First, take a look at what the American Public Power Association had to say about PJM’s RPM auctions in their short and pithy summary titled “Money for Nothing in the Power Supply Business.”  Here’s the main point of the APPA story:

The Cost, So Far

Since it began in 2007, RPM has cost customers in PJM’s territory approximately $50 billion (through the end of 2011). This works out to approximately $900 per man, woman, and child living in PJM’s 13-state area. This cost, however, is not evenly distributed throughout the region; customers in the eastern portion of PJM have shouldered the main burden of this cost. New Jersey’s portion alone is over $11 billion and counting—or almost $1,300 per person living in New Jersey today. For the RTO overall, in 2010 the RPM added $140 per year to the average electric bill of a homeowner, $1,000 for a retail store, and $15,000 for an industrial facility.

The Results

While the cost has been great, the results have been slight. PJM claims that considerable capacity has been secured through its RPM mechanism (over 42,000 MWfrom 2007 through the 2011 auction)—but these claims are misleading at best. PJM includes in their figures upgrades of existing plants, withdrawn or canceled retirements, and capacity imports from other regions.

However, it is impossible to accurately separate the amount that is due to RPM and what would have been available without it. Only about 7,000 MW of new generation capacity was built in the region from 2007-2011. Considering that the total installed generating capacity of PJM is nearly 180,000 MW, this 7,000 MW of new generation amounts to only about four percent of the total capacity added through five years of RPM auctions—and again, it is impossible to determine how much would have been built without the RPM mechanism.

Perhaps most significantly, very little of the $50 billion so far for RPM is financing new generation capacity; rather it is overwhelmingly going to existing generation capacity. More than 93 percent of the total revenue paid by customers has gone to the owners of existing power plants—coal, natural gas, hydroelectric, nuclear, oil, and other existing capacity types. Only 1.8 percent of the RPM revenue so far has gone to new and “reactivated” generation resources.

The whole story is well worth the short time it will take you.  APPA essentially exposes PJM’s capacity auction as a fraud.

Now, here’s the PJM spin from Friday’s press release.  Here’s the first paragraph:

With an unprecedented amount of electric generation retiring within the next three years, PJM Interconnection’s capacity market secured record amounts of new generation, demand resources and energy efficiency to keep the grid reliable.

Note the “unprecedented” and “record amounts” statements.  As APPA points out in its critique, PJM always talks about new generation and demand resources in terms relative to past amounts of these resources, not to the overall amount of capacity traded.  Amounts of these resources set records every year because they are actively suppressed by PJM in previous years, so it is easy to set records relative to those years.  Sales of demand resources can quadruple (which they have over the last five years), but can still make up only a tiny amount of generation resources transacted.

PJM buries the amount of new generation sold in this year’s auction in the middle of the second paragraph.  Odd when you consider this is PJM’s main claim for the RPM market.  But when you compare this year’s sales to overall capacity traded, you can see why.  Here is the buried figure (note the “record amount” again):

The RPM auction procured a record amount of new generation in one year, 4,900 megawatts (MW).

But what was the total transacted in the auction?  Oh yeah, 164,561 MW.  So this year’s RPM auction resulted in new generation that made up less than 3 percent of total capacity traded.  And this was in a year with “an unprecedented amount of electric generation retiring within the next three years.”

The press release also quotes a PJM VP as saying:

PJM is effectively, efficiently and reliably handling a massive shift in generation from coal to natural gas…

And goes on to claim

The RPM auction is addressing, in a quick and orderly manner, what could have been a prolonged and uncertain process to identify replacement resources. Simply put, RPM was put to the test and performed well.

In fact, PJM has actively fought new gas fired generation for years, beginning with the TrAIL cases in WV and East VA, in which PJM pushed Project Mountaineer power line TrAIL, undercutting the development of an independent gas-fired plant in Warrenton, VA.  The plant’s developers were forced to sell to Dominion Energy, which has finally brought the plant into development many years late.  PJM has also sued the NJ Board of Public Utilities for creating a plan to develop needed gas-fired generation in NJ.  PJM and FERC actually changed their rules to prevent one of the NJ projects from bidding in this year’s RPM auction.  FERC and PJM have clearly demonstrated their willingness to game the RPM auction process.

PJM’s favorite spin word is “transparent” as they try to paint their complicated and opaque bureaucracy as open and, well, transparent.  Sure enough, the spinmeisters worked it into this press release.

If PJM had a truly transparent and effective process, they wouldn’t have to spin so hard.  But then again, their press releases wouldn’t be so entertaining.

