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Why Is the 7th Federal Court of Appeals’ Remand Such a Big Deal?

May 7, 2012

To answer that question, you have to first read Judge Posner’s August 2009 decision at this link.  If you don’t want to read his decision (It’s not that bad, he writes well.) then here is his conclusion:

FERC  is  not  authorized  to  approve  a  pricing  scheme that requires a group of utilities to pay for facilities from which its members derive no benefits, or benefits that are trivial in relation to the costs sought to be shifted to its members.

Immediately following this statement, Judge Posner quotes directly from a series of federal court cases which have established this conclusion in federal law.  In short, Judge Posner is saying that FERC broke federal law and FERC’s own regulations, as established by decades of federal court actions, when it has tried to spread the costs of new high voltage transmission lines across all rate payers in a regional transmission organization, in our case PJM.  This case, initiated by Illinois utility, and PJM member, Commonwealth Edison, joined by the Illinois Commerce Commission, specifically sued FERC and PJM for trying to make rate payers in Illinois, Michigan, and Ohio pay for Project Mountaineer power lines designed only to help fatten AEP and Allegheny Energy profits and reduce electric rates on the East Coast.

This decision did not overturn PJM’s and FERC’s “postage stamp” rates forced on all PJM rate payers.  The 7th Circuit court remanded or returned the issue to FERC and ordered FERC to come up with specific information showing how new transmission lines helped rate payers hundreds of miles away.  If FERC can’t satisfy the court’s requirement, then FERC faces the likelihood that it’s radical new rate scheme will be done away with.

In response to the court’s remand order, FERC held a “paper hearing” and issued its own order in March, claiming to have answered all of Judge Posner’s criticisms and (surprise, surprise) supporting its postage stamp scheme, again.  Of course that was just silly, and power companies and PSCs across western PJM are filing requests for re-hearing taking apart FERC’s silly claims.  The Illinois Commerce Commission filed an excellent assessment of FERC’s response to Judge Posner.  Dayton Power and Light also filed an excellent request for rehearing, along with, get ready — First Energy.  Keryn has a great summary of the FERC filings at this link.

Throughout its March order, FERC asserts what it calls “the static DFAX” system that had worked just fine until Cheney’s illegal “postage stamp” scheme popped up in the 2005 Energy Policy Act, simply couldn’t cope with the complexities of new high voltage transmission lines.  The DFAX system was simply the process by which PJM assessed costs for new transmission projects before Cheney’s schemes.  Under DFAX, if you were a generator that would profit from a new project, you paid your share.  If you were a rate payer who directly benefited from the project, you also paid your fair share.  This system is simple, fair and continues to work well.

Throughout its March order, FERC claims that “static DFAX” is obsolete.  FERC’s lawyers’ use of the word “static” to modify DFAX specifically implies that DFAX assessments can’t keep up with rapidly changing developments.  The argument is silly on its face, as the ICC points out in its request for rehearing.  PJM updates its RTEP every year.  The DFAX system could accommodate shifting power flows and system changes.  As the ICC points out, PJM’s RTEP identifies specific reliability problems that transmission projects are then used to solve.  This specificity allows PJM to pinpoint exactly which generators and consumers on its system benefit from transmission projects.  It is an easy task to identify who should pay for new projects under the DFAX system.  And its is easy to adjust the cost allocation if there is a need for it.

As is now clear, FERC appears ready to fight hard for its postage stamps, even if things get really embarrassing for FERC lawyers.  As time goes on, and Cheney’s radical cost recovery scheme is scrutinized more and more closely in the courts, it will be more and more difficult to hide the real reason for the radical, and illegal postage stamp scam.

The postage stamp rate scheme is designed to hide the real costs of unneeded and obsolete high voltage transmission lines by spreading out their massive costs among everyone in the US.  You no doubt heard this yourself in AEP/Allegheny TV commercials about PATH: “only pennies a month,” “the cost will be negligible for individual rate payers,” blah, blah, blah.  While this may be true for any one project, the Cheney plan, now supported by the Obama Administration, is to build thousands of miles of new transmission lines across the country at a cost of more than $300 billion.  There would be one transmission rate increase after another until individual rate payers might be paying for dozens of transmission lines on their bills.  That would add up to serious money.

So FERC’s postage stamp rates amount to a big illegal shell game.  And we are the suckers.  FERC is facing a collapse of its entire cost recovery scheme if the 7th Circuit Court of Appeals rejects FERC’s goofy excuses.  As time goes on, investors will see that FERC’s whole scheme to line their pockets and guarantee their profits may go up in smoke.  It will get harder and harder for companies like AEP to get anyone to support their super-sized transmission projects.

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2 Comments leave one →
  1. Patience permalink
    May 8, 2012 7:33 am

    I cannot claim to know the utility industry landscape very well (certainly not as well as TPL does), but it seems to me that a big part of the problem is that transmission has been changed from a distribution system to a product! (Is there anything our capitalist system won’t monetize?!?) Further, whatever the issues may be with the current grid, FERC and the RTOs appear to believe they have just one tool to address them – transmission.

    That old saying, “To the man with a hammer, everything looks like a nail,” comes to mind.

    FERC was set on this path by Congress. And FERC likely embraces it because it gives the federal agency some leverage over those pesky 50 states that insist upon maintaining their prerogatives – you know, like approvals? If FERC actually tried real long-term planning, incorporated the advent of new generation technologies, supported demand management as another way to manage summer afternoon power spikes, and required power companies to first use line rebuilds and new line technology to address problems, high-voltage long-distance transmission would become a rarity.

    But then who’d make $$$$$$$$$ on it? Oh, that’s right. No one. And while the utilities just can’t resist the lure of that last dollar in our pockets, FERC can’t resist the utilities. Nor can the politicians – or at least their campaign contributions.

  2. May 8, 2012 4:23 pm

    Yeah, FE filing for rehearing? Too bad their filing was just a dry, boring version of ICC’s comments. What I did find completely endearing in FE’s filing was they way they backed away from BOTH their transmission subsidiaries ALA FE’s comments on the FERC transmission incentives NOI where they dumped PATH from their list of subsidiaries. Their list of subsidiary companies on their request for rehearing didn’t mention any transmission companies. As if it’s that simple… don’t mention the companies and nobody’s going to realize that FE is scooping up the profits made possible from PJM’s postage stamp rates scam. Is that sort of like dropping an unwanted baby in a basket on someone’s doorstep and then picking the little scamp up at the orphanage a week later when applying for welfare?

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