers may be limited, but it can do more. Taking a firmer line on transmission investments proposed by utilities could push more of them to put their planning in the hands of independent regional bodies. In addition, the 2005 Energy Policy Act grants the Department of Energy the power to designate priority transmission corridors; if states refuse to comply, FERC has the authority to approve projects. Court challenges stymied early efforts, yet the legislation remains on the books. The Biden administration should work to revive it.

What's "a firmer line on transmission investments?" A firmer line? What line? This is nonsense language. Perhaps they meant to say FERC should offer bigger incentive packages to transmission operators who are ordered to build new transmission by regional transmission operators (RTOs)? If that's what you mean, why not say so? And then you can tell everyone where the financial incentives that FERC awards come from... they come from the pockets of electric consumers. That's right... FERC is handing out YOUR money to transmission developers, promising them a bigger pay day if they use the cover of RTOs to push through transmission projects of questionable need.

Bloomberg also failed to elaborate on the DOE and FERC "power" to approve new transmission projects "on the books." What's currently "on the books", as interpreted by a federal court, allows states to deny applications for new transmission and end the issue. FERC currently has no authority to approve projects that are rightfully denied by a state utility commission. However, if transparently presented, perhaps they meant to say that new legislation is needed to usurp state authority to site and permit electric transmission, because that's what's included in proposed legislation. HR 1512 changes "what's on the books" to allow FERC to issue a permit for new transmission in the event a state denies one. So imagine a new transmission project threatens your community, and you marshal your resources to oppose it at your state utility commission. If you are successful and the state denies the permit, you still can't win because FERC will step in and issue a permit for the project against the better judgment of your state utility commission.

And in the realm of cockamamie... Congress recently heard testimony about creating new CO2 pipelines. What is that?

CCUS at gigaton scale from power plants and industrial facilities will require a major CO2 pipeline infrastructure and significant hubs for geological CO2 storage. In addition, reaching net zero emissions – and eventually net negative emissions – throughout the economy will require carbon dioxide removal (CDR) from the atmosphere and upper ocean layers.

We're going to remove CO2 from the atmosphere and pump it underground? Wanna bet the underground storage cavern to contain that isn't under Beethoven's house?***

Now here's a really awful idea...

I recommend that Congress create and fund a Federal Electric Transmission Authority with the capabilities and funds to manage and coordinate national-scale transmission planning, design, and construction. This Authority should work closely with FERC, the states, DOE, and existing industry and reliability authorities to expand, build and adapt a robust transmission network that meets our nation’s needs over the long term. This will require decades of effort. Therefore the Transmission Authority must be created by statute to maintain mission, expertise and funding continuity (much like the Federal Highway Administration) and protect it from changing administration policy preferences.

Oh, just what "we" need... a new bloated government bureaucracy to run over all the entities that now plan, permit and cost allocate transmission. If this is going to be anything like the current state "Transmission Authorities" operating in western states, it's not going to end well. In New Mexico, the "Transmission Authority" is unfunded by the state. Instead, it is funded by the transmission operators who want to build new transmission in New Mexico. What could go wrong with a government "authority" fully funded by private interests?

You'll find a mine field of dumb ideas of what "we" need if you peruse the testimony currently being given before the House Energy and Commerce Committee. Went looking for something particular the other day and felt quite like Alice after tumbling down the rabbit hole. It's not about "we", it's about what the elite want to impose on us to check a few items off their personal political wish list.

What a mess! A costly conglomeration of cockamamie Congressional conceptions.

***It has been confirmed. The CO2 storage caverns will be nowhere near Beethoven's house. How close will they be to yours?

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What's Really Driving Up Energy Prices?

Better Building of Roads To Nowhere and Better Usurpation of State Authority

FERC's New Nightmare

Shenanigans and Malarkey

Transource Says It Will Seek Federal Appeal For IEC

Transmission Tax Credits Interfere With Negotiated Rate Authority

When Merchant Transmission Is No Longer Merchant

The Assault on Rural America Has Begun

Transmission Investment Tax Credits Make No Sense

Cockamamie Congress

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