So what happened at the auction?  Here’s what PJM said:

This year, the auction procured 164,561 MW of capacity resources at a base price of $136 per MW. A megawatt is enough electricity to power 800 to 1,000 homes. PJM’s all-time peak demand is 158,448 MW. Prices were higher in northern Ohio and the Mid-Atlantic region.

How much higher were prices in the Mid-Atlantic region?

The price of capacity in much of the Mid-Atlantic area will be $167 per megawatt.

That is only $31 more than the PJM overall base price.  This if far below the differences in RPM prices that PJM cited as a need for PATH.  What does PJM say caused this shift?

In addition to new generation, most of it natural gas-fired, the capacity auction also procured 14,833 MW of demand response, a 5 percent increase over last year, and energy efficiency, a 12 percent increase. The amount of demand response was also a record for PJM, as well as for renewable generation. Solar increased to 56 MW of solar — a 22 percent increase over last year – and wind increased to 796 MW – a 15 percent increase.

Because all of these sources of capacity are far less polluting than coal, most of them are located in Mid-Atlantic states, a trend that is accelerating.  Its a good thing that PJM, FE and AEP did not railroad state regulators into approving PATH.  All rate payers in PJM would have been stuck with a very expensive white elephant.

Speaking of FE, here is the auction result for the ATSI region of PJM, the northern region of Ohio and the heart of FE’s business:

In northern Ohio served by FirstEnergy, the price will be $357 per megawatt.

This is a classic example of gaming the RPM system.  FE announced a lot of coal plant closures early, instead of whining like AEP’s “chiefs” have been.  These plant closures, which FE said would be accomplished before 2015-16, the period of this year’s RPM auctions, resulted in a severe decline in generating capacity in FE’s home region.  This will make it more likely for FE to appeal to PJM to keep these plants open to insure reliability, called Reliability Must Run, or RMR, in PJM jargon.  Or, as the last paragraph of the press release describes it:

Although the RPM auction procured sufficient resources to meet the projected demand, some generating units may need to remain available beyond their proposed retirement dates until transmission upgrades are completed. These units would be operated under “reliability must run” agreements.

FE’s gaming of the RPM market in 2015-16 artificially drove up prices in the ATSI zone, insuring at least some of its plants slated for closure will get RMR status from PJM and can remain open.

As Keryn points out, FE beat AEP like a rented mule in the plant closure game.

The high ATSI zone prices also completely undercut the PATH argument that capacity prices in eastern PJM are higher than prices in western PJM.  The press release also notes, as we have in recent posts on The Power Line, that the FE plant closures have completely altered the transmission picture in PJM away from Project Mountaineer and unnecessary boondoggles such as PATH.

WV politicians have claimed that “the recession” caused Century to leave the state.  Now we are beginning to see the situation a little differently.  On Friday, we learned from George Hohmann in the Charleston Daily Mail that Century wants AEP rate payers and WV tax payers to provide the company “comfort” about the profitability of their Ravenswood plant.  In an editorial on Friday, the Daily Mail editorial board appropriately called the Legislature’s giveaways and Century’s rate payer fleecing “corporate welfare backed by rate payers” and subtitled the editorial “Other power customers should not be backstopping Century Aluminum.”

In the last Legislative session, the Legislature gave away $20 million of the coal severance tax revenue to “comfort” Century.  The Legislature also offered “incentives,” in the form of tax credits, to coal companies to participate in the program to cut AEP’s fuel costs for Century’s electric bill.  And now, according to Hohmann’s story, Century wants AEP rate payers to guarantee Century’s profit by lowering Century’s electric rates if the price of aluminum falls below $2000 per metric ton.  And where will that money come from to pay Century’s electric bill?  Other rate payers, of course.  Someone has to pay for that electricity.

Consumer Advocate Byron Harris has done the math.  He has looked at futures prices for aluminum and concluded that Century wants the PSC to lock AEP rate payers into rate subsidies, because the price of aluminum will probably not reach $2000 per metric ton for many years.

Last week, we also learned that Century is a chronic deadbeat.  Back in 2006, Century asked the PSC for special favors to pay its electric bill.  As it turns out, Century couldn’t even meet the terms of that special treatment.  The company now owes AEP $22.7 million from that past scheme.  And, of course, AEP has the Legislature’s new bailout bond scheme ready to dump this cost on WV rate payers.  Century’s bad debt from 2006 is one big reason why AEP wants much more from the bond scheme than they told the Legislature back in March.  And AEP’s lobbyist assured the legislators that the bond bailout would not cause rates to rise.  Forgive me, but “chump” is the only word I have that fits the legislators’ actions.

The WV Energy Users Group, the group of large industrial and commercial users who regularly push for special treatment on their electric rates at the PSC, is also worried that a lot of Century’s electric bill will get pushed off onto them.  George Hohmann wrote another excellent story on this situation last week.  So the Legislature’s special favors and PSC special rate deals have the potential to increase costs not only for taxpayers and residential rate payers, but they will raise costs for many of the other large businesses that provide jobs and tax revenue for the state.

Yesterday, Keryn posted a comment on my earlier Century/AEP post.  Here is what she said:

Why is no one examining the real problem here… the cost of APCO’s electricity? Perhaps if they weren’t reliant on increasingly expensive coal for most of their generation, businesses could afford to operate at a profit in WV without subsidies from ratepayers and taxpayers. It happens in other states, and even within WV, plenty of businesses operate without subsidies.

So where does all this Rube Goldberg financing and rate payer rip off leave us?  Is the problem really “the recession” or “falling demand”?  Or is it something more fundamental about WV’s electrical system?  After all, Century’s big problem is electric rates.  And what have WV’s electric rates been doing in the last ten years?  Rising rapidly.  And why have those rates been rising rapidly?  Almost entirely from the rapidly rising price of steam coal.  And where does 98% of WV’s electricity come from? Coal.

It could very well be that WV’s over-dependence on coal as a source of electricity has created an ossified and inflexible power system that is now locked in to rising electric rates for the foreseeable future.  Along with the myth that WV has the lowest electric rates in the US (It doesn’t, WV now ranks 11th lowest in the US), the myth that WV’s low power costs generate industrial jobs may also be gone up in smoke.

So far, WV political leaders have responded by transferring the costs of out of state corporations onto the backs of people who actually live in WV.  This is a recipe for disaster.  WV ‘s dependence on coal for electricity hurts our state in two ways: (1) it has locked us into a constantly rising cost spiral, and (2) it prevents diversification of our power sources, which itself can become a driver of innovation and economic growth.

In 2009, the WV Legislature and Gov. Manchin passed the WV Renewable and Alternative Portfolio Standard law to sabotage the development of solar power in WV.  The results are clear.  Here is the map from the PJM press release.  Look at NJ, where incentives are strong and PV installation has been exploding.  Compare NJ’s results with WV.  In fact, compare WV with just about any other state in PJM.  Pathetic.

If you are fighting PATH, you should thank our friends in NJ, because they are taking responsibility for their own power generation, insuring that coal by wire transmission lines like PATH can never be built.

The Gazette’s Paul Nyden provided more information in a story three days ago.

Susan Small, a spokeswoman for the PSC, released the agency’s statement Friday afternoon.

“The Public Service Commission today received a filing from Century Aluminum which indicates that Century and Appalachian Power Company could not agree on an acceptable special rate for electric service to Century.

“Under recently-passed legislation [by the state Legislature], the parties must attempt to reach an agreement or, if no agreement could be reached, the industrial customer could file a complaint with the commission.

“The failure to reach an agreement leaves the commission with the obligation to determine whether or what type of rate recovery is appropriate.

“The PSC was disappointed that the parties could not reach an agreement regarding the terms and conditions of a special rate in order to reopen the Century Aluminum plant,” the PSC stated.

And, of course, when the dust settles, and AEP has extorted West Virginia some more, residential rate payers, particularly AEP customers, will end up subsidizing AEP’s coal and Century Aluminum’s electric bill.

Update:  More bad news for AEP residential customers in today’s Charleston Daily Mail.

To restart and operate the plant, Century would get an annual $20 million-a-year discount on electricity through tax credits approved by the Legislature, a proposed $2.7 million annual subsidy from the Appalachian Power’s shareholders, and would use some of its own money. But if all of those sources still don’t add up to a break-even figure, Century wants the Public Service Commission to impose a surcharge on residential customers. Those customers presumably could get their money back when the price of aluminum is high.

In testimony submitted Friday with the rate request, John Hoerner, Century’s vice president of North American Operations, estimated the average residential bill for Appalachian Power customers is $113 a month. He said a $1 million surcharge would increase the average residential bill by about 11 cents a month.

What isn’t spelled out clearly in the public portion of Friday’s filing is how large the surcharge could be. There is some speculation that it could be as high as $100 million in 2013, the first full year. That would increase a residential bill by $11 a month, pushing an average bill from $113 to $124 – an increase of almost 10 percent.

So on top of the bond interest for AEP’s big coal bailout, AEP’s WV customers will face a 10% rate increase to pay for Century Aluminum’s electricity.  The big out of state corporations are making lots of money, and West Virginians are paying the bills.

Here is a link to the complaint.  While you read the complaint, keep this definition in mind: cartel -2 : a combination of independent commercial or industrial enterprises designed to limit competition or fix prices — from Merriam-Webster Online Dictionary.

Here is my description of PJM from June 2009.  The situation isn’t getting any better, is it?

This is an important date for people following the PATH zombie.  Remember when PATH tried the unsuccessful “60 days after whenever” game on the National Park Service?  Here’s what they told the NPS:

As indicated by the PJM Staff report, additional analysis will be undertaken after completion of the May 2012 forward capacity auction results. The time required by PJM Staff to perform such analysis thereafter is not yet known. [emphasis added]

The NPS didn’t buy that line, and cut off the PATH EIS process for good.  But then we got this statement from PJM’s Steve Herling in early March, as reported by the State Journal’s Pam Kasey:

PJM will make a recommendation about PATH to its board of managers in June or July. It will make its recommendation based on information gleaned in the first part of the year about planned generation construction and retirements and about consumer commitments to reduce demand during peak periods.

Note that Herling says that PJM will make its final decision on PATH’s fate in “June or July,” in other words, after the May capacity auction results are released.

Remember that one of PJM’s original arguments for PATH was that capacity prices in eastern PJM were much higher than prices in western PJM.  They didn’t say it out loud, but this was the real reason for Project Mountaineer and PATH — to increase the profits of power generators in western PJM and also to raise electric rates in Michigan, Illinois, Indiana, Ohio and West Virginia by sending more of their power to East Coast states.

In the years since PATH was proposed in 2006, the capacity auction price difference has been reduced dramatically, mainly because of the rapid expansion of demand resources (from marketable demand management) on PJM and expanding generation on the East Coast.

If that trend continues at this year’s auction, it is quite likely that PJM will pull the plug on PATH, at least that is the latest Kremlinology hint from PJM headquarters at Valley Forge.  We’ll be looking for the PJM press release on this years auction results.

I am going to quote a couple of pages in their entirety, plus one footnote, because this says it all:

“A billion here and a billion there and pretty soon you are talking about real money.” This quote, never verified but generally attributed to the late Everett Dirksen, Senator from Illinois, is particularly applicable to this case where the Commission, for the second time, hasruled in favor of an allocation mechanism that would assign $1 billion to Commonwealth Edison Company (“ComEd”) in Illinois and more than $1 billion to the utilities operating in Ohio as their contribution to $6.6 billion in new 500 kV transmission facilities, all of which have been constructed or are planned for construction to solve reliability problems of other utilities operating hundreds of miles to the east.  The costs currently at issue are expected to continue rising as more eastern projects and costs get added year by year.  There are no comparable reliability problems in Illinois or Ohio, where the transmission system is already strong and reliable and economic and population growth has been slower. There are no planned large new reliability projects in Illinois or Ohio where costs would be allocated to the eastern states.

When evidentiary submissions were made in this proceeding in May and June 2010, the amount at issue for Dayton Power was approximately $162.6 million. With an updated allocator as used in the Order on Remand, the amount is approximately $147 million, or about $28.1 million if converted to an annual charge.  Dayton Power‘s current transmission revenue requirement is $40.1 million annually.6 So, this order would increase Dayton Power‘s annual transmission revenue requirement by 70%. To Dayton Power and its customers, that‘s “real money.”

The record evidence does not support a finding that Dayton Power receives any benefit from the new transmission facilities that create these costs, much less annual benefits as required by the Seventh Circuit that “are roughly commensurate” to $28 million in annual costs. Dayton Power respectfully offers the following simplistic yet accurate description of the $6.6 billion in constructed and planned transmission facilities: They are too far away from us to help us.  Under almost any planning scenario, most of them don‘t even have a measurable effect on the flows on our system.

For the reasons explained in detail herein, the Order on Remand: 1) violates the mandate of the Seventh Circuit; 2) violates due process under the 5th and 14th Amendments to the Constitution and the Administrative Procedures Act; 3) is arbitrary and capricious and not supported by substantial evidence in the record; and 4) is unjust, unreasonable, and unduly discriminatory and preferential in violation of the Federal Power Act in subsidizing those who are direct beneficiaries of new high voltage transmission facilities by allocating literally billions of dollars in costs of those facilities to entities who receive little or no benefits from those facilities and actually face increased costs of energy as the result of those facilities.

The costs currently at issue here are $6.6 billion in new high-voltage transmission lines operating at 500 kilo-volts (“kV”) or above, that have been identified in PJM‘s Regional Transmission Expansion Plans (“RTEP”) as necessary to resolve reliability problems in the eastern portion of PJM.  Even the two lines planned to traverse parts of West Virginia (one inservice now, the other delayed) were designed to resolve eastern reliability problems by increasing west-to-east power flows across a constrained interface.  The Order on Remand allocates 100% of the costs at issue based on “load ratio share,” which is computed using the customer load within a utility zone during the five hours in the preceding year when usage across PJM were at their peaks.

The Order on Remand errs in failing to give any weight at all to the actual cause of the costs to be incurred—to resolve these specific reliability problems that have been identified to exist in zones of utilities located in the eastern portion of PJM. A system-wide allocation based on load ratio share is purportedly justified by generalized assertions of system-wide benefits that are assumed to exist or based on speculation about future possibilities and extra-record evidence that is often unreliable and misused. The Order on Remand allocates 100% of the costs based only on this load ratio share allocator and does not answer a fundamental question: Why is it appropriate to allocate zero costs based on the specific reliability benefits that are provided to those entities with identified reliability needs?

The Order on Remand also errs in failing to give any weight at all to the benefits that eastern utilities will receive in the form of lower energy prices and, conversely, the detriment of higher energy prices that Midwestern utilities will face. This is the natural result of building transmission lines that are explicitly planned to increase solve eastern reliability problems by increasing the transfer capability of the existing system to move Midwestern power, which is lower priced, to eastern markets that have been growing faster and have higher priced alternatives. As more and more of this lower cost power flows from the west to eastern markets, it decreases prices there, and the loss from Midwestern markets increases prices in the Midwest.

These are not merely allegations of parties on one side of an issue. There is hard data quantifying these benefits and detriments that was originally computed by PJM and compiled and submitted into evidence by Dayton Power.9 But equally significant is that the parties on the other side of the cost allocation issue, and PJM, and this Commission have consistently acknowledged lower Locational Marginal Prices (“LMPs”) in these eastern utilities‘ zones as a benefit for the project in the context of reviewing PJM RTEP filings or incentive rates applications filed by the utilities constructing the projects. It would be arbitrary and capricious to acknowledge the existence of these LMP benefits in all cases except in the one case where the Commission has been specifically directed to ensure that the allocation of costs is roughly commensurate with benefits received.

Dayton Power also respectfully submits that it is unconscionable to allocate $6.6 billion in costs based on load ratio share, an allocator that is both overly-simplistic and completely disconnected from cost causation principles as applied to the costs of these new transmission facilities. The load ratio share is computed using only five hours of PJM peak loads in a 12-month period preceding the year of allocation and the amount of load served within a Zone during those five hours. It does not take into consideration why the project is built, who is contributing to the reliability violation being rectified, or even who will be using the new transmission facility. It does not look at any differences in seasonal flows, hourly changes in flow direction, or any other types of changes (other than peak load) that can occur within a yearor from year to year. If, contrary to all the record evidence, there were some future shift in flow patterns such that flows go east to west, it would not take that into consideration either.  It is not a flow based allocator. It does not take into consideration any use of the new facility today or tomorrow or any point in time in the future. Its only consideration is how much peak load exists within a utility zone during five hours in the prior year.

To correct these deficiencies, the Commission on rehearing must: 1) review the record evidence in conformance to the mandate of the Seventh Circuit and apply the “beneficiary pays” principle such that the costs imposed on each utility for these new transmission lines for each utility is roughly commensurate with the benefits it receives; 2) eliminate the reliance on extra record, post-hearing documents and statements therein; 3) find that socialization of the costs of high voltage transmission facilities based on load-ratio share is unjust and unreasonable and not supported by substantial evidence; and 4) find that allocating such costs based on a distribution factor analysis (“DFAX”) method is just and reasonable, is supported by substantial evidence in the record, and complies with the Seventh Circuit‘s mandate.

I stripped all the footnotes out of the quoted section.  Here is the footnote that explains the designation of eastern and western PJM:

For purposes of this rehearing request, “eastern portions of PJM” will mean that portion of PJM that includes what used to be  referred to as the Mid-Atlantic Area Control Zone plus Virginia. Thus, “eastern portions of PJM” as used herein includes all of New Jersey, Delaware, eastern Pennsylvania, Maryland and the District of Columbia plus Virginia. The “eastern utilities” within those areas are Atlantic City Electric Company, Baltimore Gas and Electric Company, Delmarva Power and Light  Company, Jersey Central Power and Light Company, Metropolitan Edison Company, PECO Energy Company, Pennsylvania Electric Company, PPL Electric Utilities Corporation, Potomac Electric Power Company, Public Service Electric and Gas Company and Rockland Electric Company, plus Dominion Resources, Inc. in Virginia. “Midwestern” or “Midwestern utilities” means utilities and their transmission systems within PJM that are operating in Ohio (Dayton Power, First Energy‘s Ohio subsidiaries, Duke Energy Ohio, and American Electric Power Company‘s Ohio subsidiaries) and the utilities who are PJM members operating in portions of Illinois, Indiana, Michigan, and Kentucky. There are also PJM members located in western Pennsylvania and West Virginia. While not included herein as “Midwestern utilities,” the economic consequences for those utilities are similar, i.e., they would be paying for a portion of the new high voltage transmission lines based on the size of their load but do not have a reliability need for the lines and make little or no contributions to the constraints that caused the new facilities to be constructed.

The Dayton Power & Light lawyers make an excellent point about PJM’s failed computer models used to establish need for new projects.  PJM begins its whole RTEP modeling by setting power flows at the level of the five peak hours from the previous year.  That is the sole basis for establishing need.  As the DPL lawyers point out, this is crazy, because it doesn’t include a whole range of other elements that should be used in transmission planning.

We have made all of these arguments at one time or another over the last four years.  Now you have them all in one place.

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.

The petition gives a good simple summary of the history of the case, including the 2009 ruling of the US 7th Circuit Court of Appeals’ rejection of FERC’s “postage stamp” rate plan.  The postage stamp jargon refers to charging rate payer in a regional transmission organization, in this case PJM Interconnection, the same amount of money to pay for big new transmission projects.

The ICC filed this petition at FERC as the first step in fighting FERC’s plan to ignore the 7th Circuit ruling.  The 7th Circuit remanded the issue to FERC in 2009 to clean up its act.  Instead of rewriting its policies to conform with federal law, FERC held a sham “paper hearing” and concluded that its cost recovery process was just hunky dory.

The ICC along with IL utility Commonwealth Edison, filed their original case in federal court because they received no benefit from PJM’s Project Mountaineer power lines, yet their rate payers were being forced to cough up hundreds of millions of dollars in “postage stamps” to pay for them.

The ICC’s petition contains clearly laid out arguments that readers of The Power Line have been hearing for years.  The ICC demonstrates that these are clear violations of long established federal law that only entities that benefit from electrical projects can be forced to pay for them.  Period.

The ICC makes a number of important points, among them:

• PJM’s RTEP plans (and this is obvious to anyone who has read through them) state in specific detail where “reliability violations” occur.  They specify the exact locations of those violations.  Then the RTEP proposes transmission projects to eliminate those violations.  So it is a simple matter to identify exactly which rate payers will benefit from which transmission projects.  It is easy to identify which rate payers should pay for which projects, because PJM’s own RTEP shows us.
• FERC, in its sham order, stated the exact numbers of miles from transmission improvements that are affected by those improvements.  ICC points out that its rate payers in IL are far beyond those distances according to FERC’s own designations.
• ICC states that there are two types of entities that benefit from new high voltage transmission:  the generators whose power can now reach more consumers, as well as the consumers whose problems are eliminated.  Thus, FERCs postage stamps, which are paid for only by consumers give generators (like First Energy and AEP, who benefit from Project Mountaineer) a free ride.
• FERC tried to do a snow job on the ICC by claiming that IL needs PATH and TrAIL so that IL wind farms can sell their power into NJ and MD.  The ICC didn’t take the bait.  In fact, ICC pointed to exactly the point we have made for years.  The existence of wind farms near IL consumers brings them lower rates.  If that power is then exported to high priced markets hundreds of miles away, IL rates will rise.  IL consumers will thus bear the double burden of exporting power and the postage stamps that pay for the lines that export that power.

If you want a good quick summary of the arguments that may doom the Cheney/Obama/Wellinghoff plan to force unreliable long distance transmission lines on us, the ICC petition is a good place to get it.